Hansgrohe taps into China's middle class

Bathroom-fixture maker Hansgrohe has a different strategy for the world's largest country. Rather than continue to pitch luxury lines to hotels there, the German firm now makes its products in Shanghai for local middle-market buyers.

Siegfried Gansslen, the chief executive of Hansgrohe, says the the market for the company's products is big in the UAE. Ravindranath K / The National

One of the biggest global brands in bathrooms hopes to tap into the booming Chinese middle class after making a splash in the Arabian Gulf.

Hansgrohe, believed to be the world's largest supplier of hand-held showers, has been in the UAE for more than 15 years and reported global revenues last year of €764 million (Dh3.6 billion).

While its biggest market is still Germany - where the group is based - China is expected to take over the number one sales spot in the next two to three years.

In an interview with The National, the Hansgrohe chief executive, Siegfried Gänsslen, and the sales director for the Middle East, Africa and Asia, Julian Henco, talk about the company's future plans.

You have been selling your products in China for more than 15 years. How has the business changed in that time?

Mr Henco: We started in the market [in a position] quite typical for a German premium manufacturer, in the luxury segment, mainly for hospitality projects, and then we worked our way through other elements. We are probably one of the top three brands [for premium taps and showers] in China today, but the big growth opportunity is in the medium segment.

How so?

Mr Henco: Buying an apartment is one of the most important things [middle class men can do] otherwise they don't get a wife. They pay a lot of attention to the quality because they pay off this apartment over a period of 10 or 15 years. Chinese people are very conservative. They are working hard, they are saving their money and if they buy something they want to really have value for their money. Regardless of whatever perceptions people might have about China, quality is a main unique selling proposition.

How are you changing your products to appeal to middle-class Chinese?

Mr Henco: They define quality by how valuable the product looks, how heavy it is. They like bigger taps. They like them chunky.

How do you pick your showroom locations?

Mr Henco: That's the toughest part. The biggest challenge [is finding] the right location, the right dealer and the right partner that runs the showroom. That's our biggest investment actually, showrooms.

Have you had any problems with companies copying your products in China?

Mr Henco: You see a lot of companies who copy our design but in kind of in an awkward way because the proportions are not right. They are improving obviously.

How are you tackling that?

Mr Henco: We say OK, you are buying a product that is not viewing China as an opportunity. We are in China to invest. We have 500 employees so we are investing in the market. That is again part of our value proposition and we are here to stay. We are growing and extending our factory capacity. We are paying our people proper salaries. We are investing in them. We are developing in them. A lot of people now in management were recruited 10 years ago.

What do you mean by proper salaries? Are they substantially higher than other companies?

Mr Henco: There is something called a minimum wage in China. This minimum salary is fixed by the local and regional governments. We try to always pay 15 to 20 per cent above this local salary. This only applies for workers who are new or on probation. If you look at the salary of an executive manager in China, it is not far away from the salary you would pay to a manager in the UK. You are taking about a six-digit euro number.

Mr Gänsslen: They are very keen that they get good meals. They told us always the story that if they don't pay enough attention to the meals they go on strike. Our Chinese management said to us the [character] for heaven and food is the same.

Do you source all of your materials from China?

Mr Henco: Hansgrohe has its own standards for brass. When we buy brass it's according to our chemical composition. We buy it on the world market.

Which markets does the Chinese factory make products for?

Mr Henco: Mainly for the Chinese market.

That's interesting. Many companies produce their products in China and ship them abroad. Why do you not make all of your products there?

Mr Henco: Salaries are increasing, raw material costs are the same everywhere, so in 10 years it [won't] make sense to have a factory in China and export from there to the rest of the world. Our intention has always been to set up a factory in China because at the end of the day you are competing with the local manufacturers.

I once heard there was an area in China where something like 90 per cent of the world's bathroom products are made. Is that true?

Mr Henco: That's more or less true. It is an area called Xiamen in the south-east of China. That's not where we are. We are in Shanghai. People don't want to work in the south-east of China. They want to work in the centre of China. Since about 10 years, we have had our own fully fledged factory in Shanghai for a regional office in China.

Mr Gänsslen: Companies that have moved inside China now have problems getting management people.

Moving on, how big is the UAE market?

Mr Gänsslen: Big is a big word, what can we say?

How does it compare percentage wise?

Mr Gänsslen: 9 to 10 per cent of the total business in the Middle East.

How do the other Middle East markets compare?

Mr Gänsslen: In Saudi Arabia you have a mass market and when you look at Bahrain that is not a mass market. Abu Dhabi is very advanced in eco, so we have to put our eco products in. From the outside it looks very simple. You think we just sell faucets or showers or whatever. But you have these things. One country is asking for [one specification] and the next country is asking for [another].