Affected by the world financial crisis and slowdown of China’s domestic demand, BYD Co., Ltd. started to cut jobs since late October, a BYD employee told CBU/CAR lately.
The layoff would involve mainly staff that have worked at BYD for less than two years, said the employee. Senior executives at BYD told CBU/CAR that due to slowed market demand, the company recently decided to reduce weekly work hours from alternatively five and six days to five. And it seems that BYD’s IT and mobile phone business is affected more so than the automobile business.
Rich and cheap human resource has been the core of BYD’s cost control and the secret of the high price-to-performance ratio of its products. However, as sales slowed down and stock market slumped, the enormous number of staff and workers would also become a burden.
BYD’s core competitiveness
Until the end of 2007, BYD had about 120,000 employees, the cost of which accounted for 12.5 percent of the total revenue, according to the company annual report for 2007.
In fact, it is the 130,000 (today) employees that have helped BYD rise to become the world’s No. 1 nickel-cadmium battery producer, sell 100,000 units of the F3 compact sedan within the shortest period of time in China and launch the first mass-produced F3DM (dual mode), a plug-in hybrid electric vehicle in the world.
From the early days in the mid-1990s when BYD began producing batteries, Wang Chuanfu, founder and chairman, had decided to exploit China’s rich human resources to minimize cost. In order to replace machines with manual labor, he divided his assembly lines into several operational processes that combine both machines and large numbers of workers. Such a “human tactics” not only saved tens of millions of RMB yuan in buying complete assembly lines, but also saved high cost of upgrading such lines. What is needed, instead, is the training of assembly line workers and staff.
“Many visitors were stunned when they came to BYD and saw so many workers in the plant,” Wang once told a reporter. “They have never seen such a large number of workers, who are building batteries, cell phones and cars. Today we have 10,000 engineers and 100,000 workers. In the future we will have 30,000 engineers and 300,000 to 400,000 workers. I said earlier that BYD would become the No. 1 passenger vehicle manufacturer in the world in 2025. Most people do not believe it. But in fact, our current moves are all geared toward reaching that goal.”
“How dare I say that? Because of our talents. The 300,000 workers and engineers are my capital, more reliable compared with the capital market,” Wang said.
Xia Zhibing, general manager of BYD Auto Sales Co., Ltd., also pointed out that the company’s “master stroke is cost, efficiency and talents.”
“China’s human resources, whether manual labors or college graduates, are comparatively cheap in the world,” Xia said. “The cost of an R&D engineer in a foreign country is normally five to eight times higher than ours. So Chinese enterprises should make full use of our advantages in human resources, as BYD has done in battery development and auto manufacturing.”
According to a research report by several industry veterans, BYD manufactures 70 percent of the parts and components for its cars assembly. To reduce human errors and ensure product consistency and stability, Wang and his team invented special fixtures on the production lines. In addition, BYD places high priority in employee training and encourages employee creativity and innovation.
Since its establishment, BYD has recruited 5,000 to 8,000 graduates from colleges and universities nationwide every year.
In BYD’s organizational chart, there are three major divisions, IT components production, auto manufacturing and basic research and talent education.
One of BYD’s employees, who graduated in 2007 and joined BYD’s IT sector, described the company’s employee training program in an interview with CBU/CAR.
“All new staff receive a two-week introduction training, mainly about corporate philosophy and vision. Some courses are very good, such as business etiquette, writing of FMEA (failure mode and effects analysis) and career planning.
“Once the graduates are allocated to different departments, they will receive special and dedicate training. I heard that the training at the automotive engineering institute is very professional, which includes courses in CATIA software, ADAMS software, basic automobile knowledge, simple car disassembly and repair. Exams are designed for each course.
“After becoming a formal employee, we are also required to go through annual training. Everyone selected different courses in annual training. In our department, for example, a graduate must complete 48 credit points a year. And most of the courses are counted toward one or two credits. If you do not get enough credits or miss courses, some of your bonus will be deducted.
“Every department also arranges some special training according to job requirements. The training courses are all free.”
BYD also encourages staff to be innovative and apply for patents.
“Every year there is an innovation award. The minimum prize is ￥1,000 ($140), while the highest can go up to ￥100,000,” said the employee. “Once a patent is approved, BYD pays the inventor a cash reward.”
At the end of 2006, BYD gave 9 percent of BYD Electronics stocks to 35 senior management members worth about ￥86 million.
As a public-listed company in Hong Kong, BYD offers competitive salary and benefits to staff and workers. The employee interviewed gets a net salary of ￥3,500 per month and has a small apartment in a staff apartment building. In contrast, a new employee at competitor carmaker Chery Automobile has a monthly salary of only ￥2,500 and shares an apartment with three colleagues.
“However, under the current economic slowdown, salaries for 2008 graduates may be reduced,” said the employee.
Cost of labor
“The company does not want to say it is cutting jobs. The management calls it ‘optimizing human resources.’ But the entire company is contemplating reducing wages,” a BYD employee, who refused to be named, told CBU/CAR.
“Overtime payment for the extra days of work every other week on Saturdays may discontinue. As a result, monthly salaries may be down next year,” the person said.
As to the question whether BYD’s operations had been affected by the layoff, the employee said: “Most departments have not been affected. But as orders decline, we may not need so many people.”
Wang Chuanfu has relied on large numbers of human resources as core competitiveness in cost reduction. However, under the current financial turmoil, the company is forced to consider layoffs and wage cuts. As the cost of human resources continues to rise in the southeast coastal areas, it may have an adverse impact on BYD’s strategy. If one day BYD’s total number of employees goes up to 300,000 or 400,000 as Wang has envisioned, it will incur an enormous cost.
A BYD executive said that in the future the company may increase automation but the target of achieving high quality and low cost will never be changed. But the current economic slowdown may force the automaker to make a necessary adjustment as to the optimum ratio in between manual, semi-automatic and automatic operations.