By Ding Wenlei

Pioneering approach: Tong Zhicheng (right), former chairman of Pearl River Piano Group Ltd., led the group to tap into overseas markets [Zhuang Jin]

Amateur pianist Tong Zhicheng politely accepted the compliments after playing a piece of music for his guests. "I could have been another Lang Lang if I had enough time for practice!" he said.

But Tong had little to be jealous of in regards to the young classical pianist's successes on the stage. Tong, too, has made a name for himself in classical performances--he is the former chairman of Pearl River Piano Group Ltd., the Guangzhou-based and state-owned piano maker that in 2002 replaced Yamaha of Japan as the world's largest piano maker, 10 years after he became head of the company.

While Tong made Pearl River the global choice for low-end pianos, his successor Huang Weilin had to deal with shrinking demand and profits in mature markets. He shifted the company's focus to domestic sales and expanded into emerging markets. He then moved into the high-end segment, which generates higher returns and stronger brand recognition. He created Kayserburg, a new brand that targeted professionals.

The two years since taking over the company have proven Huang's marketing expertise and diligence--the piano maker has posted an 8 percent, 18.9 percent and 44.7 percent increase, respectively, in first-quarter sales revenue, export volume and total profit this year despite the shaky global market for the instrument and the ongoing global economic downturn.

Prove yourself

Tong started his career as a piano tuner with Pearl River Piano when he was 16 years old. Like many craft-oriented executives, he has shown a keen awareness of technology's important role in piano manufacturing. He understands the piano and almost every manufacturing process to make it based on the more than 50 years he has been with the company.

"Our success in Western markets, the cradle of the piano's history, is the only true testimony to the high quality of our products," he said. With this belief, Tong made high quality and exporting his top priorities after his tenure as head of the company started in 1992.

To boost quality, he brought in a high-priced consulting team of foreign industry executives--each of them charged about 20,000 yuan (US$2,928) daily, which was more than double the then annual income of the average Chinese staff.

"We had to tighten our belts in order to hire them," Tong said.

To improve product design and manufacturing efficiency, he installed computer-assisted equipment according to their advice, and forged a US$10-million joint venture with Yamaha in 1995.

But quality alone doesn't guarantee success overseas. When Pearl River Piano opened its first overseas sales office near Los Angeles in 1999, the company employed a local staff of master sales people instead of sending Chinese. That strategy, coupled with high-quality products at competitive prices, allowed the company to make a mark in the low-end market, where first-time buyers can purchase an upright piano for US$2,000. The company seized a 10-percent share of the U.S. market in 2002 and pushed average prices down by 10 percent in 2003.

Tong crafted long-term goals at the outset of the company's venture into the U.S. market. "Our biggest motivation in the United States right now is to allow customers to know us and bring home our pianos," he said. "The money can be made gradually."

Pearl River Piano became the world's largest piano maker in 2002 with an annual output of 71,000 pianos, a number that almost tripled production when Tong became head of the company 10 years ago.

Tong also bought a mature German brand called Ritmüller to complement the Pearl River name and boost sales in European markets. The company opened its European office in Munich with a focus on design, research and development in 2004.

However, after Pearl River Piano won brand recognition overseas through exporting at thin profit margins, demand for low-end family pianos shrank because of market saturation and declining interest in playing the instrument among young people. Global piano production has decreased from around 700,000 in 2002 to 400,000 in 2005.

Pearl River Piano is now looking elsewhere for sustainable growth.

Adapt to a changing landscape

Unlike his predecessor, Huang Weilin doesn't play the piano, but he knows a lot about the market. After he took over the company in 2007, he decided to sell more products to domestic and emerging market customers and forge a high-end brand.

"Compared with major developed countries where about 20 to 30 out of every 100 households already have a piano, China has a huge market potential, especially when factors such as urbanization and increasing family investment in education are taken into consideration," Huang said. The Chinese now buy half of the pianos produced in the world.

Pearl River Piano has produced more than 80,000 pianos annually for the past two years. The company sold 83 percent of its products to domestic customers last year.

But more than 140 Chinese piano makers have clustered at the low end of the market, where Pearl River Piano has an almost transparently thin profit margin. All these companies produce economical pianos for Chinese as well as overseas customers. This has diluted Pearl River's domestic market share from 70 percent at its peak to a current holding of less than 25 percent. In addition, recent soaring time and labor costs have further squeezed the company.

So the company has made a foray into the high-end market, where demand remains relatively intact. Thanks to his predecessor's obsession with technological superiority and professionalism, Huang is able to pursue his high-end ambitions with a rich patent portfolio.

Huang hired renowned Swiss piano designer Lothar Thomma to head the company's design team and launched its high-end brand, Kayserburg, in 2007. With almost all imported components, the production line mimics that tailored for Steinway & Sons Piano Company's lower-priced Essex brand. Pearl River Piano was contracted to produce the Essex line for Steinway, the world's finest piano maker, in April 2005.

The Kayserburg brand, priced between 20,000 yuan and 60,000 yuan (US$ 2,928-8,785) for uprights and grand pianos, sold well among Beijing families and still sits squarely in the economical piano category, said Liu Bo, a tuner at Beijing-based retailer Jiangjie Piano City Co. Ltd.

"Pearl River Piano's Kayserburg brand has done a good job as a toddler at the high end," he said. "But the brand has to catch up with the world's eminent high-end brands such as Steinway in order to be a select choice in the concert piano market."

Liu said he was impressed with Huang's amiable, practical attitude during several market research trips he had made to the store over the past year.

"His questions were very professional, detail-focused and solution-driven about quality and customer feedback on the Kayserburg line," Liu said.

The company produced about 3,000 pianos under the Kayserburg label last year, selling them to customers in China, Singapore, Hong Kong and Macao. Emerging market sales increased 25 percent last year, propelled mainly by the new brand.

Despite the financial meltdown, the company's profits grew 17.2 percent last year.

And Huang smells more opportunities. The company bought more timber for future production as prices have decreased. It also injected nearly 20 million yuan (US$2.93 million) into its European office last year, hoping to enrich its high-end technology repertoire and talent pool by opening a factory in Germany, the center of piano manufacturing.

Apart from pianos, the company now also produces violins, guitars, drums and wind instruments at small local factories Tong bought in the 1990s for product line diversity and brand extension. Huang will extend the product portfolio further this July when the company begins producing digital pianos, which will partly supply the Italian market. Digital pianos, priced between 3,000 yuan and 4,000 yuan (US$439-585), have gained popularity among young amateur musicians around the world and have diverted their interest from much more expensive traditional pianos.

Now a shareholding company, Pearl River Piano is inviting non-state investors. The company will likely apply for a public listing next year, Huang said.

(Beijing Review June 11, 2009)