Fuyao Glass

1. Fuyao’s development
2. MANUFACTURING GLASS
3. PROCUREMENT OF SODIUM CARBONATE
4. GLOBAL STRATEGY
5. LOCAL MANUFACTURING VERSUS IMPORTING FROM CHINA
6. RISKS IN FOREIGN DIRECT INVESTMENT (FDI) AND TRADE
7. LOOKING TO THE FUTURE

1. Fuyao’s development
- Fuyao is a Chinese Automotive Glass (AG) manufacturer
- Fuyao is a very profitable company, which meant substantial tax collections by local governments
- Cao, the chairperson of Fuyao, was quite influential.

2. Manufacturing glass
- 1) Mixing sand, sodium carbonate and other minerals in a batch process
- 2) The mixture was blended with waste glass
- 3) Fed into a furnace that was heated to 1500 degrees
- 4) The mixture was poured onto a bath of molten
- 5) The glass ribbon was pulled of the batch by rollers
- 6) Cooling the glass
- 7) Cut by machines into flat piece
- If the production stopped, the entire production process needs to start over.

3. Procurement of sodium carbonite

- Fuyao cannot easily increase its price to maintain or increase its profit margin
o Instead it needs to manage its manufacturing costs
- In 2018 the costs of Fuyao were rising faster than the revenue
o They relied on the purchasing costs and ignored other costs in the procurement process.
o They come up with evaluation criteria: price (50%), transport (30%), material loss (20%).

- Sodium carbonate as example of the TCO method

o Acquisition: Price, ordering costs (labour hours), supplier follow up costs and supplier change
costs.
o Reception: Transportation costs (difference between Fuyao and the distribution centre) ,
quantity and quality testing costs, and invoice and payment processing costs (EDI/manual).
o Possession: Inventory holding costs (percentage of the value of the products)
o Utilization: Installation costs (load the sodium into float glass plants), material loss (during the
chemical reaction) and failure costs (when anything interrupts the process and the plant has
to be stopped, then 5 workers need to spend at least 8 hours to clean the plant), opportunity
costs (800$ per failure).
o Elimination: At the end of the process wastes have to be collected an dumped following
governments regulations.

- Two possible suppliers: Old & New

4. Global strategy
- Fuyao Glass America’s revenues in the first half of 2018 had surged 27 percent compared with the
previous year.
- Group-wide revenues of Fuyao had grown 16 percent.
- Deteriorating relations between the governments of China and the USA indicating an uncertain future.
5. Local manufacturing versus importing from China
- AG’s aggregate manufacturing costs were approximately 53% raw materials, 17% labor, 13% energy,
and 17% other costs.
- US labor costs for office work were 3 times higher than in China
- For factory work, they were 7 times higher, but labour costs were increasing with 10 percent per year.
- The costs of energy was in 1/3 lower in the US, expected to rise in 2018
- Transportation costs to hip AG from China to New York and then on to Detroit, was 30 percent higher
than the costs of trucking AG from Moraine to Detroit.
- These transportation costs did not consider import duties.
- Free trade agreements were important to supply chain managements, because they save time.
- Fuyao kept about one month of finished goods in inventory for its China sales.
- 12-18 months elapsed for a newly designed specifications model.
- One month was needed to ship between China and the US, which reduced Fuyao’s ability to work
effectively with the OEM.
- OEM’s usually had a preferred supplier for each model, however the location was critical. In some
cases they will choose a local supplier.

6. Risks in foreign direct investment (FDI) and trade

- In 2017 they noted 2 major potential risks
o Country risk
o Risks of the industry development
- China was also becoming a major force in inward FDI into the United States.
- Yet, FDI was difficult and controversial
o Not only faced issues related to foreign laws, language, and culture but was also frequently
subject to political discrimination.
o Outward FDI also commonly generated complaints from the company’s own country
o Inward FDI could also be subject to criticism from the people in the foreign country who
feared exploitation by foreigners, loss of control of their industry and resources, theft of their
technologies, and dilution of their local culture.
- Cao considered labour and management supply as most serious difficulties.
- FGA addressed the same problem in China, through training and automation they faced the problem.
- UAW started recruiting FGA workers at its Moraine plant and urging them to become UAW members.
FGA lobbied against its employees joining UAW and succeeded.
- In 2017, FGA addressed the issues raised by OSHA and paid a fine of US$100,000.
- The company also took credit for raising the efficiency of its workforce, claiming that workers in the
United States were only about half as productive as Fuyao workers in China.

7. Looking to the future

- Shortly after FGA’s started production, the dispute between the governments and China erupted.
- On September 17, 2018, the U.S. government’s Trump administration announced 10 per cent tariffs of
US$200 billion worth of Chinese imports and threatened increases from 3.3% to 25% in 2019.
- At the same time, NAFTA was being renegotiated to increase the percentage by value of an
automobile’s components that had to be manufactured in the United States, Mexico, or Canada to
qualify for zero tariffs from 62.5 per cent to 75 per cent, to be phased in over a five-year transition
period.

Fuyao had to analyse the changes raised by the dramatic shift in U.S. country risk and
resulting effects.