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FEATURE STORY: Carving a Strong Niche
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 By William Daniel Garst

altIn addition to its much discussed commercial and residential real estate building boom, China has also been marked by a massive wave of civil engineering construction work in recent years. Thousands of new kilometres of highways and rail lines, including ones for high-speed trains, have been built, especially in the west, while all major cities are constructing new subways or expanding existing subway systems.

This activity has been a magnet for foreign civil engineering construction products firms, including the Italian family-owned and global civil engineering company, Maccaferri, which has long been a leader in making gabions used to build highway and railway retaining walls and drainage and irrigation system components.

Maccaferri is a relative newcomer to China, opening its first plant in Changsha five years ago; its second one, located in the Tianjin suburb of Wuqing, came on line two years ago. Nevertheless, the company has already established a strong presence China, accounting for a third to half of the gabions sold in the country.

I talked with Maccaferri’s Chinese joint venture partner and China Managing Director, James Wang, during his January 12th visit to the Wuqing factory. We discussed operating conditions in Wuqing, the Chinese market for civil engineering construction products, lessons the success of Maccaferri provides for other foreign businesses, and the company’s long-term strategic plans for China.

“We built this factory in Wuqing,” explains Wang, “because land in Central Tianjin is expensive, while Wuqing is close to the city and its transportation links, especially the port.” He added, “Of course, the Wuqing Government has created special zones for companies and provides good incentives for locating plants here.” On the overall relationship with the local Wuqing Government, Wang stated, “As a foreign company, we know where the red line is, and I expect things here, which are presently pretty good, to further improve in the future.”

Labour turnover is a huge problem in Chinese factories, and Wang noted, “Turnover in our first year in Wuqing was high, but this year, people are staying as they get to know us better. While the labour force here is good, we are trying hard to make our workers even more highly skilled and productive.”

According to Wang, the Chinese civil engineering construction product market is “fiercely competitive.” Numerous local producers, using technology from Taiwan, had been operating in China long before Maccaferri set up shop in the Middle Kingdom.

Wang attributes Maccaferri’s success in winning market share from these firms to Maccaferri’s ability, thanks to the long-standing expertise of its Italian parent company and backing of sister firms in the Asia-Maccaferri Group, to manufacture in large quantities. “Our scale,” he notes, “is four to five times larger than the biggest domestic firms, so we have good economies of scale, which makes for both high productivity and good quality.”

Speaking of quality, Wang argues, “There is a growing emphasis here on ‘long-term quality responsibility’ and less cutting of corners to save money in the short-run.” Local governments and building contractors, he believes, are increasingly willing to buy more expensive, technically sophisticated and longer lasting gabions and the like, realising that this saves money in the long-run.

However, in Wang’s view, the main thing Macceferri has done right is thoroughly localising its China operation. “Look around this factory,” he tells me, “and you don’t see any foreign faces, it’s all Chinese.” Wang adds, “We also localise by buying steel and other inputs from local suppliers. We’ve had good results, but do have to be on top of them to ensure that their quality is consistently high.”

Thus, Wang believes that the key for foreign businesses to succeed in China is “localisation.” “You’ve got to resist the temptation to rely on your own people vs. locals, even if you trust the former more. Localisation can be initially difficult, but it pays off in the long-run.”

In addition to gabions, Maccaferri has done quite well selling double-twisted wire mesh Reno Mattresses for dike walls. Wang expects this to be an ongoing growth area: “There are so many rivers in China, plus lots of them are flood prone.” I also asked him about subway work, and he responded, “We now don’t yet have a foothold here, but it’s a high-priority target.”

Wang explained that the Changsha plant makes only gabions, as the China market for them is largely in the mountainous west. The Wuqing plant exports all of its output, which includes gabions and other products. Production there will be stepped up after the current plant expansion is finished in February. This will help make China the world’s workshop not just in textiles and other low-end goods, but in higher end road, rail, irrigation and flood control system products as well.
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