Malaysia becomes a world factory

Playing with the dragon

Everyone is dressing up for China because the country is positioning itself as a global economic power. The market is a must, especially for niche players and world market leaders. But there are also uncertainties emanating from China. Experts and entrepreneurs explain what a comprehensive Asia strategy can look like, where the problem areas and opportunities lie.

Eveline Pupeter, Emporia
© provided
Doris Fischer, University of Würzburg
© provided

In and around China, such a hype has broken out in recent years that some people hardly look to the right or left. This is associated with a high level of risk, especially in a politically not always predictable country like China. Doris Fischer, holder of the chair China Business and Economics at the University of Würzburg, convinced companies early on not to be blinded by the China euphoria and warned them not to “lay all eggs in just one nest”. Companies should spread their risks. According to Dietmar Schwank from Foreign Trade Austria, Austrian companies are increasingly relying on a China plus one strategy. That means: “You are trying to develop another location in Asia, on the one hand to serve East Asian markets and on the other hand as a back-up for China.” That still has something to offer: “Asian markets such as Vietnam, Singapore, Malaysia or Indonesia, are all less complex than China. ”A market of particular interest is currently Vietnam with around 100 million inhabitants. Schwank: “The country has become a favorite for European companies. The population is very young and interested in technology. Many see Vietnam as a future market and investment location. ”The market is growing very dynamically and in percentage terms more strongly than in China.

When Doris Fischer took a double degree in economics and sinology in the 1980s, there was absolutely no overlap between these disciplines. The walk from one to the other university building corresponded to an “absolute change of culture”, says the current holder of the Chair of China Business and Economics at the University of Würzburg: “As a sinologist, I was an exotic woman for economics. And economics was beneath the dignity of sinologists. ”Today it is interpreted as wisdom that she studied these two subjects. A good 30 years ago, “nobody foresaw what China would look like one day”.

But for some years now, China has been producing more headlines on the business pages than almost any other country. It is alternately portrayed as an economic miracle, a major threat to Western markets - above all Europe and the USA - or as an important growth and potential market for international companies. And all of it has its justification, even if the exorbitant growth is already declining in percentage terms. In fact, China has blossomed from a world factory into a world market, as the Chinese hidden champions expert Prof. Dr. Deng Di executes. In his opinion, precisely this change is a great opportunity for German companies that are hoping for continuous growth. A perspective that is equally valid for domestic companies. It is hardly surprising that almost all world market leaders and hidden champions are active in China. The renowned hidden champions expert Prof. Hermann Simon sums up China's importance as follows: “If you want to be and remain the world market leader, you have to become strong in China. You have to become a Chinese. Globalia is about finding and realizing the best location for the respective value creation phase. "

NO SATURATION YET

A credo that the automotive supplier Pollmann from Karlstein in Lower Austria has taken to heart. The family company, which has operated one of four branches in China for the last 13 years, has a positive outlook on the country. Sales in China are currently around 57 million euros, which corresponds to a share of group sales of 25 to 30 percent. Around 500 of the approximately 1,800 employees work at the Chinese site near Shanghai. And it can be assumed that there will be more. Herbert Auer, one of the two international managing directors at Pollmann, says: "We expect growth from which we want to benefit." There will be growth in the automotive market in China. This will not be as strong as it has been in the last ten years, but the market has not yet reached saturation.

IF CHINA IS OK, AUSTRIA IS OK

In mid-April, the hidden champion opened the third expansion stage of doubling the plant at the Chinese location. According to Herbert Auer, this was urgently needed: “In terms of space, we were bursting at the seams.” It is interesting that the plant expansion in China is running in parallel with the expansion of the Austrian location, where the final construction phase is now. And that is no coincidence, because in this case one could point out: if China is doing well, Austria is doing well. Specifically, this is due to the fact that the main development is still in the headquarters. Every time a larger order comes in in China, a local team works on the basic development in consultation with the customer and then cooperates with the lead designers in Austria. Systems are also built in Austria and shipped to China. Auer sums up: “The internationalization also leads to a strengthening of our Austrian location.” So the narrative China versus Europe does not work here.

LOCAL PRODUCTION FOR CHINA'S MARKET

By the way, Pollmann's way to China was quite typical for an automotive supplier, and it was driven by customers. Auer: “Our European customers, such as Webasto, Magna and Brose, have said: If you don't come with us, we'll be forced to look for local partners. And we didn't want that. ”It was important to produce locally for the Chinese market because there were also local requirements. But in principle, Pollmann offers the same service portfolio with the same quality as in Europe.

"The Chinese production market is perfectly matched to electronics production." Eveline Pupeter, Emporia

A business delegation from Austria also came to the opening of the plant expansion in April. That worked out well, because shortly afterwards the second forum for the Chinese “One Belt, One Road” initiative, also known as the New Silk Road, took place. China is concerned with creating a network of intercontinental trade and infrastructure routes. Opening up the trade route into the heart of Western Europe will cost Beijing an incredible 1.3 trillion dollars. The initiative has been an official program of the Chinese leadership since 2015. China economist Doris Fischer is skeptical of “One Belt, One Road” for various reasons. On the one hand, China invests a lot in infrastructure projects in economically weaker countries, but mainly implements them with its own people. In addition, China wants to benefit mainly from its own exports. Fischer: “We got used to it because we noticed that such large infrastructure projects create problems for decades. How do the Chinese guarantee that they will do better? ”On the other hand, she considers the bilateral activities of China with individual European countries to be problematic:“ What does the Chinese government want to achieve with them? Does it want to divide Europe apart? ”As long as the Chinese do not explain why they are concluding bilateral agreements instead of with the EU, this behavior is“ not really convincing ”. According to Fischer, the EU must be very careful to ensure that Europe stays together, for example when it comes to peace and environmental policy.

OUT IN THE WORLD SINCE 2001 China's strategy has changed dramatically since the turn of the millennium. Fischer: “By 1999, 2000 we opened up. Since then, the Chinese have been going out into the world themselves. ”In 2001 the WTO allowed China to make international investments. The Belt and Road Initiative, which some also refer to as an offensive, has made this project much more visible. Fischer: "It worked well to market China so globally." The initiative is first and foremost "an incredibly good story that works" because: "Everyone is talking about it and believes it has to dress up for it." be it also like "a pudding that you can't nail to the wall because everything has already fallen into it". The fact that the United States had been invited to participate in the Silk Road was absurd, because America had nothing to do with the Silk Road.

MARKET INSTEAD OF WORKBENCH

The breathtaking economic rise of China has also led to the fact that companies hardly operate branches there for cost reasons. Eveline Pupeter, managing director of the Upper Austrian mobile and smartphone manufacturer Emporia, which targets the older generation, says: “Labor costs are no longer low in China. If you want low labor costs, you have to go to Vietnam or Cambodia. ”But there is something very decisive in favor of China:“ The Chinese production market is perfectly matched to electronics production. He has mastered the supply chain better than anyone else. ”He is also“ smart enough to digitize so that labor costs are left out ”. Therefore there is no alternative to production in China. Emporia has 30 employees on site in Shenzhen who take care of the coordination of production and quality management. Production itself is outsourced to a total of four factories in Shenzhen. 600,000 telephones are produced there for the European market every year.

NO ALTERNATIVE TO CHINA

While China is also gaining in importance as a sales market for many companies because the standard of living is increasing due to a growing middle class, this is not an issue for Emporia. The reason is a systemic one that many companies experience. Pupeter: “The Chinese market is not relevant for us because we have been copied massively in the last 15 years. These copies are now being thrown by the Chinese directly via online sales in the European, American and Asian markets. ”Everything has been patented, but the cheap suppliers from China are not bothering about that. A lawsuit is currently pending against such a producer. These manufacturers would not pay any license fees either. Still, there is no alternative to China. Emporia is also more likely to find Android programmers in China than in Austria: "Because we cannot get the developers on the market here, we are forced to buy programmers in Europe and China."

FROM CAVALIANS TO BREACH OF THE LAW

The infringement of patent protection affects a large number of foreign companies that are active in China. The attitude of the Chinese is changing only slowly in this regard. Doris Fischer: “It has gotten better, but individual rights are still difficult to enforce. The Chinese legal tradition is still relatively young and the implementation of the legal rules in legal practice is partly a matter of interpretation. ”The Chinese government is in a dilemma here because it wants to accommodate western companies, but copying at will has a long tradition. Fischer: “The Chinese consider copying to be a minor offense rather than a crime. The ecosystems grew in part on a copy culture and have been accepted for a long time. "

Dealing with patent infringement

The wafer machine manufacturer Haas from Leobendorf, which has been a subsidiary of the Swiss Bühler Group since the beginning of 2018, also has to deal with patent infringements time and again in China. "As a western producer you have to deal with it", says Günter Muhr, managing director of Haas wafer machines. But that is no reason not to be active in China, because Haas serves the entire Asian and even the African market from its plant in Shanghai - in total there are up to 20 countries. However, 90 percent of the Haas wafer machines produced in China go to Indonesia, where the wafer market is developing very well. Business in Asia - with the exception of Africa - currently accounts for around 15 to 20 percent. Muhr: “And further growth is certainly possible in Asia.” He reckons that growth there will be around 20 percent.

"Individual rights are still difficult to enforce", Doris Fischer, University of Würzburg

Together with Austria and Brazil, China is one of three production sites of the world market leader Haas wafer machines. It opened in 2006. For the low-cost market in Asia, it was important for Haas right from the start to develop its own product lines that are tailored to Asian demand: “We adapt our products to local requirements.” That Haas is now part of Bühler and the group can now offer integrated solutions from a single source, which means production machines for waffles, cakes, biscuits, chocolate confectionery and baked goods, is probably also a great advantage for the Asian market. Muhr: “Bühler can now offer the entire factory equipment with the exception of the packaging. No other provider in the world can do that. ”And as a medium-sized company, Haas is now finding it easier to drive digitalization under Buhler. The core components of Haas remain in Austria for reasons of protection. Günter Muhr describes the special characteristics of the Asians from his point of view: “When the Asians see opportunities, they invest. They implement new ideas faster and are more decisive in some things than Europeans and Americans. "

SPEED: RAPID

Familiarization with the customs of a country, the local presence, an attractive product and the status as a reliable partner are also from the perspective of the lift world market leader the ingredients for being successful in the Asian market. The Doppelmayr Garaventa Group has had a branch, specifically a 100 percent subsidiary, near Beijing since the 1990s. The share of sales in Asia is currently 21 percent and the group is present in all Asian countries. Among other things, it is building the longest tricable cable car in the world in the south of Vietnam, which connects the islands, and the first tricable cable car in Lushan, China. According to the company's management, the further potential is “very large”, with a special focus on summer tourist cable cars, such as for leisure mountains, viewing platforms or temples. With the Olympic Games in China in 2022, which is currently being built at full speed, winter sports are of course also gaining momentum.

Dietmar Schwank, Regional Manager for Asia at Foreign Trade Austria, continues to see enormous opportunities for Austrian companies, especially niche providers, in and around China, including in high-tech industries, in environmental technologies and in infrastructure. But a naive euphoria is not recommended due to the geopolitical role that China is working on. But: a very close look at this extremely fast market. And there are both positive and negative developments, as the example "Made in China 2025" shows, where ten industries were defined in which China is striving for self-sufficiency by 2025. On the one hand, this also offers opportunities for Austrian companies from these sectors - at the same time, the market would become less attractive if they were to do everything there themselves. Nobody can look into the crystal ball anyway. Dietmar Schwank advises companies that want to operate in China: “You have to approach it strategically and find a niche. It is important to stay on the ball, because the speed in China is rapid. And you should gain experience on site and maintain contacts with the Chinese, but also with other Austrian companies on site, and build networks. "

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