While the business community in Australia will be very aware of the growing importance that China and Chinese businesses will have in our economy, there is little awareness of the amount of thought fast-growing Chinese truck manufacturers are putting into developing in markets like Australia. A visit to the headquarters of one of the major players in China, JAC, in Hefei, Anhui Province, demonstrates how far Chinese businesses have come and how far they expect to go in the not too distant future.
Meeting with Australian journalists at the company HQ in Hefei is regarded as a confidence building exercise by the senior management at JAC. They are at pains to explain the philosophy and the procedures the company goes through to develop produce and market its truck product.
“Some Chinese brands face problems due to the quality of the products they produce for sale in overseas markets,” says Communist Party Secretary for JAC XXX. “We hope our communication with markets like Australia will help to overcome these problems.”
Vehicles produced by JAC cover just about every market segment from small cars up to the heaviest trucks. It also produces forklifts and construction equipment. The company was manufacturing spare parts for the existing truck fleet on the roads of China in 1964 before starting to build trucks in 1968. However, it wasn’t until 1997, after economic and political changes to the Chinese economy went through in the 1990s, that JAC became the group as it is constituted today. Since then the company has diversified into smaller vehicles making SUVs and small cars.
JAC employs 27,000 people working in 14 different production facilities. Currently, the total production capacity is 790,000 vehicles each year, however in a few years production capacity is expected to reach 1.2 million vehicles per year. The group is divided into four business sections, the main one being JAC Group which is a publicly listed company on the Shanghai stock exchange. The company also runs a bus group, an operation developing forklifts and excavators and an axle and powertrain production company. Despite these large numbers, JAC is only in the top 10 of Chinese vehicle manufacturers.
Training is available to all employees for four hours every Saturday morning. This is part of the company’s development philosophy as it realises that its future depends on improved quality and considerable work in the research and development field. The provincial government of Anhui owns 30% of JAC motors. The rest of the company’s ownership is divided between both private shareholders and public company shareholders.
The company has been the biggest supplier of bus chassis to the Chinese domestic market for the last 15 years. JAC has also been the largest exporter of heavy-duty trucks from China for the last 10 years.
The company has been developing R&D facilities in Hefei but also has better facilities in Turin, Italy and Tokyo, Japan in order to develop its products.
Production capacity on the commercial vehicle side of the business is 400,000 trucks per year. JAC also has the production capability to build 350,000 engines each year.
By 2008, export markets took 21,000 trucks and after a severe dip during 2009, the 2010 figures look to see the company back to over 22,000 trucks exported.
Like any growing Chinese enterprise, JAC is setting aggressive export sales targets in the next few years. By 2015 the company is expecting to be exporting 315,000 vehicles each year. The company is looking at expanding in South America, Africa, the Middle East as well as the Eastern European market. JAC has also set its sights on the Australian market, as was reported in Prime Mover in December 2010. It already has a presence in up to 60 countries.
For example, in the Egyptian truck market JAC has 10% market share and is the biggest Chinese company competing in that particular market. JAC is also the number one truck brand in Sri Lanka.
One of the most important developments for JAC in the past year, with regard to export markets for its trucks, has been the signing of a joint venture agreement between itself and Navistar from the USA. The engine development joint venture will produce a light duty truck engine as well as a heavy-duty engine. The engine range it will be developing includes capacities from 3.2 L to 4.8, 7.2, 11 and 13 L engines. These engines are destined to be used by JAC in its own product both for domestic and export markets.
The company has also signed a joint venture agreement with another company associated with Navistar, NC ², who has developed the Caterpillar branded truck for the Australian market. The joint-venture company is owned 30% by JAC with the rest being held by NC ².
“We are going to develop and manufacture medium and heavy duty trucks in our joint venture with NC ²,” says JAC Marketing Director Eric Zhang. “The trucks will be supplied to the Chinese market and some overseas markets. In terms of branding for this joint venture, the main brand we will be using is JAC. However, for some premium products within the joint venture, both for the Chinese market and for export, we may use the Caterpillar or the Navistar International brand.
“In the future of this joint venture, the network strength of the companies involved will be utilised to develop marketing for the trucks. The JAC network, the Caterpillar network and the Navistar International network will all be used to distribute these trucks. To power these trucks the second engine joint venture has been set up to produce medium and heavy duty engines to complement the truck joint venture with NC ².”
JAC say they expect 10% of the 90,000 trucks, planned to be exported by 2015 to be those emanating from the joint venture with NC ². Most will be branded as JAC models but a small number of premium models may be sold and branded as Cat or Navistar International.
In order for trucks like these to compete in the Chinese market, they will need to offer a wide variety of engines. The different truck engines are preferred in different regions of China for different applications and as a result one area may prefer a Cummins product while another might prefer JAC’s own engine products. The engine joint venture will also be able to supply other Chinese truck manufacturers with engines to power their own brand of trucks.
“We are open minded about the future engine products this joint venture may fit into its trucks, depending upon the market preferences. We are trying to meet customer demands in order to get the best customer satisfaction.”
NC ² should be producing trucks in China by 2013, according to the management of JAC in Hefei.
In the product plans for JAC in its joint venture with NC ², it has plans to build both bonneted and cabover trucks for Chinese domestic and export markets. The company expects to use SCR as a method to maintain emission control.
There are 200 brands of commercial vehicle made in China, but most are small Chinese brands. The top ten brands in the market account for 70% of the Chinese truck market. JAC believes it will remain the main brand exporting trucks from China.
The Chinese automotive market sold 13 million units in 2009 with 2010 figures likely to exceed 17 million. These high numbers are likely to continue into the future. However, this growth rate of 15 or 20%, taking the annual figures through to 30 million, is likely to result in Chinese government action to curtail the growth in vehicle sales congestion. Pollution may still become a major problem and the government may curtail domestic vehicle sales as a direct result.
By this point, Chinese vehicle manufacturers will have major manufacturing capacity but will be seeing their domestic market held back by government response to the problems the vehicles are creating. According to Eric Zhang this will force companies like JAC to look outward and quickly increase export sales.
“In light of the overall growth perspective, the overall marketing targets sold in JAC Group by 2015 will be 1.5 million vehicles,” says Eric. “We foresee that 20% of our overall volume will come from export sales. In order to achieve this very aggressive growth target, our international business needs to grow.”
In the JAC company plans, it expects 30% of its export volume to be in trucks. This represents 100,000 trucks per year being exported by JAC into the global market. This number represents three times as many trucks as are sold in Australia every year.
“I have a certain amount of confidence we are going to meet these aggressive targets in the future,” says Eric. “We will have a larger and larger number of models available for sale.
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