By David Shaw, ERJ staff
This is more of a blog than a news story, but I'm in Guangzhou, having visited a couple of tyre makers and wanted to share some opinions.
First, everyone here is serious about improving the quality of their tyres. I've been talking to some purchasing managers in tyre makers and, if I'm honest, it is hard to tell apart their views from the attitudes you might get from a western tyre maker.
Ask how they select a supplier and the answer comes back first quality and second is price. A few years ago, if I asked the same question I might have heard the same answer. The difference now is that they mean it.
There are two reasons for that. First is that the global suppliers are definitely more expensive, but they can offer technical support, whereas many of the local suppliers, no matter how cheap cannot. No surprise there. The Chinese have always been willing to use Western technology however they got their hands on it.
Second, and this is the more interesting answer: where a product line can generate good profit margins, there is scope to pay more for better quality ingredients. That's pretty straightforward. More subtle is that tyre makers over here are willing to sacrifice their already tight margins in order to buy better materials in the hope that these will help them deliver a better label score in Korea, Japan and of course Europe. A good score on the label will lead to more profit, they believe. I think they are probably right.
I was with a senior purchaser today at South China Tire which makes the Wanli and other brands. He said that he knows the Chinese tyres sell for lower prices than their Western counterparts, but that if South China can improve the quality by using better ingredients, then they will end up with more profit in the long run. South China is still State-owned, but the word here is that even the State-owned factories are employing better people and reducing corruption.
For example, I asked how they go about selecting suppliers every three months for a given supply contract and the common answer - not only from South China, but also others - was through a process of sealed bids from selected, qualified partners. The lowest bid is accepted and that bidder gets the majority of the business. Other bidders are given the choice of supplying, say 20 percent of the business, but only if they match the best price. Take it or leave it. And in this culture you don't leave it, unless you want to be out of the bidding for the next three or four quarters.
The other point I picked up is that Chinese tyre make are very keen indeed to avoid being identified as non-compliant with REACH and other EU legislation.
As a result, suppliers of any product which might contain an aromatic (non-compliant) oil are asked to prove compliance with EU REACH rules on PAH oils.
As I understand it, even the westerners do not ask resin suppliers, for example, about PAH content of their oils and materials. So the Chinese believe they are being stricter than their Western counterparts in order to comply with EU legislation.
I also asked what Western suppliers need to do to retain their places on the most favoured suppliers list and the answer was interesting if predictable.
Western suppliers need to cut their prices further, while maintaining the same levels of customer service and technical support. Chinese companies, meanwhile, have to improve their technical service, but maintain their price advantage.
At one level, this response is entirely predictable. But at another, it tells me we are in a time of change. That the Western suppliers still have the technical edge, but as they have cut costs, they are winning good business from the Chinese. Meanwhile, the Chinese suppliers - and there are some very smart ones out here - need to better understand the requirements of the marketplace, by learning about REACH; about labels and about how to solve process problems within the factory.
Once that happens, I guess we will have a range of suppliers, some from China, some from the US and some from Europe and elsewhere, but we will no longer be able to say European suppliers are …. And Chinese suppliers are …. And have a consistent way to fill in those blanks, Instead, we'll be able to say that supplier X offers great technical service and their prices are reasonable, while supplier Y has great prices and great reliability and consistency, but offers little in the way of technical support. It will be more about the culture and attitude within each individual company than about the place they happen to be based.
There is one final paradox here. The managements really understand the value of reliable sourcing and the need for quality control and consistent product performance, and the purchasing teams are willing to pay for that.
However, the people on the production line have some different values: they believe they are saving the company money by using process scrap and other off-spec materials. It is this lack of a deep quality culture which brings down the quality of the products we see in Europe. Certainly the managers I spoke to have a deep sense of pride in their products and brands, and they are willing to pay to ensure that quality and reputation is advanced and developed. Too often - for now - they are being let down by ill-informed workers on the shop floor.
I wonder how long it will take to turn that culture around, because from what I hear, most export-oriented companies are determined to do exactly that.