Global de­mand gives do­mes­tic firms a lift

Shanghai Daily - - BUSINESS - Song Yingge

When en­gi­neer­ing grad­u­ate Chen Liang joined an el­e­va­tor com­pany nearly 30 years ago, “an el­e­va­tor was worth al­most two apart­ments in Xu­ji­ahui.”

To­day, peo­ple have to pay nearly 10 mil­lion yuan (US$1.56 mil­lion) for an apart­ment there while “an el­e­va­tor sells only around 150,000 yuan,” he said.

That’s not be­cause the el­e­va­tor mar­ket has re­treated in China, which ac­counts for around 60 per­cent of the world’s el­e­va­tor de­mand, along with a great ex­port mar­ket.

“With global el­e­va­tor sell­ers rush­ing into this coun­try, China has be­come the most com­pet­i­tive mar­ket ask­ing for the cheap­est price and the high­est qual­ity,” said Chen, a man­ager with Ger­man in­dus­trial group thyssenkrupp.

World­wide, el­e­va­tor de­mand is grow­ing be­tween 5 and 7 per­cent an­nu­ally. But in China, sales of el­e­va­tors surged around 20 per­cent a year on av­er­age be­tween 2002 and 2015, driv­ing all the global gi­ants such as Otis, Schindler, thyssenkrupp, Kone, Mit­subishi and Toshiba to the coun­try, ac­cord­ing to a re­port by chyxx.com, a do­mes­tic in­dus­trial con­sul­tancy.

El­e­va­tor prices in west­ern coun­tries can be “sev­eral-fold higher than those in China,” Chen said. “Partly be­cause they have to pay higher lo­gis­tics costs as most of the world’s el­e­va­tors nowa­days are pro­duced in China and the com­pe­ti­tion in these coun­tries is not so fu­ri­ous as in China.”

Over the past 40 years, China has be­come the world’s largest el­e­va­tor pro­ducer and con­sumer, af­ter hav­ing only eight state-owned pro­duc­ers sup­ply­ing the do­mes­tic mar­ket in 1978.

While the world needs around 900,000 units of el­e­va­tors ev­ery year, “nowa­days China can al­most meet the whole de­mand,” said An­son Yang, mar­ket­ing di­rec­tor for el­e­va­tor busi­ness in China at thyssenkrupp.

China pro­duces at least 500,000 units of new el­e­va­tors ev­ery year, said Li Shoulin, pres­i­dent of the China El­e­va­tor As­so­ci­a­tion, at a con­fer­ence. “But they have in­ven­to­ries to sell, which al­to­gether make the coun­try alone able to sup­ply the whole world.”

El­e­va­tors, said Chen, has shifted from luxury goods into com­mon goods on the back of the China mar­ket’s rise.

“That to some ex­tent re­sem­bles the progress of the car mar­ket,” he said. “Bol­stered by rapid growth in both de­mand and pro­duc­tion over the past decades, China has helped the world en­joy lower prices of el­e­va­tors by sev­eral rounds of up­grad­ing in tech­nol­ogy and man­age­ment mod­els.”

In 1978, only around 17.9 per­cent of China’s ci­ti­zens lived in cities. By the end of last year, how­ever, that had risen to over 58 per­cent, ac­cord­ing to the Na­tional Bureau of Sta­tis­tics.

El­e­va­tors are closely linked with ur­ban­iza­tion, with city ex­pan­sion bring­ing more high build­ings with el­e­va­tors.

Bol­ster­ing the fact that the el­e­va­tor mar­ket in China grew around 20 per­cent an­nu­ally be­tween 2002 and 2015 was that in­vest­ment in China’s real estate in­dus­try soared over 20 per­cent be­tween 2001 and 2012, ac­cord­ing to a re­port by Bei­jing-based Zhiyan Con­sult­ing group.

Chen’s em­ployer, thyssenkrupp, opened a plant in Shang­hai’s Songjiang District in 1999. “At that time we set our ca­pac­ity as 500 units of el­e­va­tors per year, as we thought that would be enough to sup­ply the Chi­nese mar­ket for years,” he said.

Now the pro­duc­tion site has grown into the com­pany’s head­quar­ters for the Chi­nese mar­ket, with to­tal ca­pac­ity be­ing “sev­eral-folds higher from the ori­gin.”

More ca­pac­ity, fast speed

Mean­while the com­pany has sped up pro­duc­tion and is able to com­plete an or­der in two weeks com­pared to the av­er­age of three months at the be­gin­ning.

“We have to adapt to the Chi­nese mar­ket, which asks the fastest de­liv­ery time while a lot of changes could hap­pen in the cus­tomers’ re­quest,” Chen said.

“Yet you have no choice, be­cause all the global com­peti­tors are here, fight­ing for cus­tomers and profit by up­grad­ing tech­nolo­gies and speed­ing up pro­duc­tion.”

China’s el­e­va­tor mar­ket be­gan to change around 1980 when the sta­te­owned pro­duc­ers start launch­ing joint-ven­tures with over­seas pro­duc­ers. Swiss-based Schindler came to China first, fol­lowed by US-based Otis and Ja­pan’s Mit­subishi.

Al­though start­ing late, China has up­graded tech­nolo­gies to world stan­dards by work­ing with the global lead­ers, Chen said.

“When a for­eign com­pany starts a plant in China, it nor­mally will equip the plant with state-of-the-art tech­nolo­gies,” he said.

“That not only ben­e­fits the com­pany it­self, but pushes lo­cal pro­duc­ers to up­grade tech­nolo­gies.”

By the end of 2015, China had around 700 el­e­va­tor mak­ers, along­side 200 com­po­nent mak­ers and 10,000 main­te­nance com­pa­nies, ac­cord­ing to the China El­e­va­tor As­so­ci­a­tion.

Al­though the do­mes­tic com­pa­nies are still trail­ing the global gi­ants in tech­nol­ogy de­vel­op­ment and only ac­count for around 30 per­cent of mar­ket share in China, they have pushed the mar­ket to be more com­pet­i­tive, bring­ing down costs and mak­ing el­e­va­tors cheaper, a re­port by Zhiyan said.

China’s el­e­va­tor sales growth dipped in 2015 when in­vest­ment in real estate dropped, trig­ger­ing fears that the hey­day of China’s el­e­va­tor mar­ket was over ended, Bloomberg once re­ported by quot­ing Otis’s chief ex­ec­u­tive of­fi­cer.

But look­ing ahead, “we also see the up­grad­ing in Chi­nese con­sumer’s pref­er­ence, which will fur­ther bol­ster the mar­ket’s growth,” said Pa­trick Xu, pre­vi­ously No­mura’s in­dus­trial an­a­lyst.

“Con­sumers are be­com­ing pick­ier, such as ask­ing for more per­sonal space,” he said. “So nowa­days a build­ing may in­stall more than one el­e­va­tor, which helps sep­a­rate sev­eral com­pa­nies on dif­fer­ent floors — thus the num­ber of el­e­va­tors we buy may not nec­es­sar­ily fol­low the growth of real estate.”

Mean­while as el­e­va­tors be­come “old” af­ter around 10 years’ ser­vice, the num­ber of el­e­va­tors to be re­placed or re­paired will dou­ble the num­ber in 2014, Zhiyan’s re­port said.

“That will be­come an­other as­pect of the fast grow­ing mar­ket in China in the com­ing fu­ture, ex­tend­ing from merely in­stal­la­tion growth,” it said.

Source: Zhiyan Con­sult­ing group

Ger­man el­e­va­tor maker thyssenkrupp’s TWIN el­e­va­tors have two cabs travel in­de­pen­dently to save time and en­ergy. Global el­e­va­tor com­pa­nies have been rush­ing into China since it opened to the world 40 years ago, mak­ing it the most com­pet­i­tive mar­ket. — Ti Gong

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