BSH is set up with three subsidiaries
in China: BSW Household Appliances, which produces high-quality
washing machines in Wuxi, Jiangsu Province; BSH Home Appliances,
which makes state-of-the-art refrigerators in Chuzhou, Anhui
Province; and Jiangsu BS Home Appliances Sales in Nanjing, which
acts as the company headquarters while handling all the marketing
and sales functions for both factories. Both of the production
facilities are strategically located within a few hours of Nanjing
to take advantage of its central location.
One of the most difficult obstacles to overcome in China is
building an efficient and comprehensive distribution and sales
network. BSH has tackled this problem by opening one company
and centralizing all marketing, sales, distribution, and planning
functions. The Nanjing sales company, started in 1997, is jointly
owned by the two factories, and it handles all sales and distribution
for its products while acting as the company headquarters. According
to Roland Gerke, president of BSH in China, "As legislation in
China evolves, the final goal would be to come down to one company
in China. But for now, the government-mandated structure is working."
BSH in Nanjing employs more than 1,000 people and a comprehensive
network of regional, provincial, and city offices covering the
entire country. BSH staff travels to the retail outlets, directly
employing a promoter in every sales outlet where BSH products
are sold. This face-to-face contact with the end-user is an invaluable
source of market information. The promoter can listen to the
needs, complaints, and reactions to new product features first-hand
from the consumer on a daily basis. Using this valuable information,
BSH is able to develop new products and add new features with
benefits that the Chinese consumer appreciates and values. The
promoter also reports daily sales figures that allow BSH to plan
production and logistics schedules. Mr. Gerke says, "We chose
Nanjing in the middle to be close to both factories and to allow
better information sharing."
BSH in Nanjing has built a massive sales and distribution network.
It has a strong presence in all cities with a population of more
than 500,000, and 60 percent of the cities with more than 200,000
people. According to Mr. Gerke, "We cover maybe 450 out of 650
cities in China. About 40 percent of our network is outside of
the classic coast region. The consumer in Wulumuqi (a city in
China's furthest west province, Xinjiang) also has purchasing
power. With the exception of Tibet, we cover everywhere." Building
a comprehensive pan China distribution network has been one the
most daunting challenges to international companies in China.
BSH has managed to overcome that challenge and now commands a
network that covers virtually all of China.
washing machine assembly is complete, the
appliances are leak tested and go through
a fully automated robotic line, where they
undergo function testing to make sure that
everything is working properly. APPLIANCE
BSH Nanjing has also concentrated on building the best after-sales
service network to go along with its reputation as a high-end
appliance maker. Mr. Gerke says, "We can offer 24-hour service,
and we usually try to make the service visit the same day we
get the call. In other countries it is very difficult to achieve,
but here we are quite hardworking."
Mr. Gerke sums up the Chinese consumer attitude when he says, "The
consumer in China is very interested in getting value for the
money, and is also interested in what benefits they can get from
the features. They really read the promotional literature and
get involved with the purchase."
BSH in China is committed to taking the top end of the appliance
market. In China, it only utilizes the Siemens brand and has
been able to build broad awareness and a very strong reputation
for high-end products, advanced features, and top quality. Competing
exclusively at the high end of the market place has allowed BSH
to maintain its profit margins while other companies struggle
through protracted price wars in a very crowded industry. As
China's economy has continued to grow disposable income, Chinese
consumers have increased demand for higher quality products,
while demand for low-end products is concentrated in the countryside.
Mr. Gerke tells APPLIANCE, "We market only high-value, high-quality,
top-end products in China." Adds Herbert Pawlig, general manager
of BSH China, "Innovation defines Siemens' approach to China's
crowded market." While this strategy puts the company's products
out of reach of the vast majority of Chinese consumers, it also
allows it to better satisfy the needs of a well-defined market
segment with the most advanced features, top quality, and modern
BSH in Nanjing has recently put together several innovative
promotions to build the Siemens brand in China. "In Qingdao,
Wuxi, and Nanjing, we did a promotion where we had 100 washing
machines installed outside in the public square in front of the
department stores for 10 days and anyone could come and use them," Mr.
Gerke says. "We did this to promote the front-loading technology
and water conservation."
At the West Lake in Hangzhou, BSH dedicated a statue as a monument
to the work done to combat China's struggle with SARS. BSH commissioned
local artists to paint refrigerators and then donated them for
auction, along with other art collected from the populace. The
proceeds were used to build the statue. All local media covered
the dedication, as it was part of a larger event commemorating
the fight against SARS.
BSH also has conducted a large road show for the last 2 years.
The show visited 20 cities last year from the western province
of Sichuan to Jilin in the Northeast. On some days the show received
more than 5,000 visitors. The traveling show has three tents
with built-in kitchens and appliances on display, as well as
live entertainment such as singing and dancing. People lined
up to get a card to go through the tents.
Another promotion included sponsoring a paper crane folding
competition and donated thousands of cranes to a football association
before a championship game, along with the commissioning of artists
to paint another set of refrigerators that were then auctioned
off. The money was used to start a midwife program in small remote
villages in Yunnan province in Southwest China.
Not content with its product base, BSH in China has plans to
expand. Mr. Gerke says, "We have concentrated on building our
distribution network, and we can use that as a base to launch
other products. We will further enlarge our product base. I see
a good opportunity with good products and our expertise." BSH
has already begun marketing a new storage type water heater.
When asked about the over capacity that plagues much of the
appliance industry in China, Mr. Gerke quickly answers: "Capacity
does not mean competitiveness. A lot of outdated factories will
not survive, but maybe their deaths will be slower because they
can still do business in the rural areas. There will be more
consolidation. To build capacity is maybe the smallest problem
you face in China."
BSH is confident that it has and will have innovative products,
technology, brand, and distribution network to succeed in China's
competitive market. "We need to win the battle every year in
China. The market is changing so fast," Mr. Gerke says.
BSW Household Appliances Company (BSW) is located in the city
of Wuxi in Jiangsu province halfway between the sprawling metropolis
of Shanghai in the east and Nanjing in the west. Located on the
east side of Wuxi city, 120 km from Shanghai, BSW set up its
company in the Wuxi New District an industrial zone opened by
the Wuxi government in 1994 to attract foreign investment and
promote economic growth for the city. In the 10 years since the
industrial district opened, it has attracted more than 400 companies
from around the world with a total investment of U.S. $11.5 billion.
workers assemble refrigerator cabinets
at BSH's factory in Chuzhou, China.
APPLIANCE magazine photo.
BSW, founded in 1994 with an investment of $30 million, was
one of the first companies in the Wuxi New District. Production
of front-loading washing machines began in October 1996. BSW
employs about 400 people, with 9.6 percent in Quality, 6.8 percent
in R&D, and 72.5 percent in Manufacturing and Administration.
The total production capacity in three shifts is between 500,000
and 600,000 units annually. Production was planned at 272,000
units for 2003, but the facility will produce more than 320,000
units due to the jump in demand for front-loading washing machines.
BSW was established as joint venture with Little Swan, one
of China's largest washing machine makers. Mr. Pawlig of BSW
tells APPLIANCE, "BSH owns 60 percent of the joint venture company
in Wuxi, while Little Swan owns the remaining 40 percent and
controls two management positions: human resources and manufacturing
operations. Other than that there is no connection."
In May 1998, BSW achieved ISO 9002, in 1999 it was awarded
China's Environmental Protection Labeling Certificate, and in
December 2000 the factory reached ISO 9001 and ISO 14001 status.
As part of its commitment to supplying only the high-end products
in China, BSW produces only front-loading washing machines using
the latest European technology. Mr. Gerke says, "The front-loader
is on the move around the world. In Korea, Japan, and even in
the U.S. market, the front-loader is gaining ground. To meet
water conservation requirements, we can only use the front-loading
technology. We believe this is the better technology - measurable
by performance - and we do our best to promote the concept. We
have around 30-percent market share of the front-loader market
in China. We are about even with Haier in the front-loader market;
Haier sells more units, but we sell for more value."
The annual washing machine volume in China is 11 million units.
The twin-tub semi-automatic model still dominates the market
in rural areas, but they are completely non-existent in the cities.
Currently, front-loaders make up 10 percent of the total market,
but if one examines the urban market, that share jumps to about
25 to 30 percent. In market research by an institute, 50 percent
of respondents in Beijing said they would like to buy a front-loader.
Adds Mr. Gerke, "We believe that the front-loading market will
double in 3 to 5 years."
BSW exceeded its planned production for 2003 by 15 percent
because demand for the front-loader washer is increasing faster
than anticipated. The growth in this segment has caught the attention
of the competition. "Other manufacturers are entering the front-loader
market; especially the Japanese and Korean companies," says Mr.
Up until now, the largest obstacle to increased market penetration for the
front-loader washing machine has been the price. In China, the average price
for a front-loader is around 2,500 RMB (approx. U.S. $300), while the average
cost of a top-loader is close to half that at about 1,000 RMB (approx. U.S.
$120). Price is still one of the most important considerations in a country
where the average monthly income is still well below 1,000 RMB.
"We will not produce the top-loader," Mr. Gerke says. "BSW is committed to
our front-loader strategy. The Asian-style top-loader makers are not making
the margins, and this is another reason we are committed to the front-loader."
The Siemens brand recently introduced its Slim Line products to the Chinese
market. The Slim Line washing machine is only 40 cm by 60 cm and can handle
a 4.5-kg load. The small footprint makes this line very well suited to the
Chinese market, where relatively small apartments are still the norm. The Slim
Line concept originated in Eastern Europe for the same reason, and BSH soon
found that it was a popular model in London and other large cities where urban
residents had limited space. In China, the Slim Line is taking market share
from the traditionally more popular Asian top-loader. The appliance uses only
49 L of water per wash. Compared to the 100 L per cycle averages of Asian-style
front-loaders and the 150 L of Asian-style top-loaders, the Slim Line represents
a huge water savings. This is much needed relief for the over-used water resources
in countries like China.
BSW also produces a front-loader washer with a built-in dryer in China. Although
clothes dryers are not popular at all in China with the vast majority preferring
to hang everything outside to dry, this market is beginning to grow with the
The Siemens front-loaders offer numerous features the Chinese consumer has
come to appreciate. A built-in water heater allows the machine to kill germs
The factory in Wuxi is held to the same strict quality and environmental
standards that are set by the BSH worldwide headquarters in Munich, Germany.
Through continuous research and development, quality and environmental protection
is constantly improved. Over the past 10 years, BSH has focused many efforts
on the environment to where now, its products are almost 100-percent recyclable.
Product development teams must always include core members from the environmental
protection and quality departments. "It is really a comprehensive approach,
starting with product development and materials continuing to supplier management
and improvement, and later, field development during production and continuous
improvement during the product life cycle," says Mr. Pawlig.
The Wuxi organization has R&D professionals directly connected to the central
R&D for laundry in Berlin, Germany. While other manufacturers have exported
outdated production lines to China to produce an inferior product specifically
for the Chinese market, all BSH products are based on the latest European platforms
and built to the same quality levels as produced in Europe. The China facility
now exports some of its production.
About 75 percent of the cost of each unit is in materials. "With that much
cost in the materials, we need to improve the whole supplier base in China
to constantly improve our competitiveness," says Mr. Pawlig. "We go in and
show them how to continuously improve quality and productivity." In 2003, combined
supplier audits were implemented worldwide by the Munich headquarters. A team
with core people from Quality, Environmental Protection, R&D, and Finance audit
each supplier to ensure they meet the strict standards required. This team
works with each supplier on the areas where they need improvement until they
have the personnel, systems, and procedures in place to continue to meet ever-increasing
quality, productivity, and environmental standards.
BSW exports 10 percent of the Chinese-made units to other markets under the
various brand names BSH uses. According to Mr. Pawlig, "We could not export
unless our machines were made to the same stringent quality standards that
are followed in all our facilities around the world." The production must also
be cost competitive to export, so local sourcing of content becomes important.
To compete in China's world of over-supply and price-first competition, localization
is key. Even when producing a high-end line, the price must be right. Up until
now, BSW has been able to source about 75 percent of product content in terms
of quantity and value locally. The motors and some of the electronics are still
imported. Local motor production still can't reach the tolerance requirements,
so the motors can't reach the lifetime requirements. Some of the stainless
steel for the drums is imported from Europe, but BSW also has a local supplier
in Shanghai - Krupp Thyssen Stainless Shanghai.
The goal of localization applies to the staff as well. The company has only
four team members from overseas; the rest of the 385 staff members are all
The washing machine factory is separated into three main areas: Pre-Fabrication,
where parts and sub assemblies are made; Painting, where all parts are powder
coated; and Final Assembly, where all the parts come together and the final
product comes off the line packaged and ready to ship.
At the pre-fabrication plant, the first station produces the washer's stainless
steel drums. The steel is rolled out, cut, and moved into the Italian equipment
used to form the drum shape. The drum must be perfectly balanced and completely
free from burrs, so it spins evenly without damaging the clothing. Mr. Pawlig
says that BSW made a large investment for drums. "We have strong competence
in stainless steel to produce the drums," he says. "The process is 100-percent
operator controlled." As the drums are finished and checked, they are moved
by an overhead conveyor to assembly.
Further in the prefab plant the cabinets are formed. The cabinets are made
by a 400-ton automatic press that is completely enclosed and surrounded by
a sound barrier - a precaution that is often overlooked in the usually deafening
Chinese factories. Next, a transfer line takes the metal sheets to produce
the housing. The machinery goes through 10 automated steps to make the U-shaped
housing. Finally, it is sent to the completely automated welding station. As
the cabinets come off the line, they are sent directly to assembly. BSW does
carry a small number of finished cabinets in inventory. It has an automated
buffer zone to store finished cabinets until needed in assembly.
Pre-paint consists of nine steps to ensure that painted surface will hold
up throughout the product's lifetime. First, the cabinets go through pre-degreasing,
degreasing, and two rinses. Then they are activated and zinc-plated to increase
the paint's adhesion. Finally, they are rinsed a third time before the pre-paint
dip. A drying oven is used before the powder coat is sprayed on. After the
powder coating process, a lab checks the chemical properties of the paint as
well as the adhesion and thickness.
The assembly line is divided into sections, and each washing machine must
meet a series of quality points in order to continue to pass down the line
to the next section. The goal is First Pass Yield (FPY), so that a machine
is never taken off the line.
"The washing blocks (or oscillating system) are the heart of the washing
machine. To produce a quality washer, you have to have very good blocks," Mr.
Pawlig says. BSW pays special attention to the production of the washing blocks.
The air ratchets used to assemble them ensure exact torque control when assembling
the washing block. The objective is to make a machine that is completely trouble
free for more than 10 years of use. As the blocks are put together, they move
down the line to the "wedding place" where the block and cabinet are joined
until death do they part.
BSW utilizes the Kanban parts flow system to keep the assemblers stocked
with just enough parts. The racks are arranged with two lines of slanted shelves
for parts bins - one facing in to the assembler and one facing out. As one
bin is emptied, it is turned around to slant facing out, so it is obvious that
more parts are needed at that station. The various suppliers have workers stationed
in the BSW factory stocking the assembly line. It is a pull system, so the
suppliers are not allowed to put a part on the line until it is needed on the
shelf for the assembler.
After assembly is complete, the washing machines are 100-percent leak tested.
Then, the machines go through a fully automated robotic line and are 100-percent
function tested to make sure that everything is working properly. Up to 5 percent
of all washing machines have to go through a production-independent product
audit test using European test equipment standards.
As the finished units move to the end of the assembly line, they are packaged.
A bar code control system allows 10 different models to be packed at the same
time. The packaging materials must be better in China than Europe to prevent
damage in shipping. The roads in some areas of China are very poor, and the
logistics service providers often do not use the most advanced materials handling
methods, so the rates of damage during transit are very high.
At the BSW factory, there is space for only 1 day of finished production
in the warehouse. All finished goods are shipped immediately to the company's
Nanjing distribution center.
Up the road in Chuzhou, Anhui Province BSH Home Appliances produces refrigerators.
It was founded in 1996 as a joint venture, but now is a wholly owned foreign
enterprise. Originally, the partner was the Yangzi Group. Now, Yangzi Group's
business focus has shifted to machinery and the rapidly expanding automobile
industry. Therefore, BSH took over its shares and now owns 100 percent of the
company. This type of industry change in China is not rare. Midea, formerly
know as MD, is a large player in the home appliance industry and has also recently
started producing buses.
The refrigerator factory introduced ISO 14001 last year. It has also achieved
a high growth rate - more than 20 percent for the last 2 years - and will increase
capacity in 2004. Dr. Xiao Tian Zhou, the head of Research and Development
tells APPLIANCE, "We have positioned our products at the highest market segment
for price and quality, and we want to maintain that position. We don't want
rapid growth in quantity if that entails diluting our reputation as the top
producer in China."
BSH Home Appliances has targeted the highest end segment of China's market.
In Shanghai, BSH sells the same number of refrigerators as Haier, but the Siemens
models are more expensive so it accounts for a higher dollar amount. BSH is
number two in terms of value in China's urban areas. "The average sale price
is a two-digit percentage higher than the second most expensive brand and that
is where we want to be," says Dr. Xiao Tian Zhou.
says it chooses the best suppliers in order to maintain
high quality. Its three approved refrigerator compressor
suppliers, for example, include Embraco, Matsushita,
and Zanussi. APPLIANCE magazine photo.
"We came out with a true 'zero-degree' feature in the Chinese market 2 years
ago," says Mr. Gerke. "It allows vegetables to stay market fresh for up to
10 days. We had a promotion where the refrigerators were sealed for 10 days,
and then we opened them in public squares in various cities and distributed
the fresh vegetables. In Chinese cuisine, fresh vegetables are very important,
and families often go to the market daily, so this feature was very well received.
It is not so easy to copy. The temperature has to be maintained above 0°C and
less than 2°C. If it goes below zero, everything will freeze."
BSH is the leader in zero-degree technology. Acis Demandt, general manager
of BSH in Chuzhou adds, "The food will last three-times longer than in a normal
refrigerator. It has been a huge success. It is one of the most expensive units
on the market and every month it's in the top 25 best sellers. Other manufacturers
have tried to copy it, but it is a fairly complicated system using electronics
to precisely control two magnetic valves and two fans."
BSH was the first in China to use the WTS platform for refrigerator production.
Mr. Demandt says, "By using the same platform and many common parts virtually
throughout the product range, less investment is required to quickly develop
and bring to market new models with new features. This is one of the keys to
One of the new features BSH will introduce is frost-free. "No frost is very
difficult to achieve while maintaining energy efficiency," Dr. Xiao Tian Zhou
says. "BSH will introduce a no-frost model in 2004 that exceeds China's Class
A energy standard."
Standards & Quality
To maintain the reputation as the producer of the most advanced refrigerators,
BSH strives to constantly improve production standards. BSH is the only refrigerator
maker in China that paints the evaporator components that are assembled inside.
The powder coating protects them from the moisture and ensures long life. "We
only use components that will last as long as the lifetime of the product," Mr.
Demandt says. "One example is the electronic display. Other companies use displays
that they know can't last. Our philosophy is to have products that are reliable
10 to 15 years. We never sacrifice our long-term success for profit today."
The commitment to producing the best products on the market is transferred
over into the company's commitment to its employees. "For a modern company,
the personnel are the most important asset, so we have one building dedicated
to training," Mr. Demandt says.
Dr. Xiao Tian Zhou adds, "We are a pioneer in key technologies in China.
There are three key points for performance: energy consumption, noise level,
and design. BSH is number one in China in energy efficiency; 50 percent of
our models fall in the A range of China's energy consumption standards. We
also have the best average noise level at 35-36 DBA. Our design is very modern
with straight, clean lines and a strong continuity throughout the line."
BSH has achieved a very high level of localization without sacrificing refrigeration
quality. More than 97 percent of all refrigerator parts accounting for 85 percent
of the value are purchased locally. About 37 percent comes from the same province.
The steel for the cabinets still comes from Germany, Korea, and Japan, but
other than that, virtually everything is locally produced. The magnetic vales
are also imported to meet the company's safety standards.
"BSH chooses the best suppliers to produce the best quality," notes Dr. Xiao
Tian Zhou. "BSH has three approved suppliers of compressors: Embraco, Matsushita,
and Zanussi. Together, those three companies make 5 million compressors a year
in China for the Chinese market. China produces about 17 million refrigerators
a year; 10 to 11 million units for the domestic market and about 6 million
for export. So the rest of the compressors must be made by local manufacturers.
The U.S. imports approximately 2 million units a year in both Chinese brands
such as Haier and international brands that are produced in Chinese factories."
BSH in China
BSH is increasingly taking over the top end of China's appliance market.
The quality products from the company's washing machine and refrigerator factories
have already established the Siemens brand at the top of the heap. The company
has built a reputation as the best in terms of quality, and that factor is
allowing it to get a premium price for its products. In the southern capital,
the Nanjing sales and distribution company has effectively overcome the biggest
obstacle in China, building a nationwide comprehensive and efficient distribution
network. Using the strategic Nanjing headquarters as a base, BSH is poised
to take over and control the top of the appliance market throughout China.