By Klaus-Dieter Floerecke, AutoNews China
Shanghai, China - Freudenberg-NOK Group, the German-Japanese joint-venture auto supplier, continues to expand in China. But it does not view China as a source of inexpensive parts for export back to Europe.
The group is setting up its fifth Chinese factory, a coatings plant for shaft seals in Wuxi, Jiangsu province. The plant is expected to begin operations in May, 2007.
But the continuing investment doesn't mean Freudenberg-NOK views China as a source of inexpensive parts for Europe, say senior executives. In fact, says JÃ¶rg Sost, a Freudenberg board member, "For the most part, we don't consider China to be a low-cost area."
The group, formed by Germany's Freudenberg group and Japan's NOK Corp., mainly produces engine and drivetrain gaskets and seals. Freudenberg is ranked third in ERJ's list of top rubber processors (excluding tyres) while NOK is ranked 10th. Together the two companies would top the list by a long way.
Sost says the group manufactures in China to serve the local market. Only 11 percent of production is exported, and that percentage is falling, he says.
Rising wages in China are one reason. Michael Heidingsfelder, who is in charge of Freudenberg's China gasket business, says wages there are rising 10 to 15 percent a year. Romania, Estonia, the Czech Republic, Hungary, Poland and other central and eastern European countries offer lower-cost production, he said.
"The prices for our products are now at European levels," he said. "And the level of vertical integration is at European levels as well."
Heidingsfelder also points out that elastomers and other raw materials are not available in China and have to be imported. The same is true for some types of steel.
Revenue from the China gasket business totaled about â‚¬56 million euros (584.1 million yuan) last year, but Heidingsfelder expects that to rise about 70 percent this year, to 990.9 million yuan.
The Freudenberg group generated revenue of 50.12 billion yuan in 2005. The auto industry, including replacement parts, accounted for 44 percent of the total.
From Automotive News China (A Crain publication)