SPEAKING
FREELY Low cost isn't
everything By Benjamin A
Shobert
Speaking Freely is an Asia
Times Online feature that allows guest writers to
have their say. Please click hereif you are interested in
contributing.
The difficulties
revolving around the introduction of the Jiangling
Landwind sport-utility vehicle (SUV) in Europe
demonstrate the need for Chinese companies to
take the time to investigate how to penetrate
export markets. While having a cost advantage is
important, it must be balanced against
sensitivities implicit in how foreign economies
manage their intangible expectations and
standards.
Not every Chinese business will
be sensitive to this view, but
those
companies that are alert will be among the group
of companies pioneering the next level of maturity
and sophistication for the Chinese economy.
The Landwind entered the European market
through a vehicle distributor in the Netherlands
that saw an opportunity to grow its own business
with an SUV that was about 50% cheaper than
comparable European makes. Unbeknown to Jiangling,
a number of Landwind SUVs had been purchased for
crash testing by the Allgemeiner Deutscher
Automobile Club (ADAC), a prestigious German
organization whose rating system has become a
widely accepted standard for vehicles sold in
Europe.
The results of the testing were
pointedly summarized in one German media outlet as
"'catastrophic' ... In a frontal crash test the
Landwind delivered the worst result ever in the
history of ADAC crash testing ... Crashed against
a barrier at a modest 64 kilometers per hour, the
Landwind's entire frame collapsed, and stunned
engineers had to 'amputate' part of the crash
dummy's legs to remove it from the wreckage.
"A separate side-impact crash, which is
usually easy to withstand by heavy SUVs, showed
that the Landwind's designers 'hardly wasted any
thoughts on modern security standards' ... With no
side airbags nor even padding, the dummy's head
suffered what would have been serious injuries ...
Summing up its findings, the ADAC said: 'The
Landwind is as dangerous as a tornado'" (Source:
"Chinese Landwind SUV panned in crash tests",
Expatica.com, October 11, 2005).
Even a
casual review of the numerous European articles
covering the ADAC Landwind testing showed that
little serious effort had been made to investigate
what had actually taken place during testing. The
first official press release from Landwind was
forced from the company during a motor show in
Frankfurt, where the company had to respond to
crash results it was not aware had been completed.
The official Jiangling response was
somewhat tepid and ineffectual: "Regarding the
ADAC test, let me explain our official position.
As we were not invited by the ADAC during the
whole crash-test process and since we have not
received any official information or summary test
report from the ADAC until today [October 5], we
cannot make any detailed or specific remarks on
the test results."
The Landwind
distributor from the Netherlands tried to fight
its way back into the good graces of the European
automobile buyer with an extended press event at
the Frankfurt show. During the announcement, the
company's officials and its sole distributor in
Europe revealed how little it had known about the
ADAC testing. Since the Frankfurt Auto Show, its
damage-control mechanisms kicked in as it
attempted to respond to allegations its product
was unsafe for driving on European roads.
"After all, we as the official importer
had not been informed before and we were not
invited to be present when the tests were
performed. Upon our request for further
information, there was only silence. Our lawyers
issued a formal request for further information
but received no answer either. Let me repeat this
information because it might sound weird; we have
not seen any data from this crash test, although
we have requested this over and over again ... We
contacted the TUV [Rheinland, an international
automotive servicing and testing group] and asked
them to perform a comparable test with a similar
vehicle, at short notice.
"Fortunately the
TUV saw a possibility in its tight schedule to
repeat the crash test under clinical conditions.
This was completed ... and we are here to report
back to you what they found. The result of this
crash test is very encouraging. The crash-test
measurements for both driver and passenger confirm
that this vehicle is fully compliant with current
EU regulations ... We have been hit very hard by
this publicity, and we think that not all has been
fair. Today we have informed you about the prudent
and professional approach that we have towards
issues such as these."
Chinese automobiles
do have a reputation, as one might expect given
the sector's developing status, for not being as
safe as their North American or European
equivalents. Some studies suggest Chinese
automobile-related fatalities are 2,000% greater
than in the US; whether this is entirely due to
product design, the comparative abilities of
Chinese versus American drivers or of basic
infrastructure needs in China has not been
established. Landwind's safety issue makes sense
given the economic design limitations that many
Chinese businesses currently labor under.
But as Jiangling ultimately proved, the
Landwind product passed the necessary European
Union testing with only the slightest of
modifications - the addition of a bar to the
undercarriage. Unfortunately for Jiangling, this
simple modification was only found to be necessary
and implemented after the devastating public
relations problem that occurred during the
Landwind's European market launch.
Unfortunately, what was an inexpensive fix
came at the cost of an expensive PR nightmare.
Jiangling's failure was not solely product design.
It was the manner by which it entered the European
market and its insensitivity to those factors that
European consumers would look for and European
competitors would fixate upon.
Jiangling
badly needed export-market expertise working on
its behalf at least 18 months before its European
launch. Such attempts would have focused not
solely on price analysis, but also on regulatory
requirements, coordinating the necessary testing
of the products, addressing aspects of styling and
overall product design, as well as interviewing
potential distribution partners - not merely
settling for the one partner that had shown the
initiative to contact Jiangling.
People on
both sides of the China debate have strong
opinions about the entry of Chinese-made
automobiles into European and US markets; some
believe China's participation, even on the basis
of depressed cost inputs and deflationary market
prices, is good for the global economy. Others
believe its participation is bad for global
stability because it is predicated on unrealistic
and unsustainable low prices.
The
Japanese model The model par
excellence for automobile manufacturers
becoming globally competitive and successful in
export markets is the Japanese, although making
broad comparisons between China and Japan in
regards to these questions can be somewhat
deceiving. The obvious similarity is that the
Japanese economy overall was perceived post-World
War II as being capable of producing only the
simplest and lowest-quality goods, including cars.
Today, China has matured in many
industries beyond this status; however, within the
automotive sector, the comparison to Japan in the
1960s is stronger. Japan's vehicle production in
the '60s was nominal at best, and of dubious
quality. But as the Japanese economy developed,
its competitive strengths took on some uniquely
Japanese characteristics.
Japan's success
was not entirely the result of its commitment to
principles of manufacturing efficiency that had
previously gone uncared for by North American
industry. The Japanese automobile industry
profited greatly from its design of much smaller
and more fuel-efficient vehicles than their
American competitors. With the oil crisis of the
1970s, American consumers became much more willing
to accept smaller and more fuel-efficient vehicles
as a way of keeping an automobile, albeit with
concessions in terms of style, size and substance.
This is the intangible part of any
market's development, for the best of plans to go
from moderately successful to wildly
world-changing (an assumption too many people
casually make concerning China's growth), an
underlying attribute of a product must become a
core need to the global community. In Japan's case
the oil crisis made its compact and fuel-efficient
designs relevant within a time frame no amount of
progressive marketing ever could manage.
Simply to chalk up Japan's success to the
tangible benefit afforded it through its
dedication to the late W Edwards Deming's
manufacturing principles or to the intangible
benefits that opened up to it at the onset of a
global oil crisis would be an incomplete analysis
(Deming was an American professor generally
credited with introducing the Japanese to quality
assurance).
Japanese auto manufacturers,
Toyota specifically, made very wise choices when
the time came to elect how to enter the US market.
This part of the Japanese automobile industry's
success story is too often overlooked but was
central to its success, just as similar choices
will be equally essential for Chinese businesses
seeking to export their way to success.
If
China's automobile industry is to achieve the same
measure of success as Japan's, it must offer the
global community something it does not already
have: a technology or product with a deliverable
and quite tangible benefit that other auto
manufacturers have overlooked. It will not be
enough for China simply to make an equivalent to
an Isuzu SUV at half the price. Both inside and
outside the auto sector, Chinese manufacturers
must innovate, or any growth they do experience
will ultimately be short-lived and cannibalistic.
Without innovation, competitors will be
doing exactly what the Chinese do, and both will
be forced to compete only on price. If this
happens within a market, it will further
de-emphasize the potential for innovation because
companies cannot afford to invest in research and
development when their margins are eroding. Most
troubling is the idea that the potential for
China's contribution to the world could be stymied
as a consequence of too many business models
focused purely on price and not on innovation.
The irony that much of the Japanese
competitive strength in the automobile sector was
predicated on ideas that were uniquely American in
origin has been lost on most people. Culturally,
the Japanese mindset and approach to business
easily accommodated a mastery over details other
business cultures deemed too trivial and
unimportant to track. The culture that saw intense
beauty in the intricacies of a finely landscaped
garden or miniaturized bonsai tree was ideally
positioned to see similar depth and nuance in the
mastery of those quality-control details that
others were unwilling to pay close attention to.
In a similar way, the ultimate realm of
competencies that China will develop will
doubtlessly build on ideas that already exist, but
whose adaptation has not yet gone forward because
the ideas do not fit within the way other
companies and cultures approach business. Within
this realization lies much of the
paradigm-shifting potential for China. Its success
may ride on the back of a similar adoption of
undeveloped, unapplied and unappreciated concepts
of doing business.
More likely still is
that as the growth of China continues it will be
able to shake loose of entire technology paradigms
and launch into areas of development not yet
conceptualized. As just one example, the uniquely
Chinese solution that unfolds in the automobile
market may incorporate entirely new technologies
that circumvent the established means by which
people transport themselves in Europe and the
Americas.
More practically still, there is
a historical lag between the invention of an
automobile safety feature and the time that it
becomes available for consumers. Existing but
unexecuted solutions may provide incremental
opportunities for a particular Chinese
manufacturing sector to establish the worthiness
of its own products, ideas and thereby its brands.
In the US, the automobile has become a
cultural icon or, at the very least, a somewhat
adolescent fixation. The American ideal of
personal freedom is innately tied to the autonomy
afforded a person with a car, representing his
very real opportunity to go anywhere he likes, at
any time he wishes. Within China, the automobile
represents the broader ideal of progress. But
because the archetype of the automobile is
somewhat less clearly formed in China, the
potential exists for new technologies that
significantly change a part of the driving or
auto-ownership experience to be accepted.
Couple this potential for easier
adaptation of new technology with the cultural
ability of the Chinese people to appreciate the
need to think collectively, and the opportunities
for new advances in personal transportation
exponentially increase. Within a still-developing
country like China the significance of personal
transportation, and the untapped creative
potential of its business people and technicians,
coupled with its openness to new technologies, the
opportunity to introduce an entirely
paradigm-shifting technology is in many ways
greater than now exists in the US and Europe. But
as Jiangling's experience has shown, such
market-shaping greatness will not be found on
price alone.
Benjamin Shobert is
the managing director of Teleos Inc
(www.teleos-inc.com), a consulting firm dedicated
to helping Asian businesses bring innovative
technologies into the North American market.
(Copyright 2006 Benjamin Shobert. Used
by permission.)
Speaking Freely is
an Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are interested in
contributing.
