Plug­ging into the Euro­pean mar­ket

White goods man­u­fac­turer has grad­u­ally in­creased its pres­ence and won cus­tomers for its prod­ucts

China Daily European Weekly - - FRONT PAGE - By CECILY LIU cecily.liu@mail.chi­nadai­

In­side the Chinese white goods maker Changhong’s spa­cious and highly au­to­mated fac­tory in Nym­burk, a city 45 km east of Prague, around 300 lo­cal work­ers are busy as­sem­bling TV sets. These will then be shipped to coun­tries in­clud­ing Ger­many, France, Spain, Italy and Switzer­land.

The fac­tory, which opened in 2007, was the com­pany’s first step into Europe. Changhong now makes 1 mil­lion TVs at the fac­tory. Over the past decade, Changhong has worked hard to gain the ac­cep­tance of Euro­pean cus­tomers, which was not an easy task — es­pe­cially as “Made in China” to some Euro­pean cus­tomers still means cheap prod­ucts.

“To change this brand­ing per­cep­tion, we stress to our cus­tomers that our prod­ucts are ‘made in the EU and ser­viced in the EU’,” says Huang Dawen, deputy gen­eral man­ager of Changhong.

To sup­ply com­pet­i­tive cus­tomer ser­vice, Changhong fo­cuses on pro­vid­ing fast re­sponses and ef­fi­cient so­lu­tions at its cus­tomer ser­vice cen­ter in Prague — “so that our cus­tomers can re­ally see us as a lo­cal brand”, says Huang.

In 2007 when Changhong started pro­duc­tion in the Czech Repub­lic, it made only 100,000 TVs a year, al­most all of them for Euro­pean brands. To­day, the num­ber of such or­ders has fallen to just over half of Changhong’s en­tire pro­duc­tion of 1 mil­lion sets.

Sichuan Changhong Elec­tric Co was founded in Mianyang, in China’s Sichuan prov­ince, in 1958 as a Sta­te­owned maker of white goods such as tele­vi­sions, air con­di­tion­ers, re­frig­er­a­tors and other home ap­pli­ances.

Over the years it has grown sig­nif­i­cantly, with rev­enue reach­ing 67.18 bil­lion yuan ($10.46 bil­lion; 8.57 bil­lion eu­ros; £7.56 bil­lion) in 2016, and em­ployee numbers to­tal­ing around 70,000.

Changhong has es­tab­lished 14 overseas sub­sidiaries and three overseas re­search and de­vel­op­ment cen­ters. It em­ploys 2,000 overseas work­ers, of whom 80 per­cent are lo­cally hired. Its prod­ucts reach more than 120 coun­tries and re­gions.

In 1994, Changhong was listed on the Shanghai Stock Ex­change. In 2015, it was ranked by the New York­based World Brand Lab­o­ra­tory as one of the World’s Top 500 Brands.

Changhong first started think­ing of ex­pand­ing overseas in 1988. “At the time, we re­al­ized that China’s do­mes­tic white goods mar­ket was reach­ing sat­u­ra­tion. We re­al­ized there was still lots of mar­ket ca­pac­ity overseas, and the low man­u­fac­tur­ing costs of China gave us an ad­van­tage,” Huang says.

Changhong’s strat­egy was shared by many other Chinese white goods brands, which all ven­tured overseas around the same time, in­clud­ing Haier and TCL. Haier es­tab­lished a US sub­sidiary in 1999, fo­cus­ing on sell­ing cheap and small re­frig­er­a­tors to stu­dents. TCL, on the other hand, de­cided to ex­pand through ac­qui­si­tion, buy­ing Ger­many’s Sch­nei­der Elec­tron­ics AG in 2002 and France’s Thom­son TV busi­ness in 2003.

Changhong made its first overseas steps by set­ting up a tele­vi­sion fac­tory in In­done­sia in 2000. “We de­cided to be­gin in­ter­na­tion­al­iza­tion in a mar­ket close to home, where ex­port trans­porta­tion costs are lower and the con­sumer habits are sim­i­lar to those of Chinese con­sumers,” Huang says.

By 2001, Changhong cel­e­brated its mile­stone of achiev­ing rev­enue ex­ceed­ing $100 mil­lion in In­done­sia. In 2002, it es­tab­lished an ad­di­tional assem­bly plant for air con­di­tion­ers in In­done­sia.

Af­ter these suc­cess­ful ex­pe­ri­ences, Changhong started ex­pan­sion into Europe by set­ting up its sub­sidiary Changhong Europe Elec­tric in the Czech Repub­lic in 2005. It bought 110,000 square me­ters of land in Nym­burk and in 2006 built a tele­vi­sion fac­tory.

One sig­nif­i­cant factor prompt­ing Changhong to es­tab­lish its Euro­pean fac­tory was the high tax the Euro­pean Union im­posed on imports.

Be­fore 2000, EU anti-dump­ing rules im­posed tar­iffs of about 40 per­cent on im­ported TVs, which would cut away most of Changhong’s profit mar­gin. The EU later moved to a sys­tem of quo­tas on TV imports, amount­ing to be­tween 20 mil­lion and 30 mil­lion tele­vi­sion sets from around the world, of which about 400,000 were al­lo­cated to China. But this quota was still too small com­pared to Changhong’s am­bi­tions in the EU.

To avoid these tar­iffs and quo­tas, Changhong es­tab­lished its Nym­burk fac­tory. “We chose the Czech Repub­lic be­cause its cen­tral lo­ca­tion is con­ve­nient when trans­port­ing prod­ucts to other Euro­pean mar­kets. We also felt that the Czech Repub­lic has a highly skilled man­u­fac­tur­ing work­force, and the la­bor costs there are quite rea­son­able,” Huang says.

While ca­pac­ity was build­ing up at its Nym­burk tele­vi­sion fac­tory, Changhong also fo­cused on in­creas­ing sales of its re­frig­er­a­tors and com­pres­sors in Europe.

It cur­rently sells around 2 mil­lion re­frig­er­a­tors in Europe, most of which are made for in­ter­na­tional brands. These re­frig­er­a­tors are man­u­fac­tured in China and sold in Europe through the in­ter­na­tional brands’ own chan­nels.

“Un­like tele­vi­sions, re­frig­er­a­tor ex­ports to Europe are not sub­ject to high tax. There­fore we de­cided to con­tinue to man­u­fac­ture the re­frig­er­a­tors in China,” Huang says.

In its next phase of ex­pan­sion, Changhong will look to ex­port its own branded re­frig­er­a­tors to Europe, once they reach cut­ting-edge qual­ity, Huang says. To achieve this goal, Changhong will fo­cus on re­search and de­vel­op­ment to cre­ate well de­signed, highly ef­fi­cient re­frig­er­a­tors.

Changhong’s com­pres­sor busi­ness in Europe was largely built up through an ac­qui­si­tion it made in 2012 of the Barcelona-based com­pany Cu­bigel.

The com­pres­sor is the most im­por­tant com­po­nent of a re­frig­er­a­tor, help­ing to cre­ate and main­tain the de­sired tem­per­a­ture. The com­pres­sors that Changhong makes in Europe are mostly sold to Euro­pean re­frig­er­a­tor mak­ers, such as Ger­many’s Bosch.

“We’d been look­ing for Euro­pean com­pres­sor ac­qui­si­tion tar­gets for a few years be­fore we came across Cu­bigel through a lucky co­in­ci­dence. At the time, Cu­bigel was en­ter­ing into ad­min­is­tra­tion, so Changhong made the ac­qui­si­tion at a fa­vor­able cost,” says Huang.

Changhong bought Cu­bigel for 2.6 mil­lion eu­ros (£2.29 mil­lion) but, ac­cord­ing to Changhong’s es­ti­mates, Cu­bigel’s fixed as­sets were worth around 20 mil­lion eu­ros and the com­pany’s in­tan­gi­ble as­sets had a value of around 5 mil­lion eu­ros. The term “in­tan­gi­ble as­sets” nor­mally refers to val­ues that are not phys­i­cal, such as brand aware­ness.

Af­ter the ac­qui­si­tion, Changhong stream­lined the Span­ish plant’s assem­bly pro­cesses and in­tro­duced new man­age­ment tech­niques from its China fac­tory.

For ex­am­ple, it in­tro­duced a new pol­icy to sys­tem­at­i­cally check, main­tain and re­pair the fac­tory’s ma­chines in Au­gust, a time when most Euro­pean work­ers are on hol­i­day, mean­ing the fac­tory is gen­er­ally not in op­er­a­tion.

“Due to our new pol­icy, we are able to get our ma­chines all set for fullscale pro­duc­tion in Septem­ber, when the fac­tory is in op­er­a­tion again. Cru­cially, the ma­chines’ break­down chances dur­ing busy pe­ri­ods are sig­nif­i­cantly re­duced be­cause of the main­te­nance work we’ve done,” says Huang.

Changhong co­or­di­nated with its em­ploy­ees so a small team of em­ploy­ees would re­main in the fac­tory to carry out the re­pair and main­te­nance work dur­ing Au­gust, and take their hol­i­day in Septem­ber in­stead.

“We have man­aged to keep our em­ploy­ees happy, too, be­cause un­der this ar­range­ment they can go on hol­i­day at a qui­eter pe­riod, when the cost of travel is also cheaper,” Huang added.

Cu­bigel’s pro­duc­tion ca­pac­ity grew from around 600,000 to 700,000 com­pres­sors a year in 2012 to 1.5 mil­lion in 2016. Over the same pe­riod, the num­ber of em­ploy­ees fell from 650 to around 400, re­flect­ing in­creased ef­fi­ciency.

Look­ing to the fu­ture, Huang says Changhong will fur­ther build on the solid foun­da­tion it has al­ready achieved in Europe for its tele­vi­sions, re­frig­er­a­tors and com­pres­sors.

“We will fo­cus on build­ing up strong lo­cal teams, and in­creas­ingly im­prove our prod­ucts to suit the needs of Euro­pean lo­cal cus­tomers,” says Huang.


A worker as­sem­bles a tele­vi­sion in Changhong’s Czech Repub­lic fac­tory.

Changhong’s fac­tory in the Czech Repub­lic.

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