China Focus interviewed Pascal Stutz during his position as CEO of Legrand China, on innovative strategies for adapting to changing market conditions in Greater China.
How is Legrand China organised compared to other countries?
Our integrated China setup is one of 10 globally that cover everything from R&D and marketing, to production and sales. In these complete structures, the local management has more decision-making power. Most of the product line and design are adapted for the native market, depending on the availability of suppliers and raw materials. For example, our ranges of wiring devices (switch and socket) are completely designed and produced in China and we have full responsibility for these products. About 80% of our China revenue today is under the control of our local subsidiaries while 20% is under the leadership of the central business unit in HQ.
Do you produce exclusively in China for China?
The raison dâ€™etre of our operations in China is to support the local business. Over the years, some of our factories have developed unique competencies, either in terms of cost competitiveness or in terms of technologies. Thatâ€™s the reason why we export some product categories to countries in the ASEAN region, MEA, and Latin America. For almost all countries, we also import certain product ranges, especially in the highend segment, that are manufactured in one place for evident reasons such as production volume. These imports represent less than 10% of our needs.
How do you address this operationally?
Some businesses, such as wiring devices, are by definition very local. This is not unique to China; it is the same in many countries around the world. What is different in China is the size. The domestic market justifies a local investment by itself. Therefore, when you start with an adapted design it absolutely makes sense to manufacture locally. The key difference is that we apply our expert knowledge and 50 yearsâ€™ experience from the group level, to be able to rationalise our design, even if very local. Another point is the lifecycle of our products that vary from country to country – and in China everything moves faster. For example, the lifecycle of a wiring device range in Europe is probably double that of China. Therefore, we have to redesign the product more often. The DNA of our business is very local and we adapt to the situation.
How has your organisational set-up adapted to the changes in the Chinese market in the last years?
In the past, we operated our three main subsidiaries in China as silos, meaning that each had all capabilities, from back-office to front-office. When the market was still moving very fast, this kind of set-up worked well for us: we had dynamic, flexible entities and this was successful because the cake was big enough to feed all the companies. Then things started to change in the last two years: the market slowed down and there was an increase in competitors, who wanted a piece of the cake. We adapted quickly by firstly, offering more to our customers. At the end of the day, we had to give the customer the feeling that Legrand was unified and different from local Legrandâ€™s Yijing switch and sockets range was specially designed for China competitors that are pure specialists.
For our key accounts, we now develop solutions, showing that we understand their business completely. Secondly, we introduced a cross-selling strategy by establishing better exchanges within our teams, and collecting projects and opportunities to sell. Before, when we operated by silos, it was very difficult to encourage cross-selling. Now, we have changed the structure of our operations in order to encourage more business development from the branch office level. Thirdly, our aim is to consolidate and optimise our back-office so that it is more globally compatible. This will be the next step after we have fully implemented points 1 and 2. We launched this entire strategy called â€śSuccess Togetherâ€ť in January 2016.
What are the most important aspects of the branch office in this strategy?
The branch office is our foundation. One of the main differences between us and other big companies is that we are a group of specialists. The Sales Engineers will stay focused and continue what they did before. The only role that changed is the one of the Branch Office Manager: he is the entrepreneur that coaches cross-selling.
What are the main challenges you are facing?
There is no perfect organisation – itâ€™s the people and the willingness to act that make the difference. A main challenge is to manage everyoneâ€™s responsibilities, while maintaining the high level of quality that Legrand customers are used to. For example, we canâ€™t ask a Branch Office Manager to be an expert in everything, from product and channel, to business models. We have experts in each of the business lines that can support the Branch Office Managers with this type of expertise. This requires a new level of coordination, especially since the Business Line Directors must bring the right support and incentives to the Sales Engineers so we can be successful. Another challenge we face is implementing a unified IT system. Overall, the Legrand strategy concerning IT is rather pragmatic, meaning we are not pushing a world-wide system. In China, we have introduced an integrated CRM system and now our goal is to accelerate it and keep it well documented and efficient. Lastly, the next step will be to optimise the back office to be perfectly aligned with the front office structure, including logistics and supply chain, to be able to give the best service to our customers.
How long will it take you to fully implement this strategy?
The front office portion of our plan is already fully implemented but we will need time to stabilise and create a well-balanced structure. But itâ€™s a good foundation to face the market dynamics.
Do you have any recommendations for anyone undertaking something similar?
This kind of project needs to be prepared not months but years before so that the local management and the group can support the direction. Only start the deep preparations after you get the green light from all stakeholders. Stick to your launch dates, even if there are sceptics. There will always be risks, but you can work them out step-by-step. Last but not least, find a good partner, such as Fiducia, who can support you along the way.
Pascal Stutz comes from an engineering background with more than 20 yearsâ€™ experience working for dynamic and innovative technical infrastructure businesses for buildings. He first joined Legrand in 2008 and moved to Shanghai as CEO of Legrand China in 2013.
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