GM China's First Employee - from China market as GM's dream, to the USA market as a Chinese dream. Time Flies.

Selected to be a part of General Motor’s original China market team, Steve Schnell has played a first-hand role in the evolution of the China auto market. After 10 years of due diligence and negotiation, he was employee #1 in the PRC back in 1994. After serving in executive positions across GM, he’s worked in operating and advisory roles with various players in the global auto parts sector. We caught up with him on his cell phone to hear some of his perspectives on doing business with China’s dynamic auto market.

So Steve, I understand your first responsibility with China and GM started in 1994. That was just about two years into Jack Smith’s tenure as CEO at General Motors. I was wondering if you could share with us a little bit of perspectives GM had in terms of what the China market opportunity was at that time, and how it fit into its global operations.

SCHNELL: I really started China in 1984, not 1994. In 1984 is when the GM executive team wanted to make China a prime target. And they brought in a new employee from outside of GM by name of Ron Gilchrist to head up China team. I was asked to join that team in, again as I said, it was 1984. In 1985 we made our first trip to China as part of this new team to get GM established there.

 

TCBN: Now at the time, I’m curious about building up an organization from scratch. I know that you started with one, and built up more than a few operation entities there. In terms of talent, in terms of training, what type of challenges were forefront in the other executives’ minds in terms of building organizational capacity in China beyond just manufacturing but actually management capability there?

SCHNELL: It was a major challenge. When I went there in ’94, as you said, it was an office of one. That was me. I had to find a staff of both engineering-type people, business people, and accounting people in order to help around the office. So it was a challenge just to first get an assistant who was bilingual, and then once the assistant was hired, we started to do background checks using networks within different organizations contacts with in Shanghai: the local governments, the local universities, and also the hotels. The hotels had quite a few people that were bilingual. 

The biggest challenge was trying to find engineers that we could mold and teach the more modern way of doing vehicles compared to the technology that had been used in China up to that point in time. We did have – when we did select an engineer, of course we did background check sand everything. We actually sent a lot to the US for training programs within GM tech center. A number of them went to Germany to work at Opel. A couple weeks, couple months, so we could see their experiences and they could see what we were trying to do in China. So it was a challenge but it worked out. When I left Shanghai in 1997, there were about 170 people in the office. And the joint venture was just being formed at that time. A lot of those people went to work in the joint venture.

TCBN: And can you talk a little bit about how you’ve seen that evolution of that sales and service market in China? We hear a lot about the manufacturing statistics that come out, and of course China has become by volume largest market. I’m curious about the evolution of that after market and even, of course, dealer networks. Clearly this has to have evolved concurrent with the vehicle sales. I’m wondering if you can comment a little bit on how - or what challenge sector has faced as the market has grown.

SCHNELL: Even before we had the joint venture there was a small growing dealer network for imported vehicles. Import duties were extremely high so sales on that not that great. But we were able to at least have a little network before the vehicle production began. Once production began we were interviewing companies in order to establish networks and those networks had to meet all of the normal requirements for the size, the service, for quality, and for availability of parts. So that was going on simultaneous with the development and feasibility study and formation of the joint venture. So when the production started coming out we did have a network to work from, and we had a lot of good number of candidates who were being qualified to become dealerships.

TCBN: I want to go a little bit deeper into comment about having engineering team in China to help with quality. I, and many people of course, hear about how difficult to manage for good quality in China. I wonder if you could talk about the operational level about how the interaction should work well between the buyer and the supplier in partnership - what elements, instead of just specs, sort of soft knowledge transfer, or timing of how frequently interacting both sides, or openness transparency? What are the keys to success for making good quality products come out of those supplier relationships?

SCHNELL: The key to any success in China is partnership. You have to go in there with an open mind. You have to be willing to share your knowledge and experience so they can learn and meet your requirements. If you find a supplier that has reasonably good quality, take a look at that product and you’re going to have your engineers look at it and see what needs to be done to make it a high quality product. And some of that in most cases has to do with production where you have to have someone go in there and take a look at the production process, take a look at machinery, take a look at the measuring devices, and give them the standards that they should be following in order to produce that quality on consistent basis. So you find someone good and you make them better, and they’ll follow your lead when you give them a supply agreement says “we’re going to buy X from you for this number of years as long as you meet quality standard, and we’re going to help you meet quality standard.” So they are getting a lot. They’re getting a business deal with you; they’re improving their quality which is going to give them additional customers. So it’s a win-win situation. That’s why I saw partnering and partnership is the key to every success in China.

TCBN: As a final question, we talk about Chinese brands going global, and when you look at the auto sector here in the US, what opportunities are coming along the ways with China as the globalization of Chinese auto part brands and Chinese car brands for US companies here? What do you see coming down the pipeline?

SCHNELL: Well, I know there’s several different brands of Chinese vehicles that developed for export. Chery is one of them. It has not passed the federal safety and emissions requirements. It hasn’t passed in Europe either. But there’s a number of vehicles that are relatively low priced that could come out into US market in next couple of years. That’s one of the big dreams of the Chinese government is to be able to start exporting vehicles. They have enough technology now within components, it’s a matter of harnessing technology and the production process to make sure the quality is consistent over time. The other thing is when the vehicles are made for consistent quality within the vehicles and also to make sure when the vehicle’s designed has all safety parts build into it. So I can see over the next couple years vehicles coming into US and Europe, in addition to the components.

TCBN: Well Steve, I’m sure that will pose new opportunities and challenges both for Chinese firms and companies operating here in the US and European markets. I look forward to another conversation with you as that becomes more of a reality, but I thank you very much for having time to speak with us today

SCHNELL: Okay, been a pleasure Michael. Good talking to you. Look forward to speaking to you again.