Horst Pudwill

Chutzpah, Luck and Perseverance

horst pudwill_David Hartung_All Rig für Handelsblatt
Horst Pudwill in his house in Hong Kong.
  • Why it matters

    Why it matters

    It is more difficult for Europeans to succeed in China because many Chinese no longer need them, argues the German billionaire entrepreneur.

  • Facts

    Facts

    • Forbes estimates Horst Pudwill’s fortune at $1.3 billion, and he ranks as the 96th richest German.
    • He and Roy Cheung founded Hong Kong-based Techtronic Industries in 1985.
    • The TTI brands of power tools and household products include Ryobi, Homelite, Hoover, Oreck and Dirt Devil.
  • Audio

    Audio

  • Pdf

Horst Pudwill, an engineer by training who later went into sales, launched several firms, including one for auto parts and batteries, before establishing the household appliances and electric tools company, Techtronic Industries, or TTI, together with his Chinese partner Roy Cheung.

The 70-year-old German continues to shape the company’s strategy in his role as group chairman. And a vital component of that strategy has been to acquire various businesses from brand-name companies, such as AEG, Bosch and Black & Decker.

The business magazine Forbes lists Mr. Pudwill’s wealth at $1.3 billion, or €1.2 billion.

Handelsblatt: Only after investing around €6 million ($6.63 million) in Hertha Berlin, the German top flight soccer team, in 2014 have you become known to many Germans as a highly successful businessman in Hong Kong. Were you hiding from the public before that?

Horst Pudwill: You can hardly call it hiding. The stocks of my company TTI have been listed on the Hang Seng (stock-market index in Hong Kong) for a good 25 years – and since the beginning of March even as one of the top 35 in value. But I hate personality cults and making a flamboyant appearance.

Is this personal reserve based on your background?

I come from modest circumstances in postwar Germany. I never knew my father, an Austrian. My mother then married a low-ranking civil servant in Hanover. I grew up there. What I own, I earned for myself through a lot of hard work.

How did it feel when Forbes listed you as a billionaire for the first time at the age of 65?

You probably won’t believe me, but my son Stephan told me about it; otherwise, I wouldn’t have known at all. But it’s probably correct.

As an entrepreneur, you have to always be ready to start all over again.

That does sound very cautious.

No, not at all. As a businessman – and what has always made me proud – is that I was counted among the big players on the American market very early. If and when I became a billionaire was not important.

Is your success as an entrepreneur based on your willingness to risk it all?

As an entrepreneur, you have to always be ready to start all over again. What I always ask of a deal is how important is it in reaching a given goal. And then I’ll also occasionally risk more.

Do you have an example?

In 1992, I invested around $30 million of my own capital in the Canadian communications group Novatel Communication Inc. The company had just lost $100 million.

Why did you do that?

I knew I would be able to turn it around in three years. And I succeeded.

You focused very early on battery-powered devices. Why?

I recognized earlier than many competitors that the future of household appliances, and especially electric tools, was in cordless technology. They laughed at us at first because I invested a lot of money to make even professional tools operate on battery only.

Was there one business that was a decisive factor in tipping the scales?

A major order from the American retail chain Sears (for its Craftsman tool brand) at the beginning of the 1990s. At the time, with $30 billion in sales, the company was the giant in the U.S. home improvement market and set standards. It took three years for the news to spread that we offered the best value for money. Then sales and reward really began to take off.

How did the business develop?

I suddenly had a long-term exclusive contract with Home Depot (a huge U.S.-based retailer of home improvement products). That had never happened before.

Nobody believed at first that you would deliver quality because the production was run through China. How did you convince your clients?

At the time, that was a pretty hard nut to crack, because we were the very first company in Hong Kong to have already shifted almost all the production to southern China in 1985. We didn’t offer high-tech but rather hand tools– and took our time training our workers.

What is the secret of your success?

To be perfectly honest, it was a mixture of chutzpah, a whole lot of luck, but also the old German virtue that we tend to neglect today, perseverance.

Most of the foreign companies that had their production in China did it at the time as original design manufacturer, or ODM, to produce cheaply for the big markets. TTI did just the opposite. It bought up well-known brands. Why?

As an ODM, you must rely on others to sell your products. But we wanted to control the market, and we already had the customers. So we bought ailing brand names and nursed them back to health.

Which ones?

At first, the Japanese tool producer Ryobi and later AEG and Milwaukee power tools. With vacuum cleaners Vax, Dirt Devil and Hoover. A very important factor was leaving the respective development departments and management in the country of origin. It was, after all, supposed to continue to be a German, Japanese or American brand. Only the production was shifted to China. Today, TTI has brought together 12 major brands in the field of tools and cleaning equipment under one roof.

 

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Aren’t you fooling the customer who buys one of his country’s brand products and discovers it was 100 percent made in China?

No, the customer now knows how globalization works. What he is interested in is the price, quality and the fact that he is being given a product guarantee of up to five years in his deal.

You say they are German, Japanese and American brands, but jobs were lost with the relocation of the production to China, isn’t that the case?

Wrong. Just as many people are working for the brands we acquired today as before. Ten percent of our products are produced in Europe and 20 percent in the United States. China also isn’t as cheap as it used to be. It no longer pays today to send all the components halfway around the world.

When you buy a brand, what do you pay particular attention to?

When we bought Milwaukee power tools in 2005, the U.S. company had a top name. Its lithium-ion battery technology was among the best, but otherwise the company made the impression of being old-fashioned. We paid more than $700 million. That was a lot of money, but we got AEG along with it.

It has to be said that AEG had never before made a profit. Couldn’t the deal have also gone wrong?

Certainly, but I wanted to keep the market clean.

What does that mean?

When the competition …

… in your case that would be Bosch, Black & Decker and Makita, right?

Right. So when these companies buy a major brand, we suffer a collapse in prices. As a result, there is no more money for innovation there. When I buy a firm, I want this segment to be making a billion dollars in sales in five years. That is the only way to get big.

Where does TTI stand among the major tool manufacturers in the world market?

In 2014, we produced more than 10 million tools on the more than 300,000 square meters in our factory in southern China. We are targeting sales of more than $5 billion for 2015. That would make us the number one worldwide in the field of power tools. We already are today with vacuum cleaners and industrial cleaning equipment.

You have created a global company in China, a country with a very foreign culture. What must a boss be like who accomplishes something like that?

Curious, open-minded. I still get completely excited when an employee comes to me with new ideas. All employees must be respected.

Don’t you have to sometimes pound the table?

That’s not my way and doesn’t go down well in Asia. I can get respect in other ways. The Chinese know that everything has to be done correctly with me. You can turn a blind eye once in a while, but not more.

What was your biggest mistake?

Today, we certainly wouldn’t allow ourselves to be so diluted by the banks.

You feel the banks short-changed you?

Perhaps we were sometimes a bit too naive. We were just engineers and not financial experts. We had overestimated the financial meltdown of 2008. But today, we are in a fantastic position and have $600 million in cash in the company account.

What role does your Chinese partner, Roy Chung, play?

I always take care of marketing and innovation, Roy the production. We have been business partners for more than 30 years and close friends, as well. Sometimes, it is like in an old marriage.

How attractive is China still as a location, given the rising wages?

After overtime, our workers receive around $500 a month. We won’t be expanding production in China anymore, and because of the high investment costs that we had in China, we also won’t be going to countries like Vietnam. We raised production last year by 20 to 30 percent through automation and rolled back the number of employees by 10 percent.

Where are your corporate values anchored?

In the country where I was raised, in Germany. I prefer a bit less margin if the quality is right in return. If you want, that is also the formula for success, the reason why we have been on the market for 25 years and are able to continually grow.

Is an entrepreneurial career like yours still possible today?

I think it is an exception to become so big in China as a European. It is also not likely that something like that would be possible again. The market is too crowded and the risk of failure too great.

What do you recommend to young entrepreneurs if they want to be successful in Asia?

When you go to Asia, you have to know and like the Chinese mentality. Only then can you be a success. But it is more difficult than before, because many Chinese no longer need us at all: They also can be a success without foreigners.

 

Jürgen Kremb is Handelsblatt’s senior writer on Asian affairs, based in Singapore. To contact the author: kremb@handelsblatt.com

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