Why do parts companies need large-scale overseas acquisitions?
“The cost of introducing key technologies from developed countries will be higher and higher, and the difficulties will be getting bigger and bigger, but going global or technological brand intellectual property and R&D capabilities will have great attraction for enterprises.†September 24, China Automotive Fu Yuwu, director of the Engineering Society, told crowdfunded automotive information at the China (Huadu) Automobile Forum.
There are two factors that lead to this situation: First, there is a large demand for advanced technologies and other technologies for automotive independent brands and supply chain systems. The developed countries have certain vigilance. Second, the automakers and parts companies are driven by consumer upgrades. Next, forced to upgrade.
Some autonomous component companies carried out large-scale overseas acquisitions last year. For example, China National Chemical Rubber acquired Pirelli, the Italian tire giant, for US$7 billion and became the largest shareholder, holding 65% of the shares. This is by far the largest overseas M&A in China's manufacturing industry. In addition, Weichai Power acquired German Dematic, holding direct and indirect holdings of 83.27%.
In fact, the demand for Chinese car companies is more than technology, but something more at the core level. “Now talk about the differences between Chinese and foreign companies, the technology gap is about five years, the management gap is ten years, and the cultural gap is between 15 and 20 years,†said Xu Changming, director of the Information Resource Department of the National Information Center.
Forced <br> <br> consumption in China's auto market in addition to sales outside the scale and rapid growth, the biggest feature is the acceleration of consumption upgrade. There are several obvious manifestations, such as the rapid expansion of the luxury car market, continued hot sales of SUVs and so on.
The prices of these two types of products are more high-end and the models are more large-sized. The proportion of luxury cars has rapidly increased to 10.3% in passenger cars. Luxury car prices are more expensive than ordinary cars. Consumption upgrades have led to luxury car sales.
Another upgrade is that SUVs have already accounted for 40% of the passenger car market. Sales of 100 passenger cars have 40 SUVs. The overall price of SUVs is about 20-30% higher than that of cars.
Under the general trend of consumer upgrades, consumers have significantly improved the quality and brand requirements of automotive products. Many self-owned brand companies have entered the positive R&D track to meet market demand, such as Chery, Geely, Changan and Guangzhou Automobile.
The increase in auto R&D capabilities of auto enterprises puts a very high demand on the R&D capabilities of companies in the industrial chain such as auto parts and components. Prior to this, parts and components were able to occupy the market by low cost. Now that vehicle companies have conducted positive research and development, it is difficult to meet the demand for price wars.
“The continuous improvement of the quality of the entire vehicle and its conduction to parts and components requires that the quality and performance of parts and components must keep pace with the development of the entire vehicle. If you have to keep up, you will have a huge impact on parts and components companies. This is the quality of parts and components. The performance requirements are brought about by changes in the vehicle, Xu Changming said.
The leading automakers have upgraded their technology and vehicle-manufacturing technologies. For example, Dongfeng Nissan has established an advanced engineering and technology center. Through quality-elevation activities that are highly consistent with digital and physical products, collaborative suppliers conduct early-stage synchronization of the entire process. Development of products and development of suppliers including full-process brand traceability systems. The upgrading of the car manufacturing process is an upgrade of the entire automobile industry chain.
This forces the supplier to upgrade accordingly to meet the requirements. "The upgrading of the OEM and automotive products means that the entire parts supply chain, parts production, and R&D need to be upgraded," Dongfeng Nissan said.
At present, there are about 100,000 domestic parts and components companies, and about 13,000 are above the scale. According to the research data of the China Automobile Parts Research Association, China's auto parts and small-sized enterprises accounted for 62%, medium-sized enterprises 25%, large-scale enterprises 9%, and large-scale parts and components companies were very few, and the overall competitiveness was weak. Among them, domestic-funded enterprises accounted for 73%, foreign-funded enterprises accounted for 15%, and Sino-foreign joint ventures accounted for 12%.
“Requirement of parts and components companies to control costs is very strong. In fact, quality and performance continue to increase, but the cost can not be gradually increased. If the cost is gradually increased, no one wants it. How do we control costs? This is another requirement. Xu Changming said.
The core technology of independent components panic buying <br> <br> China Society of Automotive Engineering Society pay in the military a few years ago to study Western and Japanese car firms, their R & D centers are open. However, since the previous year, some multinational companies have not allowed them to enter R&D centers.
It is not surprising that developed countries have mastered car core technologies and are forcing Chinese car companies or R&D personnel. China's auto market has become the most important market for most car companies in the world, and the competitive upside pressure from independent brands is also increasing.
According to the data from the China Information Center, Volkswagen’s sales in China accounted for 36.4% of its global sales, GM’s share was 21%, Hyundai-Kia was 21.4%, and Peugeot Citroen was 24.6%. Most car companies cannot tolerate the slightest mistake in China, and technological fortification is to protect themselves.
At the same time, Chinese car companies and parts and components companies are eagerly eager for automotive core technology, management, and culture. The reason is that they have a large gap between their strength and market demand, and they urgently need to increase their strength to compete with the joint venture car companies.
“The key core technology level of domestic auto parts and components products has made great progress in recent years, but foreign-funded enterprises still dominate the high-tech barriers and core components, especially electron ionization control, and some highly reliable basic components. The auto parts companies are relatively weak, said Dong Jianping, executive vice chairman of the China Automotive Component Research Association.
At present, China's spare parts industry has an average profit of 6%-8%, but the average profit of foreign investment or joint ventures exceeds 15%, which means that the profits of its own parts and components are even lower than 6%.
The root cause is poor technical capability of independent components, but R&D investment is seriously insufficient. For example, in 2015, the R&D input ratio of the domestic parts and components industry was only 2%, far below the international level. According to the report of the China Automobile Parts Research Association, domestic parts and components companies are basically at the bottom of the “V†industrial value chain.
Because it is difficult to catch up with leading international companies in terms of R&D talents, systems, and corporate management and culture, overseas auto purchases have become the most popular shortcuts for domestic auto chain companies under the urgent need of upgrading.
“In 2015, China completed about 590 foreign mergers and acquisitions, accounting for the second place in the world. In the first six months of this year, the global mergers and acquisitions ratio increased significantly, exceeding the United States and exceeding Germany, accounting for the world's first.†Chunhui Capital Directors Chang Wang Da said that among these, the automobile industry chain enterprises have played an important part.
Private enterprises have gradually become the main force of overseas mergers and acquisitions. Most of the international mergers and acquisitions completed by Chunhui Capital are private enterprises. Under the pressure of fierce competition, private enterprises are eager for advanced technologies, management, and culture.
According to a report on the forum, overseas mergers and acquisitions have provided new opportunities for private enterprises. Of the companies that completed overseas mergers and acquisitions, 71% of the enterprises surveyed were satisfied with the benefits of overseas investment, and 29% were dissatisfied with the benefits of overseas investment; 67% of enterprises invested in the United States had increased their income, and 22% of enterprises had invested profit. "Obtaining the core technology of auto parts through overseas mergers and acquisitions and upgrading the core competitiveness will become an important development in the internationalization of China's auto industry in the future." Fu Yuwu said.
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