Elevator industry locked in price war
A FIERCE price war is raging in China among manufacturers of escalators and elevators, as more producers move to China and the region from Europe.
Schindler Management's president for Asia-Pacific, Werner Kummer, admitted that 'price competition' was taking place because of lack of industry growth in other parts of the world.
Mr Kummer was speaking after a ceremony yesterday to officially open the Schindler Group's new plant, Suzhou Esca Steps Company, established at a cost of US$10 million.
He said: 'Everybody [in the escalator and elevator business] wants to move to Asia to have a large share of the cake.
'We see already today fierce competition in this business.' Asked whether the competition was eating into the group's profits, Mr Kummer said he was happy with the China business results so far.
'We don't have the 1995 result yet but we expect some kind of stagnation.' He added that this depended on how much the group had to write off as bad debts and provisions for bad stock.
Mr Kummer said the move to set up Suzhou Esca Steps, to supply its three other factories in China, was a reaction to the competition.
This was a trend to improve the cost structure by providing better technology at the same price.
Mr Ernst Moor, managing director of Schindler's Escalator Division, said the group's strategy was to have one type of escalator which was a 100 per cent quality product.
Different ratios of local raw material were used per unit, depending on the requirements of the client, he said.
In China, an average of 80 per cent of local raw materials were used for Schindler products.
'If the client wants fully imported products, we can do so,' Mr Kummer said. Schindler had the highest local content in production compared to its competitors.
Mr Moor also said escalators used about 35 to 40 per cent aluminium, the price of which depended on world market prices that fluctuated quite a bit.
He said Suzhou Esca Steps, which will produce 100,000 steps annually under the first phase, was using imported aluminium.
However, the group was now searching for a local sup-plier.
Schindler's China business did not face a lot of bad debts as companies - especially those that were state-owned - could not go bankrupt.
'This could change and [the group] might head for some consequences,' Mr Kummer added.