Retreading the future with smart strategies

Shandong tire producer expands its overseas reach with UK ventures, reports Meng Jing.

You Xuezhong, chairman of the board of Shandong Yongtai Chemical Group, a leading private tire producer in China, brought his entire family to the United Kingdom this summer.

It seemed like a cozy family trip with even You's grandchild being on board, but the 63-year-old businessman certainly had much more on his mind than spending some quality time with his family.

During the trip to the UK in mid-June, You struck a deal to acquire the Coventry-based automotive manufacturer UYT Ltd for 28 million pound ($43.59 million).

The acquisition marks Yongtai's second major move in the UK. In July 2013, the tire producer, based in Dongying, a city in East China's Shandong province, acquired a 70 percent stake in Covpress Ltd, a Coventry-based pressed materials company that presses steel into car-body parts.

UYT, which is going to serve as an assembly plant for the car parts pressed by Covpress, is seen by Yongtai as part of an important move to extend the industrial chain of its auto component business as assembled products can be sold at much higher prices than pure components.

With the acquisition of UYT, Yongtai has also inched closer to its goal of being a flagship in the auto components industry.

"Coventry, which is the heart of UK's carmaking industry, is the perfect place for us to make investment in terms of gaining cutting-edge technology. Combined with China's advantage in production and the large automobile market, we are building something that can be very competitive worldwide," said You.

The UK motor industry was born in Coventry, which is home to many famous brands like Jaguar, Rover, Triumph, Healey and Riley. But the city has lost its manufacturing sheen over the years, especially after the global financial crisis hit in 2008.

In recent years, more and more Chinese private carmakers, such as Zhejiang Geely Holding Group, have set their sights on the region, believing it is an ideal opportunity for them to upgrade their auto manufacture skills by investing in Coventry-based companies.

Chinese investment has proven to be an effective way to boost local jobs and lift local economy, especially in Covpress' case. Since Yongtai's investment about two years ago, Covpress has moved into a fast track of development.

Chris Challen, a crane operator at Covpress, said workers have never been busier. "In the hard times before the acquisition, our workers could work only three or four days a week because we didn't have a lot of orders. Now we work five days a week, and every day we have three shifts. But still we sometimes need to work extra hours on weekends."

According to Yongtai, the production capacity of Covpress has jumped 30 percent and the number of employees increased from 400 in 2013 to 700 at present. It has also got more orders from automakers such as Jaguar Land Rover Ltd, the Coventry-based multinational automotive company.

You Xiaoming, general manager of Yongtai and the son of Yongtai's chairman You Xuezhong, said: "Covpress has gained more orders than they can actually produce. We have had to eliminate some office space to make room for production."

Covpress' sales jumped from 67 million pounds in 2012 to about 80 million pounds last year. You Xiaoming, who is in charge of the overall strategy development of Covpress, said the company's goal is annual sales of 90 million pounds by 2016. "We could even reach the goal ahead of the schedule," he said.

However, success for Covpress' UK business is only one part of Yongtai's plans.

"By investing in Covpress, we want to supply made-in-China car parts to Western high-end auto mobile makers," said You, the second-generation entrepreneur of Yongtai.

Covpress' new China factory, whose production capacity is about eight times that of the Coventry plant, was put into operation in June. The factory, in Dongying, is seen as a new engine not only to drive Covpress to become a global supplier but also for Yongtai to get its fingers into the high-end automobile business.

"It is very difficult and time consuming for China-made components to get onto the procurement lists of high-end carmakers. But since Covpress is already a supplier for Jaguar Land Rover, it is not difficult for our China factory to get in as long as we can make sure that the management and the quality of our products at Covpress' China factory is at the same level as its sister factory in Coventry," said You Xiaoming.

He added that Covpress' technology, its 120-year experience in pressing and its connections and networks in the industry are the main reasons why Yongtai invested in the company.

You, who is in his early 30s, said Covpress' golden reputation earned its China factory its first order from JLR in May. "The order is from JLR Europe. But with more Western carmakers producing locally for the Chinese market, we can tap into the high-end car parts industry in China in the near future," he said.

You Xiaoming has a vision that with further development, China may overtake Europe to become the center of the world's automobile industry. "Building a China factory into a tier-one car-parts supplier is critical for our future growth," he said.

The automotive industry in China has been the largest in the world since 2008. Statistics from the Ministry of Industry and Information Technology showed that 23.72 million auto mobiles were produced and 23.49 million auto-mobiles sold in China in 2014. The figures represented year-on-year growth rates of 7.3 percent and 6.9 percent, respectively.

Mike Whitby, who is an international affairs adviser to Covpress, said during the ceremony celebrating Yongtai's investment in UYT in mid-June that China is a major country for the UK to have an economic relation with as the latest figures in April showed that the UK is now exporting more to the non-European countries, China in particular.

"Chinese investment in our manufacturing sector is welcome. Using our skills and Chinese funding, we could open up a market of 1.3 billion immediately," he said.

"Thousands of people are employed because a Chinese company has shown their trust and their confidence in investing in the UK. It will encourage more UK companies to look for Chinese partnerships," he said.

Jiang Shan contributed to this story.