After ten years of amazing development, China has surpassed Germany and Japan to become the world's second-largest auto market after the United States. General automobile manufacturers such as GM, Toyota and Volkswagen still have the largest share of the Chinese market. However, the sudden emergence of some local upstarts such as Chery and Geely in the Chinese market has aroused the ambitions of Chinese automakers to compete against China and the global market. Their globalization efforts are encouraged by the government. This ambition is not far off: In 2004, China was a net importer of automobiles; in 2005, China became a net exporter of automobiles; in 2007, China exported more than 500,000 cars and trucks, most of them Chinese brands. Export to developing markets around the world.
However, some worrying signs indicate that Chinese automakers are not yet ready to go global. In the recent J. D. Power and Associates "IQS", Chinese cars performed flat. In addition, new models of several Chinese automakers scored low in independent safety tests. Some of China's leading vehicle manufacturers have serious flaws. These include poor quality management, ineffective talent management, and lack of strategic focus.
Under the image
Our experience with China's vehicle manufacturers shows that many problems can be found in operations. But there are other problems.
Less than a decade ago, China’s entire automotive industry was still inferior to an average global car manufacturer.
However, since 2002, the annual growth rate of China's car sales has jumped from 20% in 1997 to 2001, and it surpassed Japan in 2006, becoming the world's second largest auto market. In addition, from 2001 to 2006, the annual growth rate of China’s auto exports was as high as 67%, increasing to more than 340,000 vehicles. The days when automakers such as SAIC, China FAW, and Dongfeng Motor fully rely on joint ventures with foreign vehicle manufacturers to produce cars are gone forever. Today, these automakers have joined the ranks of Brilliance Automotive, Chery, Geely and other local companies, and have launched or announced plans to produce domestic branded cars. In 2007, China exported more than 500,000 cars and trucks, of which more than 70% were Chinese domestic brands and exported to Africa, Eastern Europe, Latin America, Russia, and Southeast Asia.
Huge strategic advantages and structural advantages support these successes. Compared with Japanese vehicle manufacturers in the 1970s and South Korean vehicle manufacturers in the 1980s, first, Chinese auto manufacturers enjoy a large and rapidly growing domestic market, so they can quickly expand their business scale without Depend on exports for growth. Second, compared with the existing global automotive manufacturers, China's vehicle manufacturers have great cost advantages. This includes lower capital costs and labor costs, not to mention a much lower level of equipment investment. (China's OEMs usually replace their more expensive factory automation equipment with cheaper labor).
In summary, despite the recent appreciation of the renminbi, compared with automakers in mature markets, Chinese auto manufacturers still have a cost advantage of 30% to 40%. According to forecast, the global demand for low-cost cars will increase, and Western consumers' acceptance of Chinese brands will also continue to increase. Therefore, in the long run, China's vehicle manufacturers do face global opportunities. In addition, Chinese automakers do not have the historical burden of obsolete infrastructure. They can surpass global competitors through leap-frog development, for example, to develop alternative power vehicles to meet the growing demand for eco-friendly vehicles in the market.
However, some serious flaws in the Chinese auto industry have thrown cold water on this optimistic judgment. According to the 2006 J. D. Power and Associates New Car Quality Survey, the average number of problems per 100 vehicles in China is 231, which is almost twice the average of the United States. Worse yet, the average number of Chinese domestic vehicle manufacturers is as high as 368, which is nearly twice that of international brand cars made in China. In the safety tests conducted by independent institutions in Europe and elsewhere, Chinese automakers including Brilliance and JMC also performed extremely poorly. In 2005, Jiangling's Landwind SUVs had no stars in the tests of the All German Automobile Association (ADAC, an independent German car organization).
Our experience with China's vehicle manufacturers shows that many problems can be found in operations. But there are other problems. Some vehicle manufacturers are bent on going to the world, but they have not been able to identify the target market. Instead, they have diverted valuable management energy from improving product quality. Some automakers have not yet established a strong market position in their home markets and are anxious to start ambitious global plans, and are unable to take full advantage of the important opportunities to learn lessons from their home markets. There are also some companies that do not pay enough attention to marketing and distribution, and even outsource these activities to local partners. These sloppy practices may cause permanent damage to the brand.
In addition, organizational deficiencies may also lead to a "short circuit" in the operating process, resulting in cost increases and quality degradation. Take the example of a Chinese automaker we studied. The company has a quality gate system that seems to be very powerful and documented in detail to capture defects in the product development stage. However, although the quality gate system has fully discovered the problem, many problems have not been solved, mainly because of the lack of collaboration within the company, and engineers are also under great pressure to deliver products as soon as possible.
There are also some vehicle manufacturers that lack a goal for talent management. For example, in order to speed up product development, an automaker has dug dozens of experienced Chinese local engineers from the auto giants. Although these engineers are familiar with professional fields such as safety and internal design, they lack the project management experience and system integration skills needed to run a complete vehicle program, and they have little experience in communicating with suppliers or colleagues in other departments. . As a result, there has been little improvement in the situation and it has disappointed senior management.
The road to the future
In order to improve the current situation, Chinese automakers must formulate strategies with clear priorities, improve operational skills and product quality, and establish a strict performance evaluation system, advocating a corporate culture that continues to improve from senior management to production workshops.
The Chinese auto industry has made extraordinary progress and faces major opportunities. If China's leading vehicle manufacturers can clearly define their strategic priorities, enhance the applicable organizational skills, and, most importantly, improve their product quality and operating performance, they may be at the forefront of the world's automotive industry.
Focused strategy
China's vehicle manufacturers should re-examine their plans to expand into overseas markets, and in some cases, they should shrink the scale or postpone their overseas operations. At the same time, they should also focus on value rather than just low-cost positions to reposition the brand, thereby increasing pricing power and profitability.
First of all, the managers of Chinese auto companies should ask themselves whether we have sufficient scale, sufficient financial resources, and sufficient management resources to go abroad. For most auto companies, especially for vehicle manufacturers that sell less than 300,000 vehicles a year, the answer to the above question may be "not yet done."
For example, when Hyundai Group entered the US market in the mid-1980s, its car sales were comparable to many of today's smaller vehicle manufacturers in China. The pace of rapid entry into the US market in the modern era was hampered because quality and other issues damaged the company’s reputation among consumers. It took the company several years to repair its image.
China's smallest batch of vehicle manufacturers has the highest risk. Companies that sell less than 100,000 vehicles in these years will face tough choices because if they are to meet stringent safety and emission standards in the West, manufacturers may have to raise prices to a level that Chinese consumers cannot afford. These companies should consider licensing their technology to partners.
For example, China’s emerging auto company BYD can take this approach. BYD started from supplying battery and electronic components to mobile phone manufacturers and has extensive experience in rechargeable batteries. Therefore, it has an advantage in the growing market of alternative fuel vehicles.
For automakers interested in going abroad, they must first lock in key markets. In some cases, they must have patience. We have found that some Chinese vehicle manufacturers are eager to expand and ignore or misjudge the size, competition, or consumer taste of the target market. As a result, they find themselves over-expanded, over-stretched, and struggling to catch up with more powerful products and services. Competitors. Some Chinese vehicle manufacturers plan to enter 20 or more overseas markets at the same time. The strategic foundation of such plans is very weak. In Africa and Southeast Asia, market competition is as intense as China, but even if all these markets add up, they are much smaller than the Chinese home market.
An overly aggressive plan may also lead to management's attention deviating from the focus, complicating operational issues and creating strategic oversight. For example, in 2006, both Brilliance and JMC were eager to knock on the doors of a lucrative European market. The result was not only because of quality and safety problems but also due to the misjudgement of important market characteristics that caused the expansion potential to be subject to unnecessary restrictions. About half of the cars in Western Europe use diesel engines, and neither of these companies offers diesel models. Brilliance has locked in a sunset category, “Sedan-Dâ€. The market for this category is medium-sized, with sales in Europe falling by about 6% annually. About half of the European Sedan-D market is a wagon, but Brilliance did not provide a wagon. The results were disappointing: In 2007, the two companies sold a total of about 150 cars in Europe, far below the initial forecast.
Some vehicle manufacturers do a better job. For example, Chery and the Great Wall postponed plans to expand into Europe and North America, while focusing on Russia because of the favorable conditions in the Russian market. For example, Russia has a large number of aging domestic cars, and the country’s economy continues to grow, stimulating a sharp increase in demand for new cars. However, the price of imported cars from Western vehicle manufacturers exceeds the level of ordinary Russians. Consumers seeking new low-priced cars have brought great opportunities to Chinese automakers. Both Chery and the Great Wall seized this opportunity: In 2007, Chery sold about 40,000 cars in Russia and the Great Wall sold more than 8,000 cars. Sometimes, Russia’s demand is so strong that Chery cannot even ship it.
To further grow, China's vehicle manufacturers must develop cars with exclusive design features. Many Chinese automakers have achieved the current scale by reverse-engineering their competitors' models. In the long term, this approach is not feasible in the export market, especially in developed markets. Compact models and standard models account for about 40% of the European and American markets, and have good prospects in the near future. However, most Chinese vehicle manufacturers do not provide enough such models. In the long run, Chinese auto makers should aim to establish a truly innovative product line, such as high-quality electric or hybrid vehicles.
Pay close attention to quality
Chinese vehicle manufacturers must also push quality improvement further upstream, for example, to the product development stage and suppliers, not just the product quality improvement activities in the production workshop.
If in the eyes of global consumers, Chinese automakers cannot improve their product quality, any strategic considerations cannot be discussed. To achieve this, vehicle manufacturers must re-examine their operational processes and conduct more comprehensive quality control. Among some of China's OEMs that we have studied, quality control is to find assembly defects in the workshop through visual inspection. According to our experience, the problems that occur during assembly only account for 10% of all defects.
For example, when an entire vehicle manufacturer traces the problem of excessive brake noise in a certain model, it always traces the raw materials selected in the initial stage of design. Concerning the leakage complaints of power steering pump, the company finally found a problem with the quality control process of a major supplier. Overall, 85% of the 50 most significant defects discovered by the car maker existed before the vehicle was assembled.
To solve these problems, China's vehicle manufacturers must work more closely with suppliers in product development and manufacturing to ensure that both parties have the same high quality standards. Checking the supplier's process is critical, a lesson that leading global vehicle manufacturers have learned.
In other respects, Chinese automobile manufacturers must also keep in mind, such as performance quality (to ensure the performance of vehicles and components meet the target), and "gradual" quality (even if the expansion of production and parts production scale in production, and expand The process will not harm the quality of the car.) These concepts are common sense for top global vehicle manufacturers, but they are not deeply rooted in China.
Vehicle manufacturers should improve their quality management system, which is a series of crucial assessment procedures and decision points, so that auto manufacturers can solve quality, manufacturability and operational process maturity before they even start production. The potential problem. Many of China's OEMs must quantify the appropriate quality indicators and strictly follow up. We often find that ambiguous specifications or definitions can lead designers to benchmark their products against inappropriate competitors’ products.
Reinventing the quality management system can yield substantial returns: For example, after a European automotive manufacturer has stepped up quality control, it has reduced the development time of new models by 10 months, reduced the number of defective products by five times its original level, and made The cost has dropped to a minimum. Judging from the experience of developed vehicle manufacturers, China’s automakers will receive greater returns from quality control.
China's vehicle manufacturers must realize that the current cost advantage may not necessarily continue, especially considering the rising wages and the continuous appreciation of the renminbi in recent months. In addition, almost all of the world's leading vehicle manufacturers manufacture automobiles in China, and China's OEMs enjoy the same labor advantages. Therefore, Chinese automakers must increase the output of assembly workers. Compared with Brazil, India, and Mexico, Chinese workers have lower productivity. Our analysis shows that by reducing waste, re-adjusting the production line, and minimizing worker's idle time waiting for work, Chinese vehicle manufacturers can cut their costs by 20% to 30%. Vehicle manufacturers can also reduce the cost of product development. We have found that if we increase the productivity of one of China's leading automakers to the level of Japanese automakers, we can reduce our research and development costs by half without reducing our R&D speed.
Strengthening organizations
Chinese automakers need to attract global talent to enrich the management team and explore ways to encourage greater cross-functional collaboration.
Like foreign counterparts, many Chinese automakers are also trying to imitate Toyota's lean manufacturing process. However, it is difficult for Chinese vehicle manufacturers to focus their efforts on continuous improvement. This is the basis of Toyota's historic success. The main problems lie in the ineffectiveness of talent management and the ineffectiveness of cross-departmental collaboration.
For example, a car manufacturer, because more than half of major engineers have less than two years of work experience, lack of project practice skills and insufficient cooperation, resulting in repeated design defects in several models. Lack of effective communication between marketers and engineers leads to delays in scheduling and requires extensive rework to correctly establish key design features.
Especially in product research and development, Chinese vehicle manufacturers are often faced with difficulties due to lack of project management experience and poor coordination. To some extent, the problem is that in China's joint ventures, foreign companies manage their own key product R&D activities. This has caused slow progress in teaching these key skills to Chinese partners. As a result, many Chinese vehicle manufacturers have done a very good job of localizing their products to suit domestic consumers' tastes (such as modifying existing models to install rear-seat DVD players, etc.), but lacked more comprehensive product development skills. It is difficult to design new models from scratch.
To compensate for these gaps, vehicle manufacturers can allow young engineers to participate in coaching programs so that they can access new skills, especially those that work with different functional departments. There are also a number of vehicle manufacturers that have established a weekly quality review system to allow engineers in R&D, quality, and purchasing departments to get together to inspect specific components that may have quality problems in the future. By doing so, an automobile manufacturer has increased the transparency of new projects and defined the responsibilities of the front-line supervisors.
Car manufacturers should also adopt similar practices with suppliers. For example, a Chinese vehicle manufacturer discovered that the distance between the bumper and headlights of a new model was too large. This issue caught the attention of the R&D department and they worked with colleagues in the quality and production departments to find out the root cause. In the past, R&D may only advise suppliers. Now, they work closely with suppliers to jointly solve this problem. As a result, the supplier made the necessary corrections without delaying the production schedule. This is very important because if the product is delayed, it may weaken the overall profitability of the new project. Moreover, this approach also allows suppliers to save processing costs.
To continuously improve operations, Chinese auto makers must also give full play to the talents of front-line workers. Often, this collaboration requires new performance management programs to support and reward. Although many Chinese vehicle manufacturers use billboards and other visual aids to encourage workers to work hard, they seldom encourage front-line workers to make recommendations for improving quality and productivity, let alone follow their recommendations. Some of the existing compensation structures do not even encourage the improvement of quality initiatives, for example, rewards are only based on workers' output. In factories that operate in this way, we see shop workers neglecting scratches and other visible defects for rapid production.
Chinese automakers must also actively introduce experienced expatriate managers, including competitor managers, to vigorously increase the level of senior product developers. In this regard, we can learn from the experience of Lenovo and other successful Chinese companies. As these companies continue to expand, they are actively recruiting experienced global talent.
Not just production
Some vehicle manufacturers must get rid of the mentality of simple wholesalers or exporters, change their minds, and focus on building sustainable businesses, including marketing, sales, and distribution.
To successfully carry out overseas business, Chinese automakers must get rid of the existing thinking mode and no longer place distribution, after-sales service and brand building on a secondary level. For example, many Chinese vehicle manufacturers hand over these activities to local partners in the target market. This practice may cause long-term damage to the brands they have just established.
As far as we know, a German distributor of a Chinese vehicle manufacturer admitted that it plans to establish only a centralized sales and service point. This lack of visionary behavior indicates that the car manufacturer is difficult to establish a good reputation and reputation among German consumers. These practices of Chinese manufacturers are far from Toyota's. Toyota works closely with dealers in Japan and shortens the time between orders and deliveries to less than one week.
Many Chinese vehicle manufacturers lack the ability to market smart consumers in specific areas. For example, none of the Chinese models currently locked in the European or American market offer an iPod connection that Westerners love. On the contrary, many models have leather seats, rear seat DVD players and other configurations that are more suitable for Chinese consumers. However, Chery and Great Wall Motors have made great strides in meeting the preferences of Russian customers, including a large interior space and trunk, as well as convenient and inexpensive maintenance.
Of course, Chinese automakers should look for opportunities to use economies of scale while reducing the high costs associated with regional differences. To succeed in this, each car manufacturer must understand the consumer tastes of each region. Most of the consumer grades can be attributed to the following three aspects: availability and value (including brand value in terms of price and fuel economy, etc.); consumer enthusiasm and reputation (such as fashion); intelligence and performance (such as comfort And reliability).
By assessing the importance of these key aspects to multiple given markets, automakers can make product adjustments or issue marketing messages for specific regions without having to change global plans. Some global vehicle manufacturers such as BMW and Porsche have successfully followed this model. For different regions, the vehicles provided by them only need to make slight adjustments to the product or brand positioning, but they can still meet the “local†taste because they The goal is to attract specific high-end customer groups that have similar preferences and have nothing to do with geographic differences. On the contrary, some Japanese vehicle manufacturers that produce low-end products have introduced very different design elements for different regions, such as body shape and brand information. This practice requires separate processing or advertising and is therefore more costly.
In short, if the above issues are not resolved, it is likely to hinder the Chinese auto industry from fully realizing its enormous potential for globalization, let alone move into the global market.