DETROIT (Nov. 3, 4 p.m. ET) — North American auto suppliers know that if they want to win major business on future global car platforms, they must have a global manufacturing footprint.
That same message is true for a growing Chinese auto supply base also eager to expand globally.
Chinese-owned Yanfeng USA Automotive Trim Systems Inc. is part of a small but growing trend for Chinese firms going global, opening an injection molding operation in the Detroit suburb of Harrison Township earlier this year to make door panels for General Motors Co., and with plans to expand production next year for future business.
“With industry globalization, General Motors and Ford and the others want to do global sourcing,” said David Wang, general manager of Yanfeng USA, in an Oct. 31 telephone interview. “If Yanfeng doesn't have a footprint here in North America, it doesn't have the ability to source on global cars.”
Yanfeng is not alone. Pacific Century Motors, a joint venture of the Bejing Municipal Government and China-based investment group Pacific Century Automotive Systems, purchased GM's steering parts business, Nexteer, in 2010
Metal auto parts supplier Wanxiang Group of Hangzhou, China, has an assembly and manufacturing base in Elgin, Ill.
And the interest expands across multiple industries.
“We've been devoting substantial efforts to participating and assisting Chinese companies in acquisitions here in the U.S., with investments, joint ventures and start-ups,” said Andrew Ross, a partner with New York-based law firm Loeb & Loeb LLP, which consults with both U.S. and Asian firms looking for connections. “We think that from the perspective of Chinese companies, there are many good, strategic business reasons for them to engage in these transactions.”
For Yanfeng, the growing Detroit-area base is part of a natural growth, Wang said.
Yanfeng was a Shanghai tooling company which expanded into interior trim products in 1983. In 1994, it created a joint venture with Visteon Corp.
That venture, Yanfeng Visteon Automotive Trim Systems Co. Ltd., is now estimated to be one of the 12 largest auto suppliers in China.
Yanfeng and Visteon remain allied in global projects, but Yanfeng is working independently for its new U.S. base.
Its first foothold in North American delivery came in 2010 when it opened an assembly plant in Warren, Mich., turning out door panels for Chrysler Group LLC using parts manufactured in China.
This year, it added molding to its U.S. base and opened the manufacturing plant in Harrison Township, Mich., starting with two KraussMaffei presses. Wang said the company will add more presses in early 2012 as its business continues to ramp up.
In addition to its U.S. exposure, the company is considering options to expand into Europe.
“We want to be a global player in interiors,” Wang said.
Yanfeng USA has 120 employees now, and expects to hire more workers as it wins new business, he said.
Not every auto supplier needs the global exposure, said Mike Benson, managing director of investment banking for consulting group Stout Risius Ross Advisors LLC of Southfield, Mich. Companies specializing in supplying second and third tier parts can focus on regional production. But firms like Yanfeng as well as European and North American competitors need to be on the ground in multiple locations.
That global focus will be good for the North American mergers and acquisitions business, tapping into a new source of potential buyers, Ross said.
A Chinese strategic buyer may even pay a premium for a company located in the right place and with the right product and customer mix.
“They can gain a great deal,” he said.
And firms like Yanfeng are investing for long term growth, which is good news for hourly employees and engineers alike, added Jason Pivoz of accounting firm Mellen, Smith & Pivoz PLC of Bingham Farms, Mich.
“They're coming here with a presence to stay,” Pivoz said. “This is going to be a continued, lasting presence. This is going to be a company that isn't going to come here for two years and pack up and leave.”
Yanfeng, as a new company, created an employment base for the region that has helped replace some of the business and jobs lost during the recession, he said.
Many of the companies Ross has worked with are mid-market companies looking for other mid-sized acquisition targets, he said. Some of those firms are also like Yanfeng, anxious to build their own company from the ground up and ready to navigate the local business climate.
While only a small percentage of expansion in the U.S. has come from Chinese firms so far, Ross expects that number to increase. The Chinese national government is encouraging companies to “invest overseas in an orderly manner” as part of its latest five-year plan.
Growth will not be easy, though.
“It's going to require a learning curve on both sides,” he said.
Chinese firms looking to invest in the U.S. will have to learn about business practices in North America, just as North American firms had to learn the proper process to building business in China in the past.
Beyond the auto industry, Chinese firms are looking for investments in wind and alternative energy firms, aerospace, pharmaceutical companies and the clothing industry, he said.
“[Yanfeng] is not the first company that's come over here,” Pivoz said, “and they won't be the last.”