From Pearl River to you

By T.K.MALOY, UPI Deputy Business Editor  |  Sept. 30, 2003 at 12:33 PM
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GUANGZHOU, China, Sept. 30 (UPI) -- Sitting down to the grand-piano and beginning to play the sonorous strains of classical music, Tong Zhi Cheng, chief executive officer of China's Pearl River Piano Group Ltd., is as steady as the nearby ancient river that lends its name to the growing manufacturing company which he heads.

Tong and the Pearl River Piano company are perfect bookends for China's new economy. The company has gone from a slow-moving state owned company founded in the middle-1950s, to a still state-owned but booming global company with growing sales abroad including the United States and domestically.

While Tong, who started with the company 40 years ago, has lived through such dramatic modern Chinese history as the Great Leap Forward of the '50s, the Cultural Revolution of the late '60s, and the economic opening which began in the late '70s and was further fostered in the '90s by late Chinese leader Deng Xiaoping. All the while, Tong has kept his nose to the grindstone, ascended his company's ranks to become chief executive officer, while Pearl Piano has undergone exponential growth in the last few years.

Started in 1956, as the Guangzhou Piano Factory, which produced a small number of pianos for families in and around Guangzhou, the company now manufactures around 100,000 pianos a year.

Pearl River Piano is currently in the list of China's top-10 globally recognized brands -- including such names as Tsingtao beer -- and is competing in the piano market with America's Steinway & Sons and both competing and doing joint ventures with Japan's well-known Yamaha brand.

As a state-owned enterprise, the company defies the average image of a plodding, subsidized, no-growth entity.

Situated in the economically thriving city of Guangzhou (which has 100 percent ownership in the company), in the south-China province of Guangdong -- which has recently come to be known as the factory of the world -- the company has benefited from the economic opening resulting from the province's designation as a Special Economic Zone. It was this change, which began to allow a nascent form of capitalism in the late '70s, which has evolved into a sink or swim decision point for many SOEs.

"We are state-owned but are market driven" said Tong of how Pearl Piano has come to operate.

For Tong the goal now is to enter further into foreign markets such as the United States where the price-points for Pearl's pianos makes them an attractive alternative for those who are both musically inclined and price conscious. In 2001, the company's sales to the United States rose by 44 percent, to 4,200 pianos, or about 5 percent of the U.S. market (by number of units sold, not dollar volume). Tong estimates that the company will encompass 25 percent of the U.S. market by 2005.

For 2002, the company sold 80,000 pianos in total, netting revenue of around $85 million - about 700 million renminbi.

The current Pearl facility is a 2.8 million-square-foot factory complex which qualifies as the world's largest. The company has 4,000 employees, who in addition to manufacturing pianos, have recently extended the company brand to violins, electric guitars and drums.

The scene on the piano shop floor is one of both handcrafting and robotics sharing in the production process. On the robotic side, key components are computer-guided in their production, while white-coated workers do final production, including the discordant plinking that results from finely tuning each piano at the end stage while sanding and other sounds of the manufacturing process can be heard from the other side of the shop floor.

Like many labor-intensive types of manufacturing, production at Pearl Piano benefits from China's greatly lower wage levels which have helped to vaunt the economically emerging country into a growing manufacturing powerhouse.

The last several years for Pearl Piano have also been a race to constantly improve quality in order to stay competitive and begin increasing sales in the important export market.

Tong meets with visitors in a nearby reception room filled with upright and grand pianos and with numerous official production awards on the wall from the Peoples Republic of China, along with international awards as well.

Music Trades magazine, a musical instrument manufacturing trade publication which has covered the industry for over a century, named Tong its music equipment manufacturing "Person of the Year" in its March 2003 issue.

Brian Majeski, editor of Music Trades, described Pearl as being the maker of a quality product "that has a compelling price point."

The Pearl uprights, Majeski notes, will sell for $2,500 to $4,000 in the United States compared with Steinways, which will start at around $20,000.

Majeski adds, however, that it is a whole different "sales dynamic" with Pearl addressing an entirely different market than the average Steinway buyer.

At 61-years of age, Tong has a certain mellowness and calm to him, but at the same time a confidence that his company is just getting started.

"Three years ago, we established Pearl River America," Tong said. "In three years from now, we want to open in Europe. So soon we will be an international company."

As a state-owned enterprise, Pearl River Piano brings to mind the oft-cited Deng saying, "It doesn't matter whether the cat is black or white, as long as it catches mice."

Pearl's success is amid a Chinese economic landscape which is complicated milieu of over-leveraged state banks (straddled with non-performing loans), such as Bank of China, SOEs with not the best track records, joint ventures with Western multinationals, or Hong Kong companies, some wholly owned foreign operations and some privately owned Chinese enterprises.

Business in China is flourishing and is expected to possibly skyrocket propelling the country into a prominent world position, but at question is how well growth is being handled currently by government and Chinese business, either SOE or privately held. Analysts and experts are actively conjecturing about how well Chinese businesses will negotiate the choppy waters of such challenges as the scheduled kickoff of World Trade Organization regimes which will open China's market to the world in the same way that the world market has been open to China.

But while the economic picture is complicated one, the eastern-seaboard region of China is keeping its eye on the prize and becoming all business in its orientation, with a planning and building booming rivaling anything taking place in the West currently -- and indeed more reminiscent of the U.S. industrial boom during the 1890s.

Pearl River Piano's hometown of Guangzhou boasts a skyline of skyscrapers and surrounding factories that are connected with the river-delta ports by an increasing web of highways. The city has a gigantic airport under construction, a modern subway system, a 2-year-old symphony hall and a newly build massive exhibition center, the largest in Asia, situated adjacent to the river, with hundreds of acres of shiny glass and gleaming metal awaiting huge future trade shows.

For a country under strict Marxist-Leninist doctrine until recently the change has been enormous, with the state-endorsed socialism giving way in large swaths of China to burgeoning capitalism, in all but name. For expert observers the business change has been much like seeing a formerly crippled athlete, throwing off the crutches and learning how to run again.

In 1978, around 90 percent of China's output was from state-owned enterprises, while SOEs account for 38 percent of the country's output -- an amount which national policy makers and foreign investors both want to see decline further.

Tang Hao, deputy secretary-general of Guangdong province noted in recent years of economic change, government and business leaders "have really learned a lot in the process of opening up."

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