GKN remains confident about China investment

Mr. Stefan Magirius was named as president of GKN China last July before the financial crisis yet came to China. Since late last year, the local automotive market in China was inevitably affected by the global recession. Mr. Magirius, with more than 20 years of marketing operation and products innovation experience in GKN, has to manage GKN's China business across all the division, which doesn't exist in other markets or region within the Group. What will he do to react to the market uncertainty and what's his understanding of the world's fastest growing market? We took an interview with him.

Gasgoo.com: Could you please give a brief introduction of GKN's comparative advantages here, especially business development with local automakers?

Stefan Magirius: Last year we celebrated the 20th anniversary of our first automotive joint venture in China. With two decades of experience, I think our competitive advantages include a  very good understanding of the Chinese market, ways of working across cultural differences, strong local management, a proven record of technology transfer and last but not least a strong partner. We've succeeded to supply our products not only to the foreign invested OEM's but increasingly to the domestic players. These are all key factors for our leading market position - we are the largest driveshaft supplier in China with more than 40 percent market share.

Gasgoo.com: Late last year, GKN has renewed the JV partnership with SAIC-to keep the joint investment in Shanghai GKN Drive Shaft (SDS) to 2058. How could GKN be so sure about it? Could the close relationship with SAIC be a roadblock for cooperation with other OEMs?

Stefan Magirius: The JV between GKN and SAIC is one of the most successful partnerships in the history of China's automotive industry. Why change a winning team? We have other operations in China, some are wholly owned like our GKN Torque Technology business in Shanghai, some are joint ventures with other partners, it is a case by case decision. The partnership with SAIC doesn't affect our ability to win business from other OEMs at all, the majority of our driveshaft business in China is with non-SAIC companies.

Gasgoo.com: Would you possibly develop some products, for example some tailor-made low-end products for the domestic OEMs as they're more price-sensitive?

Stefan Magirius: I don't see much difference in terms of price between domestic OEMs and foreign invested automakers, as most of them are competing for the same market. The price level is primarily driven by the market segment. Take the rapidly growing segment below 1.6 l where the demand is fueled by recently announced tax cuts, many domestic and foreign brands are competing for the same customers.

(You're ready to offer small vehicle solutions and products?) Yes, GKN has been developing products for small vehicles for quite some time. We have customers in other regions, for example in Europe or India, with similar needs, so we can benefit from the know-how gained elsewhere and apply it to the Chinese market.

Gasgoo.com: GKN has three R&D centers around the world-in Germany, the US and Japan respectively. Is it possible for you to set up one in China in the near future as more and more global OEMs and tier1 suppliers are doing so?

Stefan Magirius: I would argue that we do have significant engineering strength here. Our technical centre in Shanghai is focusing on product development and application engineering, basic research and product development is done at the three global R&D centers. It has all the design and test competencies required to develop and validate driveline products for the Chinese market. We have all the key technologies in China, and there is more to come; we will continue to invest in our engineering capabilities in China.

Gasgoo.com: The past years of global operation shows that GKN has pursued an aggressive growth strategy in order to increase its international presence and broaden technological capabilities. But in China, it seemed to be a different story. Why so cautious?

Stefan Magirius: I don't think it's a cautious approach. We have an impressive history of continuous investment in our Chinese operations. Last year, we have made further investment in our Chongqing plant; we broke ground for our new plant in Wuhan which is going to start assembling shafts in the middle of this year and production commenced in our new forging plant in Shanghai. We have made significant investments in our new torque technology plant also in Shanghai, and in our sinter metals business in Danyang in Jiangsu province.

The three pillars for our automotive business in China are driveshafts, torque technology and sinter metals. We aim for further growth for the driveshaft business while retaining our market leadership position. The plan for our torque and sinter metal businesses is even more aggressive; they do not have a 20 year presence in China like the driveshaft business and have more opportunity to grow.

Gasgoo.com: Do you have a clear target for future growth and expansion?

Stefan Magirius: Yes, we do. In 2007, GKN generated around 2.5 billion RMB in revenues in China with about 3500 people, and our original plan was to double that by 2010. Of course, we had to review our growth plan in light of the current market uncertainties; some of our customers have delayed programs or reduced volumes. We may see a one year delay in our investment plans as a result of the global crisis. But at the end of the day, China will still remain the fastest growing market in the world and we are committed to invest when the market recovers. With the other major automotive markets in turmoil, China could be one of the very few regions with growth in 2009, and therefore will make an even bigger contribution to the performance of GKN globally.

Gasgoo.com: How do you see the market for the full year?

Stefan Magirius: Well, there is a lot of debate on that. We have collected opinions from several institutions and customers, some expect auto sales in 2009 to be flat, some see growth between 5 and 8% year on year. The tax incentives announced recently will certainly have a positive effect on small car sales. It also depends on how and when the 4 trillion RMB government package will stimulate the economy. In my view the 8% GDP growth target will be difficult to achieve but I hope that the auto market will recover and see a 5 % growth in 2009. The automakers will immediately benefit from a recovery of the domestic market but I don't expect their export business to come back this year with most of the world's economies in recession.

Gasgoo.com: How are these newly-expanded businesses you mentioned running?

Stefan Magirius: The investments were made based on the business plans before the crisis. And what we do now is to align our capacities with the slowing demand. But our torque technology plant launched its first product last year on time and the start of driveshaft production at our new Wuhan plant has only been slightly delayed to the middle of this year.

The China market is not as seriously hit by the global crisis as the North American and European markets where we were forced to close plants and lay off people. In China, we had to adjust our output to the slowing market demand by flexing temporary workforce, but we do not plan any drastic restructuring. We have recently streamlined our organization in the Asia Pacific region, but that had very little impact on our operations in China.

Gasgoo.com: You came to manage GKN's Chinese business since July 2008. So I'm quite curious of your supply chain management.

Stefan Magirius: The supply chain management was in place a long time before I came to China. It is operation driven and each business manages its own supply chain, the center provides supplier development support. GKN has approximately 150 domestic suppliers across all divisions, too few of our suppliers have achieved A level status, therefore, supplier development is a key priority for us.

Gasgoo.com: Amid the consolidation of the overall auto industry, do you see any opportunities to make some mergers and acquisitions here?

Stefan Magirius: We have been monitoring the market for some time, and there are certain opportunities. One could argue that in a difficult market environment there will be even more opportunities for strong companies like GKN. But our focus at the moment is clearly on managing the global crisis and adjusting our business to the volatility of the market.

Gasgoo.com: Ford is planning to move its Asia Pacific Headquarter from Thailand to China. And could it possible that GKN's taking similar move?

Stefan Magirius: GKN Driveline's Asia Pacific Headquarter is based in Singapore. We have operations in many Asian countries, and Singapore is a good base to coordinate our activities in the region. Of course China is growing in importance and this is recognized within the GKN Group. My position as President of GKN China with responsibilities across all divisions is unique in GKN, it does not exist in any other country or region. This illustrates how important China is to the Group.

Gasgoo.com: During the time of supplier base reshuffle, do you have some points to watch out, like the moves by your competitor Wanxiang?

Stefan Magirius: Our competitors will also be hit by the global crisis and the domestic market downturn. We have to wait and see how they will cope with this challenging business environment. All I can say is that we will focus on our strengths, GKN has survived all the challenges in the past 250 years and I am convinced we will come back even stronger when the market recovers.

Gasgoo.com: How do you feel of your working experience during the past few months?

Stefan Magirius: I visited China regularly since the early 1990s and I have gained a good understanding of the market in all these years. But living in China is obviously different and I think it is a great privilege to be able to explore the growth opportunities and be witness to the rapid changes in this exciting country. I would not want to be anywhere else in the world right now.