ZURICH, Dec 15 (Reuters) - China’s new elevator market will likely contract for a third straight year in 2017, raising Swiss lift maker Schindler’s chances of making more acquisitions there, as local companies struggle to compete on price, Chief Executive Thomas Oetterli says.
Oetterli, who became CEO of Schindler this year after previously heading its Chinese business, is chasing multinational rivals Kone and United Technologies’ Otis unit to win more market share in China, which accounts for about 60 percent of new lift installations worldwide.
Acquisitions like the 25 percent stake Schindler bought in Chinese liftmaker Volkslift Elevator earlier this year will likely account for half of Schindler’s mid-term growth in China, Oetterli said, with the other half coming from expanding the existing new-lift business and small but fast-growing servicing operation.
Three years of market contraction in China, with a fall of 5 percent last year, 7 percent forecast for this year and up to 3 percent in 2017, have caused prices for new elevators and escalators in the world’s second-biggest economy to plummet by “high single-digits” annually, Oetterli told Reuters in an interview.
This trend has hit Chinese elevator makers hardest, he said, since international companies previously trimmed costs for their equipment to similar levels as domestic lift makers. With little price difference, customers are likely to prefer multinational suppliers like Schindler, Oetterli said, due to a perception of better value.
“That has happened in the last two to three years,” he said. “Most of the Chinese companies were struggling. I assume a certain concentration process will continue in the next one to two years.”
Other companies including Kone have also said the fragmented Chinese market, with about 400 original elevator equipment manufacturers, thousands of service companies and intense price pressure, is ripe for consolidation.
In June, Schindler bought into Volkslift, whose annual revenue exceeds 100 million Swiss francs ($98.82 million). Schindler, which said the move expanded its presence in China’s eastern Zhejiang province, has not said who owns the other 75 percent stake. An email to Volkslift on Wednesday was not immediately returned.
Before that, Schindler in 2014 raised its stake in its joint venture with Chinese-owned XJ Elevator Co. in the Hunan province to a majority.
But not every takeover prospect is attractive, Oetterli said.
“It always has to make sense, from a strategic point of view, in terms of product offering or geographical footprint,” he said. “This was the case with XJ Schindler and also with Volkslift.”
Despite the persistent market contraction in China, Oetterli still expects his company’s full-year profits in the range of 780 million francs to 830 million francs, up from 689 million Swiss francs in 2015. It is being helped by buoyant U.S. sales and unit disposals. (Editing by Greg Mahlich)