Wheels and deals in growing business

Beijing company banks on joint venture to upstage Toyota in South Africa

It is not often that one finds a new entrant stealing the thunder from established global firms in mature automobile markets like South Africa.

But a Chinese automotive company is fast climbing the ladder and looks set to zoom past the market leader, Toyota of Japan, in the fast-growing South African minibus market.

The Chinese company has already made a mark with its 16-seater Sasuka minibuses, which means, "we are departing" in the local Zulu language. More importantly, these vehicles have become popular with customers for their reliability, affordability and value-added features.

"We want to dislodge Toyota in minibus sales in South Africa," says James Chung, 50, chief executive officer of BAW South Africa.

Sitting in his sprawling office on the East Rand in Gauteng province, about 50 km east of Johannesburg and 70 km southeast of Pretoria, Chung says success in South Africa could also prove crucial for the company's long-term success.

"Our products are cheaper (than Toyota's) and of exceptional quality. It's just that we need to do much more to promote our brand."

BAW South Africa is a joint venture between Beijing Automotive Works, the Industrial Development Corporation of South Africa and China Africa Motors. It was set up in November 2012 to assemble minibus taxis on a semi-knocked down basis.

BAW's parent company, Beijing Automotive Industry Holding Company, holds 51 percent of the shares in the company, the balance being held by the Industrial Development Corporation of South Africa and China Africa Motors - a company set up by James Chung and family.

Chung, born in Taiwan, started his trading business in South Africa in 1991, selling items including gadgets, electric fans and tires.

Chung's company, China Africa Motors, was the previous importer and distributor of BAW taxis in South Africa. It holds a 24.5 percent stake in BAW South Africa.

Chung says the South African taxi market needs at least 18,000 new vehicles every year. These are expected to carry more than 7 million people to school or work, he says.

"The average lifespan of a taxi is seven years at the most, thereby creating the demand for at least 1,500 to 2,000 new vehicles every month."

The Industrial Development Corporation of South Africa estimates that annual taxi sales in South Africa would touch 28,000 units by next year. It also estimates that a further 100,000 vehicles are sold in the rest of southern Africa.

Toyota sells 1,100 minibuses every month in South Africa, while BAW South Africa is averaging about 200 vehicles. Chung expresses confidence that sales can be lifted to 400 in the short term.

Chung says brand promotion is the key to success, but adds that other factors like having more dealers, creating more jobs and enhanced investment are crucial for BAW in the long run.

The Chinese parent has already spent 196 million rand ($27.5 million) in BAW South Africa, and this in turn has created more than 469 jobs, he says.

"The investment is also expected to add more than 1,000 new jobs for suppliers and dealers."

According to Chung, most of this investment has been used to set up a taxi manufacturing plant in Springs, Gauteng province. The semi-knocked down facility is expected to be a completely knocked down vehicle plant with an annual capacity of between 40,000 and 50,000 units by next year.

The long-term plans for the Springs plant would involve an additional investment of between 2 billion rand and 3 billion rand, says John Jessup, BAW South Africa's head of sales and marketing.

Chung says the company has a sizable number of local employees. "Nearly 95 percent of the 170 employees at the Springs facility are from South Africa. At present, we can make 1,500 minibuses every month at the facility."

Jessup says minibuses can provide reliable, safe and cost-effective taxi services in South Africa.

"We want Sasuka to dislodge Toyota's Sesfikile," he says. "Though Japanese auto brands are global giants, it does not mean that Chinese companies cannot compete with them. They also have weaknesses like expensive after-sales and maintenance services."

Affordability and better after-sales services will be the key for the Chinese venture, Chung says.

He adds that though Chinese companies are late entrants, they can use the African experience as a valuable steppingstone for other developing markets.

"Compared with the evolution of the Japanese brands in the global markets during the past decade, Chinese manufacturers now have unique advantages like a huge domestic market and abundant capital."

He says that though the Sasuka and Sesfikile are similar in engine power, the maintenance costs for the former are much lower. The Sasuka has several passenger-oriented features, including a touch screen on the console for CD/radio as well as DVD player, comfortable seats and a factory-fitted air-conditioning system that "consumes almost no oil with modern technology".

"Consumers will also get a two-year/200,000 km service plan, which also covers maintenance of the entire braking system. Our efforts are to focus on quality and safety in the long term, and not just the prices," Chung says.

South African consumers will accept Chinese brands as long as the company is able to ensure quality and after-sales services, he says.

"Apart from doing more to boost consumer finance, Chinese companies also need to step up the overall quality levels, especially in terms of quality consistence."

The company plans to expand its dealer network from the present 36 in the long term and assemble SUVs and pickups at the Springs plant later this year. Also on the cards is the manufacture of diesel-powered vehicles to cater to demand from neighboring countries, Chung says.

Though BAW South Africa recently increased the selling price of its taxis to 315,000 rand from 300,000 rand, it is still cheaper than Toyota, which sells minibuses for about 320,000 rand.

"The Springs plant is the first significant step for BAW to go abroad. The facilities and personnel are in place and the team excellent. However, sales have been hampered due to inadequate consumer financing channels.

"Vehicle sales are always a tricky situation for overseas companies and Chinese companies are no exception. It would be worthwhile for Chinese companies to add consumer financing options for long-term success in African markets.

"It is a grey area for most Chinese companies, as unlike their foreign peers, they do not have the orientation or cultural background to provide consumer finance services."

BAW South Africa set up its consumer finance department two years ago with a capital injection of 5 million rand and nine employees. It now provides individual loans of up to 260,000 rand for minibus purchases.

Though its loan portfolio has reached 50 million rand, BAW is contemplating formal alliances with local banks only after it crosses the threshold of 100 million rand, Chung says.

"Local banks are more interested in guaranteed returns while Sasuka is a new brand in the local market. Only about 30 percent of the buyers can get loans from banks. We extend financing options to those who can afford a minibus but were blacklisted by banks for small sums of money," says Peter Wu, a manager with the consumer finance unit of BAW South Africa.

The company is also adding more features like integrated tracking hardware equipment and GPS navigation in its vehicles.

"Through regular interaction with existing and prospective customers, we hope to reap long-term rewards in South Africa," Chung says.

Contact the writers at xingzhigang@chinadaily.com.cn and lijiabao@chinadaily.com.cn

(China Daily Africa Weekly 05/09/2014 page20)