From imitator to international manufacturer
Decoding Chery's Success
Eight years after its first "mitation" of a Spanish car hit the streets, Chery has emerged as China’s seventh largest carmaker, rivaling Taiwan’s entire output. How did Chery do it?
Decoding Chery's SuccessBy Liang-Rong Chen
From CommonWealth Magazine (vol. 368 )
A year following its establishment, when Chery Automobile of Anhui Province, China, was developing its first automobile, the “Windcloud,” in a molding factory in Jhongli City, Taiwan, Chery chairman Yin Tongyao frequently came to Taiwan on inspection tours. What they called “developing” was actually the copying of an economy car made by Spanish automaker Seat.
Eight years later, Chery is now the seventh largest carmaker in China, with 300,000 in total sales in 2006, rivaling Taiwan's entire output. More impressive is the fact that Chery, as one of very few companies in China and Taiwan that has not joined forces with a foreign brand, has crafted itself as a successful independent manufacturer.
Even though Chery's earlier models were denigrated as knock-offs, Chery is no longer an imitator. The new factory models in its mixed-model production line are all designed locally or in its Italian workshop.
Chery is also China's largest exporter – in 2006, it sent over 50,000 vehicles abroad, mostly to Iran, Russia and other emerging markets.
Potentially the next Toyota or Hyundai, Chery is yet another symbol of the Chinese threat. When word came recently that the financially strapped Chrysler might be up for sale, Chery was the first potential buyer named.
Chery and Chrysler signed an OEM agreement at the beginning of 2007, and the economy cars to be produced in Wuhu City will be exported to the U.S. in the future.
It is hard for many to believe that energetically ambitious Chery can be a state-owned enterprise. Wuhu City committee secretary Zhan Xialai, founder and long-time chairman of Chery, finally handed the reins to Yin three years ago, when public criticism of his status as a “red-hat merchant” (a businessman holding a government position) came to a head.
Today, Chery is the equal of FAW and Shanghai Automotive. That the RMB50 million National Automobile Engineering and Technology Research Center for Energy and Environmental Conservation was established at Chery's facilities is proof. The research center will focus on R&D of the next-generation hybrid vehicle.
At the Auto 2006 expo in Beijing, Chery showed the hybrid propulsion system for its original 1.3-liter ACTECO engine, estimated to save 32% of fuel.
As Chery grows, other world-class car parts manufacturers have flooded into Wuhu. A local official in charge of marketing points to empty blocks on a map, each assigned its own major manufacturer: Siemens, Bosch, die-casting giant Muller Weingarten, and seat manufacturer Johnson Controls will all have new plants near Chery's new headquarters within two years.
Chery has given Wuhu a breath of life, filling up Wuhu's two four-star hotels with an unending stream of international visitors. “They're all here to see Chery,” says a cab driver, proudly.
Decoding Windcloud's success
When asked about the secret to Chery's success, Wuhu Economic and Technological Development Area administrative committee director Yang Liangwen relates, “Having a young and energetic team is very important.” The economic development area is one of several state-owned enterprises in Anhui with a stake in Chery.
Yin is 45 years old, and his major officers are all around 40 years old. The ability to deal with a high stress position is an advantage of youth. Yin's office is jokingly called the “7-15 Office,” because he works 15 hours a day, seven days a week.
The latest generation of young Chery executives includes a number of former expatriates. Its vice president for purchasing Yuan Tao formerly worked for Valueo of France. And on a visit to Ford in North America several years ago, Yin recruited a group of overseas Chinese working for Ford as the backbone of Chery's auto research institute.
Today, with its international-class suppliers and internationally experienced talent, Chery is fast-becoming a world-class automaker.
What is beyond the industry's comprehension is how “Windcloud” was produced. The shell was manufactured in Taiwan, but what of major parts such as the engine, undercarriage, and transmission system?
To answer this question, we must return to 1999. Chery had specifically chosen the Seat model for imitation, because this model, which used the undercarriage and transmission system of the Volkswagen Jetta, is one of the most widely driven cars in China. More importantly, as Yin used to be a Jetta factory director, he knew the undercarriage and related suppliers like the back of his hand – supply was not going to be a problem.
This was exactly what academic research dictated. After studying nine Chinese car plants and 12 auto parts factories, Professor John Sutton of the Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) at the London School of Economics and Political Science concluded that an important side effect of China's attracting foreign investment is that “local car manufacturers can grow quickly with the effective use of cheap, high-quality foreign car parts.”
While enthusiastically sweeping into the Chinese car market, international manufacturers like Volkswagen and General Motors have unwittingly helped to create their own future rival.
Translated from the Chinese by Ellen Wieman
Chinese Version: 解開奇瑞成功之謎