Economic Daily: The Road to Upgrading of Sany Manufacturing - Interview with Tang Xiuguo, President of Sany Group

The picture shows the port machinery products produced by Sany Group. Profile picture
 

The pump truck produced by Sany Group poured the floor of the Shanghai Tower of "China*5656 High-rise Building".
 

Sany Group was founded in 1989, when it was a small factory engaged in welding materials, and the output value of the enterprise was only about 100 million yuan. At present, Sany Group ranks sixth in the world's construction machinery industry and is the world's largest concrete machinery manufacturer*5655. In more than 20 years, Sany Group has gone through the road that many construction machinery companies can walk for decades or even hundreds of years.

Looking at the performance statements of Sany Heavy Industry Co., Ltd., a listed company in recent years, a series of beautiful figures are eye-catching: in 2006, the company's operating income was 4.574 billion yuan, and the net profit was 557 million yuan, and in 2011, the operating income was 50.776 billion yuan, and the net profit was 8.649 billion yuan. Over the past 6 years, Sany Heavy Industry's profit margin, return on net assets, and compound annual growth rate have been more than 50% higher than those of its peers. Among the 40 companies selected by Fortune magazine in 2011 for China's top 500 return on net assets*5661, Sany Heavy Industry topped the list with a return on net assets of 59%. How did Sany achieve such impressive performance? What is the enlightenment of Sany's development trajectory for China's manufacturing industry? A reporter from this newspaper recently went to Changsha and interviewed Tang Xiuguo, president of the Sany Group.

 

Enlightenment 1: Independent innovation and take the road of differentiated competition

 

Sany products are priced on a value-based basis. Prices are determined by the customer through competition, not by cost.

Reporter: What do you think is the reason for Sany's rapid growth?

Tang Xiuguo: *5656 points, in the final analysis, the profitability of enterprises comes from innovation. I think the entire development history of Sany can be summed up by a series of innovations: new products are constantly launched, and then huge investments are made in research and development, and new products continue to come out, forming a virtuous circle. When the state regulated and controlled several times, the economic efficiency of many enterprises declined, and our old business may not be able to grow, but we happen to be innovative and new business is constantly coming out. When a new business comes out, it's a new start for us, so there's growth. In this way, it balances out the decline of our old business. For example, we used to engage in welding materials, but now we don't do it, or we are replaced by new business.

The second point is to take the road of differentiated competition. We propose to "change the world by quality", and to make people feel that "Made in China is better than made in other places" around the world. What do we do? Substitution of imports. Therefore, all of Sany's products from beginning to end, such as concrete trailer pumps, pump trucks, etc., are all imported substitution. How did the pricing for these products come about? Prices are based on imports! Approaching or even exceeding the level of quality of imported products, and then the cost of Chinese manufacturing, isn't our benefit good? So Sany products are priced according to value. Prices are determined by the customer through competition, not by cost. If we implement the strategy of low-price competition, how can we have the ability to continuously create more energy-saving and environmentally friendly new products for customers by investing 5% to 7% of sales in R&D today?

Looking back, the road we took was actually a road of differentiated competition. There are two ways to market competition, one is the price war, continuous price reduction, taking advantage of low manufacturing costs to squeeze market share; The second is to take the road of differentiated competition, through vigorous independent innovation, to give products better functions, close to user needs, so as to attract customers. We chose the latter path.

Our "import substitution" strategy is one differentiator. What differentiates us from imported products? It is close to their quality level, better service, and at the same time the cost of Made in China. We have developed a lot of functions that Chinese customers are used to, and imported products enter the Chinese market with an arrogant attitude, he thinks that he is so good at this thing, Europeans can use it, Americans can use it, Japanese people can use it, why can't you Chinese use it? So he's teaching us a lesson, and we're giving Chinese users a lot of respect, which is a differentiation from imported products. The differentiation from domestic products is even more obvious, that is, it is significantly higher than the domestic product quality and service standards. In the past, in construction machinery, Chinese companies have never promised that customers can return goods if they are really dissatisfied, but Sany can. If the machine is not repaired well within 24 hours, Sany will compensate. In the past, the failure rate of China's construction machinery was so high, if you want to pay for it, isn't it all lost? And after we have this quality, we have the basis for compensation, and we can afford to lose. So we're really losing. How to pay? We will pay you how much it costs to rent a product until the machine is repaired.

It is easy to engage in a "price war", but the problem is that due to the need to vigorously reduce costs, R&D investment will be insufficient, technical reserves are difficult to keep up, and services are difficult to guarantee. In a short period of time, the price war has achieved obvious results; In the long run, the harm outweighs the good, and if you can use this trick, others will too. Especially in the construction machinery industry, if you choose a low-cost, low-price strategy, it is likely to sacrifice the quality of products and services, damage the interests of consumers, and is not conducive to the long-term development of enterprises.

Reporter: The sales price of Sany products is almost the same as that of foreign brand products, but the sales situation is still good, how do you make customers accept your price?

Tang Xiuguo: In addition to product quality, service is also an important part of Sany's competitiveness. Heavy-duty machinery has a complex structure, a long service life, and is prone to failure. Recognizing the characteristics of this industry, Sany has taken service as a core competitiveness since its inception. With the service goal of "exceeding customer expectations and exceeding industry standards", we continue to explore and innovate in the construction of service system, investment in service resources, and reform of service model.

Reporter: What are the characteristics of Sany in terms of service?

Tang Xiuguo: Sany invests 3% to 5% of its sales revenue in the construction of service resources every year. In 1998, Sany set up the industry's first 800 toll-free service telephone; In 2005, Sany launched the 4008 call service system for the first time in the industry; In 2006, Sany built the industry's first ECC enterprise control center, and took the lead in launching the "6S Center" integrating vehicle sales, spare parts supply, after-sales service, information feedback, product display and training. At the same time, Sany Group has successfully developed a series of information systems to effectively improve the accuracy and timeliness of services. At present, Sany has set up service outlets in many countries and regions around the world, including more than 700 service outlets in China, and service vehicles are on standby 24 hours a day to ensure that the service radius is controlled within 120 kilometers. More than 450 spare parts warehouses have stored more than 80,000 kinds of spare parts worth more than 500 million yuan to meet customer needs in a timely manner.

Many of the construction machinery products produced by Sany are sold to farmers and urban self-employed individuals. You must know that they buy a product with an average price of 1.3 million yuan, which can be said to have put their lives on the line. If the product doesn't make him money and doesn't help him succeed, what do you think the result will be? We are also born as farmers, and we must put the value of our customers in the *5656 place. Today, Sany provides customers with not only a product, but also a tool, means and method to make money, telling him how to use this thing to make money.

We often calculate that we sell products to customers, whether the customer is buying our best deal, whether it is the best deal to buy from Komatsu in Japan, or the best deal to buy the "German Elephant" (Putzmeister). After the account is calculated, calculated from the whole life cycle, buy our * cost-effective, we are really worthy of the customer, this is the service we want. You see, from the beginning of the program, to train him, provide accessories, then give him a pre-inspection, then do maintenance services, and to today also do financial support, this is also a service, without these supporting services.

Reporter: Cost control is also an important reason for Sany's success, how do you do it?

Tang Xiuguo: In terms of cost control, Sany has implemented a lean production mode. Toyota is the originator of the lean production method, and later through the research of MIT professor Vormack, a book called "Lean Thinking". Now, users from Japan say that Sany has mastered the Toyota production method very well. I don't think there is any other company that has more users than us from Japan, and most of them are management users. What is the main role of lean manufacturing? Eliminate waste and create high quality, high quality brings high prices, there are high benefits, and eliminating waste is actually creating benefits.

 

Enlightenment 2: Implement relevant diversification strategies around the main business

 

When a product is not one of the best, Sany will not make a second product, which is the criterion that Sany adheres to in relation to diversification. The next development strategy is to "go up the mountain and down to the sea".

Reporter: From trailer pumps to pump trucks to excavators, cranes, coal machinery, marine machinery, Sany has expanded rapidly. How is Sany's development strategy determined?

Tang Xiuguo: The development of Sany Group to such a height today is inseparable from our strategic management. We realized the importance of strategic management early on. When the company was very, very small, we put "what is the strategic direction" in the decision*5656 position.

When we first started, we were engaged in special welding materials, and by 1993, we had occupied nearly 70% of the market, and there was not much room for further development. How can businesses transform? At that time, the popular model was "integration of trade, industry and technology" and "cross-industry and cross-regional" enterprise groups, which blossomed in an all-round way. But we didn't have a hot head and chose a strategy of diversification. That is, to take the field of construction machinery as their main business, start from simple, and work steadily.

Reporter: How do you do that?

Tang Xiuguo: Excavator is the crown jewel of construction machinery, and this product alone accounts for nearly one-third of the market share of construction machinery. In 1993, Chairman Liang Wengen transferred me to Sany Heavy Industry as the executive deputy general manager, and the *5656 project I investigated was an excavator. From 1998 to 2001, we argued for four years, but we didn't dare to do it. The cab of an excavator is about the same level as the cab of a car. The excavator industry association told us that if you don't have the ability to do a good job in this cab, don't make an excavator first. So let's start with concrete machinery first. When a product is not one of the best, we will not make a second product, which is the principle that Sany adheres to in terms of diversity.

In 1994, Sany Group launched *5656 products in the field of construction machinery are concrete trailer pumps. Today, this product may be a small product of Sany, and the average price may be more than 400,000 yuan. But we also made the pump truck after the trailer pump was made to China*5656; The pump truck was made to *5656, and we entered the excavator, crane, coal machine, and port machinery.

After years of accumulation of technical and management experience, in 2002, our excavator started. In 2011, the excavator was finally made to China*5656, *5656 times more than Japan's Komatsu. Now a full range of construction machinery products, we can be with Japan Komatsu PK, will not lose to him.

Reporter: I heard that you have built a marine industrial park in Zhuhai, why did you choose to enter the field of marine engineering equipment?

Tang Xiuguo: Our next development strategy is to "go up the mountain and go down to the sea". What is it to go up the mountain? Engage in mining machinery. On land, in the field of infrastructure construction machinery, the distance between us and our international counterparts is not too large, and concrete machinery is still our strength. But we don't have a full set of mining machinery, our *5655 mine truck is only 230 tons, but Caterpillar and Komatsu both have 400 tons, the difference is doubled. *5655 excavator, we only have 200 tons, others are 500 tons, the difference is very far, in the complete set of mining equipment we still have a distance.

"Going to the sea" is to engage in marine engineering machinery. Why do you want to engage in offshore machinery? Provide advanced and reliable modern equipment for China's and the world's marine economy, promote the development of marine economy, and realize the ideal of serving the country through industry.

At present, the development of marine economy has been included in the development strategy of coastal countries. The development and utilization of offshore oil and gas resources have promoted the vigorous rise of the offshore engineering equipment manufacturing industry, but China's offshore equipment manufacturing capacity is still relatively weak. China has a long coastline and rich port resources. In the past, most of the port machinery products active in China's major ports were foreign brands, and more than 85% of the products such as reach stackers and forklifts were occupied by foreign companies, and domestic brands had no right to speak.

What is the future market of offshore construction machinery? $500 billion a year. Aware of the broad prospects of marine construction machinery, we take this field as the next blueprint for enterprise development.

Reporter: What achievements has Sany made in the field of marine engineering machinery?

Tang Xiuguo: In December 2005, Sany Port Machinery's first reach stacker was successfully developed. In the following two years, Sany Port Machinery's two main products, reach stackers and forklifts, have successively broken the foreign monopoly and continued to sell in China. In 2011, Sany Port Machinery's sales revenue exceeded 1 billion yuan, and the domestic market share was 5656 for three consecutive years, completely changing the pattern of foreign brands.

Sany's HAECO products are also going abroad. In June 2011, Sany established a cooperative relationship with a local agent in Saudi Arabia. With the help of Sany, the agent has completed the sales of more than 20 Sany Port Machinery equipment as of February this year, and has taken the top spot in the local market share in one fell swoop.

In November 2010, Sany Group signed an agreement with the Zhuhai Municipal Government to invest tens of billions of yuan to build a port machinery, marine engineering equipment and engineering shipbuilding industrial park in Zhuhai. Sany Marine Heavy Industry (Zhuhai) Industrial Park covers an area of about 6,000 acres, and it is expected that the total output value of the park will exceed 60 billion yuan within 10 years.

At present, the container gantry crane, port gantry crane,Shore-to-shore container cranesand other large-scale port equipment, which have been successfully sold to Shanghai Port, Yantian Port, Tianjin Port, Zhanjiang Port and other large domestic port companies.

 

Enlightenment 3: Seize the opportunity to solidly promote internationalization

 

At present, less than 10% of Sany's operating income comes from the international market, and the next step is to increase to 30%, while the standard of multinational companies is 50%, and there is still a lot of room for Sany in this regard.

Reporter: Please introduce the internationalization process of Sany?

Tang Xiuguo: After the international financial crisis in 2008, the pace of internationalization of Sany Group accelerated. The international financial crisis has given us a rare period, the price of resource factors is low, and talent, technology, and land resources are relatively cheap. Entering the international market at this time can get twice the result with half the effort. That's why we've stepped up our efforts to build industrial parks in the United States, Germany, India, and Brazil. The European debt crisis that broke out last year gave us another opportunity to acquire the "elephant" (Putzmeister company). In April this year, we completed the acquisition. The use of technology, talents, and standards from developed countries such as the United States and Germany can help Sany, a "Made in China", complete the leap from quantitative change to qualitative change.

Reporter: Some companies think that by establishing factories overseas, or merging and appointing foreign enterprises, they have achieved internationalization, how does Sany understand this problem?

Tang Xiuguo: Internationalization is a new challenge for many Chinese companies. Internationalization, in layman's terms, is to make better use of both international and domestic resources and markets. In the process of internationalization, on the one hand, we should pay attention to integration, including the integration of talents and markets. This year, we acquired "Elephant", which gave us the opportunity to digest and absorb foreign technology and experience, and also gave us the opportunity to integrate the market. Putzmeister is the *5656 brand of the global concrete machinery industry, and we do not want to replace its brand with "Sany" after the merger, but to divide the market on the basis of avoiding competition in the same industry. Putzmeister focuses on the international high-end market; Sany Heavy Industry focuses on the domestic market, and the two brands complement each other and complement each other. Putzmeister's sales were 570 million euros last year, and this year they can reach 700 million to 900 million euros, because there is no other international competition with Sany.

On the other hand, special attention should be paid to the localization of products. There is such a phenomenon in the field of construction machinery: it is difficult for a foreign brand to beat a local brand. Caterpillar is the leader in the field of construction machinery, but it can't sell Komatsu in the Japanese market, and Komatsu can't sell Caterpillar in the American market. Therefore, localization is very important for construction machinery companies. Localized products are not necessarily technologically advanced, but they must be suitable for the local area. We require Sany India & Brazil to become a local * show company and a listed company, rather than a Chinese company in India and Brazil. This company is Sany Holdings. The money we make now in India and Brazil is not to take it back home, but to make rolling investments and make them the best companies. In the future, it is possible that these companies will make more money in a year than they have invested in the past decade.

At present, less than 10% of Sany's operating income comes from the international market, and we hope to increase it to 30%, while the standard of multinational companies is 50%, and we still have a lot of room in this regard. All in all, every crisis, if handled properly, is an opportunity, and competitiveness will be further improved. The current European debt crisis is the time for China's manufacturing industry to make a big difference.