Wrapped in success

Factories in small city help German company surf growth wave in China

Much like the Ruhr, the industrial heartland of Germany, Taicang, a coastal city in Jiangsu province, seems to be the destination of choice for German companies in China.

Factory floors of Krones Machinery (Taicang) Co Ltd, part of the packaging and bottling machine manufacturer Krones. The company has expanded rapidly since it first set foot in Taicang in 2005. [Photos Provided to China Daily]

"We set up a 6,000 sq m manufacturing unit in Taicang this April. It is our third unit in the city," says Christian Blatt, general manager of Krones Machinery (Taicang) Co Ltd, part of the packaging and bottling machine manufacturer Krones and one of the first German companies to set up a unit in Taicang.

"Our units are operating at full capacity to cope with the surging global demand," Blatt says. By current estimates there are at least 150 foreign companies in Taicang, with most of them from Germany.

On both sides of the broad boulevard that runs through a newly created industrial estate are gleaming factory structures bearing illustrious German names like Siemens, Bayer and Thyssen Krupp. But towering over all of them is Krones as it is the only company that has undertaken such massive capacity expansion in the city.

Krones set up its first China plant in Taicang in 2005. It was a small project to test the waters, says Blatt. Since then, the company has built three more factories in rapid succession, each larger and more sophisticated than the one before it.

"The company grew rapidly. The first 2,000 sq m workshop was set up in 2005. The second workshop was set up in 2007, while work on the third unit started last year," Blatt says.

Blatt says the city's proximity to Shanghai and Nanjing and its extensive transport networks were the reasons for making the investment decision. "Being in Taicang helps us to be closer to the supply chain and customers and also ensures ready availability of labor.

"Taicang is only a 35-minute drive from the Hongqiao Comprehensive Transport Hub in Shanghai," says the energetic middle-aged German who works for more than 12 hours a day and shuttles from Shanghai to Taicang daily.

Krones expects most of its future growth to come from the Chinese market. Last year, it accounted for 15 to 20 percent of global sales.

Blatt believes that while the growing affluence in China is no doubt helping Krones' sales, the real trigger has been the growing rate at which Chinese people are changing their products.

In China Krones' customers are changing bottles and packaging every two years, whereas in the West it remains unchanged for longer periods.

"During the financial crisis there was a 25 percent dip in our turnover from the Western markets. Though there was a recovery later, we do not hold much promise for future growth in Europe. In contrast, we have grown really well in China, with growth rates in excess of 50 percent," Blatt says.

For Krones, the biggest growth market in China is the water and non-carbonated soft drinks sector. Its biggest customers are soft drinks makers like Wahaha, Uni President, Ting Hisin, Coca-Cola and Pepsi-Cola. Other big customers include the beer majors Yanjing and Qingdao.

A welcome change over the years has been the presence of more Krones machines in China. "Till now most of our products were used in first-tier cities. But our products are now being used in second- and third-tier cities also. "Like other companies we are also entering new markets and segments," he says.

"German brands are known for their reliability and safety. It has helped us in China too as people are now becoming increasingly health-conscious.

"Chinese food makers are now willing to pay a premium, to ensure that their products are packaged safely and are without any major health hazards," Blatt says.

Most of the German companies in Taicang have also found ready support from the local government for most of their needs.

"We import most of the parts for our manufacturing facility from Germany. There is often a lot of paperwork and procedural formalities involved. But the local government has taken steps to ensure that we are not inconvenienced in any way," he says.

"Chinese people, in my opinion, are willing to take more risks. If a customer decides to buy a new packaging line, they know they need additional capacity. But they don't know precisely which products they want to produce on these packaging lines. They test the packaging line or the machine on the market. If the test proves unsuccessful, they will change the usage of the machine and produce something else," he says.

"But in Germany, if a company invests in a new packaging line, they do so after thorough research. People are only willing to invest if they are sure they will be successful," Blatt says.

The eagerness to follow the latest trends has also lead to a surge of copying in China, says Blatt. However, he views the infringement of intellectual property rights more as an "entrepreneurial" spirit, and believes Chinese have a good zeal for business opportunities.

Rising labor costs have also been a major issue for most of the foreign companies in China. But for Krones it is not an issue at all.

"We have noticed that labor costs are rising by 10 to 20 percent every year and we estimate that it will double in the next five years. But our focus here is more on quality. The 20-member R&D center in Taicang focuses on manufacturing for China," says Blatt.