Asia.Revisited: “You cannot Skype a Handshake”
Melchers GmbH & Co. is a diversified services and sales company with an extended network throughout Asia. One of their core competences is the sales, installation and servicing of technical equipment ranging from scientific instruments to high end machines and industrial software solutions. Melchers has close partnerships with many European technology companies, also VDMA members. In Asia, Melchers has offices in most countries apart from Japan and India. Employing over 1,000 employees in Asia, Melchers can provide differing levels of support. Under the tagline Asia. Revisited the company is presenting its ideas to our VDMA members, and we have conducted an insightful interview with two of their Managing Directors from China and South East Asia.
VDMA Publishing House: How does the Corona Virus impact your machinery and technical business and are there any silver linings?
Martin Wachholz from Melchers in China: China is recovering fast. As of early June, we can travel within China; most industries have ramped up production. We have booked new orders, and we are able to deliver and install. We are employing too. We note positive developments in local food production, pharmaceuticals manufacturing as well as automotive. Even our aviation business – driven by national traffic – is picking up again. Luxury retail is on its way back to normality. We feel a strong rebound in the Chinese economy, and we continue to believe in the huge potential of the Chinese market. Given our infrastructure on the ground we can ramp up quickly. But the country is closed for travelling. And this will remain so for a longer time.
Alexander C. Melchers from Melchers in Singapore: The situation in South East Asia is much more complex. The ASEAN countries, and Sri Lanka, where Melchers is present, have started to re-open their economies. Industrial production is coming back slowly. Industries related to tourism and travelling are still suffering. Retail just opened. Essential industries are doing well, but many export-oriented industries, such as textiles are in a crisis. Taiwan and South Korea are outstanding in their effort to fight the virus; business is doing better there but these economies are very connected to the global supply chains as well as China. In the long term, countries will recover based on their excellent fundamentals from demographics to pure size and access to raw materials – but with COVID related operational restrictions for the movement of people.
VDMA Publishing House: What are the most pressing issues you see now during the COVID time with your business Partners.
Alexander C. Melchers from Melchers in Singapore: Firstly, it is sales and cashflow. But operationally and acutely it is related to HR and Travelling. Travelling first: Companies rely on travelling to manage their sales networks. Germans are Directors in foreign entities. They are cheque signatories as well. From Singapore, or Thailand as an example, European companies operate regional technical service teams. For a while, this can be done with Zoom or Skype, but now companies need refreshed local physical presence. And Staff: Many expatriates in South East Asia and Greater China feel restricted. They have an essential need to return home. Bringing new expatriates out is a challenge. Many Companies now have HR challenges related to restricted travelling; for us this is manageable, as our staff are based in Asia for good.
Martin Wachholz from Melchers in China: This is similar in China, but the difference is that China has a huge domestic market, and European companies typically have their own set up in China. Travelling to and from China will continue to be a challenge. This has an impact on projects and sales, but also to the management of the non-Chinese workforce. We already see that many companies send foreign staff back home. Companies whose performance in their non-Asian core markets has been affected significantly, must reduce headcount and investments in China. Melchers can be a valuable outsourcing partner here.
VDMA Publishing House: Asia.Revisited is the idea you presented to us. For example, our members say, that they have a small sales- or service-set-up in China but now face difficulties managing that from Europe. What is your Response?
Martin Wachholz from Melchers in China: We see that often – in fact even before COVID. Many European SMEs are here as hosted entities or as representative offices. Accounting, P&L, cashflow, tax filing and audits, payroll, and supply-chain is often a burden and require management attention. So how do you ensure compliance, disciplinary management but most important sales-control? It is a challenge to manage, motivate and assess the performance of sales and marketing teams from far away. With Melchers you could build on a well experienced local management team of senior Chinese and German nationals addressing the above aspects. A large part of Melchers captive business in China is exactly that: management of our own sales and service organization.
Alexander C. Melchers from Melchers in Singapore: Asia.Revisited proposes to these companies that we offer our services: With Melchers as a local partner – in Greater China or ASEAN, and also in South Korea, Sri Lanka – they can build on well-experienced local management teams of senior local Asians and as well as German and other European nationals.
VDMA Publishing House: You say you can manage any business in Asia?
Alexander C. Melchers from Melchers in Singapore: Of course not. But we have offices, staff, experts, warehouses in ALL Asian countries except Japan and India. And we consider ourselves a ‘Dienstleister’ – a service provider. But the difference to accounting- or legal-firms is, that we operate large businesses ourselves. We bring that expertise and infrastructure to the table. And as a private partnership, in Asia for 160 years, we are trusted, by both suppliers and customers.
Martin Wachholz from Melchers in China: We don’t claim to be able to manage any business. But what are some companies missing: Commercial experience in China as well as a rational, reasonable and pragmatic management style. For example: In May 2020 we have established a three-party joint venture with a leading German medical product manufacturer, a Chinese medical product distributor and the Melchers company. We take a minority share, provide financial and compliance. Three partners bring together the best of three worlds – a relevant product, an effective sales channel and reliable and compliant execution.
VDMA Publishing House: This is relevant. One of our members has a partner in China but would like to grow the business with an own entity now. But they are not able to delegate the management capacity necessary. And often they don’t trust the partner’s business forecast to be realistic. What is your advice?
Martin Wachholz from Melchers in China: Personal contact is very important in Asia. You cannot Skype a handshake. Melchers has come to help in such situations. We combine our professional market intelligence, operating experience and financial expertise to evaluate legal concepts and to propose the most suitable structure. Local teams compile the necessary information to verify or challenge the assumed market data and projections. We have an M&A team with MelchersRaffel to support companies with background checks and due diligence. Our own local legal and financial teams provide proposals for the most suitable legal structures of your future entity. We can be the ‘founding directors’ and then handover the entities to the partner. We also suggest joint-venture structures like mentioned above.
Alexander C. Melchers from Melchers in Singapore: We can set up companies, but we can also act on the companies’ behalf. This will reduce direct cost for the European company. ASEAN is very heterogeneous. Indonesia, Singapore, Thailand or Singapore – just to name four so different economies. We have the local expertise to provide very specific advice, and to establish and set up companies. We can also do the opposite and liquidate a company and take over your staff to provide continuity but without fixed cost. We understand the challenges of local compliance, as we maneuver our own entities through these complex bureaucracies. Singapore is often used as a regional headquarter and we are well set up here to assist in ASEAN. But even in smaller countries like Sri Lanka we have competent local management; if you have a sourcing challenge, we can help.
VDMA Publishing House: Is Melchers able to provide customers of our members with technical service on the installed machine base? Can Melchers provide maintenance, repairs as well as spare part supply?
Martin Wachholz from Melchers in China: Technical service is the backbone of Melchers’ activity in China, in fact in the whole of Asia. Melchers operates with teams of well-trained engineers covering mechanics, electrics, electronics and machine control. Application know-how is available, too. These teams provide companies with field service and support for trouble shooting as well as quick spare parts supply – including local invoicing. Our partners can rely on Melchers in Asia to assure the customers of locally available support. This makes the dispatch of European engineers largely unnecessary. Melchers can execute service and maintenance frame contracts. We are open to develop more customized service concepts. 24/7 or on-site presence is certainly challenging but possible. The local presence through Melchers will be a competitive advantage.
Alexander C. Melchers from Melchers in Singapore: Both for Greater China and South East Asia we could take this a few steps further and jointly develop the skill set of our teams according to specific requirements including application know-how. We can set up local installation-, commissioning- and start-up capabilities exclusive to a partner giving this partner decisive cost advantage. This will help during sales negotiations. In South Korea or Taiwan, we have practiced such set ups for many years.
VDMA Publishing House: In summary – what is your advice?
Melchers Singapore: COVID and digitization raises new challenges for companies active in Asia. One pressing question is, how present you must be yourself in geographically distant markets like Asia. Is an indirect organization an asset or a liability? Should you prioritize a direct sales organization but outsource the back-office? Melchers is here to turn liabilities into assets and to provide alternatives, which are more cost effective. Therefore, we suggest revisiting your strategy; work with Melchers to actively manage your organization in Asia.
Melchers China: In China it is not only about cost but also about efficiency and the utilization of resources, and control. It may not be so expensive to have an expat in China, but it is expensive to control and manage a legal entity. Companies need to prioritize and asses real value of their organization. In order to compete in China, companies need to be highly responsive. Here, Melchers can support – in the short- but also for the long-term.