Shandong Binzhou Bohai Piston Co., Ltd.
China's leading piston supplier with high R&D capability
Gasgoo.com: Please give us a brief introduction to Shandong Binzhou Bohai Piston Co., Ltd. (hereinafter referred to as "Binzhou Piston").
Fenghua Lin: Founded in 1950, Binzhou Piston is a producer of pistons used on agricultural machinery, commercial vehicles and passenger vehicles. Here I'm going to talk about our company's development since the reform and opening up of China started in the late 1970s, because it's in the past three decades that our company has achieved great and fast growth in the automotive industry.
1. From the late 1970s to the end of 1980's
It was a period when the Chinese economy started to transform from a planned economy to a market economy and nearly all the Chinese companies were trying to explore the markets cautiously and blindly. As to our company, we were just able to manufacture according to the design plans of customers, let alone research and development (R&D) and developing strategy. We tried to produce good quality products, but the technological level of the products largely depended on the quality of manufacturing equipment we bought.
At that time, our competitors are still state-owned Chinese companies, not foreign companies, because there was not much foreign investment in the whole Chinese economy. To upgrade our products, we brought in some technology from Japan, and we also got some management guidance from the Japanese side. And compared with our competitors in the big cities of China, our cost is relatively low, because Binzhou is a small city with much lower living and manufacturing costs. Then in 1986, we have become one of China's leading piston producers. I can say that by initiating the management and technology improvement programs, we grasped the opportunity in this blind period.
2. The 1990's
Our management was continuously improved in this period. And we not only learned technologies from foreign companies, but also started preliminary R&D practice. We established a provincial level R&D center in 1995, and a national level R&D center in 1999. In the commercial vehicle piston market, Binzhou Piston has gained a market share of 60%-70%. And the technology and quality gaps between our products and foreign companies became smaller gradually.
3. The first eight years of the 21st century
It's a time of a new Binzhou Piston striving to compete with global players: We have moved to new factories and re-designed our supply process; we have established a new lab which has passed the certification of ISO/IEC 17025; we have had new experts from Germany and the U.K., and new talents from the U.S.A are on the way to join us; our R&D capability has reached a new high, and our spending on R&D has increased to 6%-8% of our revenue from just 4% in 1995 when we set up the provincial level R&D center.
Stretching to raw material and related product business to meet the need for module supplies
Gasgoo.com: We find that Binzhou Piston started other businesses besides piston-making, such as aluminum products. Will this affect your main business?
Fenghua Lin: After careful evaluation, we set a strategy of developing diversified products based on the demands in the automotive industry. Besides pistons, we are also producing wheel hub, cylinder liners, and aluminum products, which are also for the automotive industry. We don't need to worry about their sales. And the decision of setting up a cylinder liners factory largely came from the needs of some customers (Ford, for example) for module supplies.
And the technological risk in producing the new products can be reduced by setting up joint ventures with the leading companies in that field. Our wheel hub factory was set up jointly with German BBS company. Later, because BBS fell into bankruptcy protection, we changed our partner to Qinhuangdao Daika Xinglong Hub Co., Ltd., the largest wheel hub producer in China now. Our cylinder liners factory was a joint venture with Slinger Mfg. Co., Inc., which specializes in the production of cylinder liners.
Our aluminum factory can supply for our production of pistons, wheel hub and cylinder liners, and the logistics cost can be reduced compared with supplying a different company.
Expand in the passenger vehicle market, especially in the European and American OEMs
Gasgoo.com: What's your strategy in the automotive market? Binzhou Piston has become the No.1 commercial vehicle piston supplier in China. But in the passenger vehicle segment, the current situation is more beneficial to foreign suppliers.
Fenghua Lin: In the commercial vehicle market, we are keeping the leading position by increasing investment and by finding new supplying opportunities. There are some opportunities waiting to be explored indeed. For example, in the 1990s, we were precluded from Dongfeng Cummins' supplying system because of the obstruction from the foreign party of the joint venture and the competing relationship between us and Shanghai Diesel, one of its suppliers. But in its new century expanding, Dongfeng Cummins has to recognize BInzhou Piston's technology and quality, and we have forged close cooperation relationship at last.
About 30% of our products are supplied to the passenger vehicle market, but only about 15% of our revenue is generated from it. However, we see a great growth opportunity in this market, because the Chinese passenger vehicle market is the fastest growing market in the world. And we aim to make our sales in the passenger vehicle market equal to that in the commercial vehicle market in the next five years.
This year, most of our investment on R&D and equipment is intended for the development in this market. Currently, our customers in the Chinese passenger vehicle market are mainly the domestic brand companies, such as Chery, Geely, FAW, ChangAn and Changhe. We have tried in vain to enter the Japanese and Korean OEMs' supplying system, because the sourcing of their joint venture in China is controlled by them, and they have strong sense of protecting their home suppliers. But the European and American OEMs' supplying systems are possible to enter. We have passed the certification of General Motors and Ford; we have sent samples of our products to the Ford headquarters for test in its country; we have signed a contract with Volkswagen, and we are going to supply Volkswagen German factories. And we have cooperated with the European and American OEMs in the new car design and innovation process, because they need us to take part in.
The current orders from domestic companies and the forthcoming orders from European and American OEMs make us believe that our aim to become a world leading piston maker would be reached soon.
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