To Integrate Global Resources, Build Up China's Advantages LIN Xiaogang
Good afternoon.
I am honored to be here speaking on the Boao Forum for Asia Annual Conference. As the person in charge of an auto OBM(Own-Brand Manufacturer), ever since I took my current post, I have been repeatedly asked with the question: will China's auto OBM have a future? I believe most of our friends concerned with this question expect a positive answer from me. Today, I'd like to share with experts and friends here my thoughts on the challenges faced by China's auto industry and integration of China's auto industry, in two aspects:
First, opportunities for China's auto industry and challenges faced by OBM;
Second, in face with challenges, how OMB achieves breakthrough via integration?
Opportunities for China's Auto Industry and Challenges Faced By OBM
First and foremost, I must say, we have chance.
China's auto market, in the eyes of both China's local auto manufacturers and global auto makers, is an opportunity of the global auto industry over the coming 20 years. The reason, as simple as it is, lies in the sheer fact that China has an enormous auto market developing at a rapid pace. Take the last year as an example, the total sale of China's auto market is 5 million vehicles, 3rd largest market in the world. Thus, my fellow peer, Mr. Murphy, President of General Motor(China) comments that even if the growth rate of China's auto markets drops to a low of 10%, it is notwithstanding the highest in the world.
But why so many people questioned me on whether China's OBM has a future? I believe that is because China's OBM is faced with unprecedented challenges.
With a close analysis of such challenges, I summarize four challenges here:
First, challenges from global auto brand.
The year of 2004 was marked with an outstanding trend of great depreciation of products manufactured by global auto makers-invested ventures in China, who took the lead of sale, squeezing the living space of those local OBMs.
At the low-end market, GM priced to a low of Y45,000, forcing QQ to lower its price from Y45,000 to Y30,000; at the mid-level market of household vehicles, Elantra lowered its price to Y100,000, forcing Saibao, made by Hafei, to cut its price, once expected at Y110,000 to Y90,000; whereas in the mid-high end market, Ford launched Mondeo in early 2004, and later Nissan launched Tienna, both at a competitive price, messing up the market. As a result, our brand Zhonghua, once priced at 200,000 was forced to sell at Y140,000-Y180,000.
Second, challenges from technological and model renovations of global auto brand.
On the front of technology and renovation, our overseas competitors continue launching new brands and introducing new technologies, constructing immense challenges to China's auto industry. With strong R&D capacity and a vast array of existing brands, global auto conglomerates, based on actual situation of China's market, may introduce to China its mature brands, with zero R&D cost. In comparison, China's OBM needs start from the very beginning, developing independently or jointly with overseas counterparts, resulting in considerable investment in R&D. Even worse, set against the great depreciation, if no proper revenues are generated, their subsequent renovation and the capacity to develop new brands will been severely affected.
Third, challenges from marketing strategy and capacity of global auto brands.
Overseas brands capitalize on its accumulation at the global markets and sell at one market of China. At the initial stage of investment, overseas players, as part of its global strategy, invest much more than what is needed for a regular marketing campaign. Together with their mastery of operation technique of branding, on the front of marketing, China's OBMs are forced to face with the pressing challenges. Some of the OBMs turn to international consulting firms or advertising firms for outside support, however, the operation model designed by such firms requires enormous funding, far beyond the affordability of China's OBMs.
Forth, challenges from appreciation of Renminbi.
In the near future, China's OBMs may also face with the challenges from the appreciation of Renminbi.
Despite the efforts of Chinese government and the whole financial industry to retain the stability of Renminbi with the aim to sustain competitiveness of China's economy and enterprises, we still sense the possibility of appreciation of the currency.
The US government has, in the past few years, adopted a step-by-step depreciation strategy. Once the appreciation of Renminbi becomes true, the price of imported autos will drop down further, followed by a falling price of China's auto market, hence encroaching the market share of China's OBM which was once relied on their advantages in low pricing.
It is exactly in face of such challenges, some friends asked the question whether China's OBMs still have a future?
Integration is an important measure to develop China's own brands.
The above challenges also bring to us the issue of integrating auto industry.
From the perspective of development, there are three ways out for OBMs: the best way, of course, is to focus on its own brands, integrate resources, capitalize on the environment and favorable conditions of"reform and opening", and meet the challenges, therefore transforming into an auto industrial group with competitive advantages. The second option is to be merged by others as part of the production chain of the global auto industry, though still existent in the industry, deprived of its leadership. The third road is to fight independently while missing the chance of integration till ousted from the industry. The choice for Brilliance Auto is to fight for the best way, making full use of all methods for industrial integration and embarking on the road of self-development in the open environment, with high effectiveness and high efficiency.
As you may know, I was once involved in the war industry. The development of China's first atom bomb, first hydro bomb and first satellite has been representative of China's war industry. In mid 1950's, China was not open and was suffering from embargos and technical restrictions by major developed countries of the world. It is against such a background, China's war industry upheld the principle of"self-independence while striving for outside support". "Self-independence" implies that China must develop its own war industry. "Striving for outside support" means to make concerted efforts to capitalize global resources. From this perspective, the war industry is the first to integrate resources in China.
Today, in face with the challenges from the global auto industry, I still hold the view of adhering to the principle of opening and cooperation while striving for outside support, and making unremitting efforts while focused on building up own brands. The key to the fulfillment of the above is to learn how to integrate. China's auto industry must take an in-depth view towards the integration of auto industry and regard integration as one of the most important measures to counter the current challenges. Integration is the basic method, either for forerunners or for pursuers. Only by starting from the standard for global competitiveness, effectively integrating social resources and building up its own competitive advantages and capacities can China's auto industry make further progress.
Then we come to the question: how to integrate. From the experience of Brilliance Auto, I understand that the solution is to adhere to the principle of"four integrations and one persistence", which is the integration of Brilliance Auto's integration strategy.
First, to integrate mature technology of the world and demands of Chinese consumers, seeking for market breakthrough.
OBMs, in face with challenges, shall first, on the front of technical renovation, integrate the cutting-edge auto tech and the demands of Chinese consumers, giving full play of China's OBMs' advantage in understanding demands from local Chinese.
The advantage of multinationals lies in their capacity to introduce best-sellers in other markets to China. However, restraints in their investment and R&D scheme impede their efforts to meet demands and realize benefits of Chinese consumers.
It is the fact that OBMs lag behind their foreign counterparts in technology. However, with development of more than 100 years, auto technology, as whole, is becoming mature. The so-called"pioneer tech" merely lies in some of the electronic components and key spare parts. So long as we continue to integrate core technologies of the global auto industry and make renovations in the appearance, comfortability and safety that can meet Chinese consumers' demands, China's auto enterprises will still have their own advantages.
HIACE of Jinben Auto originated from Toyota technology. With more than 8 years of unremitting renovation, we have become the leader of luxury station wagons in China's market. Even under the current low point of import duties, the sale of HIACE is still on a constant and stable level. This further denotes that under a special circumstance, we have the capability to build up our own leading advantage in a specific group of consumers.
Second, to integrate global marketing techniques and the unique marketing environment of China, seeking for breakthrough in branding and marketing.
Today, branding& marketing has become one of the decisive factors in the development of auto industries. As early as in 1999, there was a consensus in the global auto industry that the era has gone with the widening gap of auto brands was decided by tech and quality, and branding& marketing has become one of the key techniques in the industry. Therefore, to integrate global branding& marketing tech renovations with the unique market niche of China, to renovate branding theory and to make theoretical and practical breakthrough and renovation is the key to surpass competitors under funding constraints.
Today, Brilliance Auto is waging two campaigns. The first one is to integrate local branding& marketing talents, with the aim to be equipped with advanced marketing weapons with Chinese characteristics that can cope with international competition, therefore making breakthrough in branding from our disadvantageous position. The other one is that Brilliance Auto, by integrating all of its brands, launched a new concept of"Greater Brilliance Auto" on today's auto expo. Currently, Brilliance Auto has four own brands and 1 joint brand, namely HIACE lightweight van series, GREACE MPV series, ZHONGHUA ZUNCHI business limousine, JINBEI lightweight truck and one joint brand of BMW. We will further capitalize the influence of the above brands and give full play of their integrated power, making Brilliance autos and all of its brands acceptable for and recognized by consumers.
Third, integrate global capital, technology and human resources, build up core competitiveness of OBMs.
The third aspect of our integration is to integrate global resources.
Integration of global resources is a precious experience of Brilliance Auto. In the future, Brilliance Auto will further promote overseas cooperation and strive for support from outside, integrating, from different perspectives and on all levels, global technology, capital, human resources. The"difference perspectives and all levels" refers to our dedication to systematic integration of brand, technology and human resources, from the integration in the past that is limited merely in capital.
In this field, we have cooperation in various aspects with top auto manufacturers in the world, e.g. whole vehicle technology with Toyota, body design with Italy, chassis technology with Porsche. We have also invited senior technicians from Ford and top manufactures of Japan. Needless to say, integration of global technology resources has ever been the consistent strategy of Brilliance Auto. Today's progress made by Brilliance Auto derives from integration and tomorrow's Brilliance Auto will still rely on its integration of global resources.
Forth, to integrate domestic and international markets, bringing China's advantage to the world.
An outstanding feature of China's OBMs is their capacity to integrate domestic markets and the global markets, building up their own advantages. A prominent strategy of Brilliance Auto to establish its advantage is to combine the demands of global markets, increase exports, expand and consolidate its advantages in the domestic markets, therefore linking up the domestic markets and the international markets. I may take this chance to tell all of you that, Brilliance Auto has signed off contracts with Viet Nam to export its JINBEI lightweight truck technology and will be assembled and manufactured there. ZHONGHUA series have been sold in bulk in Egypt and some other developing countries. ZHONGHUA M2 has been acclaimed at auto expos in Europe and covered by hundreds of the local media. Some European marketing businesses are approaching us to discuss possible exploration of European market. Though all of these are still in its initial stages, we have seen the glimmering future of China's OBM.
One persistence, to adhere to the road of self-independence.
Amid the integration process, Brilliance Auto has one persistence, which is to stick to the road of self-independence.
It is clear that auto industry is a strategic industry with strong economic driving force. In developed countries, the auto industry creates as high as 15% of job opportunities in the society, and it is because of this, none of them would give up the right to develop their own auto industry. Some of the key technology has never been available to us on the market. The only choice left for China's auto industry is to maximize the combination of knowledge about world leading technology and self-development, and stick to self-independence, by which to establish China's auto industry in the global auto market and surpass our competitors in terms of technology. For this, Brilliance Auto is now blueprinting a more proactive, more open new strategy. I believe, a new Brilliance Auto strategic scheme will come onto the stage in the near future.
Last, may I call for all of you to support the development of China's auto industry and support the development of Brilliance Auto.
Distinguished guests, China's economy, after the accession to WTO, has become an open economic system. In the past two years, without doubts, the fast economic growth of China has provided momentum to its neighboring countries. A continuously developing and prosperous China's economy will serve as an important guarantee for the economic development of the whole Asian region. In such an economic system, auto industry may decide its future. For this, I call for all of my friends attending this conference, to render more support to Brilliance Auto, to buy more Brilliance Auto's products. I firmly believe that the successful development of China's auto industry is a historical inevitability, and the common progress of Asian economy is also a historical certainty.
Thank you.