CIFA's Listed Companies Report Department launched the “Made in China World Time” column, which focuses on overseas factories and markets of Chinese companies, and shows a new scene of Chinese manufacturing “catching up” on the global stage.

Finance Association, July 14 (Reporters Xiao Lianghua and Chen Kang) When it comes to Chinese tire companies going overseas, Sailun Tire (601058.SH) is one of the “protagonists” that cannot be avoided.

Sailun is the first Chinese tire company to build a base overseas. It has pioneered and advanced along the way, invested in the first local intelligent tire factory in Cambodia, and built factories in Mexico and Indonesia.

Going overseas has brought great rewards to racing. Since then, many domestic tire companies have “crossed the river by touching the race wheel”. Chinese tire companies such as Linglong Tire (601966.SH), Guizhou Tire (000589.SZ), and GM (601500.SH) have flourished in Southeast Asia such as Thailand, Vietnam, and Cambodia.

What is the current situation of a Chinese tire company's first overseas factory?

At the beginning of June, the Financial Services Association reporter flew to Ho Chi Minh City, the economic center of Vietnam. During the interview, the reporter learned that Sailun Vietnam has become the core engine of Sailun tires with production capacity and profit, and is the base for Sailun to go from sea to deep sea.

“After more than ten years of development, the Vietnamese factory now has almost all types of tires other than bicycle and motorcycle tires, such as semi-steel tires, all-steel tires, special tires, and tracks. It is a small tire kingdom.” Cao Guoqiang, Deputy General Manager of Sailun Asia, said that according to Sailun Group's overall strategic plan, the Vietnamese factory bears the responsibility and expectations of Sailun's internationalization and has become a training and export base for Sailun's international talents. To this end, the company has also built an R&D center in Ho Chi Minh City to better develop products in line with local needs.

Cao Guoqiang revealed that demand for semi-steel tires is currently strong. The company's products are in short supply, and orders for all-steel tires are also in a relatively full state. Because of the variety of models and sizes of off-road tires, the demand situation is quite complicated. “Some models are scheduled to be produced in a few months, and demand for some models has peaks and valleys, but the overall operating rate is at a good level.”

According to Zhou Dongfeng, general manager of Sailun Vietnam, there are currently only over 100 Chinese employees (including the joint venture with Goodyear). All middle managers are Vietnamese employees, and some Vietnamese employees have even been promoted to senior management. “In the future, we will continue to shrink, further reduce the number of Chinese employees to 20, and achieve complete and thorough localization.”

Settled in Vietnam

Building a factory overseas was initially controversial within the race.

“Around 2010, the company began to consider investing and building a factory overseas, but there are also internal voices. After all, the company is developing domestically OK, and there are no reference cases for whether or not to go overseas.” Cao Guoqiang recalled.

In June 2011, Sailun was listed on the Shanghai Stock Exchange, becoming the first tire company to be listed on A-shares. In August, the board of directors met to deliberate and pass a bill to establish a wholly-owned subsidiary in Vietnam to produce tires.

According to the “Initial Public Offering of Shares Prospectus” disclosed by Sailun in June 2011, since its establishment, the company has signed technology export agreements with 14 domestic and foreign companies. It is the largest radial tire technology exporter in China, including Vietnam's Dalang Rubber Co., Ltd.

However, as the first Chinese tire company to go overseas, it lacked experience in international operations, and it stumbled at the beginning. Cao Guoqiang said that when preparing to build an overseas factory, it is necessary to consider investment safety, and at the same time make predictions based on comprehensive conditions such as relevant industrial infrastructure, supporting facilities, logistics and transportation, policies and regulations, etc., which will have a huge impact on the fate of the enterprise. Fortunately, the investment was a huge success, proving that the company's decisions at the time were very forward-looking.

Landing in Vietnam was the result of thorough inspection and careful balancing of the competition: compared with other countries in Southeast Asia, Vietnam had good basic conditions, abundant labor, low tire production, few invested factories, and more importantly, the Vietnamese government was actively promoting the development of the country's rubber industry at the time.

Entering Fudong Industrial Park in Vietnam's Xining Province, where Sailun is located, the first thing I saw was a sculpture designed with waste tires, including airplanes, elephants, eagles, etc., which exude the imagination and artistic beauty of the operators. “We hold creative contests every year to select outstanding works for factory display.” Zhou Dongfeng said.

The first phase of the Vietnam factory was put into construction. A reporter from the Vietnam Finance Association saw on the scene that most of the equipment had traces of time. The various AGV transporters were partially operated by hand and were not fully intelligent, yet the entire workshop was still running smoothly. Whether in the refining workshop or the molding workshop, the workers were working in an intense and orderly manner. The corporate philosophy and goal slogans “Trust is the greatest respect” and “Make a good tire” hang in various important places in the factory.

The giant tire workshop is another scene. The first giant tire that went offline last year was displayed on the side of the factory area. Many racing wheels and signatures from industry insiders were gathered on it. The workshop was all brand-new equipment, and the degree of automation was very high.

The Vietnamese factory brings together almost all of Sailun's products, and there is also a joint venture factory with Goodyear in Vietnam, covering a total area of more than 80 hectares. Phase I, II, and III plus the joint venture factory take 3 hours to go around.

“Difficulties have always existed, including differences in culture and language, as well as climate issues. Rain often affects progress during factory construction,” Cao Guoqiang said. Furthermore, each country's regulations and policies are different, and policy changes need to be addressed in a timely manner.

Grow into a core engine

With the investment of Sailun's resources and the support of America's “Double Reverse”, Sailun Vietnam has grown very rapidly.

In 2013, Sailun was put into operation at Vietnam's first overseas tire manufacturing base, producing 3 million semi-steel radial tires and 0.01 million all-steel engineering tires per year. The factory began to be profitable in 2015 and achieved net profit of 53.68 million yuan for the whole year (net profit of the company returned to mother was 0.193 billion yuan in that year).

After tasting the sweet taste, Vietnam continued to expand production. In the same year, the second phase of an all-steel tire and off-road tire production line was put into operation in Vietnam, including an annual output of 1.2 million all-steel radial tires and 30,000 tons of off-road tires.

The “double reverse” and “trade war” that followed brought about a watershed in the fate of Chinese tire companies: trade barriers blocked China's low-cost products, raised prices in major global tire markets, domestic tire companies faced overcapacity, and tire companies that went abroad were able to enjoy high market profits under the protection of barriers.

In 2018-2019, Sailun Vietnam's production capacity utilization rate continued to increase. The net profit contributed to the company was 0.515 billion yuan and 952 million yuan respectively, accounting for 77% and 80% of the company's net profit to mother in that year.

On January 9, 2021, the company announced that it plans to invest 3 billion yuan to build the Vietnam Phase III project. Vietnam's phase III includes 3 million semi-steel tires per year, 1 million steel tires per year, and 0.05 million tons/year for off-road tires.

In the 12 years since going overseas, Sailun Tire's net profit increased from 0.25 billion yuan in 2013 to 3.1 billion yuan in 2023, and the net interest rate increased from a marginal margin of 3% to 12% in 2023. Among them, Sailun Vietnam achieved net profit of 1.594 billion yuan in 2023, a year-on-year increase of 46.88%, accounting for more than half of the Group's net profit for that year.

Zhou Dongfeng mentioned that Sailun Vietnam's major expansion has basically come to an end, and later it will enter the stage of releasing production capacity and improving efficiency. “The Vietnamese factory plans a total production capacity of 16 million semi-steel tires, 2.6 million full steel tires, and 0.1 million tons of off-road tires. The joint venture ACTR has an all-steel production capacity of 2.65 million bars. New production capacity will be released in 2024 and 2025, and there is still some room for improvement through automated transformation.”

Automation upgrades are the key to improving efficiency. Zhou Dongfeng said, “Vietnam's demographic dividend will also gradually decrease. The Group has set a goal for us to reduce the number of workers employed by 1,000 in the next three years, about 14% less than at present.”

In terms of product structure, the proportion of high-end products will increase. “Currently, Vietnam's liquid gold tires account for about 10% of the race, and this ratio will gradually increase in the future.” Zhou Dongfeng said.

Long-range “space station”

When the CFA reporter arrived at the Vietnam factory, Zhou Dongfeng had just finished a global conference. “According to the Group's deployment, Sailun Vietnam needs to reserve a certain number of talents for factories in Indonesia and Mexico. Back then, the Cambodian factory was built, and the Vietnamese factory was also used in stages as a base for materials and talents.”

Zhou Dongfeng said that Sailun Vietnam must not only do a good job in its own management, but also serve as a fulcrum for Sailun's globalization and continuously cultivate cross-border talents. These international talents are continuously transported to various factories around the world.

Regarding the overseas talent system, Cao Guoqiang added that Sailun has built a complete training system for overseas talents to train all kinds of talents in a hierarchical manner. “There are many Chinese companies going overseas now, but each management model is different. The production center set up by Sailun controls all manufacturing plants and implements overall coordination of the training and deployment of personnel.”

The company went overseas to Mexico and cooperated with DT, the largest local dealer, drawing on the experience of Sailun Vietnam and Goodyear to establish an ACTR all-steel factory as a joint venture in Vietnam.

Deep cultivation at many levels, such as local procurement of Vietnamese factories, local R&D and design, and construction of local sales, also continues to transfer experience to Sailun's other overseas factories. According to reports, the local supply ratio for raw material procurement was initially very low. Later, through continuous development, local supply of various raw materials such as bezel steel wire was realized.

Sailun Vietnam's all-steel tires and off-road tires have achieved a high market share in Vietnam, Myanmar, Laos, Cambodia and other regions. Zhang Tianyu, who is responsible for product sales in the above regions, told the Financial Federation that the company's all-steel tires account for the highest share of the Vietnamese market, and the market share of giant tires among off-road tires is rapidly increasing. “In the region I am responsible for, sales of giant tires in the first 5 months of this year surpassed that of last year.”

Semi-steel tire market companies are also rapidly catching up. In September 2023, Sailun Vietnam officially received a fixed notice from Vietnam's VinFast Company, known as the “Tesla of Vietnam”, to provide tire support services for its VFE32 models, thus becoming the first Chinese tire supplier to enter Vietnam's VinFast Company system.

“Complete” localization

Sailun has a certain “partner” gene. “Trust and respect” is the company's values and heritage. Sailun has also brought this concept to Vietnam and other overseas factories.

Based on full trust in local employees, Sailun Vietnam's localization is thorough and comprehensive. Cao Guoqiang said that the entire Vietnamese base has been localized for all middle-level cadres, and the manufacturing department is headed by a local Vietnamese employee.

“We have been reducing the number of Chinese employees. The Vietnamese factory (including the joint venture factory) now has a total of more than 7,000 employees. Currently, there are about 100 permanent Chinese employees, accounting for only about 1%. By 2027, the company will not be able to localize individual positions, and all other jobs will be handled by Vietnamese employees. In the end, there will probably not be more than 20 Chinese employees.” Zhou Dongfeng said.

Up to now, employees 001 and 002 of Sailun Vietnam are still employed, and both have grown into mid-level cadres. Among them, employee No. 002 Li Peirong came to work at Sailun as soon as he graduated. He is now a manager in the procurement department. He has more than a dozen subordinates, and also assists Cao Guoqiang in his work.

“In the beginning, it was quite difficult to recruit people for the tournament.” Li Peirong said that later, everyone saw that Sailun's wages were generally high and benefits were very good. At the end of the year, excellent employees were also given motorcycles (the price of one car was 6,000 yuan to 10,000 yuan), and the company respected the employees very much. Slowly, more and more local employees began to agree that “enterprise development is also important to individual employees,” thus stabilizing, and the factory turnover rate is relatively low.

“If the company knows that employees want to buy land to build houses, they will give some subsidies. People often see that Vietnam is still a motorbike world, but many Sailun employees have already bought cars and stayed in small villas. This is also in line with the Group's management philosophy. The company must not only generate profits, but also improve the quality of life of employees.” Zhou Dongfeng said.

Chinese tire companies compete in Vietnam

In recent years, in the context of anti-globalization, the success of Sailun Tire has provided valuable experience for Chinese tire companies to go overseas. In Vietnam, where Sailun first settled, it has now brought together 6 Chinese tire companies, including Guizhou Tire, Haohua Tire, and Shandong Jinyu Tire, which occupy half of Vietnam's tire industry.

Among them, in March of this year, Guizhou Tire issued an announcement stating that it will continue to increase its investment in Vietnam.

Specifically, the company will increase capital by 68.329 million US dollars to Qianjin Tire (Vietnam) Co., Ltd., a wholly-owned second-tier subsidiary overseas, to support the company's proposed intelligent manufacturing project with an annual output of 6 million semi-steel radial tires.

Previously, Guizhou Tire had implemented Vietnam's first phase of the 1.2 million annual production all-steel radial tire project and the second phase of the 0.95 million annual high-performance all-steel radial tire project.

In 2023, Shandong Jinyu Tire held a groundbreaking ceremony for the PCR project in Vietnam's Xining Province. The overall design capacity of the project is 10 million bars, which will be built in three phases. The first 3 million bars are expected to be produced in 2025. This PCR construction is an expansion project for Jinyu (Vietnam) Tire Co., Ltd., which settled in Vietnam in 2020. Currently, TBR Nissan has reached 6,000 units.

Also in 2023, Shandong Haohua Tire chose to build a tire manufacturing plant in the Mingxing Sikico Industrial Park. According to reports, the project has a total investment of 3.5 billion yuan to manufacture semi-steel radial tires and all-steel radial tires for automobiles and other vehicles, with an annual output of 14.4 million sets, with an average annual output value of 0.77 billion US dollars.