China: A Promising, Emerging Specialty-Equipment Market

SEMA News—December 2012

INTERNATIONAL
By Linda Spencer

China: A Promising, Emerging Specialty-Equipment Market

Aftermarket Business, Automotive Business, Aftermarket News, Automotive Industry News, Automotive News
Barry Adler (second from left), president of Quick Time Performance, a manufacturer of electronically controlled exhaust cutouts, said that it is important for the company to be in at the early stages of the Chinese specialty-equipment market. “We can help educate them with our products,” he said, “and exporting is the largest growth potential we have. We are putting more money and time into developing this overseas business than in growing our domestic sales.”

Sixteen SEMA-member companies traveled to Shanghai and Beijing on the 2012 SEMA China Business Development Tour to explore growth opportunities for their products. This most recent trip is part of SEMA’s program of one-on-one meetings and fact-finding trips to emerging markets.

As with a similar program for the Middle East, the annual SEMA China Business Development Tour was designed to be a low-cost and high-value way to explore a new market. Activities included two full days of meetings with pre-vetted buyers in Shanghai and Beijing, visits to specialty-equipment shops in both cities, briefings by U.S. government officials based in China and the opportunity to network with both buyers and fellow SEMA members in an informal setting. In addition, trip participants were able to help defray the cost of participating through a three-year, $500,000 Market Development Cooperative Program Grant that SEMA was awarded by the U.S. Department of Commerce.

Though the participating firms manufactured a wide array of performance and exterior and interior styling enhancements, all were unanimous that the potential for sales of their products in China couldn’t be overstated. The most common word used to describe the country’s potential for the size of its specialty-equipment market was “limitless.”

“In the near future, I believe the potential for the Chinese specialty-equipment market could easily be 10 times the size of the U.S. market,” said Jeff Victer of Prolong Super Lubricants, and SCT President Rick Trudo estimated that his company’s sales in China and other markets outside the United States will surpass its U.S. sales by 2015.

SEMA-Member Exhibitors on the 2012 SEMA China Business Development Tour

Borla Performance Industries
Coverking
Crane Cams
eBay Motors
Gibson Performance Exhaust
Injen Technology
K&N Engineering, Inc.
Keystone Automotive
Kicker
Maxpro Window Films
OMIX-ADA Inc.
Prolong Super Lubricants
Quick Time Performance
Radflo Suspension Technology
SCT Performance LLC
Weld Racing LLC

That’s not to say there aren’t challenges. Among the hurdles mentioned by participants were the need for the Chinese government to do more to deter counterfeiting and the need to adapt products and marketing in China to satisfy local requirements as well as language and
cultural barriers.

“A product that sells well in the United States may not sell in China because the name or model number of the product is deemed unlucky in Chinese culture,” said K&N’s George Hsieh. “On the other hand, if a U.S. company takes the time and effort to develop a product specifically for the Chinese market, it will most likely be well received because it shows respect for Chinese consumers.”

David Borla, sales and marketing manager for U.S. exhaust and induction manufacturer Borla Performance, said that understanding the Chinese automotive culture can be challenging, and it’s important to approach it with an open mind, regardless of how successful you’ve been elsewhere in the world.

Injen’s Ed Rossi identified another hurdle: “The biggest challenge for growth is the amount of cars which can be brought in economically,” he said. “The 100%–140% tax burden the government places on new imported vehicles and the incapability to bring in used cars really limits the amount of vehicles that SEMA-member manufacturers can attach their parts to.”

Nathan Calabrese of OMIX-ADA concurred that the limited number of vehicles in China is a big challenge, but he expressed optimism that the challenge will diminish as the quantity of vehicles increases.

Another challenge identified by exhibitors is China’s fragmented distribution system.

“With the explosive market growth, not every distributor is looking at the market the same way,” Hsieh said. “Some may be looking at short-term profit run rather than long-term business relationships. I believe it is very important to qualify distributors not solely on how much product they can move, but also on how they plan to grow their business and the brand.”

	The market for specialty products has officially spread beyond the main coastal cities of Beijing, Shanghai and Guangzhou. Buyers attended the SEMA event from 14 cities/regions around the country.

Yet, despite these hurdles, the group was optimistic about the growing off-road market, the growing base of consumers and the positive perception of U.S. products in China.

“The growing number of car enthusiasts in China will mean greater demand for aftermarket products for either appearance or performance,” said Kevin Floody, K&N’s international business manager. “One area that seems to continue to grow is the 4x4 market, and it is amazing to see the dominance of U.S.-branded vehicles in this arena along with U.S. brands of aftermarket products.”

Dan Tsuchiya, head of business development at eBay, said that the Chinese will experience a growing need to differentiate and create that special ride as the population becomes more affluent and is exposed to Western influences.

“This market has only tapped into the wealthy Chinese enthusiasts, mostly with international experience,” he said. “There is another 98% or 99% still to be reached. Real growth for any U.S.-based manufacturer will be in emerging countries such as China or Russia, where there is a desire to own Western products. There is a perception—and proof—that U.S.-manufactured products are superior to their domestic-made products.”

For more information about SEMA’s international programs, e-mail Linda Spencer at lindas@SEMA.org. Information on an upcoming trip to the Middle East is available at www.SEMA.org/middleeast.

William Brekke, principal commercial officer for the U.S. Commercial Service at the American Consulate General in Shanghai, and Daniel Green, director of market access and compliance office at the U.S. Embassy in Beijing, briefed the SEMA delegation at an opening dinner. Pictured here are Green and Rick Trudo (left), president of SCT.	Jeff Victer (left), director of global sales for Prolong Super Lubricants, said that the Chinese market is very important to his company’s strategy because of the country’s size, scope and depth of opportunity. “In the near future, I believe the potential for the Chinese specialty-equipment market could easily be 10 times the size of the U.S. market,” he said.	“During the visits to tuning shops as well as the one-on-one meetings with buyers, the need and desire for quality American-made products was clear,” said Bill Wines (second from right) of window film manufacturer Maxpro Window Films. “Many shop owners had been burned by poor-quality products and were looking to buy better, longer-lasting products for installation.

Ron Gibson (second right), president, and Shawn Gibson (right), vice president, represented Gibson Performance Exhaust. The manufacturer of exhaust systems, mufflers and headers for trucks and SUVs participated in this program for the first time. SEMA organizes programs annually to China (in the fall) and the Middle East (the spring).	“We see huge opportunities for our products in China,” said Rick Trudo (far right), president of tuning-product manufacturer SCT. “Working with partners such as Carnet and others throughout China, we see a big opportunity for our growth to double in 2013.” Justin Oltz (third from right), SCT’s director of business development, said that the aftermarket community has a unique opportunity to learn from its storied history and apply its expertise to the Chinese market.	“This was our second year at the China Business Development Tour,” said Steve Outhier (far right), director of product planning for Stillwater Designs/Kicker. “The sharing of ideas, strategies and issues with fellow participants is invaluable as we further develop our export trade.” Outhier and Chester Weddle (second from right), the audio firm’s international sales manager for Asia/Pacific, met with buyers at one-on-one meetings.

Injen’s Ed Rossi (center), vice president of sales, provided a steady stream of prospective buyers with information about his firm’s high-performance air-intake systems and stainless-steel exhaust systems. Rossi and Ron Delgado (far left), the company’s president, have been on all three SEMA one-on-one trips—two to China and one to the Middle East. “The Chinese enthusiasts are perfect for our core product line,” Rossi said, “and their hunger for Western products is fueling our drive.	SEMA Vice President of Communications and Events Peter MacGillivray (left) and General Manager Jia Bing of high-end specialty- equipment shop Unique shared a laugh during a visit to the retail outlet. MacGillivray noted that an increasing number of consumers in China are buying into the notion of vehicle personalization. “It is great to see real business develop for our industry,” he said. “It’s truly a pioneering effort that will blossom into business opportunities.”	Scott Mackie (second from right), president of Weld Racing, and Jim Pan (far right), the company’s premium/luxury senior consultant, traveled to China to explore the growth potential for their U.S.-made forged aluminum wheels. “As the emerging middle class in China grows in spending power and surpasses the United States, the Chinese consumer will play a pivotal role in fueling growth within the specialty-equipment market,” Pan said.

Weld Racing President Scott Mackie checked out the aftermarket wheels on display at Shanghai-based company D1 Station.	SEMA Senior Vice President of Operations Bill Miller (left) presented a certificate to Tong Wei (Stone Tong) from Beijing Sky Lu Jingxin Trading Co. Ltd. to commemorate his participation in the second annual SEMA China one-on-one program.	Local retail shops displayed customized vehicles as part of a TunerTribe SEMA celebration.

Coverking President Steve Gupta (left) and Quick Time Performance President Barry Adler (right) viewed the performance products added to a project vehicle at Shanghai-based UDM.	“The Chinese specialty-equipment market has the potential to dwarf any other geographical market of its kind on the planet,” said David Borla (front row, second right), sales and marketing manager for Borla Performance. “The numbers are staggering.”	Sean Holly (far right), president and general manager of Crane Cams, and Steve Iggens (second right), president of the firm’s motorcycle division, talked with buyers during two day-long meetings, the first in Shanghai and the second in Beijing.

From left, Daisy Wang, trade policy specialist at the U.S. Embassy in Beijing; Scott Mackie, president of Weld Racing; Liz Couch, international economist on the auto team at the U.S. Department of Commerce’s Washington, D.C., headquarters; and Ruby Stratz of Keystone shared a bite on the famed Shanghai waterfront known as the Bund. Couch and Wang work year-round with SEMA to create a pro-industry policy toward specialty-equipment products. They spent the week with the SEMA delegation, providing an excellent resource on the Chinese market and exporting in general to participating companies.	China’s growing middle class and Western influences have created tremendous demand for quality U.S.-made products, said George Hsieh (second right), project coordinator for K&N. “In the one-child-only Chinese society, personalization is everything,” he said, “and everyone wants to be different.” Kevin Floody (far right), K&N’s international business manager, added that it is very important for K&N to continue to develop its market in China, since it continues to be one of the fastest-growing international markets available. “The sooner any company can enter into the China market, the sooner that brand starts to become more recognized,” he said.	“The specialty market [in China] is in its infancy, and now is a great time for U.S. companies to become involved,” said Radflo Suspension Technology’s Mike Crosby (third from right). “The off-road segment is growing very rapidly within the country. The opportunities in China are immense for our product line, and we look forward to expansion within this market.” Crosby and Radflo President Glenn Classen (right) met with buyers to explore sales opportunities for their shock absorbers and hydraulic jacks.

Steve Gupta (far right), president of Anaheim-based Coverking, answered questions from interested buyers about the firm’s custom and universal seat covers, car covers and other products.	Keystone’s Ruby Stratz (seated in a white shirt) talked with potential customers during the trip. Keystone was one of 16 companies participating in the second annual SEMA China Business Development Program. This year’s program included stops in Beijing and Shanghai.	The technical knowledge of customizing shops is growing in China. One indicator of the level of performance tuning is the presence of a dyno. Here, the SEMA delegation checks out a dyno in a shop in Beijing.

Tuner Tribe is a vibrant market in Beijing featuring specialty-equipment shops. The SEMA delegation as well as U.S. and Chinese government officials attended the first Tuner-Tribe SEMA celebration of the specialty-equipment industry held this past September.	Sixteen companies and a total of 35 SEMA members participated in the second annual SEMA program in China which involved visits to specialty-equipment shops, one-on-one meeting with leading Chinese buyers from around the country and briefings with U.S. government officials.	“China is a very important destination for our products,” said Nathan Calabrese (far right), director of international sales for Georgia-based OMIX-ADA. “We are fortunate to have a strong presence in China within our niche market already, but there is always room for improvement, development and the ongoing work to keep our presence strong.”