For most auto-parts manufacturers with strong ambitions to further expand their global sales, the international original equipment manufacturing (OEM) parts market is often the final goal, allowing a maker to demonstrate its R&D capability, show its ability to compete in terms of quality and cost with counterparts worldwide, and most importantly, expand its operation scale and upgrade profitability.

For many major aftermarket (AM) auto-parts manufacturers in Taiwan, which have already gained solid footholds and long-term reputations in the international AM replacement parts business, the OEM field is a new, attractive challenge. Some local makers have already achieved successes in directly shipping items to big international auto and motorcycle equipment brands. In addition to passing the stringent approval processes necessary to win ISO/TS 169449 certification—a must in doing OEM parts business with global automakers—a majority of the local companies have been actively expanding their production capacities in Taiwan and other nations, so as to satisfy customers' increasing large-volume demands.

Last May at the 2006 Taipei Int'l Auto/Motorcycle Parts & Accessories Show (Taipei AMPA), the largest auto/motorcycle parts and accessory event in Asia, many successful Taiwanese companies that have penetrated the OEM market put their products on display.

Nan Hoang Hits the Brakes to Speed Ahead
One of the examples is Nan Hoang Traffic Instrument Co., Ltd., the largest supplier of friction-material products in Taiwan. Established in 1961, the company has developed more than 5,000 models of brake pads, brake discs, brake shoes, and clutch plates. Nan Hoang makes all of the materials it employs in its parts, including asbestos, carbon, sintered bronze, other sintered metals, semi-metallic cork, and friction paper.

Beginning as an AM friction-material product maker, Nan Hoang has grown to successfully tap into the OEM parts supply chains of most big international motorcycle brands based in Japan, the U.K., the U.S., and Taiwan. In addition, the company has also passed the stringent plant- and product-certification processes of Bosch of Germany, making it the only brake company in Asia to supply products to that global auto-parts brand.

Fred Cheng, the company's president, claims that the key factors for Nan Hoang's smooth shift into becoming a major OEM friction-material product supplier to international vehicle makers are the company's unceasing efforts to conduct R&D and improve quality.

"For example," Cheng explains, "Nan Hoang set up Asia's second friction-material R&D center in 2005. The materials R&D center is equipped with more than NT$60 million (US$1.84 million at US$1: NT$32.6) worth of testing and inspection equipment, and all the R&D staff members there have professional certifications in their areas of expertise. The center also works closely with the labs of leading international companies and research institutes in the areas of mutual certification and authorization."

"In addition," Cheng furthers, "our company is scheduled to move into a new plant in southern Taiwan's Tainan Technology Industry Park soon. The new plant has a total investment amount of about NT$300 million (US$9.2 million) and a floor area about five times that of our current facility."

According to the president, there are already six new customers—including international auto and motorcycle brands in the U.S., Europe, and Japan—waiting to receive Nan Hoang's parts on an OEM basis after the new capacity is added. "All of our global customers have fully recognized Nan Hoang's strong capabilities in product development and manufacturing, as exemplified by our development of 50 brand-new friction materials, including environmentally friendly and ceramic-fiber compounds."

Cheng claims that his company has positioned itself to play a vital role in upgrading the global status of Taiwan's auto-parts industry. To this end, the firm makes intensive investments and utilizes the most advanced equipment to develop more than 200 new items each year, including brake linings, shoes, and pads, as well as clutch plates for autos, motorcycles, agricultural machines, and other machinery.

Supplier to Germany Luxury Car Brands
Another strong OEM player in Taiwan is Macauto Industrial Co., Ltd., currently the largest OE parts and accessory supplier in Taiwan for European luxury car brands.

Macauto is an OE supplier of sunroofs, sunshades, and air-conditioner airflow controllers to about 20 global automakers, including Mercedes-Benz, BMW, Peugeot, Fiat, and GM. In addition, the company is also a supplier of various kinds of AM air filters.

Currently, Macauto runs three facilities worldwide, including one in Taiwan (with about 400 employees), one in the U.S. (40 employees), and another in mainland China (more than 100 employees). A flexible system of dividing labor between the three facilities has further strengthened the company's global competitiveness.

Paul Lin, Macauto's chairman, is very proud of his company's rapid rise in the global automotive OEM market. "Most of our major rivals have more than 50 years of experience and have accumulated their technical expertise from automakers," he says, "but our company has a history of only about 25 years." The chairman attributes Macauto's strong performance as a global OEM to its never-ending efforts in R&D, its constant upgrading of manufacturing techniques and equipment, and its unmatched flexibility in small-batch, large-variety production.

"In the past 10 years," Lin claims, "many have noted our rapid success, but they have neglected our devotion to R&D, which costs us about 8% to 10% of the company's annual revenue. Our constant development of cooperation ties with world-class industrial research institutes has also been part of our R&D success.”

Sheng Teng
Sheng Teng Electron International Co., Ltd., established in 1971, is the most professional and experienced maker of AM automotive relay and flasher products in Taiwan. With a constant effort over the past 30 years, the company has developed more than 400 different relay and flasher models, which are designed for use in thousands of cars, as well as numerous oil switches and solenoids.

With its accumulated experience, know-how, and reputation for quality, DOT- and ISO 9001: 2000-certified Sheng Teng is now making a big leap into the OEM business by supplying key electronic-control parts for car safety systems sold by a large European company.

Jim Lin, Sheng Teng's president, notes that his company has been focusing on selling high-quality products in industrially advanced nations in Europe and North America, and therefore many global buyers have come to fully recognize Sheng Teng's superior development and manufacturing capabilities. In addition, Lin adds, his company has begun aggressively developing items for European car models, rather than mainly focusing on Japanese vehicles as it had previously done. Both of these key factors led to a jump in Sheng Teng's OEM business after a tier-one European company recently began purchasing electronic-control parts for safety systems.

To facilitate big-volume production and supply more OEM, safety-related key parts, Sheng Teng plans to set up a new production plant in Taiwan or abroad. "The OEM business is a necessary road for Sheng Teng to travel," Lin claims. "From now on, we will devote more resources to that new sector, but our AM business is also expected to benefit due to the resulting upgraded R&D and quality levels."

Yuan Cherng
Yuan Cherng Industry Co. Ltd., which was founded in 1963, is the largest and most specialized manufacturer of rubber, engineering plastic, metal-bonded, and non-metal-bonded auto and motorcycle parts in Taiwan. With a strong R&D capability, the company supplies a very wide range of products including oil seals, O-rings, gaskets, and rubber sleeves for engines, drivetrains, chasses, steering mechanisms, and suspensions.

Gloria Shih, Yuan Cherng's vice sales manager, points out that currently, her company's AM products account for about 80% of total revenue, while OEM parts take 20%. The company's high quality parts sold under the KOK own-brand are widely welcomed by major customers in Europe, the Americas, Asia, Africa, and Oceania. After the company gained a solid foothold in the AM market with its reputation for good quality and price-competitiveness, Shih says, many international automakers began selecting Yuan Cherng as their tier-one or -two parts supplier.

In 1998, Yuan Cherng was the first local company in its field to win QS9000/ISO 9001 certification. To become a better-qualified, tier-one supplier to automakers worldwide, the company also successfully passed the stringent processes for ISO/TS 16949 approval.

Shih points out that Yuan Cherng produces both the AM and OEM products with same materials, production processes, and molds and dies. In the future, she adds, her company will adopt a more flexible pricing strategy to further strengthen its global competitiveness in the AM parts market by differentiating the materials, quality levels, product positioning, and manufacturing locations. Shih is very confident about her company's new product positioning direction, which is expected to greatly expand both the company's AM and OEM sales over next few years.

Currently, Yuan Cherng operates two production facilities, including one in Taiwan with about 600 employees, and another in mainland China with about 2,000 people.

Man Zai
Established in 1984, Man Zai Industrial Co., Ltd. Primarily manufactures aluminum extrusion products, including automotive air-conditioner condensers and evaporators, auto and motorcycle radiators, and oil coolers.

Unlike other counterparts in the line that started their businesses in AM parts sales and then later entered into the OEM business, Man Zai got into the OEM market (as a tier-two supplier to automotive air-conditioner system makers in Taiwan) only one to two years after it started sales of AM evaporators.

Man Zai began automotive cooling-system radiator production only two years ago, but now the company has become a major tier-two radiator and evaporator supplier to many international auto brands such as Mitsubishi, Peugeot, and GM.

Man Zai's new plant in Xiamen in the Fujian Province of mainland China is scheduled to begin mass production of both radiators and evaporators this year. With the new manufacturing capacity, the company aims to tap the OEM market this year while still maintaining the original production scale at its existing facility in Taiwan.

Man Zai expects to ship a total of 700,000 to 800,000 radiators and evaporators this year, making it one of the leading companies in the field in Taiwan.