Visteon：Asia-Pacific to overtake Europe & North America within 3 years

Mr. Yang weihua:  Marketing Director of Visteon Asia Pacific Inc.

Mr. Yang holds a bachelor’s degree in industrial automation and a master’s degree in robot servo-drive systems from Beijing Science and Technology University and an EMBA from the CIBT School of Business and Technology

The Fourth Edition of Series of Interview with MNC Auto Parts Suppliers

The Health of North America is improving quickly

Gasgoo: Good morning, Mr. Yang. Thank you for accepting this interview with Gasgoo.com. First of all, would you please briefly introduce Visteon to us?

Yang: From the point of view of the auto parts industry, Visteon is a leading Tier 1 global auto parts supplier. Generally, the auto parts industry consists of systems suppliers, auto parts suppliers, and material suppliers. Visteon is definitely a systems supplier. From the point of view of the corporation, Visteon is an international company not limited to a country or a region.

Gasgoo: In the past year, the North American market went through a tough time. What was Visteon’s performance like in North America in 2006?

Yang: People are always concerned about the North American market. Looking at the market as a whole, the sales volume of both sedan and van markets did not decline but rather increased slightly.  But the key point is how to treat these problems. Many companies have been internationalized and expanded into emerging markets like the Asia-Pacific region. And so did Visteon. If you put your efforts into diversification, it is not so difficult to solve the abovementioned problems. 

Gasgoo: The European market in 2006 was just so so. The market share of the NA “Big Three”, who were Visteon’s main customers, declined in Europe. But Visteon had a relatively faster development, which was especially demonstrated by the fact that the contribution of business in Europe to the whole company had double-digit growth. What is the reason for such a discrepancy in performance in the NA and European markets?

Yang: From the market point of view, NA and Europe are mature and saturated markets, so sales volume wouldn’t greatly increase. Then the question is how to develop and capture more market share in these markets. Cutting edge products and advanced technologies are crucial. If you have these, then you can get more market share. In addition, the customer base should be diversified. Visteon did a lot of work these fields. Not only the traditional European and American customers but also new Japanese and Korean ones accepted our products and services. That’s the reason why we developed rapidly in the European market. Moreover, you mentioned the rapid increase of European business just now. Actually it’s not a static increase. As we returned many businesses to Ford in the North American market, the sales volume in NA dropped but rose in Europe. As a result, the company is healthier now.

Gasgoo: Is Visteon Europe healthier than Visteon NA in terms of business structure?

Yang: The health of NA is improving quickly. Business which was losing money and did not conform to our strategic plan was discarded. After these changes, you can see the business structure of Visteon in NA, Europe and Asia Pacific is balanced. So the pace of optimization of NA is faster than the others.

Korean strategy

Gasgoo: Visteon’s business with South Korea in 2006 was very impressive. The business with Korea is 8 times that of Japan – a big gap. As we know, the markets of these two countries are hard to get into. What is the reason for the big difference in these two markets?

Yang: The Asia-Pacific market is more diversified than the European and NA markets. It could be classified into three types of markets: mature markets like Japan and Korea; emerging markets like China and India; and some small markets in Southeast Asian countries. Japanese and Korean companies produce more vehicles for overseas markets than for their domestic markets with large export. You mentioned the gap in business between Japan and Korea. It is the support system that accounts for this fact. In these two countries, OEM is like the older brother followed by a certain number of suppliers who are the strategic partners to the OEM. They are in a fortified castle that outsiders can hardly break into. Fortunately, we did well in this field and had a breakthrough in South Korea. Now we are the second largest auto parts supplier in South Korea next to Hyundai Mobis, due to a wise decision we adopted during the Asian financial crisis in 1998. At that time, many Korean companies had problems with cash flow and Visteon took the majority of stock in Halla Airconditioner, making it one of our subsidiaries. But it is still a Korean company in terms of being a Korean OEM and the Korean culture. Through these steps, we got into the castle and our business developed accordingly. However, Japan did not suffer so much in the financial crisis, and they had traditional supporting relationships. So it’s very difficult to join this supply chain if you have no relationships. But we have also achieved much and supplied to Nissan and Honda plants in Europe and NA. The small portion of business you just mentioned refers to Japanese domestic market. Actually, the portion of business we do with Japanese OEMs globally is large.

Gasgoo: As mentioned, one type of Asian market is the emerging market like China and India. The output of assembly vehicles and passenger vehicles in China is more than Korea’s. The number of Visteon plants in China is three times that of Korea. But from the sales report, the speed of business development in Korea is much faster than that of China. Why?

Yang: In my opinion, it relates to our customer structure. Our traditional customers are OEM’s. There is a limited number of Korean OEM’s such as the Hyundai - Kia Group, GM Daewoo, and SSANG YONG Motor Company, acquired by the Shanghai Auto Industry Group. We supply them in huge quantities with big factories. There is no need to build many plants. South Korea’s territory is small and our supply radius is not large while China’s territory is so large that there are many scattered OEM’s. Moreover, some products like interior and exterior parts are not suitable for long-distance shipping so we have to set up plants close to customers. This results in a large number of plants and service centers in China. However, I believe that this will change with the development of the Chinese auto industry and concentration of production. It is a time-consuming process. 

New oppotunity for Chinese OEM's oversea strategy

Gasgoo: As an international supplier, what’s your opinion about the future development of the Chinese auto market in the coming 3 to 5 years? Continuous development or fluctuation?

Yang: I am optimistic about the development in the coming years. A car is tangible and needed by people. Cars will become more popular in family life. With the economic development in China, more and more people are going to buy cars. The huge territory and improvement of the highway network contribute to the future development of the auto industry. So I think the auto market will undoubtedly continue to have double-digit increase in the coming years.

Gasgoo: I saw the survey that you did about the taste of Chinese consumers. What’s the response from the assembly vehicle market?

Yang: It was highly appreciated. From the point of view of suppliers, we are B to B. Few suppliers do such consumer surveys. At the beginning of the Chinese automotive industry, consumer taste was ignored and only the ‘Old Three’ were available. There was no choice for consumers. Nowadays the market is more diversified, so you have to be concerned about changes in consumer taste. Visteon is a pioneer in this field of learning about consumer taste and designing products accordingly so that the vehicles made by our customers are more welcomed in the market. Foreign OEMs wanted to know the taste of Chinese consumers but they could not do everything. So they hoped the auto parts suppliers could undertake some design work and even some module design. So, who would be responsible for that? They should be the companies that have the experience and the research and design ability. China and India are big markets so that no OEM would neglect the demands of consumers. But the OEM’s didn’t know the consumers well when they were entering the Chinese auto market. Most of the vehicles sold in the Chinese market needed to be revamped or redesigned, especially some of the more visible areas such as air conditioners, interiors, etc. The OEM’s want to change according to the taste of Chinese consumers. For example, Americans and Europeans may prefer gray and red while Chinese prefer creamy colors. If you want your vehicles popular you have to do such work in your design development.         

Gasgoo: Is the demand for modular supply from Chinese OEM’s stronger than that from foreign OEM’s?

Yang: Modular supply is going to be developed and Chinese OEM’s have a stronger demand for the whole system and modular design. International auto giants such as GM and Honda have their own research and design teams, while the Chinese OEM’s have a short development cycle and their research and design teams are young and immature. So they hope some experienced Tier 1 suppliers could help them to improve in this field.

Gasgoo: So far as I know, many international suppliers have listed Chery as one of their strategic customers. What do you think about the development of Chinese brands?

Yang: We are happy to see the development of Chinese brands. We did a lot of work to support them these past years with a long-term goal. Chinese OEM’s emphasize export so they need to learn the taste of foreign consumers. Visteon is a multi-national company and has experience in both mature and emerging markets. We are able to produce proper products for Chinese OEM’s using the advantages of market research and advanced technologies and patents to support their development.

Go East: To reach the top within 3 years

Gasgoo: What’s the difference between the Chinese and Indian markets for international suppliers?

Yang: Westerners who have never been to Asia may think the Chinese and Indian markets are similar. Firstly, I would like to say something they have in common between them. They are the last two high potential markets in the world that have big market scales. The Chinese market is presently very big and will get bigger in the future. The Indian market has been increasing rapidly in recent years and is expected to grow larger. Secondly, both the Chinese and Indian markets increased at the highest rate, with double-digit growth. And we’re not talking 10% growth, but 20% or even 30%.However, they have their own characteristics of consuming. In China, the car models are distributed evenly with the C-class vehicles, such as Jetta and Citron Fukang, being the best sellers. But in India, the most popular vehicles are A-class and B-class, which account for more than 90%. In addition, the development level of the two markets is different. Although the weather in India is hot, there are no air conditioners in many new vehicles. But you can scarcely find such new vehicles without air conditioners in China. In India, over 80% of radios are installed in aftermarket but in China almost all the OEM vehicles come with a radio.

Gasgoo: The Asia-Pacific market has been developing fast. Do you have a goal for the proportion that Asia-Pacific will account for in your global business?

Yang: We became healthier after regulation adjustments and our three business areas were balanced. Currently, the proportion of Asia-Pacific business, including joint ventures, accounts for less than one third in total. But it will be the area of highest development, and we predict it will become the largest market in the corporation group within three years, possibly accounting for 40% of our global sales volume.

 Gasgoo: Ambitious.

Yang: It conforms to market development and our strategic regulation.

Gasgoo: An interesting phenomenon: Visteon’s main investment in China was through a joint venture with Shanghai Auto Industry Group—Visteon YanFeng, which invested to build factories in Beijing, Chongqing, Wuhan, Guangzhou, and Yancheng city in Jiangsu province. And Visteon does not have wholly-owned enterprises in China. Actually there are no investment restrictions in the auto parts industry, so that many MNC’s came to China to build wholly-owned companies. Some formerly incorporated joint ventures were transformed into wholly-owned ones. What’s your concern about this issue?

Yang: It is a fact. We came to China earlier. Shanghai YanFeng was incorporated in 1994 and developed rapidly. Now it is one of the leading Chinese auto parts suppliers providing a wide range of products from interior and exterior products to electronics. Our customer base expanded with the development of our business. Many Chinese automakers are our customers. Some products such as interior and exterior products are not suitable for long-distance transportation so we have to build factories close to our customers resulting in a lot of subsidiaries.It is a strategy for us to set up joint ventures in China. In that case, both of the two parties can complement each other. Chinese partners have a good command of local culture and consumer demand and taste while Visteon has the advantage of technologies, capital and experience in globalization. The good combination of the two aspects above is the demonstration of the effect of 1+1>2. There is an English saying: “if it’s not broken, don’t fix it”. Since we have good cooperation, we will keep doing it this way for further development.

Gasgoo: Visteon is active in export. Most MNC’s are not willing to export because it would affect their other markets. How did you balance this issue?

Yang: Different companies have different strategies. We consider this issue from the global perspective. Nowadays automotive has become a common commodity rather than a high-tech one and many technological products have become commodities that you can buy conveniently in the market. Then which market is the best? The Asia-Pacific region. China is now the production center of the world for low cost. Not only China but also other Asian countries such as India and Southeast Asia can effectively control the cost, which includes labor cost. So the general trend in the auto industry is to “Go east”. In the first phase, the production bases were transplanted and then the technology centers. In the future, the high-tech research and development centers will be moved to these areas as well. In this way, Visteon is reducing production, engineering and R&D costs. Who will eventually be the beneficiary? The automakers and consumers. Based on these considerations, one of our important strategies is to export mature products from the Asia-Pacific region.

Gasgoo: The advantage of exporting from China is obvious. In the global auto parts industry, the competition is becoming more and more intensive due to the declining number of auto manufacturers. In addition, the OEM’s are exerting pressure on suppliers. The combination of the two factors mentioned above leads to a new round of price positioning. Will China change the supply system of the global auto industry with its own competitive factor cost advantage?

Yang: So far, China still has a labor cost advantage. But I do not think it is the absolute advantage and low labor and material cost advantages will disappear soon. The labor cost of some neighboring countries and the administrative cost of some eastern European countries are lower than ours. We do not have such an absolute advantage in the long-term view. Neither do we in the raw material cost. The situation of developing and utilizing raw materials without taking into account environment protection won’t last long. China will not become a production giant with these two advantages. Now the government is paying more attention to this and emphasizing sustainable development, environmental protection, high value-added products, and brand development as well as IPR. Not only the auto industry and Visteon but also all the other industries and companies should pay attention to it.The Visteon China R&D Center undertakes not only local development programs but also some global programs. Once we have the ability to develop new products locally, we will be able to serve Visteon around the world. In that case, we could have many advantages including low cost of raw materials and labor, low development cost and low production cost due to high production concentration and mass production. We could also improve the technical production in the factories and reduce production cost. Thus we could create long-term advantages.  

Gasgoo: Many of the MNC’s R&D centers only take on some simple engineering programs in China without the basic research and development programs. Did Visteon set up its basic research and development projects as a strategy in China?

Yang: Many high technology programs are being carried out in China including some new concept programs. Europe and the US still have traditional advantages in automotive structure, plastic parts, and structural parts. But as the proportion of auto electronics - especially consumer electronics - increases, some emerging countries, especially very energetic countries like China and India, have gradually shown their advantages. Take cell phones, for example. European and American consumers may not change cell phones for three years while Chinese youths may change it within three months. Moreover, new products with newer features are more accepted by the oriental countries. So the Asia-Pacific region may lead European and the US mature markets in electronic research and development. Based on that, we have to move such R&D centers to the market frontier - China and India.

Gasgoo: Presently, Visteon only provides aftermarket products. Will you be setting up your sales network in due time?

Yang: The aftermarket can be divided into two kinds. One is OES, which provides services to OEM’s. In China, it provides spare parts to OEM franchises. The other one is the independent aftermarket. We are active in global aftermarket by providing products to OEM’s and exporting our products to mature OES markets. For the independent aftermarket, we established our own brand and sales network. Nowadays, we are making plans and strategies and seeking good opportunities to get into the Asian independent aftermarket in due time.Currently, the Chinese independent aftermarket is relatively backwards with immature channels and poor quality control systems in services. The OEM’s are our main customers. They want to set up a standard model for the aftermarket that will be followed by auto parts suppliers. So far, we mainly support their OES according to customer demand. However, the Chinese independent aftermarket will develop greatly in the future with the development of the Chinese auto industry and the completion of laws and regulations. At that time, we will surely consider getting involved in this market.

Gasgoo: Thank you for your wonderful answers.

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