TRAVERSE CITY, Mich. – Companies hoping to capitalize on automotive opportunities in China must be willing to establish a manufacturing presence in that country and integrate into the local business community to succeed, Freudenberg Sealing Technologies President Torsten Maschke told an audience at the 2014 Center for Automotive Research Management Briefing Seminars (CAR MBS) in Traverse City, Mich., earlier this week.
Maschke spoke as part of an international panel of industry leaders that explored investment opportunities and risks associated with developing automotive markets. The discussion centered on opportunities in the world’s largest automotive market, China.
During his presentation, Maschke shared Freudenberg Sealing Technologies’ strategy for China, built on more than two decades of experience producing seals and components in that country. He emphasized the critical importance of maintaining strong company values in new regions and also reviewed the company’s risk/reward investment process for evaluating new opportunities.
"As we expand into new regions, there is universal understanding across our business units that our investment decisions must align with our original ‘Guiding Principles’," Maschke said. "Our globalization strategy is, in fact, founded on these principles and can be succinctly summarized: Freudenberg Sealing Technologies does not enter new regions as a marketing entity.
"The company does not establish regional operations on the basis of low-cost labor opportunities," he continued. "We pursue investments where our company can become a local supplier focused on local customer needs. We strive to become part of a country’s manufacturing fabric."
Freudenberg’s Guiding Principles – its corporate DNA – were written 165 years ago and have established a culture built around innovation, customer value, responsibility, leadership, community and a long-term orientation. These business tenants – along with a thorough risk-opportunity assessment – have become an essential part of the company’s approach to international growth, Maschke said.
Despite the fact that important technological and legislative issues in China remain unresolved, the sheer size of the market offers international auto companies and industry suppliers significant financial opportunities, he added.
But those opportunities will best be realized by companies that are prepared to establish a local industrial presence in China that allows them to meet content requirements for international customers while expanding their relationships with domestic Chinese vehicle makers. Significantly, the auto industry’s growing use of global vehicle platforms makes suppliers with engineering and production expertise in China even more valuable to their operations.
"They will not only need to rely upon collaboration and advanced technologies from their suppliers to make these models successful in their home markets, they will also need to rely upon suppliers who can make these models successful for them in China," Maschke said. "They are going to need, to coin an American expression, boots on the ground in that vast new market to help them understand and navigate technical and cultural issues that make global platforms challenging and tricky."
Freudenberg formed joint venture partnerships with NOK Corp. in both India and China. Both operations are growing and in China, and the company’s strategic plan is now nearing maturity with more than 70 locations, 6,300 employees and 23 manufacturing facilities.
According to Maschke, "The real challenges in China, of course, are not the existence of megatrends or emerging technology initiatives. The challenges are how the country will respond to them and how we, as a supplier doing business there, will respond to the needs of our customers and continue to grow. One of the most vexing questions suppliers ask themselves when looking at new markets like China is how they will compete against well-established local players."
Maschke says Freudenberg’s answer is two-fold: Companies must offer higher-quality, better processes, newer innovations, superior customer service and broader market value than all of their competitors; while also integrating into the market to such an extent that they become a local player. And, they must embrace flexibility, he says.
Flexibility will help companies address key challenges such as resource availability, legislative mandates and technological uncertainty. China may even take the lead in introducing new technologies in the not too distant future, Maschke added.
While industry challenges in China are still numerous, the opportunities are great.
"It is not enough to appear globally aligned while all of your innovations, business practices and technology ideas still originate in other regions. You must be able to analyze and respond to the needs and ideas that countries and cultures bring to the automotive industry," Maschke concluded. "You must also become an essential part of your customers’ globalization strategies. This is the only way you can help solve global challenges while remaining true to your business principles. We are experts at doing both."
