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Overseas design houses set up shops in China

Magna Steyr, an Austria-based automotive design and engineering company, has recently set up its China Office in Pudong, Shanghai. Richard Hu, its technical sales director, has been traveling all over China over the past two years, making friends with executives of automakers and trying to win business for the Austrian firm.

Magna Steyr, a subsidiary of Magna International, is little known in China. But, if people get to know that it has designed the BMW X3 and Chrysler 300C, the firm is sure to win instant recognition in the country.

At first, we were regarded as an outfit selling consumer electronics,” said Hu. “It was even hard for us to win an appointment over the phone. At the time, we were too little known in the country to merit attention.”

This is no longer true. The company has now established business relations with a host of automakers, including Chery, Great Wall and Nanjing Fiat.

Nissan Motor Co., Japan’s second biggest carmaker, opened a car design office in Shanghai last September. The office, Nissan’s eighth facility of its kind in the world, will conduct design research for the Chinese market and coordinate with the company’s local suppliers, according to Shiro Nakamura, Nissan’s senior vice president and chief designer.

The office will also provide intelligence to Nissan R&D in Japan for the entire Asian market. “China is an emerging car market and we hope to learn the habits of customers here through this design office,” said the 55-year-old chief designer of Nissan.

Analysts say Nissan apparently wants to better tailor its products to the taste of Chinese customers to boost its rapidly increasing sales in the world’s No. 3 auto market.

Earlier, two Japanese whole vehicle design and engineering firms, EAC and Infec, joined hands with a Chinese firm, the Xueying Industrial Co., Ltd. in a joint venture in Shanghai. Called Xueying Automotive R&D, the company will accept commissions from automakers to engage in automotive R&D activities that range from concept car development to the trial production of whole vehicles.


Flourishing business


In recent years, attracted by quick profits, many deep-pocketed laymen in China have plunged into car manufacturing. The first thing they need is to develop attractive car models. In the meantime, with competition intensifying, established automakers have increasingly relied on new models to maintain and increase their market shares.

In 2004 alone, about 70 new passenger vehicle models made their debut in the market. Total cost for designing and developing these new models amounted to about $1.8 billion, according to calculations by an industry analyst. No automotive design company in the world can ignore a growing market of this size in terms of new model launches. 

That is why the last couple of years have seen a stampede of sorts into the China market on the part of overseas automotive design houses. Except those mentioned above, design houses that have set up or will soon set up operations in China include Lotus Engineering, Giugiaro, I.DE.A, Pininfarina, Bertone, Zagato and Stola. 

Their clientele in China include most carmaking joint ventures as well as independent automakers such as Chery, Brilliance Jinbei, Great Wall, Hafei and Chang’an.

Already, overseas design houses have been doing flourishing business in China. An indication is the brisk sales of computer software used for designing cars. Executives of most reputed design houses have participated in a recent business forum in Shanghai hosted by Alias, supplier of advanced automotive engineering software.

Said Yan Tianyi, president of Alias for the greater China region: “Sales of our software have doubled or tripled. Automotive design houses that do business in China have high expectations of this market. While they harvest gold, we’re just selling jeans.”

I.DE.A Institute of Italy has set up a wholly owned operation in China called I.DE.A Industrial Engineering (Shanghai) Co., Ltd. As one of I.DE.A’s three global technical centers, I.DE.A (Shanghai) formally opened to business in January 2005. So far it has won business from three major companies, and its business already accounts for a quarter of I.DE.A’s global total.

I.DE.A (Shanghai) now employs 25 engineers and designers, according to Luo Dongfei, a senior design engineer. It has developed three car models for Chang’an Automobile, including the CM8 that has already been marketed. “We will have two new models for Chang’an in 2006,” Luo said.

For Pininfarina, noted Italian design and engineering firm, about 30 percent of business now comes from China. It has signed an agreement with Changfeng Automobile on the design of a sports utility vehicle to be marketed in 2007. Aside from setting up a liaison office in Beijing, Pininfarina has had engineers stationed in Harbin, Wuhu and Changsha, where automakers Hafei, Chery and Changfeng are located respectively.

Giugiaro, another noted Italian design house, is also growing its business in China. It has won design work from Brilliance Jinbei, FAW, Nanjing Auto and Shanghai-GM. Its brainchildren include Brilliance Jinbei’s Zhonghua sedan and Shanghai-GM’s Chevrolet brand vehicles, according to Liu Jianmin, chief of Giugiaro’s Shanghai Representative Office. Liu maintains that most of Giugiaro’s clients in China are joint venture carmakers.

An industry official offers explanation on why joint ventures, which rely on their foreign parents for new models, can be customers of design houses. International automakers do not have the resources to design and develop all their car models. Some models are past their golden period and become less important in the product lineup. “For upgrades of such models, an automaker would commission an independent design house,” the official said. The automaker can therefore focus on designing its own hot-selling models.

Out of the necessity of reducing R&D cost and ensuring better products for Chinese consumers, joint venture carmakers are now relying more and more on engineering services provided locally. According to industry sources, a few joint venture carmakers have already begun developing new vehicle models jointly with overseas design firms.


Boosters for independent development of automobiles


With China becoming fertile ground for automotive design and engineering business, Magna Steyr’s small Shanghai office not long ago received the firm’s vice president for marketing and sales, Peter Harbig. 

Our strategy is to pay equal attention to the needs of independent manufacturers and joint ventures, but I would like to emphasize that Magna Steyr values particularly automakers having their own brands,” Harbig was quoted as saying to a local newspaper.

Magna Steyr helps clients not only with developing car models but also training personnel engaged in design and product development. What independent automakers need is systematic help,” Harbig said.

Magna Steyr even considers helping independent Chinese automakers export their products by incorporating European culture and consumer tastes into the products. “These independent automakers have plans to sell their vehicles to the European and North American markets,” he said. “We are confident that we have the ability to help them in this regard.”

The usual work process for Magna Steyr’s team in Shanghai is to visit customers and acquire information on what they need and what Magna Steyr can do for them. The team then feed the information to the headquarters in Austria where key engineering development is conducted.

The Shanghai office also allows local human, engineering and testing resources to get involved in the project. In the process, Magna Steyr helps clients train technical personnel, as stipulated in contracts.

A joint venture in China pays a technology transfer fee for the manufacturing of a vehicle, the design of which belongs to the overseas partner. But if a joint venture commissions a design house in the development of a vehicle, the joint venture would own the intellectual property rights. 

Industry analysts maintain that the cost of developing a new car model in China is about one-third of, or lower than, that in Europe and North America. Design in an outsourcing package usually covers styling, the body, the chassis and electrical devices. For China’s independent carmakers, lowering the cost of development is of critical importance.

Magna Steyr’s objective, however, is not to achieve the lowest cost,” said Harbig. “Rather our aim is to seek the best results for our customers by using as much as possible competitive local resources as well as Europe’s most advanced professional expertise.” 

International design houses have arrived in China to expand business and make a profit. But there is no denying that they can serve as a booster for the efforts of independent vehicle development in China.


Partially based on an article by Wang Liang, published in Jingji Guancha Bao (Economic Observer)

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