Honda Strike Reflects the Vulnerability

　　During his fourth visit to China, Takanobu Ito, the President of Honda, did not expect that Honda Auto Parts Manufacturing Co., Ltd. located in the city of Foshan, Guangzhou would use strike to welcome him.

　　Honda Auto Parts Manufacturing Co., Ltd. mainly produces gearbox-the core part of a car. With the involvement of multiple forces, the strike is turning into a major event. Recently a number of workers of Foxconn committed suicide by jumping from a building. The interest and living conditions of workers have never been so blatantly exposed to the public.

　　A clear fact is that Honda is one of the most profitable corporations in China and across the world. Honda can gain up to 40,000 yuan from a car. However, the working staff in Honda Auto Parts said their average monthly salary was "about 1,500 yuan". The two figures seem so discordant. Now China's auto manufacturing industry is still able to get high profits, but employees' reasonable demands about salaries have not been guaranteed.

　　As to issue of Foxonn and Honda, I believe for Chinese manufacturing industry those two incidents are no less than an earthquake. For a long period, China's manufacturing industry took the advantage of low cost and vast labor force. Such kind of structure may be changed. In addition, Foxonn and Honda actually are respectively related to IT outsourcing and automotive manufacturing-two core industries. Those two giants have long ignored the basic rights of working force and spiritual care for each individual worker. The outbreak of those two incidents unfolded the flaws. Moreover, post-1985 and post-1990 youths are gradually entering the society and they share some characteristics in common. The public is witnessing a typical case that the new generation manufacturing workers are calling for rights.

　　The strike gave Honda an alert that it should be concerned about the interest of Chinese workers. All the major automobile enterprises including Honda should think about a question-is there any problem with the supply chain?

　　Since all the Honda's joint ventures of vehicle manufacturers are using the gearbox produced by Honda Auto Parts Manufacturing Co., the strike has already led to suspension of production for Honda's vehicle businesses in China. In fact, unlike GM, Volkswagen and other automakers, Japanese automakers such as Honda and Toyota have been holding an independent supply system. During the peak time, Denso Group provided 80% of auto parts for Toyota. Similarly, most of businesses in Honda's global supply system are linked with Honda. Therefore, those part manufacturers expand their business along with Honda and are located around the vehicle plants.

　　Due to history, technical protection and other factors, though joint ventures have developed business in China for 26 years, the basic function of Chinese auto joint ventures still stays unchanged-the assembly base for foreign company. In addition, foreign companies are also facing a new bottleneck. Now China has become the largest auto market across the globe. However, core components and technologies such as engine, gearbox, advanced suspension system and integrated circuit are still held firmly by foreign brands. Despite extreme conditions, foreign companies will not transfer the control of core component companies.

　　Such phenomenon is related to China's unique industrial polices. According to the industry polices, foreign part should not hold more than 50% shares in joint vehicle companies. As to auto part system, there is no such kind of standard. Thus, in order to pursue maximum benefits, foreign brands will do everything possible to operate core component manufacturer by them in order to block technologies and maximize the interest.

　　Honda Auto Parts Manufacturing Co., Ltd. is a typical example. The registered capital of the company is 90 million dollars which is wholly owned by Honda Motor (China) Investment Co., Ltd. In addition to producing automotive gearbox, the company also produced other parts such as drive shaft and components of engine.

　　Honda Auto Parts provides components to Toyota vehicle businesses in China. In the spring of 2007 Honda Auto Parts started production and the initial annual production capacity is 240,000 sets of gearboxes.

　　Back in 1994, Honda established Dongfeng Honda Auto Parts Co., Ltd. in cooperation with Dongfeng. That company has been serving as the major supplier for Guangzhou Honda and Dongfeng Honda. With the growth of business in China, Honda decided to found a wholly-owned auto part enterprise to produce key components such as gearbox.

　　Honda is not the only one to carry out such kind of practice. Volkswagen is in absolute charge of the gearbox plant in Dalian and holds 60% of the engine plant. Powertrain system accounts for 20% of cost and more than 30% of profit, which is firmly in the hands of foreign brands.

　　Therefore major foreign automakers will never hand over such a profitable business which is rather unique and without back-supporting system of competition. Once the production of parts plant is suspended, the whole industry chain will have to shut down.

　　The vulnerability of foreign automakers' supply chains gave alert to the auto industry that behind the glorious phenomenon there are too many secrets as well as imperfections. (Translator: Qinghua/Hanxin)

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