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The historical significance of DFCV

The new Dongfeng Commercial Vehicle Co., Ltd. (DFCV), a 55:45 joint venture between Dongfeng Motor Group Co., Ltd. (DFG) and AB Volvo was inaugurated on January 26. Jeffery Zhu, communications consultant to DFCV and chief editor of Win-Win Magazine of Dongfeng Motor Co., Ltd. (DFL), illustrates in the following account how DFCV realized its vision of one team, one voice and one direction through operating methods based on tolerance, understanding, trust and win-win. Zhu worked in DFL for eight years starting from 2003 as a Nissan commissioner to China after working for 13 years as a Xinhua News Agency reporter. – Editor

DFCV was part of DFL, the joint venture between DFG and Nissan established in 2003. It then “spun off” from DFL in 2013. The company learned valuable JV and modern operational expertise from Nissan over that 10-year period. Nissan did not have medium- and heavy-duty truck technology so it did not contribute to elevating DFCV’s product and brand, according to Zhu.

Different from DFL, which was inaugurated in less than one year after the two parties started negotiation in 2002 and experienced a tough run-in period, DFG began courting Volvo as early as the summer of 2006 and signed the cooperation alliance agreement on January 26, 2013. The inauguration came exactly two years later.

Why two years?

It took two years for the two parties to finally “marry”, so-to-say, since they were “engaged” in 2013. The only reason for the long wait, if there was one, was that both partners treasured the JV, so much so that it may have been excessive in some way, according to Zhu.

To prevent certain problems from occurring after establishing the JV, the two parties tried to operate the JV on a trial basis in those two years, including mutual high-level visits, communications between executives of key departments, and the establishment of eight strategic level pre-projects concerning human resources, business planning and products. It turned out that the cultures of the two companies fit quite well with each other, and the two-year warmup period proved worthy.

The 55:45 JV is quite different from traditional 50:50 JVs. Zhu Fushou and Gary Huang, the first chairman and president of DFCV, respectively, are all from DFG, while Jan Gurander, vice chairman, comes from Volvo. He is concurrently executive vice president of finance at Volvo.

Four commissioners from the operation management committee in charge of production, finance, subsidiary management, and export business are from Volvo. The first three have already served at DFCV for a year and the export business executive was recently appointed. Without the decade-long JV experience with Nissan, Dongfeng could not have handed such key positions to Volvo executives.

Take production and subsidiary management as an example. DFCV owns 13 subsidiaries, including general assembly, vehicle frame, vehicle body, engine, axle, carriage, special-purpose vehicle, refitted vehicle plants and plant in the Xinjiang autonomous region. DFG is very clear about the strategic significance of the new DFCV alliance, and trusted Volvo to be in charge of above key departments given the latter’s concession in share proportion. For DFG, the significance of the JV is to consolidate the leading position of DFCV in China, and pave its way to the global market. For Volvo, the significance is to grab share in the Chinese market, given its failed JV with China National Heavy-Duty Truck Corp. (CNHTC).

Volvo might not have agreed with the 55:45 equity share arrangement back in 2003. But given the importance of the Chinese market and the leading position of DFCV, it had no choice but to accept the terms.

One direction

All cooperation and JVs of Dongfeng, including Dongfeng-PSA, Dongfeng-Renault, and Dongfeng-Infiniti, have a common feature, which is one voice, one team, and one direction.

The one direction consists of three consistencies, including the consistency of overseas market, the consistency of consolidating DFCV’s leading position in China, and the consistency of Volvo’s success in the Chinese market. The consistency of overseas market naturally relies on the resources of Volvo. For example, the well-known Volvo Ocean Race is one of the key broadcasting events for Dongfeng, aiming to tell customers of potential markets, who is Dongfeng, where it is from, and where it is headed.

DFCV exhibited at the 65th IAA Commercial Vehicles in Hannover, Germany last year for the first time and grabbed plenty of attention from the international media, which was a very good start for the new JV and made the job of DFCV’s vice president in charge of overseas market, who came from Volvo, easier.

The path

DFCV has three main platforms, the Kinrun medium-duty truck platform, the Kinland heavy-duty truck platform, and Kinland Flagship high-end heavy-duty truck platform. DFCV ranked second in medium- and heavy-duty truck sales after stripping the Dongfeng Liuzhou business, and it is not easy to maintain its leading position under the “new normal” of a slowing economy.

The market demand of commercial vehicles in China will be under 1 million units and demand is shrinking every year, predicted Zhu.

To maintain its leading position, DFCV needs to improve technology, R&D, management, marketing and sales, merchandise planning through JV cooperation and expand into the overseas market. DFCV was aware of the existing domestic crisis in 2013 and timely introduced the Kinland Flagship products to grab new opportunities. 

Based on the principal of product differentiation, the two parties will complement each other’s advantages in the next few years, said Zhu. For example, Volvo has no Kinrun-equivalent products in the medium truck segment. And Dongfeng is dominant in the domestic heavy-duty truck sector with its Kinland truck and will become stronger with Volvo technology. The high-end heavy-duty truck brand Kinland Flagship will be prosperous with assistance of Volvo since the latter is an expert in high-end truck manufacturing.

One of the advantages of DFCV is its forwarding thinking. The company insists on the State-IV emissions standards strategy in the past years despite sales loss of State-III products. The market share of DFCV’s State-IV products has been leading the industry when the new standards are enforced nationally this year. It started to layout State-V and even State-VI products by consolidating and expanding the State-IV market, and the cooperation with Volvo will greatly strengthen its leading position in China. 

From run-in to integration

According to Zhu, the biggest challenge confronting the two parties after the inauguration is to shrink the run-in time, merge into the new company, and form a team with mutual trust. 

With 10 years of Dongfeng-Nissan JV experience and eight years of preparation time with Volvo and two years of warmup period, DFCV should operate smoothly. However, a sense of crisis should not be lost.

Personnel diversification is also important. The JV needs talents with different cultural backgrounds and experiences, emphasized Zhu.

Located in the remote mountain city of Shiyan in Hubei Province, will the new JV face bigger challenges? Zhu is confident that it will not. Nicknamed as the “truck city,” Shiyan itself is a city of immigrants which is quite open to the outside. DFCV prides itself in the fact that 90 percent of its employees are from Shiyan. However, as the plant cannot be moved easily, the new JV needs to consider aspects such as local economy, business and cost. The culture of the mountain city should be taken into consideration as well. How to make it a more open city? How to connect it to the overseas market? All of these questions remain to be answered.

(Rewritten by Jennifer Chen based on author’s article in Automotive Business Review)

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