Revved for Growth

In an interview with NewsChina, Steven Chapman, Group Vice President for China and Russia, Cummins Inc and Member of the China General Chamber of Commerce – USA (CGCC) strategic advisory steering committee, talks about how Cummins’ growth in China has been in step with the country’s developments and transformation, as well as the prospects of Cummins’ partnerships with its Chinese partners.　　

NewsChina: Cummins entered China’s market more than four decades ago and has continued its partnership with Chinese companies. Why is China so important to Cummins? 　

Steven Chapman: Back in the mid 1980s, we had much lower volume. Global markets were smaller than they are today. We were very North American-focused. At that time we realized we needed to make major investments in meeting emission standards beginning in the 1980s. To do that, and to make a major investment you want more volume, so you’re looking for economies of scale. Our chairman at that time said what he wanted to do to was is to expand product lines, market segments and geographic segments. So China became very important because it was looked at as an opportunity to grow global volume. That began in the 1980s and has continued to the current day, where today our engine volume in China exceeds that of North America. 　　

NC: How will your China venture be integrated into Cummins’ global strategy?　

SC: China is a key part of our global strategy. It is almost considered our home market. Right now the engines that we are designing are actually designed first for China, and then they are adapted for North America or other parts of the world. Typically the reason for that is that we’ve had a very quick pace of emission standard changes in China, so that we’ve needed to apply our most advanced global technology to meet those standards in China. We found originally that designing for North America first and then adapting for China made the engines over-designed, too heavy and too durable. So designing for China, India and Russia first and then adapting in the US has been a great strategy for us.　　

NC: How are Chinese consumers’ needs evolving along with the economic and social development of China? What does Cummins do to respond to shifts in demand?　

SC: We do see a very quick evolution of consumer demand in China. The two specific areas where Cummins is responding are in emissions or environmental requirements, and service, customer support. In the area of environmental requirements, obviously everybody cares about clean air. That's something that governments focus on, people care deeply about. We are a key part of that. We are using our components and systems technology to improve our engines as well as support the development of engines manufactured by other people, or competitors. The second is customer support. Going back 20 years ago, the requirement for quick customer support was not present in China. But now I’d have to say the requirement for customer support is even quicker and more demanding than it is in many other parts of the world. 　　

NC: How do you see China’s current business environment?　

SC: Areas such as IP protection have been evolving positively. It still has a ways to go, but we’ve received some very good, very positive support from the local government entities and from the legal channels in protecting our IP. In terms of investment law, those have been gradually liberalized. When I negotiated our first joint venture in China in 1994-1996, the laws were not really clear. But I think those have been gradually put into place to make it a much more hospitable and welcoming business environment. 　　

NC: The China VI vehicle emissions standards will be fully implemented in the next few years. What would Cummins do to meet the new standards?　

SC: China standard VI… will have a major impact on the environment in China. We are thrilled to support it. We’ve been actively involved with the [Ministry of Ecology and Environment] and other ministries to put standards in place. Our role has been a good advisor and to help facilitate relations with other countries such as the US that have put standards in place so that the Chinese government entities can perhaps learn from the mistakes made elsewhere in the world. 　

Within Cummins, we call it a “global VI” because there are comparable developments both in India and Russia and we are designing products to meet multiple countries’ requirements. One of the most exciting things for me personally in developing Cummins’ China business is when China III was put in place in 2009 and 2010, then IV and V, we generally had non-Chinese chief engineers or technical product leaders. But I am really happy to report in our 12 new engine platforms being designed for “global VI,” 10 out of 12 are led by Chinese technical product leaders based in China. We have a program focused on meeting standards based in China, for China. 　

In addition to that, we also provide what we call air handling, which are turbo chargers. We provide fuel systems, or diesel fuel injection. We provide filtration products, we provide after treatment, or catalytic converter. Those are products we put not only on our own engines, but also on our competitors’ engines. We are actively involved in helping the entire industry meet emissions standards and we’re very pleased that we can do that. 　　

NC: We see Cummins engines in many Belt and Road Initiative projects. What part do you see Cummins playing in the BRI?　

SC: What we see now is a concerted effort by the Chinese government to encourage Chinese companies to export. In general we operate in partnerships, 50-50 partnerships with Chinese companies, typically equipment manufacturers such as construction equipment and trucks. Our effort with them is to support the ability of Chinese original equipment manufactures (OEMs) to export globally. I have made a number of trips to Russia, Africa and Southeast Asia to look at the opportunities for export of Chinese equipment with Cummins’ power. We of course recognize China is looking to have their OEMs export and other companies. We think we can help do that because we have service networks throughout the world. 　　

NC: China has become one of the most important foreign markets for Cummins. What is your vision for the company in China 10 years from now?　SC: Our current revenue in China is in the range of US$5 billion. In addition to that, there is a significant amount of engine export, or power generation export, from China to elsewhere in the world. We sell 20,000 to 30,000 engines per year from our Chinese factories to Russia. That puts it obviously not up to US$6 billion but kind of in that range. Ten years from now, we would like to be growing at a rate such that we’d be in a range of US$8-10 billion in sales. But I think more importantly is the continued respect for the market in China and the development of our customer support. We’ve done very well in developing engines. Our technical center in Wuhan is outstanding. We have some good engineers in Beijing. We have some operations in Wuxi. They are developing and designing products for the market together. Our focus is providing great market-leading customer support as well. It has been an exciting history, and exciting past and is also a very exciting future. 　　NC: What role do you think organizations like China Genera Chamber of Commerce – USA (CGCC) should play in the current US-China relationship?　

CGCC’s main focus is really to support Chinese companies and demonstrate that Chinese companies can be successful in the US, can grow their business and be good corporate citizens. And just help be that bridge between two countries, two economies and two cultures. 　　

NC: What are your hopes and visions for CGCC in 2020?　

SC: I’ll be serving as one of their strategic advisory capacities. I look forward to supporting them in developing their vision. CGCC can be a good bridge between companies to share information about the environment and about what kind of strategies people can put in place to be more successful in the American market.