As international automotive component suppliers ramp up their investments in China, many of them are increasingly putting attention on the country's fast-developing local automakers.
Traditionally global automotive suppliers have focused on the international automakers in China and their joint venture operations. But as the local market grows bigger and more sophisticated, suppliers are eyeing the country's domestic brands, made by state-owned firms trying to develop their models, and by the country's independent carmakers.
Those with large plastics operations, like U.S. firm Johnson Controls Inc. and France's Faurecia SA, said they see significant opportunities as Chinese carmakers like Chery Automobile Co. Ltd. in Wuhu, China, upgrade.
They are all starting their own Chinese brands and they look to us to help them, said John Moulton, group vice president and general manager for China for JCI's automotive experience unit, in an interview at the Auto Shanghai 2011 show.
Tier 1 supplier TRW Automotive Inc. has historically had about 75 percent of its business in China with local operations of international automakers, and 25 percent with Chinese firms.
But the company wants to get closer to the actual breakout of the Chinese car market, where about 40 percent of the market belongs to local carmakers, said spokeswoman Lynette Jackson.
Reflecting that, global suppliers stepped up their presence at this year's show. JCI was exhibiting at its first Chinese auto show, as was Essen, Germany-based plastics materials supplier Evonik Industries AG, while TRW of Livonia, Mich., significantly scaled up its booth from previous years.
The lure is a market expected to grow from 18 million vehicles last year to 26 million in 2015 and 30 million in 2020.
For Glendale, Wis.-based JCI, local automakers in China present a big opportunity because they sometimes are lacking in their engineering and design functions.
In North America and Europe, our design organizations are more of a support and auxiliary extension of design studios [of the carmakers], said Richard Chung, vice president of industrial design in JCI's Shanghai office. But in the case of China, our Chinese customers are not as experienced in terms of doing interior design, so they come to us and say, 'Can you do the entire interior for us?' So we play more the role of an OEM design studio.
We have a lot more opportunities here, he said in an interview at the Shanghai show, held April 21-28.
Chung said the company played a significant role, for example, in the interiors of two new models, its A3 and E5 cars.
Although I cannot divulge the detailed information, we were very involved in how it looks and feels, and of course we supply the interior and the seating, Chung said.
JCI also invested in a joint venture interiors and plastics operation with Guangzhou Automobile Corp. in 2008. The Guangzhou operation supplies interiors for GAC-brand automobiles, which were launched last year.
Of course, global automakers are still important: Moulton said JCI also wants to use that operation to compete for business with Japanese car factories in Guangzhou.
Nanterre, France-based Faurecia said it's seeing more interest from local carmakers as they try to satisfy more-demanding Chinese consumers, particularly in vehicle interiors.
There is a feeling now that we as international suppliers are an important game changer to bring to local OEMs all of our experience in fit and finish, said Jean-Pierre Schmitt, China director for Faurecia's interior systems unit.
The local brands will not be satisfied only with the price; they need to, step by step, improve their quality level, especially in the interior, he said. In the past, they made huge efforts on the exterior, so now they are focused more and more on the interior.
Many of the firms are making investments. TRW, for example, plans to spend $100 million to build five new factories in China this year, and Faurecia wants to add five factories there in the next 18 months.
Manufacturing for the local market requires a keen focus on cost control, while at the same time making a functional part.
There is the dual challenge of adding functionality and making it more affordable, said TRW's Jackson. If you look at the growth in markets like Brazil and China, it is so exciting for us. But we need to design it to be competitive on cost.
She said the company has developed more-modular designs that can be scaled up or down based on particular markets and segments, but still have a common global platform.
At the Shanghai show, the company exhibited a new seat-belt pretensioner that uses a plastic piston to replace conventional metal components, resulting in what it said is a simpler, lighter and more cost-effective design.
While it was not designed specifically for China, Jackson said TRW hopes the product will be well-received there, as the Chinese market shows increasing interest in vehicle safety.
Moulton said JCI believes its full-service offerings, such as design and its own research into what Chinese consumers prefer, will help it in China, coupled with its global manufacturing.
The advantage we have is, we can understand what the consumer wants but we also know how to manufacture, so we can design something that is lower [in] cost to manufacture, said Moulton. Obviously, cost is key.