China Wheel's Visionary Leader

Written by Sim Kih
Monday, 31 December 2007

China Wheel executive chairman Zang Ligen wants to double capacity with a new plant in Tianjin. About 80% of new Chinese automobiles from world No.1 automaker Toyota come fitted with wheels made by SGX-listed China Wheel.The wheel maker produced about 10 per cent of the 30-odd million wheels installed on Chinese automobiles in 2006.

One of the largest OEM or original equipment manufacturer wheel suppliers in China, China Wheel raked in 446.5 million yuan (S$87 million) for the first half ended June 2007. Net profit leaped 81% year-on-year to 55.4 million yuan, consistent with its 97 per cent compounded annual growth rate since FY2002. Return on equity improved 6.8 percentage points to 33.9 per cent. All this has translated into strong cash flows as well, with cash from operations improving 71 per cent to 57.4 million yuan for FY2006. The company also had a cash pile of some 89.6 million yuan as at June 30, 2007. And the good times are not about to end. “The industry is expected to grow up to a hefty 30 per cent annually,” says its 49-year-old executive chairman, Zang Ligen in a 90-minute telephone interview from his office in China.

China Wheel is seizing the golden opportunity afforded by the Chinese auto boom: it is more than doubling existing capacity to 8.6 million wheels over the next two to three years. Some RMB 780 million has been budgeted for a new plant in Tianjin, which sits on a gigantic plot of land equivalent to 40 FIFA-sized football fields (285,000 square meters).

Farmer turned smelter moves into manufacture of alloy wheelsChina Wheel’s business was founded by Mr Zang and his two brothers: Lizhong, 45 and Liguo, 42. They turned to manufacturing wheels as an extension of their successful business of manufacturing aluminum alloy ingots, which they had started in 1984. The trio come from a farming background. After 11 years in the aluminum alloy business, Mr Zang had a treasure trove of smelting technology and management expertise for producing raw materials for aluminum wheels. At that time, they were supplying alloy to China’s first aluminum wheel maker. Aluminum alloy is mainly used in the automotive industry for making engines and wheels. From supplying raw materials, Mr Zang embarked on making wheels in 1995. Demand for aluminum alloy wheels then was less than 10 per cent of what it is today.

Aluminum wheels are safer, conserve energy, more environmentally friendly and visually appealing than steel wheels.Recognizing the strong advantages – namely, product safety, energy conservation, environmental friendliness and aesthetic flexibility – aluminum alloy had over steel, Mr Zang was convinced car owners would switch to aluminum alloy wheels. He also decided to take advantage of the fact that large wheel manufacturers back then supplied only original equipment make to carmakers. There were no wheel makers catering to the retail aftermarket. Mr Zang decided to enter that segment.“We wanted a business that adds more value compared to smelting,” explains Mr Zang.Wheel-making’s gross margins can be as high as 3 to 4 times that of aluminum production.

Transition challenges

His first challenge was to assemble a team experienced in casting wheels, a far more complex task than smelting alloy. Key supporter was state-owned wheel-maker Dicastal Wheel, who was also Mr Zang’s aluminum alloy customer then. Dicastal Wheel seconded its machining and sales head, Zhang Jianliang, to develop the new business segment. Mr Zhang, 41, designed the China Wheel’s first production lines.Mr Zhang, incidentally, is an industry pioneer who brought German technology into China’s aluminum casting industry. He has risen to become China Wheel’s chief executive officer. Raising capital was Mr Zang’s next challenge. Capital expenditure for wheel production was five to six times that of smelting.

Steady output increase has doubled net profit annually since FY02. To make a million aluminum alloy wheels, the smelter only needs to invest 20-30 million yuan in a factory with capacity to smelt 10,000 tonnes of alloy raw materials. In comparison, the wheel maker needs to invest 100-120 million yuan for his factory to have capacity to die-cast 10,000 tons of alloy into a million wheels. Lack of financing was the reason why China Wheel’s first production line, completed in 1996, had capacity for 50,000 wheels a year only.

Fast forward to today: capacity has risen more than six-fold in the past decade to 3.6 million wheels currently.Mr Zang’s vision is for China Wheel to be the leader in China’s wheel making industry through economies of scale in production capacity. Economies of scale will also help the company maintain its gross margins, already one of the highest among Chinese aluminum wheel makers. Self-confessed workaholic with a penchant for touring factories

Over the last 20 years or so, Mr Zang has kept up more or less the same punishing pace of work.He works almost every day, including weekends. And it’s 12 to 14 hours a day. “It would appear strange if a company’s senior management does not clock overtime,” he says. Zang has a penchant for touring factories. He recounts how he has toured Japanese, German and South Korean factories to check out their highly advanced aluminum wheel technology and see for himself their much-vaunted operational efficiency. Some of these visits were done surreptitiously, he says with a chuckle, adding that he has “imported” factory operational procedures after those visits.

The company lays claim to being one of the most efficient among Chinese aluminum wheel makers. “Our net margins are one of the highest in the industry,” he says.Net margins of China Wheel have held above 10 per cent since its October 2005 listing.Shenzhen-listed aluminum wheel maker Zhejiang Wanfeng Auto fades in comparison with net margins at a mere 3 per cent for the first nine months ended September 2007.

A gentle leader

Zang is the eldest son in the family, a position which he says comes with a heavy responsibility. He feels the pressure to uphold the family’s prestige by continuing to achieve success in business. He also recognizes the challenge of providing for the growing number of old guards in the company.

All these drive his business ambition.

People who know him well say he is refined and courteous – not exactly someone who likes to reprimand workers. Not surprisingly, he will come up with persuasive devices, such as a cartoon character, to make a point to his workers.

When they carelessly handled “wheel separators” – which are placed between wheels on a stack - the company designed a friendly cartoon character and used it on a sticker on the separator to graciously remind them to “cherish factory property,” says Mr Zang. He is a simple man when it comes to leisure. He says he enjoys catching up on news in newspapers and over radio. He also likes to chat with board members, colleagues and strategic investors about historical and urrent social trends in China and Singapore. Accompanying his wife, Liu Xia, 49, on shopping trips to the supermarket is another simple pleasure Zang delights in.

The couple have a daughter, Zang Na, 26, who holds a degree from Japan’s Kyorin University. Their son, Zang Yongxing, 23, is a third-year undergraduate in the UK. In any business, gracious treatment of clients can turn them into faithful customers for life. Such an approach has resulted in 60 per cent of Zang’s customers for aluminum alloy staying with him for 15 years or more, a rarity in the industry. And many wheel customers have been with China Wheel since day one.

This article was recently published in Pulses magazine and NextInsight.