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Thursday
Mar212013

A CEO Explains Why He Sold A German Soul To the Chinese

Putzmeister was a paragon of the German Mittelstand—family-owned companies with innovative technologies and high-quality manufacturing that become worldwide players in niche markets that they dominate. They’re at the core of the German export economy. But in early 2012, like so many other Mittelstand companies, it was acquired by a Chinese giant. And now, a year later, Putzmeister CEO Norbert Scheuch reveals just how impossible integration is, and how pessimistic he has become not only about Europe, but the rest of the world, particularly China.

The company was founded by Karl Schlecht in 1958. First product: an automated mortar machine, ideal for the post-World War II construction boom. Soon Putzmeister expanded into concrete pumps—truck-mounted equipment with articulated masts that can pump liquid concrete. Over time, it developed larger pumps with unique technologies and record setting performances. In the 1970s, it expanded into the rest of Europe; in the 1980s, into the US; in the 1990s, into Japan, China, Russia.... It had become a worldwide player. In 2012, it had about 3,000 employees, but only 1,100 in Germany.

Yet the company had been losing ground to a scrappy Chinese upstart, Sany, that grew in leaps and bounds during the construction boom in China to end up with 70,000 employees worldwide. Then Putzmeister slammed into the financial crisis: sales plummeted from €1 billion in 2008 to €440 million in 2009.

“I rarely experienced a business screeching to a halt in quite the same way,” said CEO Norbert Scheuch. Survival had become an issue. While sales picked up in 2010, it had trouble competing with Sany. So Scheuch quietly began shopping for a buyer, and found... Sany, which forked over €525 million. And Karl Schlecht, at 79, had found his exit.

When the deal was announced—shock! 700 employees gathered in front of the factory to protest the sale... to the Chinese, of all people. But Schlecht saw it differently. “We must come down from our arrogance,” he said. Meanwhile back at the Putzmeister plant in Shanghai, when employees found out that the company had been sold to the Chinese, they organized a general strike and shut the place down for 10 days.

CEO Scheuch, the only German board member of a Chinese company, admitted in an interview with Manager Magazin that the concrete pumps were “completely overlapping products.” So they separated them regionally, except in China, where they had a “two-brand policy.” They were vague hopes for synergies in product development and components. But there was “minimal” personnel exchange. “We tolerate only a very limited number of Chinese engineers, because we only have 180 engineers ourselves,” he said. And none of the German engineers were sent to China.

Sany had bought Putzmeister for three reasons: internationalization, brand reputation, and technology transfer, he said. The latter was about quality. The goal was to raise the quality of Sany components to Putzmeister standards so that Putzmeister could use them, while benefiting from lower manufacturing costs in China. To make that happen, Putzmeister was recruiting experts in Germany. “We know where we can find good people,” he said. And as Germans, they had easier access. They’d be sent to China “to advance processes and technologies there.”

What did Putzmeister learn from the Chinese? Scheuch dodged the question. “I don’t think such a discussion about similarities and learning from each other is appropriate.” Why? Because “there are huge differences in management, problem solving, and social structures” that could not be transferred. “We will never be able to turn a German company into a Chinese company, and vice versa. Nobody wants that anyway.” And integration would not be possible, he said. The differences were too large. So they’d limited themselves to a “strategic cooperation,” he said—and at the factory, nothing has changed.

But the industry was in trouble, even in China. In 2011, about 10,000 concrete pumps were sold worldwide, he said, of which 8,000 went to China—80%! In 2012, the rest of the world was recovering a little, and about 3,000 pumps were sold. But sales in China fell from 8,000 to 5,000—a 37% plunge.

To explain why the business was better in developing countries, he listed three parameters: growth of the population, growth of per-capita GDP, and growth of government indebtedness. If all three are lined up just right, the country becomes “an excellent breeding ground for our products.”

Europe had none of the parameters, and he saw “no good prospects.” The Americas were progressing, he said, but he didn’t “dare” give a forecast for the US. India was in a recession; though the population was growing, the other two parameters were not. And China had just gone through a 37% plunge.

So he did not have a scintilla of optimism for 2013. Growth? “I cannot say if it’s going to be 0% or 3%,” he said. The company would reduce temporary work and fixed-term employment in Germany this year, he said. “Globalization is carrying us away from Germany and Europe to other regions.”

For corporations that know how to leverage global tax systems, France offers a free ride. But as the government tries in a vain and desperate effort to make ends meet, it’s not only going after multinationals and their tax optimization schemes but also smaller companies that are gasping for air. Revenues from aggressive collections—“not far from blackmail,” an insider said—have jumped. A rare, and telling, area of growth in a morose economy. Read.... Finally A Glorious Growth Industry In France: Hounding Companies For Back Taxes and Penalties

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