Global Procurement: Double-edged Sword Hanging on the Parts Enterprise

In a recent annual meeting of China's auto parts companies, Tian Yuzhi, General Manager of FAW-Fuault Automotive Parts Co., Ltd., made a pointed remark about the concept of "global procurement." He described it as a "one-sided theory" that sounds good in principle but is difficult to implement in practice. According to him, this is because global procurement involves not just business interests, but also national interests. When these are at stake, companies tend to abandon the theory and prioritize their own agendas. Some companies even use the idea of global procurement against Chinese suppliers, while others still fail to see the underlying strategy. "We also use it against our own people," he added. As one of China’s largest auto parts manufacturers, FAW-Fuault has traditionally had an advantage over many other domestic suppliers. However, the challenges faced by the industry are real. A representative from Oceanic Air-Conditioning Engineering (Dalian) Co., Ltd. noted that the market situation this year has been particularly tough. With declining sales from supporting vehicle companies, their own sales have dropped significantly. Additionally, increased imports of spare parts and the widespread use of SKD (Semi-Knocked Down) production methods have further complicated things. For companies like Beijing Hyundai, access to the supply chain remains a challenge. Many auto parts companies rely on geographical proximity to support vehicle manufacturers, which helps reduce inventory, improve service efficiency, and cut costs. Recently, a source from Beiqi Motor Company mentioned that their auto parts factory wanted to support Beijing Hyundai, but the situation was unclear. "Now, trying to enter Toyota’s supply system is nearly impossible," said the source. "Toyota already has its own network, and if you want to get in, you have to pay more than 10% extra. It’s like fighting a battle where you lose everything." Tian Yuzhi also highlighted the competitive gap between Chinese and foreign suppliers. "Companies like Delphi and Denso were spun off from original equipment manufacturers (OEMs). They can support 67 million vehicles annually, while Chinese automakers only have a few markets. It’s like a two-year-old trying to fight a 20-year-old—there’s no way to win," he said. When asked about the possibility of Chinese suppliers entering international supply chains, representatives from Delphi Automotive System (China) Investment Co., Ltd. acknowledged that European, American, Japanese, and South Korean automakers each have their own unique requirements for suppliers. While Chinese companies may feel excluded, they often lack a full understanding of these requirements. "Suppliers must understand customer characteristics, production organization, quality, technology, and services," said a Delphi representative. Japanese automakers, in particular, are known for their strict standards and long-term trust-building with suppliers. Delphi has developed relationships with many Chinese suppliers, but not all meet the high expectations. "If a supplier’s product has issues, the consequences can be severe," the representative explained. OEMs are usually cautious when selecting new suppliers, especially when cost and logistics are involved. Delphi also admitted that entering Japan’s supply system is challenging due to differences in management styles and production concepts. "Japanese companies are more meticulous and conservative. They prefer their original suppliers or those who have proven themselves in China," said a Delphi stakeholder. Despite this, there are still opportunities for Chinese companies, especially given their cost advantages. Industry experts believe that the key issue for Chinese auto parts companies is inconsistent standards. Different countries and OEMs have varying requirements, making it hard for Chinese firms to meet them all. For example, some Chinese companies perform 300 cooling cycle tests, while foreign companies only do three. This inconsistency divides the domestic supply chain. Additionally, the pressure from price reductions in the automotive industry has forced OEMs to look for lower-cost solutions, but foreign suppliers often remain untouched. As a result, many Chinese companies find themselves struggling to compete. Despite the challenges, there is hope. One executive from a Chinese auto parts company expressed confidence: "There are many positions in the supply chain. We can start from the periphery and gradually move forward." The road ahead is tough, but the potential for growth remains strong.

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