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Gottfried Schmölzer, President of Andritz Technologies Ltd. in Foshan, China and a view of the Andritz Technologies Ltd. offices.
“Manufacturing follows the market,” says Gottfried Schmölzer, President of Andritz Technologies Ltd. “The reason we established a presence here as early as we did was to support the forecasted growth of the Chinese market.”
Schmölzer is speaking from his office in Andritz Technologies Ltd., located in Foshan (Guangdong Province in South China). He has been a part of Andritz’s strategic move into China from its very beginning – offering his manufacturing expertise and management skills to the first fledgling joint venture and now overseeing all Andritz organizations with over 900 employees in China.
“My nature is to look forward every day, so it is not often that I take time to look back,” Schmölzer says. “But when I do, I’m amazed and excited about what this team of Chinese employees, with the support of several Andritz locations worldwide, has been able to accomplish.”
Schmölzer sees Andritz’s entry into China as a natural progression of how the company has approached each of its “new frontiers” – from its start at a single site in Austria in 1852, to the expansion in Europe, then to North America, then to Asia and South America. “It is very fundamental to our survival and growth,” he says. “We go where our customers are and we make the investments to support them.”
Not to imply that everything was simple and easy. Schmölzer and his colleagues have certainly “paid their dues” along the way.
To start: a joint venture for pumpsAndritz’s first steps into China were in the traditional “export” mode. This involved sending missionary sales people into the market and fulfilling orders with products designed and shipped from Europe.
“We knew it would be difficult to sustain this approach in such an expansive country,” Schmölzer says. “In our way of thinking, to gain market share we had to be close to our customers, we had to be fast to adapt to the developing market, and we had to be competitive against the upcoming Chinese companies as well as the traditional competitors. We had to become a high quality local source for our customers.”
In order to test the waters, Andritz selected a small product (stock pumps) and a good partner. Founded in 1954, Kenflo Pumps is a leading supplier of liquid ring vacuum pumps and water pumps in China. It invested capital in the joint venture, and rented some building and office space to the joint venture – Andritz-Kenflo Foshan Pump Co., Ltd. Andritz invested 60% of the capital and began the transfer of technology required to manufacture stock pumps in China. The year was 1997, just as the economies of
Thailand, South Korea, and Indonesia were collapsing in what came to be known as the IMF crisis.
“It was not glamorous,” Schmölzer recalls. “We were in an empty rented building and first had to buy some machine tools. We had to fight for orders against several local heroes and the traditional high-end suppliers from abroad. Initially, customers in China were skeptical that we could manufacture high-quality products in China. It wasn’t easy, but we didn’t expect it to be.”
The Andritz-Kenflo team focused on the basics: recruit good people, give them clear instructions and goals, use suitable manufacturing tools and techniques, and aggressively control quality. The strategy was to “start small, grow fast” according to Schmölzer. The first orders were received and the first pumps rolled out.
Customer acceptanceIn its first year of operation, Andritz-Kenflo sold 135 pumps. Fortunately, the quality and performance of the pumps were clearly superior. From this humble beginning, the company has dramatically increased sales every year. In 2006, 2700 pumps were sold, bringing the total installed base in China to 17,000. All of the large Chinese paper manufacturing groups purchase from Andritz-Kenflo. The largest customer group is Dongguan Nine Dragons who operate over 2200 pumps in their high-end packaging paper production lines. Most of the local competitors have been forced to retreat.
With this foundation, Andritz China has been able to expand to the point that about 20% of the total number of pumps produced are exported to other countries in Southeast Asia and India. “We are rapidly gaining acceptance in new geographic markets, which will help us continue to grow,” Schmölzer says.
Almost all of the employees who started their employment with the establishment of Andritz-Kenflo in 1997 are still with the company. Loyalty to the company is high and the attrition rate is below 2%. “The Chinese people know that the company’s success and their personal success are interconnected,” Schmölzer says.
An umbrella to cover products and customersAndritz reasoned that if “start small, grow fast” could work for stock pumps, the same approach could work for other products as well. The excellent market share of Andritz-Kenflo pumps opened the lines of communications into about 250 major and important mills in China that Schmölzer defines as “accessible”.
Using the joint venture as a springboard, other Divisions within Andritz began to renew their interest in doing business with China. Andritz decided to begin producing more of its products in China and in 2002 formed Andritz Technologies Ltd., a wholly-owned subsidiary only 20 minutes from the existing Andritz-Kenflo plant.
Initially, Andritz Technologies concentrated on producing equipment for the Environmental Business (separation technologies such as belt filter presses and centrifuges). Gradually, the other business areas and Divisions in the Pulp & Paper Business Area began the technology transfer process to support their products in China.
“Today, we manufacture a wide range of Andritz products for the Chinese market and also some for export,” Schmölzer says. This includes centrifuges and filter presses for industrial and municipal water treatment; screens, agitators, and stock prep equipment; vertical pumps and water turbine core components; components for board machines; and conveying systems for automated baling lines. A new production line for screen baskets was started in 2007. Capabilities were added to provide re-chroming of used baskets, a popular service for customers in China.
All of the functions from design engineering, to sales, to procurement, to manufacturing, to assembly are handled in-house by Andritz Technologies’ staff of 360 salaried and 290 hourly personnel.
“We pay close attention to the recruiting and development process,” says Schmölzer. “All of our salaried people speak English and 73% have university degrees. Almost all of the hourly people have vocational training. I know the Chinese people to be very conscientious and go-getters. We explain clearly what we want to accomplish, and they figure out and work hard in order to accomplish it.”
The latest: a new foundryIn August 2007, a new state-of-the-art stainless steel foundry was inaugurated in Foshan after 11 months of construction work. This joint project of Andritz and a Swiss foundry specialist provides Andritz with its own reliable supply for stainless steel castings in China.
Andritz started to look for an experienced partner to establish its own foundry in the Chinese market. “The global demand for castings from China has been increasing each year,” Schmölzer says. “We wanted more control of the production process from the very beginning and wanted to secure our needed volume of high-quality castings.”
A Swiss company, Wolfensberger AG, turned out to be the perfect partner. Established in 1924, Wolfensberger is a family-owned business with two workshops near Zürich. In 1970, Wolfensberger purchased the license for a ceramic precision casting method, which it advanced and later registered under the brand name Exacast®.
As Markus Schmidhauser, Wolfensberger’s Commercial Manager and part owner explains, “China was of interest to us, but we had never seriously contemplated going there single-handedly. So, when Andritz approached us about cooperation, we were very interested. Andritz’s experience in China is a major advantage for us, and for Andritz to have its own foundry in China is a benefit for them.”
Andritz has a 65% share and Wolfensberger holds 35%. Joachim Staab of Wolfensberger, who heads the new foundry, says that the foundry consists of three workshop bays, a warehouse, and an office building. “Future expansion has already been taken into account,” Staab says. “The new foundry will also provide the basis for developing new materials tailored to a customer´s needs.
“All the foundry equipment, with the exception of the analysis instruments, was produced inside China. We gave preference to the renowned, internationally active firms with production sites in China. Cooperation with the Chinese suppliers was very good.”
At present, Andritz-Wolfensberger Special Alloy Foundry Co. can make castings of up to six tons finished weight, according to Staab. “After our expansion, 12 ton pieces will be possible. In the final phase of expansion, we will be able to process 3000 tonnes of duplex steel and stainless steel per year into castings for pump casings, impellers, hydropower station components, and other stainless steel components for Andritz's worldwide requirements.”
There can only be one Andritz qualityWhen asked if there has been any fallout from the recently publicized stories about the quality of children’s toys manufactured in China, Schmölzer has to smile.
“We don’t make toys here,” he explains. “This is an industrial manufacturing facility established with the same tools, procedures, and QA/QC programs that we use in Europe or North America. The problems that the toy companies encountered is because they were contracting out the production to the low bidding supplier and did not check the quality of the incoming goods sufficiently. We don’t contract out the core components of our equipment and quality control is a stringently controlled core process in our company.
“There can only be one level of quality within Andritz for each product. We are a global supplier serving global customers. The equipment we make here must be on par with the same equipment produced in other Andritz locations. All of our in-house systems are set up to support this.”
