Online Extra: Sitting Pretty in Shanghai
Frank Rexach, who runs the Asia operations for Haworth Furniture, likes to keep things light and mobile. Rexach doesn't have his own office at his home base in Shanghai. He simply uses whatever cubicle is available and brings his computer and files in a piece of rolling luggage.
Fluent in Mandarin, Rexach likes to chat with everybody on the staff. "As a leader, you have to be seen as locally integrated in your local organization. They really look to see if you are on an expat assignment and just enjoying the perks," he explains. "Some staff call me an egg -- white on the outside, yellow on the inside."
Unconventional approaches are working well for Rexach -- and especially well for Haworth, a $1.4 billion Holland (Mich.)-based maker of office furniture. The family-owned company has seen its Middle Kingdom sales grow 50% annually for the past three years. From its 250,000-square-foot factory in Shanghai, Haworth is selling more than 100,000 chairs a month, priced at $250 to $2,000 apiece, and around 100,000 office work stations, which go for up to $2,500 apiece. Rexach also has nurtured a booming business in India, where many huge call-center operations are buying up to 5,000 Haworth chairs and workstations at a time.
INVESTING IN PEOPLE.
What's particularly impressive is that Haworth is beating many Chinese manufacturers at their own game -- and doing it on the locals' turf. For the past five years, U.S. furniture makers have been under siege from Chinese imports. Hundreds of U.S. furniture factories have shut, unable to compete with high-quality Chinese-made furniture costing 30% to 40% less. Few U.S. furniture makers have even contemplated taking the fight to China by manufacturing there and selling to the domestic market.
Haworth's secret? In short, recognizing that the China market is fast becoming just as sophisticated and demanding as those of the U.S. and Europe. As in the West, corporations in China are growing more concerned about keeping and motivating talent. As a result, they are willing to pay more for quality and extra service, rather than make decisions only on price.
True, most of Haworth's customers are multinationals like General Electric (GE ), 3M (MMM ), SAP (SAP ), and Siemens (SI ). But some of Haworth's corporate clients aren't customers in the U.S. or Europe, where it faces stiff competition from rivals like Steelcase (SCS ) and Herman Miller (MLHR ). Also, Haworth is making inroads with big Chinese corporations such as China Mobile, a major customer.
Haworth wasn't always so successful in China. Four years ago, its Shanghai factory was operating at 20% capacity. Haworth had been importing key components from North America and Europe and assembling them in Shanghai for the China market. "It was just an extension of our U.S. business model," says Rexach. Haworth had a Shanghai showroom, but didn't do much to promote itself. "The attitude was, 'We are Haworth. You should buy us,'" he says.
The turnaround happened after Haworth brought its more modern business model to China. First, Rexach moved to locally designed and sourced furniture, rather than only pushing models designed in the U.S. It now strives to deliver custom-made furniture to Chinese clients within three weeks. Second, Haworth developed a marketing strategy that Rexach describes as an "outside/inside approach of knowing what people really want."
Rexach set up the Shanghai Creativity Center. The center, on the second floor of a modern office building near Shanghai's trendy Xintiandi district, has a commanding view of a park and manmade lake. The showroom is filled with a variety of attractive chairs and posters of top Haworth designers around the world. The center has been so successful that Haworth is setting up a similar one in India.
Rather than actually sell furniture, the center's aim is "to provide value-added service for clients, whether they were buying furniture or not." Pretty much anyone off the street is allowed to come in, plunk themselves down in a comfy, ergonomically designed chair, and read or connect their laptop PC into the free wireless local area network. Staff even offer free cappuccino. Prospective customers also are encouraged to hang out and try various work stations.
"You have to give people a chance to experience your product before they buy," Rexach says. Also, since some showroom pieces remain designs in progress, Haworth wants the feedback.
What's more, the center allows all sorts of community organizations to use its center free of charge for events such as seminars by local chambers of commerce, fashion shows, and university alumni fundraisers. The idea is to make the center a community resource in Shanghai, which lacks much public space.
SHRINKING THE MARKET.
Haworth also introduced the "ideation" concept, which it uses in the U.S. and Europe. Essentially, Haworth provides a free consulting service. Its staff "works with the client at the highest levels of the organization, to learn their business goals and their challenges in attracting and retaining people, and to design the space around them," Rexach explains.
In Shanghai, Haworth employs two psychologists who study a potential clients' needs and the issues they are facing in the workplace, such as the lighting, the space between staff, and the way in which people work together. Haworth then suggests designs for a workplace environment with a complete suite of furnishings.
The goal of the "ideation process," and of providing valuable services, is to keep clients loyal. "We definitely have won business this way," he says. "A lot of it is relationships and word of mouth."
Rexach figures it faces about 20 serious rivals in China, vs. just three or four in the U.S. The toughest are big Taiwanese and Japanese office-furniture makers. But there is also a growing pack of domestic suppliers that offer cheaper knock-offs. Rexach says his goal is to narrow the price gap between his wares and those of local competitors to no more than 20%.
Whether or not Haworth's success can be directly tied to touchy-feely consulting or free use of its facilities is hard to measure. But whatever it is doing right, Haworth's success demonstrates that it is increasingly possible to succeed in today's rapidly modernizing China, even in the toughest manufacturing businesses. What works best, it seems, are the same kind of highly sophisticated marketing strategies that the U.S. market expects and demands.
Edited by Patricia O'Connell