Transition from stereotypical thinking to sustainable development

2016 is the year of ZPMC’s active entry to the Russian market as one of the leading ship-building enterprises of China. The development prospects for 2017. Heavy-duty equipment company - Shanghai Zhenhua Heavy Industries Co., Ltd (ZPMC) is the largest manufacturer of port, offshore and shipbuilding equipment, engineering vessels and large steel structures. Elin Oleg V., the Head of Offshore Machinery and Shipbuilding Department of the Russian Subsidiary, described to “Maritime Market” the current situation on the shipbuilding market and revealed Company’s plans for the development of the Russian market.

– Mr. Elin, being a representative of a foreign company, could you assess the prospects of shipbuilding development in Russia, and how does the situation in this sector affect the activity of ZPMC Russian Subsidiary?

– To answer this question, I’d begin with a review of the shipbuilding market in general. The fact is that we are the bystanders of the rapid shipbuilding pole’s displacement to the East Asian region. More recently, the shipbuilding center of high-tech vessels was considered to be the oldest shipyards in Western Europe: in Germany, Great Britain, Holland, Italy and France. Now, however, the total share of the European shipbuilding industry equals only 1.5-2% of the global deadweight orders for ships. Almost all European countries, which once had a highly developed national shipbuilding industry, have now lost competitiveness on the world stage in the mass ships production, unable to withstand Asian business struggle. So the “big three” of the East Asian shipbuilding nations continues to maintain its leading position, their deadweight accounts to 92-94% of the global shipbuilding orders, namely: China - 42-45%, South Korea - 27%, Japan - 23 %. Thus, it must be stated that the current world’s largest manufacturer of shipbuilding equipment is China.

Of course, the same certain role in this trend is played by the known European shipyards with age-long history. Having received an order for vessel construction, European shipyards place it, as a rule, at Chinese shipyards. However, in our times of globalization almost all owners of the known brands and producers in any production sphere act this way.

As for the development of the shipbuilding in Russia, as a whole, the industry reflects the general situation of the Russian economy and is experiencing hard times. On the other hand, there has been a steady trend towards the consolidation of the state control over the shipbuilding complex. And it is correct because shipbuilding is one of strategically important industries. So the path of China is obvious. For example, such consolidation has begun over 20 years ago in China, and by now almost all large shipbuilding enterprises of the country are under state control to some extent. And we see the vector of ZPMC development in Russia exactly in joint projects at intergovernmental level, during the interaction process of state-owned companies of two countries.

– So is ZPMC a company with state participation? Does the company receive governmental support, are there any preferences from the Chinese government? How does it affect the company’s economy during the global economic downturn, on its pricing policy?

– ZPMC is 100% state-owned enterprise with a yearly turnover of 6 billion US dollars. At the same time, the management of the company is guided exclusively by commercial principles and prefers to work with the final customer, proving its advantages in the overall competition, not using political levers in its business.

At the same time, the Chinese government is attentive to the activities and needs of ZPMC as the world largest manufacturer of port and offshore machinery, but it is limited only to the creation of optimal conditions for the operation and support of the sci-tech and production bases of the company. The company can always use the funds and credit resources of Chinese state-owned banks and credit organizations as well.

– Talking about the equipment nomenclature. Which model range the company presents on the market? What are the main characteristics of your equipment?

– Offshore equipment manufactured by ZPMC, includes floating cranes with lifting capacity up to 12 tons, pipe-laying ships, dredging vessels, dredgers and dredging pumps, transport vessels for the transportation of oversized cargoes, cable-laying vessels, service vessels for drilling platforms. The product line also has unique vessels such as vessels for offshore wind turbines installation, ships for rock armament and tunnel building, deepwater drilling vessels. The company is also actively developing the drilling platforms construction business. Taking into account the fact that in 2010 ZPMC acquired American design bureau Friede&Goldman, which has 65 years of experience in engineering offshore drilling rigs, all accumulated engineering experience and competence of the United States in this area are used in the design and manufacture of ZPMC equipment.

Regarding the models of equipment and vessels. ZPMC have no actual lineup. Instead of a limited product line with fixed specifications, we offer project-based approach. And here comes one more advantage of working with ZPMC company. The thing is that European companies taught a potential customer to select equipment from the product line, according to an existing project. And the customer has to adjust to the manufacturer, or to be prepared to finance project activities. We have a completely different approach. Initially, the design and manufacture of equipment is based on the needs and characteristics of the client’s requirements. The design is done by the design institute, included in the structure of the company. After all, as we known, the flexibility is a hallmark of Chinese manufacturers.

– Apart from the flexibility when working with a customer, it is obvious that the decisive role in choosing a manufacturer, apparently, plays low price? After all, is this why almost everything is manufactured in China now?

– Here, perhaps, you have to destroy another common stereotype. The thing is that China is very different, and the price for the same goods made upon the same specifications may differ significantly. We’re used to the fact that the key competitive advantages of the Asian manufacturers are low prices, which are held by providing a large stream-lining of production and big production volume, and this is true only in the second part of this statement.

As a major manufacturer with a worldwide reputation, ZPMC belongs to the category of producers, which in our country are called “Factory China.” We are the undisputed leader in our business with products similar to or better than European counterparts in terms of, and the price of such products cannot be many times lower. Therefore, the price of ZPMC equipment is typically 10-20% lower than the same equipment of European brands. But the thing is that European brands assemble their products on the next street and you overpay just for the brand name. Moreover, the same European producers, knowing our level of production, address directly to ZPMC very often asking about manufacturing equipment under their trademark brand.

– Who are your main competitors? European manufacturers, or other manufacturers from China?

– To answer to this question we have to differentiate different types of products. Even at the dawn of its history, ZPMC chose the strategy, which does not imply “a frontal collision” with competing industrial giants. Instead, it adhered to the tactics of “peripheral innovation” the best service and the best price for the same quality as that of competitors. This approach was successful. To date, ZPMC’s share in port equipment is close to 80% (90% in the US) in the world which allows us to consider ourselves an absolute leader, and not only follow modern trends, but also determine the long-term path of the industry in general.

Therefore, as for port equipment, we almost do not have competitors. But as for shipbuilding, it is not so clear. Here I would like to mention a common stereotype that “China is cheap.” That is why the main competitors here are Chinese “No name” producers. With no references on the subject of delivery, no knowledge of rules, regulations or specifics of the country of operation, no offices in the Russian Federation. These are those who are ready to produce the same under specification, but much cheaper. And the most interesting is that in fact they do it, but what then? The main argument of the manufacturer is that it is impossible to do something different for such a low price.

Therefore, during the participation in the competitive and comparative procedures, we always ask our potential customer to visit the factory, have a look at design standards, the culture of production, the certification system, the percentage of staff engineers at premises, if they speak foreign languages, see the samples of finished products, references around the world, etc. And only after that, you should make a decision on selecting a supplier from China.

– What are the successes of ZPMC subsidiary? Is there any ZPMC equipment in Russia? How does it work? Are there any reviews of the operating organizations?

– There are special vessels and crane equipment operating successfully in Russia. In particular, there are two special vessels involved in transportation of oversized modules for Yamal LNG project: Audax and Pugnax vessels with more than 200 m length. This project was executed in cooperation with the Dutch company Red Box Energy Services. The other special pipe laying vessel built by ZPMC in 2010, is the flagship of MRTS company.

Crane port equipment has been actively used for over 8 years in Novorossiysk, by the company “NLE”, and in Vladivostok seaport – a total of 10 cranes (STS, RTG and RMG).

Reviews of ZPMC equipment in Russia are absolutely positive. The users especially note reliability and maintainability of the equipment, that is its easy and cost-effective service, which is achieved due to the relatively low demand for spare parts, consumables and labor costs. The usual attribute of ZPMC marine equipment is reliability and maximum ease of maintenance and repair. This is the result of the influence of Soviet engineering school of machine building. During the design process, the principles of mechanism lifelength are developed. A now fashionable western marketing trend of designing tools and components with intentionally limited life is not used in ZPMC. By the way, this approach is appreciated not only by the Russian customers, but we also hear similar feedback from the users of our equipment in the US and Europe.

– What is the competitive advantage of ZPMC products over similar equipment, for example, in comparison with the equipment of the European manufacturers?

– To answer this question, I would just look around. Look, the vaunted reliable and high-quality European products are left somewhere in the past, in the 2000’s. Where is the German quality now? Or Swedish reliability? They are left in those times. We are surrounded by “disposable” products. In heavy engineering, as well as in other industries, the key decisions are made not by engineers or technologists, but by marketing specialists. Moreover, all these solutions seem to serve a good purpose, environmental friendliness, efficiency, reduced labor costs, consumption of resources, etc. are declared everywhere. At the same time, they do not even hide the fact that a complex technical product has a short operating life, even compared to the older products, it is forever tied to the expensive original service, and even a small deviation from the operating parameters prescribed in the manual, leads to repairs at its original service or just to its failure. The technical progress is certainly cannot be stopped, but, in our opinion, the reliability, operating flexibility and maintainability of the products should not be sacrificed. And it is particularly important in such non-perfect operating conditions as lower temperatures, limited working time and daylight hours, lack of spare parts, service and operating personnel.

So, going back to the Soviet mechanical engineering school, recently ZPMC equipment has been designed and produced with an emphasis on its operating reliability, taking into account the application of the latest achievements in the field of metallurgy, implementing the latest achievements in steel industry, special alloys, time proved materials, etc., but without marketing component. It means that at the time when the European manufacturers worked systematically on limiting equipment lifelength, the Chinese manufacturers have succeeded in the opposite, because they really wanted to enter the world’s largest markets and get recognition. At some point, they finally succeeded, there was a revaluation of views, and the “real Chinese quality” is now in certain industrial areas valued above the “real factory China“ - traditional products of famous brands, and this trend is being kept.

– What is the ratio of ZPMC supplies to the domestic and foreign markets? Are the company’s products popular in the country? Who is the consumer of ZPMC products in China?

– 25 years ago the government of the People’s Republic of China decided to accumulate all of the newest and high-potential production facilities of heavy engineering and port equipment. At the same time, the main objective from the very beginning was to increase export sales to the US, the EU, the countries of Africa, Asia and Latin America. The first cranes built by ZPMC were sold to the United States in 1992. And today more than 85% of all the products are exported. In China itself, the company’s products are highly valued, and the major ports, such as Shanghai and Hong Kong, are equipped with ZPMC products for more than 80%. It is curious that the first few years of its existence, ZPMC was supplying products only or export, because Chinese ports doubted the quality and preferred to buy the European machinery. Only after ZPMC won authority around the world, China paid attention to it. Making itself known in Russia, ZPMC should convince the Russian consumer, that its products are in operation all over the world and are far ahead of its competitors in terms of quality and reliability.

The secret of ZPMC’s success is the principle, which says: “Innovation –is the soul of the enterprise.” A minimum of 2% of revenue are invested in R&D. More than 200 professional academies, institutes and universities in China and abroad cooperate with the company. ZPMC has a strong engineering service of 2000 engineers and specialists in mechanical, electrical, engineering, hydraulics, computer technology, commissioning and transportation fields. All this allows the company to keep the technological leadership in the industry.

– Tell us, please, how does the ZPMC production base look like? Where are your plants located?

– There are 8 ZPMC production bases, including two shipyards, with a total area of about 7,000,000 square meters with a total length of coastline of 10 kilometers. The company has its own fleet of 26 vessels, which allows to deliver and install the equipment in the shortest time. The annual plant capacity for the production of steel structures, with the total area of 840 000 square meters, is one million tons of steel.

By the way, ZPMC owns the most modern plant in Asia for the production of high-precision mechanisms and systems, located in Nantong. The main types of products are various types of gears, windlass winches with dual control, power drill and a special winches, dynamic positioning system for ships, gears treated with high frequency current, elevating systems for drilling platforms, drive axles, car dumpers and other equipment. All of these components are exported to the shipyards all around the world. All vessels, components and products are manufactured on the factories that have certificates of quality and strict international environmental standards.

– Does the Russian subsidiary of ZPMC offer service and maintenance support in Russia? How is it realized now, and what do you plan for the future?

– The first step of “ZPMC” LLC on the Russian market was the organization of technical and advisory support to our already existing clients. Under this program, a non-stop consultation center of informational and technical support was established, through which an operator, an engineer or a manager can get detailed information.

We have a branch office in St. Petersburg, service stations and warehouses in the places where our crane equipment is used. Today it is Novorossiysk and Vladivostok. Cooperation has been established for filling up the warehouses with spare parts. ZPMC is gradually transforming into a service-oriented enterprise and constantly promotes the value of its products, based on specialized and standardized customer service.

– Tell us, please, about the plans of the Russian subsidiary of ZPMC for the near future – whether the company is going to build its production capacities here or not? How do you evaluate the needs of the Russian market of ZPMC products and services?

– On the one hand, the plans of ZPMC and “ZPMC” LLC are ambitious, and, on the other hand, weighed and thought through. The company plans to become one of the key suppliers of shipbuilding and port equipment over the next 5 years. At the same “ZPMC” LLC clearly realizes its capabilities and resources to provide technical support and service.

We are not seeking for an explosive growth, but adhere to a balanced and well-thought policy to promote the brand in Russia and the CIS countries. We understand very well that without the cooperation with Russian companies and design institutes in the shipbuilding industry, we will not be able to enter the Russian market completely and to find our niche here. That is why ZPMC never ceases to explore various business models and is ready to work together with various companies on large-scale investment projects. Such negotiations are currently underway with a number of companies and state authorities, but I cannot reveal everything.

All I have to add is that in the context of the global financial and European debt crisis, even the big companies involved in the transportation, handling, mining and oil production, have greater demands on the efficient use of their capital investments. Due to its economic strength, excellent reputation and close cooperation with various major banks, ZPMC offers a variety of schemes to attract financing and leasing programs, which in some cases is a decisive argument for choosing the right provider.

– Good luck to you in carrying out your plans and intentions.

 

Maritime Market magazine thanks Anna Arkhipova,
a leading specialist of marketing department ZPMC LLC,
for assistance in preparing the interview

Shanghai Zhenhua Heavy Industries Company (ZPMC)

3261 Dong Fang-Lu, Shanghai, Post code: 200125, P.R.china

Phone: 86-21-58396666

E-mail: mail@zpmc.com

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