China Business Blog and Podcast

Technomic Asia has released a new version of its “Strategic Assessment of China’s Light Passenger Vehicle Aftermarket” report.

The fourth edition of the report, described in detail here, was released in partnership with the Automative Aftermarket Industry Association. You also can watch an audio-video slideshow of an overview of the data contained in the report.

For more details or to place an order for the report, visit technomicasia.com/auto.

It’s not often in this China business that we get to say “I told you so” and actually have the proof that we did tell you so. Before I get to what I told you — check out this posting on a possible solution to GM and Chrysler’s troubles. In short, one of the leading business publications in China is running a story that two of China’s leading automotive conglomerates — SAIC and Dongfeng — are considering buying out some or all of GM (and maybe even Chrysler).

For those of you sputtering “When pigs fly!” or “Over my dead body” over the impossibility of this, check the sky for passing porcine and your wrist for a pulse. It is more than possible. In fact, it is probable.

It’s not just the fact that this opportunity is presenting itself — the Chinese government (and private Chinese companies) have a strategy to look for investment opportunities outside of China. And this is where the “I told you so” comes in. In a podcast a couple of weeks ago, I talked about “why China matters” in this time of global economic recession and — dare we say it — depression. This is what I said:

The third area in which China matters is in its very early stages and so is a bit tougher to pin down, but it should be on everyone’s radar screens, and that is China as an “investor.” For a couple of years now, the Chinese government has been quietly encouraging Chinese companies to look outward, to find markets and investment opportunities outside of China. Well, that quiet approach is now over, and the government is making their encouragement in very loud tones and is providing support to help them do so, organizing research delegations and providing cash grants and loans for overseas investments.

Wow. I don’t want to toot my own horn here and belie my humble Midwestern roots, but Jimmy the Greek couldn’t have been more accurate. I am getting the shivers!

Certainly, the details of the deal are going to take a while to fall together (and, this being China, they may even fall apart), but the one takeaway here is that we should not be surprised. And particularly in a global environment of troubled companies and cheap assets, Chinese companies — backed by a very supportive government — are going to be major players. Keep your eyes and ears open, people — there is a major economic shift taking place and the world is going to look much different when it is done!

During the past couple of weeks, Technomic Asia’s Steve Ganster has spoken at three conferences addressing China sourcing and supply chain management issues.

On Sept. 24, Steve was in Wolfsburg, Germany, giving a talk at the Informationstechnologie für die Autoindustrie (Information Technology for the Auto Industry) conference. Steve’s presentation was about “Supply Chain Management in China’s Automotive Market.” Just prior to that conference, Technomic Asia’s released the most recent edition of its China automotive aftermarket research report.

The very next day, Sept. 25, Steve was in Munich, Germany, discussing “Sourcing in China: Trends and Best Practices” at the ROI Annual Best Practices Event. Then, back in the United States, Steve headed to Denver yesterday to give a talk on “Building Supply Chain Partnerships in China” Council of Supply Chain Management Professionals’ Global Conference 2008.

If you’re interested in more information on any of these subjects, or perhaps having Steve speak at an upcoming event, please let us know.

China’s auto aftermarket moves into high gear

SHANGHAI — Sept. 9, 2008 — Parts and service in China’s light passenger vehicle market reached an estimated US$27 billion in 2007, driven by strong expansion and continued aging of the vehicle parc, according to new research conducted by Technomic Asia, an international market consultancy specializing in China strategies for U.S. companies.

The report, titled “A Strategic Assessment of China’s Light Passenger Vehicle Aftermarket, Fourth Edition,” stems from Technomic Asia’s ongoing primary research into the Chinese auto marketplace and its key players. Other major findings indicate that the light passenger vehicle car parc has expanded to more than 32 million units, with middle-aged vehicles (4-9 years old) reaching a 41 percent share. More information is available at http://www.technomicasia.com/auto.

“The aging and expanding parc, coupled with private ownership of vehicles at almost 70 percent today, supports strong growth in the parts and service market,” said Steve Ganster, managing director of Technomic Asia and primary author of the report.

“The market is fragmenting as more vehicles from recent market entrants, notably the Japanese, hit the road,” Ganster said. “Both local and international parts and service companies are aggressively developing their infrastructures to penetrate this dynamic market. Though many challenges exist, the outlook for growth remains robust, with the market expected to expand at 19 percent per year through 2012.”

This unique China auto report offers valuable statistics, insights and analyses to assist management to successfully address this important market, including:

• Perspective on China’s automotive market, including a long-term growth outlook for China’s light vehicle market in terms of types of vehicles, key OEMs, growth drivers and constraints, etc.
• Overview of the automotive aftermarket in terms of parts and service, covering size, segmentation, parts types, key players and trends
• An assessment of China’s automotive parc in terms of size, vehicle composition, age, technology base and future growth
• A description of the maintenance and light repair service market, covering outlets, services provided, value, etc., and current and forecasted 2012 value by vehicle and service type
• A description of the collision repair market, covering the insurance market, accidents rates, service providers, service value, etc., as well as current and forecasted 2012 value by vehicle type
• A description of other major and minor spot repairs in terms of value, repair type, segmentation by age of vehicle and vehicle type, growth vector and key trends
• Collision repair market, covering the insurance market, accidents rates, service providers, service value, etc., as well as current and forecasted 2012 value by vehicle type
• A detailed evaluation of the parts supply chain, with descriptions of structure, key players, pricing characteristics and future dynamics
• Perspective on key opportunities and challenges facing players in China’s automotive aftermarket

For more information on the report, or to purchase a copy, please visit www.technomicasia.com/auto or call our offices at +1-919-855-5437 (U.S.) or +86-21-6473-2588 (China).

The newest issue of Actionline, the magazine published by the Automotive Industry Action Group, includes an article written by Technomic Asia’s Steve Ganster. The article discusses some of the challenges small and midsize automotive suppliers face when exploring and entering the Chinese market.

From the article’s introduction:

China’s burgeoning automotive market is having a significant and strategic effect on companies’ supply chains. Western parts and material suppliers have little choice but to respond proactively to China’s exploding automotive market or risk not only missing new demand opportunities in China but also opening the door for both international and Chinese companies to come after them in the West.

[...]

In the past few years, first-tier parts makers have turned to their supply base, passing on the pressure to localize to second- and third-tier suppliers. This cycle creates both opportunities and threats at all levels of the supply chain. As a result, many small- to mid-sized firms (SMEs) are now challenged to respond — or else.

Read the full article here.

In its first official condemnation of Chinese commercial practices, the World Trade Organization sided with the United States, Canada and the European Union in ruling that China has been unfairly taxing imported car parts at the same rate at which it taxes whole automobiles.

The basis of the compliant is that China’s higher taxes on imported car parts give its domestic auto makers incentive to use domestic-made parts, which in turn motivates foreign parts manufacturers to establish operations in China. The United States, Canada and the EU claim these incentives cause lost jobs in their respective countries and say that China promised not to tax car parts as is does whole cars when it joined the WTO in 2001.

Steven Ganster, managing director of Technomic Asia, a consulting firm that helps Western companies develop China business strategies, agrees that China should come into line with its WTO commitments but said cost concerns are not the only reason companies look to China for business opportunities.

“Lower costs are perhaps the first thing many people think of when they think about setting up shop in China,” said Ganster, who leads Technomic Asia’s U.S. office in Chicago. “Depending on the business, motivations include gaining direct access to local markets, better control of the supply chain and more effective distribution.”

Technomic Asia’s clients include many Fortune 500 companies and dozens of small and midsize businesses, including many automotive manufacturers and parts suppliers. Ganster and his colleague Kent Kedl, who runs Technomic Asia’s Shanghai headquarters, are the co-authors of “The China Ready Company,” a book that guides executives through the considerations to be made in developing a strategy for doing business in or with China.

“The WTO and foreign governments need to continue to pressure China to uphold the agreements it made when it joined the organization, but foreign manufacturers shouldn’t sit and wait for WTO sanctions to force China to change its tariffs or other practices,” Kedl said. “No one knows how long that could take, but it won’t be quick. Rather than wait, foreign companies should become more active in China to assess their opportunities and to build an effective supply chain in-country.”

(Original news release here)

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Kent Kedl shares the hilarious — and completely true — tale of his efforts to earn a driver’s license in Shanghai. Give a listen to learn about the Office of Telling People to go to Other Offices, the absurd questions that sound like a George Bush speech translated to Swahili and back to English, and the apparent irrelevance of actually getting behind the wheel of a car.

That’s right: After a series of tests of his blood pressure, vision, grip strength (seriously), question interpretation skills and ability to find his way around an unmarked maze of hallways, not once did Kent have to prove his skill at not hitting things or people. Welcome to Shanghai.

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China’s automotive aftermarket is a growing, complicated market. A new research report from Technomic Asia offers some insight and statistics on the Chinese auto aftermarket. Steve Ganster, CEO of Technomic Asia and author of “The China Ready Company,” discusses some highlights and lessons from this new report. Steve discusses trends in the industry and some of the risks and challenges businesses face in China. Of interest for auto-related companies and others with an interest in China.

Learn more about the report at www.technomicasia.com/auto or e-mail Steve at sganster@technomicasia.com.