Bosch director Dr Rudolf Colm spoke out against reacting to pricing pressures in the Chinese market by letting standards slide, at a recent presentation in Shanghai.
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There are major deviations from international practices in the Chinese automotive supplier industry, said Colm, and one of those is in quality.
He said the international industry has moved a long way in the last decade to assure the quality of vehicles and components by extensive testing before the start of production and careful evaluation of all late modifications.
“This is why we no longer measure failure rates in percent but in parts per million” said Colm.
But although he spoke in favour of “designed to region” to adapt products to China, he insisted that international quality standards had to be maintained.
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By GlobalDataInternational suppliers such as Bosch set high requirements globally for a suppliers for process stability and the quality of their sub-suppliers materials he said.
These standard procedures, although they add effort and cost, are a necessary condition of participating in the supplier industry, he said, and had to be met by suppliers are they want to supply to the global market.
“This is quite often underestimated by companies who want to join this industry” he said, particularly in China, but Bosch will not jeopardise quality for short-term cost savings.
Colm however also said that to achieve cost advantages from production in China it is essential for subcomponents to be locally sourced.
“The low-cost expectation [for China] is based mostly based on the low level of labour costs, he said, but for components made in Europe “direct labour is only about 10% of the total costs”.
Materials and engineering account of the biggest part of the cost.
That means that “save even 50% of labour cost does not really have a big impact” he said. “The key issue is materials.”
Import taxes are a critical factor here – the import tax of 15% on materials can make the total cost of Chinese assembled follows higher than foreign production.
He said that Bosch has a high degree of localisation on its petrol and diesel engine management systems in China and is “currently ramping up the localisation for all other products like brake systems, hydraulic components, entertainment, electric motors and body electronics”.
Colm welcomed the new China automotive policy, that came into effect on the first of April.
The new rules require localisation rate of at least 40% if higher import taxes are to be avoided.
“This regulation will increase the pressure on component suppliers and car makers to localise production in China” he said, and he supported the move.
“I think this is the right way from the Chinese point of view” he said, and also encouraged car makers and suppliers to localise faster to reach worldwide pricing levels.
“The requirements of CAP will increase our speed of localisation” he said, although he also said that some of the rules needed further clarification.
Bosch has stepped up its local purchasing activity in China and is investing €200 million in the country this year.
Bosch has 14 automotive manufacturing operations in China, representing all its automotive divisions, and sales of €1.2 billion there.
SupplierBusiness.com
