Would you propose marriage under a spotlight? Of course not. You would go for dimmed lighting. But would you hang a Picasso on your wall, without a spotlight? No way. You would show it off.
Lighting makes or breaks a scene. But it’s one of the unsung heroes of our lives. Chances are you have never heard of NVC Lighting Holding. But I bet you know its work.
China’s largest lighting company by revenue was one of the firms behind the scenes at the Beijing Olympics. The company is headquartered in Huizhou with a research and development centre in Shanghai and two offices in Chongqing and Zhejiang. NVC Lighting boasts a portfolio of more than 13,000 lighting products and has close to 3,000 specialty sales outlets through the country. And it has niche management needs.
“Having our own brand and our own sales network gives us a unique comparative advantage over other lighting companies in China,” said Tan Ying, chief financial officer and vice president at NVC Lighting.
Rather than household consumers who may only be looking for a single light fitting, the firm’s clients are typically professional architects, electricians and contractors, who account for half of its sales revenue in China.
The other half is derived from large project sales. Indeed, NVC Lighting helped light up the Shanghai Expo, Guangzhou Asian Games and the Fifa World Cup in South Africa, all held in 2010. According to Tan, what sets his company apart from competitors is that it offers a one-stop solution; each NVC outlet provides consultation and design services for a specific product if there is no off-the-shelf alternative.
Tan joined NVC Lighting in 2006 when it was a typical Chinese company in terms of corporate governance, accounting standards and internal controls, he said. But in just five years, he has centralised the company’s cash management controls at its production sites and introduced internet banking to all subsidiaries to monitor its numerous banking relationships. Perhaps the most difficult hurdle Tan faced was to completely restructure and transform the traditional culture pervasive since the company was founded by chairman, Wu Chang-jiang, in 1998.
“Transparent policies and procedures need to be set and each member of staff needs to know their authority level and individual responsibilities,” Tan explained. Prior to his appointment, every business decision was made by Wu. Senior management would never question an arrangement as long as it had been approved by the chairman, according to Tan.
But this all changed in 2006. “He [Wu] understood the new game rules that came into play but time is needed to change old habits and processes,” said Tan. After a four-year transformation process, the company successfully completed its Hong Kong initial public offering raising $198 million in May last year.
“We also began to explore international business channels in 2006 and now we have passed the initial stage of our global expansion by flying the flag in countries where we see good potential in the future,” Tan said. NVC Lighting ran a pilot expansion project in the UK at the end of 2007, setting up a local company and acquiring staff from a bankrupt target it originally wanted to take over. However, the board of directors was not fully supportive of this strategic move at the time.
According to Tan, although they believed the UK would welcome a Chinese product, there was concern that it would not accept a Chinese brand. Many Chinese companies had tried but failed to penetrate developed overseas markets. But, those fears have now subsided.
Today, NVC Lighting has a 50 strong sales force in the UK and had sales of just under £20 million ($31.9 million) last year under its own brand. In Tan’s view, the success of the UK can be emulated in other developed markets and the company is looking to tap the US and other parts of Western Europe.
Nevertheless, the company has greater experience expanding in emerging markets and is in the process of applying its China business model in Southeast Asia and South America. “The next step for our international emerging markets business is to adopt the same business model we have in China,” said Tan. “We do not only want to work with our distributors in those countries, we want to help and encourage them to open more stores and therefore build up a strong distribution channel.”
But it is NVC Lighting’s relationship with its distributors in China that has arguably contributed so much to its success. The company recorded revenue of almost $267 million for the six months ending June 30 this year making it China’s largest domestic lighting company by sales. However, it only commands 3% of total market share, illustrating both the degree of fragmentation in the mainland’s lighting industry and also the growth opportunities.
There are only two layers of distribution in NVC Lighting’s business model for the retail segment. The company itself only deals with distributors that directly operate the sales outlets throughout the country. Instead of just supplying customised orders, NVC Lighting works together with its distributors and supports the establishment of new outlets. NVC Lighting is also willing to grow with customers. Tan, said some of his company’s oldest distributors have evolved from hole-in-the-wall operations to multi-million dollar distribution businesses.
In order to penetrate the mainland’s $15.8 billion light-emitting diode market, NVC Lighting has been developing more efficient energy-saving-lighting products, which is also in accordance with China’s 12th five-year plan.
In addition, it has already secured exclusive rights to provide lighting and services for the 2013 East Asian Games in Tianjin and is bidding for exclusive contracts for the 2014 Asian Games and Asian Beach Games in Korea and Thailand respectively. The future certainly seems bright for the firm.
This story was first published in the September 2011 of FinanceAsia magazine.