Shredder and cutting tool manufacturer HSM is taking on the tricky task of boosting its global brand recognition. The key players explain the plan of attack and the pitfallsOPI: As an establshed German company you are now looking to boost HSM as a global brand. Why has it previously lacked this profile and how important is this to your overall strategy?
Karlheinz Haigis: Within HSM’s corporate strategy is the aim of becoming the global market leader as a manufacturer and global distributor of HSM branded shredders. As one of the leading manufacturers of shredders, trimmers and guillotines we didn’t focus too much on our premium brand HSM, as we sought to strongly support our OEM partners.
HSM has not had the global brand awareness and brand recognition in the past. This is what we want to achieve with this new strategy now, and I think what we need to clearly address is that HSM has gone through an evolution from a traditional manufacturer to a global distributor.
It is important for the market to learn that HSM is no longer just a manufacturer, but that it has also developed to be a global distributor. We want everyone to understand where we are coming from and where we are going to.
OPI: What do you think about the shift of manufacturing of lower-end products into Asia, and how does it stack up against the ‘made in Germany’ image of quality and innovation?
KH: I think it is, from my point of view, essential that we came up with a range of budget shredders and trimmers. We need this product range in order to obtain access to channels where we have not been in the past, but where we need to go in the future to become a global leader. The new range will help to achieve this as it will be launched as the sub-brand ShredStar by HSM. This power channel approach will take us to where we expect volume sales and certainly will support our efforts to improve HSM’s brand awareness and our brand recognition globally.
OPI: So will your new ShredStar range be based around the German technology of quality and reliability or will it be the Chinese technology?
KH: It will be different compared to the technology coming out of our German manufacturing facilities, but again, I think everybody is aware of the fact that at this price level, there are no products coming out of any German or European factories.
The point is that the majority of today’s global shredder distributors are no longer manufacturers but are just trading companies sourcing their products mainly in the Far East.
We have been talking to quite a number of international resellers that have experience in sourcing directly or through trading organisations. We do not just source a product, but we have also started a very close cooperation with our partner.
We design, redesign and support this partner with our experience which results in improvement to existing products but also in new product development. The fact that there is already an extensive quality-control programme in place ensures that only proven products will be moved into distribution centres, warehouses and onto shelves, resulting in total customer satisfaction.
HSM’s strategy is to launch and market a low-end range of shredders with the name HSM on it, and we – as a well-known manufacturer of high quality products – will give the reseller the security and the comfort to back up these products.
OPI: Isn’t there a danger that this will in some ways devalue your brand? People said this when Porsche came out with a four-wheel drive car, or when BMW introduced the One series, and Mercedes introduced the A Class.
KH: It is a big issue and we discussed it very intensively, but finally we got to the point where we decided that only by adding this low-end product to our range will we be able to generate the volume.
I think getting this volume – which has also helped our competitors in the past – will improve HSM’s brand awareness and brand recognition. It is essential to be at that end of the market with the brand name HSM to achieve better brand recognition and to become, eventually, the market leader.
Hermann Schwelling: Yes, we discussed whether HSM should be ‘the’ brand for budget shredders. We came to the conclusion that it would be necessary, but that we should also tweak it slightly. I think that was the reason why we called it ShredStar. We have to differentiate between two programmes. So we have a budget shredder programme on one side and our high-end quality shredder programme on the other. At the moment, due to our rationalisation and effective manufacturing processes, we are already able to produce the cheapest products in Europe in the SOHO range, and due to further investment in eastern Europe we really are convinced we can lower manufacturing costs further. And by then, we are getting very close to the cost of producing in China.
We are still working on the project and are considering coming up with a range of shredders, produced in Europe, in the not-too-distant future.
OPI: What would you say is your number one channel of opportunity now. Which one offers the best chance for growth?
KH: I would say you have to view the different categories of our entire range of products. There are many different requirements of how to approach these channels. When I look down to the very low end of our range, certainly we have to focus on the global power channel.
When you look further up, let us say up to ‘bread and butter’ machines, I would like to see us in a stronger position within the national and international buying groups. HSM already has a relatively strong position within the wholesale segment and this is a good base from which to move more into the buying groups. We work hard on this channel and also with the contract stationers. We know it will take some time but we have clear signs that we are getting closer and closer.
OPI: Some people might say how on earth can a German manufacturer – big expensive workforce, manufacturing purely in Germany (including the former east), with prices falling – stay in business? How would you respond to this concern?
Irene Schwelling: In my opinion we can be successful because of a real rationalised and efficient manufacturing process with a very high degree of automation.
For simple assembling work we also pass some jobs to organisations for disabled people. So we have a win-win situation on both sides.
An important factor is that we not only manufacture the machines that we are selling into our distribution network, but we are also strong on OEM branding. That really helped us in the past to rationalise our production and to keep the manpower as low as possible.
Despite being in the market only half the time of other manufacturers and distributors, we have been able to move to the position where we are. The speed and the dynamics behind the company convince us that we are on the right path.
OPI: Now that the foreign ownership controls in China have been removed, do you see an opportunity at some point, on the low end, to actually own facilities in Asia as opposed to outsourcing?
HS: At the moment it’s our intention to invest more in the eastern European countries. We have already bought land there, and we want to have our own building with our own manufacturing facilities at some stage.
OPI: In which country?
HS: In the eastern region of Slovakia. Labour costs are very similar to China and obviously we have the advantage of being quite close to Slovakia – much closer than to China. I am also concerned about the growing strength of the Chinese currency which I would say may increase by about 20 per cent. Here in Europe, we have more control over the business.
We have certainly considered facilities in China and at the moment we are testing or checking whether this could be an alternative, but all our concentration at this very moment is focused more on the eastern European project.
OPI: Currency fluctuations are a headache for many manufacturers. How much of a concern is the weakness of the dollar?
IS: It’s a concern, yes, and if it increases even more over the next year, it will affect the business, that’s for sure, because we have an export rate of nearly 80 per cent in the office technology sector. So we need to take care of that.
Out of this 80 per cent export rate I suppose that at least 60 per cent is going to market places which are US dollar related.
OPI: You’re making products which seem to be fairly good value for the price, but with technology quality that would suggest that these things will last forever. So, unlike other machines where you sell supplies, it’s a difficult business model for you to be in. You sell a 350 or 360 shredder and then there’s no follow-on.
HS: Yes, the supplies business on shredders is missing, especially if you compare it to the supplies for laminating or binding machines.
There are only minimum or zero margins on the machine itself, but the margins are quite a bit better on supplies. And we would certainly love to have this kind of business with shredders as well.
We think about it all the time, and just at this moment we are producing, for instance, a shredder care kit, which we are already selling quite successfully throughout the UK.
Certainly this represents not the same volume as in a binding machine with all the supplies, but we are seriously thinking about this opportunity.
OPI: Finally Mr Schwelling, you started the business in 1971, surely at some point you will think about retiring. I wondered whether there are long-term plans in place for succession to ensure stability?
HS: I still feel quite strong enough to run the company, but there is also a son of mine who has been working here for more than ten years. He has studied business administration and also the technical side of things and it is expected that he will be a key member of the management in future.
Furthermore, it is also the intention to have the management organised on a wider basis with people carrying leading positions presently.