Behind the machine tool giant's 0.3% ultra-low profit margin

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Work in the high-end office buildings of the CBD, choose five-star hotels and above to engage in activities, recruit employees to evaluate the interviews for several rounds (it seems very formal), upstream manufacturers are proud to enter their supply chain, the brand is loud, the technology is leading, Products are meticulous in terms of performance quality and appearance – of course, the price is not cheap. In popular terms, it is called at the top of the pyramid... What is the profit level of such a company? The answer seems to be self-evident. Although there are many multinational companies that have lost or even closed down, and even some of the world's top companies will be surprised in some years, overall, you and I probably have the impression that multinational giants are more profitable than Chinese companies. high. For example, Apple and Lenovo, who is more profitable? Most of you can blurt out without thinking: Apple! That's right. Taking the numbers precisely, last year Apple's profit margin exceeded 20%, while Lenovo was only around 1%.

However, why Apple makes money more than Lenovo is not the focus of our discussion today. On the contrary, what we want to draw your attention to is - I don't know if you are like me, and I haven't noticed it at ordinary times - there are so many multinational giants who are not as good at making money as their Chinese counterparts!

Last month, I interviewed Shenyang Machine Tool, the largest machine tool company in China. The person in charge of the company said that the profitability of Shenyang Machine Tool last year was stronger than that of many foreign first-class machine tool companies, which surprised me. It should be noted that Shenyang Machine Tool is suffering from outside disputes due to low profit level. In 2010, its listed company achieved operating income of 8.047 billion yuan, net profit of 142 million yuan, and profit margin of only about 1.8%. Is the profit level of foreign giants lower than this? I have to check what is going on.

Most of today's machine tool companies are from Germany and Japan. Yamazaki Mazak, which has been ranked first in the world in recent years, is not a listed company and has less public information. Fortunately, Germany's two major machine tool giants (also perennial) Ranked in the top three in the world - Gildemeister and Trumpf are listed companies, and there are annual reports available online. Under the investigation, it was even more shocking: in 2010, Gitemai achieved sales revenue of nearly 1.4 billion euros, net profit was only 4.3 million euros, and profit margin was only 0.3% (previous year was 0.4%); and TRUMPF was in 2009. / In fiscal year 2010, the net loss even exceeded 70 million euros (although the previous fiscal year was profitable, the profit margin was only about 1.2%).

Of course, considering the impact of the financial crisis, this is largely due to the decline of the global machine tool industry in the past two years, and the data for individual years does not explain too many problems. But when I look forward, I find that back to 2001, in the world's machine tool industry, the famous Gitemai (known as the DMG brand), the profit rate has been very low in the past ten years, the highest in 2008 is only 4.3. % (this year is also Gitmai "the best year in the company's 138-year history"), which is quite a "small profit", and Chinese companies that exceed it can find a lot. This is somewhat inconsistent with DMG's high-end image on the market. What is the reason? Is it because this international giant that is highly respected by domestic enterprises is "difficult to be under the prestigious name"?

In one case, companies pursuing the “cost-leading” strategy even deliberately do not pursue high profit margins. For example, Wal-Mart, which claims “everyday parity”, has a profit margin of around 3% and 4% all the year round. “Micro-profit” is not only for it. It is not a disadvantage, but it has become the main competitive weapon for defeating the enemy. But Gitemai is obviously not the case. In 2010, its gross profit margin was as high as 44.1% (in terms of its financial statements, it seems that the operating income minus the material cost is the gross profit, and the direct labor cost is not reduced, so the calculated gross profit margin may be high), indicating its products and Services are different in the market and customers are willing to pay higher prices. This is basically in line with our impression. The ensuing question is, where did Gitemai’s money go? According to its annual report, material cost is the largest. In 2010, Gitemai spent 768 million euros on raw materials, parts and services, accounting for 55.9% of revenue (for many years, its material costs basically accounted for revenue). More than 50%. It is understood that the high-priced CNC system and Other core components, Gitmai, mainly purchase from outside, this part of the cost is high for many years, I wonder if it is related to this?); Secondly, labor costs, pay wages, salaries And insurance benefits, etc. totaled 333 million euros, accounting for 24.3% of revenue, which together accounted for 80% of revenue. Since the core components of most domestic machine tool companies are also purchased externally, especially for medium and high-end machine tools, there is no reason to believe that Chinese companies will buy cheaper than foreign companies. Therefore, as some insiders have pointed out, the advantages of Chinese companies may be mainly reflected in the lower cost of human resources – in fact, this is not an advantage, it is worth further discussion, like the previous US auto industry is still high. The labor cost is of course a burden, but if you hire high-quality talent, the cost will not be less. Imagine a skilled German worker who is known for his rigor and assembles with a Chinese migrant worker who has been trained for several weeks. Can the machine come out the same? In this sense, high labor costs have become a manifestation of corporate competitiveness! (Otherwise, why do all entrepreneurs have to take the trouble to list their own companies: how many doctors, how many masters...)

Following this line of thought, we look at the contrast between Gitemax and the low net profit. We also propose an explanation: because it does not pursue a higher net profit level, it guarantees a higher level of gross profit. how to say? As we all know, it is very expensive to operate “fine products”. You need to purchase the best raw materials, recruit the best people, and continue to invest in R&D innovation and brand building, all of which require large sums of money. Gitemai’s annual report shows that in recent years, its annual investment in research and development is around 560 million yuan (in the financial crisis, the proportion of its research and development investment has even increased slightly), and the cost of marketing is also high. 3,400 million yuan. In a market where competition is still adequate, when you "unfortunately" failed to become Intel (such a company with monopoly advantages, profit margins of more than 20% last year) or Apple (I used Lenovo to compare with Apple in front, it seems that some are not After all, even Liu Chuanzhi admits that Jobs is an "exceptional". If you look at HP and Dell's profit margins, last year was a single digit, and not much higher than Lenovo), then, blindly pursuing a higher net profit level is probably unwise. It is even dangerous, because it often means that you are not investing enough in the future, and tomorrow may fall in the fierce market competition.

If this makes sense, many Chinese machine tool companies have a profit margin that exceeds that of Gitemai, and it is not necessarily a good thing. Similarly, another well-known international equipment giant, Caterpillar, whose profit margins are not as good as its Chinese counterparts, cannot be considered as an advantage for Chinese construction machinery companies than Caterpillar. Although Caterpillar’s ​​profit margins have been single digits for the past decade or so, the highest is only 8.8%. In some years, the profit margin of some Chinese companies is even several times higher (taking into account Caterpillar’s ​​main business). In addition to construction machinery, as well as engines, the profit margin of its construction machinery products business may be lower).

Therefore, in the past, we always felt that multinational companies made more money than Chinese companies. At least from the perspective of profit margins, this may not always be the case, but one thing should be certain: in general, the “money-making ability” of multinational corporations is stronger than that of Chinese enterprises. Money flows in from the hands and flows out of the hands. The strength of a company is not only because it has more money, but also whether it can make money in the future. Didn't the philosopher say it? "The cheetah lives on the fangs and claws, not the fat on it." At present, why are most Chinese companies still unable to make a move with foreign "masters"? Let's make a "joke": That's because we don't dare to spend money like people's hands. "Being romantic, first waste", relying on the cost of hard-working Chinese manufacturing enterprises, may need to change the way to achieve the "big to strong" dream.

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Although a company can make money without necessarily representing competitiveness, it can be a competitive performance if it can earn money consistently and steadily. Unfortunately, in this regard, Gitemai has done a poor job and has not provided us with a model of excellence.

Investigating the revenue and profit of Gitemai for more than a decade, it can be clearly seen that its performance is basically ups and downs with the fluctuation of the economic cycle: probably you still have the impression, from the late 1990s to the beginning of this century The global economy is in a period of relatively rapid growth, especially in 2000, reaching a growth rate of 4.7%, the highest point in nearly 20 years. During this period, Gitemai’s performance is impressive: sales revenue continues to grow, In 2001, it exceeded 1 billion euros for the first time, and its net profit also increased steadily. In 2000, it reached nearly 40 million euros. However, in 2001, the situation turned sharply. In addition, the impact of the “9.11” incident, the global economy fell into a new round of recession, and the performance of Gitemai fell back: net profit began to decline in 2001, and suddenly lost nearly in 2002. 20 million euros, still a loss in 2003, sales revenue also fell in the same period. Until 2004, the global economy finally recovered from the recession and began to grow rapidly. The performance of Gitemai was once again eye-catching: sales revenue increased from 1 billion euros in 2004 to nearly 2 billion euros in 2008. Net profit for the same period also increased from 5.6 million euros to more than 80 million euros. In the wake of the financial crisis, Gitemai fell to the bottom of the valley: in 2009, its sales revenue decreased by 38% compared with 2008, net profit decreased by 94%, and more serious is its operating cash. The first net outflow over the years has occurred, amounting to 75.2 million euros. It is conceivable that Gitemai’s situation in 2009 was quite “disastrous”. It was also in this year that it cooperated with Mori Seiki in Japan. Since then, it has been reported that it will be acquired by Mori Seiki, but it was quickly denied by both parties.

In fact, not only Gitemai, most of the international machine tool giants suffered a serious recession during the financial crisis. This fully demonstrates the “vulnerability” of the machine tool, which is highly vulnerable to economic conditions – as you know, most capital goods production departments are also exposed to such risks. It’s just that even the world’s top companies can’t escape the “magic palm” of the economic cycle. It should really arouse our vigilance: in the past ten years, the rapid growth of Chinese companies has depended on their own real skills, and some thanks to "The situation is good"? If the Chinese economy really has been in a recession for a few years, and the tide has receded, are you sure you are wearing the pants? ("The stock god" Buffett said: "Only when the tide is low, you know who is swimming naked.") On the other hand, we are not optimistic to see: at least for Chinese machine tool companies, there are strong opponents in front of us. There is no "terrible" opponent. There is such a company in the world, even in the face of major crises, can also produce beautiful transcripts, showing "terrible" competitiveness. For example, after the "9.11" incident, the US civil aviation industry was in a difficult situation. Many airlines suffered huge losses and even declared bankruptcy. Southwest Airlines, which is known for its excellent business performance, although there was a profit decline, Still can continue to make money. As of last year, the company has been profitable for 38 consecutive years.

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In the face of increasingly volatile economic development models, how should manufacturing companies strengthen their ability to withstand risks? This is a question that Dr. Thorsten Schimidt, a board member of Gitemai, tried to answer when he spoke at a forum at the Beijing Machine Tool Show not long ago.

What he mainly talked about is that in the complex and volatile economic situation, especially in the face of a period of crisis, customers in the machine tool industry tend to delay investment decisions. How can machine manufacturing enterprises be more effective? Selling machine tools? His conclusion is that relying solely on the innovation of the machine tool itself is not enough to solve the problem, but must turn to innovation that provides a high level of solution. For example, some customers worry about whether a machine tool can be successfully applied to their own production line. DMG has launched a “process chain solution” to eliminate customers by providing an integrated approach from design to production, especially simulation tools. Concerns; some customers are delaying investment due to financial constraints, and Gitemai has established MG Finance with its partners to provide attractive financing services to its customers; in addition, DMG provides customers with a "life cycle" The program includes a full range of services from machine tool installation to the sale of used machine tools. For example, Demagji Second-hand Machine Tool Co., Ltd. specializes in repurchasing services for used machine tools, in addition to evaluating the customer's old machine tools, repurchasing, and even ensuring the old The disassembly and handling of the machine tool eliminates the troubles of the customer.

In recent years, although the "manufacturing service industry" has attracted the attention of the domestic industry, it is undeniable that this is still a relatively unfamiliar and weak field for Chinese manufacturing companies. We know that as early as the 1990s, leading multinational companies began to transform from product-centric to service-oriented. In 1996, Jack Welch, then chairman and CEO of GE, said: "Our position for GE in the next century is a global service company that sells high-quality products." In the United States, services account for 58% of manufacturing, while China is less than 5%. We have also read a similar introduction in many articles: Providing solutions to customers not only better cares for the potential needs of customers, but also helps customers solve many complicated and arduous problems through the service system. The problem is solved by the customer. After the results, the customer no longer has to worry about the specific details of the problem solving and the cooperation between the various product services within the solution. By providing this high-value service, manufacturing companies will be better able to differentiate themselves, get rid of low-margin, low-value-added roles, and seize opportunities in future competition. How much money does the "service" have to make money? Let's take a closer look at the situation of Gitemai:

In recent years, Gitemai’s annual report shows that the proportion of “services” in its overall revenue is roughly stable at around 30%. In 2010, its “service” business achieved sales revenue of 367 million euros, accounting for the company’s total revenue. 27%. From the point of view of profit, the contribution of “service” is more important: in the past five years, the pre-tax income (EBT) of Gitmeyer’s “service” business is higher than that of “machine tool” business. In 2010, its “machine tool” business was actually a loss. (EBT is -5.8 million euros), while its "service" business has an EBT of 51.6 million euros and a pre-tax rate of 14% (Gentmai's pre-tax yield was 0.5% in 2010). It can be seen that the "service" is really profitable!

However, compared to the “machine tool” business, “service” seems to exhibit a significant feature: greater demand elasticity, that is, when the economic situation improves, customers tend to spend more on “services”, and when the economic situation When it goes bad, the customer's demand for "service" drops too fast. This is a bit like a luxury. When the economy is booming, sales are good. When the crisis comes, everyone has tightened their wallets. In 2009, when Najitmai suffered a heavy blow, the sales revenue of its “machine tool” business decreased from nearly 1.2 billion euros in 2008 to 760 million euros, down 36.5% year-on-year; and the sales revenue of its “service” business, From 710 million euros to 310 million euros, a year-on-year decrease of 56.4%. The drop in "services" is much higher than that of "machine tools." I don't know if it is for this reason, Dr. Schmidt particularly emphasized in his speech: "The sale of the solution is not a versatile weapon." He also pointed out: "Because customer demand is increasingly polarized, machine tool manufacturers are still To provide both a streamlined, low-cost product and a total solution."

Finally, in simple terms, from the 2009 annual report, Gitemai has added a new business - "energy solutions", mainly for new energy fields such as solar energy. It is understood that Gitemai has been in this field for many years; in addition to optimistic about the future development potential of new energy, its "diversification" is obviously also to diversify risks. In 2010, its “Energy Solutions” business achieved sales revenue of 240 million yuan, accounting for 17.4% of total revenue. Strictly speaking, Gitemai is no longer just a machine tool company. However, the profitability of the business does not seem to be good, with a loss of 9.3 million euros before tax last year.