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Why FAW Jiefang outperforms (II)

FAW Jiefang is the leading heavy-duty truck manufacturer in China and an important subsidiary of FAW Group, the “cradle” of China’s auto industry. Hu Hanjie, president of FAW Jiefang and a lifer at FAW, recently shared his insights into the auto industry and philosophies of running the country’s leading heavy-duty truck manufacturer in an exclusive interview with Auto Business Review (ABR) on July 15, shortly after he drove the 700,000th Jiefang J6 truck off the assembly line. Editor 

 

No chances for the multinational truck makers in the next five years”

 

ABR: What are the prospects of multinational commercial vehicle manufacturers in China? Do they have a chance?

Hu: Not much, at least not in the next five years. China imports about 4,000 heavy-duty trucks per year, most of which are 4×2 trucks for high-end logistics and express delivery.

Generally speaking, western trucks have higher operational reliability and efficiency. There are lots of things we need to learn from. But when it comes to price and performance ratio, our trucks outperform. That means in the short run, the demand for foreign trucks is unlikely to surge, as Chinese trucks help users become more profitable faster. Although regulations for safety and emissions are becoming stricter, cost is rising and our price and performance ratio advantage will diminish. It is a long process.

But still, it provides us new chances. For example, the China 6 emissions standards will go into effect in 2020 or thereafter. Before then, imported foreign commercial vehicles have few chances to rival Chinese domestic products. Of course, with the development of express delivery services, volume is likely to rise. But the fundamental market structure will remain.

Even after the implementation of China 6, we will still enjoy advantages of lower prices. Chinese truck manufacturers will also progress further in technology and management. 

 

ABR: Can you elaborate on how you have gained a better understanding of management principles over the last decade?

Hu: Last year, I presented a report at FAW’s annual strategy seminar talking about sustainable development of Jiefang. I mentioned six strategies and three supports. One of them is management reform.

Management is an administrative, cultural and ideological issue. It takes longer time to see the effects. In the meantime, we should gradually form our own principles.

As a result, we initiated a project to construct a process-oriented organization. We established a committee, and hold monthly meetings to discuss current problems and to guarantee that policies have been implemented.

Of course, the reform inherits our traditional spirit and past experiences. It is not radical. After all, we have accumulated experience for 61 years, endowing us with a good enterprise tradition.

 

ABR: Take Jiefang’s rivals, like CNHTC, Shaanxi Auto, JAC, SAIC-IVECO-Hongyan, into consideration, how many competitors could survive in the Chinese commercial vehicle market?

Hu: As regulations become stricter, companies have to invest more in R&D. Otherwise they cannot survive. So the market will definitely reshuffle and weed out the weak. But we are not sure about whom and when.

By improving the engines, most trucks can meet the China 5 emissions standards. But China 6 requires more, like the processing system and thermal balance. In other words, the whole truck needs upgrading, which demands huge amount of investment. Lots of Chinese companies lack such capability, but seeking foreign partner help requires even more money. How many trucks should you sell to recover that cost?

Why are foreign truck manufacturers investing in China? Maybe they are attracted by synergistic effects, to spread the developing cost over more partners. That means more manufacturers will merge together. That is the law of market.

 

Why Jiefangs are selling so well

 

ABR: Why have commercial vehicle sales risen despite China’s economic slowdown?

Hu: Before the GB1589-2016 took effect in August 2016, the market was under normal conditions. Truck makers relied on the quality of their products and promotional strategies to outperform. We did fairly well, gaining increasing market share. I did prefer that kind of competition, as some small companies ran into crisis due to their incompetence.

However, after the implementation of the GB1589-2016, the maximum payload of heavy-duty trucks decreased from 55 to 49 tons. The government put in lots of efforts to contain overloading. But the overall volume of goods transported remained unchanged. As a result, the demand for trucks went up. Capacities reached their limits and smaller players finally received some orders and were saved by this policy. However, this harms market and hinders efficiency in the long run.

To me, policies and regulations still exert the biggest influence on truck sales. But it disturbs the natural law of the market.

 

ABR: FAW Jiefang has regained its position as the leading heavy-duty truck manufacturer after so many years. Your thoughts?

Hu: First of all, it is 60 years of effort that have helped Jiefang. That is the prerequisite. Take production technology for example. We invested ¥5 billion to construct new production bases during the 10th Five-Year Plan period. Then during the 11th and 12th Five-Year Plan periods, Jiefang successively invested more than ¥10 billion. The persistent efforts to research, develop and improve have helped us. Secondly, it also has something to do with systems and institutional administration.

 

ABR: When the Jiefang J6 debuted in 2007, it faced enormous challenges.

Hu: Exactly. It depends on how we turn the advances of technology into advantages of products and market share.

First, the rapid response to market change is crucial. Commercial truck producers must act quickly, or you will never gain an advantageous position. Jiefang did quite well in this aspect.

Second, product development should be accurate and rapid. We launched different versions for southern and northern parts of China, and quite recently the high-altitude versions hit the market. All of these efforts indicate the significance of right products for the right markets.

Third, quality must be guaranteed, and more importance should be attached to product reliability.

Fourth, Jiefang provides customers thorough and satisfactory service. In the past, we focused solely on repair services. Now we offer all-round service.

Fifth, our marketing and promotional capabilities have been strengthened. In recent years we have done a better job of getting our good-quality products known and acknowledged by more consumers.

I did a lot of marketing related work while at FAW-Volkswagen. Its marketing strategies for passenger vehicles were already systematized. Those for commercial vehicles somehow were left behind, but have improved a lot in recent years. I’m trying to apply the ideas and concepts of passenger vehicle marketing to commercial vehicles. Also, we should keep on advertising our Jiefang brand. If our products are good, I believe the marketing and advertising can be quite effective.

 

ABR: When it comes to the quality of products, say, the southern, northern and high-altitude versions, what if rivals replicate Jiefang’s tactics?

Hu: Of course they can replicate their versions for the niche markets, but we will try our best to advance technologies. Also, it will take them more than one year to replicate our current products. If they don’t have their originality, they can never be far ahead but follow what we do.

We will guarantee the advance of our technologies and marketing strategies. The products we put into the market must be our best ones. Additionally, we have technologies that can be utilized when needed. It depends on the cost performance ratio and consumer acceptance.

Actually, we have lots of good technologies. But when putting them into products, we have to consider more about the cost. The customers may not accept higher prices. So we just follow the law of the market, and never blindly compete with foreign manufacturers in technology. We know how European components improve active and passive safety. If the market demands them, we will develop them as soon as possible. All in all, real market demand is our top concern.

 

“Jiefang has the decision-making power”

 

ABR: Is Jiefang’s outstanding performance closely associated with enterprise reform? Like breaking down barriers between departments and establishing production management units to overcome shortages?

Hu: Definitely. In the past, communication between departments was infrequent. Say, the production and sales departments might make different decisions on the same issue, impairing the total decision-making efficiency.

The production management department was formed in 2015. It has the power to draft unified plans: according to the demand of the market, what kind of products will Jiefang develop? This department has the final say. Also, the unified plan includes relevant services and branding strategies. Other departments must follow this plan.

Jiefang has the decision-making power when it comes to plans for commercial vehicles. FAW Group gives this responsibility to Jiefang. Zhu Qixin is the deputy director of the FAW Technology Center, vice president of Jiefang and director of the production management department.

It also has something to do with the cooperation between Jiefang and FAW. FAW Technology Center has great capabilities, but how to exhibit its R&D prowess? We took advantage of these resources and formed an interdependent relationship and synergetic power between us. Jiefang also supports and encourages FAW Technology Center to do better according to the unified plan.

I had worked at FAW Jilin for five years, and cooperated with FAW Technology Center as well. At that time, FAW Jilin had a worse condition and less resource than what Jiefang currently has. But we achieved a lot. So, I think the methods of teamwork are quite productive.

 

ABR: Have you ever set up some goals for yourself? Say, what kind of position should Jiefang achieve in the commercial vehicle sector?

Hu: Last year, Jiefang’s truck celebrated its 60th birthday. We said that our goal is “to be the lead in the domestic market, and to be the first-class in the global market.” Before 2016, we said “to be the lead in the domestic market, and to be well-known in the global market.” The change in wording choice set up a higher goal for Jiefang.

At that time, our exports of commercial vehicles increased every year. If Jiefang wants to be the lead in domestic commercial vehicle market, it needs to perform well both in domestic sales and exports. Jiefang can never achieve its goal if it ignores the importance of exports.

Besides, not only should Jiefang manufacture good tractors, but also produce excellent cargo trucks and engineering vehicles. After all, the cargo truck market is the second largest one for us. With intercity logistics becoming more advanced, demand for cargo trucks will continue to increase. With the implementation of the Belt and Road Initiative, there will be more infrastructure construction and demand for engineering vehicles will also grow. Only by performing well in all aspects can we solidify our advantageous position in the market.

(Translated by Shi Shengyuan based on authors’ article in Automotive Business Review)

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