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Yuchai: Transformation and upgrading, new direction for second startup

"New normal" is becoming the new posture of the great economy of China.

What is the way out for enterprises in the "new normal" state? Facing the new proposition and challenge, China's largest internal combustion engine manufacturing base--Yuchai Group has initiated the "second startup", reformed and innovated, and transcended itself so as to accomplish transformation and build new advantage in the new round of entrepreneurship.

An aerial view of Yuchai New Industrial City

From a "workshop" to a modern business group ranked among China's top 500 enterprises, in every round of great development, Yuchai has been moving forward while adapting to internal and external environmental changes.

Seize up the situation and work out a new plan

Yuchai aspiring for leap has never ceased to develop.

Yuchai Group achieved sales of 42.467 billion yuan last year, up 2.15 percent year on year. Yuchai's engine sector developed steadily, the output and sales of Yuchai Machinery Co., Ltd. (Yuchai Machinery) remained ahead in the industry, Yuchai's market share continued to grow; Y & C Engine fulfilled its annual sales target one month earlier. Yuchai's lubricant sector achieved substantial profit growth, showing the initial effect of advantage complementation after the establishment of the joint venture. Yuchai's logistics & vehicle trade and energy & chemical sectors grew steadily. Yuchai achieved good results in cooperation projects and technical R & D. In 2013, Yuchai forged ahead and performed strongly amid the micro growth of the machinery industry.

However, fast-growing Yuchai has a sense of crisis and gap.

The sense of crisis and gap comes from the outside.

China's economy has stepped into a new track after rapid development. Medium & high-speed growth, structure optimization, new power, multiple challengesChina's economy has entered a new stage different from the period of fast growth over the past three decades. Entering the "new normal" of the economy and changing the development mode has become a challenge faced by most Chinese enterprises.

Strong equipment manufacturing is the foundation of the real economy and the key to transformation and upgrading. Facing informatization and the new technical revolution, the reform of manufacturing modes, and the severe compression of the space of industrial upgrading, equipment manufacturing must assume the heavy duty assigned by the times and work out the new development strategy and growth model.

The sense of crisis and gap comes from Yuchai.

In 2014, Yuchai's "twelfth five-year plan" entered the fourth year. However, affected by international and domestic economic environments and restricted by internal factors, Yuchai's development was far from its expectation. Since 2011, Yuchai's sales have been around 43 billion yuan for three consecutive years, showing its development bottleneck.

After years' development, Yuchai's internal development environment has changed and a lot of problems have arisen in its development such as lack of high-end talents, rigidness of management systems, narrowness of financing platforms and inadequate development of human resource dividends.

How does Yuchai develop greatly in the new environment to achieve the grand goal of internationalization?

"Second startup", transformation and upgrading!

In the context of change and development of internal and external environment, Yuchai proposed the idea of "second startup" according to the situation in April 2014, adjusted its development strategy in light of its development, and released Yuchai Group's Second Startup and Outline of Strategic Plan

In terms of development strategy, Yuchai proposed to accelerate the construction of Yuchai New Industrial City, expand domestic and international cooperation, intensify the introduction and application of high and new technologies, focus on extending two industrial chains--"engine" and "petrochemical", create two service platforms--"finance" and "logistics", integrate resources, optimize the structure, promote transformation and upgrading, and enhance core competitiveness, so as to accomplish the sustainable operation and healthy development of the enterprise.

In terms of strategic orientation, Yuchai proposed to establish "two product chains"----"engine" and "petrochemical" and two service platforms--"finance" and "logistics".

In terms of strategic support, Yuchai proposed to implement the strategic support system of "one core, two reforms, three innovations and five upgrades" (one core is corporate core competitiveness: focusing on six elements--"team, innovation, product, market, financing and management", i.e. fostering strong product power, market power, innovation power, management power, financing power and team power through a series of measures, so as to consolidate and enhance the core competitiveness of Yuchai Group; two reforms are system reform and mechanism reform; three innovations are business model innovation, management system innovation and cultural system innovation; five upgrades are product structure upgrade, technical R & D upgrade, quality control capacity upgrade, marketing capacity upgrade and investment & financing capacity upgrade), and rely on key projects, to ensure the accomplishment of Yuchai's objectives of second startup, transformation and upgrading, and its strategic objective.

Yan Ping, chairman of Yuchai Group, said Yuchai would make full use of the platform and opportunity of new industrial city construction, build "one headquarters base and four industrial zones" in three to five years, achieve an annual output value of over 100 billion yuan and a parts localization rate of over 50 percent, build a new-type national equipment manufacturing (internal combustion engine) industry base and complete its industrial revolution in three to five years.

Yuchai initiated the "second startup" and embarked upon a new journey in 2014.

Accumulate internal strength, lay the groundwork

Enhancing internal strength is the groundwork for corporate development.

To promote the "second startup", Yuchai must enhance internal strength, accumulate energy, and accelerate transformation and upgrading.

From institutional restructuring to improving management efficiency, from building a lean operation system to enhancing core competitiveness, in the "second startup", Yuchai has paid more attention to reforming and renovating the original systems and mechanisms to gain the power for development.

On December 16, 2013, Yuchai made a massive organizational adjustment. It comprehensively standardized names of organizations and positions to resolve problems such as non-uniformity and confusion of names of Level-1 organizations and Level-2 organizations, reorganized departments based on the corporate strategic goal, uniformly operated effective resources on a platform and accumulated all strength in preparation for Yuchai's "second startup".

Yuchai's efforts to advance transformation and upgrading by enhancing internal strength are also reflected in practice of lean manufacturing.

To narrow its gap from internationally advanced enterprises, Yuchai Machinery introduced lean manufacturing in October 2010, and voiced its aspiration to make all-round improvement in such aspects as product, market, marketing, service and cost, thus opening a brilliant chapter of building the world's most competitive professional power supplier.

Through continuous efforts, with the constant deepening of lean manufacturing, underlying problems have been exposed gradually. Particularly, as the early operation of lean manufacturing emphasized practice but neglected work such as theoretical learning and talent building so as to weaken the later effect. To resolve the weakness, Yuchai Machinery recruited the Japanese expert Ichiho Yamada as the manufacturing director to systematically "diagnose" Yuchai's lean manufacturing.

With a lot of problems, the lean survey group led by Ichiho Yamada investigated the plants and functional departments of Yuchai Machinery. After a survey lasting over three months, the group spotted a series of problems of the Foundry needing improving and fixed the 16 improvement projects at the fourth level of the Foundry. In March 2014, the Foundry first initiated comprehensive lean improvement in products, production activities and production ideas.

Yuchai Machinery initiated comprehensive lean improvement internally and supply chain building externally. To improve the level of the existing supply chain, Yamada incisively pointed out that Yuchai's overall product quality will not be improved if its parts quality is not well controlled. He advised Yuchai to change its concept and borrow the practice of advanced enterprises including FAW Toyota to advance the quality control of purchased parts.

Comprehensive lean improvement needed more professional personnel, theories and tools. To ensure the smoothness of comprehensive lean improvement, Yuchai initiated lean trainings internally at the beginning of this year. In the first half of this year, Yuchai Machinery completed the training and assessment of 153 team and group leaders and 16 courses.

The lean concept stimulated Yuchai's reforms of talent introduction, cultivation and use. While conducting internal building, Yuchai Machinery learned from the outside and organized lean staff to study at Nissan this April to enhance Yuchai's lean operation theoretically. Yan also placed an "order" with the HR department: besides selecting talents through recommendation, Yuchai Machinery will introduce three high-level talents form Fortune Global 500: quality director, HR director and purchase director.

Management process optimization, major project management, comprehensive budget executionthe lean concept is guiding and pushing Yuchai's management to a new level.

Now the "lean" concept has gradually spread in Yuchai Group.

A series of unremitting efforts to advance reforms and innovation has opened up a road of consolidating the foundation of transformation and upgrading for Yuchai.

Starts with new industrial city

Building a new platform is vital to Yuchai's "second startup".

On May 14, 2014, Yuchai Group established Yuchai New Industrial City Company in Yulin, Guangxi. This is a major move to implement the new strategic plan of Yuchai Group and realize the idea of "second startup".

For years, the corporate system of Yuchai Group has affected corporate development due to few assets and for lack of platforms. The construction of the new industrial city has built a new platform for Yuchai.

Yan said that Yuchai New Industrial City is the carrier and platform of the "second startup", as well as a major move of the CPC Yulin Municipal Committee and the Yulin Municipal People's Government in its strategy of "invigorating Yuchai and prospering Yulin". The city will become a complex new industrial city effectively linking high-end manufacturing and modern service industries, a leading zone driving Guangxi's strategic emerging industries, a national cyclic economy demonstration park, a major platform for promoting enterprises' scientific development as well as a strategic pivot for promoting Yulin and Guangxi to step up new industrialization and make a leap.

According to the relevant plan, with a total planned area of 7.3 square kilometers, Yuchai New Industrial City and Yuchai New Equipment Manufacturing (Internal Combustion Engine) Industry Base will be located in the southern suburbs of Yulin, be connected to Luoyang-Zhanjiang Railway on the north, Luchuan North Industrial Park on the south, the leading line of Yulin-Tieshangang Highway on the west and Luchuan Rock on the east.

High starting point, great courage, great idea.

With a focus on development and extension of Yuchai's core industry chain, the city was planned under the principles of "prominent industries, rational layout, green ecology, industry-city integration, commerce friendliness and liveableness". The city focuses on high-end manufacturing development, is oriented on industrial support for Yuchai, aims to build an industrial agglomeration base integrating headquarters base, engine manufacturing, parts manufacturing, business & logistics, electric vehicle, agricultural machinery, automotive electronics, environmental protection and technological incubation park, and strives to become a domestically advanced new equipment (internal combustion engine) manufacturing base with an output value of over 100 billion yuan (including Yuchai Group's existing output value) in three to five years.

The construction of the new industrial city highlights the modern features of industry-city linkage and ecological harmony, and is aimed to promote the coordinated development of new industrial areas, new urban areas, new ecological areas and urbanization. Four industrial zones and a headquarters base have been planned according to the requirements of "intensive use of land, project drive, industrial optimization and industrial transformation". The four industrial zones include the machine zone, the parts zone, the terminal equipment zone and the business logistics zone. The machine zone is intended for engine R & D as well as the machining, assembly and commissioning of key parts for various engines such as marine engine, generating set and gas engine; the parts zone focuses on developing and introducing manufacturers of core engine parts such as connecting road, crankshaft, electric motor, booster, oil pump and clutch, as well as manufacturers and service enterprises such as manufacturers of after treatment systems, manufacturing environmental facilities, urban public environmental facilities and lithium batteries and PV power generation enterprises; The terminal equipment zone focuses on developing and introducing manufacturers of electric vehicles and agricultural machinery and their parts; the business logistics zone is a zone centering on the business logistics and electronic logistics service base and integrating services such as warehousing and distribution, sorting, cargo transfer, inspection and detection, parts monopoly, vehicle trade and supply chain logistics finance service. The headquarters base focuses on constructing service facilities such as office facilities, R & D center, housing, ecological park, bank, school, hospital and hotel, and provides administrative offices, "one-stop" service, life support and comprehensive logistics service.

The planning of Yuchai New Industrial City including project siting, topographic mapping and land use plan examination has been completed, and the overall plan and the regulatory detailed plan have been adopted at relevant meetings.

New industrial city construction has shown great vitality.

As the carrier and platform of Yuchai's "second startup", the construction of Yuchai New Industrial City attracted wide attention from enterprises.

Yuchai Group has negotiated with many suppliers and made face-to-face communication with suppliers of parts including after treatment system, oil pump and starter. A host of outstanding suppliers such as ASIMCO Group (China's top 500 enterprises), Zhejiang Yinlun Machinery Co., Ltd., Hunan Tyen Machinery Co., Ltd., Guilin Fuda Group and Hunan Oil Pump Co., Ltd. have initially determined to invest in the park. Now Yuchai Group is negotiating with potential suppliers and striving to bring in more suppliers.

As a modern industrial base for industry-city integration, Yuchai New Industrial City has portrayed the bright future of Yuchai's "second startup" and laid a solid foundation for Yuchai's historic development.

Innovate for the future

Innovation has been Yuchai's constant pursuit as well as one of Yuchai's major measures for consolidating and enhancing corporate core competitiveness proposed in the "second startup".

In the eyes of Yuchai staff, innovation is a "life project" related to corporate development and the endogenous power for Yuchai's sustainable development.

This is the highlight of Yuchai's independent innovation: at the National Science and Technology Award Conference in Beijing on January 10, 2014, Key Technology of All-condition High Turbocharging of Internal Combustion Engine and Its Engineering Application, a project completed by Yuchai Machinery with Weifang Fuyuan Turbochargers Co., Ltd., Tsinghua University and Shandong Fuyuan Power Equipment Co., Ltd., won the second national prize for progress in science and technology in 2013.

As one of the participants in the project, Yuchai made a remarkable contribution and played a critical role in high-pressure-ratio turbocharged system and engine matching simulation, high turbocharged engine system and performance optimization, reliability and marketing of high turbocharged engines.


On July 15, 2014, the project of "State Engineering Laboratory of High-efficiency, Energy-conserving and Environmentally-friendly Internal Combustion Engines" undertaken by Yuchai Group was accepted. Thus, China's highest-grade internal combustion engine R & D platform emerged in Yuchai.

Since breaking ground in 2011, the State Engineering Laboratory of High-efficiency, Energy-conserving and Environmentally-friendly Internal Combustion Engines has made remarkable symbolic achievements:

The laboratory developed the capacity for testing medium and high-speed large-power engines; successfully developed the diesel engine specific to construction machinery up to the off-road Tier3 emission regulations; won two second national prizes for progress in science and technology and one first Guangxi prize for progress in science and technology; achieved breakthrough in generic energy conservation and emission reduction technologies such as combustion technology, technology of waste heat and energy recovery, and emission control technology; built a high-caliber R & D team with strong innovation capacity, reasonable age and knowledge structure, and international visionhonors witnessed innovation strength.

These achievements are generous returns to Yuchais perseverance in independent innovation:

--Guide innovation through culture. Over the past 60 years, in all procedures including product R & D, manufacturing process, production flow, product marketing and corporate management, Yuchai has guided innovation through culture, moved forward and worked miracles through innovation.

--Ensure innovation through systems. By working out systems such as innovation incentive scheme, incentive measures for staff with remarkable contributions, management measures for major progress in science and technology and regulations on patent work management, Yuchai has rewarded innovation achievements to constantly stimulate the innovation enthusiasm of all staff.

--Support innovation through platforms. Yuchai has built multidimensional technical platforms, established two domestic research bases in Nanning and Yulin, owned a national corporate technical center, a state-accredited laboratory and a postdoctoral workstation, and established a dozen domestic and overseas product and technology R & D centers in association with world-famous research institutions in countries like Germany and Austria as well as renowned universities like Brunel University, Tsinghua University, Tianjin University, Shanghai Jiaotong University and Harbin Engineering University, thus creating a strong R & D platform centering on independently developed technologies and geared to global frontier technologies.

In terms of technical R & D, Yuchai has owned new leading technologies such as Euro III-VI emission control, hybrid powertrain, two-stage turbocharging, pneumatic hybrid, diesel-gasoline mixed combustion, simulation and after treatment. In terms of product structure, Yuchai has heavy-duty and light-duty engines and accomplished a switch in emission standards, and the sales booms of gas engines and hybrid engines have built Yuchai's future position in the new energy power industry. In terms of innovation platforms, Yuchai has built an R & D platform with the country's most complete range of engine products, owned three core technical platforms--"combustion technology platform, electric control technology platform and powertrain technology platform", and extended from the traditional diesel engine industry to a wider range of core technical fields such as AMT and battery.

Development originates from innovation, innovation promotes development.

Supported by its tremendous overall strength in technical innovation, on the basis of the substantial growth last year, Yuchai Machinery achieved total sales of nearly 30 billion yuan and registered positive growth of engine sales in the first nine months of 2014, remaining ahead of other domestic multi-cylinder diesel engine manufacturers.

These innovation achievements have vigorously promoted Yuchai's comprehensive upgrading in the field of internal combustion engine, and provided strong support for Yuchai to overcome hardships and achieve new success in the "second startup".

Move into ASEAN, deepen overseas operations

Southeast Asian countries superior in natural environment and abundant in natural resources witnessed the prosperity of the ancient Maritime Silk Road.

Yuchai set foot in the colorful land in the 1960s. Over the past decade, riding the wave of China's opening to and cooperation with ASEAN countries, Yuchai made its green power resound through Southeast Asia's mountains, islands, forests, oceansdeveloping overseas markets is a major development strategy to Yuchai which has just initiated the "second startup".

On September 16, 2014, the 11th China-ASEAN Expo (CAEXPO 2014) opened in Nanning known as a green city. To better develop overseas markets and promote exchanges with ASEAN countries, Yuchai showed up with subsidiaries such as Yuchai Machinery, Yuchai Petronas Lubricants Co., Ltd., Yuchai Machinery Monopoly Development Co., Ltd., Yuchai Heavy Industry Company Limited and Guangxi Yuchai Special Vehicle Co., Ltd. Yuchai International Imp. & Exp. Co., Ltd. made its debut. Yuchai's exhibits covered fields such as truck, bus, ship, construction machinery and agricultural machinery. Two electronic control engines--YC6T and YC6J changed people's previous impression on segment-specific engines. As engines for special operating conditions developed by Yuchai in recent years, they have lower noise and consume less fuel, are up to higher emission requirements, and can satisfy overseas customers' higher demands.

Since the 1st China-ASEAN Expo (CAEXPO), Yuchai has participated in the international event in its home city every year. With the gradual deepening of China-ASEAN exchanges, the ASEAN has become one of Yuchai's most important overseas markets.

Through the annual CAEXPO, Yuchai has pooled resources and showed itself. Its products have impressed many domestic and overseas customers deeply.

Going to the world via the ASEAN, Yuchai Group has had a profound impact on the ASEAN economic circle. Yuchai exported over 300 units to the ASEAN only in 2004 and is expected to export nearly 20,000 units in 2014, up at least 60 times in ten years.

Yuchai started from scratch in the ASEAN market and has been growing strong in the ASEAN market.

To expand its development space worldwide, Guangxi based on Guangxi has drawn strength from ASEAN and relied on its technical and geographical advantages to intensify its operations in ASEAN.

To faster move into the ASEAN market, Yuchai established an office in Vietnam in 1997 to serve customers in countries like Vietnam, Laos and Cambodia. Now the ASEAN including Vietnam has become Yuchai's largest overseas market. Every year, nearly 10,000 units of Yuchai engines are exported to Vietnam.

With Vietnam as the center, Yuchai has constantly extended its territory in the ASEAN market--it has established offices in countries like Indonesia, Malaysia, Thailand, the Philippines and Myanmar to expand its brand share in the market. Its products have gradually entered fields such as automobile, construction machinery, agricultural machinery, generating equipment and ship in ASEAN countries.

To better serve ASEAN customers, Yuchai will continue to step up work on customer network, market environment network, distribution network and service network. In terms of service quality, Yuchai will strictly assess service agents' qualifications in such aspects as workplace, equipment and service capacity, export standards, effectively combine "Yuchai style" with "localization", build its service brand and consolidate the international competitiveness of its products. In terms of the structure of exported products, in the next period, Yuchai will rationally adjust the proportion of engines exported with vehicles to self-exported engines according to product features, tap and cultivate overseas OEM markets, promote the efficient interaction between domestic and overseas offices, and drive engine export with vehicles so as to improve the overall level of operation in overseas markets.

With the further deepening of China's opening to and cooperation the ASEAN countries, Yuchai's markets will be broader. As an enterprise which has conducted deep operations in the ASEAN market for many years, Yuchai will seize the opportunity to take an active part in the construction of the Maritime Silk Road.

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