NFGC: High quality is the key to success

Interview with Dr. Erek Speckert, Chief Executive Officer of NOK-Freudenberg Group (China)

Gasgoo.com: Most people say that in the next coming 5 years Chinese automotive industry will enter a new era, how do you think of that? If so, what kind of major changes will occur to the automotive component companies?

Dr. Erek Speckert: We will see the automotive industry in China is under a sustainable growth, not as high as the previous years, though. I guess the growth will be around 10%. We will also see stronger Chinese OEMs, not only in domestic China but also expanding organically or through acquisitions to outside China and some of them become global OEMs, . Another tendency is that international companies are setting up new brands in China, which are focusing specifically on Chinese market needs and develop new models for Chinese customers.

For us being a high quality supplier, it is very interesting to observe that the Chinese OEMS are focusing more and more on quality and reliable suppliers in the next years. So the demands on high quality, safety towards components supplier will increase quickly in China. There are two main directions for the strategy of components suppliers: one is higher demand for quality; second is that OEMS have brands and car model specifically developed for China. Also means that we, as a component supplier and technology leader in seals, are helping OEMs to develop the cars specifically for Chinese market with our local development resources.

Gasgoo.com: So far as we know, by now most of automotive companies have changed their idea about Chinese market; they no longer treat China as a “manufacture factory” but a potential leading market in the world. NOK has established the R&D center in US and Japan. So does NFGC have a plan to set up a new R&D center here in China? What is the position of Chinese market, how important it is? Please introduce the overall development strategy of NFGC for China market.

Dr. Erek Speckert: We do not have a centralized R&D facility in China, because we are a decentralized company. Instead we are proud to have two R&D centers, one at our factory in Wuxi and the other in our factory in Changchun. We believe that R&D has to be close to the production and close to the customers. As local development and closeness to the customers is key, NFGC had already decided long time ago to establish 2 R&D Centers in China. So these R&D divisions have got very long history of developing products for our Chinese customers and our international customers in China.

The Chinese market is of course of highest priority for Freudenberg. Not only due to the growth we have in China, but also we are still importing many products from Europe and Japan and the US to China. Due to our high localization grade that we have achieved in China, this mainly happens through our supplies to Tier 1 in the rest of the world, which send their final products to China. So, our European, Japanese and US business is still very much profiting from the growth in China. So that's not only very important for our company interests in China, but also very important for other locations in the world.

Gasgoo.com: Please also introduce the overall development strategy of NFGC for China market.

In order to serve our local customers, it’s very important to further localize our products. It will bring cost savings to the customer, mainly through reduced logistical costs for shipping, but its also important for NFGC to be able serve the customer in a better way, such as optimizing lead times of project development and logistics. We also continuously widen our product portfolio. For example, this year we have just established a “O-Ring” factory in Wuxi with already 250 employees in order to serve our customers locally produced O Rings with highest material and quality standards.

The last but not least, we come back to the former question; we are also further investing in our R&D divisions. We just hired 4 new engineers in Changchun.

Gasgoo.com: Who’s NFGC major competitor, and how do you interpret “competition” in Chinese market? What’s the key element that can support NFGC to keep the market leader? Are there any special ideas for a new product development and standardized production NFGC can share with us?

Dr. Erek Speckert: Being the market leader means that you always have to run faster than the other. I can divide the competition into two categories: one is the international competition, mainly from Europe and US. Today, we are having a higher rate of localization and a much wider product range. As they’re trying to catch up with us, we will make sure that we stay ahead. The second category is the Chinese competition, Here in terms of quality, R&D know-how of products; they are still missing a lot in order to catch up with the market. But they are developing very quickly, so we are watching them very carefully.

In order to remain market leader, we have to strive for the highest grade in localization, further expanding our wide product portfolio, and stay ahead in technology and quality. Being able to develop new applications in our two R&D centers in Wuxi and Changchun specifically for the demand of our customers in China, we will be stay ahead in technology and quality and to serve the customer on the highest possible standard.

We are introducing the new product “Less”, which stands for Low Emission Sealing Solutions. This seals are specially developed in order to reduce the CO2 emissions in the engines on cars. If you look at China environmental policies and the new five-year plan, these products will play a major role in the Chinese market.

Regarding our efforts to localize new product groups in China, I can tell you that we are ramping up a new production line in Changchun for accumulators and NFGC will be the first one who is able to produce this part with highest quality standards in the Chinese market.

Gasgoo.com: As a joint venture 50% to 50% between Germany and Japan, what’s your comment on the cooperation between different companies and different brands? How about the cooperation with the local brands?

Dr. Erek Speckert: The partnership between NOK and Freudenberg is more than 50 years old, since 1960’s. It’s the only partnership between Germany and Japan set up so early and successfully lasts since then. It’s a very long tradition. There is 100% trust between each company; the same is valid with the joint venture of NFGC. We share everything with each other, and we have many good beneficial points. For example, in the past, Freudenberg has shared the engineering know-how with our Japanese colleagues. On the other side our Japanese colleagues have shared their production system with us. There are many, many more points I could mentioned here. So we are able to take the best parts of two worlds and put it together. We also share the philosophy of both companies: high demand of quality and management of people.

Just put one step further at NFGC, you don’t find two cultures; at NFGC you find three cultures, our Chinese culture, Japanese culture and German culture. As we are able to combine all three cultures in one company, we create the best out of them. If you think of our customer structure, with customers from China, Europe and Japan, NFGC is the only company which is able to understand all three cultures is able to serve the customer the best way as possible.

Gasgoo.com: Most of NFGC’s product is made of by raw material of rubber, and the market of rubber is changing rapidly. What is the impact on the final price of the product due to the raw material increase? How to do the cost control?

Dr. Erek Speckert: The raw material situation is getting fierce and for some rubbers strongly linked to the oil price. Oil price is going up and raw material price is going up, especially in last months. First priority for us is to look inside NFGC for internal countermeasures in order to close the gap between raw material price increases. We do so and try to close this gap by optimizing productivity and supply chain, increasing rate of localization, increasing automation percentage like our new production line in Changchun. We are also proactively asking our customers to support us in localizing more products. Also reintegration of processes can be more efficient. You are working with the whole supply chain to bring down the cost. So, we try to work on the cost issue from all possible angles. If the above measurements are not enough to cover the strong price increases, we have to ask the customer to share the cost increase together, but this is done solely only case by case.

Gasgoo.com: How do you understand innovation for the development of the company? Any impacts on daily NFGC issue on technology and management? What’s the key element for the sustainable development of the company?

Dr. Erek Speckert: Innovation for the development of the company for me is the development of the local people, as the success of a company relies purely on the commitment and the quality of your workforce. Business is driven today by our local staffs, not only in the sales office, but also the staffs in the factories. In order to enhance this development we will further strengthen local management and employees. For example for our sales force, we carry out soft skill trainings in our Shanghai office more or less on a daily base. Another important aspect is the knowhow transfer from Germany and Japan to our application engineers and sales people. For example, this week there will be engineers from Germany in China to do technical training for our local staff, as it is very important that we are able to explain our customers the benefits of our products in China.

We also have two different training programs, one is for high potentials, and the second one is for high contributor, people who have been in the company for very long time and doing a very good business day by day. We send people to Europe and Japan for training, not a day or two, but monthly based

People are key to success and the labor market is heating up, so that it is very easy for the employees to find another job somewhere. So development and support of people is very important.