NINGBO, CHINA (July 28, 2:45 p.m. ET) — The last five years have brought big changes to China's Haitian International Holdings Ltd.
The maker of injection molding machines has more than doubled sales to 7.05 billion yuan (US$1.1 billion) solely on organic growth, launched an initial public offering on the Hong Kong stock market, and navigated the global financial crisis without seeing the big sales drops that hurt many competitors.
In that time, it's gone from the world's fifth-largest maker of injection molding machines, measured by sales, to possibly the world's largest, particularly if it meets projections from some stock analysts that sales next year will reach 9.3 billion yuan ($1.4 billion).
The company argues that the next five years could bring more big changes.
Trying to build on its 35 percent share of China's market, Haitian says it will continue focusing on its home market but also try to raise its profile internationally and build a place in higher-technology markets.
It opened a factory in Vietnam in May, for example, and late last year unveiled a new design of an injection press — the Mercury series developed at its German subsidiary — that it claims can help it get a place in those higher-tech markets.
Plastics News sat down recently with Haitian executives in their Ningbo headquarters. This article, the second of two, looks at their future strategies.
One of the major tasks of its global push is to build trust with large multinational customers and overcome the concerns those customers sometimes have about Chinese firms, said Helmar Franz, executive director of Haitian and a longtime German machinery industry executive who joined the Chinese firm in 2005.
Those global companies have high requirements and are willing to invest time and teach suppliers what is needed, a valuable thing for a company like Haitian, Franz said.
But they also want to be certain their potential partners will be worth the effort, a major reason Haitian went public in 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.
“This is one of the reasons we went to an IPO — the local Chinese privately owned company has a hard time [being seen as] worthy of such efforts,” Franz said.
“So we open our books, we show transparency, we go to the stock exchange to tell people we are ready,” he said. “You can look at our development. We have enough money to innovate. We are big, we are growth-driven. … This is building trust.”
He claims the strategy is paying off, with regular discussions with large groups of those international customers, a “huge difference” from several years ago.
“From those people, as a machinery manufacturer, you can only learn,” he said. These customers can offer Haitian better insights into “how an injection molding machine needs to perform.”
Franz declined to specify the company's strategy in detail but said it has met its goals since the IPO.
“I certainly know what Haitian would look like in 2015,” he said. “We have this plan, but of course we cannot disclose it. But our target for these [last] five years is exactly what we have accomplished — to be the world leader in the standard machines.”
Mercury to be one key
One of the keys for the future, though, will be the Mercury series of injection molding machines Haitian launched at K 2010 in Düsseldorf, Germany.
Developed at its German subsidiary, Zhafir Plastics Machinery, the company claims Mercury has a novel design, which separates the screw from the injection plunger, to give better performance in molding high-performance materials like polyetheretherketone, polyphenylene sulfide or high-melt index polypropylene, he said.
The machine can help expand markets for those plastics, replacing metals or other materials and launching new applications, Franz said.
But he acknowledged that Haitian faces questions, both because the design is new and because some people have doubts about Chinese technology.
“This will take time because many people do not believe this machine will run, and there is [the belief from some competitors] that this machine will fall apart,” Franz said. “We know this will not happen but it has to be proven. Every new technology has to be proven. We have this power to wait. We don't need to force things.”
He said the company's Mars models, which have sold 35,000 units since they were unveiled in 2008, initially met with skepticism, but have become market leaders among companies seeking energy-saving machines.
“We already have 35,000 machines in the market,” he said. “Last year we sold 20,000 [Mars] machines in the market. [Selling that many] machines can't be wrong.”
He said the company's all-electric Venus machine, launched in 2009, also faced doubts.
“When we started Venus, a lot of people in the marketplace were saying this is Chinese technology, it will never work,” Franz said.
“OK, it worked, so the arguments changed to, ‘OK, so it's working now but after five years, it will fall apart,' ” he said. But for two years the machines have been running fine, according to Franz.
The company said it sold more than 800 Venus machines through the end of 2010.
Beyond launching Mercury, the company sees growth both in exports and in replacing imported machines in China.
For strengthening exports, particularly to emerging markets, it plans — this year or next — to extend its energy-saving technology from the Mars machines to all of its machines, including its budget line, the Pluto series, Franz said.
“In markets like Brazil or our new factory in Vietnam, Pluto with the energy-savings components will play a very important role,” he said.
The company said last year it sold about 1,000 machines in Brazil and 600 in Turkey, as overall export sales doubled to 1.69 billion yuan ($250 million), after plunging in 2009.
The largest gains came from South America and the Middle East, as figures the company provided to stock analysts in March showed exports resuming their growth trajectory that preceded the global recession.
The company also is targeting companies in China that buy foreign machines.
It's a huge potential market, with mainland China importing about US$2 billion worth of all types of plastics machinery in 2010, mostly from Japan, Germany and Taiwan. Those imports can sell for five times the price of Chinese-made machines, industry statistics show.
Many of those companies buying the imports are themselves foreign-owned, and while Franz said he thinks Haitian can compete in the vast majority of applications, the companies often choose imports to minimize risks of operating in China.
“I understand this very well,” Franz said. “The challenge for us is to persuade our customers that this machine has the same performance.”
The company plans to continue its broad-based development: This year it unveiled an upgraded version of the Mars machine, the Pallas series, and added MuCell foaming technology to its offerings, getting a license to sell it in China, Vietnam, India, Brazil, Turkey and South Africa.
Within China, which accounts for 76 percent of Haitian sales, the company should continue to gain market share, said New York financial services firm Morgan Stanley. Haitian went from 28 percent of China's market in 2005 to about 35 percent now.
With the Mercury line, Haitian sees itself as offering a very broad range of standard machines, from low-end brands like the Pluto, to Mercury at the top, appealing to customers worldwide with a wide range of applications.
Franz said having a standard machine is vital to the company's growth and profitability. The Mercury series, for example, while targeting higher-end markets, is still a standard machine because it has a limited range of options, he said.
Automation cells and other technology solutions can be built around it, and are important in high-end markets, but the base needs to be a standard machine, he said.
“A standard line gives you an impact in the industry and it gives you enough money,” he said. “If you concentrate on being a solution provider, I simply feel it is very hard to make money out of it, unless this solution is based on a standard line.”
Franz believes Haitian's standard machines are competitive with any others in the world, but he acknowledged there's still a gap in automation and application development, he said.
“Where I see a gap still is in automation and all these difficult cells,” Franz said. “Whether we are going to close it … or whether it is necessary to close it, is another story.”
Chinese companies, Haitian included, have young engineers, Franz said, and while they have solid skills and work hard, they don't have the experience of colleagues in markets like Europe, Japan and America.
“I will tell you there is a big challenge,” he said. “Obviously in China we don't have [that level of] experience for applications and we don't have so much experience in automation.”
The company, for example, put the development of Mercury at its affiliate company in Germany, Zhafir, because it needed to tap into the world-class engineering and suppliers there, Franz said.
Haitian is looking for acquisitions, but is focused on technology, he said.
“We have external growth on our agenda but it needs to fit,” he said. “The only thing we are looking at is technology — technology we could develop ourselves, but it will take time.
In its 2006 IPO, Haitian said it wanted to become the largest press maker in the world, measured by sales. It already was the largest, measured by number of machines sold.
It's very difficult to know for certain if the company achieved that goal, because some of the other large global competitors are privately owned; however, Haitian has clearly gone up the sales charts in the last few years.
Franz said the firm chose a development strategy based on its market and capabilities. It did not try to compete directly with injection press makers like Engel or KraussMaffei or to develop more sophisticated automation solutions, he said.
“If we would develop this whole solution automation, do you think we would be at US$1 billion turnover — no way,” he said. “I am very happy that this strategy we developed in 2005 and 2006 — part of it was the IPO — has proven to be correct.”