Sourcing in Post-Cheap China
Einhell Germany AG was part of the wave of foreign companies that entered China before the country became “the world’s factory”. Fiducia has helped to set up and run its China sourcing operations since 1993. Today, as “cheap China” fades and automation grows, the stock-listed provider of power and garden tools continues to see China as its most important purchasing market.
Andreas Weichselgartner, Managing Director of Einhell China for nearly 16 years, spoke to us about how changes in Chinese regulations, factories, and mindsets have kept opening doors for them.
Has the ease of doing business in China improved?
Regulations: Yes and no. Law and order are more transparent and “Westernised” now, but this implies tougher rules and compliance. For foreign enterprises the change is mostly positive. Increasingly, the same rules apply to local and foreign companies. “Guanxi” (good relationships, especially with authorities) are nowadays less crucial to solve problems or enjoy subsidies, so foreigners with fewer local contacts enjoy more equal respect.
Industry: Chinese factories have really upgraded their efficiency. Automation is improving quality and compensating for rising labour costs, while stricter government checks – especially environmental ones – are pushing out those who don’t play by the rules.
Are IP risks still a problem?
In our business scope we have seen an improvement. IP enforcement has gotten stronger, contracts are better, and the mindset of suppliers has shifted. The young Chinese generation running factories nowadays grew up with fewer needs and better education. They understand that loyalty to customers ensures long term success, whereas previous generations were more opportunistic.
And yet, within our large supplier base of over 170 factories, we still find some “black sheep” – cases where we develop a new product and find out that the supplier is commercialising it on other channels.
How do you manage China-specific risks?
Supplier relations: Apart from ensuring good contracts and relationships, we try to generate dependency. If a supplier makes $100m turnover and $90m of that turnover comes from your business, he will be willing to listen and to honour your agreements.
Market monitoring: We don’t sell our products in China, but we’re always checking the domestic market to see if anyone is selling them without authorisation.
Specialists: In China you need trustworthy partners in fields that are crucial to your business scope, which is why we have cooperated with Fiducia for decades. As an export-oriented company, tax and customs specialists are key for us because tax refunds amount to 17% of our turnover. Since China is so “black and white”, a simple typing mistake could take you 3-5 months to solve.
Are US-China trade tensions affecting your company?
We have seen rises in the price of raw materials and imported electronic components, but the impact has been limited until now. The US will be one of our end markets in the near future, so if tariffs are imposed on our product range it could affect us. But whether this will happen is uncertain. Even the largest power tools player in the US has a factory with over 11,000 employees in China.
Is Einhell planning to deepen its investment in China?
Over the next five years, Einhell plans to double its turnover globally and enter new end markets. It’s very likely that we will invest more in China to drive this growth. I’m confident that the centre of power and garden tools will still be here. Eventually, China will go through a similar shift than Germany did when labour intensive production moved out to Eastern Europe, but automation and component manufacturing remained in Germany.
As a sourcing, tech, and quality office, we in China will have to keep working heavily on efficiency and process performance to remain competitive.
What would you recommend to companies considering to enter China today?
China has changed more drastically and quickly than any other market in the past 15 to 20 years, and continues to do so. Any foreign company entering China has to be ready to change rapidly as well, at a pace that is very different from what traditional German companies are used to.