After 33 years in China, Cummins found itself once again as a stranger. Following deep reflection, the company began re-evaluating its position in the Chinese market and launched a counterattack. Could its bold bet on light-duty diesel engines help ease the sense of loss in the heavy truck segment and restore its leadership status?
Driven by global trends toward passenger car dieselization, at the turn of the century, Cummins—a traditional medium- and heavy-duty diesel engine leader—initiated two major moves in the light diesel engine space: one was a collaboration with Chrysler on 4.2L and 5.6L diesel engines, and the other was an agreement with Foton to produce 2.8L and 3.8L engines at an annual capacity of 400,000 units. The former was planned for Indiana, USA, before 2010, while the latter would begin production in Beijing in 2009. But was this the only reason behind Cummins’ strategy?
In 2006, Wang Hongjie, Vice Chairman of Cummins China Investment Co., Ltd., led the negotiation team for the fifth time to meet with Beiqi Futian to discuss the establishment of a joint venture, Beijing Foton Cummins. This was the fourth large-scale engine production joint venture Cummins had negotiated in China, and the talks were progressing smoothly. Details remained, but Wang was not willing to waste much time on them.
As a seasoned negotiator with over 20 years of experience in state-owned enterprises and 14 years at Cummins, Wang was well-versed in such negotiations. He wasn’t worried about the outcome but more concerned about the speed. Just before leaving, he noticed Weichai’s sales data, which showed a rapid rise. Faced with this local rival, Wang aimed to use Cummins’ product diversity and international expertise to find new opportunities beyond heavy trucks.
To accelerate the process and show respect to Beiqi Futian, a rising commercial vehicle leader, Wang led the team multiple times and even shared a drink with high-level executives from Futian. A special U.S. plane was also on standby to accommodate any visits by Futian’s top management. “Mutual attraction and synergy between both parties will follow,†Wang explained. “Cummins needs to partner with China’s top light commercial vehicle company to enter the booming light diesel market. Technological upgrades require more internationalization. Both sides have very similar needs, so we can almost talk it through.â€
Indeed, the formation of Beijing Foton Cummins was a win-win for both sides. For Futian, Cummins’ technology and support provided a solid foundation for upgrading their engine tech and reinforcing their position as the “king of light commercial vehicles.†For Cummins, it secured a first-mover advantage in China’s light diesel market and completed a global strategic shift through cooperation with Foton.
But could Foton Cummins become the turning point for Cummins in China? Reports indicated that the personnel structure in the new joint venture hadn’t been finalized yet, and preparations were still intense. However, Cummins’ rivals were moving fast.
“Compared to the whole vehicle industry, China’s diesel engine sector is a fully competitive market. Cummins is like a carp in this environment—dynamic and powerful, which has activated the entire market. As a result, local fish (Chinese companies) have grown rapidly. Over the years, Cummins’ foreign ‘squid’ has grown, but it hasn’t become a big shark or eaten the local fish. The biggest beneficiaries are Chinese local companies and their customers,†Wang explained.
The real threat to Cummins wasn’t foreign competitors with shallow roots in China. It was the rapidly growing domestic engine companies, especially Weichai and Yuchai.
Talking about Weichai and Yuchai, Wang showed a complex mindset. On one hand, these companies were once insignificant to Cummins, but they were now growing rapidly and threatening to surpass it. On the other hand, the Chinese market had taught Cummins a lesson. Today, Cummins viewed these companies with respect and admiration.
“Weichai and Yuchai’s total sales in 2007 reached 58 billion yuan, while Cummins China’s business volume was only 21% of that. The Chinese market gave us a lesson! We mustn’t underestimate our domestic competitors. No matter how strong we were initially, their momentum is like a gun pointed at our heads. We have no way out,†Wang said.
From Wall Street’s investment perspective and Cummins’ own overseas strategy, the company’s China strategy was steadily advancing. In 2007, growth of over 40% made China the fastest-growing and most successful overseas market for Cummins. However, the pace of Weichai and Yuchai was even more impressive. Yet, for a multinational corporation seeking stable returns, Cummins’ China strategy was undeniably a success. Still, Wang admitted, “We could have gone faster and taken bigger steps.â€
The successful joint venture with Beiqi Futian positioned Cummins at an industry commanding height. However, ensuring long-term market stability became a key focus. Aware of this, Cummins began to seek change. How would it fight this new battle?
Wang stated, “As a mature multinational corporation, Cummins won’t arbitrarily change its established regional strategy, especially those proven successful over many years.†The strategy included leading technology, localization, diversification, and cooperation with market leaders.
In China, Cummins’ success came down to four pillars: simultaneous introduction, localization, diversification, and partnership with market leaders. However, facing increasingly sophisticated local competitors, further changes were needed.
Within a few short years, Weichai not only strengthened its heavy truck industry chain but also advanced internationally. With extensive technology and capital collaborations, if Weichai reaches 100 billion yuan by 2012, it could become a world-class engine leader like Cummins.
From 2004 to 2005, both Yuchai and Weichai jumped from 5 billion to 10 billion yuan. Although Cummins China’s data was sparse, it’s estimated that 2004 was the year when Yuchai and Weichai surpassed Cummins. This coincided with a sudden drop in China’s auto production and sales growth from 35.08% to 15.49%, possibly due to Cummins’ high pricing.
“The ultimate bottleneck for Cummins and all multinational products is the price difference. This is an unbreakable barrier. Transnational products cannot be cheaper than domestic ones,†Wang explained. “In China, prices are particularly important. We firmly grasp the hands of these local companies.â€
It’s easy to imagine that during the 2004 downturn, Weichai and Yuchai gained market share by offering lower prices. Comparing recent sales data:
| Company Name | 2004 (billion yuan) | 2005 | 2006 | 2007 | Forecast |
|----------------------|---------------------|------|------|------|----------|
| Yuchai | 107 | 121 | 141 | ≥180 | 200 |
| Weichai | 100 | 170 | 240 | ≥400 | 1000 |
| Cummins China (USD) | 11 | 11 | 12 | 17 | 30 |
| Cummins Global (USD) | 84 | 99 | 114 | 130 | 200 |
When considering the timing of Xi’an Cummins and Foton Cummins’ negotiations (after 2004) and the establishment of the China R&D Center (2005), it’s clear that Cummins started its counterattack in 2004. However, the inertia of the Chinese auto market for Weichai and Yuchai wasn’t anticipated. The market was not easy to regain, and Weichai and Yuchai, who were bold in risk-taking, were not comparable to Cummins, whose board decisions were steady.
In 2005, the first China board meeting set a target of 3 billion yuan by 2010. According to normal growth, this could still beat Weichai and Yuchai. However, Cummins underestimated the energy of its rivals and the Chinese market. “The development momentum of the Chinese auto industry exceeded our expectations. We could have been faster in terms of speed,†Wang lamented.
Today, Cummins decided not to miss any opportunity. Its strategy includes continuing the Chinese plan, reducing the price gap, improving response speed, especially decision-making and execution.
“To this end, Cummins has set up one of the world’s four regional procurement centers in Shanghai, China. The center has been involved in the development chain since the completion of the Foton Cummins project, and has begun to control costs at the starting point. Cummins wants to move the full range of products. China is not just an engine, but also key parts. Only by making key components locally can the price difference be further reduced,†Wang told reporters.
“The decision-making method is generally not easy to change because a mature multinational company has its own system: research, evaluation, business model, and negotiation. Even a fast-growing Chinese company follows this process,†Wang said. Since you can’t change the mechanism, increase the speed. “The important thing is to change the management organization. Before, Steve Chapman, who was in charge of China, India, and Russia, was working in the U.S. Now he personally sits in Beijing, radiating from there. The speed of response naturally increases!â€
Not only in macro strategies but also in micro aspects, Cummins has learned from the outside world, especially from Weichai and Yuchai. Xiao Wang, a staff member in the marketing department of Cummins China, starts each day by browsing domestic engine industry news, especially Weichai and Yuchai’s websites, to quickly catch up on changes. “Our product specifications will continue to improve, especially when we see Weichai or Yuchai’s fresh, simple, and easy-to-understand language.â€
With rich competitive experience and diversified products, one dominates through regional cooperation, while another creates a gold supply chain through capital operations. The war between China and the world is far from over.
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