GKN China

GKN China

John McLuskie

Shanghai GKN Huayu Driveline Systems Co. Ltd.

January 2017

GKN China

Zhong Guo.

The Middle

Kingdom.

The Centre

of the

World.

中国

GKN China

A long time keeping people out!

GKN China Top 10 themes for China 2020

Opportunities:

1. URBAN CHINA. • Growing City Clusters.

2. CONSUMING CHINA. • Huge spending potential.

3. GLOBAL CHINA. • Further market

liberalisation.

• Globalisation mandated by

the government.

Mixed Blessings:

4. AGING CHINA. • Evolving

demographics.

5. INNOVATION CHINA. • Indigenous

innovation.

6. GREEN CHINA. • Investment in clean

energy.

Challenges:

7. FRAGILE CHINA. • Financial restructuring.

8. EXPENSIVE CHINA. • Rising business costs.

9. COMPETITIVE CHINA. • Intensified local

competition.

10. STRINGENT CHINA. • Heavy government

scrutiny.

Source: Frontier Strategy Group.

% of total population

Youth population

Workforce Elderly

population

1990 40% 52% 8%

2010 26% 62% 12%

2030E 22% 54% 24%

The 1 – 2 - 4 Problem:

1 Child.

2 Parents.

4 Grand parents.

GKN China Made in China 2025.

• China's State Council has unveiled a ten-year national plan,

“Made in China 2025”, designed to transform China from a

manufacturing giant into a world manufacturing power.

• First action plan focusing on promoting manufacturing • will be followed by another two plans in order to transform China

into a leading manufacturing power by the year 2049

• Nine tasks identified as priorities: improving manufacturing

innovation, integrating technology and industry, strengthening the

industrial base, fostering Chinese brands, enforcing green

manufacturing, promoting breakthroughs in 10 key sectors,

advancing restructuring of the manufacturing sector, promoting

service-oriented manufacturing and manufacturing-related

service industries, and internationalizing manufacturing.

• The 10 key sectors: new information technology, numerical

control tools and robotics, aerospace equipment, ocean

engineering equipment and high-tech ships, railway

equipment, energy saving and new energy vehicles, power

equipment, new materials, medicine and medical devices,

and agricultural machinery.

• "Made in China 2025" will focus on five major projects, including

establishing a manufacturing innovation centre and boosting

intelligent manufacturing

GKN China Manufacturing 4.0. (From Workshop of the World to Manufacturing Giant).

• The 4th Industrial Revolution.

• Machines talk to machines and machines

talk to product.

• Self regulating manufacturing.

• Automated quality.

• Total flexibility.

• Real predictive maintenance.

• Minimised human intervention so

minimised variability.

• Concept is core to German manufacturing

strategy and adopted by China as part of

MIC 2025.

• Germany partnering with China to develop.

• M4.0 will make the strong stronger and

accelerate the removal of the weak – will be

significant in Chinese industrial

restructuring.

GKN China The New Silk Road – One Road and One Belt Strategy (ORAOB).

• Opening up the Chinese interior for

development.

• China will invest further in high speed rail

and nuclear power.

• Will connect up to 64 countries.

• Regional axis of China, India, Russia, Iran

with connectivity into Middle East, Africa

and Europe.

• Both land (road & rail) and sea.

• Auto Industry will follow route of silk road

– opportunity for China domestic brands.

• Opportunity for India to forge a new axis

with China.

• Chongqing will become a ‘super city’ as

part of this development. GDP already

12.3%.

GKN China

Guanxi describes the basic dynamic in personalized

networks of influence, and is a central idea in Chinese

society. In Western media, the pinyin romanization of this

Chinese word is becoming more widely used instead of the

two common translations—"connections" and

"relationships"—as neither of those terms sufficiently

reflects the wide cultural implications that guanxi

describes.[1]

Closely related concepts include that of ganqing, a measure

which reflects the depth of feeling within an interpersonal

relationship, renqing (人情 rénqíng), the moral obligation to

maintain the relationship, and the idea of "face" (面子,

miànzi), meaning social status, propriety, prestige, or more

realistically a combination of all three.

Guanxi has a major influence on the management of

businesses based in China, and also those owned by

overseas Chinese in Southeast Asia, known as the bamboo

network.[2

Quality

Not Quantity.

Doing business in China - Guanxi

It’s all about relationships.

GKN China JV or WOFE – The GKN View

GKN’s view might be biased by the success of its JV’s

Learned a lesson from the failure of our JV in the North – Jilin.

One Flag Strategy in Driveline.

2013 Expanded the business scope of our JV with HASCO (SAIC).

Invested in new JV for Wheels to improve footprint and customer

base – Huading Wheels

Currently exploring market entry strategy for our Aerospace

business.

GKN China GKN JV’s in China – Creating a Win-Win

The majority of GKN’s revenues in China originate from JV’s

Strong partners and excellent relationships

Chinese partners manage labour issues and relationship with local

authorities

GKN brings credibility with global customers and leading technology

JV’s are managed by Chinese management team, GKN supporting with

best practice processes and knowhow transfer

GKN China GKN in China - Summary

The first Western automotive supplier to invest in China in 1988

More than 25 years experience in China with wholly owned businesses,

acquisitions and JV’s with various Chinese partners

Leading market positions in automotive, powder metallurgy, and land

systems

Committed to growth with localized product range and development

capabilities, fully integrated in GKN’s global network

Investment plans in place to significantly increase in size in the next 5

years

Exploring new partnership opportunities.

GKN China

GKN Aerospace

A leading first tier supplier to the global

aerospace industry.

GKN Driveline

The world leading supplier of automotive

driveline systems and solutions.

GKN Powder Metallurgy

World’s largest manufacturer of metal

powder and sintered components.

GKN – Three Strong Divisions

GKN China GKN in China.

Division Location

Group Shanghai Holdings Office.

Aerospace Shanghai Office.

Fokker Elmo Langfang

Driveline Shanghai Office.

Shanghai x 3.

TQ Shanghai.

Shanghai Technical

Centre.

Wuhan x 2.

Changchun.

Chongqing.

GKNZ Mengzhou.

Powder

Metallurgy

Danyang (SM&HC).

Yizheng.

Wheels Liuzhou.

Huading.

Shanghai

Changchun

Wuhan

Mengzhou

Chongqing

Beijing

Danyang &

Yizheng

Liuzhou

Huading

Russia

China

Langfang

GKN China Chinese Auto Industry

Mix of Domestic producers and Foreign implants.

Foreign implants all JV’s and restricted to maximum

50% ownership.

Chinese government trying to encourage growth of

domestic manufacturers but difficult:

• Perceived quality and kudos of implants.

• Technology advantage.

• Regulation, particularly emissions, makes it more difficult

for domestics.

Chinese government encouraging Chinese OEM’s to

think more internationally.

GKN China

GKN35.42%

GKN China14.58%

HASCO 45%

BOCOM5%

Profile

Established in September 1988

One of the earliest auto component

JVs in China

Leading role in China’s auto

component industry

HUAYU Automotive Systems Co., Ltd

GKN Driveline International GmbH

BOCOM-Bank of Communications Co. Ltd (Shanghai

Branch)

Shareholders

GKN China Holding Co.Ltd.

Shanghai Driveline Systems - SDS

GKN China

Driveline System

GKN China

Milestones

25 Years of JV

1988-2013

Sales history

1993 1600T Forging line started

production Formation of JV

1988 1990 2005

1989

Output of 1st Santana

CKD Driveshaft

1996

Formation of Kangqiao Plant

1998

1st constant –

velocity shaft

developed

independently

2000

2001 Formation

of Eng.

Center

2014 1995

2006

Formation of

GDC(JV)

2008

Formation of

Shenjiang Plant

2010

2009 Formation of Tech

Center

Formation of Wuhan

Plant

2011

Formation of

Changchun Plant

2013 Formation of

Wuhan Plant II

Integration of

TSH (now TQ)

New round

of 50 years

JV

BU

DG

ET

GKN China

SHANGHAI

SHANGHA

I

YIZHENG

CHANGCHU

N

WUHAN

Locations

Headquarter Kangqiao plant

Zhoupu Plant Tech Center

Shenjiang Plant TQ

YIZHENG

Yizheng Base

Wuhan Plant

WUHAN

Wuhan Plant II

CHANGCHUN

Changchun Plant

CHONGQING

GDC（JV)

CHONGQING

GKN China

19

Customers

Over 45% market share

GKN China

SDS Shanghai Technical Centre Expansion.

Localizing latest technology, full Driveline Systems capability.

300 engineers. Open for business in 2017.

Ground Breaking 25 October 2013 Current facility

GKN China GKN Aerospace in China

GKN China The Market

China is one of the fastest growing aviation markets in the

world.

China Aviation Market in the next 20 years.

6,020 new A/C.

$870 billion.

17% of the world market value.

By 2033 China and North America will be the two largest

aviation markets.

GKN China Is it happening?

Aircraft orders:

The fastest growing aviation market.

880 aircraft orders placed during 2015.

COMAC progress:

517 orders for C919 and 315 orders for ARJ.

ARJ delivered to its launch customer in Nov 2015.

C919 rolled out in Nov 2015 with the plan for first

flight in Q4 2016.

The development of Wide Body Long Range aircraft

is underway between COMAC and UAC (United

Aircraft Corporation) of Russian .

Airbus/Boeing in China:

A330 cabin completion centre.

B737 completion and delivery centre.

C919 Roll Out (02-11-2015)

ARJ First Delivery to Chengdu Airlines

(29-11-2015)

COMAC/UAC WBLR Aircraft

GKN China

President Xi :

•China must achieve the goal of creating its own

"jumbo jet" at all costs.

•"The ability to develop and make a large airplane

represents the strength of a country's aviation

industry“

•“It is a symbol of a country's overall strength and

power. A large airplane is the dream of several

generations of Chinese.“

Chinese Aerospace: The View from the Cockpit.

President Xi Jinping – President of China

Chairman Jin Zhuanglong – Chairman of COMAC

China: top mandate to grow indigenous industry

COMAC AVIC

MA60

ARJ21

C919 MA700

AC313

CJ1000

GKN China

GKN Aerospace China Strategy

Grow a substantial business in

China/Asia.

Low cost source.

Balanced global footprint.

Create a link to national airline

champions.

Work with a Chinese partner.

GKN China GKN Aerospace Fokker Elmo China

• Established in 1997.

• Located in Langfang, Hebei Province.

• Initially started as Joint Venture.

• Wholly owned since 2005.

• > 900 employees & growing.

• > 8000 wiring systems / month.

Beijing International Airport 45 Miles

Tianjin Seaport 75 Miles

Langfang

China

GKN China Powder Metallurgy

• Currently two plants in China Jiangsu Province

plus powder mixing facility:

• Danyang – Plant Powder Facility.

• Yizheng Plant.

• Powder JV near Beijing opened in 2016 – target

50m GBP sales by 2019.

GKN China

Product, Customer & Plant focus

Carrier

Synchro Hubs

Conrods

VVT parts

Steering

Braking parts

Hydraulic appl

Engine and B/S

DAN

YIZ

Press

Tonnage 150T

Press

Tonnage 500T

Press

Tonnage 50T

Powder Metallurgy

GKN China Wheels

Plants in Liuhzou, Huading

Currently supporting domestic markets but will

increasingly also support global OEM’s.

Growth strategy to take advantage of both current and

future market growth.

GKN China

Established 2006

Location Liuzhou, Guangxi

Shareholders

GKN 100%

Products

产品

Wheels for Construction, Agricultural,

Mining Machinery, Harbour Cranes,

Fork Lift Trucks, Other Special

Machinery; double universal joint for

the off highway machinery

Main Customers

主要客户

LiuGong, Rimtec, Linde, Komatsu,

John Deere, SANY, Cargotec

Rimtec、

GKN Power Solutions Liuzhou

GKN China

Established 2013

Location Lianyungang, Jiangsu

Shareholders GKN 100%

Products Wheels for Agricultural Machinery, other

Special Machinery

Main Customers Shandong Changlin Deutz-Fahr, Guanzhou

Tairong, Qingtuo, Dongfeng, Xuzhou KAT

Changlin、Guanzhou Tairong, John Deere.

GKN Lianyungang Wheels

GKN China

Established 2005

Location Mengzhou, Henan

Shareholders GKN 59%,

ZYNP 41%

Products

产品

Heavy Duty Diesel Engine

Cylinder Liners

Main Customers

主要客户

Cummins, Deutz, DAF, Scania, MTU,

Caterpillar, Wuxi Diesel Engine

MTU

GKN Zhongyuan Cylinder-Liner (GKNZ)

GKN China

CSR – towards a sustainable future.

• 2012 GKN won the award for the British

Company of the Year in China.

• 2014 nominated as in the top 5 British

Companies for CSR in China.

GKN China Conclusions

GKN has a very strong heritage in China based upon

strong partnerships and market leading positions in

Automotive.

This learning and success is being translated into

growing positions in GKN’s other divisions.

China forms an important part of GKN global growth

strategy.

We are confident of continuing success in this very

important market.

GKN China

谢谢 Thank You