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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