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Local design house TJ Innova maps out future competition in China

To Lei Yucheng, chairman of TJ Innova Engineering & Technology Co., Ltd., competition in China’s automobile market is both complex and cruel. It is complex because all of the major multinationals have set up assembly plants and local players have emerged. It is cruel because the current 50 percent market shares owned by joint venture automakers may further decline and China’s future automobile market will be equally divided among three players: JV, private and State-owned.
 
“Some joint venture automakers are gone,” Lei told the audience at CBU’s 2008 Presidents’ Forum on April 18 in Beijing. “With competition, not every JV assembly will survive. Some may die because of costs,” he said.
 
(photo: TJ Innova chairman Lei Yucheng)
From the perspective of an automobile designer, Lei believes that for an automaker to survive in China, it must have quality, cost control, innovation and service. A successful company in China must find a balance between low-cost and high-quality.
 
For a local Chinese automaker without much of a brand equity to survive in a competitive market, it must be able to develop an automobile at half the cost of a South Korean automaker, Lei told the audience, just like the Japanese when they developed their vehicles at 25-50 percent of the cost of Europeans and Koreans at 50 percent of the Japanese.
 
Likewise a Chinese automaker needs to spend only one-eighths of the investment normally made by a European automaker and their vehicle prices should be between ¥20,000-¥100,000 ($2,857-$14,286) cheaper than a Western brand in order to survive and compete.
 
“Currently in China there are five different approaches in automobile R&D,” Lei told the conference attendees. The first is the JV approach of getting designs from the headquarters of the foreign partner, which involves a cost of 50-100 million euros. The second approach is defined by such local automakers as Hafei, Changhe, Chang’an and Brilliance- Jinbei to outsource from foreign design houses but unable to pay full cost. The third approach is to conduct in-house design, like what Geely has been doing, with not much experience and professionalism and therefore has little added value and profitability.
 
The fourth approach is to outsource design from both overseas and local design houses and manufacture vehicles on their own, such as what Great Wall and Jianghuai Auto have been doing. And the fifth approach is to cooperate with design houses to develop vehicle products, such as what BYD has been doing.
 
“I believe that as competition intensifies, the best approach for local automakers to succeed would be No. 4 and No. 5,” Lei said. “The JV approach will have to modify in order to stay competitive. And the 2nd and 3rd approaches would probably phase out.”
 
TJ Innova is China’s largest independent design house based in Shanghai, which employs over 1,300 engineers. Founded in 1999, TJ Innova has 10 R&D centers and is capable of developing 30 new vehicles and 15 upgraded vehicles a year. Currently 60 percent of its customers are joint venture or privately owned companies, 20 percent foreign companies and 20 percent State-owned automakers.

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