Getting a Head Start in China. By Jørgen Jensen, CEO & President, Nilfisk-Advance A/S

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Early Presence Is an Investment in the Future
Compared to our global competitors, Nilfisk-Advance set up its presence in China relatively early. We created a head start which we intent to maintain and enlarge by focusing our resources on China.

For many years we had been selling to the Chinese market out of Hong Kong. In 2002 we founded our own sales representation in China. This was motivated by the expectation that the Chinese market would grow significantly in the years to come. The key challenges during the first years were to create a sales organisation, based on local employees and in-depth market understanding. We invested in developing the organisation and gave priority to the long-term perspective. As was expected, sales did not take off until our local production structure had been established.

High Quality in Low-Cost Countries
In 2002/2003, Nilfisk-Advance, like many other western European-based companies, realized the need to reduce its production costs. Moving production to China was one of the roads we decided to follow. So there was also a strategic reason for establishing our own production set-up in China. Already in 2003 and 2004 we had two production sites up and running, including a sourcing department (led by our global sourcing department) and test facilities.

Acquisition as the Lever to Create a Leading Position in China
Having set up our sales company and our well-functioning production entities in China, we opened up for making acquisitions in order to further increase both our sales- and production footprint in China. In 2007 we acquired a local Chinese company with a well-established brand, sales organisation and production set-up.

We were only able to do this successfully because we 3-5 years earlier had taken the first steps into China and had founded our own organisation which could now lead the integration process.

What Will the Future Bring?
Today we have three reasons for being in China and allocating significant resources to our development in China:

1. A growing market which will support our short- and long-term growth ambitions.
2. Production for the local Chinese/Asian market.
3. Low-cost country sourcing and competitive production costs.

We see these three causes as mutually supporting each other.

New Standards Create a Growing Market
We expect that the Chinese market for professional cleaning equipment will continue to develop at some very attractive growth rates. This expectation is based on the increasing standard of living in general, the establishment of western companies and the increasing need for consistent high quality cleaning in all areas of the Chinese society. What we anticipate will happen is that machines will gradually replace manual cleaning.

We will continue to enlarge our sales force and gradually expand our direct sales force. With (only) 200 salespeople in China today, there are still opportunities for growth just by increasing the market coverage. We also believe that there is a first mover advantage in establishing an all-local Chinese sales force early on, before the market really takes off.

One specific example of where we have experienced an increasing demand for our products is the municipalities and the government. They want a “clean China,” and our machines can help them achieve this aim. We expect to see an increasing demand from this sector not only to ensure clean streets during specific events but also on a day-to-day basis for the benefit of all Chinese people.

Local Production to Fit the Local Market
In order to be positioned for the growth in China and Asia, it is also of vital strategic importance for Nilfisk-Advance to have its own local production set up. This does not only reduce lead times and makes fast supply possible. More importantly, it also makes it possible to match our Chinese and Asian customers’ expectations of the products’ functionality and price with our development and production. Today, more than 50% of our products that are sold in China are made in China.

We have well-established local development teams developing products with a focus on the Chinese user’s needs and price requirements. Only by understanding the specific needs of the Chinese end users and customers we can develop the right products and thus be a winner on the Chinese market. It is definitely not easy to have a Chinese development organisation while having to coordinate its operations with product development in US and Europe – but it is necessary in order to win the battle for the Chinese market.

Lowest Cost for the Entire World
There is no need to hide the fact that the major reason for us to establish our own production set-up in China was the attractive cost position. It is still an important part of why we are present in China. With an extensive sourcing representation in China we have now moved beyond “just” sourcing for our local production set-ups. Our target is to source at least 50 percent of our product costs in low-cost countries by 2012. Our production entities in Europe and North America will also get more parts from China.

We do expect that the efficiency improvement both at our own sites but also at sub-suppliers in China will continue and thus the opportunities for attractive sourcing in China will exist for many years. This will be one of the key levers to improve our overall earnings.

Challenges Ahead
We have a clear strategy for our development in China. We will continue to invest in building both our market and brand position in China, and as the market grows, we will expand our production for the Chinese market and for attractive export to Europe and North America of both parts and finished products.

To do this successfully, we are building a strong Chinese organisation. Since our start-up in China we have relied on expats. Danish leadership in China has been and will for many years be important. But we are also in the phase where we need to transfer the leadership to local Chinese people. Today we have a great potential within our organisation, and it is our aim to bring these people up to date so that we will have a locally run organisation in China as well. This is the next big challenge for Nilfisk-Advance in China.

I will be happy to answer questions from members regarding our experience in China.


Nilfisk products have been sold on the Chinese market for decades. This is an advert from 1931.

www.nilfisk.com

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