Success on the move

FAW takes the road less traveled for sustained growth in Africa

T name FAW may not exactly ring a bell with most people outside China, but it would certainly strike a chord on the roads in South Africa.

China's oldest vehicle manufacturer has left an indelible impression in South Africa since 1994 with its range of affordable heavy-duty trucks and other commercial vehicles. And if things go according to plan, it will soon start making passenger vehicles at an assembly plant in Port Elizabeth, South Africa.

More importantly, China FAW Group Corporation, commonly referred to as FAW due to its original name of First Automotive Works, is expecting its robust performance in Africa to provide the momentum for expansion into other developed markets like Europe and the US. Set up in 1953, FAW has joint venture operations with many leading global vehicle makers such as Volkswagen, Audi, Toyota, GM and Mazda.

"Unlike other African markets that are full of second-hand cars, South Africa has a relatively better-established vehicle market, with an advanced sales network, and high demand for quality, after-sale services," says Hao Jianyu, deputy general manager of Africa Investment Company, a joint venture between the FAW Group and the China-Africa Development Fund. "In addition, it has a mature financing system that makes buying and selling of cars easier. There were no entry barriers for us."

Set up in 2010 in Changchun, Jilin province, the AIC is responsible for FAW Group's business development in Africa. FAW Vehicle Manufacturers South Africa (Pty) Ltd, an AIC unit, handles the FAW business in South Africa.

"The market requirements in South Africa are more or less similar to those of Europe and North America. We are confident that we can replicate our success here and in other overseas markets, too," Hao says.

However, the real focus for the company will be on the new assembly line in Coega Industrial Development Zone near Port Elizabeth.

When complete, it will have a knocked-down assembly line, body-building workshop and a paint shop. It will also include a product pavilion and an employee-training center. The project, spread over 87,000-square meters, envisages investment of $40 million. The first trucks to be assembled in the new plant are expected to roll off the assembly line this year.

"It will, however, take us three years to achieve the annual production goal of 5,000 vehicles," Hao says.

FAW is also looking to use its new assembly line to train more local technicians and workers. "Since there are limits to the technicians and employees that we can send to Africa, it is important for us to invest more in training and education programs for local talent."

Hao says the Coega factory will be the company's main maintenance hub in South Africa, as well as being the training and manufacturing center.

"We are hopeful that the FAW training centers will not only serve our needs, but become important public education centers and resources for those interested in relevant technologies and skills," Hao says.

FAW trucks first came to Africa in the 1970s as part of the Tazara railway project that built a line between Tanzania and Zambia. It was one the first big overseas projects executed by Chinese companies in Africa.

Buoyed by the encouraging response to its trucks, FAW decided to establish an office in Tanzania in the 1990s. "Our heavy trucks were initially exported only to Tanzania. However, it soon caught the fancy of an Austrian car seller who was running the Mercedes Benz renewal business in South Africa.

"The dealer convinced us that the trucks would be received favorably in other African markets too. We decided to take the plunge and initially entered the African market through dealers. In 1999, we decided that it was better to set up a local unit."

That decision, Hao says, was daunting, as the company did not have any ground experience. "Our earlier engagements were trade-related. The new decision meant that we had to look into other aspects like research and development, branding and after-sales service."

Hao says the real challenge was to establish the brand, as South African consumers were reluctant to accept Chinese or other Asian products in a market that had long been dominated by Western goods.

"Luckily for us, we could bank on the support from several old customers. Ten years ago, selling 100 trucks a year would have seemed over-ambitious, but now we are confident that we can sell at least 800 trucks every year," Hao says.

Concrete 4 U, a South African construction company and one of the contractors that built the 2010 World Cup football stadiums, says its association with FAW has given it the confidence to execute major and complex construction projects. "We have a fleet of more than 13 FAW vehicles, including mixer trucks," says Deon Fourie, managing director of Concrete 4 U.

Fourie says his company will continue to work with FAW to bring more efficient and cost-effective construction technologies to South Africa.

"Our return on investment from the FAW vehicles has been excellent. The vehicles have performed exceedingly well on all parameters. We have recently ordered another five vehicles from the company," Fourie says.

"The company's decision to start manufacturing trucks locally at Coega will help us further as it will lead to speedy deliveries."

With more South Africans now looking for products that can save costs, FAW will have an advantage over other companies because of lower prices and simpler maintenance procedures, says Zhang Cheng, FAW's marketing manager in South Africa.

"We have been in South Africa for 20 years and we have learned many lessons in this market," Zhang says. "We don't import vehicles from China directly, but make relevant adjustments depending on customer requirements."

Local regulations, climate and driving habits are different from those in China, so it is important for vehicle makers to make products that suit local conditions, he says.

As the company is expanding at a fast pace in Africa, quality of products and better management capability will be the key focus areas.

"It was not an issue for us to run a company when it had just 100 employees a decade ago. It is also not a problem for us to manage a huge company (FAW) back in China. But the new plant will be a major challenge for us, as it will employ people from different cultural backgrounds. We expect to have about 500 employees when the factory is completed in July," he says.

Maylee Harris, a 34-year-old working with FAW South Africa, says she has learnt several new interesting things such as the Chinese system of management.

"It's actually not just a matter of communication, but the learning of a different style of management. There are several things that both of us can learn from one another," Harris says.

Internationalization and localization have to be the future directions for Chinese companies in Africa, Hao of AIC says, adding that an information-oriented management system and a better-synchronized cultural atmosphere will bring additional benefits.

"We will put extra emphasis on after-sales services as this is our core competitiveness. What we are trying to do is to find a balance between personalized services and business expansion," he says.

lilianxing@chinadaily.com.cn

(China Daily Africa Weekly 04/11/2014 page19)