Ceiko seeks greater unit sizes in China
Ceiko seeks greater unit sizes in China
09/02/2010
Ceiko specialises in contract manufacturing of advanced welded and machined steel structures. The company from Turku, southwest Finland established a subsidiary in China
and began production in early 2006 at Suzhou near Shanghai.
At a time when a lot of customers were expanding in the Far East, it was time for a presence in China. “Suzhou was the logical choice,” explains Roni Kauri, managing director of Ceiko (Suzhou) Co. Ltd. “Many of our customers, including several Finnish engineering and manufacturing companies, operate in the Shanghai region.”
From the outset it was clear that production would not be shifted from Finland to the Far East. The purpose of operating in China was to obtain organic growth by offering products and services to companies operating in the Asian market.
Easy to set up in an industrial park
Ceiko studied various industrial parks to find the best possible location for its production plant. Suzhou was eventually chosen from the shortlist and Kauri says the choice has proven to be successful.
“Establishing the company and starting up production went rather smoothly although matters in China never proceed entirely according to plan. Suzhou Industrial Park operates on the terms of foreign investors. There is minimal bureaucracy because almost all services are available from the same place.”
In its establishment phase, Ceiko used the services of Finpro and the FinChi innovation centre in Shanghai, to study the market and establish contacts.
Finnfund granted Ceiko’s Chinese subsidiary a loan for machinery investment. Kauri says that the involvement of a Finnish financial institution was significant.
“The investment came at a time when financial markets were becoming tighter. Without Finnfund’s involvement we would probably have run into a more challenging situation. Its financing helped us live up to our commitments and invest in a way that will lead to profitable future business.”
Finnfund investment manager Jussi Tourunen points out that, apart from the effect on employment and working conditions, the development impact of the project relates to improving local skills and know-how. The investment also has positive environmental effects because Chinese engine castings can be machined in the Shanghai region near the customer’s plant. Transportation distances are significantly reduced.
“Finnfund’s financing decision was also influenced by the opportunity to support a Finnish SME in its growth, geographical expansion, and position as a global manufacturer of advanced engineering products,” he says.
Towards more complex units
From the outset it was realised that a labour-intensive business was not the best possible choice for a manufacturing company like Ceiko. In welding and plate work, for example, it is difficult for a foreign company to compete against Chinese large and often state owned enterprises.
“It didn’t take us long to reach a new strategic decision to concentrate on machining in China – preferably of the most difficult products.”
In China Ceiko machines casts, forged material and other steel structures for its clients. It has about 40 employees.
Largest individual customer is Wärtsilä, which has a Joint Venture plant in Shanghai producing engines supplying electricity to ships. Ceiko has a contract for machining engine blocks, among other smaller products to be installed in these auxiliary engines.
“Our aim is to move increasingly towards complete units that are larger and more difficult, for example by acquiring casts, machining and supplying them as a complete package. This will make us a more important partner for our customers.”
Building an integrated service requires a good grasp of the procurement chain in China. “We are advancing one step at a time, but are already making small deliveries that include assembly and installation in the same package.”
Recruitment the greatest challenge
The greatest challenge from the start has been to locate workers with the right skills. Kauri says it has been hard to find skilled operators. People with required skills are on short supply in whole China due to increased technical level of other companies operating in the same field in China and consequent growing on demand.
The shortage of skilled professionals is a problem often encountered by other Finnish companies in Shanghai, as well. The lack of key workers shows in higher salary requests and greater staff turnover as workers move to competitors who might pay more.
The recession has been felt in China but the situation regarding key workers at Ceiko Suzhou has not been affected, Kauri says. Apart from a competitive salary, an employer needs to come up with other ways to bind skilled employees to the company.
“Linking wages to output and efficiency is one way to boost motivation. Also the technology and operating methods have to provide opportunities for continuous learning. The scope for career advancement is another important thing.”
Chinese workers appreciate the enjoyable and motivating working environment offered by Nordic companies. But human resource management is not the same as in Finland, Kauri adds.
“A firm needs to have clear rules. Incentives should be applied only when the work is done exceptionally well.”
Outlook becoming clearer
The world’s economic problems arrived in the Chinese engineering sector last year. Among foreign companies in particular, the slowdown in orders was obvious, Kauri says.
“Today we can finally say that things are starting to look better. New companies are
setting up here and new production plants are rising briskly again.”
A good example is shipbuilding, an important sector for Ceiko. New ship orders reached an almost complete standstill last year. This year a slightly more promising outlook is forecast.
Kauri is an old hand at business in China and other Asian countries. Companies trying to enter a foreign market should do their homework carefully, he says. Unfortunately not all have yet realised the wisdom of this in China.
“You still quite often see Finnish companies with no previous international experience trying to start up in China without a solid game plan. One excursion is not enough. The market has to be studied on the spot.”
The choice of business model is particularly important for foreign companies in China. What works in Finland is rarely functional in an alien business environment.
“Operating methods need to be modified to suit local markets. It is absolutely crucial to success.”
For more information, please contact Mr Jussi Tourunen, Senior Investment Manager, tel. +358 9 3484 3343, email firstname.lastname@finnfund.fi
