WABCO: Getting rewarded from localization strategy and technology regulations

Leon Liu:

President of WABCO Asia Pacific

The Twelfth Edition of a Series of Interviews with MNC Auto Parts Suppliers  

Liu: It's my pleasure.

Gasgoo: Firstly, can you give us a brief introduction on WABCO and its products?

Liu: WABCO is one of the world's leading producers in electronic braking, stability, suspension and transmission control systems for commercial vehicles. WABCO's products, especially the Electronically Controlled Air Suspension (ECAS), are also increasingly popular in luxury cars and SUVs.

Gasgoo: WABCO's 2006 annual report shows that 70% of its business comes from the European market. Given WABCO's headquarters in the U.S.A. , can you explain the reason behind the more encouraging performance in Europe ?

Liu: WABCO is a vehicle control system business of American Standard Companies, with its headquarters located in New Jersey, U.S.A. WABCO's headquarters is actually located in Brussels, Belgium. American Standard Companies has different headquarters for its different businesses.  

Localization strategy and fast growth in China

Gasgoo: WABCO's main customers are commercial vehicle manufacturers. The sales of commercial vehicles in the Asia Pacific region have exceeded that in Europe and America . But for WABCO, sales in Europe is better than in Asia , can you explain this?

Liu: WABCO is a leading supplier in brakes and stability control systems. Although the European market contributes to most of our business today, our main customers are commercial truck, bus and trailer manufacturers from all over the world. The reason for Asia Pacific's lower sales volume is due to its relaxed safety regulation. It's no doubt that China has a large quantity of commercial vehicles, but in WABCO, we evaluate the market potential by how many products and services we can provide for a vehicle, and not just by the quantity of vehicles. China provides an excellent opportunity for us to provide more products and services on vehicle. In line with this, WABCO has relocated its Asia Pacific headquarter s from Hong Kong to Shanghai in 2005. We have invested $1.6 million in China over the last two years to expand the production capacity. With this relocation, we are able to respond faster to China's dynamic market needs. Localisation is WABCO's strategy to keep up with the rapidly changing Chinese market. Over the last two years, we have localised our operation, production and purchasing team. We plan to localise the product design team in the near future. In my opinion, localisation is a very important strategy for us.

Gasgoo: It seems like WABCO is actively strategizing its position in the Asia Pacific market, especially in China . Moving on to vehicle safety, the safety technology application in commercial vehicle is playing a significant role in WABCO's growth. Can you share with us WABCO's plans to expand on this area?

Liu: In May 2005, the Chinese government enacted a safety regulation to make the fitting of ABS (Anti-lock Braking System) mandatory in commercial vehicles. This is a very encouraging step to align China more closely with the international commercial vehicle brake and safety systems standard. As a leading ABS supplier, WABCO pioneered the ABS for commercial vehicles in 1981 together with Mercedes Benz. To date, we have sold more than 5 million ABS, that's about two thirds of the world's ABS and EBS sales. WABCO has an excellent reputation in the global ABS market. The regulation will help improve the quality of the vehicle from a vehicle safety perspective. Apart from the ABS technology, WABCO has numerous other new technologies and products which will be commercialised in the near future.

Gasgoo: To what extent has the regulation help WABCO's business?

Liu: The regulation has helped to boost our sales in the bus market. The ABS fitted on buses today are mostly WABCO's product. As for the truck market, we see a lot of potential to increase sales. Two years after the regulation was enacted, there are still many trucks not fitted with ABS. However, a large percentage of ABS fitted trucks have chosen WABCO's ABS technology. This is very encouraging, as there is still a large pool of untapped opportunity in the truck ABS market.

Gasgoo: So in your opinion, there is still a lot of potential for WABCO in the Chinese market?

Liu: Yes. A lot of effort has been put in to develop our business in this market. One of the reasons why ABS is not widely used in trucks is due to the lack of ABS knowledge among consumers. To address this, we aim to create and promote ABS safety awareness. Firstly, we aim to demonstrate the advantages of ABS in auto shows. Secondly, we will share our technological experience and expertise with the government to help them understand the importance of ABS. This will subsequently assist in enforcing the ABS regulation. Thirdly, we will ensure product quality and price competitiveness. To lower the cost, we have localised the ABS production in Qingdao last year. Apart from meeting the needs of the Chinese market, the products are also being exported to Japan, Korea and North America. Through localization, WABCO has become very competitive in the ABS market.

Gasgoo: Given WABCO's technological expertise and localization strategy, coupled with the government's move to implement safety regulations, it's not hard to see why WABCO can expect a better performance in the future. How does WABCO intend to increase market share in China?

Liu: WABCO has been growing rapidly in China in the recent years. The WABCO sales in the last five years grew by about 8% globally and 12% in Asia Pacific. WABCO China has grown by more than 50% in the last two years. I believe that WABCO China will keep growing at a double digit rate.  

Opportunities in the Chinese, Indian and Russian market

Gasgoo: I understand that both the Indian and Chinese markets are important to WABCO when exploring opportunities in the Asia-Pacific region. But the Chinese market seems to have taken precedence. People tend to compare China and India when talking about BRIC. What do you think of the two markets?

Liu: Clearly both markets are very important to WABCO. Apart from our success in China , we are also doing well in India , where joint ventures are very strong. So both emerging markets are good for WABCO's business.

Gasgoo: What are the similarities and differences between the two markets?

Liu: I think both markets are emerging markets. They do share some similarities. For example, they demand quick response to the markets and they are very sensitive on safety equipment prices. In both countries, the price competition is very strong. To cater for their needs, we have localized our production, purchasing and management team to keep up with the development in these markets. We have also set up two factories in China and two factories in India.

Gasgoo: Are there any differences between the two countries' commercial vehicle markets from a supplier's perspective?

Liu: In my opinion, their development rate and market capacity is different. China has a faster development rate and larger market capacity compared to India . But both are developing at a very fast rate and have a strong desire to export to the international market. Both create many opportunities for us, but at the same time, both may also pose some challenges to our European counterparts. But in general, we see more opportunities than challenges. We have been developing very well and have strong localization capability in both countries. No matter how the markets develop, we will always try to meet our customers' requirements.

Gasgoo: Both Russia and India are China 's neighboring countries. It has been reported that FAW will set up factories producing Jiefang Trucks in Russia . Why not in India ? Since India is also China's neighboring country. Can you give us a comparison between the Russian and Indian markets?

Liu: I believe that factory locations are purely our customer's decision, I'm afraid I cannot comment on that.

Gasgoo: Do you see any difference between the two markets?

Liu: The Russian commercial vehicle market has been developing rapidly in the past few years. Comparing the three countries, Russia, India and China, I believe that China has the largest infrastructure investment in the last 10 to 20 years. These investments can help to improve the performance and quality of commercial vehicles. In addition, it can help to develop new technologies in the automobile industry. Presently China is the largest commercial vehicle producer in the world. I believe that it's only a matter of time before Russia and India catches up and level the playing field. One point to note is that these three countries have different approaches and schedules when it comes to implementing vehicle safety and environmental protection regulations. But generally, their development will be favorable to WABCO.

Gasgoo: In recent years, there has been varying trends in China's commercial vehicle development, for example, passenger vehicle development surpassing that of commercial vehicles, and a slow down in heavy truck development. From a supplier's point of view, what do you think of these trends in China?

Liu: The Chinese commercial vehicle market has always been the largest in the world, while its passenger vehicle market is still developing and has the potential to become the largest in the future. Although the development rate of its commercial vehicle market may vary year by year, we believe it will continue to grow as a whole. This is because China will continue to invest more on infrastructure in the next five to ten years. As mentioned before, WABCO evaluates its market opportunities by how many technologies, products and services can WABCO provide for a vehicle, and not on the quantitative growth of commercial vehicles. As the Chinese commercial vehicles continue to develop, placing more importance on environmental protection, comfort, safety and reliability, they will use more advanced technologies and products from WABCO. We are very optimistic about the market.  

The Chinese aftermarket and China sourcing

Gasgoo: The aftermarket sales accounts for about 20% of WABCO Group's business. What is WABCO's performance in the Chinese aftermarket?

Liu: In the Chinese aftermarket, WABCO has performed well in recent years and I believe will continue to do so. However the rapidly growing Chinese aftermarket is also very complex. It has many different market levels, so we will have to survey the market and decide how WABCO can create and add value to these different levels. Overall, I believe that WABCO will perform well in the next few years.

Gasgoo: In China, how much does the aftermarket account for in your business?

Liu: It is still on a very small scale, and has not reached our global average yet. But I believe that it has the potential to reach our global average, and perhaps even surpass it.

Gasgoo: You mentioned about localization of purchasing and design. Can you elaborate on this?

Liu: To localize purchasing, we set up a capable and effective purchasing team in Shanghai two years ago. WABCO is well known worldwide and has an excellent reputation when it comes to reliability and quality. We will not sacrifice quality for anything. It's quite a challenge to find suitable suppliers in China. We have special teams dedicated to evaluate the suppliers and to identify their product strengths and weaknesses. After strict evaluation, we will provide potential suppliers with the necessary training. After two years, upon demonstrating that they have consistently met our global quality standards, qualified suppliers will become fully certified WABCO suppliers.

Gasgoo: Dr. Liu, thank you very much for your time.

Liu: Thank you.

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