African success revs for auto firm

China FAW Group Corp takes the road less traveled for sustained growth in Africa

The brand FAW may not ring a bell with most people outside China, but it certainly strikes a chord on South African roads.

China's oldest vehicle manufacturer has been carving an indelible impression in South Africa since 1994 with its range of affordable heavy-duty trucks and other commercial vehicles. Next, if things go according to plan, it will start making passenger vehicles in Port Elizabeth on South Africa's southern coast.

More important, China FAW Group Corp - or FAW, due to its original name of First Automotive Works - expects its robust African performance to give momentum for expansion into other developed markets like Europe and the United States. Established in 1953, FAW has joint ventures with many leading global vehicle makers, including Volkswagen AG, Audi AG, Toyota Motor Corp, General Motors Co and Mazda Motor Corp.

"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 market services," said Hao Jianyu, deputy general manager of Africa Investment Co, a joint venture between 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," Hao said. "We are confident that we can replicate our success here and in other overseas markets."

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

When complete, it will have a knocked-down assembly line, body-building workshop and paint shop. It will 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 at the new plant are expected to roll off the line this year.

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

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

"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 said. "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."

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 of the first big overseas projects by Chinese companies in Africa.

Buoyed by the encouraging response to its trucks, FAW established a Tanzanian office 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," Hao said. "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 said, 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 said 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 overambitious, but now we are confident that we can sell at least 800 trucks every year," Hao said.

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

He said 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 said. "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, said 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 said. "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 said.

As the company is expanding quickly 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," Zhang said.

Maylee Harris, a 34-year-old working with FAW South Africa, said she has learned 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 said.

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