Delang fighting for domestic market share after overseas growth

Gasgoo.com: Could you give us a brief introduction to your company's development history?

Qianqiu Fang: Back in the early days of thermal product market in Shanghai, there was only one supplier -- Shanghai Behr Thermal Systems Co., Ltd., a supplier for Shanghai Volkswagen, Shanghai GM and other big automakers. But Shanghai Behr is focused on the high-end market, leaving other companies a great opportunity to explore other segments of the market. Shanghai Delang was then established to cater for mid- and low-end market. And as several technicians (including myself) of our company had worked at Shanghai Behr before, the technology accumulation and operation lessons gained from Shanghai Behr help a lot in our company's development.

Gasgoo.com: We know that Delang has remarkably explored overseas markets, especially the aftermarket. Following the rapid sales growth of your products in Europe, South America and the Middle East, you have now made your foray into North America. How do you address your disadvantages in exploring these overseas markets?

Qianqiu Fang: It depends on the markets. In the Middle East market, a lower price has been enough for us to land an order. In the South America market, we are often asked to develop new products to meet their needs. In the European market, customers have stringent requirements on technology, product performance, and quality, while the price is only the last consideration. They treat a radiator or any other auto parts as a piece of art. However, we have cooperated indeed with European companies like Valeo, Ava Holland and others. And in research and development (R&D) cooperation, we also give our advice, which they think very useful. This is our advantage over some small Chinese companies that only have the price advantage.

Gasgoo.com: What percent of your whole business does the domestic OEM business account for?

Qianqiu Fang: We have 60% of our products for export, 20% for the domestic auto-makers and Tier-1 suppliers, and 20% for the domestic automotive aftermarket. Because we have some engineers from Shanghai Behr, our product quality is better trusted by the customers such as Delphi who have higher requirements. At first we got the opportunity to supply a small number of products to them, then the quantity became larger and larger, and at last we established a stable supplying relationship with them. And gaining a customer like Delphi helps us to get recognition from more customers. Further more, not to compete with Shanghai Behr, we target on the market sectors where Shanghai Behr has not entered, thus winning many orders.

Gasgoo.com: Have you started co-developing any products with your customers?

Qianqiu Fang: Yes, but not too much. We get this opportunity often when the order is small but of high technical requirements. For example, we have gotten the opportunity to supply radiators for Shanghai VW's courtesy cars that will be used for the 2008 Beijing Olympic Games, because some larger suppliers don't accept such a small order, and other companies can not meet the high requirements. And do you know the British brand Land Rover?

Gasgoo.com: Yes. Ford has recently sold it and Jaguar to India's Tata Motors.

Qianqiu Fang: The radiators used in Land Rover vehicles before were made of copper, but later the copper price rose and the copper radiators must be replaced by aluminum ones, all of which have been made by Delang. At first the change from copper to aluminum in the making of radiators is technically difficult due to the different properties of the two metal materials. For example, copper can be soldered onto the exterior of the radiator easily, but aluminum can not. After seeking technical innovation and alternative methods, Delang managed to produce and deliver the products that met the requirements of Land Rover. And then all the radiators needed by Land Rover for its after-sales service have been made by Delang. However, this is not a big deal -- each shipment of Delang's radiators for Land Rover is just between 600 units and 1,800 units, but these products are the embodiment of the company's self-developed technologies and professional commitment.

Lean Principle - the weapon to fight against cost pressure

Gasgoo.com: This year the auto parts manufacturers encounter even more serious cost pressure, and have to reduce the product price when supplying to the OEMs. How do you smooth over the double pressure?

Qianqiu Fang: The double pressure has indeed been squeezing our profit. To increase profit and reduce cost, I think we have to improve our internal management, have a larger capacity to get the benefits of mass production, implement the Toyota Production System (TPS) or lean principles, and so on. We have learned the lean production method for more than two years.

Gasgoo.com: How to balance your capacity expansion with the market demand？

Qianqiu Fang: Our manufacturing is usually based on the quantity of the orders. But this may have a side effect that we can not deliver in time. So now we are manufacturing our most commonly ordered products, about 30 categories, before the orders come, but don't pack them. When an order comes, we can spend less time on manufacturing, and then the lead-time can be shortened.

Gasgoo.com: How many of the products in the 30 categories are made in advance?

Qianqiu Fang: The number is often adjusted based on our statistics of more than two years, and it's continuously varying with the market demand. Actually, each month we are producing a little bit less than the number predicted. For example, if it is predicted that each month we have 1,000 units ordered, then we may only produce 800 units.

Gasgoo.com: It's reported that your third-phase project is expected to be completed this June. What will be that facility's capacity utilization rate？

Qianqiu Fang: The third-phase facility was originally designed for the production of evaporators. But a new facility can not have high capacity utilization rate in a short time. So we decide to first manufacture evaporators in the present factories, and make better use of the present resources.

Gasgoo.com: What is the capacity utilization rate of your existing factories?

Qianqiu Fang: About 55%.

Gasgoo.com: How much do you spend on product R&D?

Qianqiu Fang: About 3 million Yuan this year. But that expense has not included the cost of new equipment and the cost of mould opening yet.

Fighting for domestic market after overseas success

Gasgoo.com: In the next three to five years, will export still be your main business?

Qianqiu Fang: We plan to boost our business in both overseas and domestic markets, especially the latter. The Chinese market is becoming increasingly important for us, because of the competition from even lower cost countries like India, Vietnam and the Middle East countries, the competition from the East European suppliers, the challenge brought by the RMB appreciation against the U.S. dollar, and the price competition among Chinese suppliers. And our development in the domestic market is of great potential. Now we only get some small but demanding orders, but we are trying to get some big orders from the large auto-makers in China.

Gasgoo.com: Do you have any plan for mergers and acquisitions (M&A)?

Qianqiu Fang: A European company once wanted to buy Delang, but we did not reach any agreement. Now Delang still doesn't have the ability to buy overseas companies, but we will consider overseas partnership and IPO in the right time.

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