Big profits from the baby business

Luckily Song Zhenghuan loves kids.

You could say, he was destined to serve them.

From when he co-chaired a high school in East China's Jiangsu province, to his running today of the world's best-selling children's stroller brand, Goodbaby.

In China, the company is known as Hao Hai Zi - that translates into "good baby".

It controls almost half of the country's stroller market, with revenues of 2 billion yuan ($315 million) last year.

Its list of other corporate statistics makes equally impressive reading:

It's the biggest supplier of strollers in North America and Europe; it provides two out of every five strollers sold in the United States; it now has customers in more than 70 countries; it makes over 10,000 strollers a day under 15 different labels for mostly overseas brands; it employs 100 engineers, designers and market researchers; and a 20,000-square-meters R&D center is staffed by another 200 researchers.

So when you consider that its founder had no experience of making anything before, let alone a world-beating piece of engineering, this truly global business started just under a quarter of a century ago, is a staggering success story.

Song said his number one aim is to create the world's best-known brand of infant and child products. And by that list of achievements so far, he is clearly well on the way to achieving it.

Ask him what's the most crucial ingredient in making his business such a success and the 64-year-old former teacher provides a simple answer: "Innovation and marketing are always the key."

It's a doctrine he uses throughout the interview with China Daily, as he sits in his bright, airy, spacious office, lit by natural light shining through tall glass windows.

The former educationalist may not be as well-versed in the curve of different components of a value chain, but he exudes an enthusiasm for his product which is infectious, and has guided the dramatic and spectacular development of what is now a global leader.

Like so many successful innovators, Song Zhenghuan said he never set out to be an entrepreneur.

But his role as the vice-principal of a school in Kunshan - the county-level city where he was born and raised - came with some unexpected duties that landed him the opportunity to steer his way in the direction of running the baby products giant.

A quarter of a century ago, when the Chinese economy was first starting out on its road to a market economy, Song's school was on a pilot program to help it create businesses to fund itself.

He and his fellow teachers borrowed money to open a factory making metal products.

His initial successes were countered by major setbacks, especially one he remembers making microwave ovens for a Shanghai-based company.

But Song was determined to turn around the fortunes of the school's fledgling production lines to compensate for hefty losses by his fellow investing co-workers.

In 1989, thanks to a student's father, Song won a contract to make parts for strollers.

With no experience whatsoever, he learned from scratch.

He studied how people sit in chairs, sat in libraries day and night, and looked at designs he managed to get from a nearby chair factory.

Finally, he struggled to bend a shabby chair in shape - or what he thought it should be - and brought it to the office.

When a colleague saw it, he asked what it was, let alone whether it was a baby stroller.

"But what if I add wheels, and made the wheels such, that if they could be folded in, the stroller could be used as a rocker as well?" he remembers thinking.

Song's masterpiece became a star overnight and soon dominated the then domestic market.

It took him just a year to pay off the start-up debt - a reflection of just what a hit the stroller was.

His "rocker-stroller" not only won Song a national patent award but also underlined to him the importance of designing finished products and owning brands.

To meet growing demand, the company invested heavily in specially made equipment from Shanghai to handle the growing orders, as it developed its niche.

Meanwhile the company took part in national industry fairs across the country and distributed large, colorful posters, showing a cute baby clapping hands on the stroller.

Such an upbeat, high-profile image was "a very rare occurrence two decades ago", he said, when Chinese businesses still tended to err on the modest, with most advertisements offered little more than a thank-you note and a telephone number.

Going back to his much-used formula of innovation and marketing, always being key, he added: "You must have hit products, and at the same time they must be eye-catching.

"You cannot succeed without these," he remembers drumming into his 20-strong team at the time.

Little could he have known that his formula was about to go global.

He said there was never a timetable for international growth, but he did always think there was a huge market out there, ready to be tapped.

Goodbaby had started hitting notable sales and revenue milestones, when a random visit to his factory from a German businessman accelerated its overseas ambitions.

Song said he was strict with his employees. He required them to wash their hands three times a day, for instance, to take off their shoes before entering, and everything was managed to "international standards".

Yet after a tour of his pristine factory, the friendly, but seasoned German manufacturer, left with just one piece of advice: "You simply don't make baby strollers that way".

He was told he needed to take his operation onto the next level, on everything, not just the finer detail.

On workmanship, on aesthetics, on every aspect of his operation, he said, if he wanted to be anything more than just a Chinese company.

In 1993, Goodbaby had become the top domestic supplier two years running.

"It's hard to make products that are never going to become obsolete, so we had to innovate.

"We were China's No 1, but we knew we had the ability to become the world's No 1," said Song emphatically, almost jumping out of his own seat.

China was full of ambitious, thriving businesses at that time - but many were becoming increasingly prone to the demands and flavors of foreign customers. And from foreign competition.

It was time to springboard to that next level.

Before Chinese outward tourism became the norm it is today, he boarded a flight for Tokyo.

He skipped the sightseeing and electronics shopping in favor of malls selling trendy baby strollers. He was also looking for a business partner.

He hired a retired Japanese automobile engineer and persuaded him to move to his little town, with all his technology and machinery.

"It was a typical early phase joint venture, with equity exchanged for technology," he said.

He even bought a townhouse for the engineer and his family.

Thanks to that initial investment, today, Goodbaby has 100 engineers, designers and market researchers toiling away to produce new models of high-end strollers for brands such as Silver Cross, Quinny and Maxi-Cosi in Boston, Amsterdam and Tokyo.

Also, at its factory complex and headquarters in Kunshan, there's a 20,000-square-meter R&D center in operation with another 200 researchers.

With the arrival of automated mass production, he took his designs to the massive US market, targeting customers at all levels of price and quality.

Song said what has set Goodbaby apart from so many other infant and child product manufacturers in China is the infusion of foreign exposure and connections.

Song has formed partnerships to bounce ideas off, and drastically expanded his networks.

He appointed a Chinese Harvard graduate to guide the company's US branch.

Goodbaby has managed to ink deals with 11 major sales channels in the US, including the world's largest retail chain, the giant Wal-Mart.

"For international expansion, you need international talent who can connect locally and brainstorm," Song said.

Continuous innovation and building networks overseas is coupled with well-trained marketing skills that Song and his team developed at home.

For instance, during an industry show in the US in 1996, Goodbaby launched 48 new products, instead of following the standard routine of presenting 10 "new arrivals" the organizer had recommended.

"That sort of scale, and innovation, impressed our clients and partners," he said with obvious pride.

Goodbaby's explosive development is also in part thanks to a meeting at his factory in 1999 with Rachel Chiang, a private equity specialist on the prowl for investments.

"I saw a video of how they deliver strollers," she once told Forbes magazine.

"They were on the back of a donkey in the snow, somewhere in China. It showed the entrepreneurial spirit. I felt Goodbaby and Mr Song had what it would take to become a truly global company."

With the help of the capital market, Goodbaby International Holdings Ltd, a subsidiary of Goodbaby Group, went public on the Hong Kong Stock Exchange in November 2010 to gain an even bigger slice of the international market.

Linking product innovation to safety, especially when it comes to the ongoing development of children's car safety seats is a proven formula for higher gross margins, said a recent report on the company by Guosen Securities (Hong Kong) Financial Holdings Co Ltd.

But in spite of its dominance, Song said Goodbaby still faces the fact that its brand recognition, notably in Western markets, remains limited.

It makes more than 10,000 strollers a day under 15 different labels for mostly overseas brands.

But Song said contract manufacturing is not the end to his aspirations. The company has been selling its own brand in Japan since 2006.

But "in the US and Europe, we have to take things slowly, because it's risky to irritate competitors just to gain a slice off our long-time partners, who have been helping us tap into those markets", Song said.

For instance, cooperating with the UK's Mothercare, Goodbaby can leverage its already proven business pattern to gain retail market share.

"This international cake is still very big, so we are entering carefully," he said.

"Maintaining a win-win situation with your foreign partners is most critical when you are running an overseas business."

hewei@chinadaily.com.cn

(China Daily 07/17/2012 page13)