Foreign company sees promise in coastal city

Eighteen years ago, a Liechtenstein family enterprise decided to set up a factory in Zhanjiang, a port city identified as one of 14 coastal cities that would act as pilots for China's reform and opening up.

Now, though Zhanjiang is not growing fastest among those 14 cities, the European-funded company - Hilti (China) Ltd - has never regretted establishing its Asian production center in Zhanjiang, said Bo Risberg, chief executive officer of Hilti.

The performance of Hilti's Zhanjiang factory over the past 18 years has proven that they made a wise decision.

Hilti set up its China corporation in 1994. Its Zhanjiang factory became operational in 1995, specializing in manufacturing consumable parts, such as anchors, drill bits and nails. Its revenue was worth merely 5 million yuan that year.

By 2004, that figure had climbed to 260 million yuan and in 2008, 360 million yuan. In 2010, after a sharp slump caused by the global financial crisis in the previous year, its output recovered quickly and its revenue hit a record 374 million yuan in 2011.

The expansion of Hilti's production capacity in Zhanjiang is more evidence of Hilti's confidence.

In 1997, Hilti bought back the Chinese side's shares in its joint venture in Zhanjiang and turned it into a sole proprietorship.

In 2000, Hilti closed one of its factories in the United Kingdom and relocated production to Zhanjiang.

In 2003, Hilti transferred its production operations in the United States and Mexico to Zhanjiang.

In 2005, according to Chen Dongzheng, general manager of the Zhanjiang operation, its floor space was doubled to accommodate the expanded capacity. Now again, the company is planning to scale up the area.

Zhanjiang's attraction

But why was Zhanjiang, a city virtually unknown to Europeans, a wise choice for Hilti?

Like most multinationals in China, cheap labor is certainly a major attraction. Even now, despite a surge in the salaries of Chinese workers in the past few years, their wages are still much lower than those of European workers.

But for Hilti, a globally renowned fastening and demolition tools and service provider, Zhanjinag's low logistics cost is a bigger advantage.

"Our products are made of metals. And the logistics cost of metal is very expensive. So Zhanjiang's proximity to China's metal market became a major advantage," Chen said.

Material cost makes up more than 60 percent of this company's cost, and Hilti's Zhanjiang factory conducts 80 percent of its raw materials purchasing in China, Chen said.

Besides cost advantage, the growing China and Asian market has become increasingly important for Hilti China.

"Our major market currently is in Europe, which explained why we still have six factories in Europe, though labor cost there is much higher," said Chen.

But he said China's market is increasingly critical to Hilti because China's fast urbanization brings great construction opportunities in railways, bridges and civil buildings.

The importance of the Chinese market is evident in the growth of high-speed railways here. After a fatal high-speed railway accident in 2010, China's freewheeling high-speed railway construction lost steam, and that was a "heavy blow" to Hilti's China business, Chen said.

But the latest surge of momentum in China's high-speed railway construction, partly due to the state's macroeconomic stimulus for the lackluster economy, again offered Hilti plenty of opportunities, said Chen.

Tapping the market

However, at present, the Chinese market's huge potential demands has not yet translated into tangible result for Hilti's factory in Zhanjiang. Still, 90 percent of the factory's output is exported to overseas markets, especially Europe and North America, instead of China.

The reason is China's low standard for construction.

"We are the Porsche in our industry. We produce high-end products. Unfortunately, China's technical standard for civil engineering is low. It is very difficult for Chinese developers, who spare no efforts to cut their costs, to purchase our products," Chen said.

At present, Hilti's China market is limited to subways, light rails and high-speed rails, projects that have a high requirement for safety. For example, 95 percent of China's nuclear power stations use Hilti's products, said Chen.

If the standard for civil buildings can be raised, the Chinese market will grow, and the Hilti family's confidence in the Zhanjiang plant will surely be further strengthened, Chen said.

zhengyangpeng@chinadaily.com.cn