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A focus on key competencies helps firms tackle Asian competition

02 Nov 2007

Many firms are facing increasing competition from Asia, a problem that will not go away, and one that certainly cannot be ignored. OLE speaks to Andreas Nitze, CEO of Berliner Glas, about his company's experiences.

Berliner Glas is a German company with a prestigious history. Formed in the 1950s as a glass trading company, the group has grown to 950 employees bringing in sales of €120 m in 2006. Around two thirds of these sales come from classical photonic applications and optical technologies. This includes everything from components such as prisms and lenses right through to optical modules and systems that combine mechanics, optics and electronics. It is this part of the business that the firm is actively trying to safeguard against Asian competition.

What areas of the photonics market are affected by Asian competition?
The effects of Asian competition depend on the market segment that you look at. You can divide the photonics market into medical and life science; production technology; measurement, inspection and sensors; information and communication; and displays.

The most serious competition is when you look at the optical components and assemblies that are found in the measurement, inspection and sensors market. This competition is at the component level for medium to high volumes. However, Asian firms are now starting to move into combinations of mechanics and middle-class optics for medium to high volume applications.

When I talk about Asia, I exclude Japan. Japan is very similar to Europe. China and India are the main places where optics, optical components and modules are manufactured and are aggressive players. Korea is more into the flat-panel market.

What strategies do you use to tackle Asian competition?
We focus on our competences: integration of optics, mechanics and electronics; production of key (sophisticated) optical components in Europe; and maintaining a professional purchasing department.

We start working with our customers as early as possible. This will be during the engineering and design phase, before the drawing is even on the table. More than 70% of our sales are linked to engineering. The customer approaches us with an idea; we discuss it and go through feasibility, prototyping and pilot production. The earlier you start the more freedom you have to find a solution.

The final touch makes the difference. Our Asian competitors can saw, grind and polish, but when it comes to the final touch, such as a certain surface flatness, the difficulties begin. Asian firms are catching up with conventional technologies but have yet to make substantial or high investments. They think about selling 5000 lenses per month and using people with a lower level of optical knowledge. We have a different approach.

Where does Berliner Glas manufacture its products?
We have three production sites for photonics: Berlin, Germany; Heerbrugg, Switzerland; and Wuhan, China. We followed our customers to China otherwise they would have looked for another supplier locally.

We split our Wuhan site into two parts. The first part is production where we buy the raw material like semifinished prisms in China. We polish and sell these parts to other companies in Wuhan. They are not made for export. The second part of our Wuhan business is purchasing finished prisms or lenses that are easier to manufacture in China than in Germany. Before the parts are shipped back to Germany or Switzerland, they are inspected at our Wuhan site. We needed some measurement equipment there in order to be able to source from Asia. We don't want to send lenses or optics from China to customers in Germany and find out too late that they are not the specification we expect. We have started to channel all of our purchasing through Wuhan.

We still manufacture key optical components in our European facilities. These are components with demanding specifications or a complex optical module or system that requires hours of assembly. This is never high volume, approximately 500–1000 pieces per year.

What advice would you give on how to cope with Asian competition?
Make sure as a European or US company that you are better in terms of reliability, flexibility, speed and competence. If not, leave the market. You must move the battlefield away from pricing to factors such as reliability if you face Asian competition. You will never win on pricing. Cost is a very difficult topic compared with Chinese facilities. It is as simple as that. Flexibility and speed is difficult to achieve for Chinese manufacturers if you talk about low volumes and high production levels. Reliability is a big challenge.

If you are making low- or middle-end products and your customer finds a Chinese company that already makes a product or something similar to yours, you will have another 6–9 months of orders and then it is very likely to be over.

It is also important to train your sales people. We train our sales people to rate the potential success of a product. We cannot invest in a product where low-order income is to be expected.

How will Asian competition advance in the next five years? Asian competition will build up capacity for middle-class optical components. They will also move towards high quantities of assemblies and subsystems based on middle-class components.

A lack of knowledge is holding the Asian competition back. Sophisticated technologies such as magnetorheological finishing require high-end educated engineers, but I am sure that the Chinese competition will be there within 10 years. Nowadays, there is low consultation by Chinese firms. It is limited to "give me a drawing and I'll tell you if I can make it or not", and I think this will stay for the next 3–5 years.

• This article originally appeared in the November 2007 issue of Optics & Laser Europe magazine.

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