Yangzhou Auto Plastic Parts Co. Ltd., China's largest producer of plastic fuel systems, plans to make its brand an international name.
Yapp is focusing on expansion in the Asia-Pacific region, rather than competing with established multinational suppliers on their turf in Europe or the United States.
``Our basic objective is to establish plants in Thailand, to support some of Ford's manufacturing facilities, and India,'' Yapp President Sun Yan said in an interview at Yapp's Shanghai plant.
A year ago, Yapp planned to take an approach to growth that is traditional for many ambitious Chinese companies - it was going to team up with a Western firm. In that case, the partner was to be Paris-based Inergy Automotive Systems, which in January 2005 announced plans to buy a 55 percent stake in Yapp.
But now Yapp seems intent on tackling the global market without a Western partner. In a recent move that came as a surprise, Yapp rejected Inergy's proposal.
``It's a very interesting story, but I can't talk about it too much as the topic is still very sensitive on both sides,'' Sun said.
The attraction for Yapp would have been Inergy's technology - but now, according to one analyst, Chinese auto suppliers no longer feel they need help from Western partners.
``Yapp, as a dominant auto parts supplier, [can] choose its way more cautiously and maturely,'' said Sandra Zhou, an analyst with automotive market consultancy CSM Worldwide in Shanghai. In China, historically, global suppliers or joint ventures always took a dominant role in the market and business negotiations, but that is no longer the case.
Yapp's refusal to accept the acquisition bid is not as significant a step for one company as it is an indication of changes in the market, Zhou said.
``Introducing a foreign partner to local enterprises is no longer the only way [for domestic companies] to get bigger and stronger,'' she added.
Yangzhou-based Yapp expects to make 1.3 million fuel tanks this year at its four blow molding plants in China. That's up from 800,000 in 2004 and 850,000 in 2005, Sun said. The company, which also molds filler pipes and ventilation ducts, is buying more blow molding lines that will raise its capacity significantly. The company also has four assembly plants, all in China.
Yapp was established in 1988 and now employs 600. The company reported sales of 600 million yuan ($74.7 million) in 2005.
Yapp's advantages include a strong base of multinational customers and suppliers, and well-placed domestic shareholders.
Sun said Shanghai Volkswagen Automotive Corp. - a joint venture between Germany's Volkswagen AG and Yapp shareholder Shanghai Automotive Industry Corp. - and Audi AG's joint venture with Shenyang's First Auto Works together account for 35 percent of Yapp's sales.
The remaining top five customers include Shanghai General Motors Co. Ltd. - a joint venture between General Motors Corp. and Shanghai Automotive Investment Corp. - and Ford Motor Co., which account for 19 percent of sales each. Another 7-8 percent of sales go to China's up-and-coming Chery Automobile Co. Ltd.
The company has a total of six Kautex extrusion blow molding machines - three monolayer and three six-layer versions - and Yapp plans to expand that to nine machines by the end of 2006, Sun said. The company also has additional Bekum blow molding machinery.
The automotive industry remains key for China, and is protected and promoted by the government. Yapp's controlling shareholder, State Development Investment Corp., is China's largest state-owned holding company. Shanghai's automotive jewel, SAIC, holds the remaining 34 percent of Yapp's shares.
Confident enough to be independent
Strong government backing and a foothold in China's European and American automotive joint ventures would seem to make the company an attractive acquisition target or joint venture partner for a multinational automotive parts producer looking to enter the China market. For Yapp, an alliance with a multinational could help the company realize its goal of becoming a player in the international market.
But despite the company's clear objectives to become a global player, a Feb. 13 Shanghai Daily story reported that Yapp employees had vetoed Inergy's bid. Regulations governing state-owned enterprises require an employee vote before approval of an acquisition by the board of directors and shareholders, according to the report.
Inergy's representatives were not available before deadline. But Solvay SA spokesman Martial Tardy said that in late January, Inergy Automotive Systems representatives in Asia informed him that ``the joint venture plan [with Yapp] is at a standstill.'' Inergy is a joint venture owned by Brussels, Belgium-based Solvay and Paris-based Plastic Omnium SA.
Yapp's Sun said the two companies had worked together on projects since 2001 and began talking about acquisition in 2003. After signing a memorandum of understanding to buy SDIC's share of Yapp in January 2005, Inergy planned for rapid expansion in the Asia-Pacific region.
In Asia, Inergy already has operations in Japan, South Korea and Thailand.
For Inergy, the acquisition of Yapp would have meant a 30 percent share of the China market, a customer base that included all the major automotive manufacturers there, and manufacturing or assembly facilities in all of China's automotive centers - Shanghai, Wuhan, Changqun, Chongqing, Yangzhou, Wuhu, Tianjin and Shenyang. Inergy also has a strong client base of multinational automotive customers outside China.
Technology, Sun said, was the main reason Yapp considered the joint venture. Inergy provided technical support for development of Shanghai Volkswagen's Polo and Kia-Yueda's C-car fuel tanks, for example.
``Now we want to use a different approach to solve technology issues. We have lots of cooperation with multinationals, and Yapp's development has been very fast,'' Sun said.
For Inergy, China is still an important growth market.
``Inergy Automotive Systems will continue to deploy its strategy to enter the China market,'' Solvay's Tardy said in a telephone interview, adding that Inergy would consider the possibility of establishing stand-alone operations in China.
Yapp, meanwhile, has expanded quickly in the past three years, adding, for example, Ford's China joint venture in Changchun as a major customer in 2003. Sun expects the company's development to continue in 2006.
Sun expects Ford's fuel tank orders to expand to 200,000 units in 2006. That's up from just 14,000 in 2003, when Yapp first started working with Ford in China on the Fiesta model.
Sun pointed out that about 100,000 of Ford's fuel tank orders for the Focus model will be exported to Taiwan, the Philippines and South Africa, up from 60,000 in 2004, but he does not see exporting as a viable long-term strategy. The foreign exchange rate between the dollar and yuan, and the cost of producing a product that uses a lot of imported parts does not make sense for export, Sun said.
Further development initiatives include opening a research and development center in Yangzhou in mid-2006. Sun said the company plans to invest 400 million yuan ($49.7 million) during the next five years to develop the company, with one-fourth of that total earmarked for research and development.
The company also plans to seek joint ventures in Thailand and India to establish production facilities in those countries.
Sun said the company already has signed a technology support agreement with Zoom Automobile Ancillaries Pvt. Ltd. of Mumbai, India, as a precursor to establishing a joint production facility.
Along with adding customers, expanding abroad and investing in R&D, Yapp has another significant goal, Sun said.
``Now, the question is how to satisfy customers' needs, and they want cheaper products. So that's the next step in the market,'' Sun said.