Focus shifts to China: Multinational auto parts companies expand into western regions

For four consecutive years, China has been the world's largest automotive market, and it continues to expand. For multinational parts companies, the key to better meeting the needs of local consumers is to continuously upgrade localization, gradually shifting production, procurement, and R&D centers to China to gain more market share in the Chinese market.

　　As the importance of the Chinese regional market continues to grow, some large multinational companies have undergone high-level structural restructuring to match. In August of this year, Continental Group, a German automotive parts supplier, announced that its global executive director, Dr. (name withheld for privacy), has taken up the post of President of the China region. The President of the China region directly holds a seat on the group's headquarters board, marking the first multinational parts company to publicly convey the message that China's status has risen to the level of group strategy.

　　Continental Group is not the only company that considers the Chinese market a strategic market. Bosch Group, Delphi, and other multinational parts companies have been deeply cultivating the Chinese market for many years. The benefits of localization have prompted these multinational group headquarters to continuously invest more in the Chinese market to gain a growing share in the expanding Chinese market. Schaeffler Group's investment growth rate in Greater China has exceeded its sales growth rate in Greater China. The group headquarters has also developed corresponding localization plans for talent and technological R&D to ensure sustainable growth of its business in China, according to Zhang Yilin, Deputy General Manager of Schaeffler Greater China, in an interview with the First Financial Daily.

　　Increased Investment in the West

　　Currently, Continental Group has 19 production bases and 19 sales offices in China. With the commissioning of new R&D centers and factories, our workforce in China will reach 25,000. Currently, our factories are mainly located in East and North China, but in the future, we will follow the trend of the automotive industry's westward migration and focus on Central and Western China, increasing investment in the western region, according to Dr. (name withheld for privacy).

　　With the advancement of China's Western Development Strategy, and the construction of new vehicle plants by FAW-Volkswagen, Geely Automobile, and Volvo Cars in western regions such as Chengdu, many automotive parts manufacturers have also accelerated their investment in the western region.

　　Chen Yudong, President of Bosch (China) Investment Co., Ltd., previously stated that by 2015, Bosch's annual investment in China would reach 3 to 4 billion RMB, with a focus on automotive technology and the central and western regions.

　　In August of this year, Bosch's second production base for chassis control systems went into operation in Chengdu. The new factory will produce ABS/ESP and wheel speed sensors to meet the local market's demand for safety technology. Located in the Chengdu Economic and Technological Development Zone, the total investment will reach 880 million RMB. Currently, the first phase of the project has been completed, with an investment of 287 million RMB. Wheel speed sensors will be put into production at the new factory in 2013, and the anti-lock braking system (ABS) and electronic stability program (ESP) will be put into production in 2014.

　　The opening of the Chengdu factory enables Bosch Group to respond more quickly to the needs of the western market and provide better service to local customers. This also demonstrates our confidence in the future development of China's automotive industry, according to Chen Yudong.

　　Similar to Bosch Group, Delphi, an American automotive parts company, also built an electronic wire harness factory in Chongqing around the same time. Delphi's global president, O'Neil, stated that Delphi has been adding investment to the Chinese market. In 2012, Delphi China's sales revenue was US$1.9 billion. The goal is to double sales revenue by 2016 and double it again by 2020. To match the increase in sales revenue, we plan to open three factories in China, and in the next three years, Delphi plans to build six more factories in China, according to O'Neil.

　　Other multinational automotive parts companies, including Valeo and TRW, are also entering a period of investment expansion. Last year, Valeo China's sales exceeded 10 billion RMB, accounting for 10% of the group's sales. The company expects this figure to double by 2015, at which point China will become its largest overseas market. TRW plans to invest over US$200 million in the Chinese market this year, exceeding its investment in any other country in the world.

　　Shifting Towards R&D Centers

　　However, as China becomes the largest automotive market, the role of the Chinese automotive market is also shifting, from a manufacturing center to an R&D center.

　　China's automotive market has ended its era of rapid growth and entered a stage of slow and steady growth. However, the main changes during this period are also different. Fluctuations in automotive production and sales directly affect the shift in investment priorities of major companies worldwide. China has not only become the world's center for automotive manufacturing but is also shifting towards becoming an R&D center. China's automotive industry is undergoing a transformation from "Made in China" to "Created in China." This transformation is unprecedented in the century-long history of the automotive industry and is independent of human will. It is a result of global economic integration and the inevitable adjustment of the global economic structure. Wang Xia, President of the China Council for the Promotion of International Trade's Automotive Industry Branch, stated at the 4th Global Automotive Forum.

　　Therefore, Wang Xia stated that how to consider the automotive industry from the perspective of global trade, how to consider changes in the industrial landscape from the perspective of global economic integration, how Chinese companies can find their place in this great transformation, and how multinational companies can better integrate into the Chinese market are all questions that need to be answered.

　　According to Ogu Don, senior director and chairman of Asia at McKinsey & Company, the gradual shift of multinational companies' focus towards Asia is a new strategic adjustment. More and more multinational companies are shifting their business headquarters to Asia. This shift is fundamentally different from the past. In the past, some automakers invested in factories in China and India to obtain sales rights or for cost-effectiveness. Now, it is a voluntary act, highlighting the status and potential of Asia in its global leadership, culture, and talent pool.

　　Indeed, the localization of talent and the role of local personnel in the decision-making of multinational automotive parts companies are becoming increasingly prominent. Zhang Yilin deeply understands this and stated that with the increasing importance of the Chinese market and the improvement of the technology of Chinese engineers, the importance of senior management in China in the company's global senior management is strengthening. Now, senior management at the headquarters is consciously accepting that Chinese people can manage the local market well.

　　R&D is the most important aspect of the localization process for multinational companies. Localization includes several stages: first, the localization of sales and production; second, the localization of procurement; and most importantly, the localization of product R&D technology. The localization of product technology includes the localization of incremental technology, the localization of applied technology, and finally, the localization of future breakthrough technologies. Chen Yu, Chief Technology Officer of Schaeffler Asia Pacific and Greater China, explained.

　　Chen Yu said that for the localization of the Chinese market, Schaeffler's global headquarters is now able to delegate decision-making power. For example, the approval of drawings for applied technologies has been delegated to the Chinese market, and the Chinese branch can now produce locally without the need for headquarters approval.

　　I would like to point out that utilizing local talent effectively is a major challenge for most multinational companies. Currently, some companies have implemented clear incentive measures for local talent. For example, they stipulate that expatriate executives must cultivate local talent as their successors. According to Ogu Don.

　　Bosch Group stands out among multinational automotive parts companies in its cultivation of local talent. To further enhance local decision-making capabilities, Bosch has appointed numerous Chinese nationals to top management positions across multiple business units in China, including automotive technology, energy, and building technologies. Chen Yudong is one of the few Chinese nationals holding high-level positions in multinational companies. Currently, more than half of Bosch's major business units in China are headed by Chinese nationals.

　　Chinese nationals are better equipped to understand the Chinese market and culture. This is a core belief within Bosch's senior management, and the company is also strengthening its R&D capabilities in the Chinese market. In 2012, Bosch China registered 126 local patents, a 75% increase compared to 2011. As of early 2013, the number of Bosch employees in China increased by 11% to 34,000, with R&D personnel growing by 16% to 3,200.

　　Thanks to its focus on upgrading its localized market strategy, Bosch has reaped significant rewards from the rapid expansion of the Chinese automotive market. In April of this year, Bosch announced its 2012 consolidated sales in China reached 41.7 billion RMB, marking ten consecutive years of growth since entering the Chinese market. Chen Yudong stated: Bosch's ongoing localization efforts are always focused on long-term strategic planning. Innovation and talent are the key drivers of Bosch's long-term development in China.