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issue: November 2007 APPLIANCE European Edition

Guest Editorial
Doing Business in China the Italian Way


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by Aldo Fumagalli, executive chairman, Candy Group

European appliance producer Candy plans to succeed in China by carefully applying its industry know-how, manufacturing expertise, an understanding of marketing needs, and a great deal of patience.

Italians have known how to get into China for more than 700 years. Centuries ago, there was a young man from the Republic of Venice, Marco Polo, who trekked all the way from Byzantium (today, Istanbul, Turkey) to the imperial seat of China. He went there, came back home, and was again on the Eastern trail (the Silk Road, as it was called) when he turned 17 in 1271. He spent 25 years in China to understand what made the region tick and how such an immense territory was ruled. And certainly he did, rising to the highest echelons of the Great Khan’s court.

More than 700 years have passed since that adventure, and today, Italians that have landed in China for business still understand the two key values in accomplishing a successful and long-lasting implantation—time and patience.

Candy Group has been in China since mid-2006, when it acquired Jinling, the country’s number-three domestic brand and manufacturer of washing machines. This happened after two years of negotiations, preceded by another year of surveying the market and mulling over acquisition options.

We didn’t go to China just for outsourcing some manufacturing capabilities; we didn’t just ride the wave of the delocalization of production. Instead, we knew that China is the largest market for washing machines in the world. We found that there is a growing demand for European-style washing machines (i.e., front loading, horizontal spin axle), although the local top-seller is still the vertical-axle model. While the vertical-axle model was abandoned in the late 1950s in Europe, it was developed into a fully electronic, high-tech product in China and Japan.

Our corporate strategy rests on two pillars: to balance commercial presence with local manufacturing capabilities, and to be a leader in the fastest-growing markets. It is no coincidence that we recently opened a subsidiary for Asia–Far East (excluding China) in Hong Kong.

The Jinling acquisition also brought added value to our product range: in fact, our catalogue lists vertical-axle machines made in China for domestic and export markets in Asia, South America, and Africa, where demand for European-style products is still scarce.

To convince Jinling shareholders to close the deal, we had to make good use of the virtue of patience. We learned very soon that our counterparts were tough negotiators, shrouding their positions and objectives in a cloud of correct politeness and sincere public relations. Such a scenario put everybody at ease—until one glanced at the watch or the calendar.

We understood that our Chinese counterparts follow a rigorous reasoning, yet they never disclose in full what they either think or want. And then there is the language barrier. One cannot skip the interpreter—an unavoidable, time-consuming process.

Jinling was owned by the local municipality of Jiangmen (Guangdong Region) and by an investor base located in Hong Kong. The latter’s presence was a valuable asset in the talks because the company was already aware of managerial and entrepreneurial values. The investors helped shorten the negotiation process, as we already shared the common platform of doing business worldwide.

A Western company cannot, nevertheless, forget that its Chinese counterpart, being a state- or local-government-owned company, has strong and unbinding social responsibilities. Candy Group satisfied such a prerequisite by signing guarantees on the development of brand, company, and workforce.

Chinese management and workforce have a sound know-how of manufacturing and a good culture of quality, yet they lack knowledge of the most updated marketing techniques. If it is rather easy to find a local manager for a plant, it is more difficult to appoint someone commanding both marketing competence and market know-how. In our opinion, this is the right profile of a person fit for the job of general manager. Of course, he or she must have a reasonable command of English, which is still a highly limiting requirement in the list of qualifications for prospective management hires.

We also understand that the success of manufacturing in China is closely linked to the acquisition of a distribution capability and the related structure for sales and after-sale service. Jinling had already built a prime manufacturing site and a focused distribution and sales organization covering all of China. We know that an effective and far-reaching sales organization, close to the consumer (like Jinling’s), is a must when the rationale of localization is production for the domestic market, not a mere delocalization.

Our Venetian ancestor was quite successful in displaying communications and marketing capabilities still unheard of in that part of the world. In his own words, he became the leading ambassador of the Imperial Court and a fairly powerful Secretary of State with a reach over more than half of the known lands. We fly at a much lower level: we are building the success of our venture through the appropriate mix of know-how, manufacturing, distribution, and marketing for China. 

 

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