The world of Swiss Rieter – a background meeting with active Chairman Erwin Stoller
By VIRGINIA F. BODMER-ALTURA
TextileFuture has had an exclusive session with Rieter’s active Chairman Erwin Stoller, and we are most happy to present you his actual views on the world of Swiss Rieter Textile Systems, touching important subjects on how the company is affronting the various challenges of the textile machinery business
After the not flawless – but foreseen – results of Rieter in 2012 and first half of 2013, Erwin Stoller confirms that Rieter is now full on course and in the pre-set time schedule, only an overall IT project is a bit behind schedule. He also underlines that the company is fully orientated to good margins, adequate pricing and top quality.
The active Chairman underlines the fact that due to this commitment, Rieter will not accept orders damaging the set rules. He further states that the structural planned changes within Rieter are on course, causing in the ongoing year still additional costs, but at the same time these offer the opportunity to optimise the total cost situation. He states further Rieter’s obligation that its offerings meet the adequate pricing, quality and innovation of the company’s product and what the market is expecting. At the same time, the Rieter brand offers its customers reliability and long standing partnership, including the guarantees the company is known for. Because of the comprehensive package of Rieter’s offering and for the included supporting partnership and services after sale and the warranty, customers are prepared to pay the right or higher price as compared to other offerings, because they know what they get for. To be able to offer price, quality and innovation the company works daily to have a firm grip on costs and to take all the measures to decrease the breakeven point on a worldwide basis. As we all know, this fact is important to survive in this challenging market of textile machinery, particularly under the aspect of the cyclicality of the business.
The actual business situation
Erwin Stoller tells TextileFuture that every month there are discussions on all of these important aspects. A review of the projects and orders takes place, and everything is done to keep the excellent ratio between price and quality. He concedes that prices are lately under pressure and that there is the entry of a new player emerging in the market with the takeover of the natural fibre business from Oerlikon Textile by Chinese Jinsheng to form the new Saurer Group.
The competitive edge
Stoller confirms that continued innovation is the decisive fact to differentiate Rieter products in the global market place. Each development process in this respect allows the adequate pricing, because it offers new business advantages and added value to the customer. Of course, also innovations are costly, but at the same time these increase also the efficiency and permit to decrease project costs. The exact pricing is a difficult task and a ratio of the cost for the innovative new product and the additional value for the customer is a guiding line.
The adaption (localisation) of products to certain important markets and the domestic manufacturing of such machines and parts allow adapting the pricing to the levels the domestic market is accepting for a still outstanding product of quality. Stoller underlines that R&D and noble parts do remain in Europe but that the new works in China and India will supply also other markets. With great enthusiasm he talks of these new factories equipped with state-of-the-art manufacturing machines. He considers them proudly as the most modern manufacturing sites Rieter is actually disposing of, and as true technological centres. He admires also how fast projects can be realised for instance in China, on a facility surface of 110000 m2 construction activities started in April 2012 and in June 2013 the factory was ready. He praises further the fact that the staff is highly motivated and in the driver seat in view of their responsibilities. Stoller is convinced that the Rieter standard quality is realised in local production at its best and to the satisfaction of customers. Stoller clarifies, that probably even the locally produced Rieter offering will have a higher price tag than the product from a domestic competitor. He adds that a range of 15 to 20 % is accepted by the customer because of the superiority of the Rieter package (as mentioned before). He underlines that all in all the business with China and India, and thanks to the measures continuously taken is very profitable. Another Rieter doctrine is that each product has to cater to the basic need of worldwide customers. According to specific market’s needs, it has additionally to offer various degrees of automation and in adequate pricing. Stoller notes an increasing demand for automation in China (difficulty to hire qualified workers), accompanied by requiring higher quality, better usage of the fibre, and lower energy use. The latter represent also the goals set by the Chinese government (added value of manufacturing and environmentally friendly production).
The changing landscape for textile machinery
Erwin Stoller reflects with TextileFuture on the changing landscape for textile machinery in the past 15 years. After the phasing out of MFA Multi Fibre Agreement and the birth of WTO the World Trade Organisation, the boom of the Chinese market started, at the same time the decline of American market occurred, first with outsourcing to countries with cheaper labour and then a further decline of USA made textiles and apparels. A similar picture was following also in Europe. The competition has been polarised on the markets of China and India. The changing landscape in the textile machinery market has separated the markets from the two major markets as against the rest of the world, a fact that has increased the pressure on pricing for textile machinery.
Stoller concedes that today there is an emerging competition also from existing local manufacturers in these countries. That is why the presence in the two important Asian markets is decisive, because the localised products are manufactured at another cost level as compared to Switzerland and Europe. Stoller reckons that importe machinery from Europe has to affront between 30 to 40 % import duties, at the same, he confirms that there are still customers who rather prefer a machine totally manufactured in Switzerland or Germany. Stoller underlines that costs in India and China will rise in the future, but even with higher local cost the machinery has a lower price tag than the one imported, because the Rieter localised quality product has no import duty tag and also long haul transporting costs are eliminated. Meanwhile, Rieter has localised a full range of products with the exception of the air jet machine and automated rotor spinning machines.
In India the market situation is somewhat different than in China. The import duties of some components are considerable, and therefore also this part has to be localised. In addition the Rupee lost 20 % since the beginning of the year, only appreciating slightly after the central banks counter measures. This leads to a situation that the calculation is loft sided. In addition it is not really clear if the TAFS will be in effect for important projects. TextileFuture has reported on these facts in its series regarding the landscape changes in manufacturing. It seems that there are some parallel developments in India if one compares it to China in 2007-09. This is why Rieter has forced localisation already two years ago, and in both countries, to prevent the cyclicality of orders also in these two countries, and to offer the localised products at market right conditions, without stepping aside of the aim to have a profitable overall situation.
Nevertheless, we all know that investments tie capital, and cause first of all supplemental costs for the group, but the following advantages will add to the total benefit of the group. It seems that Rieter has chosen the right time to invest to be fit to feed the pick-up of demand that is already manifesting. Since all European manufacturers are in the same boat, it doesn’t make sense to ignite a price battle, because all of them need to stay profitable, in order to create new and innovative products, not only for the two countries but as an offering worldwide. And the efforts of Swiss and German producers are also honoured by customers. All companies in Europe are well set to conquer the world, and they are defending their native origin very well.
From project financing to final delivery
During the session with Erwin Stoller, we touched also the field of project financing. He states that in China (somewhat similar in India) and based upon a contract, the financing takes place by state owned banks or institutions. He also confirms the important role of formal credit insurances. On the other hand, Rieter has set strict conditions on customers’ payment in instalments upon formal order and the following stages. Customers have accepted these. Therefore, even if a prolongation of the order acceptance occurs, Rieter is covered. Usually there is a down payment made by the customer at the time of placing the order, a second down payment is requested at the middle time of the order’s processing, and the third payment has to take place prior to delivery. Stoller concedes that some orders from India and China have been suspended or annulated, but the payment conditions prevented Rieter from extreme damages. Stoller recognises the difficulties arising when cancellation is leading to a re-deployment to another customer, because it is difficult to deliver the pre-defined specific order to another customer. But the first down payment assists to prevent further damage, however it is returned to the original customer if a valid re-deployment can be achieved. In order to clarify financing conditions, Rieter has made recently presentations to provincial banks in China, because these determine the creditworthiness of the customer. Not all of the customers appreciate to deliver all information and prefer sometimes to cater to other credit possibilities to escape a full disclosure of their internal conditions. The Rieter sales organisation assumes also responsibilities during and up to delivery, including changing market conditions and competition offerings. The divisional organisation is helpful and takes into account the domestic market competition. The Rieter overall strategy includes the incorporation of new ideas and adaptations to secure what Rieter is actually and traditionally standing for.
Stoller is convinced that Rieter disposes of a well organisational set up to adapt quickly to changing market conditions without scratching its company guide lines and market position. An additional asset of Rieter is the fact that the company invests annually 4 to 4.5 % of turnover in R&D activities. The research work is up to 70% future oriented, delivering a kind of security to have the right product available at the time the need of customers is arising, as well the market introduction after the life cycle of a former product comes to an end.
TextileFuture voices the opinion that Rieter is well prepared to master the challenges of today and the future!