Beiqi Foton Mexico builds China's largest commercial vehicle company worldwide

Beiqi Futian test "to sea"

From the vehicle export to gradually setting up factories in the local area, Futian tries to get out of the “opportunist” cycle of Chinese auto exports.

"I'm in Mexico. It's late at night." From the voice on the other end of the phone, it seemed as if she could imagine Shen Yang's sleepy face. As the business director of Beiqi Foton Motor Co., Ltd. (hereinafter referred to as Beiqi Foton) responsible for overseas strategy, Shenyang Yang participated in the Mexican project, which is an important test point for Beiqi Foton's new "sea" strategy.

When the major shareholder BAIC Group severely deployed Saab acquisition, Beiqi Foton is quietly starting its own overseas strategy. Shen Yang said that different from the current trend is that "(they) want to bring someone else's brand, we must put our products to go."

According to the plan, starting from 2010, Beiqi Foton will expand the number of KD (knock down) partners overseas, and will shift its business model from the original vehicle export to local production. The first step was to increase the number of KD partners from the original 4 to 15 in 2010, and the sales contribution of the KD model increased to over 30%. The second step is to establish wholly-owned or joint venture factories overseas with after-sales service systems in the next two years.

Mexico is one of the pilot sites for wholly-owned factories. Beiqi Futian also plans to establish wholly-owned factories in India, Brazil, Thailand, and Russia. "We hope to change the mode of extensive export of Chinese car companies in the past and put the Mexican project into a highly focused market for after-sales services," said Dong Haiyang, deputy general manager of Beiqi Foton, in an interview with this reporter.

In the past few years, the overseas vehicle exports of Chinese enterprises have been caught in the “opportunist” cycle. Wherever they make money, there is no unified plan and long-term plan. As a result, many companies continue to occupy new markets and continue to lose markets. Beiqi Foton has similar experience. Now, from the early stage of vehicle export, to finding KD partners, to establishing a wholly-owned company in the local area, the largest commercial vehicle company in China is exploring a new “sea” approach. "This is a future development trend." Dong Ocean said.

"Engine" Wang Jinyu

The active promoter of Beihai Futian's "sea" strategy is Wang Jinyu, the 48-year-old founder of the company. Internally, there is not no objection to the "going to sea" operation. However, Wang Jinyu regards overseas operations as an important part of the future development of Beiqi Foton. This is both his instinct as an entrepreneur and the choice between the large shareholder Beiqi Group for many years.

People familiar with Wang Jinyu called him a true entrepreneur. Over the past ten years, he has developed Beiqi Foton from a Shandong agricultural vehicle company into the largest commercial vehicle company in China, and has voluntarily returned to Beijing Automobile Group. At present, BAIC Group owns 37.71% shares of Beiqi Foton and is the largest shareholder.

Although the controlling stakes changed hands, Wang Jinyu still firmly controls the company’s operating dominance. One story widely circulated in the industry was that after the board meeting of Beiqi Foton was completed, An Qingheng, the chairman of Beiqi Group and chairman of Beiqi Foton, received a call and learned that the meeting was over.

Although An Qingheng’s successor, Xu Heyi, has strengthened its momentum, BAIC Group and Beiqi Foton are still keeping their distance. An insider from Beiqi Foton revealed that people in Futian rarely said that they were Beiqi Group.

Wang Jinyu's ability to grasp the power of his speech comes from sales. In 2009, BAIC Group completed sales of 1.21 million vehicles, 50% of which were contributed by Beiqi Futian. To maintain a delicate balance of power, Wang Jinyu needs to continue to open up space for growth. As early as 1999, he proposed the "new three-step" strategy. He hopes to integrate into the world auto industry system by 2006 and form a strategic partnership with famous foreign auto parts and components companies. Since then, Beiqi Foton has not only established a joint venture engine company with Cummins, but also plans to invest 6.35 billion yuan to establish a joint venture with German Daimler Group to jointly develop the international market.

In explaining why Beiqi Futian “goes out”, Dong Haiyang stated that the first is that the domestic market is saturated and growth is limited; second, there is actual demand in foreign markets. Unlike passenger cars, commercial vehicles are driven by investment and are closely related to the economic cycle. According to Beiqi Foton, developing countries with a per capita GDP of less than 10,000 U.S. dollars are facing an increase in infrastructure investment.

In accordance with the internationalization strategy, Beiqi Foton has also formulated a corresponding talent attraction plan. Including Beihai Futian Deputy General Manager Dong Haiyang and Beiqi Futian Research Institute Dean Xuebin, a group of talents have joined. At present, Beiqi Futian recruits more than 70 talents with “overseas experts” status, 40 of whom have at least ten years of overseas working experience. These people have become the backbone of Beiqi Foton's efforts to open up overseas markets. All these people's recruitments were personally interviewed by Wang Jinyu.

Russian lessons

Since the second half of last year, Beiqi Foton has been targeting the top 20 countries and regions with the highest sales volume of commercial vehicles. It has established 20 project teams and is composed of 20 director-level backbones to study local market opportunities, cost structures, and the government. Relations, legal environment, and choosing the best investment direction from it.

For Beiqi Foton, building an assembly plant in the area will be a trend for the future. “In ten years, the major advantages of Chinese companies including Futian overseas are cost and price advantages. We will export parts and components in the past, and some of the procurement will be completed in China and assembled locally, so that we can use China’s low cost advantage. "Shen Yang said.

The reason for the shift from full-vehicle exports to building factories has a lot to do with the collective collapse of Chinese car companies in Russia. As early as 2005, many Chinese car companies including Great Wall Motors and Yutong Bus have gone abroad. Since China’s commercial vehicle companies have independent intellectual property rights, they are not subject to foreign joint venture partners during the “going out” process. The nature of production vehicles for commercial vehicles also makes consumers in developing countries pay more attention to prices rather than product comfort. Therefore, Chinese products have high attractiveness in developing countries, and developing countries such as Russia, Southeast Asia, and the Middle East have gradually become the target markets for Chinese auto companies.

Following the Great Wall, Yutong and China National Heavy Duty Truck and other enterprises, Beiqi Foton soon joined and experienced a brutal price war.

China's auto exports reached its peak in 2006. According to statistics from the China Association of Automobile Manufacturers, China’s auto exports reached 600,000 vehicles that year. But the problem is quickly exposed. In 2007, the opening of the export market attracted a variety of companies, including many small companies that were unable to qualify at all. The Russian market is the most obvious. “You can see many brands that cannot be seen in China here,” said a person who is responsible for overseas operations of a car company. “The characteristic of Chinese companies is to play a good price war.” As a result, profits were lost, and in the end drop out.

In the first 11 months of 2009, China’s exports to Russia and Ukraine were 0.5 million units, a year-on-year decrease of 93.3% and 91.8%, and both fell out of the top ten export markets. Here is the impact of the 2008 financial crisis and Russia's decision to impose a 30% tariff policy on foreign brands, but it is mainly due to the indignation of Chinese companies. Similar problems exist in Polynesia and South Africa. A person in charge of overseas businesses at Great Wall Motors stated that the situation of Chinese auto companies in the overseas market can be described as "a piecemeal and a piecemeal".

In the South African market, a dozen Chinese brands entered in 2007. In the Polynesian market, after 2006, 13 Chinese companies entered. Today, there are only two or three remaining Chinese auto companies in these two markets, and they are still struggling to maintain.

Taking the South African market as an example, local consumers are now buying products from Chinese car companies and cannot obtain consumer credit. In other regions, consumers have called complaints to local embassies in China. Some consumers even put a slogan on the car: “Don’t buy Chinese goods.”

“The most important problem is in after-sales service.” Ni Quan, China Association of Automobile Manufacturers, briefed the reporter, saying that after-sales service and quality issues are the most prominent issues reflected by local dealers. Ni Quan participated in the investigation organized by the China Automobile Association in 2007 and wrote a report on the Russian market survey.

Zhao Tong, deputy general manager of Yutong Bus Sales Co., has personally felt. A few years ago, with the support of the government, a Chinese bus company sold a batch of vehicles to third-world countries at a cheaper price. Due to the lack of complete after-sales service, a few years later when they went to this market, they discovered that all the passengers climbed in and out of the windows because the doors were broken. The serious after-sales service problems, coupled with the increase in tariffs and non-tariff trade barriers in various countries after the financial crisis, resulted in a 50% drop in China's auto exports in 2009.

Sun Jian, a partner of the consulting firm Kearney, used the "hunter's mindset" to describe the "going out" of Chinese companies. The lack of a systematic strategy and the lack of long-term planning are the basic reasons for Chinese enterprises to “take a shot and change a place”.

The road to the sea

On December 16, 2009, a group of people from Russia, UAE, Indonesia and other countries visited the Forbidden City and other attractions under the organization of Beiqi Foton. They are representatives of Beiqi Foton's overseas distributors.

Beiqi Futian spent a great deal of effort on the dealership, behind which was the strategic approach. At the 2010 BeiJing Futian Overseas Business Annual Meeting held in 2010, General Manager Wang Jinyu made it clear that the key task this year is to develop the CKD (Completely Knocked Down) business model. To implement this business model, it is usually necessary to find partners in destination countries and establish assembly plants. China provides technical guidance and collects technology transfer fees, while local partners provide manpower, factories, and equipment. Compared with vehicle exports, the CKD business receives relatively low tariffs and can closely relate to local partners.

"It is now setting up a KD plant. The future trend is to establish a joint venture or even a sole proprietorship." Dong Hai revealed that it is currently negotiating a joint venture with a partner in Southeast Asia. As the largest commercial vehicle company in China, Beiqi Foton achieved sales of 600,000 units in 2009, an increase of 47% year-on-year; of which, 24,400 vehicles were exported, a year-on-year decrease of 15.3%. In spite of this, Beiqi Foton’s share in overseas target markets increased by 3%.

As of now, Beiqi Foton has four KD partners overseas and is located in Iran, Pakistan, Vietnam, and Indonesia. In 2009, Beiqi Foton invested US$2 million and set up a wholly-owned subsidiary in Russia, and prepared to establish a sales network and after-sales service system.

Dong Hai explained that the reason for this year's overseas business model is to shift from vehicle exports to KD factories, and many countries attach importance to the development of local physical industries after the financial crisis. “The KD approach can not only avoid high taxes, but also strengthen our relationship with local partners.” Dong Haiyang said that the KD tariff is 15% less than the non-KD method. In general, the KD tariff is 5%, non-KD is 20% or even 50%.

Kearney Manager Li Jianteng, a long-term research commercial vehicle company, told the reporter that in recent years, the number of Chinese companies establishing overseas KD factories has increased, and this has become a trend. In addition to Beiqi Foton, China's largest heavy-duty truck company, China National Heavy Duty Truck, and Great Wall Motor, which has been exporting for a long time, has successively established assembly plants overseas. Great Wall Motor has already established CKD factories in six countries including Iran, Vietnam, Indonesia, Egypt, and Russia. Its factories in Venezuela, the Philippines, and Ethiopia will also be completed next year.

Li Jianteng believes that the main reason for the transformation of China's commercial vehicle companies from vehicle exports to the establishment of CKD factories is that some foreign markets have introduced tariff and non-tariff barriers to protect the local auto industry. Take Malaysia in Southeast Asia as an example. In order to protect local industries, a tariff of 60%-100% is usually imposed on the import of whole vehicles. The Russian market also implements a technical assessment of vehicle imports, resulting in longer export costs for Chinese companies and increased costs.

"The establishment of a KD plant is better than a complete vehicle export, and it can cultivate the market, but it cannot completely solve the problem of after-sales service system." Dong Haiyang said that in the current situation, building a company's core competitiveness is a cost advantage in the short term, and in the medium term it is Channel innovation and services, “building and nurturing” differentiated services, the final decisive factor is customer satisfaction.

Beiqi Foton currently has a gold dealership program overseas. Dong Haiyang said that while Beijin Foton is consolidating its cost advantage, it will use brands to make up for the losses caused by rising costs in the next five years.

Li Jianteng believes that the volume of the global commercial vehicle market itself is relatively small, and the scale is not large. Therefore, before the plant is built, it is necessary to conduct in-depth research. In his view, areas where Chinese companies have a competitive advantage, such as the Middle East, Africa, etc., often face greater political risks. In addition, China's commercial vehicle companies lack international operating experience. When they build factories in the region, they need to consider issues such as culture and management. He suggested that it is best to begin with preparations for sales where there is a large amount of sales. At the same time, there must be a regional strategy concept, taking into account the possibility of exporting to other markets after the establishment of a country, as well as logistics support costs and tariffs.

"Our strategy is very clear, but it is also constantly adjusted with the market." Dong Yang said. Beiqi Foton's global strategy is clear: "5+3+1". “5” is the construction of five overseas factories in Brazil, India, Russia, Mexico and Thailand respectively; “3” is the breakthrough in Japan, South Korea, Western Europe and North America, which are the world’s top-end automotive markets through the production of high-end automobiles and engine products; “1 "The new energy is the opportunity to realize the leap-forward development of the passenger vehicle business. In addition, according to insiders, Beiqin Futian had a profit of 1.2 billion yuan in 2009. It is not realistic to rely entirely on its own funds to build overseas plants. Therefore, the company is also considering introducing private equity funds as leverage.

According to the planning of Beiqi Foton, by 2015, Futian's global sales will reach 1.8 million, including 500,000 overseas sales, with a share of 28%. "Internationalization is not a smooth road, but we have confidence to go out." Dong Yang said.
View related topics: Commercial Vehicle Export Analysis

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