Pearl River Piano is now looking elsewhere for sustainable growth.

Adapt to a changing landscape

Unlike his predecessor, Huang Weilin doesn't play the piano, but he knows a lot about the market. After he took over the company in 2007, he decided to sell more products to domestic and emerging market customers and forge a high-end brand.

"Compared with major developed countries where about 20 to 30 out of every 100 households already have a piano, China has a huge market potential, especially when factors such as urbanization and increasing family investment in education are taken into consideration," Huang said. The Chinese now buy half of the pianos produced in the world.

Pearl River Piano has produced more than 80,000 pianos annually for the past two years. The company sold 83 percent of its products to domestic customers last year.

But more than 140 Chinese piano makers have clustered at the low end of the market, where Pearl River Piano has an almost transparently thin profit margin. All these companies produce economical pianos for Chinese as well as overseas customers. This has diluted Pearl River's domestic market share from 70 percent at its peak to a current holding of less than 25 percent. In addition, recent soaring time and labor costs have further squeezed the company.

So the company has made a foray into the high-end market, where demand remains relatively intact. Thanks to his predecessor's obsession with technological superiority and professionalism, Huang is able to pursue his high-end ambitions with a rich patent portfolio.

Huang hired renowned Swiss piano designer Lothar Thomma to head the company's design team and launched its high-end brand, Kayserburg, in 2007. With almost all imported components, the production line mimics that tailored for Steinway & Sons Piano Company's lower-priced Essex brand. Pearl River Piano was contracted to produce the Essex line for Steinway, the world's finest piano maker, in April 2005.

The Kayserburg brand, priced between 20,000 yuan and 60,000 yuan ($ 2,928-8,785) for uprights and grand pianos, sold well among Beijing families and still sits squarely in the economical piano category, said Liu Bo, a tuner at Beijing-based retailer Jiangjie Piano City Co. Ltd.

"Pearl River Piano's Kayserburg brand has done a good job as a toddler at the high end," he said. "But the brand has to catch up with the world's eminent high-end brands such as Steinway in order to be a select choice in the concert piano market."

Liu said he was impressed with Huang's amiable, practical attitude during several market research trips he had made to the store over the past year.

"His questions were very professional, detail-focused and solution-driven about quality and customer feedback on the Kayserburg line," Liu said.

The company produced about 3,000 pianos under the Kayserburg label last year, selling them to customers in China, Singapore, Hong Kong and Macao. Emerging market sales increased 25 percent last year, propelled mainly by the new brand.

Despite the financial meltdown, the company's profits grew 17.2 percent last year.

And Huang smells more opportunities. The company bought more timber for future production as prices have decreased. It also injected nearly 20 million yuan ($2.93 million) into its European office last year, hoping to enrich its high-end technology repertoire and talent pool by opening a factory in Germany, the center of piano manufacturing.

Apart from pianos, the company now also produces violins, guitars, drums and wind instruments at small local factories Tong bought in the 1990s for product line diversity and brand extension. Huang will extend the product portfolio further this July when the company begins producing digital pianos, which will partly supply the Italian market. Digital pianos, priced between 3,000 yuan and 4,000 yuan ($439-585), have gained popularity among young amateur musicians around the world and have diverted their interest from much more expensive traditional pianos.

Now a shareholding company, Pearl River Piano is inviting non-state investors. The company will likely apply for a public listing next year, Huang said.