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Strategic re-engineering of Geberit China
– Interim report –
Geberit International AG
Content (1) Page
Management Summary 5
A. Market environment 12
A1. Macro business environment in China 13
A2. Market analysis of sanitary system 36
A3. Market analysis of piping system 67
B. Strategy evaluation and Sales & Marketing 80
B1. Strategy evaluation 81
Corporate strategy analysis 82
Product strategy evaluation 89
B2. Sales & Marketing 91
Retail channel GSHA 95
Project channel GSHA 103
OEM channel GDAI 107
Marketing 110
Benchmarking: Kohler (China) 112
Content (2) Page
C. Financial, organization and processes analysis 122
C1. Financial situation analysis 123
Geberit Shanghai 124
Geberit Daishan 138
C2. Organization and processes 145
Organization structure 146
Management structure 151
Key process analysis 157
D. Restructuring options 164
D1. General options and pre-selection 165
D2. In-depth evaluation 176
Equity buyout 178
Termination 183
Bankruptcy 186
Comparison of the alternatives 190
D3. Feasible scenarios 193
Back-up Acronym list
BoD
CCS
CJV
EJV
FDI
FIC
GDAI
GSHA
JV
KTS
VGM
WFOE
Board of Directors
Competence Center Shanghai
Co-operative Joint Venture
Equity Joint venture
Foreign Direct Investment
Foreign Investment Commission
Geberit Flushing Technology (Daishan) Co. Ltd.
Geberit Plumbing Technology (Shanghai) Co. Ltd.
Joint Venture
Kohler Technical Specialist
Vice General Manager
Wholly Foreign Owned Enterprises
Management summary
-x
China could be a market of strategic importance for Geberit’s international
business(1)
• China is a promising market for Geberit. We have an achievable business target of RMB 200 million revenue by year
2005, from which, 130 million comes from sanitary products and 70 million is generated by piping business. Among all
the product lines, tank fittings, Pluvia and concealed cistern are the top 3 product lines with the potential of RMB 140
million or 70% of the total
• Overall Chinese macro economic development is undergoing a strong momentum. In the next 5 years, it is estimated
that GDP will grow at 7% annually, the growth of fixed asset investment will increase by 8%, and housing construction
will also grow by 8% .
• Chinese sanitary market is mostly a ceramic market, with an annual demand of 43 million units of sanitary ceramic
products in China in 1999 which means the potential market of nearly 2 million sets for tank fittings as well as 2 million
units of medium to high end cisterns sold in the market. With the growth in the housing market, Chinese sanitary market
will continue an annual growth of 6~8%. Furthermore, due to the rapid increase of bathroom decoration, the medium to
high end segment of sanitary products will definitely lead the industry growth. By 2005, the share of medium to high end
segment will rise from current 20% to 35%
Market environment
China could be a market of strategic importance for Geberit’s international
business(2)
• As the largest construction industry in the world, China presents an immense potential for Geberit’s piping products. Both
HDPE and Mepla possess significant product advantages over the currently used Chinese products. However, the
significant price gap could be a serious barrier for a deep market penetration. For Pluvia, the opportunities are very
attractive. Presently more than 15 roof projects, altogether 700,000 sqm are in different phases of the process of bidding
• Both Geberit’s concealed cistern and Pluvia roof drainage system are mismatched with Chinese traditional industry
habits, this can only be solved by a long-term commitment in the China market and effective marketing. Due to the
Chinese consumers traditional mindset that plastic product are lower priced, Chantier doesn’t have an optimistic market
perspective
• Right now, for most of Geberit’s products, the competition is not so tough, which means a golden opportunity for Geberit
to become a market leader in China. It also means time pressure for Geberit. Currently competitors (. Grohe DAL,
Caroma) are gearing up and will become aggressive very soon
Market environment
Overall, the strategy of Geberit in China has not been fully achieved and sales
and marketing are particularly weak(1)
Strategy and sales & marketing
• Although GSHA developed a strategy when founded, the strategic objectives to penetrate into the Chinese
market haven’t been achieved--current strategy is unfocused
• The vision of GSHA is not communicated within the organization, nor is it implemented
• In comparison, GDAI’s strategy is going in the right direction and is in the process of being implemented,
They still have problems to solve, such as slow market responsiveness, poor customer understanding etc.
• The core competence of Geberit Europe stands for advanced technology, premium quality and brand,
excellent pre-and-after sales services. This has not all been transferred to Geberit China
• Current product portfolio of selling Chantier, Duofix and public products is unbalanced. Strategic focus
should be on concealed cistern, tank fittings and Pluvia and HDPE
• As to sales and marketing operations, GSHA has no clear strategy in developing distribution network
Overall, the strategy of Geberit in China has not been fully achieved and sales
and marketing are particularly weak(2)
Strategy and sales & marketing
• Geberit’s products are sold through 3 channels: retail sales and project sales through distributors, and OEM
– Geberit lacks clear planning of retail network development and has neither intention nor leverage to
monitor distributor's network operations
– Project sales performance has been affected mainly by both poor customer services and
incompatibility with current Chinese installation and application habits
– There are a number of setbacks that need to be overcome to improve OEM sales: unsatisfactory
product development and customization, slow market responsiveness and high pricing
• Except for a very few marketing related activities such as seminars and attending exhibitions, essentially
marketing department doesn’t perform marketing functions such as building up brand etc.
• Kohler has done far better compared to Geberit in the area of sales and marketing, such as raise brand
awareness, influence customers and design institute
Financials, organization and processes
• The GM of GSHA lacks leadership. His management style is self-centered. It is widely perceived that he does
not trust the local staff. His personality is not accepted by employees. As a result, there is no motivating
corporate culture, no trust between management team and staff, no motivation and commitment among the staff
and high staff turnover. ( . CCS )
• The official organizational structure, which is changed frequently, is not implemented. Department’s function is
not clearly defined. Some functions ( . HR ) are overlapping and some are not implemented. ( . Marketing)
• The current operation process is production - oriented instead of market-oriented, leading to ignorance of market
demands. The control of the whole process is only on paper and is not followed in reality.
• Although there is no open conflicts between them, the JV partners pursue their own (personal) interests. It is
particularly obvious when recruitment, promotion and lay-off are concerned.
• GSHA is on the brim of bankruptcy. More than 70% of products sold have negative gross profit margin, resulting
in an increase of operating losses in line with increase of sales. The company cannot survive without a
continuous cash injection from the parent company. Although the operating losses of GDAI have been reduced
as a result of improved gross profit margins and increased sales, the financial situation is still critical
There is no leadership at GSHA. GSHA is close to bankruptcy. GDAI
shows positive development trend
Geberit should aim for equity buyout and consider termination or bankruptcy
as fall-back position
Restructuring options
• To separate from the Chinese partner is a premise to secure success of restructuring
– Some key problems particularly affecting to HRM are related to the Chinese partner
– In addition, Lida’s products are contributing to the huge loss due to their -7% gross profit margin and
the sharp decline in sales volume due to shrinkage of low end market
• Therefore, only equity buyout, termination and bankruptcy are feasible
• Considering cost, time, risk and the potential impact on future integration and consolidation, equity
buyout should be deemed as the first choice, and termination or bankruptcy as fall-back position
• The buyout and termination options depend to a large extend on the willingness of the Chinese partner
and can take a long time. Therefore, Geberit should start preparations and negotiations quickly
A. Market environment
-x
A1. Macro business environment in China
-x
Overall the business environment is positive for Geberit’s investment in China
Macro business environment
in China
• 8% annual growth forecasted for construction industry
• Strong momentum for real estate market growth
• Steady growth for high end real estate market
• 7% annual GDP growth estimated in the next five years
• Another boom for FDI1) expected
• An estimated 8% annual growth for fixed asset investment
by 2005
• Consistent economic policies
towards reform and opening up
• Dramatic Chinese household
income growth during the past 15
years
Macro economic trend Housing supply market
Government policies Social factors
• Government’s preparation for WTO
entry
• Central government’s effort to develop western region
• The emergence of top consumers group with strong
purchasing power
• Significantly increased bathroom decoration standard and
spending
1): Foreign direct investment
China is one of the fastest developing countries in Asia and the
globe
Annual GDP growth in China [%]GDP growth in Asia, 1998/1999
China
1) Estimate
Japan
Malaysia
Indonesia
India
Philippines
Taiwan
Singapore
Hong Kong
Thailand
Germany
%
USA
%
Source: OECD, Roland Berger & Partners analysis
1)
The key indicators of the first half of 2000 show a strong
confidence in the Chinese macro economic trend
• Fixed asset investment hit RMB 754 billion in the
first half of 2000, up % compared with the
period of last year, among these, the investment of
real estate was RMB 201 billion, up %
• Sales volume of the retail market reached RMB
1625 billion, up %, and the disposable income
per urban resident increased by %
• Foreign trade volume achieved a significant growth
of 37%, amounted at USD 217 billion, among these,
export was USD 115 billion, up 38%, import was
USD 102 billion, up 36%
Key indicators in the first half of 2000 % GDP growth achieved in the first half of 2000
Source: County Information Center
3650
3950
+%+%
[Billion RMB]
In the next 5 years, macro economic development will be
optimistic in China
• WTO accession will bring % more foreign
investment, USD 100 billion incremental FDI per
year, will boost economy growth by 1% annually
• The fixed asset investment is estimated to grow at
8% per year
• China plans to accelerate the urbanization process
by 2% per year
• Real estate market will grow at 7-8% . in the
next five years
The trend of China’s macro-economy 7% annual GDP growth1) in the next five years
[1978 = 100]
1): excluding the inflation factor 2): Estimation
Source: China Infobank, Asian monitor, RB&P analysis
2)
+% .
+% .
+% .
+% .
+7% .
A boom for foreign investment can be expected in China in the
next 5~10 years
FDI growth Growth of European Union investment
[Billion USD] [Billion USD]
%.
%
%
%
% %
%
The weighted share of European companies’
investment in total FDI is increasing
% . 12% .
1)
1) Estimation based on the assumption of WTO entry
Source: Sate Statistics Bureau, RB&P analysis
70% . % .
WFOE (wholly foreign owned enterprise) is becoming a more and
more widely-accepted approach for foreign investment
Composition of FDI in China Legal formation of foreign investment
Source: State Statistics Bureau
Back-up
European
Union
Japan
USA
Taiwan
Hongkong
Others
[Billion USD] [Billion USD]
The accumulation of actual foreign
investment to the end of 1999 Actual foreign investment of Jan. ~ July 2000
EJV
WFOE
CJV
EJV: Equity Joint Venture
CJV: Cooperative Joint
Venture
Others
Total: Total:
The fixed asset investment is estimated to grow at 8% annually in
the next 5 years, and more than 60% will be invested in
construction project
The growth of fixed asset investment Composition of the fixed asset investment in 1999
Source: China Statistic Yearbook 2000, RB&P analysis
[Billion RMB]
%
%
%
%
8%.
[Billion RMB]
Purchase of
machinery
equipment
Construction and
installation
Others
Total:
Construction industry will grow steadily at an estimated 8%
annual rate
Gross output value of construction industry
[Billion RMB]
Growth of government infrastructure
investment
Growth of residential housing supply
Growth of real estate market
Growth of renovation market
%
%
%
%
8%
Source: China Statistic Yearbook 2000, National Planning Commission, RB&P analysis
The total floor space of housing supply has experienced an
average annual growth of % in the past 5 years, more than 8%
growth can be expected this year
Growth of total housing supply
• Average annual growth of urban residential supply
is %, which is leading the total growth rate of
%, and will continue to be the growth engine
• Rural residential supply growth is limited due to
slow farmers’ income growth
• WTO entry is expected to stimulate another high-
growth period of office building supply
Trend of housing supply
[Billion sqm]
+% .
Urban
residential
Rural
residential
Non-
residential
)
1): Projection based on the progress of the first half year of 2000
Source: China Statistic Yearbook 2000, China Construction Industry Yearbook 1999, RB&P analysis
+%
Building construction can be divided into residential buildings and
non-residential buildings
Back-up Buildings classification
Total construction
Residential buildings Non-residential buildings
Urban residential Rural residential Industrial buildings Commercial buildings Others
• Manufacturing
plant
• Hotel
• Retail store
• Restaurant
• Entertainment
• Others
• Public buildings
.: airport,
exhibition center,
stadium
• Institutional
buildings
• Hospitals
• Schools
• Others
Others
Office buildings
Total housing supply in 1999 reached billion sqm in China
The floor space completed National Beijing Shanghai Jiangsu Zhejiang Guangdong
Residential
Urban
Villas and good apartments (sold)
Rural
Industrial
Commercial
Office
Others (retailing, entertainment, catering… )
Others (public, institutional, hospitals, schools … )
Total
1393
559
834
111
223
119
104
147
1874
Back-up Housing supply of nationwide and key areas 1999
[Million sqm]
Source: China Statistics Yearbook 2000, Provincial Statistics Yearbook 2000
The residential floor space supply accounts for % of the total
housing supply in 1999
Composition of housing supply (1999) Compositions of non-residential buildings (1999)
Back-up
481
559
Rural residential buildings
Non-residential
buildings
Urban
residential
buildings
834
[Million sqm]
119
147
Industrial buildings
Office buildings
Others
111
[Million sqm]
Total: 1874 Total: 481
104
Other
commercial
buildings
The group of commercial buildings
Real estate market is showing a strong momentum in 2000, sales
of square meters up 38% from Jan. to July vs. the same period
in1999
Source: State Statistic Bureau, China Infobank
Floor space completed
[Million sqm]
+%
Housing sales Market indication of 2000. 1~7
1999 (1-7) 2000 (1-7)
+38%
1999 (1-7) 2000 (1-7)
72%
84%28%
16%
• The actual investment in real estate
reached RMB billion, up
%
• 32 million square meters of land
was used for real estate
development, up %
• Market price slightly increased by
%
• Top cities such as Shanghai,
Beijing, Guangzhou, Shenzhen are
leading the growth, . the private
consumption in Beijing was almost
tripled to million square meters
compared with the period of the
last year
Private buyerInstitutional buyer
[Million sqm]
High end real estate is on track of steady growth during the past 5
years
Growth of sales of villas
and high end apartments*
Composition of
high end real estate market (1999)
*: The high end real estate market is defined by the selling price per
sqm, in 1999, the criteria is above 4500 RMB per sqm
Guangdong
Others
Shanghai
Beijing
[Million sqm]
+15%.
[Million sqm]
42%
Total:
Chinese government is endeavoring to drive sustainable economic
growth
Open-up
• Continuously adopt the direction market
oriented economy development, the
market will open further
• Prepare for WTO entry to gain more
foreign investment and sell more abroad
Western region development
• To narrow the gap of economic
development between coastal area and
western region
• To create extra domestic market
demand by government direction setting
Sustainable
economic growth
Market reform
Domestic market demand driven
• Keep the growth of government’s investment in
infrastructure
• Prioritize the market development of real estate by
issuing out stimulating policies, such as housing
privatization policy, tax cut of housing consumption
• Create consumption market demand by increasing
the pay of government staff 50%, lowering down
deposit interest etc.
• Keep SOE reform at the top agenda of
economic development, to achieve a long-
term solution for a viable SOE business, some
short-term pains may be caused such as a
large amount of workers laid-off
Probably China will join WTO early in 2001, which will make a
tremendous impact in the Chinese macro economic environment
Boost economic development
Impact to
Geberit’s
business in
China
Intensify market competition
• More favorable investment environment
• Easier to import Geberit European produced
products to Chinese market
Impact to
macro
economic
environment
• Overall, WTO will make a dramatic impact
on China’s economic development by
opening the door to foreign business and
making Chinese products more accessible to
the global market
• WTO entry will boost one new tide of foreign
investment in Chinese market
• WTO entry will also bring consumer
spending growth
• WTO entry means more international
players will come to Chinese market by
exporting their products with the lower tariff
or by direct investment in the market
• The tariff for sanitary product, now around
40% will be reduced to 10% in the coming 5
years, a great favor for American or
European sanitary products imported to
China
• WTO entry will strengthen key competitors’
determination for Chinese market like
Caroma, Grohe Dal. They will move into the
market quickly
WTO entry implication
Western region development will create a considerable market
demand, however, Geberit should not be overly-optimistic
Implication to GeberitGovernment’s direction
• Chinese government will invest 100 billion USD in
infrastructure construction across the western region
in the coming 10 years, invest 24 billion USD in
ecological environment protection and enhancement
• 70% of the loans from international financial
organization and preferential loans to Chinese
government will be poured into western region
• Government issued extra incentives and preferential
treatment to attract more foreign investment in the
western region
• The western industry structure will be optimized to be
more efficient and environmental friendly
• To improve farmer’s income
• The massive infrastructure upgrade and construction
will create certain market demand for Geberit’s
products. . around 20 airports in western region
will be built or upgraded in the next 5 years, a
potential market for Pluvia and public products
• The household income and the general economic
development in western region will still lag far behind
the eastern coastal area in China, It will take quite a
long time for the west to catch up, Geberit should not
be overly-optimistic to target at the vast but poor
western market
Source: China Infobank, RB&P analysis
China’s western region, a vast land with rich natural resources,
lags far behind national economic development
Overview (1999) Geography
Indicator
Income per
capita
Land area
Population
GDP
GDP per capita
Western region
406 USD
SKM mn
285 mn
USD bn
USD
As % of national
60%
57%
24%
15%
62%
• Account for no more than 4% of total contracted
and utilized foreign investment
• Rich natural resources such as water, gas, coal,
and ore
The western region consists of 10 provinces:
Shichuang, Chongqing, Guizhou, Tibet, Yunnan
Shangxi, Gangshu, Qinghai, Ningxia, Xingjiang
Back-up
Source: China Statistics Yearbook 2000, RB&P analysis
Chinese urban residents income and consumption per capita has
dramatically increased in the past 15 years
Annual per capita disposable income of urban
residents (1999)
Annual per capita consumption of urban residents
(1999)
+16%.
+22%.
+6%.
+16%.
+22%.
+6%.
[RMB] [RMB]
Source: China Statistics Yearbook 2000, RB&P analysis
A consumer group with strong purchasing power has emerged in
the Chinese consumer market, they are demanding and brand
conscious
Annual per capita disposable income of urban
residents
• Not price sensitive, but smart on consumer value
• Strong brand consciousness, brand as a key
influencer to the purchasing decision
• Demanding on product quality, target to high end
market
• Willing to try new concepts
• Poor brand loyalty
Features of the top consumer group
[RMB]
% of households have reached monthly incomes of more than
8000 RMB in Shanghai, Beijing and Guangzhou
Segmentation by monthly household
disposable income
3000-5000 <3000
Target household units
In the top 3 Chinese cities, there exist more than
million household units, each of which earns
more than 8000 RMB per month
[Million]
5000-8000
8000-10000
>10000 Top 3 cities Number of Household units
Shanghai
Beijing
Guangzhou
Back-up
[RMB]
Target
Source: China Infobank, RB&P analysis
Bathroom decoration standard has increased significantly
• To decorate the bathroom to be a cozy private
space by spending generously
• Use branded, high quality sanitary products
• Cost around 20~30% of the total house decoration
budget, . in Shanghai, it’s common for one
household to spend from RBM 4000 to 10,000 in
bathroom decoration
Bathroom revolution in China
Source: China infobank, Asian monitor, RB&P analysis
Housing privatization leads to more private
housing ownership
Social concept influenced by western countries
A growing household income and consumption
power
Marketing output of the leading international
sanitary manufacturers such as American
Standard, Toto, Kohler
A2. Market analysis of sanitary system
-x
Chinese sanitary market is mostly a ceramic market, the annual market
demand of sanitary ceramic reached 43 million units in 1999
Composition of sanitary market demand (1999) Composition of flushing tank consumption (1999)
Washbasin
[Million unit]
Non-residential buildings
[Million unit]
Total: 43 Total:
Urban
residential
buildings
Toilet
bowl
Flushing
tank
Others*
*: Urinal ceramic and squatting toilet
Rural
residential
buildings
Source: National Building Materials Bureau, RB&P analysis
It will continually grow at 6-8% per year in the next 5 years
• Real estate market will be developed
at an annual growth of 7~ 8% in the
next 5 years
• The annual urban residential house
will increase from 450 million sqm in
1998 to 550 from 2000-2005
• The urbanization process will speed
up in the next 15 years, and the
number of cities will increase %
per year
Residential housing growth
• Bathroom decoration market will
steadily grow at 5% annually in the
next 5 years
• There exist around 60-70 million
toilet sets in China, a large amount of
which are too old to be functioning
well, or not efficient for water
consumption. This will lead to market
growth in bathroom renovation
Renovation market growth
• An annual growth
of 6-8% of
sanitary market
The data of total sanitary ceramic sales in 1999 is based on the statistics of
both housing supply market and sanitary industry
Total sanitary ceramic sales in 1999
[Million unit]
Washbasin Flush tank Toilet bowl Urinal Squatting toilet Total
National
New
Renovation
Beijing
New
Renovation
Shanghai
New
Renovation
Jiangsu
New
Renovation
Zhejiang
New
Renovation
Yangtze River Delta*
New
Renovation
Guangdong
New
Renovation
Back-up
*: The total of Zhejiang, Jiangsu, Shanghai
Source: National Building Materials Bureau, RB&P analysis
Medium to high end segment is leading the sanitary market growth
Source: China Infobank, National Building Materiel Bureau, RB&P analysis
Volume share of medium to
high end sanitary products
Industry response
• Production upgrade to move the
general industry product
standard to a higher level
• Fierce competition continually
drives consumer value by
lowering down the retail price
Government’s direction
• Aim to upgrade the industry
standard due to environmental
concern
• Built industry competence by
structure optimization
Consumer’s demand
• Growing purchasing power
• Increased demand for sanitary
condition leads to higher
bathroom decoration standard
[Million unit]
)
1)
2)
1): The projection based on 2000 Jan.~Aug. market performance 2): The industry target set by government
3): Based on the conservative annual growth rate of 5% : The percentage of medium to high end segment in the market of sanitary ceramic
Government institutions have worked out the policies and regulations to
direct the sanitary industry on environmental friendliness and industry
efficiency
• National Water Saving Office has issued the
regulation to standardize sanitary industry that
toilet flush volume should be no more than 9 liters
per time, and 6-liter flush and dual flush toilet are
motivated by water saving concern
• National Building Material Bureau has set clear
direction for ceramic industry to close or upgrade
small scale ceramic enterprises which are not
environmental friendly
Environmental concern Industry competence
• Chinese government wants to build sanitary
industry competence to promote sanitary ceramic
export volume
• Chinese government encourages domestic
sanitary ceramic manufacturers to improve
product quality by investing R&D and upgrading
production lines. More than 40 Chinese sanitary
ceramic enterprises have imported advanced
ceramic production equipment from Europe or
USA
Source: National Water Saving Office, National Building Material Bureau
The volume of Chinese sanitary ceramic exported is much larger than the
volume imported
Back up
Export of sanitary ceramic (1999) Import of sanitary ceramic (1999)
[Million unit]
+35%
[Million USD]
+48%
[Million unit]
+10%
[Million USD]
-27%
Unit price of export products increased by 10% Unit price of import products decreased by 34%
Source: National Building Material Bureau
Chinese consumers become increasingly demanding on the sanitary products
Consumer demands
on sanitary products
Brand image
Product value
Product designing
Functionality
• Flushing effectiveness
• Odor-free, low noise
• Popularity in media
• Emotional benefits
• Aesthetic effect
• New concept
• According to government’s regulations, now
the market only accepts toilets with no more
than 9 liter flush. But for consumer, the
strong sense of water-saving has not
been formed
• The tanks should be guaranteed
leak-free
• Dual flush application
After-sales service
• Warranty on
maintenance
• Ratio of quality vs. price
• Discount offer
The concept of
environmental
friendliness
The strength area for Geberit
Geberit’s sanitary products can only sell in the medium to high end segment,
or only for high end segment
Market segmentation in 1999
Source: RB&P analysis
The base of accessible market for Geberit
Concealed
cistern
Exposed
plastic tank
Urinal
flushing
Traps
Tank fittings
Public faucet
BWO
CompetitivenessAccessible market for Geberit
5% of high end
2% of medium to
high end
High end
Medium to high end
Medium to high end
High end
High end
High end
10%
10%
5%
1%
10%
%
5%
Market size
[million unit]
Here is the
market size of
toilet set
Low end
85%
85%
85%
95%
85%
79%
75%
Medium
5%
5%
10%
4%
5%
%
20%
10%
10%
5%
1%
10%
%
5%
5%
4%
5%
The sanitary industry lacks a clear definition of market segment, which can
only be divided roughly by the range of end user price
Definition of market segmentation
[RMB/unit]Back-up
Low-end Medium High-end
Toilet set1)
Tank fittings2)
Urinal flushing
Public faucet
Traps
BWO
< 400
< 40
< 200
< 200
< 30
< 80
400-800
40-60
200-800
200-800
30-100
80-150
>800
>60
>800
>800
>100
>150
1): The market segmentation of flushing tank is defined by the toilet set
2): One set of fittings included one filling valve and one flushing valve
Source: RB&P analysis
All the market data and information was collected from multiple sources and
analyzed, and cross-checked by Roland Berger Infocenter
Approaches of external market analysis
On-line
researching
Interviews
Statistical
yearbooks
Industry
journals
Housing supply
market
Sanitary ceramic
industry
Building
material
industry
Public info on
market demand
and trend
Sanitary
system
Duofix
Chantier
Fittings
Public
products
Traps/BWO
HDPE
Pluvia
Mepla
Piping
system
Product lines Market size (potential)
Market
segmentation Market trend Competition
Research focus
Back-up
High priority Low priority
Market size and segmentation in 1999
Back-up
1): For conceal cistern, market size means the market potential as 5% of the high end market of flushing tank
2): For exposed plastic tank, market size means the market potential as 2% of the medium to high end market of flushing tank
Source: RB&P analysis
Market segmentation
Flushing tank
Concealed cistern1)
Exposed plastic tank 2)
Tank fittings
Urinal flushing
Public faucet
Traps
BWO
Market size[Million]
High-end Medium Low-end
Units Total value
[RMB] Units Value [RMB] Units Value [RMB] Units Value [RMB]
Market size and segmentation in 20003)
Back-up
Market segmentation
Flushing tank
Concealed cistern1)
Exposed plastic tank2)
Tank fittings
Urinal flushing
Public faucet
Traps
BWO
Market size
High-end Medium Low-end
Units Total value
[RMB] Units Value [RMB] Units Value [RMB] Units Value [RMB]
[Million]
Source: RB&P analysis
1): For conceal cistern, market size means the market potential as 5% of the high end market of flushing tank
2): For exposed plastic tank, market size means the market potential as 2% of the medium to high end market of flushing tank
3): The data is based on the projection of the market development of the first half of year 2000
The market for each product category of sanitary system were analyzed under
the following aspects and sequence
Competitive analysisMarket opportunities, constraints, trends
Market potential for
Geberit
Concealed
cistern
Exposed
plastic tank
Tank fittings
Public
products
Traps/BWO
Concealed cistern is a new concept for bathroom decoration and
has huge market potential
*: The concept of GIS means all in one solution for bathroom installation, including metal framework, concealed cistern, piping, connection fittings
and
cover panel together, which need to be further investigated in project Phase II
• More than 90% of
Geberit’s employees,
(distributors of sanitary
products), who were
interviewed (more than
60) agree on the
positive aspects of the
concealed cistern’s
market potential
Experts’ confidence
• Concealed
cistern
• Duofix
• (Geberit
Installation
System, GIS)*
• A brand new European bathroom decoration
concept to bring elegant bathroom design
• Flexible bathroom layout design without the
constraint of toilet hole in floor
• Easier bathroom cleaning without the tough
hygiene corner
• Superior space utilization and spacious
visual effect
• For GIS, to give the solution for the potential
problem caused by cross floor sewage pipe
Top 5% of
high end
market as
large as
68,000 units
can be the
market
exploitation
target in year
2000
Source: RB&P analysis
Chinese traditional design of bathroom sewage drainage pipe
does not fit for concealed cistern installation
• Almost 100% of the sewage drainage
system is designed as vertical drainage
through a pipe across floor, which is a
totally different industry practice from
the European model
• All the sanitary products available in the
market are fit for the vertical drainage
concept
• Chinese architects are not sure about
the effect of horizontal drainage due to
low quality standard of drainage pipe
• A drainage hole in floor is needed
The tradition of sewage drainage
pipe design in China
Pote
ntial
prob
lem
of
verti
cal
drai
nag
e
Difficulty in concealed cistern
installation
• The across floor pipe may
cause conflict between two
households if any leakage
happens or maintenance is
needed
• Very few wall-hung toilets
available in market
• Some houses are not feasible
for installation
• Inconvenient, extra time, cost
for installation
• A key selling point
to change the
vertical drainage
design to horizontal
drainage
• Selling concealed
cistern, has to start
from changing the
industry habit
Brand consciousness and one-stop solution is the main
consumer purchasing behavior, which is a barrier for market
acceptance
• Consumers are strongly brand
oriented in sanitary product
selection, and the leading
sanitary ceramic providers have
achieved strong brand
awareness
• Geberit has not been recognized
by most Chinese consumers as a
brand of sanitary products
Brand consciousness One-set solution
• Consumers are used to buying
sanitary products under one
brand, one stop solution, .
Kohler’s series of sanitary
product, including toilet,
washbasin, bathtub together.
• There are very few wall-hung
toilet bowl available in the market
to form a set with Geberit’s
concealed cistern. Geberit is
unable to offer one-stop solution
Duofix End-user
There is almost no competition in concealed cistern in China
market yet, Caroma and Grohe Dal will be the two strong
competitors
• Caroma, the largest Australian sanitary products
provider, has set-up a subsidiary in Beijing as a
sales branch without any manufacturing operation.
They only sell imported products. The annual
business turnover is estimated at RMB 30 million
• Caroma has set-up show rooms in the franchise
stores network to cover the key cities such as
Guangzhou, Beijing, Shenzhen, Chengdu, Xiamen,
Fuzhou, etc.
• Caroma supplies the market with full line sanitary
products, including ceramic toilet washbasin
• Caroma hasn’t promoted concealed cistern in the
China market, but is preparing for it according to
Xiamen franchise store owner
Caroma operation in China Grohe Dal operation in China
• Under Grohe Dal’s Singapore operation, a sales
rep office has been established in Shanghai,
selling imported products. The current majority of
business in China market is for faucet sales. The
annual business turnover is around 5 million RMB
by estimation.
• Grohe Dal sells through distributors in key cities
such as Beijing, Shanghai, Guangzhou, Shenzhen,
etc, they focus on project business.
• Grohe Dal has started to sell concealed cistern in
China market, but the volume is still near to zero
Source: RB&P analysis
• Chinese sanitary market is dominated by
ceramic, only less than 2% of low end
market share is for plastic
• In Chinese consumers’ traditional mindset,
plastics stands for cheap product essence,
vulnerable product quality
• All the leading ceramic providers are doing
business aggressively and would not like
the plastics market emerging in China
Plastics concept
• Just like the situation for concealed cistern,
Chinese consumers prefer one brand, one
stop solution .
• Geberit isn’t positioned in the market as the
sanitary set provider. Without a Chantier
toilet bowl, it‘s quite difficult for Chantier to
survive in China
The concept of toilet set
Exposed plastic tank, Chantier, is not favored by Chinese
consumers
Market constraints
for Chantier
Source: RB&P analysis
Chantier can be sold in the replacement market and for
squatting toilet, but the room for market development is limited
Existing market potential
For
replacement
market
For
squatting
toilet
• There exists a quite large
replacement market for toilet set, it
is estimated that around 3 million
toilets will be replaced each year
• No sanitary product providers are
clearly positioned in the
replacement market
• There exists a market size of
million units per year for squatting
toilet, the majority is distributed in
South and North China
• The squatting toilet market will still
exist for a long while, especially for
public toilets.
Limitation for Chantier
• Consumers usually change the
whole toilet set when they need to
replace the flush tank.
• Flushing tank replacement market
can only be positioned at low price.
• The majority of squatting toilets are
connected with pressure valve,
which normally is priced around
100 RMB per piece.
• If the squatting toilets are
combined with a flushing tank, in
most cases, it is high-positioned,
while Chaniter can only be
positioned at the middle height
Trend
• The replacement market will
continually exist and grow in the
coming years.
• Tank fittings and the sanitary
company's after sales service will
be the key players of replacement
market.
• The market demand on squatting
toilet will gradually be substituted
by sitting toilet for the superior odor
free effect and comfort
Source: RB&P analysis
Chantier directly competes with all the leading ceramic providers
as an exposed flushing tank
• Chantier’s competitiveness is
far from the opponents
positioned as the leaders of
sanitary market
• Chantier doesn’t compete with
low end plastic tank
manufacturers
Competitive analysis
M
ar
ke
t s
ha
re
High
Low
HighLow Competitiveness
Lida
*: Caroma sells the plastic tank with own toilet bowl as a set
Chantier
Caroma*
Kohler
TOTO
American
Standard
Around 20 top sanitary ceramic manufacturers demand medium
to high end fittings. This represents a market of 2 million sets in
1999
American Standard 270,000
TOTO
100,000Swell
Kohler
HCG
230,000
160,000
100,000
Top players The estimated annual demand in 1999 [set1)]
Altima2) 80,000
Other target OEM customers for
Geberit’s tank fittings:
INAX, Imperial, Dynasty,
Roca, Hawson, Varro, Top
elite, etc.
2 million sets
medium to high
end tank fittings
1): One set means one filling value plus one flushing value
2): GDAI’s largest customer
Source: RB&P analysis
WDI and Meitu are the two key competitors for Geberit in fittings
business
• WDI was founded in Xiamen in 1993, as an
American joint venture by Mr. Lee who is the
president of the company, a local entrepreneur
with American background
• WDI’s revenue in 1999 reached nearly 40 million
RMB, more than half was sold to American market
• WDI’s customer network contains almost all the
top 10 ceramic producers in China, such as
American Standard, Toto, Swell, HCG, INAX etc.
• WDI has a strong partnership with Swell, one of
WDI’s subsidiary acted as the sole distributor of
Swell in Fujian province and Shanghai
WDI Meitu
• Meitu is a private-owed business located in
Zhongshang, near to the south ceramic production
centre, Foshan. They are the largest provider of
toilet covers and inner mechanisms in China
• Meitu’s revenue in 1999 is estimated at more than
60 million RMB, among these, the fittings business
is more than 20 million RMB
• Meitu’s product line contains the whole range from
low end to medium market. It is growing with a
strong momentum
Source: RB&P analysis
Geberit possesses a strong brand reputation as the leading
fittings supplier among sanitary ceramic manufacturers
Competitive analysis for fittings
Brand
Technology
competitiveness
Product
position
Pricing
competitiveness
Product range /
adaptability
Customer
responsiveness
Geberit High end
WDI Medium end
Meitu Low-medium end
Source: RB&P analysis
: Comparatively weak : Medium : Strong
European
originated
flushing
technology
A premium
European
brand
More product
lines of fittings
than Geberit’s40-60 RMB/set
Faster than
Geberit to
respond
customer’s
requirement
30 highly skilled
design
engineers in
engineering
department
Namely an
American brand
Has the widest
range from low
to medium
segment
30-50 RMB/set
Fastest
customer
responsiveness
Comparatively
longest lead
time to respond
the customer’s
requirement
Limited product
range leads to
poor adaptability> 90 RMB/set
Difficulty in
developing high
end technology
driven products
Local brand
Due to the high pricing, Geberit’s public products can only be
supplied to high end hotels, office buildings and public buildings
Composition of market demand in 1999 Product structure
Office
buildings
[Unit]
Hotel and
entertainment
Others
Urinal
flushing
product
Public
faucet
[Unit]
Public
buildings
Total: 60,000 Total: 60,000
Fierce competition exists in the market of Geberit’s public
products
Competitive information
• American Standard is going to launch a new
sensor product positioned at low price later
this year
• Kohler’s ceramic urinal with sensor
integrated just newly launched into market,
this threatens Geberit’s original channel to
sell public products via Kohler’s distributors
Key players mapping
Low High
Low
High
INAX
Kohler
Geberit
American Standard
TOTO
Solomon
Sloam
Gello
Zhilong
M
ar
ke
t s
ha
re
Positioning/Price
Both Geberit’s urinal flushing products and the electronic faucet
possess the advantage of product design, but lack price
competitiveness
Urinal flushing products Public faucet
• Product design
• Technology advance
• Easy installation
• Energy saving concept
• Environmental friendliness
• Long life expectancy
• Lack of price competitiveness
- Average 20-50% higher than Toto, American Standard
• Lack of one-brand, one-set public sanitary solution
• Product design
- Sensor and water controller
integration design (the sole one in
market)
• Easy installation
• Product intelligent functionality
• Swiss brand image
The traps/BWO market is dominated by low priced and non-
branded products, Geberit can only compete for the top 5% of the
market
Traps/BWO market Composition of the accessible market in 1999
• The Chinese market of traps and BWO is an
underdeveloped market, 95% of the market is
occupied by low priced products, . RMB 10-20 per
piece for traps, and RMB 20-30 per piece for BWO
• The market segment for Geberit means only partial
high end washbasins can be combined with the
Geberit traps, and high end bathtubs with BWO, .:
go with kohler’s bathtub
BWO
Total:
[Million unit]
Traps
Geberit competitors are the leading ceramic providers who
produce the traps or BWO in the market segment
Leading ceramic providers Small scale producer
Competition comparison for Traps and BWO
Geberit
• American standard, Kohler,
Toto, produce the traps and
BWO
• A large quantity of small scale
producers produce the low
priced traps and BWO
• Geberit’s traps and BWO
• One set sanitary solution within
the same distribution channel
• Metal materials positioned as
high product value
• Price competitiveness
• Broad distribution in mass retail
market
• Product design
• High price . Kohler’s BWO
made by brass is priced at RMB
500/piece, more than expensive
than Geberit’s
• Poor design and quality • High price
• Plastic material is not favored by
Chinese consumers
• Limited distribution channel
Business potential in RMB Business potential in CHF*
With conservative annual grawth of 5% for sanitary market in the next 5 years,
Geberit can target potential business at RMB 128 million for sanitary products
in 2005
[Million RMB]
Source: RB&P analysis
Geberit business potential in 2005
Concealed
cistern
Exposed
plastic tank
Traps/BWO
Public products
Tank fittings
Total :128
Concealed
cistern
Exposed
plastic tank
Traps/BWO
Public products
Tank fittings
Total :
[Million CHF]
*: Exchange rate as RMB to one CHF
2005 business potential analysis is based on the assumption that Geberit
keeps all the current product lines and go to market with right strategy and
execution
Back-up 2005 Geberit business potential analysis
[Million]
Product lines
Toilet set
Concealed cistern
Exposed plastic tank
Tank fittings
Urinal flushing
Public faucet
Traps
BWO
Total
Market size Market size Accessible
market for
Geberit 2005
Target
share
2000 2005
Market segmentation in 2005 Geberit business
target in 2005
High Medium Low
Units RMB Units RMB Units RMB Units RMB Units RMB Units RMB Units RMB%
Unit price
[RMB]
)
)
)
)
40%
20%
15%
10%
10%
5%
10%
128
700
200
60
1800
1500
50
200
1): 5% of the high end market segment 2): 2% of the medium to high end market segment
Source: RB&P analysis
A3. Market analysis of piping system
-x
China is the largest market of water supply and drainage pipes in the world
Total: 40
Water drainage pipe
Water supply pipe
[Thousand ton]
Annual market size in weight 1999
7
33
Source: China Construction Industry Yearbook 1999, RB&P analysis
The plastic pipe will gain more and more weighted share in the Chinese pipe
market
Source: China Infobank
Percentage of plastic pipe share
in water drainage pipe market
Percentage of plastic pipe share
in water supply pipe market
Percentage of plastic pipe share
in roof drainage pipe market
Above forecast was done by National Building Material Bureau as an industrial direction
Pluvia, as a siphonic roof drainage system, has overwhelming advantages for
large scale and complicated roof design compared with the traditional system
in China
Gravity driven roof drainage system
Pluvia roof drainage system
• Superior rainwater drainage
functionality
• Horizontal rainwater collection
piping, do not need roof declination
• Fewer pipes needed
• Less work load for pipe installation
• Significant advantage for use in
large scale building
• Traditionally, drainage by gravity is
used 100% by Chinese architects
• Comparatively low efficiency in
water drainage
• Complex large scale roof design
• More work load of construction
It is estimated that there exists more than 100 projects across China per year
of which the roof is more than 10,000 square meters
Project by building type Projects estimation by region*
North region
Central
region
Total: 100
Source: China Infobank, RB&P interview
More than 25 airports will be built or
rebuilt in the next 5 years
More than 50 stadiums will be
constructed across the country in the
next 5 years
WTO entry will boost foreign direct
investment and more large scale plants
will be built in the next 5 years
*: Region divided as the Geberit’s current territory of sales operation
South region
According to field sales, now more than 15 projects exist and are the target for
selling Pluvia
South
region
Target Pluvia project Roof sqm
Shenzhen Citizen Center
Hainan Airport
Shantou Swimming Stadium
Baoan Stadium
Shenzhen Swimming Stadium
Shenzhen High-tech Exchange Center
60,000
8,000
8,000
20,000
20,000
150,000
Target Pluvia project
Shanghai Shipyard Base1)
SMIC2)
Intel Plant
Disable Association Building
New Shanghai Exhibition Center
Ningbo Airport
Zhejiang Opera Building
Hangzhou Opera Building
Zhejiang People’s Convention Center
Roof sqm
100,000
150,000
30,000
10,000
30,000
20,000
20,000
8,000
30,000
More than million square meters of roof can be the tangible market potential for Pluvia,
which means the value of more than RMB 28 million business
1): Will be constructed by 10 stages 2): An international chip manufacturing plant will be constructed by 5 stages
Central
region
Source: RB&P interviews
Lack of industrial standard on the siphonic roof drainage system is the main
external barrier on the road to Pluvia’s success in China
• Siphonic roof drainage is
a totally new concept for
Chinese construction
industry, most of the
architects and engineers
lack product and
engineering knowledge
• No industrial standard
exists in design, budget,
installation, project
inspection
Lack of industrial standard:
Land of success
Though siphonic roof drainage system is almost a brand new concept to
construction industry in China, the competition has been emerging and
performing even better than Geberit
• A subsidiary of Saint-Gobain, a worldwide leader in
high performance housing and building materials
with annual revenue of Euro 23 billion
• Pont-a-mousson has established 3 rep offices in
Shanghai, Beijing and Guangzhou
• The materials of Pont-a-mousson used in roof
drainage is cast-iron pipe. Pont-a-mousson has a
manufacturing plant in Anhui province to produce
cast-iron pipe, but all the roof drainage system
design is done in France
• It is said that Pont-a-mousson is planing to expand
offices to cover another 10 more cities in China
• The key reference project: Shanghai Pudong
Airport
Pont-a-mousson Ultraflow
• Ultraflow is a sales agent of UV-system, the
inventor of siphonic drainage system in Sweden,
now has sales office in Shanghai
• Ultraflow co-operate with Inchcape to sell the roof
drainage system in China mainland
• The material applied in Ultraflow’s system is ABS
pipe from Australia, the pipe was connected by
glue
• The key reference project: Shanghai Science Land
Pluvia possesses the advantage of cost and reliability compared with main
competitors
Pluvia
Pont-a-
mousson
Ultraflow
Materials Reliability Local technology competence
Price
competitiveness
HDPE pipe
Cast-iron pipe
ABS pipe
Reference project
Competitive analysis
Geberit’s pipe
connection is the
most reliable
Pipe is connected
by plastic loop
60-70 RMB/sqm
Shanghai Science
Land
20,000 sqm
Shanghai Pudong
Airport,
20,000 sqm
35-40 RMB/sqm
The pipe is
connected by glue
80-90 RMB/sqm
Schindler plant,
3,000 sqm
: Comparatively weak : Medium : Strong
Geberit’s piping system possesses significant advantages in product features
compared with local products in China
Water supply pipe Water drainage pipe
Mepla
Existing
China
market
• The existing China market is mainly a
galvanized steel pipe, also exists some
small local brands of composite pipes
and cheap fittings
• Comparatively low standard on product
quality
HDPE
Existing
China
market
• China now is mainly a PVC country for
waste drainage system, though some
regional difference exists, cast-iron pipe
is still widely used in North
• Fast and easy installation
• Corrosion resistant
• Numerous fittings
• Tight and firm compression connection
to the fittings
• Combines the advantages of metal and
plastic pipes
• Extremely resistant to chemicals,
solvents and radioactive waste water
• Withstands extreme temperature
• More abrasion resistant than metal pipes
• Impact resistant and flexible, never crack
or break
• Complete range of fittings
Also significant price gap is a major barrier to introduce Geberit’s water pipe
in China market
• For most Chinese construction
project, the cost is still a main
concern for material and design
selection
• For most types of building
materials, the production capacity
is much higher than the market
demand, which leads to a lower
products price
Cost orientation
• The price of both Geberit’s water
supply pipe (Mepla) and drainage
pipe (HDPE) is significantly more
expensive than the traditional
Chinese products : 1/2 inch
Mepla could be priced at RMB
60/meter, about 3 times price of
Chinese premium products,
plastic composite copper pipe, 4
inch HDPE is priced at RMB
85/Meter, while the high quality
PVC is only RMB 22/meter
Pricing gap
Source: RB&P interviews
There are opportunities for HDPE and Mepla in high end real estate projects,
luxurious hotels, and some foreign invested projects
Target
market of
HDPE and
Mepla
Target market Potential demand
Luxurious hotel construction More than 20 4~5 star hotels built each year
High end real estate
More than million sqm of villas and high end
apartments built in 1999 in Shanghai, Beijing and
Guangdong, the richest area
High end office building
The floor space of top 10% of office building in
Shanghai, Beijing, Guangdong reached million
sqm in 1999
Foreign invested projects
More than 12042 contracted foreign invested project in
manufacturing, amounted at USD billion in China
in 1999
Special industry application
. Shipbuilding
By estimation there exists an annual potential market of
USD 3 million for HDPE and Mepla in the shipbuilding
industry
Source: National Tourism Yearbook 2000, China Real Estate Yearbook 2000, National Statistics Yearbook 2000, RB&P interviews
If Geberit can achieve 20% market share in siphonic roof drainage, and %
share in the water pipe market in China by 2005, an annual revenue of RMB 69
million will be delivered
Pluvia HDPE and Mepla
Accessible
market
• It is estimated that siphonic roof drainage system
can exploit an annual market of more than 5 million
sqm by year 2005
• With a conservative 3% growth rate, the total
demand of water pipe will reach 580 million meters
in year 2005
• The target exploiting market is defined at the top 1%
of construction projects, with an annual size of
million meters
• Assuming that Geberit achieve 20% of market shareTarget
share
• Assuming that 10% of the target market can be
changed to use HDPE and Mepla
Business
potential in
2005
• RMB 40 million revenue will be generated from
Pluvia at the average price of 40 RMB per sqm in
year 2005
• RMB 29 million revenue will be created by the sales
of HDPE and Mepla in year 2005
The Geberit’s business potential of pipe products in China in 2005 can be targeted at 69 million RMB
Source: RB&P analysis
