- BRW Lists
Published 01 November 2012 04:03, Updated 01 November 2012 04:32
Expansion: A car component maker is moving into China Photo: David Mariuz
Car seat maker Futuris started looking overseas in 2004. It formed its first Chinese joint venture in 2005 and in April 2007 its first car seats rolled off a Chinese assembly line. It was a $16 million roll of the dice, chief executive Mark de Wit says.
They had to do something, however.
“We had really saturated what we could do in this country,” De Wit says. “We were of a view that Australian automotive was moving a bit too slowly towards global trends of smaller cars.”
That dice roll is now looking pretty good for Melbourne-based Futuris, which shed its original business of air-conditioning to focus on car interiors. In the year to September, 80 per cent of the company’s revenue came from Ford, Holden and Toyota, with the remaining 20 per cent coming from Asia. In three years’ time, however, De Wit says Australia will only just have the edge, with the breakdown more likely to be 54-46 per cent.
Asia will account for almost half of the world’s gross domestic product by 2025 (with China alone making up half of that) and four of the 10 largest economies – China (first), India (third), Japan (fourth) and Indonesia (10th) – will be on Australia’s doorstep. Having mapped out its Asian strategy early out of choice rather than necessity, in a post-global economic crisis world, Futuris may be a poster boy for the government’s Asian Century white paper.
“Australian firms need new business models and new mindsets to operate and connect with Asian markets,” the policy document says. “We will work to make the region more open and integrated, encouraging trade, investment and partnerships. Firms will adapt their business models to seize the opportunities.”
Futuris shows that adaptability. Over six months of research, the company whittled down a short list of six Chinese car makers of the 130 in the country at that time. These firms were not the top tier of large Chinese makers such as SAIC, which then made up about 90 per cent of car volumes. Futuris looked at second-tier firms that were likely to grow into first-tier ones.
“We tried to pick who will these winners be,” he says. “They were all in their infancy.”
These firms, with relatively small volumes, were more like Australian car makers than European or US ones. Chery Automobile, the top firm on the hit list of Elders-owned Futuris, for example, was only making about 76,000 cars a year in 2005, similar to Holden’s annual production of Commodores and Cruzes.
“We tapdanced for them,” De Wit says. “We showed off our skill sets.”
Futuris had an advantage over larger rivals – a uniquely Australian advantage.
“We might make 50,000 Commodores a year here but there will be 80 different seat kits that go into those 50,000 Commodores,” he says. “That’d be unheard of in the US, for example. They might have six different seat kits that go into 250,000 of those cars a year. We’re used to high levels of proliferation, low levels of volume and how to do that cost effectively.”
Futuris could offer what Chery was looking for at that stage and it has grown with the company.
Chery now makes more than 650,000 vehicles a year.
Futuris had to make concessions. A smaller operator such as Chery offered worse margins than a larger company. It had a dubious reputation in safety as well as in relationships with suppliers.
“Beggers can’t be choosers,” De Wit says. A relatively small company, even if it is one of Australia’s biggest components makers, couldn’t just march into China and demand work. It had to build up a track record with the aim of getting noticed by the larger makers.
“We knew we just needed to do an apprenticeship in China,” De Wit says.
That has happened. Futuris has now signed an order with premium car maker SAIC for a job starting in 2014 that “basically doubles” its China business.
De Wit says Australian business can get a further advantage over US and European rivals by learning Chinese business culture and some language.
He has done 12 weeks of Mandarin classes. Last week he had a first meeting with a potential new business partner, the first five minutes of which were done in Chinese, “albeit pretty ordinary.” They now have a follow-up meeting scheduled. That effort makes all the difference, De Wit says.
“Businesses can get up that curve pretty quickly if they choose to.”