Unlocking long term profits in China’s emerging automotive markets
3 May 2007
Logistics leaders meeting in Shanghai last week learned that collaboration with local supply chains should take priority over the drive for an immediate profit in China’s booming automotive market. With cost savings from low labour and parts being offset by high logistics costs, foreign companies must lay the logistics foundations now, to reap the long-term profits predicted for the future.
Zengrong Ma, The vice general secretary for the automobile association of the China Federation of Logistics & Purchasing (CFLP) warned OEMs that immediate gains in the market would not be straightforward: “For the first years you should not focus or give priority to how much money you make here. It’s more difficult to make a one Renminbi profit here than one Euro.”
On OEMs investing in China’s automotive industry, Ma commented: “I believe that the market has huge potential. If you lose the current market, you lose the future of this market.”
Automotive companies seeking to make a mark in the Chinese market are finding supply chain cost barriers in the form of operational challenges, lower efficiencies and a complex regulatory system. Logistics costs in China are 18 percent of its GDP, compared with just 10 percent for Europe and North America.
Senior logistics managers and directors agreed that partnering with local companies and engaging with local supply chains offered the best route to success in the country’s complicated and competitive automotive market.
“Foreign companies should look to gain as much local expertise as possible,” explained Ouyang Pu, vice president of shipping provider, Sinotrans. “There is a great need for local knowledge to make the supply chain more efficient”.
Delegates attended seminars, debated and discussed the rapid changes facing China’s fledgling automotive markets at the 2007 Automotive Logistics China Conference. Among the speakers were Robert Strain, director of logistics for General Motors Asia Pacific Supply Chain, Peter Reinshagen, coordination and development manager for China for Gefco and Jean-Luc Guenard, business development director for Chep, China.
