China's Pearl River Piano - Tuning into the Global Market

Case Code: BSTR451 Case Length: 15 Pages Period: 1956 - 2014 Pub Date: 2014 Teaching Note: Not Available

Price: Rs.400 Organization: Guangzhou Pearl River Piano Group Ltd. (PRGP) Industry: Musical Instruments, Pianos Countries: China, US, Germany, Global Themes: Business Strategy, Brand Management

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

Enhancing Technology

To improve the quality of its pianos, PRPIC invested heavily in technology and invited piano experts from around the world to guide it in its production processes. Over the next several years, the company spent RMB 500 million to modernize its production equipment and technology. One of the first experts to be brought in for consultation was Bud Correy (Correy). A manufacturing engineer, Correy had been involved previously in designing the piano plants at America's Rudolph Wurlitzer Company. He had been actively involved in quality control and was considered to be the foremost expert in that field. He worked almost 10 years with PRPIC to help streamline its production processes....

Joint Venture with Yamaha

In 1995, PRPIC entered into a US$ 10 million, 20-year joint venture agreement with Yamaha. The JV was called 'Guangzhou Yamaha Pearl River Piano Inc.' A 200,000 square foot facility was established in Guangzhou as part of the JV. The facility was actually an assembly unit that built three models of upright pianos using a combination of parts from both Yamaha and PRPIC. The facility employed 250 people and had the capacity to build 9,000 upright pianos in a year. While PRPIC would get 40% of the output, the rest was for Yamaha...

Making International Forays

The Chinese piano market had become overcrowded by the late 1990s. The entry of hundreds of private companies offering low priced and low quality products drastically increased the competitive pressure on PRPG. Tong then trained his sights on international markets, especially the US. Tong said, "As [foreign companies] come to China, we not only need the domestic market, we also need the international market."

In the late 1980s, PRPG had relied on US-based importers to sell its pianos. However, the company failed to find a market for its pianos in the US, mainly due to the perception that Chinese products were of low quality. Moreover, it had tried to find a US-based piano builder as a partner, but was unsuccessful in finding a partner who would not look upon it as a competitor...

Building Brand Power

In 2000, PRPG acquired Ritmuller with its brand license and piano manufacturing technology. Founded in 1795 by Wilhehm Ritmuller, the company was one of the first pianos makers in Germany and the world. Ritmuller had the reputation of being one of the most innovative piano makers in the world, having developed the double soundboard in the piano that resulted in the "Euro Sound" a distinctively warm and rich tone.

However, Ritmuller had ceased production in 1977. Ritmuller's style of small-scale handcraft-based piano making could not continue in a world where pianos were produced on a mass scale at low costs. A piano consisted of 8,000 components, its production process involved 300 steps, and it took 200 man hours of skilled labor to produce. Before PRPG and others came into the picture with their mass production methods, 60% of pianos and almost 80% of high end pianos were produced completely by hand. Automation cut down on the time and effort involved in production...

Revamping the Offering

Over the next few years, there was a gradual fall in demand for low-end pianos. The key reasons were market saturation and a decline in interest in piano playing among young people. By 2005, global piano production fell from 700,000 in 2002 to 400,000.

In 2007, Huang Weilin (Weilin) succeeded Tong to become the CEO of PRPG. Considering the changed market conditions, he shifted the focus of the company to expanding Chinese domestic sales and increasing the company's presence in emerging markets. Speaking about the Chinese market, Weilin said, "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."...

Outlook

As of 2013, PRGP was the largest producer of pianos in the world. It had the capacity to produce 100,000 pianos at its factory that occupied 1.3 million square feet and stood seven stories tall. Almost 80% of the company's pianos were sold in China. As of 2013, China was not only the largest market for new pianos, but was also the one that had a healthy growth rate. Apart from pianos, the company produced violins, guitars, and drums. It was also one of the world's largest guitar and violin manufacturers.

PRGP managed a large workforce at a single location. It had over 3,500 skilled technicians within a network of factories, foundries, lumber yards, and saw mills. Of its 106 technicians, many had advanced degrees in areas such as adhesives, metallurgy, or chemistry and they worked in its 90,000 square foot testing and engineering lab...

Exhibits

Exhibit I: Overview of Global Piano Industry
Exhibit II: Timeline of Guangzhou Pearl River Piano Group Ltd. (PRGP)

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