China has become Delphi’s most profitable market. The company does not disclose profit figures per region, but it confirms China was its top performing market last year. The No. 1 global supplier posted profits of $US343 million (€299 million) in 2002 compared to losing $370 million in 2001, Automotive News Europe reported.
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For each of the next five years, Delphi China expects to at least match the average 24% annual revenue growth it has had since entering China in 1993.
“GM, Ford, Chrysler, VW and Honda are all talking about over 20% growth,” says Jinya Chen, Delphi China president. “Delphi has no other choice than to keep growing. We have to be No. 1 or No. 2.”
Most major global automakers have established China operations through joint ventures with local automakers. Labour is cheap in China — $363 a year for average factory workers — but many materials are not, and the country’s infrastructure can be challenging, says consultant J Ferron, a partner with Pricewater-houseCoopers LLP in Detroit.
“It’s not just a cost-of-labour issue for any supplier but rather what product strategy and partner strategy they have. On both counts, Delphi has done the right thing,” Ferron says.
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By GlobalDataIncluding nine joint ventures and intracompany sales, Delphi China posted $700 million in revenue in 2002, up 35% from 2001.
The Shanghai-based unit imports more than it exports. Imports were worth $160 million and exports were worth $147 million last year.
Customers include Volkswagen, General Motors, Jeep, Toyota, Nissan, Honda, Suzuki, Citroen and Hyundai. Chen says he’s trying to nurture that customer base, especially among the Japanese.
Delphi considers itself China’s largest supplier of wiring harnesses, catalytic converters and batteries. It claims to be the only complete engine-management system supplier.
Delphi tries to localise employees and strengthen its suppliers. It put Chinese engineers in all 11 manufacturing plants.
“We emphasise greatly to localise engineers, to localise management, uplift the quality of people to a new level,” Chen says.
The unit’s quality matches many other Delphi markets, Chen says, with defect rates of six parts per million.
“The deeper question is the supply chain,” he says. “We’ve spent a lot of time building the supply chain here. We tell them what to do, what not to do and why. Unless you have a strong supply base, you cannot localise supply. If you cannot localise supply, your cost is greater than your competitors.”
Chen says the outbreak of severe acute respiratory syndrome, or SARS, has had “very minimal impact” on Delphi’s China operations. The company requires employees to wear masks and has taken other steps to ensure customer protection, Chen says.
But SARS concerns have actually boosted China sales.
“Auto sales actually went up this month because people want to avoid mass transportation,” Chen says. “If they have their own cars, there’s less chance they’ll be affected by other people.”
