Honeywell Life safety looks to cash in on its early bird advantage in Xi'an

Li Ning, head of Honeywell Life Safety's Xi'an operations, has been on a fast track for most of his career. The middle-aged professional has spent most of his recent years in Xi'an and held several job titles in Honeywell Life Safety like deputy manager of the Xi'an operations in 1994, and the general manager of China operations in 2006 before being elevated as the vice-president of Asia-Pacific operations based in Xi'an last year.

Though the company cites his leadership skills an integral factor for record sales in China every year, Li says his success in Xi'an is more in line with the shift in economic focus both in China and the world.

"With the world's economic power moving to the east and China's development potential to the west, our Xi'an operations are poised to play a more influential role in our group," Li says.

When US-based HLS - a global leader in fire systems, home medical care and personal protection equipment- chose Xi'an in 1994 to start its business in China, its main consideration was that the city was the only one in China with an industrial foundation for fire sensors and devices.

But with the economy weakening in the West and demand flattening, coupled with rising costs in eastern China, Honeywell Life Safety's Xi'an operations have become the pivot for HLS' growth in the Asia-Pacific region.

In late April, the company opened its third facility in Xi'an, increasing the size of its Xi'an operation by 30 percent to 20,000 square meters to make room for the new production lines relocated from the company's operations in Shanghai and Australia.

The product profile in Xi'an has been increasing: from two kinds of fire alarms to more than 400 different products.

"We have been constantly optimizing our resources. Xi'an has become a very popular alternative for the relocation of our production lines around the globe. One is because of the robust market in China, while the other is due to low production and labor costs," Li says.

"With an increase in our production profile, the sales in Xi'an have grown nearly 100-fold in the past 18 years. It is the only base in China that produces multi-certificated products, which means our products can be exported to countries that have different policies and standards on fire protection devices," Li says but declines to reveal detailed data, citing corporate policy.

According to Dave Cote, chairman and CEO of Honeywell, a Fortune 100 company in 2011, less than 40 percent of the company's sales were generated outside the United States 10 years ago.

"Today, our company is twice the size, and about 55 percent of our revenues are generated outside the US. We began executing this strategy by focusing on the two most important emerging markets - China and India," he said in March while reporting that the company's sales in 2011 grew to $36.5 billion (28.76 billion euros), out of which around $3.3 billion was generated by the business unit of life safety.

Though the US is still the largest market for the business unit, the Asia-Pacific region, China in particular, has contributed the most in terms of new orders, Li says.

"The Asia-Pacific region contributed 40 percent of our global growth in 2011. This year, we expect the share to exceed 50 percent," he says.

Li's confidence doesn't come from nowhere. Honeywell Life Safety's fire sensors and devices are widely used in residential buildings, commercial buildings and public buildings, such as airports and subway stations.

Though the Chinese government has stepped up and taken measures to cool its real estate market, infrastructure improvement is still growing, particularly in second-tier cities or even third- or fourth-tier cites in China, Li says.

Take Xi'an, classified as a second-tier city, for example. The very first subway line in the city was put into use in 2011 and another two lines are under construction. Xi'an Xianyang International Airport recently opened its third terminal. Both the subway stations and the three terminals in Xi'an are equipped with Honeywell's fire systems.

The company's potential customers are not only in Xi'an. According to the Civil Aviation Administration of China, China plans to expand as many as 91 of its existing 175 airports, while 56 new ones have been planned and 16 earmarked for relocation between 2011 and 2015. The country is also expected to increase its subway network from around 1,568 kilometers by August 2011 to 2,600 km by 2015.

"Small cities in western China are the main contributors to the construction spree as the economic growth in bigger cities along coastal areas have started to slow down," Li says.

GDP growth in Beijing and Shanghai, with around 8 percent increases year-on-year in 2011, ranked the lowest among all provinces and municipalities in China.

Apart from the slowing economic growth in coastal cities, rising labor costs have also forced more manufacturers to move to inland China.

Li says that the challenge is not only about rising labor costs.

"Every year after Spring Festival, the manager of our production facility in Guangdong province is worried that there will be fewer returning workers," Li says, adding that such problems do not exist in Xi'an.

The only concern Li has is that the growth of the Xi'an business and the development of the facilities are so fast that it is difficult to keep pace with the developments.

"The second facility we have in Xi'an reached its full capacity five years before the original plan. Maybe two or three years later, our third one will also reach its peak capacity. With more multinationals moving to Xi'an, land prices have unavoidably been pushed up. I should have bought a piece of land to set aside earlier," he says.

mengjing@chinadaily.com.cn

(China Daily 06/22/2012 page15)