Smart German firms spot niche markets

Updated: 2013-08-02 08:51

By He Wei (China Daily)

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Smart German firms spot niche markets

A Trumpf employee shows a machine-tooled car part to visitors at its headquarters in Ditzingen, Germany. Provided to China Daily

Despite downturn, some innovative companies are setting themselves up for a bright future in China

While the lingering economic downturn is hampering global industry, a group of small and medium-sized manufacturing companies in Germany has managed to weather the storm.

In this environment, a company needs a very good reason to make only one set of products. But, as the world's leading machine tool makers, these German producers are quietly writing their own success stories.

As small enterprises, they tend to have a stable business model, are usually family-run, operate in a low-key style, focus on one area of expertise and stay close to their market.

Known as "hidden champions", they make an important contribution to Germany's consistent position at or near the top of world industrial production.

These companies are now looking to China for new areas of growth, despite temporary market saturation there.

Trumpf GmbH Co KG, the world's largest maker of laser cutting machines, saw its sales in China grow 9.5 percent year-on-year.

Located northwest of Stuttgart, the company produces machines for laser processing, cutting and welding that are widely applied across the steel, automotive and medical sectors, among others.

Trumpf entered China in 2000, starting with a job shop in Taicang in East China's Jiangsu province, where there was optimal infrastructure with many potential customers and suppliers in place, says Nicola Leibinger-Kammller, president of the company.

It initially made typical sheet metal parts. In 2005 it added a medical technology production base at the same location.

In a market where rudimentary machine tools require constant technological upgrading, the company started to engineer change by adopting a faster, more precise and more economical production system.

For instance, it developed a welding-on-the-fly technology where the laser beam is generated far from the welding cell and can be directed to as many as six points.

The improved beam guidance helped this technology capture additional market share for car body construction. Vehicle giant Daimler AG was quick to adopt it.

Trumpf has made unusually ambitious moves in the past year despite declining economic indicators in China. The company overhauled its factory to double annual capacity and vowed to increase sales by 500 million euros ($641 million) from less than 200 million euros in 2011.

"We do see market saturation in the short run but we also expect great opportunities as Chinese industry moves up the value chain," says vice-president Peter Leibinger, younger brother of Leibinger-Kammller.

"We want steady growth that focuses on the premium market, where demand for quality is definitely rising in China," he says.

While Germany has mostly been the cornerstone of the European economy, in the eyes of many investors Europe is not as important to Germany as it used to be.

According to a survey by the Association of German Chambers of Industry and Commerce, for the first time China has become the top foreign investment destination for German companies, with $1.36 billion invested by the end of last year.

Like Trumpf, this change is also visible in Index-werke GmbH & Co, maker of production turning machines, which is pinning its hopes on China as the sole growth engine.

"We are witnessing a gloomy picture in machinery production, and even in Asian markets we fail to see exciting stimulus. The only driver has to be China," says Reiner Hammerl, Index's managing director of sales and marketing.

Index specializes in multifunctional production centers in which different process technologies can be integrated in one machine. The system means not only quality and precision are higher but, primarily, costs are reduced as a result of the shorter production times.

More than 40 percent of Index's portfolios serve the automotive industry, with the remainder for electrical engineering and fluid technology.

While Index's business growth was partly hampered by China's cooling car market in 2011, Hammerl foresees good opportunities in the premium market due to the stricter emission requirements the government has imposed.

"As Chinese cars need to meet higher environmental standards, they need more precise technology," he says. "Our expertise can make products more eco-friendly. We definitely see growing potential in this regard and this is where we edge others out."

Those delivering a promising sales season in China also include Emag Holding GmbH, a leading producer of vertical pick-up turning machines.

In the first half of 2012, the major supplier to Chinese steel giant Baosteel Group saw a moderate profit surge, amid contracting demand in and out of China.

Emag's products cover the entire spectrum of machining processes in the metalworking industry, including chucked, shaft or cubic components. Its most popular product, the vertical pick-up turning machine, can save up to 85 percent of time spent in picking up spare parts and minimizes human errors by achieving transmission automation.

Increasing allure

Dieter Kollmar, Emag's managing director, sees the increasing allure of China after the government pledged to invest 10 billion yuan ($1.61 billion; 1.23 billion euros) annually in developing high-end machine tools, helping the industry to grow at a projected 12 percent year-on-year.

On completion of a research and development center in Taicang, Emag is set to invest 4.9 billion yuan in a new plant in southern Jiangsu's Jintan city to mass-produce computer numerical-control machine tools.

"I think the trend of industrial transition and moving up the value chain has put us in an advantageous position by improving work efficiency and freeing the labor force," says Kollmar.

The output of machine tools in China is increasing fast in both value and the number of units, and the growth in numerical-control machine tools is even greater, indicating huge market potential, he says.

According to a recent report by the German Engineering Federation, the market share of boring milling machines in China is only 10 percent but 24 percent internationally.

The share of machine centers in the world market is 22 percent and that of grinding machines in the market is 17 percent, both roughly 10 percent higher than in China.

The 12th Five-Year Plan (2011-15) outlined the introduction of deeper industrial reforms aimed at boosting indigenous capabilities and propelling state-owned defense companies onto the global stage.

While trade undercurrents have been frosty, German manufacturers have more than enough reason to rejoice as they enter a new sector that has not yet been tapped: China's military industry.

Against lackluster global demand, China's military industry has in contrast proved to be a "stable growth area" for German manufacturers, says Hermann Hirsch, managing director of sales and marketing at Metabo-werke GmbH, a manufacturer of power tools and abrasives.

Metabo makes electric tools that are widely used in metal processing and architectural decoration. But the company is poised to ride the boom in military modernization as China works to become more prominent on the global stage.

"We have participated in this kind of official bidding in the past but now we are a lot more focused on this area because we see more possibilities in the future," Hirsch says.

He reveals that Metabo completed a ship maintenance project in China by mid-2012 and is now in final negotiations with the Chinese navy's factories.

There is a strong chance that the navy will select Metabo's small angle grinders and big hammers, and the company also has a good chance of selling impact drills and sanders to Chinese military factories, Hirsch says.

Metabo also made successful bids to supply two electricity generating sites in Zhejiang province in East China and Liaoning province in Northeast China, where the main products are rotary hammers, cordless drills and magnetic core drills.

According to Leibinger from Trumpf, shipbuilding is a relatively small field in which it has cooperated with local enterprises. But the Chinese presence is not yet strong because the country's yards still need to move up the value chain by focusing on high quality.

There is a more imminent market in aircraft manufacturing, which increases demand for engine components built using laser welding, he says.

After listing aerospace as a symbol and target of China's "high-value" ambitions, the government pledged 1.5 trillion yuan to develop the industry.

Two years ago, Emag started developing a tailor-made machine for manufacturing blisks, a key component in aircraft turbines, Kollmar says.

In April, it handed over the first such product to the Aviation Industry Corp of China, the country's leading aircraft manufacturer, a subsidiary of which is in charge of making China's first indigenous plane.

"We definitely see growth and potential for turbine manufacturing, as needs will continue to expand," Kollmar says. "The biggest demand is in Asia and, of course, China."

Turnover in this business sector has doubled every year since its establishment in 2010. Kollmar expects it to form at least 20 percent of its overall revenue in the coming few years.

Hammerl from Index agrees. He forecasts the industry in China will enjoy explosive development in the next five years, with demand for making indigenous spare parts continually soaring.

"China is just at the infancy stage. We see great opportunities but systematic training on the basic know-how of those machines is critical," he says.

( China Daily European Weekly 08/02/2013 page7)