NINGBO, CHINA (July 19, 4:15 p.m. ET) — Next to one of Haitian International Holdings Ltd.'s factories in Ningbo is a visual testament to the firm's ambitions: the construction of a soaring new glass and steel headquarters building more than 20 stories tall.
The Chinese maker of injection molding machines has more than doubled sales since 2005 to 7.05 billion yuan ($1.07 billion) last year, entirely with organic growth, and some stock analysts predict sales will reach 9.3 billion yuan ($1.45 billion) next year.
While it's very difficult to say with certainty, that could likely make it the world's largest maker of injection presses, measured by sales, up from No. 5 in 2005.
The change reflects both the growth of emerging markets like China and the recent hard times for the global industry.
While Haitian's global rivals are now recovering and China faces questions about its economy overheating and slowing, analysts like Morgan Stanley's office in Hong Kong, which made the estimate of $1.45 billion in sales next year, believe Haitian will continue to grow and gain market share in China.
Plastics News sat down with Haitian executives in the Ningbo headquarters recently to talk about their plans, including keeping a focus on China but trying to become a bigger player globally, and developing higher-technology machines to appeal more to international customers.
This article, the first of two, looks at the strategy Haitian used to grow rapidly and capitalize on the growth in China and other emerging markets in the last few years.
Check out PN's exclusive video interview with Haitian Executive Vice President Helmar Franz.
The second story will look at Haitian's future, including plans to boost innovation and develop higher-tech machines.
Prescription for growth
The seeds of Haitian's current rapid growth, the company maintains, began more than five years ago with a decision to put serious research and development on the needs of the mass market companies in China.
Back then, few companies focused R&D on the thousands of common injection molding factories in China, factories using simpler machines but hungry for better equipment, said Helmar Franz, Haitian's executive vice president.
Franz, a former plastics machinery executive in Germany, joined Haitian's senior management in 2005.
“I don't know whether anybody from product development ever talked to the ordinary customers [in China],” he said. “When I came to China, we all sat down together and talked. I didn't realize it was something special.”
“[Our] success was laid down in 2005 and 2006,” said Franz, who had been executive managing director of Germany's Demag Plastics Group and former chairman of the German Plastics and Rubber Machinery Association before moving to China. Haitian launched an initial public offering in the Hong Kong stock market in 2006.
What they learned from the listening tours, Franz said, was that although energy was a top concern, all-electric presses were too expensive. That created an opening for the right kind of new machine, he said.
“The people who don't need such technology for their parts, they cannot afford to buy an electric machine just to save energy,” Franz said. “If you look to China, even though there are a lot of electric machines in the market, there is still a huge number of hydraulic machines. We asked ourselves, ‘What will these customers do?' They still have the pressure of the energy costs.”
So the company developed an energy-saving hydraulic press, its Mars line, which uses gear pumps instead of piston pumps to cut electricity consumption, but remains significantly cheaper than all-electrics.
The new design allowed the machine to stop the pump during the cooling cycle but still maintain performance.
When it first hit local trade shows, Franz said, the Mars series did not get a big reaction.
But as energy costs rose, sales took off. Mars today is the biggest reason for Haitian's growth, selling 20,000 machines last year, two-thirds of Haitian's total sales, up from 9,500 Mars machines in 2009 and 4,700 in 2008.
“What we did different from the others, we didn't go to the high-end customers and ask them how they would develop it. They would tell you they need more — more technology, more automation, more combinations of materials,” he said.
Today Haitian has an estimated 35 percent of China's domestic market, up from 28 percent in 2005, even as the market itself has gotten much larger.
Its growth has outpaced rivals. Between 2006 and 2010, Haitian sales went from $407 million to more than $1 billion, with much of that coming during China's 2010 recovery.
By comparison, the other large injection press maker that is publicly-traded in Hong Kong, Chen Hsong Holdings Ltd., had relatively flat sales over the period, going from $277.4 million in its fiscal year ending March 31, 2007, dipping in the global recession and recovering to $311.2 million in its most recent fiscal year, which ended in March.
To put those 20,000 Mars machines sold last year in perspective, the domestic Japanese press industry in 2010 made about 12,000 molding machines, while the American market was estimated at about 2,300 machines.
Of course the sales price of typical machine made in Japan or the United States is much higher than in China. But those higher-priced machines may not be where most of the world is today, Franz maintains. At the industry's mega trade shows, like the K show last year in Germany, Franz said he sees a lot of impressive engineering solutions aimed at high-end customers.
“I can only take my cap off and say this is wonderful engineering,” he said. “If you look at the K show, you can come to the conclusion that this is the plastics industry, but I can assure you if you take the whole industry of the world, it is not.”
“Plastics processing is pretty unspectacular, at least 80 percent of it,” Franz said.
Franz thinks the industry's R&D is sometimes too inwardly focused.
“One guy is designing an injection molding machine his whole life, he thinks it's a space shuttle but it's not,” Franz said.
“Since I've been in China five or six years now, more and more I realize, maybe our industry has too much of an inside view,” he said. “We look to each other to see what we are doing and come to the conclusion that this is good for customers. I don't know who really asks the customer, the real mass customer.”
In contrast, Haitian's development office in Germany likes to rotate in engineers from other industries.
To target that “unspectacular” 80 percent of the plastics industry, Franz said it's also important to differentiate between “low technology” and “bad technology.”
“Low-tech does not mean bad; low tech is very important for markets like India and China,” he said. “There are a lot of people, hundreds of millions, they have no refrigerator and no telephone. They would consume differently from an American who already has three refrigerators.”
Three brand strategy
The second major reason for the growth, Haitian believes, was effectively splitting its company into three brands, and having separate product development for different markets:
* Its namesake brand, Haitian, developed the Mars line and became its mid-level machine;
* A lower-end brand launched in 2008, called Tianjian, was tasked with developing lower-cost, stripped down machines for even more price-conscious segments of markets like China and India;
* Zhafir Plastics Machinery, the firm's German-based subsidiary, is focused on high-end markets with a new design for electric presses.
“This is something that everybody here at Haitian is sure was the second reason of success, the three brand strategy — Tianjian, Haitian and Zhafir,” Franz said.
The Zhafir development and some production take place in Germany. The Tianjian production and development happens in Wuxi, Jiangsu province.
The approach allowed the company to pursue higher-tech markets, while still maintaining good contact with customers in the simpler, lower-tech markets, Franz said.
Companies make a mistake taking existing technology from a developed market and trying to downgrade for cost savings, even if it seems a good strategy, he said.
“My personal belief is if you downgrade an existing technology you will never reach a substantial cost savings,” he said. “You need to forget it and start from the beginning. … In my opinion, to really come to a low-end machine, you need to go to a country, employ engineers from there which are graduated considering the local circumstances.”
Haitian has clearly benefited from its position as the largest in China's market, even before the financial crisis in 2008 and 2009.
But Franz maintains the company also benefited from a decision during the depths of the crisis not to close factories or lay off workers. That gave Haitian the capacity to handle an 82 percent sales increase when China's economy came back very strong in 2010.
“The upward trend in China was very fast and we were able to take a lot of this upward trend because we were running during the crisis at full power,” he said. “We did not have any layoffs. We invested in a new factory in 2008. We had the capacities ready.”
During the worst of the crisis, when the company was running at 50 percent capacity, it closed its factories for 15 days and sent workers to training to maintain the discipline of a fast production schedule, he said: “I think this is very important. If you let someone work slowly, they would not return very fast to working fast.”
Haitian has worked to boost efficiency. In 2010, it sold seven presses per employee, compared with five per employee in 2007, and sales per employee rose 60 percent in that period.
The Chinese market has changed a lot since Franz first came to Ningbo in 1996, on a scouting mission to find a Chinese joint venture partner for his then-employer, German molding machine maker Demag Ergotech GmbH.
He met with Haitian executives, including the Zhang family, who had founded the firm in 1966 and still lead it. Haitian and Demag in 1998 formed a joint venture.
At the time, he said, much of the area around Haitian's current factories, in the Beilun section of Ningbo, was off limits to foreigners because it was considered too close to a Chinese naval base, where submarines could take advantage of the deep water port to slip out to sea unseen by other countries.
But that's changed. As Franz drives a visiting reporter around Beilun to the company's factories and past its under construction office tower headquarters, he makes it clear that Haitian plans to continue developing, pursuing both emerging markets and developed economies.
The company opened a factory in May in Vietnam, both for growth there and because it wants better access to the fast-growing market in India, where tariffs have limited Chinese-made machines. Haitian is extending its Mars energy-saving technology across all its machines; it's developing higher-end molding machines it claims will push boundaries for material use; and it has a sales effort to build trust with market-leading global companies.
“Even when the economy went down during the crisis, we still did not stop. On the contrary we increased the speed of development,” he said. “The attitude to innovate is a basic philosophy of this company.”