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Mercedes In China, Joint-Venture Lessons For The "New Normal"

A Mercedes-AMG GT S at the Auto Shanghai 2015 in April
A Mercedes-AMG GT S at the Auto Shanghai 2015 in April

BEIJING — After enjoying years of double-digit growth, China's luxury car market has screeched to an unprecedented slowdown with a growth rate of less than 6% for the first half of 2015. But there is one notable exception to the slowdown: the Beijing Benz Automotive Co. (BBAC) — the joint venture between the Chinese state-owned Beijing Automotive Group and Daimler AG, the holding company of Mercedes-Benz. And for the first time, in July, BBAC outsold BMW.

This is clearly a welcomed birthday gift as the joint venture marks 10 years since its founding. The past decade of exploration, adjustment and development, the company's factory area has now expanded one and a half times, and the number of employees three times to some 12,000. By the end of 2014, the BBAC registered sales of more than half a million vehicles. The company's production has now increased nearly six-fold since its founding.

So what are the reasons behind Beijing Benz's success?

First, we can point to consistent Sino-German economic cooperation over the years that has helped grease the wheels of the joint venture between Beijing Automotive Group and Daimler AG. As strategic cooperation deepened, BBAC was able to implement a number of core projects over time that allowed for the establishment of world-class industrial production inside China.

In March 2013, a Mercedes-Benz rear wheel drive architecture plant was completed. This is Daimler's biggest car body assembly facility, in terms of manufacturing capability, outside of Germany. Using a multi-model mixed-production line and a flexible conveyor system, as well as modular assembly, this production base can produce with unmatched efficiency based on the lean production method of zero-inventory management.

Also, in November 2013, an engine plant was officially put into operation that essentially changed the BBAC from simply a car manufacturer to one that also produces components and masters the latest core manufacturing technologies. The plant turns out the cylinder block, cylinder head and crankshaft — the engine's three core parts — providing confirmation that BBAC's manufacturing quality has met the highest global standard set by Daimler.

Moreover, Iate last year, the BBAC research and development center was opened, Daimler's largest joint venture R&D center, providing important technical support for vehicles tailored to Chinese customers.

Enriching the product line

Over the past ten years China's premium car market has seen a high average annual growth of 30%. In the face of such vigorous demand the BBAC has continuously introduced Mercedes-Benz models and established efficient production chains. Out of the target sales of 300,000 Mercedes units in China this year, more than half of them are expected to be produced locally by BBAC.

The BBAC has held on to the credo "same brand, same quality" and followed the Mercedes-Benz quality management feedback loop, so that the product fully complies with the brand's global standard. As a Sino-German joint venture, BBAC has constantly absorbed the most advanced management concepts and experience over the past decade, notably the lean management aims of achieving the fastest response to market needs through scientific and effective tracking.

After years and years of development, BBAC has established a complete training system composed of three components: projects, skills, and management training. Between 2008 and July 2015, BBAC sent nearly 1,200 employees to participate in training courses in Germany, effectively creating a large number of highly qualified professionals for the Chinese auto industry.

Finally, the joint venture has worked within an environmental-friendly framework, consistently introducing state-of-the-art green innovation and transforming existing technology and equipment to offer car models of lower energy consumption and emissions.

The broader context of the success of Beijing Benz is as a model for China's "New Normal," as the economy shifts gear from high-speed to medium-speed growth. It's a lesson that is 10 years in the making.

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