China’s auto suppliers could face bumpy road

As China’s automotive suppliers rush to meet the demands of the world’s fastest-growing automotive market, an overcapacity problem may be brewing.

That’s according to a new survey written by Economist Corporate Network and released by the Automotive Industry Action Group (AIAG) and IBM Business Consulting Services’ Institute for Business Value.

More than half of the respondents to the survey plan to increase annual manufacturing capacity by more than 20% over the next five years, and yet just one in five expects market demand to equal that rate of growth.

In pursuit of lean operations, automakers worldwide have focused on investing in technology. With that in mind, the China Auto Suppliers Survey looked at how China’s automotive suppliers made use of process and production technology.

The study found that IT spending by automotive suppliers in China was generally low, with more than three-quarters of respondents investing less than $100,000 per year. When it came to automating operations, less than a quarter of the respondents to the survey said they used enterprise resource planning (ERP) systems.

But while advanced manufacturing concepts such as vendor-managed inventory are hardly present in China, more than two-thirds of companies surveyed said they want to improve their business processes in order to engage in inventory management, more accurate production planning, and tracking through bar-code labelling.

The survey polled nearly 300 respondents serving the light-vehicle market in China – cars, light trucks and buses up to 3.5 tons. Of the suppliers surveyed, 57% were purely domestic Chinese companies and 43% were foreign joint ventures.

AMT, a firm specialising in Chinese market research, carried out the research in Chinese, in February 2004.