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SHANGHAI, March 23, 2018 /PRNewswire/ -- Following the acquisition by Aviation Industry Corporation of China (AVIC) in 2011, the 110-year-old Nexteer Automotive, once an auto parts division under GM, has found its way into rapid development.
The EVs and autonomous vehicles are gaining impetus, what impacts will the market changes exert on the company's future growth?
In a recent interview with Automotive News China, Zhao Guibin, Chairman and CEO of Nexteer Automotive says that it was a series of reforms that created the rapid business growth for the company, and he believes that more potential will be unleashed as the company advances reforms and global strategies.
Reform first
Nexteer has seen a 72.7% growth in revenue and over five-fold growth of profits over the past six years. In 2017, the company registered a 19.4% increase in net profit year-on-year. When explaining the key to the company's success, Zhao said, "It is all thanks to reform - a term we Chinese like to mention."
Having to compete with over 30 international enterprises, AVIC joined hands with Beijing Yizhuang International Investment & Development Co., Ltd. to complete the acquisition of Nexteer in April 2011 and gained 51% of controlling staking in Nexteer, by which Mr. Zhao became its Chairman and later also CEO of the company, bringing his long-time service experience in AVIC as the branch CEO of aircraft engines and parts.
For Zhao, it is only natural to feel the urgency for reform while enjoying the success of the purchase. "How to turn a company that even the Americans fail to manage well into a success? If you follow their practice, it cannot get you far. So, the only way out is to reform," Zhao recalled.
To carry out a successful reform, it is important to first get a clear understanding of the company. The American automotive industry enjoys a first-mover advantage in the world, as is the case with Nexteer, which, after century-long growth, has its own technical expertise and rich product portfolio. However, it also has its weak links.
Therefore, after taking office, Zhao made a candid critique to his American management team on the problems: "When I visited them in America, I told them that the current state of the company resembles pre-reform Chinese state-owned enterprises - over-staffed, fixed in operation model and inefficient."
In his eyes, Nexteer at that time also suffered from its incomplete functions: "The then Nexteer, though seemingly a large company with many plants in different places, was actually a business division of incomplete functions, and was far from an independent company."
To address the gap, Zhao focused his efforts on two aspects: first, to turn Nexteer into a fully functional and efficient independent company by reorganizing its business in North America; and secondly, to speed up its global expansion to grow it into an independent global company.
Total transformation
It takes time and huge efforts to build a mere business division into a global company. However, with a firm belief in "a journey of a thousand miles begins with a single step," AVIC took holistic steps to push ahead with its endeavors for cultural and institutional transformation.
According to Zhao, building the company into a global enterprise is a strategy developed by AVIC when it joined the purchase bid. "When I met the company leaders in America, some of them showed concerns that we might turn it into a Chinese company. But I told them we were growing it into an international enterprise instead," he said.
The globalization strategy was not designed to please its shareholders, but rather a product based on the research on and insight into the automotive industry. "We saw that in a special industry like the automotive, a company must go global, or it would not get any chance. In this sense, it is unlike other sectors such as the construction business, which can gradually expand its business by focusing on a regional market," said Zhao in retrospect.
The effort to adopt a global vision must start with top-level design. Before it was purchased, Nexteer had an all-North-American management team. The day after the acquisition, three senior executives were recruited from across the world who immediately took their posts as consultants of the audit committee, compensation committee, and strategy committee under the board of directors.
Of all its business operations, Suzhou stayed an excellent achiever. Over the past few years, several of its management were promoted to higher positions into its global headquarters, assuming posts such as global COO and senior executives in charge of Human Resources and Manufacturing.
To reach an aligned understanding of the globalization strategy among its management, Nexteer built its new global headquarters in Auburn Hills, Michigan, and moved there in August 2016. Since Auburn Hills is only a few dozen kilometers away from Nexteer's North American headquarters - Saginaw - why should a new global headquarters be built in a nearby site?
"It is critical to do so, because we cannot use the American headquarters as our global headquarters. North America is important, but it cannot represent the global business. So, I decided that we should build another one, even if it is only 10 km away," explained Zhao.
In the new global headquarters, business sectors are set up to serve its global strategies, and high-tech facilities are equipped to make it easier for real-time communication among its global teams. At present, its senior executives attend the regular meetings at the new headquarters. "It might seem like a little thing, but it does create new ideas among the management team by strengthening their global awareness," he added.
Zhao stressed the importance of corporate culture in its global operation. A true global enterprise is not a simple gathering of its subsidiaries across the world, but an entity which, through a unified thinking, can create synergistic effects among its operations across the world and ensure a systemic management. As proved by facts, it was the adoption of "one Nexteer" culture that brought the company a late-mover advantage in a few years after the reforms.
Also, it has launched reforms and optimization of its internal processes, and pursued lean manufacturing and productivity restructuring, to enhance efficiency and better support a global footprint.
Zhao said that in the past all the processes from material sourcing to manufacturing were done inside the company, but now things have changed a lot by outsourcing. "It is decided by our capital input ratio management. That is, we must consider the risks and return of investment though we do not lack funds," he said.
In addition, Nexteer was used to the calculation of EBITA, namely earnings Before Interest, Taxes, and Amortization, in its financial management. But now it focuses more on net profit, and the financial department is also required to conduct global tax planning to help the company maximize its profits. Benefiting from the continuous specification and optimization of its business operation and investment, the company has now become exemplary for its strong balance sheet and outstanding cash flow to support investment in on-going growth initiatives.
Accelerate globalization
Since becoming a member of AVIC Automotive, Nexteer has speeded up its global footprint expansion. So far, it has 24 plants, 14 customer service centers and 3 technical centers around the world.
As shown by the particularity of the automotive industry and the development of its global giants, an automotive company must grow into a global player to survive in the competition and achieve sustainable development. So, Zhao stressed that Nexteer will speed up its globalization process in both R&D and manufacturing.
In China, Nexteer now owns 4 wholly-owned manufacturing plants, 4 joint-ventured plants and 1 technical center - the only one and the headquarters of Asia-Pacific region. Last November, Zhao broke ground on the new technical center building in Suzhou Industrial Park.
The new technical center encompasses 30,000-plus sq. meters, including 14,000 sq. meters of office space and 12,000 sq. meters of R&D facilities and a test & validation lab. Departmental functions housed at the site will be product engineering, manufacturing engineering, purchasing, finance, sales and management. Nexteer's plans for the site also include a 4,500 sq. meter vehicle test track with eight lanes, incorporating complex roadway environments. It is expected to be completed at the end of 2019, and will house approximately 1,000 employees, enhance technical support as well as customize product solutions, R&D, production, testing and validation for the local market.
In another large Asian market, India, Nexteer already has 3 facilities manufacturing EPS and driveline products. It is also planning on building a new software center near Bangalore with over a couple hundred engineers to support the digital transformation and upgrade of its global business.
Looking at global footprint, Nexteer continued to expand in its strategic regions in 2017, including 3 new plants in Brazil, Mexico and Indonesia, a new plant in Liuzhou and a new customer service center in Japan – all to better serve its diversified customer base. Nexteer announced its new Morocco plant this February, marking its first-ever African manufacturing base which will support business development in Africa and Europe with its strategic location upon completion.
Nexteer's global manufacturing footprint and in-house capabilities in producing high-quality, safety-critical steering and driveline systems has always been the key differentiators. Zhao introduced Nexteer's latest Digital Trace™ Manufacturing with an example of its model global plant – the Liuzhou Plant. DTM streamlines and connects thousands of data points throughout the manufacturing and product design lifecycle. Nexteer's industry-leading system also uses tools such as digital dashboards, a real-time Kanban system, an operator-face-recognition system and a pre-warning system based on connectivity. Consequently, Nexteer's Liuzhou team achieved improvements in production safety, delivery, quality and management, and won Liuzhou's first batch of Smart Factory recognition. Design, construction and operation of the new Liuzhou plant will follow the principals of energy-saving, environmentally-friendly and intelligent systems, building upon experiences from the current manufacturing operation system to lead the industry toward an advanced manufacturing era.
Eyeing future technology
Nexteer enjoys a leading advantage of technology heritage and system integration experience, and has a unique edge in ADAS and autonomous driving R&D. To get ahead of the game, it invests more than 6% of its revenue in engineering.
As the industry strides into the age of intelligence and autonomous driving, technical advantages allow the company to invest in future technologies at a fast pace.
Nexteer supplies a wide range of products from the cost-efficient Column-EPS for smaller vehicles, to powerful Rack-EPS products for pick-up trucks, to commercial vehicles such as heavy-duty trucks and buses with its MTO systems. With its in-house R&D, design, testing, verification and production capacities, the company is now the only automotive steering system supplier that has all the core technologies and design of all key components "at home".
As for new product R&D, through continuous efforts for innovation, the company has enabled a quick prototyping-to-market approach with iterative rapid prototyping and design, which optimizes every process from product conception to mass production.
At the 2018 North American International Auto Show, Nexteer launched its advanced steering technology suite, which serves as the technology base from which the company offers a unique combination of steering innovations addressing the evolving role of technology in a semi- and fully automated world. This advanced technology suite features several key components including Steering on Demand™ System, Quiet Wheel™ Steering, Stowable Steering Column, Steer-by-Wire, and High Availability Electric Power Steering.
As one of the safety critical systems for vehicles, cyber security is also a key focus of the company. By integrating multi-layer cyber security at a steering system level for maximum protection, Nexteer's technologies consist of specifically designed hardware modules on the semi-conductor level, as well as a multi-layered cryptographic software structure, that identifies and authorizes information and command flow between the steering system and other in-vehicle or external controllers.
Besides in-house R&D capabilities, the company also cooperates with its customers, industry peers and disruptors in ADAS technology. Zhao told Automotive News China that several strategic joint ventures and technical alliances have made progress, including CNXMotion, a joint venture in the R&D of advanced steering and braking technology with Continental AG, the long-term strategic alliance with Wabco to make Active Front Steering available for commercial vehicles, and the joint venture company specializing in electric power steering system between Nexteer and Dongfeng Motor Parts & Components Group.
Many of the functions of ADAS and autonomous driving are performed with the support of an electric power steering system, such as lane-keeping assist, traffic jam assist, parking assist, and lane departure warning. The company's EPS, coupled with its steer-by-wire system, will create more possibilities for OEMs in active safety and autonomous driving.
Anticipated growth
Driven by its strategy to become a leader in intuitive motion control, the company is pursuing technological advancement to grow itself into a global company and a global leader in steering system.
"I have served as CEO in the aircraft engine and parts company of AVIC for almost 20 years, so I have my own understanding, perception and passion for technologies. To become a leader in intuitive motion control, we must base our work on technological innovation. That is why we have always taken technology as the key factors to win the competition in the market," said Zhao.
But his vision for the company is more than that. He wants Nexteer to take a lead in all aspects with a growing business and increased agility and efficiency. "We are striving for leadership in technologies, profits, and market share."
The company has registered a rapid business growth after joining the family of AVIC Automotive. It seems that it will be harder for a company to remain highly responsive and effective after growing in size. However, Zhao believes that Nexteer's management team is problem-oriented, so that solutions could be offered so long as the issues are identified. "When asked whether I want growth or efficiency, I answered that I wanted both," he said with a smile.
When looking back on the past few years, he said that the efforts have been focused on the transformation of Nexteer's business in North America, a quite sweeping move that has borne fruits now. For business in North America, the company will advance further reforms; for other markets, the company will push ahead with its global expansion.
Talking about its future development strategies to drive a robust growth, Zhao said, "We are going to promote diversification on three fronts: product portfolio, customer base, and regional operation. This strategy will help us take a bigger market share and lay a firm foundation for future growth."
Looking ahead, he said, "We will continue with our reform and globalization drive. There is a long way to go, but we are sure that more potential will be unleashed for further growth."
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