On June 9th, 2007, “Manufacturing†China-Bestwinning Global Management Forum was held in the third floor banquet hall of Beijing Jingguang New World (21.18, 0.04, 0.19%). The theme of this forum was “Global Manufacturing Excellence.†Management how to dock to China." As the exclusive portal partner of this event, Sina Finance broadcasts the grand event of the forum. the following
Speech for Mr. John Watkins, Chairman and CEO of Cummins China Investment Co., Ltd.
Hua Jinsheng: Good afternoon, everyone, I am very pleased to share with you the history and experience of Cummins' business development in China. Thanks to Peking University International MBA and "Chinese and Foreign Management" magazine, together with the Central Industrial Alliance of Japan for providing such a rare opportunity, I especially thank my old friend Yang Zhuang.
You have received my resume. When I first came to China, I studied in Shanghai from 1980 to 1982 to study Chinese. After I graduated, I joined Northwest Airlines. After 18 years, I joined the United States four years ago. Cummins. I feel very 'cool' after leaving the aviation industry with many problems and joining the booming industrial manufacturing industry. Today I can communicate with so many excellent manufacturing industry experiences. I am even more 'cool'!
This afternoon, I would like to share with you briefly the overall business strategy of Cummins Inc. and how we can adapt to China's local needs.
Cummins Inc. is a multinational company with operations in more than 130 countries around the world. Our global workforce is 35,000 people. Our business is divided into four business units.
Cummins is the only engine company in the world that has five key diesel engine systems. In addition to diesel engines, Cummins also manufactures and distributes a wide range of components and engine-related consumables. Cummins' engines mainly include diesel and natural gas engines, and we also produce generator sets.
Cummins Inc. was founded more than 80 years ago in Columbus, Indiana, in the Midwestern United States. After nearly a century of development, Cummins Global Headquarters is still in this small city.
Cummins’s early development was characterized by two founders. One was William Elvin, the banker of the local town of Columbus. The other founder was Mr. Irwin’s driver. The driver also helped Erwin’s house repair. Something, his name is Klesey Cummins, and Cummins is named after him.
At the end of the 19th and early 20th centuries, the modern diesel engine technology invented by the German inventor Rudolph Diesel was in the ascendant. During this process, Cummings founder Kleiss Cummings saw the huge commercialization of diesel technology. potential. He had an idea to purchase a diesel engine production license from Germany and then establish a diesel engine factory in Columbus, USA. For his partner banker William Erwin, he was more interested in the fact that by investing in factories, the workers had wages, they would want to buy a house and they would lend to banks so that his bank could Lending makes money.
Cummins’s international production, that is, the establishment of plants outside the United States, began in the mid-1950s. In the mid-1960s, Cummins listed on the New York Stock Exchange.
The two founders of Cummins, William Erwin and Kleine Cummins, laid a very good corporate culture for Cummins at the beginning of the company's development. This culture can be attributed to integrity and integrity. Innovation, the third is global operations. This corporate culture has permeated Cummins throughout its development in the course of nearly a century of development.
Cummins currently employs 5,470 people in China, has more than 20 entity companies, invested 200 million U.S. dollars in China, and has sales of 1.13 billion U.S. dollars in China in 2006.
Cummins has been working with China for more than 60 years. According to the company's internal records, the earliest Cummins business in China dates back to 1941. The man on the right side of the screen called Erwin Miller, the nephew of company founder William Irving, who had served on the Pacific battlefield during the Second World War and served as the chief of Cummins Inc. from the mid-1930s. manager. He once considered in 1944 that once the end of World War II, when China entered the post-war reconstruction, an engine factory was built in China to carry out local production. However, his ideas could not become a reality until 1975 due to various historical reasons.
Cummins’ formal commercial cooperation with China began in 1975. At that time, the United States exported a number of heavy mining trucks to China, all equipped with Cummins engines. The mining trucks were mainly used in the Benxi Iron Mine in northern China. Elvin was the chairman of Cummins at that time. He visited China in the summer of 1975. The main purpose of the trip was to establish long-term cooperation with China Heavy Machinery Import and Export Corporation. The key is to sign the after-sales service agreement for these engines. After Irwin visited China, in the winter of 1975, Benxi Iron Mine and China Heavy Import and Export Corporation dispatched two groups of technicians to Cummins headquarters for training. This year marks the official establishment of commercial cooperation between Cummins and China.
The early development of Cummins's business in China benefited from Dr. Lin Weiyi. Dr. Lin graduated from Tsinghua University in 1936. During his 40s at the University of London, he had a lot of students from mainland China. In the late 1940s, Dr. Lin chose to go to the United States. In the following thirty years, he achieved very good academic research in the field of engine combustion engineering. In the mid-1970s, he joined Cummins as a senior executive of Cummins Technology R&D. At the same time, when China began reform and opening up after 1978, many of Dr. Lin’s classmates at London University had already become China’s national ministries and commissions at that time, including the senior cadres of the State Planning Commission and the Ministry of Machinery Industry. Lin Weixi’s classmate relationship played an important role in the early stage of Cummins’ entry into the Chinese market.
In 1975, Cummins sold its first batch of heavy mining truck engines to Chinese customers. In the following five years, Cummins engines performed very well in the use of major Chinese mines and were generally recognized by Chinese mining industry customers. At the same time, Dr. Lin Weiyi also played a role in his relationship with some of his classmates. Combining these two factors together, Cummins has started to enter deeper business development in China. Our Chinese business begins with off-road equipment, primarily mines and construction machinery. Then our business expanded into the automotive industry throughout the 1980s. This chart shows the main course Cummins has developed in China over the past 30 years.
Cummins' China strategy has been very simple and straightforward from start to finish. We have been committed to providing customers with the right products at the right price and the right technology from the very beginning.
Over the past 30 years, Cummins' business development in China has been very steady. We have been able to meet or exceed our customers' needs while developing our business. This is the key to our success in the Chinese market. This chart shows that during the past three years we have started sales from 2004 and we have sold billions of dollars in China. Last year it was 1.13 billion US dollars.
There are many reasons and factors for the success of Cummins business development in China. I cannot tell you in detail because of time. Here I will talk with you from two aspects.
In the first place, the biggest key to Cummins' success is that we quickly achieved localization. This localization is broad, including our people, our management team, including our products, and the localization of our 'total capabilities'. .
The second is that we have had a proven business model in China for 30 years. Our business model has two key areas. The first is to find local strategic partners, and the second is to manage the market. To achieve diversification.
Let me talk about the localization of the management team.
Cummins China’s senior management team has a very diverse professional background and educational background. Our senior management team shows this chart. Our senior executives are from five countries. They are from the age of 31 to 66 and have a total of more than 20 master's degrees.
From the professional background, our senior executives come from eight different industries. This is similar to the education background. Cummins’s senior executives served in the company for the shortest period of time, with the longest reaching 37 years.
Among our more than 20 operating entities in China, we also have a very diverse and mid-level managerial team with very rich education background and professional experience.
From a gender perspective, in our company's workforce, whether it is engaged in manufacturing, production, or sales of various industries, together, 35% of employees are women, and 22% of middle managers are women. The staff of our management team come from all over China, from the northeast, northwest, southwest, Hong Kong and Taiwan. Our personnel composition is very diverse. There are no employees or managers in any of our areas in the company. It can be said that we do not have such situations as 'Sichuan Gang' or 'Northeast Bang'.
Another important point is that the professional background of these management personnel in our management team and their professional experience are very diverse. They come from at least 12 industries.
Another important reason why we have gained a dominant position in China is the local production of our products.
From the early stage of Cummins' entry into the Chinese market, we realized that we cannot rely solely on selling our imported products to the Chinese market. If we want to gain a dominant position in the market in China, we must make direct investments in China. We used to do this. We are now adopting such a strategy.
Our local production can be summarized from four aspects.
The first step is to use imported products to open the Chinese domestic market.
The second step is to conduct local production and manufacturing in China through license production and later joint ventures or wholly-owned operations.
The third step is to realize the localization of the supply chain in China.
The fourth step is to establish its own after-sales service system throughout China.
In addition to product localization and localization of managers, there is a very important key point is the localization of 'comprehensive capabilities'. This comprehensive ability can be summed up in two points. The first one we need is a strong local after-sales service capability in China. Second, we must have the capability of local engineering research and development in China.
Starting from Cummins' localized production in China, we realized that having our own distribution service network played a very important role in maintaining the company's long-term business development in China. We started direct investments in China in the late 1990s and built our own distribution service channels. So far we have 12 wholly-owned distributors throughout mainland China, including Taiwan and Hong Kong, and we also have more than 230 authorized agents. Business.
Another important aspect of our localization in China is local research and development capabilities. Until recently, some basic research work on the Cummins engine, practically speaking, was conducted outside China. In 2006, we established our own R&D center in Wuhan. The R&D center can engage in the design and development of new products and new engines. We can also do application engineering and product customization. Having a local R&D center is a key step for Cummins' business development in China.
Our research and development center established in Wuhan, China, on the one hand, can provide Cummins with the most important local new product development and engine testing for its business development in China, as well as technical equipment matching with OEM equipment. From another perspective, this R&D center is not independent. It is coordinated with our 16 R&D centers in seven countries around the world. It is a key component of our global R&D network.
In addition to localized production, another key development strategy for Cummins in China is that we have always had a proven business model and business strategy. Cummins's market strategy in emerging countries including the Chinese market, in general, is to establish joint ventures with local vehicle manufacturers instead of establishing cooperation with local engine factories. We adopted such a strategy in China because we chose a vehicle manufacturer to carry out strategic cooperation and set up a joint venture so that it can rapidly realize the mass production of the engine and can most effectively reduce the production cost of the engine. At the same time, we can make full use of the existing distribution channels of Chinese joint venture partners. Regardless of whether Komatsu in Japan, or TATA in India, or China’s east wind, we used such strategies and achieved success. Therefore, we think this strategy is better.
In our joint ventures and cooperation, Cummins has always taken care to ensure that our local partners are successful in the market because only local partners, our partners in these vehicles sell well in the market, and our joint venture engine sales will be good. .
Cummins has not only established a pure business partnership with local partners in joint ventures and cooperation in China, but we have also learned a great deal in this cooperation. We have learned a lot of local management experience, for example, we The cooperation with Japan's Siu Fung Company has learned a lot from Cummins to improve quality management and improve its production management capabilities. We have learned how to reduce production costs more effectively in cooperation with TATA, the largest automotive company in India; we are in China. In cooperation with Dongfeng Motor Corporation, we learned the key point is how to quickly expand business in multiple markets.
Here I give you three small cases. Through these three small cases, I will introduce Cummins' business development strategy in China.
The first case was Chongqing Cummins, our joint venture plant in Chongqing. Our first commercial cooperation in China was to establish a Cummins heavy-duty and high-horsepower engine license production agreement with the Chongqing engine plant under the China Heavy Vehicle Group headquartered in Jinan at that time. Our license agreement with the Chongqing Engine Plant was signed in 1981. During the period from 1981 to 1995, both Chinese and foreign parties obtained great business benefits through this license production agreement. Our license cooperation between the two sides began to rise from the mid-1990s to a 50-50 equal joint venture. From the beginning of the joint venture, we encountered a very typical case for U.S. companies. We have encountered problems in establishing joint ventures in China. We have committed problems. Various mistakes that can be imagined.
In the initial stage of the joint venture, we encountered three major problems. The first one is the Chinese and foreign parties that have both sides and disagreements. Both Chinese and foreign parties have their own considerations on many key issues, such as whether the company is profitable and market-occupying. The first issue is whether it is guided by the trend or if the state-owned enterprises continue to use pots and rice, and the management and operation of the company continue to maintain the status quo.
The second problem is that Cummings has sent American management personnel from joint ventures to seek truth from facts. They all lack international management experience, including the experience of local management in China.
In the third aspect, our local partners do not know much about modern manufacturing, manufacturing and management.
For this joint venture, our real turning point came from the end of the 1990s, when the Chinese and foreign parties cooperated and replaced their respective senior managers. Under the leadership of the new team, the Chinese and foreign parties have clarified the direction of the joint venture's development and defined the respective functions and responsibilities of the Chinese and foreign parties. For Cummins, for Cummins Engine Co., Ltd. in Chongqing, Cummins also defined the positioning of this joint venture. At the same time, Cummins has taken more flexible measures to adapt to China's special circumstances in response to some local issues encountered during the course of business operations. Overall, the Chinese and foreign parties have found a platform to achieve a win-win situation.
Since the end of the 1990s, both Chinese and foreign parties have taken these positive and effective measures. After the development in recent years, Chongqing Cummins has achieved very good operating results, which is Cummins' joint venture with the highest rate of return on investment worldwide.
The second example I gave you is Dongfeng Cummins Engine Co., Ltd., a joint venture between Dongfeng Motor Company and Xiangfan, Hubei. Dongfeng Cummins is our largest factory in China. During the process of construction and development of this processing plant, Cummins fully learned the experience and lessons learned from the Chongqing Cummins joint venture project. From the outset of this project, ensure that the joint venture company does not take detours.
The first key measure we took was that in the mid-1990s we recruited an experienced factory manager from a large state-owned enterprise in China. We sent the factory manager to the United States for training for one year. During training in the United States, he studied and mastered the Cummins production and manufacturing management experience. At the same time, after he returned to China, we gave him full authority to allow him to recruit and select his own management team at Dongfeng Cummins. As our senior executive has extensive experience and the company gave him full authorization, so Dongfeng Cummins has taken a lot of detours in management.
The second key measure we took in the Dongfeng Cummins cooperation project was to quickly realize the localization of the entire supply chain and component production. In this process, unlike many multinational corporations, Cummings preferred to abandon the abundant profits from the provision of spare parts to joint ventures at the initial stage of the joint venture, and help the joint ventures quickly find suppliers in China and quickly realize the production of engine parts. Localization and localization. In the process, although Cummins gave up the profit brought to the joint venture factory by providing spare parts, because we made some preparations in advance, we localized it better and quickly reduced the cost of the engine and helped Dongfeng Motor. The company has achieved a very good sales situation in the market. Dongfeng trucks sell well, and Dongfeng Cummins Engine Co., Ltd. has good natural benefits.
There is also a very important factor. In the early stage of Dongfeng Cummins’ joint venture, during the product introduction process, we did not simply take the most expensive product to the Chinese market immediately, because if so, for this joint venture company, It does not sell well and will lose money for a long time. Therefore, at the time when we selected products, we chose to work with Chinese partners to choose the right market, which was more suitable for the Chinese market and was suitable for the engine requirements of the market at that time and Dongfeng's business development needs. Facts have proved that this strategy is very successful. The profit rate of Dongfeng Cummins is very high, and the sales of supporting trucks from Dongfeng are also very good.
The topic we discuss today is which business model is the best? Everyone mentioned the Japanese model, the German model, the American model, and the Chinese model. Personally speaking, I can't say for sure which business model is the best model. According to our business development in China, based on my own experience with Chinese partners, and our cooperation with OEM customers, I will give you a brief summary here.
The first is the A company model. The vertical axis of the icon is the industry from one industry to multiple industries; the horizontal axis is the region, the left is a province, and the right is many countries, representing local to multinational operations. I found that in China's A company model, many of their employees are from one province and one place. All employees graduate from college or graduated from high school and they work for a lifetime in this company. All senior leaders of the company are What grew up in the company was not recruited from the outside.
In the second B-company model, their employees are all from a single company. The areas they recruit are a little diversified. They may have three gangs, one northeastern gang, one Shanghai gang, and one Sichuan gang, but most of them Employees are found in that company. They do not have much experience outside the industry.
The third C company model, employees from a number of different industries, but geographically from Shandong Province and from Zhejiang Province.
I feel that the diversity of their three companies is not strong enough. Most of the multinational companies in the United States, we started at the same time. We look for people from the local people and develop our workforce. However, with the development of our business, our customers come from many countries. We have many product lines and many markets, whether they are regional markets or product application markets. If all of us come from the middle of the United States and come from the same industry, we cannot support and manage diversified customers and markets.
What I mean is that in China, no matter what kind of business model you choose, I even think that the model is not the most important thing. The most important thing is how do you master and manage 'diversity'. With many customers and large markets, we must understand how to manage so many variables and various factors. Therefore, I feel that it is the most important to master diversified management, to adapt to local conditions, to adapt to local conditions, and to meet the needs of different localities. Whether you choose Japan or Germany, the United States business model.
Lastly, we look at Cummings development. Since Cummins began its production in 1975, our products were imported. In the 1980s we called the “period of licensesâ€. We used the license method to localize production, understand the market, and support our customers. In the 1990s we called the “Joint Venture Company Era.†We are still in the era of joint venture companies, but we started developing a new engine together with Dongfeng in 2005. This is our 13-liter engine. The intellectual property of this engine is ours in China. The joint venture company Dongfeng Cummins owns, so we feel that this is the fourth era in which Cummins entered the era of joint development with local partners and joint ownership of intellectual property rights.
To sum up, Cummins has achieved the most critical two factors in the development of business in China. The first is diversification; the second is to cooperate with our Chinese partners in all aspects. Thank you for giving me such an opportunity.
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