If the "era of great reshuffle" comes in the construction and ceramics industry, who will have the last laugh?
What is the most powerful weapon for companies to deal with the shuffle?
For the construction and ceramics industry, shuffling can be said to be a commonplace topic or phenomenon. Just as many people say "this year is the most difficult year" every year, in the past decade or so, industry professionals have lamented something like "the industry is really about to be reshuffled." However, in fact, the reshuffle has been delayed. Too late in the future.
However, the situation has been a little different in recent years. Under the influence of factors such as consumption upgrades, channel fission, an increase in the proportion of finely decorated houses, and the strengthening of national environmental protection control, the building ceramics industry has really been reshuffled.
The "2020 Ceramics Industry Long March" statistics jointly released by China Building and Sanitary Ceramics Association, China Ceramics Industry Development Foundation, and "Ceramic Information" show that the number of building ceramics companies nationwide has decreased by 211 in the past three years; China Building and Sanitary Ceramics Data released by the association shows that during the "Thirteenth Five-Year Plan" (2016-2020) period, the number of ceramic construction companies nationwide decreased by 317; an article written by the "Ceramic Information" newspaper also revealed a data that since the "Ceramic Industry Long March" in 2014 In the past six years, there has been a net decrease of 297 ceramic construction companies in the country.
It can be seen from the above data that as time goes by, the reshuffle of the construction and ceramics industry is indeed intensifying.
However, many industry insiders believe that it is only now, that is, since the second half of 2021, that the reshuffle of the construction and ceramics industry has really begun under the impact of the crazy price increases of coal, natural gas, raw and auxiliary materials and other materials. In their view, the companies that will survive in the future are those with a solid foundation, strong brand awareness, advantages in production and products, and good management. This price increase will bring more opportunities than challenges to large companies.
Peng Changhua, Vice President of Shuncheng Ceramics Group and General Manager of Shunhui Ceramics, attended the 11th China Real Estate and Pan-Home Industry Cross-border Summit and the 2021 "Top Ten Brands of Building and Sanitary Ceramics" Awards Ceremony hosted by China Ceramics Network During the forum, he expressed his views on the phenomenon of price increases in the construction and ceramics industry: This round of rising costs and the pressure of "dual control" will be a greater test for companies with more extensive management, low profitability, and low market share. "It may Eliminating a group of enterprises with backward production is also in line with the country's elimination ofsquo;It matches the policy orientation of unhealthy enterprises with high energy consumption, high pollution and low output."
Nan Shunzhi, founder and chairman of Dajiulu Ceramics, expressed his views at the same event on the topic that the concentration of the building ceramics industry in the next three to five years is equivalent to a reshuffle: the future market of the TOP10 brands It is difficult to predict the share, but what is certain is that the concentration of the building ceramics industry will definitely become higher and higher. Instead of guessing how much market share the top 10 brands will occupy in the next five years, it is better to think about how much market share each brand will occupy in the future. .
If the reshuffle really begins now, then which ceramic construction companies can settle down in the waves and become real gold? Only those ceramic construction companies that have established their own moats can remain invincible in the brutal market competition.
The theory of "moat" was proposed by "Stock God" Buffett. It refers to a sustainable competitive advantage that can help companies resist external competition and continue to generate excess returns in the future, which is the so-called competitive barrier. According to this theory, the book "Buffett's Moat" (written by Pat Dorsey, head of equity research at Morningstar, the world's top rating agency) divides moats into two types: true and false.
This article will analyze the true and false moats of ceramic companies based on the actual situation of the construction and ceramics industry.
What is the false moat of ceramic companies?
There are four competitive advantages, including high-quality products, huge market share, effective execution and excellent management, which look a lot like a corporate moat, but in fact they are not.
Let’s talk about high-quality products first. Although it can bring short-term profits to the company, it is difficult to become a moat.
For example, in the 1980s, Chrysler introduced its first minivan and made a fortune over the next few years. However, competitors swarmed in, Chrysler's profits were quickly diluted, and it eventually had to give up the minivan and related accessories business.
Looking back at the development history of my country's building ceramics industry over the past few decades, it can be said that many high-quality products have been produced. Every high-quality product that stands out and sells well in the market can make the first batch of ceramic companies that develop and produce it make a lot of money.
Everyone in the industry knows that the vast majority of ceramic companies rely mainly on upstream color glaze companies and machinery and equipment companies for product development and innovation. To put it bluntly, whoever has money can buy raw materials with updated process technology. Auxiliary materials and mechanical equipment. This is the most important reason why ceramic tiles tend to fall into the quagmire of homogeneity. The long-standing price war in the building ceramics industry is also due toIt started and got worse.
Therefore, high-quality products are not the real moat for ceramic companies, and it is difficult to resist imitation by competitors.
Let’s talk about the huge market share. If a company has a huge market share, it will certainly have a very large competitive advantage, but this competitive advantage is difficult to last, let alone indestructible as a moat.
Take the former “mobile phone overlord” Nokia as an example. In 2008, Nokia's market share in the global mobile phone industry was close to 40%, a level that no company has reached until today. But after 2008, with the rapid popularity of smartphones, the company that once occupied the highest market share in the world quickly declined, then withdrew from the mobile phone industry and slowly faded out of people's sight.
Similar cases have actually occurred in the construction and ceramics industry. Although the concentration of the building ceramics industry has always been very low, a certain ceramics company once occupied a relatively huge market share for a considerable period of time, and its revenue reached a large scale. It was definitely called a "Big Mac Pottery" back then. enterprise". However, due to various factors, a certain ceramic company gradually declined and was constantly surpassed by competitors of different sizes.
The building and ceramics industry has the distinctive feature of "big industry, small company", and the degree of concentration is so low. Compared with other competitors in the industry, the market share of several leading ceramics companies is not small, but this advantage It's just relative, and it pales in comparison to the leading companies in industries with high concentration.
It can be seen that a huge market share cannot be called a real moat for ceramic companies, but is only a temporary competitive advantage.
Finally, let’s talk about effective execution and excellent management. Unfortunately, they also rarely serve as moats for businesses.
For example, a company has an outstanding professional manager with excellent management capabilities and effective execution. However, it is difficult to guarantee that he will always fight side by side with the company. One day, he may be poached by competitors. Go or start your own business. For another example, if a company's success only relies on its ability to execute better than others, it may be able to occupy a place in an industry dominated by efficiency. However, if it cannot transform its execution capabilities into replicable processes to create a cost advantage, it will still be unable to do so. If you fail to build a moat, you will one day be caught up by your competitors.
What's more, in the construction and ceramics industry, there are very few excellent management and effective executions.
Similarly, effective execution and excellent management are still not the real moat for ceramic enterprises, because no matter how good execution and management are, they may be copied or imitated by competitors.
To sum up, high-quality products, huge market share, effective execution and excellent managementAlthough it may be one of the competitive advantages of ceramic enterprises, it cannot truly resist the invasion of foreign enemies. At most, it can help ceramic enterprises gain time to dig a moat, which is just a false moat.
How do ceramic companies build a real moat?
So what is the real moat of a company? It is divided into four types: intangible assets, switching costs, network effects, and cost advantages.
We will analyze them one by one in order of their impact on ceramic enterprises from small to large.
The network effect is based on the agglomeration effect of the Internet. The more users, the more convenient it is for users, the wider the moat for platform companies, and users will become increasingly inseparable. The construction and ceramics industry can be regarded as one of the traditional industries least affected by the Internet, and the network effect can be ignored for the time being.
Switching cost refers to the increased cost caused by users switching to other products or services. It can take the form of spending more time and money, causing more trouble, and taking greater risks. Ceramic tiles are low-frequency consumer goods. A person can only buy ceramic tiles a few times in a lifetime. Talking about switching costs is of little significance to ceramic companies.
The truly meaningful moats for ceramic companies are intangible assets and cost advantages.
Let’s talk about the cost advantage first.
My costs are lower than yours, much lower, and I can still make a larger profit margin if I lower my prices; your costs are much higher than mine, and when you lower your prices, your profits will be greatly reduced or even lost. This is the cost advantage, one of the most important moats in business competition.
The cost advantage moat can be mined in four ways: scale advantage, process advantage, geographical advantage, and resource advantage.
If a company owns unique mineral deposits and other resources, or if the mineral deposits and other resources it owns are lower than the extraction costs of other producers, it will have a unique resource advantage. In the construction and ceramics industry, which has relatively low entry barriers, no ceramics company seems to have a unique resource advantage, which can be ignored.
The so-called geographical advantage means that the location of an enterprise can provide the company with a strong competitive advantage, shut out competitors, and form a unique moat. In view of the supreme and special status of "Guangdong Brick" in the construction and ceramics industry, especially in the terminal market, for Guangdong ceramics companies, its geographical advantages are worth highlighting. Whether the ceramic tiles produced by ceramic enterprises are truly "Guangdong bricks" in the minds of consumers is judged based on the actual production place, that is, authentic "Guangdong bricks" must be produced in the Guangdong production base of ceramic enterprises; except Other than that, they are not authentic“Guangdong Brick".
Judging from the "Guangdong Brick" factor alone, ceramic companies that only have production bases in Guangdong undoubtedly have strong geographical advantages in Guangdong. But on the other hand, they also have certain shortcomings, that is, the production area does not extend to other places, and they do not have other geographical advantages in using the nearby geographical location and logistics conditions to radiate and expand to surrounding markets due to convenience. Ceramics companies with factories in Guangdong and other provinces have stronger advantages.
The so-called process advantage refers to the company's unique operation and management model to reduce the cost of products in all aspects, so as to form a competitive advantage formed by providing consumers with lower prices for the same products; the so-called Scale advantage, the essence of which is that the more products a company produces, the better it can produce that product, and is usually one of the most important moats for most companies.
Why should we talk about process advantages and scale advantages together? On the one hand, because the larger the scale of the enterprise, the greater the significance of process optimization in all aspects of its production and operation. In other words, the larger the scale, the more optimized the process, the greater the scale efficiency, and the greater the cost advantage. On the other hand, despite decades of development, the concentration of my country's building ceramics industry is still low, and most ceramics companies still have a lot of room for improvement in business management, including process optimization.
Combining the four advantages of scale advantage, process advantage, geographical advantage and resource advantage, with the increasing concentration of my country's building ceramics industry, cost advantages will surely become a more important moat for ceramics companies.
Let’s talk about intangible assets.
Intangible assets mainly come in three forms: brands, patented technologies, and franchise rights.
In the building ceramics industry where product homogeneity is very serious, patented technology and high-quality products have similar effects. Although they are effective, their effects are limited.
This is specifically reflected in two points: first, competitors are easy to follow up, and the width and depth of the moat are not enough; second, because ceramic tiles are low-attention semi-finished products in low-attention industries, consumers are not interested in related design and color innovations. We know little about the progress of ceramic tiles and technology, and it is difficult to distinguish between good and bad ceramic tiles with the same designs and colors, so we are unwilling to pay for them.
As for franchise rights, it used to be the same for any ceramic company, no one had the privilege, but now the situation has changed.
In my country's "dual carbon" and "dual control" environment, the government's approval ratio for the construction of new production lines and the renovation of old production lines in the construction and ceramics industry, which has been labeled as "high pollution, high energy consumption, and high emissions" It was much stricter before. Only ceramic enterprises with strong strength, especially financial strength, can invest more funds to introduce more advanced environmental protection equipment and technology under the government's "iron-fisted measures" to resolutely eliminate backward production capacity, thereby winning the battle for survival.Survive, develop and grow.
Why have some powerful ceramic companies in recent years publicly announced the goal of reaching billions or tens of billions in revenue? Why are they rushing to launch listing policies at the same time? Here's why. Because the advantages of scale and listing mean having stronger financial strength.
Some people believe that industry attributes determine the type and size of moats to a certain extent, and brand is the ultimate expression of moats (from weak to strong). If you think about it carefully, this statement is somewhat similar to Buffett's investment in only the brand companies with the most lasting competitive advantages and the most efficient companies, that is, both believe that brands are very important.
A large number of ceramic companies pay the least attention to brands; or their owners (boss) or high-level professional managers see the problem very one-sidedly, believing that the role of a brand is only reflected in the popularity and influence formed through publicity. On the other hand, they do not know how to combine key elements such as brands, products, technologies, and services for comprehensive operations.
Such ceramic companies are often limited to the barriers of the building ceramics industry, the vision of the owner (boss) or the top professional manager, and only see superficial points such as product innovation and technological innovation, but fail to see the broad aspect of the brand. , let alone the importance of using brand endorsement categories to seize the minds of consumers as the era of demographic dividend moves towards the era of popular dividend.
Finally, to summarize: the future of the building ceramics industry must belong to ceramics companies that have brand advantages, scale advantages, process advantages, and geographical advantages (the ability to produce the true "Guangdong bricks" in the minds of consumers); if they do not have these advantages, they will be The possibility of elimination will be very high, at least it will be difficult to become bigger and stronger.
(Author: Chan Can)
