Expansion of capacity, technology upgrades will proceed according to plan

A slowdown in the world's largest vehicle market last year has not deterred foreign manufacturers of auto parts from putting more capital into China.

Industry insiders say the investments are not only for capacity expansion but also technology upgrades.

Fierce competition in the country's passenger vehicle market has raised the bar in terms of technology, said Andrew Thomson, a partner at KPMG China and Asia-Pacific chief of the company's automotive division.

"Increasing complexity, as well as rapid changes in both technology and how people are using vehicles, are creating significant challenges for manufacturers, especially in the auto parts industry," Thomson said.

KPMG's research indicates a high degree of uncertainty as to what will be the dominant technologies. Internal combustion engines, hybrids, plug-in hybrid electric vehicles, pure electric vehicles, fuel cells or some innovation that has yet to be developed are all potential contenders for primacy in future markets.

Thomson said the complexity requires suppliers to move up the technological value chain, build strong balance sheets and invest wisely. This could possibly be achieved through partnerships and alliances to defray costs and diversify risk. Another strategy is to develop and retain strong talent with an eye toward research and engineering.

"Thus, heavy investment is crucial for a bright future," he said.

Success story

A worker at an auto mould factory in Cangzhou, Hebei province. Combustion engines, mould, hybrids, plug-in hybrids, pure electric vehicles, and fuel cells are all technologies that will be contending for dominance in future markets. [Wang Min / Xinhua]

German technology and service supplier Robert Bosch GmbH announced recently that it will maintain an annual investment scale of 3 billion yuan in China in 2013 and in the years to come.

"The compound annual growth rate of 25 percent over the past decade makes China a Bosch success story. And we strive to achieve double-digit growth in 2013 and the future," said Uwe Raschke, Bosch's management board member responsible for the Asia-Pacific region.

The company reported consolidated sales revenue of 41.7 billion yuan in its second-largest market in 2012.

A number of measures were introduced to improve the company's ability to adapt to the local market last year, and these will continue in 2013, said Chen Yudong, president of Bosch (China) Investment Ltd.

These measures include the delegation of many decision-making powers to branch offices as well as the release of more products oriented to local markets, Chen said. The company will also continue its long-standing tradition of conducting research locally, he said.

To meet market demands in western China, Bosch established a communication center in Chengdu, which will also act as a service hub for the entire country.

In addition, its chassis plant in the same city will open this year. Plants for packaging technology and power tools will be completed in 2014.

In Nanjing, Bosch's automotive aftermarket division just opened a new plant, which will be the group's biggest spark-plug production base as well as the research and development hub for the Asia-Pacific region.