Recruiting in China

April 4, 2006
BY JUSTIN HYDE

U.S. auto-parts makers struggling to survive in an industry clogged with bankrupt companies can find a foothold in the future in China -- but only if they act now.

That's the message several experts and supplier executives brought to suppliers Monday on the opening day of the Society of Automotive Engineers 2006 World Congress at Cobo Hall in Detroit.

Suppliers and automakers have been making multibillion-dollar moves into China, lured by the possibility of cutting their costs as much as 50%.

They also hope to snag a piece of the booming Chinese economy, which is on track to pass Japan as the world's second-largest market for new cars and trucks by the end of the decade.

"It's a market you ignore at your own peril," said Mustafa Mohatarem, General Motors' chief economist.

Jack Perkowski, CEO of ASIMCO International Technologies, a Beijing-based auto-parts maker, said it was not too late for suppliers to jump into China, but the door is closing as Chinese suppliers increase their own abilities.

"If you're not there by 2010, you're too late," Perkowski said. "The center of gravity for technological innovation is going to move to China. It's going to be the fastest-growing market in the world."

Last year, automakers in China built 6 million vehicles, a 20% increase. For the first time, China exported more cars and trucks than it imported.

Automakers have pushed suppliers to lower costs by building in China, and exports of Chinese-made parts to the United States have been rising at roughly 30% a year, heading toward $12.8 billion in 2007 according to PRTM Management Consultants.

Yet according to a survey of suppliers by the firm, most companies find it far more expensive to do business in China than they had planned. One big reason: Counterfeiting runs rampant in China for many goods including auto parts.

Andreas Mai, a consultant at PRTM, said companies should take several steps to protect their goods from copying, ranging from spreading contracts among several suppliers to keeping their key innovations out of the country entirely.

Mai estimated that auto-parts companies building in China need to save at least 20% in costs to make up for the higher overhead of shipping, quality control and guarding their intellectual property.

With Delphi Corp. and other large U.S. auto parts makers in bankruptcy, some attendees asked what kind of future the U.S. industry could have when faced with such stiff competition.

"There will still be a very vibrant, active industry here ... it will just look different," Perkowski said, citing automakers' need for parts close to assembly plants. "Every one of the businesses here will have some sort of China strategy."

Tips for doing business in China

Some advice from experts for auto suppliers who want to set up shop in China:

Have a presence in China -- workers who can make decisions about the business. Trying to manage by remote control often leads to problems.

It takes a critical mass of business -- $10 million -- to generate real savings and an understanding of the country.

Avoid handing out unnecessary information that could be used to copy your products, and break up work among several suppliers.

Beware of logistical problems, such as bottlenecks at ports.