Rechi: Sailing Against the Current
–An interview with Liu Jinxi, chairman of Rechi
Successfully grasping the opportunity afforded by the high-speed growth in the air conditioning industry in mainland China, Rechi doubled its compressor sales in 2 years. Even in the second half of 2011, as the air conditioning industry’s growth in mainland China began to shrink, Rechi’s sales still saw a sound increase. How does the company manage sales growth in such a bad economic condition, and as a compressor manufacturer, how does it deal with the challenges caused by refrigerant replacement? With all these questions, JARN interviewed Liu Jinxi, chairman of the board of Rechi.
JARN (J): How many rotary compressors were sold in 2011?
Liu Jinxi (L): Eleven million rotary compressors were sold last year. The sales value was TW$ 16.8 billion (about US$ 563 million).
J: How long does it take to reach such an achievement?
L: Twenty-three years have passed since the foundation of our company. Years ago, Japanese manufacturers dominated the rotary compressor market and it was very difficult to find a niche in such a market for a company from Taiwan like us. Therefore, we paid great attention to improving the quality of our products.
The market size in Taiwan is only about 1 million units each year. We thought that the rapid development of the economy in mainland China would certainly cause the booming of the air conditioner market, therefore, in 2000, we set up our first factory in mainland China.
J: In what way did you develop your market in mainland China?
L: South China and East China are the main markets and are the manufacturing bases of air conditioners. So we first set up a factory in Huizhou, Guangdong Province, together with TCL in 2000, and then set up our own factory in Dongguan, a city one hour away from Huizhou. With our success-ful development in mainland China, we founded a new factory in Qingdao in 2005 and from then, we got on the expressway.
In 2008, the global financial crisis caused us to change our policies. We integrated our 3 factories to reduce the operation and production cost. For example, we shifted the compressor production lines in our Dongguan factory to the factories in Huizhou and Qingdao. The Dongguan factory has only produced motors since then. After the financial crisis, the Chinese government adopted a series of incentive policies to stimulate domestic demand. We lost no time to grasp this opportunity and made big progress. We can even say that it was the financial crisis that gave us an excellent opportunity.
J: Why did you set up your third factory in Qingdao?
L: One of the most important reasons for us to set up a factory in Qingdao is that Haier is one of our best partners and it has its production bases there.
Brand & Competition
J: Could you tell us the secret of your success in mainland China?
L: Localized management and operation is a key issue for our success in mainland China. We believe that a company cannot survive in the mainland if it does not want to localize. I think many Japanese companies also have such experience. Many in our management team are from the mainland, including the general manager of our Huizhou factory.
J: Which company is your most powerful competitor?
L: As a matter of fact, all of the compressor manufacturers are our competitors. Meizhi and Highly have support from Midea and Hitachi, and Panasonic also has its own air conditioner factory. For Rechi, we do not have an air conditioner factory, and therefore, we must pay more attention to our quality and technological progress in order to decrease production costs.
J: You could also say that this is your advantage. You are a specialized compressor manufacturer, so you can cooperate with any air conditioner manufacturer, right?
L: Yes, you can put it like that. We treat all our customers equally. During our cooperation with air conditioner manufacturers, many of them have regarded us as strategic partner. We have set a quota for each air conditioner company and the maximum volume sold to this company cannot exceed the quota under any circumstance. In this way, our customers have learned to trust us.
Challenges and Innovation
J: Some airconditioner manufacturers have their own compressor factories; does this have negative influence on your company?
L: If a compressor company only aims at big air conditioner manufacturers, their sales will certainly be influenced when these air conditioner manufacturers begin to produce compressors by themselves. As for our company, we adopted two strategies to avoid this. First, we cooperate with various air conditioner manufacturers. In this way, we can reduce our risk. Second, we are always seeking new markets. For example, our heat pump dryers have had large success in the market.
J: Sales are not well since last August, right?
L: The sales of almost all the compressor industry have not been well since last August, and almost all the compressor manufacturers decreased production. However, we still managed some sales increase in such a worse condition. The most important reason for this is the two strategies I mentioned above.
The severe market situation forced us to innovate. We must find the new opportunities in this industry to avoid the bad influence caused by the slumping market. In fact, compressors can be applied in many refrigerating or heating products that do not currently use compressors to make them more energy efficient. The compressor we developed for the heat pump water heater is a good example. This type of compressor can save more than 70% of the energy consumption compared with the traditional types and it has had big success.
J: Are you products using your own brand?
L: The heat pump water heater produced by us uses our own brand. This product is only sold in Taiwan at present.
J: How about the prices of the water-source heat pump products you developed?
L: The heat pump water heaters we developed currently are commercial products. Our customers usually get their investment on our commercial products paid back in two years. Customers will certainly welcome a product if it can save energy. Therefore, our commercial products sell very well in Taiwan. For the residential products, they are only sold to high-end customers at present.
New Products & New Technologies
J: What is the highest power of your rotary compressors?
L: The highest power of our rotary compressors is higher than 5 hp. They are twin rotor products. We concentrated our business on rotary compressors.
J: How many of Rechi’s compressors are inverter ones?
L: Some 10% of our products are inverter units. We began to develop inverter control technologies 10 years ago and have had a lot of achievements. The application of inverter compressors has been developing at a high speed in mainland China in recent years. In order to satisfy demand, we have adjusted our strategy. This year, we have set up a 3 million-inverter compressor production line. In the future, we can provide our customers more energy-efficient products.
Currently, about 30% of the air conditioners sold in the mainland market are inverter ones; therefore, we still need to increase another 20% of the percentage of our inverter compressors to reach the average level.
J: What is the market share of your compressors in the mainland China market?
L: We sold our products to Gree, Midea, Haier, etc. Many of the air conditioners they produced with our compressors are sold to the U.S. market. Therefore, only 6% of the air conditioners sold in mainland China use our compressors. We plan to strengthen our mainly market development in the future.
J: Do you have partners in the development of inverter control technology?
L: The companies in Taiwan did not pay much attention to the inverter control technology for air conditioners before. In recent years, the rapid development of the inverter air conditioner market in mainland China has caused many companies in Taiwan to begin their business in this section.
J: Could you tell us your opinion on refrigerant replacement?
L: As a compressor manufacturer, we have developed various compressors suitable for different refrigerants, such as R32 and R290.
Mainland China has not decided which refrigerant will be used in the future: R290 or R32. However, the safety problem for the R290 product is still a big issue that needs to be considered seriously.
As for the customers, I think safety is the first issue they consider when they buy an air conditioner. They will not buy products that may be dan
gerous. Therefore, I think R32 has a brighter future in mainland China.
J: Have you developed compressors using HFO-1234yf?
L: Yes. As a matter fact, the high cost of this refrigerant is a big problem. Overseas Market
J:How about your sales in the overseas market?
L: The compressors exported to Southeast Asia, Taiwan, and the United States account for 25% of our total sales. According to the data provided by China Customs, our compressors boast the largest export volume out of all the companies.
J: Which country or region does Rechi need to pay attention to in the future?
L: I think the markets in Brazil and India are very important because they are huge potential markets. The market in Southeast Asia is also very important. The markets in other countries and regions are also important to us because we need to catch all the chances we can as a compressor manufacturer.
J: Could you talk something about your partners?
L: Last year, we planned to expand our production. We talked with two companies: China Steel in Taiwan and Sharp from Japan. China Steel is our upstream company and Sharp is our downstream company. Both of the companies know our company very well and are glad to invest us.
We have cooperated with Sharp for many years. Sharp has its own plan for new product development and we develop compressors for Sharp air conditioners according to their plan. Our cooperation has yielded substantial results, which caused Sharp to invest in us to make a tighter partnership.
We have also cooperated with China Steel more closely since it investmented in us. For example, we are developing a steel plate suitable for our compressors together.
Outlook of the Future
J: Do you plan to produce other products besides compressors?
L: Our compressors were mainly used in air conditioners and dehumidifiers. From 2007, we began to think of the target markets for our company. Because energy conservation is the mainstream at present, we plan to make our company into a leading provider of prospective energy-saving products. In this way, we are not merely a compressor provider.
As I just said, Rechi has also developed many other products such as heat pump dryers and commercial air-source heat pump water heaters. We also develop inverter controllers at present.
Compressors account for 95% of the total business of our company, the others account for 5%. We define the 5% as our new business and hope it will develop quickly in a short period.
J: Could you tell us something about yourself?
L: I have a technical background. I first worked at the air conditioner development department of Sampo and studied Japanese during this period. Then I went to a washing machine factory in Tianjing, which was invested in by Sampo, where I was the general manager. In 1994, I joined Rechi. I first worked in the technical department for more than 10 years, and then began to lead the marketing team to develop our markets.
J: Could you talk something about your cooperation with Japanese companies?
L: The most important value to cooperate with Japanese companies is honesty. Various problems are inevitable in business, and we need to face these problems directly and solve them perfectly. Only in this way can we get the trust from our customers and partners.
Japanese companies have a high requirement on product quality. This can not only improve the quality of our products, but also let us study the business philosophy of Japanese companies.
J: Thank you very much for you accepting our interview.
Article originated from http://www.ejarn.com/