Practices and Explorations of Automotive Parts Going Global Based on Business Scenarios

The following is a speech delivered by Wesley, CEO of MicahLINK Technology (Shanghai) Co., Ltd., at the 2024 (Eighth) Auto Parts Circle Ecosystem Conference. Drawing upon his years of in-depth research on supply chain-related topics and practical experience in the overseas expansion of automotive parts, he will share insights on going global from three perspectives.

 

 Practices and Explorations of Automotive Parts Going Global Based on Business Scenarios

                                               

The following is a speech delivered by Wesley, CEO of MicahLINK Technology (Shanghai) Co., Ltd., at the 2024 (Eighth) Auto Parts Circle Ecosystem Conference. Drawing upon his years of in-depth research on supply chain-related topics and practical experience in the overseas expansion of automotive parts, he will share insights on going global from three perspectives.The following are the main contents of the speech delivered at the conference on July 26th.

Hello everyone! I'm Wesley from MicahLINK. Let me briefly introduce myself first. I joined the automotive aftermarket industry in 2003, and it's been over 20 years now. My primary work experience has been with Bosch and JD.com. In the past two years, I've been focusing on automotive parts exports, mainly involving cross-border e-commerce in North America, including Amazon and eBay, as well as some offline channel businesses. Currently, we are also expanding into Southeast Asia and Europe, with plans to establish a company in Southeast Asia. Today's sharing, I would like to elaborate on three main aspects.

A large-scale enterprise's overseas expansion

A financial writer once said that we are currently facing a large-scale overseas expansion of enterprises. From a historical perspective, going overseas is not a new thing. It is said that it started from the Qin Dynasty, but the most prosperous period of export business should be the Tang and Song Dynasties, when we mainly exported silk, tea, and porcelain.

Since the reform and opening-up, we can divide the overseas expansion into four stages:
The first stage, from 1978 to 1999, was characterized by international trade exports of low value-added products, known as Going Global 1.0.
The second stage, from 2000 to 2009, witnessed the rapid development of traditional foreign trade business after China's accession to the WTO in 2001, known as Going Global 2.0.
The third stage, from 2010 to 2019, saw the rapid development of cross-border e-commerce with continuous improvement of the service ecosystem, known as Going Global 3.0.
The fourth stage, from 2020 to the present, is marked by the upgrading of product and brand capabilities by overseas enterprises, entering the era of Going Global 4.0.

In the past two or three decades, China has accumulated experience in products, supply chains, and digitization, with various technologies continuously maturing. Coupled with the three-year COVID-19 pandemic, the overseas expansion trend has emerged in the past one or two years, and experts say that this trend may last for 5-10 years. According to data from Time Investment Research, by the end of 2023, the number of A-share companies engaged in overseas expansion reached 3,428, accounting for 63.94% of all A-share companies, exceeding 60%. This indicates that a large number of Chinese enterprises have already implemented or are implementing overseas expansion strategies. Meanwhile, according to the "2023 China Enterprise Overseas Expansion Confidence Report" released by BeyongClick, 87.6% of surveyed enterprises showed a positive attitude towards overseas business expansion, and over 60% of enterprises had plans to expand overseas, with emerging enterprises showing stronger confidence.

The latest round of overseas expansion since 2020 is significantly different from previous stages, as it has gradually shifted from exploring niche markets to mainstream sectors such as gaming, automobiles, short videos, and e-commerce. Currently, there are three main modes of export: the first is product plus service; the second is manufacturing; and the third is the export of new models.Opportunities and challenges of automotive parts exports

In 2023, China exported nearly 5 million vehicles, ranking first globally in automotive exports. With the increasing number of vehicles exported overseas, the demand for automotive parts has also risen. In terms of the e-commerce penetration rate of automotive parts, it currently stands at around 10% in the North American market and is projected to increase to 20% in the future. The global automotive parts market is estimated for 1.8 trillion USD, according to 20% penetration rate, the online business scales may reach 360 billion USD.After years of development, China's automotive parts supply chain, whether in the Yangtze River Delta, Pearl River Delta, Bohai Rim, or in some regions in Northeast and Central China, has been continuously improving its capabilities. With the overseas expansion of complete vehicles and the demand for automotive parts in overseas markets, Chinese automotive parts suppliers have also gradually established factories overseas, all of which are accelerating the internationalization process of automotive parts enterprises.Of course, opportunities always come with challenges. We face challenges posed by uncertain factors such as trade policies, tariffs, and trade barriers to overseas enterprises. At the same time, compared with established international automotive parts brands, the recognition and loyalty of Chinese automotive parts brands in the global market still need to be improved. In addition, there are significant differences in consumer culture and car-buying habits across different regions, requiring enterprises to conduct market research and adapt to localization.In addition, due to the impact of global economic fluctuations, the stability of the supply chain and other issues are all risks and challenges that need to be faced.

 

Right Timing, Right Place, Right People

If going overseas is the right timing, then I will focus on the right place and right people next. Before that, I would like to talk about the way of thinking, which is the premise of many things. When we go overseas, selling products to customers is just a superficial phenomenon. Under the iceberg, there are some underlying logics of going overseas that we need to consider. We need to think about business models, such as how to set up a good business model in a certain environment? What are the target customers and target markets? How to reachcustomers? How to work with suppliers to create products? How to achieve high-quality interaction? How to build digitalization in the channel, supply, and operation ends? How to build a team with dreams and abilities, as well as cash flow, investment and financing, and other contents, which are all covered in the scope of timing, geographical advantages, and human factors.

These dimensions are hierarchical, and we need to consider them from strategic planning to tactical breakdown and implementation. At the same time, we need to try to avoid falling into two kinds of "thinking traps", namely egoism and formalism, and not to limit ourselves in our existing abilities and past experiences when making business plans. Here is a good formula: underlying logic + environmental variables = methodology. The underlying logic is constant, while the environmental variables are variable. By combining these two dimensions of change and constancy, we can derive the strategy for going overseas. 

Business Scenario 1: Cross-border e-commerce

Cross-border e-commerce can be divided into B2C and B2B businesses. For B2B, there are Alibaba International Station and Made-in-China.com; for B2C, there are Amazon and eBay, among others. Amazon has 40% of its business as self-operated, while eBay is 100% merchant-hosted. 

Since 2020, cross-border e-commerce has undergone a transition from rapid scale expansion in the previous decade to a gradual improvement of its ecosystem, marking a leap in "quality." There are six major development trends in cross-border e-commerce: "Brand globalization, flexible supply chain, technology-driven, localized services, the rise of emerging markets, and compliant operations."

Business Scenario 2: Four Major Supermarket Chains

According to the 2023 financial reports, AutoZone ranks first with revenue of $17.5 billion, followed by O'Reilly, NAPA, and Advance Auto Parts in second, third, and fourth places respectively. The four major supermarket chains occupy approximately 30% of the market share in North America. Therefore, many Chinese companies aspire to enter these supermarket chains, but it is not a straightforward task. With a total of 5,000 to 7,000 stores, the four major supermarket chains require robust product and supply chain models to serve them well. This includes meeting customer needs in terms of product satisfaction rates, overseas warehousing and distribution capabilities, data accuracy, system integration, technical marketing, and other aspects.

Business Scenario 3: Independent Website/Store

In 2024, the scale of China's cross-border independent websites/stores is expected to reach 3.45 trillion-yuan, accounting for 35% of the cross-border e-commerce B2C market. It is predicted that the number of independent website/store sellers in China will exceed 500,000 in 2024.

An independent website/store can not only serve as a sales platform but also integrate with other sales channels to achieve multi-channel sales. By collaborating with social media, e-commerce platforms, and others, an independent website/store can promote products to a broader user base, enhancing product visibility and sales volume. As the cost of acquiring online customers continues to rise, the brand concept of multi-channel layout and online-offline integration has become increasingly popular.

With the proliferation of mobile devices and the development of mobile internet, independent websites/stores will place greater emphasis on mobile user experience. Currently, personalized services are being strengthened. The increasing demand for personalization among consumers prompts independent websites/stores to offer more personalized product recommendations, marketing strategies, and service experiences. In the future, functions such as smart customer service and intelligent recommendations will become standard features of independent websites/stores, enhancing service efficiency and user experience. The development of new technologies such as blockchain, cloud computing, and big data brings even more opportunities for independent websites/stores.

Here are two suggestions for your reference:

Suggestion 1: People Harmony. This can be approached from three angles: 1) Individuals - Nowadays, there is an abundance of fragmented information coupled with AI tools that "assist our thinking," which can potentially affect our ability to objectively judge matters. It is crucial to develop deep thinking capabilities and the ability to make independent judgments. 2) Teams - To build a vibrant team, we need to lead through a shared vision, mission, and values. Moreover, we should help our team members achieve personal success in this process. 3) Organizations - Leveraging the Yang Triangle Organizational Capability Model, we should optimize internal organizational structures and process systems. By platformizing our organization, we can establish a boundaryless organization that mobilizes social resources.

Suggestion 2: Going Global, focusing on three recommendations:

1. Going global is not about a dimension-reducing strike but rather showcasing optimized operational capabilities to create differentiated competitiveness.
2. In the context of large-scale international expansion, the availability of talent that understands both business and products will become a bottleneck, making the establishment of an international team an urgent priority.
3. To build or participate in overseas ecosystems, it is crucial to understand the local ecosystem structure, consumption habits, value preferences, as well as demands for quality and cost. Only by doing so can we find a path to integrate into overseas ecosystems.