The Speakers Mr. Bill Russo, Founder and President, Synergistics Limited and Senior Advisor, Booz & Company Mr. Benjamin Thoma, Senior Consultant, Roland Berger Agenda 4.00 - 4.30pm – Registration/Networking 4.30 - 4.35pm - Opening words by EUCCC 4.35 - 5.00pm - Presentation by Mr. Bill Russo 5.00 - 5.25pm - Presentation by Mr. Benjamin Thoma 5.25 - 6.00pm - Q&A 6.00 - Networking drinks (coupon for glass of wine or beer given at reception desk) |
9.08.2009
The Electric Car - Will China Dominate the Market?
Profile of the "Golden Age of the Auto Industry" (中文)
China Entrepreneur Magazine, September 8, 2009
2009年，汽車業深陷危機泥潭。但是，博斯公司的調研卻認為：我們將迎來汽車業的“金磚”時代——汽車業高速發展的黃金時代尚未到來，“金磚四國”則是未來引爆點。博斯的研究發現：
金磚四國擁有完全不同的市場和行業動態，到2018年，快速發展經濟體的汽車擁有量預計將擴大近六倍；
傳統的“歐美模式”將被顛覆，不能寄希望照搬歐美的模式在亞洲或者拉美複製成功；
要徹底改變汽車企業賣車的思維，不能只是側重於工程技術，而是要解決消費者出行的問題；
新能源汽車領域尚未出現相應的市場領導品牌，中國企業可以通過此舉搶佔先機。
“他們的失敗在於固守傳統”
他們仍然生活在過去，所以問題不在於他們會不會失敗，而在於他們何時會失敗
“全球汽車業的重心已經轉移了”，博斯公司高級專家、前克萊斯勒東北亞區副總裁羅威（Bill Russo）如此直言不諱，“他們仍然生活在過去”。對汽車行業來說，這是一個偶像倒掉的時代。既往成功者的失敗，可以讓更多的人從更深的層次正視原有商業模式存在的問題。擁有超越谷底的視野才能看到未來的黃金時代。
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200909 China Entrepreneur (Zhong Guo Qi Ye Jia)
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9.05.2009
TREND #5: Utilization of China's Automotive Capacities for Global Expansion
September 5, 2009
by Bill Russo
The fifth of the Eight Overarching China Automotive Trends That Are Revolutionizing the Auto Industry deals with how the growth and development of the China automotive market changes the automotive business model for the global auto industry. While it is obvious that China already has become the world’s factory for “everyday low price” merchandise, the ramifications of the rapid development of the Chinese automotive base on the global auto industry may not be as intuitively obvious. I call this trend "Utilization of China's Automotive Capacities for Global Expansion", but it is not simply about exporting finished vehicles from China. Rather the more significant trend is how other elements of the automotive value chain are impacted by the development of China's automotive capacities and capabilities.
China has rapidly become the largest car market in the world. For the first half of 2009, China posted sales of 6.1 million units versus 4.8 million vehicles sold in the US market. It now seems like all the ingredients are there for the “Chinese automotive factory” to expand to the global markets. In fact, much of the content in cars sold in the US and elsewhere today already does come from China. Because a significant percentage of the total cost of a car is in the manufactured components, there has already been a significant movement of the production of supplied parts to China. A great many of the components used in cars today either are or can quickly be manufactured in China. This is purely driven by the efficiencies gained from sourcing in China. As noted in the NPR piece U.S. Cars Have a Little Bit of China: what you may not realize is how much Chinese content may already be in your current car. However, our focus here is on the globalization of China’s automotive capacities.
Despite the rally in China’s domestic sales, China’s largest car exporters reported fewer export sales in 2009 when compared with last year. China auto insiders have pointed to the overall decline in worldwide demand as the reason, particularly in such key markets as Russia where protectionist measures have had a direct impact on vehicles entering the market. But this is not a complete explanation. The challenges faced by China’s domestic companies in their efforts to go global were covered in detail in my previous article entitled The Path to Globalization of China’s Automotive Industry (posted on this blog on May 18, 2009).
As a result of the unprecedented restructuring of the global automotive industry, several OEMs and suppliers have filed for Chapter 11 bankruptcy protection, and are in the process of restructuring and selling assets. Going forward, global automotive companies have been forced to radically and often involuntarily rethink their global footprint. Several examples have already been noted in TREND #2: Global Redistribution of Assets by Non-Chinese Companies to Capture China Market Growth. Clearly, the global center of gravity of automotive strength is shifting east.
If we look out over the next decade, one can with confidence anticipate a resumption of global auto market growth, particularly fueled by economic recovery and robust demand from emerging markets. This will create many opportunities for the reconfigured industry with its new “Asia –centric” footprint.
Leveraging Regional Automotive Capacities and Capabilities
The reality of the 21st century globalized auto industry is that businesses models must be redesigned to fully leverage the capabilities that are now accessible in newly emerging markets. Unfortunately, in order to become global, most automotive OEMs have attempted to export a business model optimized for their home market to their international locations. Migrating development capacities to markets that lack the competency to perform the work misses the entire point of globalization. Pursuing cheap parts or cheap labor is ultimately self-defeating when doing so robs an organization of its core competencies, thereby accelerating their demise. Similarly, exporting a business model designed for the home market to foreign markets only serves to limit the ability of the organization to embrace the capabilities of the foreign market.
Automotive manufacturers in concert with their key stakeholders must redefine their business models for the new reality of 21st century competition. Going global is not a simple transplant of the current business model to a foreign location. This implies a transformation of the entire automotive value chain to leverage the opportunities made possible by globalized capabilities. It involves redesigning business processes across the value chain in order to deliver to the customer a brand with a Unique Selling Proposition (USP) relevant to the local consumer. This will require that 21st century global auto companies fundamentally rethink their entire value chain from the consumer back through sales and service, production, supply and R&D. Key stakeholder groups, including the national governments with an interest in the global competitiveness of their domestic auto industry, must contribute to this development.
Businesses capable of leveraging global capabilities will ultimately be able to deliver a relevant USP at much lower cost. The Logan produced by Renault in India is one good example. Through engine re-engineering and parts simplification, Renault successfully adapted this car to be more cost efficient and easy to repair for Indian customers.
International OEMs are doing two types of differentiation in overseas markets, such as China. The first practice is the local adaptation on top of existing platforms. This is represented as changes to styling, functions and features to meet local regulatory requirement and market tastes. Recent examples are extended wheelbase luxury cars such as Volvo S80L and Audi A4L, the refreshed Buick Regal and LaCrosse, and the Hyundai Elantra Yuedong. Excellent sales have resulted from delivering products tailored to the local consumer taste - delivered at a cost made possible from the cost efficiencies and scale achievable in the China market.
The second type of differentiation is development of a brand new vehicle “top hat” (uniquely styled upper body with common chassis and powertrain). Products such as the Lavida by Shanghai VW are excellent examples of low-cost derivatives from a global VW platform tailored to the taste of the local consumer.
China’s Emerging Role in the Global Auto Industry
Over the next 5-10 years, China will be the world largest auto market, and for reasons noted in TREND #4: China's Investment in New Energy Vehicles and Associated Infrastructure also the most fuel-efficient market. China’s sales growth will be also fueled by small displacement cars demand from those 1st time buyers from Tier 3 and 4 cities. This has a profound impact on China's capacity to leverage the scale and competencies which accrue from becoming the largest production base for energy efficient vehicles.
From the supply side, we can foresee the trend of consolidation of vehicle makers, growth of local brands, and development of New Energy Vehicles. The future belongs to those who can extend their capabilities beyond low-cost production and supply to areas of world-class R&D and brand management - essential steps on the path to globalization. It is important to note that opportunities to integrate these capabilities into the business system are available to both local firms as well as multi-national companies. One of the poorest assumptions made by industry analysts when observing the China auto market is they often assume that only Chinese firms will ultimately benefit from the growth of the Chinese market - and they must therefore eventually dominate the global industry. This is a simplistic view, particularly when one considers that foreign brands still hold about two-thirds of the share of the Chinese domestic market.
However, Chinese auto companies are developing rapidly and aspire to become global companies. SAIC and FAW already possess significant scale advantages as a result of their successful JVs. FAW’s own brand B50, B70 and Xiali products are well received by market. Chang’An group has recently demonstrated market leadership and capability in the small car segment. Chery has developed full range of products with their own platforms, transmissions, and engines.
One must also take note of the astonishing rise of independent companies such as BYD, Great Wall and Geely. BYD – a cell phone and battery maker aspiring to become a leader in electric vehicles has clearly startled the world by delivering the first mass-produced plug-in EV. Several of these independent companies can become successful global car companies.
Several Chinese companies may prove capable of becoming icons of the 21st century global auto industry. However, they must also learn the lessons from the failure of the 20th century industry icons, who ultimately became “healthcare and insurance providers backed by vehicle sales”.
In the next posting in this series, I will describe the trend "Hyper-Competition Across the China Automotive Market Segments".
Click here to read this article on GLG News
Click here to view article published in Gasgoo.com China Automotive News
Click here to read this article published in GlobalAutoIndustry.com CHINAtalk
Click below to view:
8.27.2009
Southern Weekly (南方周末) Publication of "China's Next Revolution: Transforming the Global Automotive Industry"
Southern Weekly (南方周末), August 26, 2009
Click here to read the English version originally published on this blog.
Also, Please see reposts on: Sina.com Nanfang Daily Dayoo.com
Southern Weekly, also referred to as Southern Weekend (Chinese: 南方周末; Pinyin: Nánfāng Zhōumò) is a weekly newspaper based in Guangzhou, China, and a sister publication of the newspaper Southern Daily (Chinese: 南方日報) Southern Weekend is one of China’s most popular newspapers, and is owned by the independent-minded Southern Daily Group (Chinese: 南方報業集团) The New York Times described the Southern Weekend as "China's most influential liberal newspaper".
8.22.2009
TREND #4: China's Investment in New Energy Vehicles and Associated Infrastructure
August 22, 2009
by Bill Russo
The fourth of the Eight Overarching China Automotive Trends That Are Revolutionizing the Auto Industry was highlighted by this author in the article China's Next Revolution: Transforming the Global Automotive Industry (posted on this blog on June 18, 2009). Several macroeconomic and sociopolitical challenges are directly linked with the automotive industry: the redistribution of global economic power, energy dependence, global trade balance and environmental concerns. The rapid rise of the Asian economies – especially China – are sending shock waves through a system that was already out of balance in many of these areas.
The global economic crisis presents the world with a compelling case for change, and truly transformational changes often occur during times of crisis. The economic crisis is a triggering event that freezes debate on whether change is needed and creates opportunities for collaboration between government and industry. Such collaboration is essential for the successful transition from the conventional internal combustion engine (ICE) to new energy vehicle (NEV) technology.
As we have described in detail previously, the balance of global economic power has been shifting eastward to places like India and particularly China. Most of the recent growth in the world’s auto industry has been in the Asia-Pacific region, and more than half of that growth over the next decade is forecasted to come from China. Since 2003 China's vehicle market has more than doubled in size from 4.56 million units to 9.67 million units in 2008. In this time period, The passenger vehicle (extract the buses, trucks and other commercial vehicles) share has grown from 50% to over 60%.
Given the recent economic downturn, the China government undertook a series of focused stimulus actions designed to help achieve a GDP target of 8%. Through the first half of 2009, these measures already had a dramatic impact on the automotive market as Chinese consumers – many of whom were first time buyers – took advantage of tax and other incentives that were made available. For the first half of 2009, China surpassed the U.S. in total car sales, posting sales of 6.1 million units against 4.8 million vehicles sold in the U.S. from January through June.
China’s rapid automotive growth is expected to continue. The market is forecast to account for more than half of the Asia-Pacific market expansion over the next decade, with over 6% annual growth through 2018. As China’s auto market continues to grow, pollution significantly increases while China’s self-sufficiency rate of crude oil continues to decrease. To encourage the use of more fuel-efficient and less polluting vehicles, the central government’s 2009 stimulus plan included objectives for increasing the proportion of smaller vehicles in the China market. Related initiatives include a 50% reduction in the sales tax for under 1.6-liter vehicles, additional taxes on larger vehicles, and a relaxation of restrictions on small cars. The government’s stated objective as part of the plan is to achieve a market share target of 40% for 1.5-liter engine vehicles and below, and a share of 15% for vehicles with engines at or smaller than 1.0-liter. Overall affordability as well as the shift toward consumer versus institutional sales will also continue to support the development of smaller vehicles.
As the size of the auto market inexorably expands, China will play an increasingly key role in the development of new automotive technologies. China’s emergence as the leading automotive market in terms of sales has several implications. While most attention has been paid to relative sales performance of the foreign and domestic companies, what is arguably of more long-term significance is the impact of China’s market expansion on energy consumption and environment. Ten years ago, Bejing, Xi’an, Shenyang, Shanghai and Guangzhou were already listed among the Top 10 cities with the worst air pollution. The massive growth of the automotive market only adds to the problem. Additionally, China imports two-thirds of its oil, and its ever-increasing thirst has had a dramatic impact on global energy prices. No doubt, China has a clear and compelling need to reinvent the propulsion technology of the automobile.
To address this, China’s stimulus measures are targeting initiatives to increase energy efficiency and reduce greenhouse gas emissions by reducing energy intensity, increasing the share of renewable energy used, implementing tough auto emissions standards, and adding investments for clean energy. China’s Minister of Science and Technology, Mr. Wan Gang – a former automotive development engineer for Audi – has recently unveiled a plan to support the development of what China calls “New Energy Vehicles” (NEVs). The Ministry of Science and Technology, working with the Ministry of Finance and the National Development and Reform Commission, is sponsoring an ambitious plan to promote the use of NEVs initially targeting 13 pilot cities, which include Beijing, Shanghai, Chongqing, Changchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Changsha, Kunming, and Nanchang. The plan includes support for the development of energy-saving technology for use in government fleets, including buses, postal, and sanitation vehicles. The plan targets the deployment of 60,000 energy saving vehicles in China by 2012.
Both universities and vehicle manufacturers have already responded to the government initiatives. For example, Tsinghua University has established an alternative powertrain research lab. Chinese auto brands are participating in NEV development (some with foreign partners) and have included plans in their long-term strategies. Developments include the following:
- SAIC: Invested RMB 2 billion for NEV development
- Chang 'An: Established NEV JV and plans first hybrid car for 2009
- FAW / DFM: Have hybrid buses in pilot operation
- Chery: Introduced plans for the hybrid car A5 and electric car S18
- BYD: Introduced plans for the F3DM dual-mode electric car
Replacing internal combustion engines with other technologies- such as hybrid electric, full electric, hydrogen powered vehicles or clean diesel - requires collaboration between business and government to develop the infrastructure in tandem with development of the technology. The economics of the product itself and ultimate market acceptance is very much dependent on the availability of the infrastructure to recharge or replenish the fuel. It’s not realistic to expect a company to reinvent the technological underpinnings of the automobile unless there is a concurrent development and investment in the infrastructure to support that new technology vehicle. This is especially true in today’s weakened global economy.
As the largest automotive market, and because the China government has the capacity and willingness to invest in the infrastructure for alternative propulsion, the technology will eventually come to the market. What makes the development of alternative propulsion technology particularly challenging is not simply the vehicle itself - but the need for invention of the infrastructure for delivering renewable sources of electricity and installation of battery charging/replacement stations.
As the largest car market, and the place with the largest need for alternative energy solutions, we can expect to see China place a heavy emphasis on development of the electric vehicle (EV) infrastructure. The country that leads the development of this infrastructure will undoubtedly lead in attracting the investment in development of the technologies that plug in to that infrastructure.
Consumer acceptance of new energy vehicles is yet another challenge. While the infrastructure investments already described will help tip the scales in favor of new energy vehicles, consumers must also be convinced that the price and performance of the new energy vehicle can in fact meet their expectations. As a national priority, we can expect the China government to help by offering incentives for the retail consumer to purchase new energy vehicles. Chinese consumers have less experience with gasoline-powered cars, and are already accustomed to short distance, low-speed commuting – conditions very favorable for electric cars.
The China government’s willingness to invest in the infrastructure to support alternative propulsion technology will ultimately help drive market acceptance. This is where China has the opportunity to take the lead, and that will drive investment in new technology. It takes a combination of business and government working together to make such a transformational change possible – and nowhere in the world is there a closer link between business and government than in China.
In the next posting in this series, I will describe the "Utilization of China's Automotive Capacities for Global Expansion".
Click here to read this article on GLG News
Click here to view article published in Gasgoo.com China Automotive News
Click below to view:
8.20.2009
EV Li-Ion Battery Forum 2009
September 2-3, 2009
Hyatt on the Bund, Shanghai
Bill Russo will chair a panel session on Day 1 at 17:00 on Marketing To End Users The Residual Value Of The Li-ion Battery Pack To Lower The Costs Of Electric Vehicles.
EV Li-Ion Battery Forum Shanghai
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8.15.2009
TREND #3: Acquisition of Foreign Assets and Key Development Competencies by Chinese Companies
August 15, 2009
by Bill Russo
The forces shaping the third of the Eight Overarching China Automotive Trends That Are Revolutionizing the Auto Industry were addressed in my article entitled The Path to Globalization of China’s Automotive Industry (posted on this blog on May 18, 2009). The principal focus of this piece was to explain the challenges faced by Chinese Original Equipment Manufacturers (OEMs) in their efforts to develop and expand, and how the global financial crisis was presenting China's automotive industry with an unprecedented opportunity to accelerate their industrial development by "inorganically" acquiring the assets of foreign manufacturers.
The highly fragmented nature of the domestic Chinese auto industry presents challenges to the longer-term development of the domestic industry. The fact that that there are over 150 registered manufacturers is an outgrowth of a start-up phase for China’s auto sector. Provincial governments, with the support of the central government, were encouraged to develop industrial bases to create investment opportunities and jobs in order to accelerate China’s economic development. However, the highly fragmented industry that results from this creates enormous inefficiencies in the area of capital investment. This fragmentation also makes it very difficult to focus and allocate resources to the development of critical technologies related to safety and fuel economy. This is an area of particular weakness for Chinese OEMs who have relied on their foreign partners to lead the development of key component technologies.
While the China policy makers have prioritized the need for strengthening its industry via consolidation of the domestic players, the simple fact is that the global financial crisis has created a need to rethink the global allocation of automotive assets. As noted in the previous article in this series, many non-Chinese manufacturers are shifting their focus from their domestic markets to the growth markets like China. However, many are in a position to dispose of assets that are no longer critical to the business going forward. The historic restructuring underway in the global automotive industry will undoubtedly result in a redistribution or liquidation of automotive OEM assets. Whole companies, brands with installed dealer networks, product platforms and associated component technologies are all available for a mere fraction of the investment needed to create these assets. It stands to reason that such an "inorganic" approach to development could significantly shorten the time frame for going global.
While Chinese firms have learned very quickly how to assemble cars and develop supply chains, they are very inexperienced at the vehicle development and synthesis process. An automobile is a complex engineered system requiring advanced technology and know-how in order to test and validate the achievement of benchmark targets in the areas of performance, fuel economy, safety and quality. It is in this area that Chinese firms are weakest. Chinese vehicles, while improving rapidly, are still not up to the world-class standards required to compete in the mature markets of the world. As a result, numerous Chinese firms are seeking opportunities to acquire foreign assets for a fraction of the cost of their original development. Many noteworthy examples include the potential sale of Ford's Volvo brand, GM's Opel and Hummer brands, and Chrysler's discontinued products and powertrains. While China's policy makers have urged caution in bids with the Big 3, they remain supportive of deals which bring critical technologies to the domestic industry. Such a deal was Geely's $58M acquisition of Australian transmission manufacturer Drivetrain Systems International.
By acquiring the assets of a distressed but well-known international manufacturer, Chinese auto companies are hoping to significantly accelerate their development and expansion plans. Chinese companies with global ambitions who are considering a major acquisition would do well to study the lessons learned from those who have tried to create a cross-border alliance. While it may be relatively easy to negotiate a deal to acquire such assets, there is enormous risk and the vast majority of cross-border acquisitions ultimately fail. The most recent case of SAIC’s acquisition of Ssangyong ultimately failed because the interests of both parties were not aligned. SAIC was: unable to secure concessions from Ssangyong’s labor union to lower costs, unwilling to inject billons of RMB incremental capital to fund the business, and unable to manage the loss of leadership at Ssangyong. Ultimately, SAIC decided to dissolve the deal. Sadly, cross-border acquisitions are rarely successful. The 9-year marriage of Daimler-Benz and Chrysler dissolved in 2007 largely driven by an incompatibility of products, brands, business models and management structures.
Even the more successful partnerships have had mixed results: by all measures, the Ford alliance with Mazda has been a very good example of a successful cross-border alliance. Ford benefited from access to Mazda’s fuel-efficient technologies and platforms, and both sides benefited from a shared global production and distribution footprint. However, Ford recently made the decision to liquidate its shares in Mazda in order to raise much-needed cash. Lenovo’s acquisition of IBM’s PC division is largely viewed as a success because of the compatible interests of both sides, but had to overcome challenges from the US authorities fearful of national security risks. It remains to be seen if the merged company will be a stronger competitor in a highly competitive electronics industry.
Clearly there is a need, on the part of the European and North American OEMs and suppliers, to find additional sources of funding in order to keep their operations going, while the rapid growth of China auto market in recent years has provided Chinese companies more capacity to invest. The shifting of economic and industrial power to the east will require a corresponding redistribution of the asset base of the industry. However, there are real challenges in finding suitable partners. Partners in the west are not necessarily going be compatible, both from a technological and from a cultural standpoint with a Chinese suitor. A Chinese company investing in a western company or its assets must understand how to align the interests of the partner in the transaction with their own, or they will likely end up owning assets without the technological development know-how that went into creating those assets. It all should start with a comprehensive risk-assessment and plan for post-acquisition integration. I described the key areas of risk mitigation in a recent interview entitled "China companies shouldn't jump too early or take on too much in acquiring foreign suppliers".
While there is every reason to doubt that Chinese domestic firms are ready to take on a foreign acquisition, it is happening. Those who dare take on such acquisitions are also wise to learn the lessons from others who have tried – and often failed – to use an acquisition to accelerate the process.
In the next posting in this series, I will describe "China's Investment in New Energy Vehicles and Associated Infrastructure".
Click here to read this article on GLG News
Click here to view article published in Gasgoo.com China Automotive News
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