What the Chinese parts industry needs most

Please take - at least virtually - a few minutes off from your challenging job in the automotive parts business. Picture yourself as the owner of a big airline. You have large planes flying domestic and international routes. But your flight schedules, and your rates are only available in printed form, maybe on a CD. No travel agent can access your flight plans on his computer. Your flights don't exist on any on-line booking and reservation system. You have 10 daily flights between Beijing and Huhehaote, but if someone keys "PEK" and "HET" into his computer, your flights don't come up.

This dream would be a nightmare. Your planes would be empty. Your airline would not last long.

In a way, the Chinese parts industry resembles that unimaginable airline. The Chinese parts industry is big, both domestically and internationally. However, its products are not accessible on-line in an organized manner.

"One of the toughest aspects of my job is the lack of a comprehensive parts database in China" said the head of the Chinese purchasing office of a large American auto parts chain. I told him not to complain, because if there would be one of those systems, neither his nor my job would be necessary, and parts made in China could be purchased with ease from anywhere in the world. Somehow, that remark didn't make my friend happier.

In most parts of the world, neither the best organized workshop nor the most efficient parts dealer could survive without a continuously updated electronic parts catalogue and information system. A manufacturer who is not part of that system would be doomed.

These electronic parts catalogue and information systems are the bridge and the glue that hold manufacturers, OEM buyers, wholesalers, and garages together, and allow them to function in a smooth fashion. Shelves full of printed catalogues have long been replaced by on-line databases.

The best known and widest used system in Europe is the TecDoc/TecCat system from DVSE. DVSE has been supplying custom-tailored information systems to the European parts trade for 15 years. The DVSE range has now grown to over 135 different systems, used throughout Europe by the parts trade and available in 23 different languages. All catalogues are based on the TecDoc standard, which DVSE supplements with additional information, products and services.

TecCat is a standardized catalogue solution indispensable for running a successful workshop, parts dealership or wholesaler. Like an electronic booking system, it is not limited to one manufacturer or wholesaler. It shows them all. It currently covers almost 20,000 car models, more than 6,000 truck models, lists over 2.5 million products from nearly 300 TecDoc suppliers.

Many Chinese parts manufacturers already use TecCat as a reference tool to look up specifications and to cross-reference parts from one manufacturers to the next. They are frustrated if they come across the occasional part that is not (yet) on TecCat. Now imagine the frustration of foreign buyers who cannot find any Chinese part at all in these systems. And imagine the elation of your European and American competitors that Chinese parts have not yet invaded "their" system. For all intents and purposes, parts that are not on these systems don't exist, they cannot be looked up and ordered. Every night, your European and American competitors pray that China's parts manufacturers will continue to refuse to implement such a system. How long are you willing to grant your European and American competitors their dearest wish? How long will you give them the strategic advantage?

According to DVSE, "the prerequisite for successfully finding a product in a parts catalogue is compliance with certain standards on the part of the catalogue and the information systems. Potential sales are limited to products from parts manufacturers listed in the parts catalogue at the point of sale."

Going back to the airline comparison, the Chinese parts industry is at a stage where one would have to make several visits to the headquarters of the airline to book a flight.

If the Chinese parts industry wants to grow beyond being the low cost workshop for troubled OEMs and equally troubled large international parts suppliers, if China wants to capture higher margins by selling directly to parts wholesalers all over the world, then it needs to take several steps to enhance its visibility and ease of access in the global market place. One of these steps is to create - or become part of - a standardized on-line catalogue and information system. There will be a few other steps, we'll visit those in the upcoming columns.

In the airline industry, a common reservation system is a strategic tool for survival and success. In the European and U.S. parts industry, a standardized, common on-line catalogue and information system is equally indispensable. It helped to break the monopoly of car manufacturers who locked their franchised dealers into proprietary solutions, and who tried to locked independent wholesalers and workshops out of an extremely profitable business. If China wants to capture more margin and play an active, successful and profitable role in that business, it must have that strategic tool.

This is not a task for a single manufacturer. This is a task for an alliance of manufacturers. If competing airlines all over the world can form alliances like Star Alliance, SkyTeam, and Oneworld (which together hold a market share of over 70%), then Chinese parts manufacturers should be capable to form an alliance which allows them to break into markets currently closed to them, while at the same time keeping competitive.

Next time: Other steps to enhance visibility and ease of access in the global market.

About the author: Bertel Schmitt, Gasgoo's columnist, is CEO of Hong Kong based parts sourcing company Sinamotive. Before founding Sinamotive, with the assistance of U.S. venture capital, Mr. Schmitt was a marketing consultant to Volkswagen AG.