News of China’s blossoming automotive industry is seldom absent from the daily industry headlines. While at the Tokyo motor show, Matthew Beecham caught up with some parts makers taking the plunge in China.
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The 37th Tokyo motor show, Japan’s answer to Frankfurt, flung open its doors last week to the ritualistic sound of wall-to-wall thumpin’ pumpin’ music. As the curtain went up on this year’s show, hundreds of journalists, photographers and cameramen flooded the Makuhari Messe’s four sensibly arranged halls jam-packed with innovation. A total of 263 exhibitors from 14 countries are displaying their best, including some 200 parts suppliers. No fewer than 38 world premiere passenger cars are on show, underlining the significance of this bi-annual Asian showcase. One of the topical issues that came up time and again while pacing up and down the parts supplier Mecca of North Hall was the blossoming Chinese components industry.
The major tier one parts makers are spending billions on establishing a manufacturing presence in China, either through joint ventures or going it alone. “We established a footprint in China early on,” said David Muyres, vice president and general manager, product and business development for Johnson Controls. “Whereas some of our competitors went into China opting to own 100% of their operations, we chose a philosophy based on joint venture partnerships. And that has turned out to be far better for us in terms of our ability to be accepted in China by industry and Government. If you are there by yourself, you have to learn by yourself. But if you are there with a partner who mutually wants to grow, your growth curve is faster and steeper.” Over the last six years, Johnson Controls has also expanded its design and manufacturing presence in the Asia-Pacific region, acquiring seat maker Ikeda Bussan and opening a design centre in Kanagawa, Japan. All told, the company employs 9,200 people across 33 facilities in Asia, including manufacturing operations, engineering and technical centres in China, India, Japan, Malaysia, Singapore, South Korea and Thailand. In China, the company claims it has a dominant share of the seating market with a share of ‘at least 50%’.
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Figure 1 Something to sing about: Just three years after its tyre recall scandal withFord, Bridgestone seems to have turned a corner. The introduction of newproducts by Bridgestone and Firestone, including Firehawk Indy 500 andFirestone Affinity LH, has helped Bridgestone’s return to profits. TheJapanese tyre maker posted net profits of ¥31,960 million in the first halfof 2003, up 30.6% over the same period in 2002. |
Other major tier one suppliers competing in China include Bosch, Hella, Denso, Bridgestone, Goodyear, Michelin, Delphi and Visteon. Bosch entered China eight years ago, first establishing its activities for gasoline injection with three plants and an engineering centre. The German group is now in the throes of building a large technical centre alongside one of its factories in Suzhou. “We are expecting a fivefold increase in our business volume in China in the next ten years,” said Bosch’s head of automotive, Dr Bernd Bohr. Bosch currently generates sales of some ¥130 billion from China, employing 9,000 workers.
Germany’s Schaeffler Group, comprising LuK, INA and FAG, also had a presence at the Tokyo motor show. “We’re here in Japan because Asia is one of our most important growth markets of the future,” said Dr Jurgen Geißinger. The group already has several manufacturing and development sites dotted around Asia. Last year, the group generated sales of around €750 million in the region. “Our goal is to supply new products like the fully variable valvetrain or components for direct and electronic clutch management to achieve technological leadership in all areas and continue to grow.” The group is currently expanding its operations in China and South Korea. And when flange bearing production begins next year, FAG Shanghai will represent the largest producer of wheel bearings in China. Geißinger also told the assembled media that LuK is “checking the possibility” of building a new factory in Korea. In Korea — at the FAG Hanwha location — the joint research and development centre for the Schaeffler Group is under construction. “With this centre,” said Geißinger, “we can develop products with customers with an even higher target orientation.”
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Figure 2 Fun for all the family: at this year’s Tokyo motor show, more money was spenton attracting and entertaining the visitor. |
The three largest players in the world tyre market — Michelin, Bridgestone and Goodyear — are also monitoring China’s prospects. The big three collectively control nearly 60% of the global market while the seven mid-size players — Continental, Sumitomo, Pirelli, Yokohama, Cooper, Toyo and Kumbo — collectively enjoy 22% of the market. Others are local and niche market tyre manufacturers. Since 1985, France’s Michelin has set up joint ventures in order to establish an industrial base in Asia and presently, these exist in Thailand, Japan and China. Bridgestone also plans to increase its production in China to around 40% by 2004, supported by adding new production lines and a third tyre plant in the county. Goodyear, meanwhile, is investing some $120 million in its Dalian, China plant, effectively tripling output over the next three years from 1.9 million units to 5.3 million. Dalian currently supplies Audi, VW, GM and Citroen locally, plus all local radial tyre markets and the expanding four-wheel- drive vehicle market.
Japan’s Denso is also investing in China. The world’s fourth largest parts supplier is investing some $4.6 million in a new joint venture with two Chinese partners to begin production of fuel injection pumps and nozzles for Chinese-made diesel vehicles. Emission regulations are scheduled to tighten in China, and Denso aims to expand its common rail system components production there in order to meet expected demand. A joint venture has been agreed between Denso and Shanghai DV Fuel Injection Co, which manufactures fuel pumps, and to which Denso has already been giving technical support. The new company will become Denso’s eighth production facility in China and it is expected to employ around 970 staff by 2005. The company’s other seven plants in the country manufacture air-conditioners and electronic components and employ a total of some 2,000 people.
Through its strategic alliance with Stanley Electric, Hella plans to expand its Asian business, in particular further develop its pole position in China. Hella already claims a 30% share of the vehicle lighting market in China. In fact, the German lighting specialist has set up no less than three joint ventures in China since last year. In June 2002, the company opened a plant for its fully-owned Hella Shanghai General Electronics. In August, Hella opened a joint venture, Beijing Hella Automotive Lighting, to make headlamps and signal lamps, initially for commercial vehicles, and the company also opened a fully-owned subsidiary in Changchun to make plastic injection-moulding tooling. Hella now has five plants in China and an aftermarket operation in Shanghai plus development and customer support centres for headlamps and electronics.
Hella’s three-year alliance with Japan’s Stanley Electric is also proving a successful technology partnership. Hella is one of the strongest brands in the world market. The company made its mark in times when auxiliary headlamps with covers and brand logo were an everyday sight on the road. Today, the company is the market leader in xenon headlamps and still one of the leaders in auxiliary headlamps. “Vehicle manufacturers need lighting makers with global coverage,” said Joachim Gelhaar, Hella’s director of sales for the Asia-Pacific region. “We [Hella and Stanley Electric] are sharing manufacturing sites and R&D so that with each budget we generate, we come to a much faster industrialisation of good ideas. It is very rewarding for us.” And how does Stanley see the arrangement? On their stand located nearby, Tadashi Suzuki, R&D manager for Stanley Electric, said: “We have the knowledge and experience to supply the Japanese lighting market. Hella has the same for the Europe. The alliance means we can exchange our knowledge for mutual benefit. By combining our technical strengths, we can offer the customer more choice.”
Although the prospects look good for the Chinese components industry, lest we not forget the thousands of manufacturing jobs lost in Europe and North America as production lines close and relate. While suppliers here talk of being ‘encouraged’ rather than ‘threatened’ by their customers to set up camp in China, their comments thinly veil the increasing pressure to produce more and more parts in China, cut prices and support their customers’ manufacturing operations there.
