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Merger and reconstruction are pioneering paths to global markets

China Auto News Editorial Team From Gasgoo.com| June 27 , 2008

Dongguang Group, a large-size state-owned enterprise affiliated to the China North Industries Group Corporation (CNGC), now has seven subsidiaries, with one engaged in the manufacturing of military products and the other six in making civilian products. Five of the six civilian companies are related to the auto industry: Changchun Yidong Clutch Co., Ltd, a listed company that makes clutches; Jilin Auto Brake Company that makes brake vacuum boosters, brake master cylinders, air-vacuum proportional valves, coolant reservoirs, and brake calipers; Jilin Dahua Machine MFG Co., Ltd. that makes flywheels and gear rings; Jilin Dongguang Rainbow Auto Lamp Co., Ltd. that makes auto lamps; Jilin FAW Service Industries Dongguang Auto Mirror Co., Ltd. that makes auto mirrors.

The auto-parts business of Guangguang Group has explored a way of its own. Its clutches, flywheels and gear rings have achieved the biggest production capacities and sales figures in mainland China, and the assembly products of gear rings have 30% market share. Guangguang Group also exports its lots of its products and has OEM businesses for GM, German VW, Brazil VW, Caterpillar, Cummins, PSA (Peugeot Citroen), Valeo and other global carmakers. Dahua Machine MFG exports one third of its products globally and this year the company are expected to make 4.5 million gear rings and 2.5 assemblies of flywheel gear rings, surely the biggest output of its kind in China.

Gasgoo.com: Can you describe the growth history of Guangguang Group?

Wan Weiting: As an auto-parts manufacturer, Dongguang Group has a very clear strategy of its development. In the early stage of China's auto-parts development in the 1980s, we transformed our production from military products to the auto industry. At that time we had neither experience nor market, and then we targeted at the making of clutches. CNGC and FAW cooperated in building a joint venture to make auto clutches, a company that has now developed into the current Changchun Yidong Clutch Co., Ltd.

In the second stage, Dongguang Group increased its product series by low-cost expansion. In 2005, the group merged and acquired Jilin Rainbow and Jilin Duahua.

The sales value of Dongguang Group is expected to reach 1.5 billion yuan ($215 million) this year (compared with 1.3 billion yuan of last year), with 10% of the value generated by export.

Gasgoo.com: Domestic suppliers seldom successfully get bigger through merger or reorganization because it not only requires huge fund support but a harmonious fusion following the merger. How did you manage this problem in your development history?

Wang Weiting: One thing I would like to say is that originally I was general manager of Dahua, but now I am also deputy general manager of marketing at Dongguang Group, thus I know exactly how our incorporation works. When Dongguang first acquired Dahua in January 6 2006, Dongguang just kept Dahua as what it was and never interfere with its internal affairs. Dahua is free to change their own development route whenever they want. So the most important factor for a successful merger is that you must take a positive attitude and have confidence in the leadership of the company you choose.

With this awareness, Dahua has had tremendous success since it joined Dongguang Group. In 2005 Dahua achieved sales revenue of 80 million yuan, and this figure has rocketed to 130 million yuan in 2006 and 230 million yuan in 2007. It is expecting sales revenue of 300 million this year.

Gasgoo.com: Some say the merger in the auto part industry is an inevitable trend in the market. If you can’t beat them, then join them. In this case, can your experience of merger be copied by others?

Wang Weiting: It would be very hard to do it. Two counterparts in a market, just like two pieces of leaves, appear the same but in fact are different.

Gasgoo.com: How much will you spend in improving R&D capabilities each year?

Wang Weiting: Around 3.5% to 5.5% of our sales revenue, though there will be a slight difference depending on various development stages.

Gasgoo.com: Two challenges facing China's auto parts enterprises right now is management and technology, according to a recent report. In your view, what's the main cause of China's problematic auto parts industry?

Wang Weiting: Impetuous attitude and low level of management.

More often than not both the managers and technical engineers have an impetuous attitude, which often results in them using incorrect methods of attempting to copy others and gaining a quick success whenever possible.

In terms of management, we lack high level management talents to get everything planned in a rewarding way. Foreign companies usually take a prolonged procedure to trial a product before they start massive production. We just don't have such engineers and managers to get this started.

Gasgoo.com: Problems exist among many domestic enterprises when they get in touch with sourcing companies. Some fail to meet the specifications of global sourcing companies. Some can meet the specifications but the International global sourcing company gives up due to the labyrinthine procedures. Some high-quality suppliers lack production capabilities of doing international business because of relatively fast growing domestic business. Can you describe how to do business with global sourcing companies according to the OEM experience of Jilin Dongguang Group?

Wang Weiting: That is only a short-term phenomenon for suppliers lacking production capability of doing international business or having no interest in the international business. I'm sure these two kinds of enterprises have no future in the long run if they continue like this.


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