26 November 2013, Global Connections

Filling the gaps

Suppliers in China are helping Egypt-based automotive firm Ghabbour Auto fill gaps in its product offering but in a still maturing market plenty of research is needed to find the right product, partner and price.

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With operations in Egypt, Iraq, Libya and Algeria, automotive assembler and distributor Ghabbour Auto has been enjoying strong growth in the last few years.  Recent turmoil in its home markets however has reinforced its desire to look both at how it can remain competitive in its existing markets and cultivate relationships over the long term in new markets, notably North Africa.

Getting the right supplies at the right price is crucial to this strategy. Three years ago the company decided it needed to expand its supplier base and looked to China, says Osman Sever, Chief Business Development Officer for Ghabbour Auto.

“We are convinced China is becoming a powerhouse, especially in the automotive industry and we consider it to be on its way to becoming a superpower in the next ten years and an important ally.

“We wanted to fill gaps in our product portfolio, reinforcing our portfolio of brands with the emerging Chinese brands and position and hedge ourselves for the future and China was the most important new market for this.”

After a search lasting about a year the company identified 13 Chinese partners. It began signing agreements in 2010 and now sources finished products, tyres as well as complete knockdown kits for assembly in Egypt. “It’s a complicated process. What we sell is not a simple product so we have to make sure we buy the right product at the right price to ensure customer satisfaction,” says Sever.

Searching for the right solution

It is still developing relationships and building local knowledge in China, says Sever. “You have to understand the culture but you also have to understand how the partner companies that you are thinking of working with function. You need to understand their capabilities.

“If you rush in you may find a partner offering certain things that may not end up being the case, for example they may say they have a particular product but that may not be the case. It may be that they have samples but not ones in serial production.

“You should not be tempted to go for the easy solution, there’s usually an unexpected side effect. Identify several suppliers, understand how their product conforms and then you can make an educated decision. You have to work hard to find the right solution, examining partner capabilities and product capabilities very closely.”

The importance of culture

Developing mutual trust and understanding is paramount, he says. “It’s a different business culture in China. Relationships are very important. You have to ensure you project a certain level of credibility and build up a certain level of relationship with your potential partners.

“The Chinese respect knowledge so demonstrating an understanding of your markets and demonstrating you know what you want and why will help your credibility. You need to demonstrate that there is common ground and be clear with each other that any business proposition is going to serve both parties.”

Increased costs

While trading in China offers clear benefits, suppliers there have scope to improve their offering and as the sector matures in China, so will its sophistication and ability to better serve companies such as GB Auto, says Sever.

“There are fundamental tasks for Chinese companies to ensure they remain competitive and not just cost competitive. The way you run your relationships, the quality of the products also make a difference.

Currency appreciation is another factor GB Auto is monitoring and China has become more expensive lately, Sever concedes. “Costs have risen in the last 12-18 months. The renminbi has gone up a lot, while the yen is down by almost 20%.”

Part of the response is to stay focused, Sever says.

“Some are trying to do too many things at the same time. They need to focus on certain areas and build success on their strengths. But they will keep learning and the more they integrate into the international trade structure and with general market conditions they will become more efficient.”

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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