Australian parts-makers can win in China: Wale

UPDATED: 13:30pm AUSTRALIAN car components manufacturers should have a go at entering the Chinese automotive sector because they have experience and knowledge that is sorely required in many parts of that industry, according to a senior Australian executive who headed General Motors’ Chinese operations.

According to the former president of General Motors China, Kevin Wale, the Chinese industry has grown so rapidly that, while it is big, many parts of the supply base lack the hard-won knowhow that Australian component suppliers have garnered over the past 60 years.

“It looks like a match made in heaven,” Mr Wale, the most senior GM executive ever to come out of Australia, told the annual conference of the Federation of Automotive Products Manufacturers (FAPM) in Melbourne recently.

And, in an exclusive interview with GoAuto after his address, Mr Wale dispelled a common perception when he said parts makers should not be worried about having their intellectual property stolen by a joint venture partner.

Mr Wale retired last year after more than seven years as GM’s top man in China, the company’s fastest-growing market.

He started with GM Holden in 1975, rising to director of sales and marketing in 1998 before being posted overseas to take charge of the Asia-Pacific operations.

In 2001 he was appointed chairman and managing director of Vauxhall in the UK and in 2005 was appointed president and managing director of General Motors in China, where he was responsible for all of GM’s joint-venture operations.

Those operations produce around three million GM-branded vehicles a year, growing at up to 10 per cent.

Mr Wale said China was already the largest vehicle market in the world and was only going to get larger.

“Annual sales will rise from 22 million to 37 million in the next 10 years. Its volume growth in that time will be greater than the next 10 countries combined,” he said.

“Not only is China the largest market in the world today, it is going to get increasingly large. There is no doubt that China is the ‘Big Gorilla’ in the car industry for many years to come.” The opportunities for parts-makers in China are mainly with the indigenous brands, not the joint ventures between western companies and Chinese manufacturers.

The major car-making joint ventures in China already have well-established supply networks in place, many with Chinese subsidiaries of US and European suppliers.

“The Chinese parts suppliers have not ever learned how to do things in an advanced way, so that they benefit from a strong technological partner, a strong management partner,” Mr Wale said.

“You’re not going to help them find better sources of cost, but you will be able to say, ‘Well, with a bit of movement here and a bit there and access to our advanced technology centre in Melbourne we can design a better widget. We know how we can do that for a tenth of a price for the product you are selling.’ “It’s leveraging knowledge. It’s the same way we operate with our partners.” The leading non-aligned Chinese brands include Great Wall, Geely, Chery and BYD.

“These four will do between 600,000 and 800,000 (units) each this year and they will continue to grow at six to eight per cent. These are not small companies, but in the Chinese market they are somewhere between two and four per cent market share.

“They won’t get much better than that, but they do provide opportunities because they have so many weaknesses they need to overcome, in terms of product solutions, management solutions and general support.

“The Australian car industry has all the expertise they need. It looks like a match made in heaven if some of you guys want to find a way to get into that,” he told the conference.

Mr Wale told GoAuto there was legal protection for intellectual property (IP) in China, but that companies had to take the time to understand the local rules.

“People assume that the Chinese rules for IP are the same as in Western countries. They are not.

“If people want to operate in a foreign country, whether it’s France, Germany or China, the first thing is you need to understand what the rules are.” He said that while the famous copying case involving the Daewoo Matiz and the Chery QQ did not result in a legal win for General Motors, there was a resolution.

“You’re never going to win (in the courts), but the agreements were honoured.

“We came to a settlement and agreements were honoured on how it was done, so as not to have it repeated. There’s always a solution.” Mr Wales said the Chinese government was tightening the IP laws “dramatically”. He said the police regularly inspected open-air markets to try to stop the selling of fake Louis Vuitton bags and other luxury goods.

“They have regular conventions on how to combat copying and improve measuring techniques. It’s one of the highest items on their list,” Mr Wale said.

But he warned that, even if IP protection was top-notch, the benefit wouldn’t last long, anyway.

“If you think your IP is going to last longer than 18 months, you’re destined to die. If you don’t continue to innovate and assume you are going to come up with a better mousetrap, you’re done.” He said copying has been going on for a long time amongst the carmakers, but some are more subtle about it.

“When they go to a motor show, they take pictures. They might not exactly replicate it, but it will be close.” “Blatant copying in the western world is dumb, but the western world has been famous for learning and putting a similar solution out as quickly as possible without crossing the line on IP infringement.

“It’s not that they are not copying, they are just not crossing the line on IP infringement, and that’s based on a legal definition. If they can get this close, they will.” The key to success for Australian partsmakers in China is knowing how to get a technology solution and then integrating that into an engineering solution.

“In China, they grew up by buying ‘black box’ solutions. The supplier was responsible for the quality, but they were never taught,” he said.

“So, if it broke, they’d say go back and fix it. They would do this five times and I’d ask what went wrong and they’d say well, they sent us a new one and we tested it.” But there was no input or suggestion as to how to improve the part so that it did not fail in the first place.

“Those fundamental skill sets that are second nature to us aren’t necessarily part of the development of the supply companies at the lower levels in China,” he said.

Asked whether it would be better to enter Asia through an ASEAN market like Thailand, Mr Wale said China was the best place to tackle the burgeoning Asian automotive industry because there are many people able to help parts-makers find suitable partners in China and it was already the epicentre of the Asian automotive industry.

“I would start there, because the Chinese manufacturers are going to go down into ASEAN anyway,” he said.

While the language and other cultural factors make China seem daunting, Mr Wale said there was help available.

“They now know what is required and are willing to participate so I would be looking for Chinese partners. There are lots of organisations that help identify those,” he said.

“There’s a multitude of consultants who have worked in the car industry who can put you in touch with these people.” Mr Wale also said there was no reason Australian parts-makers need feel they will not be up to the challenge.

“You can compete. First of all, they don’t have that many PhDs – yet. They don’ t have a lot of people who have graduate degrees and knowledge in basic research. It’s a big weakness.

“They have lots of engineers, but if you try to start a research base, there’s no-one with 15 to 20 years of experience.

“They can’t out-compete the western world in terms of advanced research. What they do is move very quickly. We can move quickly if we want to. We just haven’ t got into the habit of it.

“It’s a case of, if you have a customer focus and a desire to react to a need and you are willing to look outside the box, we have the same capability to do that. I don’t believe there is any difference in innate capability to do things.”