Market Overview

TEDA: Embracing Smart Manufacturing for Its Auto Industry

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China's car boom has only just begun, but already there are big plans to
move auto manufacturing up the value chain as part of the government's
"Made in China 2025" initiative – a bid to avoid being squeezed by lower
cost countries on one side and high-end manufacturers on the other.

With that in mind, executives at the Tianjin Economic-Technological
Development Area (TEDA) – the country's top ranked industrial park –
have come up with their own plans to transform the region into a
globally influential hub for advanced manufacturing.

These plans are based on Industry 4.0 – digitized factories in which
machines communicate with one another and computer algorithms make
decisions based on data from disparate sources to optimize efficiency
and productivity.

"We are still at the very early stage of the so-called fourth industrial
revolution, but the sands of change are shifting. In the auto sector,
more of our tenants will be embracing digital technologies within their
own operations and in their supply chain," says Hou Xiaolu, deputy
director of TEDA's Development & Reform Bureau.

Unique Capacity

That means building on solid progress already made. TEDA is home to 124
auto companies, including five carmakers and more than 100 component
firms that together form a complete industrial chain. Some 1.7m cars are
expected to be built there each year and the overall value of the auto
industry is projected to reach RMB300bn by 2020.

The presence of three major manufacturers – Volkswagen, Toyota and Great
Wall – is unique among China's 300 or so industrial parks and has seen a
wide-ranging supply chain take shape around it.

Component manufacturers that have been attracted to TEDA include
Germany's Continental, Japan's Fujitsu Ten, DENSO Electronics and
Yazaki, as well as others such as Aisin Body Parts and AW Automatic
Transmission. They make everything from satnavs and stereos to seats,
wiring and engine control units. The new Volkswagen plant, due to start
operations in 2018, is expected to bring in a further 300 suppliers,
doubling its own production value.

Meanwhile a burgeoning cluster of derivative industries has also taken
shape to provide services to the auto industry. They include R&D
companies such as Stanley Electric, Panasonic and Liszt Technology
Center, auto finance firms such as Tianjin No 1 Auto Finance and Great
Wall Binyin Auto Finance, and logistics vendors such as Toyota Logistics
and TFGL.

There are also longstanding collaborations – TEDA has been working with
the China Automotive Technology & Research Center (CATARC), a think tank
and service provider, for almost 20 years. They have held the International
Forum (TEDA) on China Automotive Industry Development
for more than
10 years, bringing together thousands of executives and making contact
with prospective tenant companies.

Cutting Edge

But TEDA is not sitting on its laurels.

"We want greater emphasis on high value-added areas of the automotive
industry, such as high-end engine parts, electronics and car information
systems," says Hou.

With more electric cars already being sold in China than in the rest of
the world combined, TEDA also wants to be at the forefront of clean
energy vehicles, hybrid cars and battery technology.

"Our goal is to produce connective, autonomous and electric vehicles,"
adds Hou.

These goals can be achieved through greater automation and use of data
that enable companies to make highly customized products and respond
rapidly to changing consumer demands without requiring an expensive and
time consuming human-led reset of production processes.

"The trend towards servitization of manufacturing is increasingly at
play – developing the capabilities we need to provide services and
solutions that supplement traditional product offerings," says Xu
Datong, chairman of TEDA Administrative Committee.

"At TEDA, we are aiming for a switch from focus on products and
production, to efforts in expanding services. This is key not only to
generating incremental revenues but to becoming more competitive.

"We are pushing the envelope for a more collaborative and innovative
ecosystem where we will see such activities as web-based design and
co-creation by supply chain partners leading to collaborative and agile
production."

Creating Agility

Some of the production lines at TEDA are already set to benefit from the
latest software systems.

The Volkswagen joint venture with Chinese carmaker FAW has incorporated
the Toyota New Global Architecture system (FAW also has a joint venture
with Toyota) into its production line. The system attempts to harmonize
planning and components sharing to reduce costs and increase efficiency.
In the welding process, high-performance robots are replacing humans,
who do just 5% of the work, boosting efficiency by 50%.

Volkswagen is also introducing a flexible assembly line, which sees
software and real-time location tracking reduce the cost of large-scale
customization and manage product variability without creating large
quantities of waste or compromising product quality.

But such techniques are just the beginning, says Richard A. D'Aveni,
Bakala Professor of Strategy at Tuck School of Business at Dartmouth in
the US.

It is the combination of automation and data in factory production with
developing techniques such as 3D printing that will truly transform
manufacturing, Dr. D'Aveni says.

"We are starting to see the whole infrastructure come together. You can
change models or parts design quickly. You don't have to wait three
months to change the assembly line," he says.

Servitization Focus

Such innovations may seem a world away, but it is TEDA's expertise in IT
and electronics – another of its pillar industries – that will help
drive the transformation, according to Yu Kai, a veteran commentator on
the Chinese auto industry.

"With great cutting edge in terms of informatization, TEDA enjoys a
better DNA than its rivals in other parts of China in developing the
Industry 4.0 auto sector," he says. "In this regard, it's a bit like the
idea of Silicon Valley appearing posed to take over Detroit's status as
the US auto hub."

TEDA has been investing heavily in the internet of things, collaboration
and enterprise resource planning, cloud computing and big data.

"These four technologies are vital to the servitization of manufacturing
and I'm confident that TEDA's wide-ranging IT and electronics industry
offers the perfect launchpad for automakers," he says.

Executives have worked to spot gaps in the supply chain and screen
prospective tenants so that the right companies become tenants. Those
efforts mean that all the main elements of the car manufacturing
industrial chain can be sourced locally within the Park.

And TEDA is aiming to sharpen this cutting edge still further – "We are
looking for more tech companies with auto-industry-integration potential
to establish their headquarters here," says Hou Xiaolu.

Burgeoning Ecosystem

It is already working to provide cloud-based services for manufacturers.
By 2020 TEDA aims to host more than 100 service providers offering
cloud-based services to up to 10,000 small- and medium-sized companies.

TEDA is also home to China's National Supercomputing Center and a
supercomputer, named Tianhe-3 and capable of one quintillion (a billion
billion) calculations per second, that will be operational by 2020.
Chinese scientists hope to use it to analyze smog distribution, gene
sequence and protein structures to help develop new medicines, but there
may also be benefits for the auto industry.

Alongside this, TEDA is offering a package of tax breaks, loans, R&D
subsidies and funding to manufacturers that can show they are moving
forward with service-based manufacturing processes.

"We are embracing smart manufacturing with open arms," says Xu Datong,
chairman of TEDA Administrative Committee. "It will allow us to respond
to the needs of increasingly demanding consumers both here and around
the world and it represents the backbone of the next stage of China's
development."

Source: Z. H. STUDIO

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