In the early 1980s, Su Zeng Fu was a salesman in a farm machinery factory in Yuhuan town of Zhejiang Province in coastal China. A few years later, he became factory head. Su introduced a production line for pressure cookers in 1989 and grew the new business. In 1994, he founded his own company – the Supor Group. After a decade, its cookware business Zhejiang Supor went public.
It took Su nearly 20 years to build the biggest cookware empire in China from a small-town machinery factory. Surprisingly, at the peak of his achievement, Su — chairman of the Supor Group — sold his stake in the listed company to Groupe SEB of France and started a new venture, SuporSanitaryware,in 2010. Su has made large investments in robots in his production lines. This has given him the cutting edge in competing with rivals.
Su stands out among businessmen in China. He is one of the few successful serial entrepreneurs. More importantly, he has not chosen the route many others have taken – investing in real estate and the private equity market. Su has stuck to what has given China its strength – manufacturing. The Supor Group has also invested extensively in finance and harbor infrastructure, but Su has always believed that a manufacturing business with core competence and a strong brand is the foundation for a great enterprise.
Why did Su sell his stake in the cookware company? Where did he find the passion for starting a new venture? In an interview with China Knowledge at Wharton, Su talks about these and other issues.
Below is an edited version of the interview.
China Knowledge at Wharton: Why did you sell your shares in Supor Cookware to the French Groupe SEB?
Su Zeng Fu: SEB was looking for a partner and was talking to our competitor. If that alliance had come through, it would have placed us at a disadvantage. But their negotiations failed and SEB came to us. They wanted a majority stake. We could have given them a controlling stake or looked for a stronger partner. There was no other choice. This was one reason.
Secondly, before Supor, there were more than 100 companies in this space. But, as we grew, dozens of competitors disappeared. I didn't know for how long Supor would flourish. For a labor-intensive industry, when the labor costs rise constantly, there is increasing pressure. I felt that under my leadership the company had reached its peak.
The SEB Group has a history of more than 200 years, while ours is only 20 years. They are more experienced and more qualified to lead Supor Cookware to grow further and stronger. For my part, I have gained much from this deal and would like to invest the money in more promising industries. It is a win-win solution.
China Knowledge at Wharton: How have you gained from this deal?
Su: Supor Group, the holding company, invested a total of 60 million yuan (US$9.6 million at the current exchange rate) in Supor Cookware back in 2000. The company went public in 2004. In 2007, we sold 50% of the shares our family owned in the listed company. In 2011, we sold another 20% to SEB. We gained billions of yuan from these deals. Part of the money was put in diversified equity investment. But I personally believe manufacturing is more important and should be the foundation of an enterprise.
China Knowledge at Wharton: Why did you decide to set up your new venture in sanitary ware?
Su: Someone recommended sanitary ware, including stainless steel faucets and ceramic products.I am bullish on this industry because first, there is a lot of potential for growth. It was a 73.6 billion yuan (US$11.5billion) industryin China in 2010 andit’s expected to grow 20% annually to 183.3 billion yuan in 2015.While cookware is only at 20 billion yuan (US$3.1billion) today.Secondly, there is an opportunity for high-cost, high-performance products in the market.. At present, domestic faucets are mainly made of copper, and some of these have lead in amounts which could harm health and causewater pollution.It is likely that China will launch regulations to limit the lead content in faucets this year.In the high-end market, the imported made-in-Germany stainless steel faucets are priced at around 5,000 yuan (US$800) which is too expensive. My vision is to offer consumers high quality products at an affordable price.
China Knowledge at Wharton: How has your experience been in the past four years in this new business?
Su: Some businessmen would give up if the venture is not successful at the first instance. One of the reasons for this is that the money they invest is not necessarily their own. But in my case, I am very determined to make it a success. And I can afford to invest as much as needed to make it successful. In the past four years, we have produced more than two million faucets but sold none of them. We now have at least 200 million yuan (US$32 million) worth of stock.
Why is that? I have had to learn gradually about the production process, the best technology, and how to reduce the cost. I would not have learned all this without experimenting with mass production. My goal is to ensure that the quality is as good as made-in-Germany. That is the essence of our brand. To make the products perfect, we have tried to introduce automation in production.
China Knowledge at Wharton: What has been the progress in R&D on automatic production lines?
Su: The cost has been huge. The first generation of production lines was purchased from a domestic company at 50 million yuan (US$8 million) which was mainly for research and to get started. The second generation of lines was upgraded into automatic lines with a lot of mechanical arms. But still it was not good enough. So those two lines had to be scrapped.
The current third generation lines have adopted the best technology globally, like the mechanical arms of ABB, and has also combined some of our own independent research. Currently all the polishing work is being done by mechanical arms. We have eight production lines right now, and they are controlled by 120 robots. In future, we will increase the number to thousands to ensure that all crucial processes are operated by numerical-controlled robots.
China Knowledge at Wharton: How much have you spent till now on the new business?
Su: As of now, we have invested 700 million yuan (US$112 million) in our sanitary business. This includes 200 million yuan (US$32 million) of stock and 300 million yuan (US$48 million) of fixed assets like production lines and plant. Then there are R&D fees and so on. It has taken us four years of R&D and 200 million yuan in production lines to make everything ready. Although it is a lot of money spent on experimentation, if you count it across 100 lines, the average spending per line is not bad.
China Knowledge at Wharton: What is the output of your automatic lines?
Su: A competitor in Guangdong visited our plant recently. Their line is similar to our first generation line four years ago. Right now, there is a world of difference between us. Our third generation line can produce 750,000 faucets a year with a daily output of 2,000 and we only need 50 people to do this. Their company has an annual output of 170,000 faucets and they have 300 people for this. In other words, their capacity is a quarter of ours, but they have six times the people.
China Knowledge at Wharton: But labor in China is cheap, so is per capita output important?
Su: Yes, it’s important in the long term. Today it costs 6 million yuan (US$965,000) to buy five robots, plus there is the annual bank interest rate of around 360,000 yuan (US$58,000). This could hire many people. So it seems cheaper to do the work manually than with robots. However, the labor market in China is very tight now and labor cost is rising every year. At present it takes at least 30,000 to 40,000 yuan (US$4,800 to US$6,400) a year to hire one person. This may rise to 70,000 to 80,000 yuan (US$11,300 to US$12,800) in three years.
Next, robots work by programs. They work 24 hours, seven days a week and there is no need for complicated management. Plus they produce uniform quality which can’t be reached by humans. Take polishing for example. If we produce 2,500 faucets every day, and every person can only polish one faucet a day, we need to hire 500 people to polish. But in my workshop, we have hired three workers and one manager, and that's enough.
China Knowledge at Wharton: Supor Sanitary is a new business for you. How do you address challenges in marketing and sales?
Su: This is the second time I have started a venture and this time I am in a completely different position. First of all, in terms of mindset I am determined that the product has to be super in quality and technology.
Secondly, I am in a different financial position. Currently in China, no one in the sanitary industry will invest as much as I do. I have invited competitors in China and abroad to visit our plant and I would like to work with them to move the industry forward to stainless steel. [Because of] regulations at home and abroad, lead-free faucets will be a major trend.I am convinced that we can capture a big market share through technology and quality.
Thirdly, “Supor” is already a well-known household brand in the market. We will use the sales channels of our cookware products. The other major channels are the building material market and supermarkets. The price range of our products at present is from 300 yuan to 2,000 yuan (US$48 to US$322). I expect to reduce the price further when we do mass production.
We are selling in the domestic market at the moment, but our goal is to reach 10 billion yuan in annual sales in ten years, and global markets would account 70% of our sales by then. The U.S. market will be our major focus.
China Knowledge at Wharton: How is the ceramic ware business going?
Su: We are ready to invest in a series of flush toilets with a single line investment of 200 million yuan (US$32 million). Currently we see a trend of integrated purchasing — consumers buy a whole set of sanitary ware instead of just buying a faucet. So there will be synergies if we sell both faucets and flush toilets.
China Knowledge at Wharton: You have put a lot of family wealth into this new venture. Is there any objection from your family? Do they suggest that at 72 you should now retire?
Su: They don’t have any objections. My son Su Xian Ze is the board chairman of the listed company Supor Cookware and my daughter is responsible for the pharmaceutical business in Supor Group. They are both very busy.
Many people have suggested that I should take rest because I am wealthy enough to afford that. But I am a person who likes to do things and will continue till my heart stops beating. In fact, the human brain does not stop working. If you are not doing one thing, you will be doing another. When I was young, young people were sent to hard labor in rural China. Many were upset and complained, but I was as happy as before. Life is a perpetual movement.
In the beginning, when I started the cookware business in the early 90s, we needed 50,000 yuan (US$8000) and it was so hard to borrow that money. But right now, I can afford to invest and I am also more experienced. So we can do better this time. Also, it feels so good that our products can serve the needs of the people. Traditionally, the Chinese had only one big iron pot to cook rice. Now we have 600 kinds of pots.
China Knowledge at Wharton: Manufacturing in China is very labor intensive and the profit margins are very thin. A lot of business people who were successful in the past are now investing their time and money on property and private equity. How do you look at this trend?
Su: If I close the factory and we only have a private equity investment team to find the best enterprise and buy 5% of it and expect to make money once the company goes public, what will that make the Supor Group?
If everyone quits manufacturing, then China’s economy will be finished. Lee Ka-Shing, the billionaire in Hong Kong, is also very strong in manufacturing although he can make huge profits in capital markets overnight.
I have also invested in Zhejiang Fortune Securities, Zheshang Insurance and a harbor, and the return on these investments can be channeled back into my enterprise for further growth. I believe that a manufacturing enterprise is the foundation and, whatever may be the environment changes, you can always build on it, even if the margins are low.
China Knowledge at Wharton: Supor Group (the holding entity) has some very diversified business units including property and pharmaceuticals. Do you think they are successful?
Su: We have some successful projects and it will be good if we have the right talent. For instance, Supor Group has a micro-credit company. I have invited an ex-banker to lead the team. The company is very professional and very profitable. So the key is to get good people.
In my life, I have done two things — cookware and faucets — in which I have made some progress after all these years. But that doesn’t mean I can do well in everything. I believe it is good enough if you just do one thing well in your life. I now just want to make good faucets. Even if it is hard, it is worth the effort.