China's Century of Change-Part 1: Pearl River Piano Stikes A Chord For Progress
Monday, June 27, 2005SUSIE GHARIB: That C-Nooc offer has focused a spotlight in recent days on the relationship between China and the United States. All this week, NIGHTLY BUSINESS REPORT is focusing on that as well, with a special series of reports called "China`s Century of Change." Washington bureau chief Darren Gersh and a crew recently returned from three weeks in China and Darren joins us now from Washington. Darren?
GERSH: Hi Susie. Tthat C-Nooc bid is a good place to start, because in our travels through China, it became clear we will be seeing more deals like this. The Chinese believe their country will develop into an economic superpower in this century. But in order to do so, the Chinese are focused on building or buying global companies with their own global brands. To find out why, we begin our series "China`s Century of Change" in Guangzhou, at a company hoping to strike the right chord on the world stage. When Tong Zhi Cheng came to work at Pearl River piano, he was 16 years old. It was 1959 and the factory had dirt floors.
TRANSLATION OF: TONG ZHI CHENG, DIRECTOR GENERAL, PEARL RIVER PIANO: To be honest, when I came here, there was no real factory. We just rented a shed on the side of the street to repair pianos, and we built a shelter to process the wood. It was very, very small.
GERSH: Now look. From wood processing to wire winding, Pearl River is now the largest piano maker in the world. Of the 80,000 instruments produced here this year, more than 14,000 will find their way to the United States. That shouldn`t be surprising. From the very beginning Tong says Pearl River piano has believed in exporting.
TONG: I still remember we used a cart to carry the piano and we walked barefoot to the port. That`s how we exported at that time.
GERSH: Today things are more sophisticated. When Tong took control of this state-owned company in 1995, he immediately set out to buy modern equipment. He brought in top German and American piano experts, paying each one 150 times more than an average Chinese worker makes.
TONG: Why did we need to pay so much money to foreign experts? Whatever their value is, that`s what you should pay. At that time, we didn`t judge on the money. The key point is we needed to learn from them to improve the quality of our products.
GERSH: It is a classic Chinese manufacturing story: using western know-how to develop skills, dominate the local market, and eventually expand abroad.
TONG: It`s not an issue of whether you want to or not. When the company develops to a certain degree, you would hope to compete in the international market to expand your market share. So it is really a natural response, not a personal choice.
GERSH: China has been called the world`s factory, churning out everything from clothing to toys to pianos. Most of those products have been sold under western brand names. But now, Chinese companies like Pearl River piano want to play on the world stage, creating their own global brands. Look across China`s flashy modern cities and you can see why the Chinese are obsessed with developing their own global brands. From the Shanghai skyline to the Beijing shops on Wangfujing Street, foreign brands are everywhere in China. But of the top 100 brands in the world, not a single one is Chinese. And a soon-to-be-released survey by the consulting firm Interbrand finds eight out of 10 global marketing executives consider the "Made in China" label a liability.
JEFFREY SWYSTUN, GLOBAL DIRECTOR, INTERBRAND: Well, the perception is that the Chinese brands haven`t entered the global market yet, and because they have been generally producing for other people, that they haven`t got the savvy or the sophistication to produce their own brands. So overall, there is this perception that they`re of low quality, of low cost. So when we think of brands, we generally think of luxury-type items and the Chinese brands are far off from producing any sort of luxury item at this point.
GERSH: Chinese manufacturers also know the big profits go to the brand owners, which is why the Chinese government has set an official goal of creating up to 50 global brands in the next five years. But experts doubt the Chinese can do that on their own.
SWYSTUN: A brand is not created overnight. It takes a long time to develop it into a strong regional player, let alone a global player. I respond well to the aggressiveness of their goal. However, I have some doubts about the ability to execute against it.
GERSH: Which is why Chinese companies are shopping for foreign brands, and the distribution and service networks that come with them. Computer maker Lenovo bought IBM`s PC division, Pearl River piano picked up German piano brand Ritmuller and now Chinese appliance maker Haier is bidding for Maytag. But China expert and author James McGregor says it won`t be easy for Chinese entrepreneurs to manage the western executives who come along with these deals.
JAMES MCGREGOR, AUTHOR, "ONE BILLION CUSTOMERS": At the end of the day, the culture here is still very much top-down. The companies here that are most successful are dictatorial management, where you`ve got an inspired leader who makes all the decisions and runs everything from the top down.
GERSH: But Tong is not deterred. He says Pearl River has spent a lot of time learning the way the game is played in the U.S. and Europe, and so far it is working. Tong hired an American CEO, set up an office in southern California and hopes to capture a quarter of the U.S. piano market by 2008 -- even though sales are driven mostly by word of mouth.
TONG: Recommendations from customers are the best advertisements. My marketing policy is to be responsible for customers and make them satisfied. This is the real marketing policy.
GERSH: But that path may not work for many Chinese companies. Even if they dominate their home market, it may be hard for Chinese managers to go global.
MCGREGOR: This is a very domestic game here, where people know how to do this market. It`s got its own aspects of corruption, its own ways of marketing. It is a very thuggish market where you block people. They`re good at playing this market. To go out on a level playing field, play internationally, it is going to take some time. They`ll do it, but it won`t happen overnight.
GERSH: Pearl River piano continues to manufacture for Yamaha and other brands, including a new deal to produce the Essex line of pianos designed by Steinway & Sons. But step by step, tong sees his own brand gaining ground around the world.
TONG: There is still a long way to go for Pearl River piano to be accepted as a well-known brand in the U.S. It`ll probably take 10, 15, 20 years to achieve that. The development is endless and we would try our best to make Pearl River piano better and better.
GERSH: Now tomorrow night as our series "China`s Century of Change" continues, we`ll take you to a part of China that few outsiders ever see, its rugged northwest. And we`ll introduce you to people few outsiders ever meet, including this woman who grows rice on land her family has farmed for generations. Susie?
GHARIB: That was a really fascinating report, Darren. Darren, you spent three weeks in China traveling all throughout the country. I`m sure you`ve come away with a lot of impressions about China, but what stood out the most?
GERSH: What stood out for me is that there`s just a tremendous pent up desire to move forward. You look at Chinese history and the country basically stagnated for generations, for centuries and now they`re determined to become a great global economic power once again.
GHARIB: I think you put your finger on it. That`s one of the issues that lawmakers and businesses are very concerned about this, this effort to dominate the world. And we`ve seen all these headlines about China making some potential high profile acquisitions. Should investors in American businesses be concerned?
GERSH: Well, Susie, I think the world is going to watch this very closely to see what China is all about here and how they play on the global stage. Do they want to dominate or do they want to cooperate? The party exercises tremendous control in China and people are concerned that we`re seeing a national strategy. But I hear other people say that the more the party meddles in corporations and industrial policy, the more it`s going to hold its own economy back.
GHARIB: Darren, you were traveling with the producer and with a cameraman through China. What was it like for you? How much freedom did you have to get around, especially since you just said China dominates?
GERSH: Yeah, well, you know Susie, there is no freedom of the press in China. And so at one point, we had basically picked up like 14 people from the various different government agencies who were following us around. We had a government minder with us. There was no censorship, but they knew where we were going at all times. Having said that, if you`re going to talk about business in China, you have more freedom than if you`re going to talk about politics. There`s very little freedom.
GHARIB: All right, very interesting. We look forward to part two of your series tomorrow night. Thank you, Darren.
GERSH: Thanks Susie.
GHARIB: Darren Gersh, reporting from Washington.
