China Automotive (Autoparts) Industry: “To Be or Not To Be” In China … And 5 Reasons To Be

I have had two chances to explore the autoparts industry in China. The first time was while I was working a foreign government agency promoting investment and trade into China. Then again a year ago, when I met and interviewed Mr. P. M. García Sola, Project Manager China at Kunshan Inautek Automotive Components Co. Ltd. His company is a WFOE that manufactures and sells auto components in China.

These two interactions gave me an opportunity to experience the “to be or not to be in China” dilemma.

When I was working with the foreign government agency, I was shocked to see how difficult it was to convince autoparts companies to participate in the Shanghai Auto Show. The main reason seemed to be the IP risks involved. Companies feared being copied. And not just companies, part of the problem was also that a lot of people in our organisation were so afraid of the IP risks involved in a China operation that they were not too motivated to promote attendance.

When I met Mr. Garcia Sola last year, I experienced a completely different story. He was in the process of setting up a China factory, and he obviously had strong views about the fact that you must set up in China if you are a strong player in this industry. These were his reason not to miss out on this opportunity:

The obvious reasons that make China a “must be there” market for strong players in the automotive / autoparts business:

1.China is currently the largest automobile manufacturer in the world.
If you have an international commitment, there are a few markets you will be considering (due to cost competitiveness): China, Brazil, Mexico (serving the US market) and India. Sometimes we talk about North Africa, we have been talking about North Africa for the last twenty years, but it is still very unstable. China is by far the largest automotive industry by volume.

2.China is a fast growing market for the automotive industry, and it will continue growing.
There is still room for growth in this market due to:

– an increasing number of families that can afford to buy a car (the expanding middle class)

– the potential for road and highway infrastructures to expand

3.All top foreign car makers operate in China.
As an already well-established supplier for car makers we already have a competitive advantage versus other suppliers

4.Cars manufactured in China are sold mostly in the domestic market.
So I would read that as potential for incremental sales for foreign autopart companies that settle here.

And his reason to overcome IP fears:

5.Copying your IP is easy, stealing your clients in the automotive industry is not.
In the automotive industry, they may copy you in the customer service area / market (replacement parts). But automotive companies are extremely careful about who their suppliers are. A lot of companies manufacture and sell our same product, but in China there would be a maximum of two companies that would meet similar standards to ours. You need strict quality control processes and standards that not everybody can match. It is too risky for automakers to switch to the local companies that may copy you. I remember being told a story about a foreign company producing windmills. They were copied but when the moment to start arrived, it just did not work. That was the best marketing campaign for them.

What are your views?

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China Business Strategy: “FOCUS!”… Don’t chase it all

Second post based on insights from an interview to David Caselli, CEO New Zealand China Direct Ltd, a New Zealand owned WFOE importing and distributing food and beverages into the Chinese market. In this post, Mr. Caselli explains how he took over a diverse business without a clear focus or scope and applied his business know-how and market insights to reformulate the strategy and establish a focused business model.

Key Message on Business Strategy:
This country is huge and there are a lot of business opportunities, but you need to focus on your best business opportunity (and sometimes on key markets) so that you can capitalize on all your business efforts, networking, channels, market insights…

Excerpts from the interview
From “Everything All Over to 3 Businesses/3 Markets”
“When I took over this project the business had been in China for 2 years. It was professing to do all type of products (timber, steel, fluffy slipers, food &beverages..) all over China. I looked at that business and saw we could not possibly succeed. So we went from everything all over the country to three businesses in three provinces.
We identified food & beverage, timber & construction and specialized manufacturing as key businesses. And we selected Shanghai, Suzhou & Hangzhou as our target markets.”
From “3 Businesses/3 Markets to 1 Business/1 Market”
“We worked the model for six months but very quickly concluded it was still too much. This is a huge country, very specialized. We narrowed from three to one business, food & beverages, and focused on one market, Shanghai.
Once you focus on that one business you start selling a lot more of food & beverages. This is a country where people create billion dollar businesses from just selling water.”
Key Lesson: Focus to Capitalize on Strengths, Efforts and Market Insights
“Focusing on one business enables us to play product by product to the strengths of the country. Some products will just be imported, bought and eaten as they are. Some products need to be imported and then processed (processed here so that they fit local taste), and then distributed. An example would be low end meat cuts (read more on this topic in his previous interview). Other products could even be imported, processed here and exported to other countries in the world.
So this focus on food &beverages allows us to do many things, and explore which ones are the winners for us to concentrate.

China: Five Trends to Monitor

(3rd post based on an interview to Vladimir Djurovic, LabBrand owner/founder- Labrand provides market and consumer research, brand strategy and creative services)

Vladimir Djurovic’s company, LabBrand, does plenty of research in the Chinese market, so I asked him what his views were on recent market trends in China that entrepreneurs would find interesting. These were his exact words:

“China: Five trends to monitor on four vital axis for brands:

-On Culture and Behaviour:
TREND # 1: Growing need for professional training solutions for service industries like catering, hospitality, etc…. How come this is still not yet there in China? It is time to open schools/academies and train your people!
– On Communication and Design:
TREND # 2: Branded applications for Mobile platforms (Ipod/ Android) – it is going to surge in the coming months and huge opportunities exist for brands and also for developer/content providers
– On Product and Services:
TREND # 3: One hot topic for the next decade in China : Medicines/ Pharma industry
– On Market and Consumers:
TREND # 4: Rise of the elderly Chinese spending – I was yesterday checking the opening of a high end retirement home in the suburb of Shanghai ( yes I know this is super glamorous!!) and I believe this is just the beginning of a lasting trend.
TREND # 5: Watch for more Online shopping especially in the luxury or high end segment.”

What interesting trends have you identified out there?

Business Strategy Debate in China: Staying Focused vs. Seizing the Opportunity

Entrepreneurs encounter so many opportunities in China that sometimes is difficult to stay focused. I’ve written in the past the following tip in my post “7 Top Tips for Entrepreneurs Starting Business in China”:
“Be open to shaping your business as the opportunities materialize and your market knowledge expands. The idea you have when you land may not be the best business opportunity after all”

And although it still sounds like a good solid piece of advice, entrepreneur Vladimir Djurovic has shown me the other “side of the coin”. Vladimir founded Lab Brand in order to provide company naming and research services to foreign companies in China. He subsequently expanded his business into brand strategy and management. Vladimir tells us about the benefits of staying focused in this market:
“At the time I started the naming company there was nobody doing this. And it was not that easy to create the market, it was more like a “vision”… I tried to avoid drifting into something different. In China, there are so many opportunities that they also become a risk. Doing a lot of things may be good for your experience but it is very difficult to build a strong company and a strong brand if you do not stay focused. I think if you build a strong brand for your business you build the basis to be very successful in the long term. If you do too many things you may get lots of projects today but may fail to build the capacity to have a more stable position in the future.”

So what is your China business strategy?

Business Opportunities in China: Pharma Industry

Are you in the Pharma Industry? Then, maybe China could be your next big market.

It is not often that I find posts giving specific recommendations on how to enter an industry in China, so I was very excited to read a couple of posts at the China Law Blog about investment opportunities in the pharma industry (both guest posts by Samsara Biopharma Consulting).

The first post shares some market insights:
– There are real pharma business opportunities in China for foreign businesses
– Recent trends:  influx of foreign Private Equity (PE) and Venture Capital (VC) firms investing in Chinese pharma companies (including many selling only to China’s domestic market)
– Market Size: around fifty very large pharma companies in China, largely centered in the East, and thousands of SMEs all over the country
– Market Structure: divided for regulation purposes into Traditional Chinese Medicine , small-molecule chemical synthesis drugs and biotech.
– Major Issues/Local Companies: weak  quality systems.
– Biggest Investing Threat: investing in Chinese pharma companies that will be unable to comply with with the SFDA’s .

The second posts presents recommendations for pharma SMEs willing to invest in the Chinese market: (main points bellow but plenty of very useful tips in the original post here )
1.-Market Research to assess demand and market insights (key players, …)
2.- Shortlist potential partners (5-10 good candidates) and fax your introduction letter. Their responses will allow you to narrow down to 3-5 companies.
3.-Road Show to China to present project and meet/get to know candidates : team should include  CEO, business development head, medical director, and the head of regulatory affairs.
Secure signed Non Disclosure Agreements (NDA) from the Chinese companies before meeting with them.
4.- Settle on the candidate company and begin “courting” them. Problematic points in reaching agreement:
– Who pays the costs to conduct any clinical trials SFDA (China’s Food and Drug Agency) may require and Who will own the data?
– Will you use your own or the Chinese company’s branding scheme?
– Who will be responsible for minimizing fakes/counterfeits/copies?