Dow Corning starts its local manufacturing in China since 1997. As a global leader in silicon-based technology, Dow Corning has many innovative solutions to the automotive industry which have proved to be successful in the western market. However in China, where despite the flourishing auto industry and the world's biggest market potential, local automakers are still at their very starting stage to use silicones on their vehicles. Then how to tap into the market and what's the developing plan in China in times of financial crisis? We had a talk with Mr. Tom Cook, head of the Dow Corning's China operation.
Gasgoo.com: We know that as a leader in silicone-based technology and innovation, Dow Corning has many innovative solutions for the automotive industry. And you have to work with the OEMs, various tier suppliers. So how do you manage such a wide range of product lines, as well as the multiple roles?
Tom Cook: Yes, you are right. We do work with players through the whole supply chain, and we do provide performance-enhancing and cost-effective solutions to the automotive industry. For example, we'll work with OEMs to understand what the problems are and how to solve the problems. And then we'll go to their directly sourced suppliers, and we'll work with them as well. We communicate with the OEMs and their suppliers during the process and help find the possible solutions.
When we work with the OEMs, we don't sell them the materials directly, we have the sales development network, which works with the OEMs, and try to understand their business strategy, their major performance problems, and how silicon products will function on these.
Back to 15 years ago I used to work with Chrysler in Detroit. I went and worked with them each day, to understand their designing problems. And if I thought there's something that I could help, I would go to their suppliers to help deliver a solution to Chrysler. And now the sales developing team plays the similar role in China. They work with the OEMs, and then supply the products to their supplier base.
Gasgoo.com: How to persuade people to use Dow Corning's silicone products? Could it be difficult to do that since the Chinese OEMs and suppliers are always price-sensitive, and unwilling to cooperate?
Tom Cook: First, if I were them, I would be also very cost-sensitive, as it's a good strategy. That's also a good point to inspire as for the industry development. And as the industry develops you need more investment into the vehicle designing and developing.
The local Chinese automakers don't use as much silicon in their engines, transmissions and car bodies as foreign companies do-because of their price sensitivity. It's probably okay at the start, but as the consumers get more aware of the car, they expect their cars to last longer, run more efficiently and have less problems-that's exactly what the silicon product would provide. The silicon product will provide better performance, longer flexibility, less emissions and so on. I think it will evolve in the Chinese market. As long as there's big enough group of people having that demand, it'll make sense. So in respect of local Chinese OEMs, they need to watch closely how fast the domestic consumers get mature and then move on to cater their need.
Also they need to look outside China. The ambition to export automobiles to developed countries would also push them to develop higher-performance vehicles. They have to rethink their strategy, and try to figure out what's their key goal, when's the right time for some necessary spending which might be of higher cost, higher performance and thus high value added. They should ensure their spending matches up with their strategy.
Gasgoo.com: What impact has the financial crisis brought to Dow Corning's business?
Tom Cook: We're doing pretty well in the year of 2008. We've just released our third quarter financial results, and we had record sales with record profit worldwide as a company, so our business remains very strong. Starting from this October, we've seen the signs of weakening just as any industry saw. So we are now taking quick actions ourselves to control cost; we're limiting very tightly the discretionary spending, for example, we are cutting the non-customer-related travel, and other internal events; but we're protecting our strategic investments, that is our investment in the Zhangjiagang plant, where the total investment will exceed $600 million with our JV partner Wacker. We're continuously making investment in China.
The plant is to produce finished silicone products with raw materials locally sourced, and then we'll compete with steel, rubber or other finished products used in the automobile and other major industries. Within this month, we'll have a phase-I opening celebration and the investment for phase-II will continue. We're planning to finish the construction in 2010.
The reason for our continuous investment here is that we still believe that China will continue to grow. Although now there's lots of discussion about the impact of American financial crisis on China, but I have confidence that the Chinese government will solve the problems in China. We make the investment primarily in China and for China, so if there's strong impact inside or outside China, it shouldn't influence our strategic investment here.
We will continue to monitor the crisis as how deep it will go and how long it will last, and then to take additional effective measures.
Gasgoo.com: For a chemical company, apart from cost control and protecting the strategic investment, is there anything else to do to retain the business?
Tom Cook: The other thing is to watch closely the customer base. There's significant difference on an industry-by-industry basis, and you need to watch what has happened to the industry you're selling products to. For example, lots of companies in the textile industry are just closing their plants, so they won't buy products from us. Other industries like the automotive and construction industry, there's no obvious fluctuation but you still need to watch closely.
The Chinese government has announced really back-up policies to invest in the infrastructure. So companies may need to earlier shift their focus to this.
Gasgoo.com: Does the rising RMB, raw material and labor costs as well as energy price fluctuation bring any impact on Dow Corning's business here?
Tom Cook: Very fortunately oil price fluctuation does not have a direct impact on Dow Corning's business as it's not a key raw material of our products. But there did have indirect impact on us. Lots of our competitors use oil as their raw material, so if the oil price is high, it makes their products cost more and thus our product more attractive.
As for rising RMB, we don't have much export business at the moment, so we don't see much impact on that either. The raw material product of our product remained stable during the past months, and we don't think there will be large price hike in the near term. One thing I would like to mention is that, our second brand name Launched in 2002, XIAMETER offers a web-based business model for large volume users. What we sold on XIAMETER are commonly-used products for customers who do not require a personalized service. We have built the world-class siloxanes manufacturing facility in China, and we'll also bring our B2B marketing strategy here. This is also a way that we can offset the rising cost pressure.
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