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The European Market and the Chinese Rubber Industry
Looking for a bright common future
FOREWORD
The rubber industry development is, and has always been, strongly linked to the transportation industry. It is not a surprise that the fast and strong development of the automotive industry in China is also producing the same effect in the rubber sector. Since long time, European rubber companies have found good business opportunities in China following the path of the automotive companies. Maybe now, is also the time for the Chinese rubber industry to consider the opportunities that a global automotive market can offer not only at home, but also in Europe.
However, we should not forget the decisive importance of other non-automotive related sectors.
In my presentation, I would like to point out, why the European rubber industry won its leading position, and how the emerging strength of the Chinese rubber industry is a great opportunity for a bright common future.
THE EUROPEAN RUBBER INDUSTRY
The way to the excellence. Market Approach
If we should choose one single factor to explain the way to the excellence of the European rubber industry, I would say that “Being Close to the Customers” is the main one.
Being close to the customers has been achieved in many different styles, but in all cases, the companies have made the voice and the wish of the customers the key element to define the strategies for the future and the objectives for the medium and long term.
Maybe the most evident consequence of this philosophy can be seen in the continuous geographical expansion of the industry. Let me give you an example: the famous Italian Pirelli company was established in 1872. As soon as in 1902 Pirelli opened the first foreign factory in Spain. No one major supplier is far away from its customers. Sometimes the suppliers are integrated in the customer's operations. The cooperation can be so narrow, that both together assume the burden of some costs of the final product, to help the market development. This style of cooperation disseminates too to the main suppliers of the rubber industry.
Another clear result of this philosophy is the “Customer Satisfaction” concept that basically impregnates the main standards for the industry, like ISO 9000, ISO 14000 and many others.
The Technical Factors.
Research, development and innovation. With almost 40 years experience in the rubber industry, I can remember how our industry used to work not so long time ago. Most companies were mainly “production units” struggling to achieve parts designed by customers with little knowledge of rubber. But leader companies were already setting up the key milestones of the future: providing the customers with new designs and new concepts to improve the functionality of the products. We have seen how most companies have evolved from the product concept to the system concept. No one company can survive in the current very specialized market just by supplying limited solutions. Today it is normal to consider the full systems as a whole, and companies establish specialized divisions or factories to supply fully functional solutions: anti-vibration, sealing, power transmission, fluid transmission, etc.
Another step has been achieved when leader companies have been advancing and developing completely new solutions to the industry. Now, the best technical solutions are the result of the R+D of the rubber companies and the market expansion is the fruit of the continuous effort to innovate, following the concept of “application's development”.
But not only the products have been the subject of this R+D+i efforts. Raw materials, compounding, mixing and all the production processes have been dramatically changed. Scientific methods to evaluate production methods, based on engineering and mathematics have assured the robust and qualified processes that we master today.
In this evolution, the human factors: safety, hygiene, ergonomics, etc have been considered. Our industry is no longer “black” but clean and respectful of the people and the environment.
The economical factors.
Several changes have been introduced to assure the economical success of these industries. Let me mention some of the most relevant ones.
Increasing the value, controlling the costs. A good indicator for this trend in the rubber industry is the value of the goods produced per hour or per employee. Figures from 2004, show that in a country like Spain (the third European producer)
the production value per employee amounts 185.000-195.000 euros. France and Germany figures are over 220.000 euros. The number or employees working in the rubber industry is decreasing year by year due to the higher productivity and specialization.
Increasing the specialization. Investing in the core business.
Most companies prefer to concentrate efforts and resources in the core technologies they master. More and more, the compounding and mixing is the business of specialized companies providing full services to the process industries. Same happen with the tooling design and manufacturing. Just to mention two examples.
Outsourcing products. Controlling the product mix.
European companies have been outsourcing products for more than 30 years. They put themselves in the position of winning orders even if they only produce the higher value products.
Mergers and Acquisitions. Co-operations.
The number of companies is decreasing. Strategic links between companies and a continuous process of investments and divestments is constantly improving the strengths of the companies.
Management and Organizational Factors.
Management understanding and respect for the local rules and regulations is considered to be very high in the case of European Companies. European Companies are a preferred option for top class people looking for new employment opportunities. Empowerment is given to people to assure their success as the way to assure the success of the companies. Can not be responsibility without authority.
Weaknesses.
Not everything looks clear in the future. Consumption of products is related with the population increase and well being improvement. Europe is very much dependent on foreign markets, because it will be difficult to increase the population and the spending of the industry and families.
Forecast.
Following the rational that we have presented above, we can foresee a further reduction in the number of companies and employees in Europe, and a renewed expansion in foreign markets. Outsourcing will continue, and new ways of cooperation with existing foreign companies will be increasingly important. Companies are not more local, but global, and the key management issue will be to approach the market globally.
SOME THOUGHS FOR THE CHINESE RUBBER INDUSTRY
Chinese Rubber Industry is a giant. But its presence outside China is not yet according with its size and potential. Even in China, local companies suffer the strong competition of foreign companies that enjoy advantages when dealing with big companies like the Automotive OEM´s. because a long time partnership. A lot of decisions concerning development of new vehicles or development of new components are often made at or influenced by the Head Offices of the Companies. Not too much Chinese companies have a strong presence at the Technical Centres and Global Purchasing Offices of the main actors of the Automotive Business.
For many years the preferred way followed by Chinese companies to develop its strengths has been the Joint Venture approach. Most JV's have been set up with the purpose of winning capital and technologies by offering cheap labour and market share in China. A lot of companies are not happy with this approach any more.
Foreign and Chinese companies have often failed to build a relationship based on common objectives. By the contrary, each partner has often walked to achieve its own goals. From the point of view of Chinese companies, JV's have not provided a lot of the necessary intangibles to make good use of the technologies: development of Chinese brands, international markets approach, etc. From the point of view of the foreign companies, JV's have failed to provide the Chinese market share.
The consequence of the JV's relative failure has been an increased number of WFOE. (Wholly Foreign Owned Enterprises), with the result of an increased installed production capacity and a higher internal competition. Prices are not rewarding enough the capital and the efforts invested. According our view, the Chinese rubber sector could enter soon in an accelerated process of restructuring.
A new approach is more necessary than ever before.
Alone or in cooperation with European companies, Chinese companies will approach a new scenario focused on value for customers and cost reduction. Value and cost are areas of continuous improvement, but it looks to me that nowadays the value increase is even more important than the cost control. European companies know better how to produce “expensive products”, Chinese companies know better how to produce “cheaper products”. Not always, but very often expensive products are very valuable ones. Cheaper products are often the result of a very intelligent management of resources, strictly chosen according the needs. Both categories are needed all over the World, both are needed “close to the customers”
If the choice is cooperation, then a new cooperation approach should consider the following main issues:
Common goals, common responsibility.
Sharing the major resources: capital, knowledge, markets and persons.
Without increasing the installed production capacity.
Learning from each other
Making easy the cooperation processes.
Now is the time to look for right partners that believe in those principles. Partners need to properly valuate what they have and what they miss. Maybe the first step for Chinese companies is to approach specialized rubber consultants to start preparing for the new opportunities. In the past, not too many Chinese companies have looked for the help of specialized consultants. Chinese companies going abroad or preparing for a next cooperation process will strongly improve its understanding of the situation and the negotiation process with this kind of help.
We suggest to consider the common ownership and the shares' interchange as a way to explore. Please, consider that we, Europeans or Chinese, we share one single World. Why not to share some companies? There is not too much room for competition without cooperation.
Thanks for your consideration.
Shanghai, October 2005
Antonio German Torres is a Chemical Engineer with 40 years experience in the Rubber Industry. Antonio is the Chief Representative of International Technobrain Consulting, Shanghai Office. Technobrain is the only Spanish Consultancy Company specialized in the Rubber Industry with presence in PRC. For contacts, please go to: agerman@technobrain-es.com or to swang@technobrain-es.com
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