The Italian Icons of China Series: A collection of internationally acclaimed Italian brands chosen to share their unique experiences and market insights in China.
This article was originally published in Italian in Panorama on 26th Feb 2023.
Please note that this is a courtesy translation of the Italian language article originally published in the Panorama Magazine Issue at: https://www.panorama.it/economia/italian-icons-cina-ufi-filters
Introduction
In order to provide our readers with an in-depth examination of how Italian companies have fared in the Chinese marketplace, we have begun our ‘Italian Icons of China Series’ of articles by conducting interviews with some of the top CEOs of premier Italian companies based in the Chinese market. We will discuss their success stories, detailing the specificities of how to succeed in the Chinese marketplace based on their company’s background, the history of their brands and how they managed the business expansion based on their specific strengths and market conditions. Our Icons will also provide their suggestions for the China market, for MNCs, small & medium enterprises, entrepreneurs and all business leaders in between, based on their own investment experiences, the differences between Italy and China as well as the future projections for both China and their industry,
Our Italian Icon: UFI Filters SpA
For our first article in the series, we have an exclusive interview with Mr. Giorgio Girondi, Chairman of the Board of UFI Filters Group, founded in 1971 with its headquarters in Italy in Nogarole Rocca (VR), which is a global leader in filtration technology and thermal management and has recently celebrated 40 years of a solid presence in China.
Interview
Q: How many years has UFI Filters operated in China? Why focus on this market in particular?
I remember entering into the Chinese market in 1982, and at the early stage of this market, there was a car on the road every 25 to 30 minutes. In Bengbu we set up the first plant for the Chinese Government, to whom we sold ‘Know How’, production lines and license agreements.
This was the first metal cartridge oil filter that came to the Chinese market in 1984. Further, our company built 7 plants (Beijing, Changchun, Shanghai, Chongqing, Tianjin, Xinxian and the aforesaid Bengbu) on a turnkey basis for the Chinese government until 1995, when we decided to invest in Shanghai with the Sofima brand, one of our filtration and thermal management brands, the other of which is UFI Filters. Obviously, the Chinese market for us at the time was small but the potential we could see in this market at the time was limitless, and we were right, China now is the first automotive market in the world with over 25 million vehicles sold per year and a positive growth year on year that in the last decade has been in the double digits every year (2010 17 Mil – 2021 25 Mil).[1]
Q: Considering the immense culture gap between China & Italy, what in your experience are the opportunities and pitfalls of such a factor? How has your company overcome/took advantage of them?
A. Italy and China have much in common, starting from the first Italian that set foot in China (Marco Polo, 13th century) and reported his travel adventures in the book "Il Milione". One trait of the culture is the thirst and hunger for innovation and the ability to optimize and apply available research to their products (e.g. Bullet trains , China has the world’s largest network for bullet trains – 35.000 km in 2020)[2]
Innovation is part of our DNA and this is the trait that has allowed us to develop in this market from the outset right up until today. We continue to develop in this market every day with new ideas and new technologies. This has enabled us, on the one hand, to compete in the Chinese market, which is very focused on price, and on the other hand, to always succeed in providing innovative and higher quality products. We currently have 7 industrial sites in China (the latest in Jiaxing ‐Zhejiang province which will be operative starting from the middle of this year 2023) and over 2000 people to produce new filtration and thermal management systems for battery powered electric cars. We are now riding on the latest trend of New Energy Vehicles (NEV) and the fuel cell technology both for cars and trucks.
We very much believe in hydrogen as the future, as it is without any harmful emissions into the atmosphere. We are working very hard to produce this technology in the filtration of all heavy vehicles and also in passenger vehicles. We think that battery‐powered cars will not be able to cover the entire vehicle fleet due to an inability of energy infrastructure and based on the use of energy that still comes largely from fossil fuels, surely hydrogen must be the future goal of a clean world. We believe that China is a great market for trucks, construction and agricultural equipment, and for all light vehicles, including the stationary market.
Q: Regarding the filtration and thermal industry at large as well as including hydrogen in the mix, what challenges in the Chinese marketplace must companies in your sector overcome? Are they significantly different comparing with other markets? Are they different for foreign and domestic enterprises or universal?
The Chinese market besides thriving on innovation is a market that moves extremely rapidly with strong cost competition but that recognizes and reaches for quality. You must be extremely fast and adapt to the local market trends and be able to be creative and flexible in serving customers and maintaining high standards of excellence. It is a difficult balancing act that our local team is managing very well so far. We have conquered most local customers in in both the automotive and heavy‐duty sectors besides our historical global clients in a local‐to‐local approach: this is a recognition of our ability to serve even the most demanding of customers as a leading supplier in the Thermal Management Systems. NEVs need a certain temperature range to operate in the most efficient way and our products (Coolers, Chillers, E‐axle Heater Exchanges, Liquid Cool Condenser, Coolant‐Coolant Heater, Receiver Drier, Accumulator, amongst others) provide the best solutions on the market.
In comparison to other markets, the speed is the most prominent trait. As an example, a new car model’s time to market in China is between 12 to 18 months while in Europe and the Americas, it is above 30 months on average. This creates a critical issue on R&D product development and the supply chain and becomes a natural barrier to newcomers to the market. From the client perspective, the quality and speed to develop the vehicle together are most critical factors. Additionally, let’s not forget the cost factor, considering that China is one of the most cost competitive markets in the world. This is an incentive for us to improve and be more competitive everywhere. The fact that we are present on every continent and that we have 21 plants around the world makes us universal and therefore able to develop all products
from every continent both for China and for other parts of the world, as well as from China for other countries around the world. Foreign companies that want to establish in China will have to be able to demonstrate attractive know‐how and other advantages as right now, the Chinese government mainly plans to support those types of companies.
Q: UFI Filters is renowned to be the leading filtration and thermal management as well as hydrogen filtration supplier operating in a wide range of sectors, based on this year IDI’s topic, what is the role that new technologies play within the overall range and design/functionalities of your products?
A. Our products are located inside the engine bay and for the most part not visible to the final customer, but nonetheless, they must be very appealing…so the functionality of the product and the design are equally important and essential in the Chinese market. In the IDI exhibition, our products were displayed like jewelry in a store to highlight that these are little wonders of engineering and innovation. The NEV trend setters are coming from outside the traditional car manufacturers circle bringing new perspectives on design and functionality integration. Some newcomers have brands directly facing consumers like Xiao MI, Huawei, NIO, Xiao Peng with products that are closer to the telecommunication sector than to transportation. So, the eye appealing concept is now extended to the vehicle, the interior, and the components. What was once a domain of fashion brands is now extending to the mobility & transportation sector. With great satisfaction I can announce here that our Multitube air filtration system, a great design product with high efficiency (It can increase the horsepower of the car by 4%), has been chosen by FAW HongQi to be installed on the new L1 car, a beautiful limousine car that will be used by President Xi Jinping of the People’s Republic of China.
Q: Have UFI Filters introduced new technologies in the Chinese marketplace different to those within other marketplaces? If so, why?
A. We have a “GLOCAL operational concept” (thinking Globally, acting Locally) that permeates our philosophy in operations across 5 continents. We develop products in one of our 3 R&D centres located in Italy, China, and India according to the specialization of the market area and distribute it to our other companies for manufacturing. For example, the Chinese R&D is our centre of excellence for Thermal Management systems and cabin filtration. They are the point of reference within the Group and in the last few years, has allowed us to become a market leader of E‐Axle* Thermal management system (* E‐transmission and E‐motor System) and China is our advance development Centre for Battery Thermal Management Modules.
Q: How has the rapid emergence of NEVs in the Chinese marketplace influenced your company and its products?
A. NEVs, first with hybrid propulsion then Full Battery Powered Engines have developed very quickly. Starting from 2014, in which the Chinese government started pushing NEV development and up until now, they have created a NEW market of 7 million vehicles.[3]
This is a new paradigm shift in the car market that has not existed since Carl Benz first patented the first version of a vehicle with an internal combustion engine back in 1886. – Data source: Automotive history. It is a revolution that will allow the industry of car manufacturing make a quantum leap. And we are there, in the first line, supplying all manufacturers locally with our products and developing new ones together, shaping the future.
BYD, Tesla, Xiao Peng, Li Auto among others but let’s not forget Weichai, Nikola and Iveco that are bringing these new propulsion systems in the Heavy-duty sector. Thermal management, battery electric cars and hydrogen will change the world, and we are ready to change it!
Q: Considering the global push for carbon neutrality, what initiatives does your company/sector plan to implement to enhance sustainability?
A. All these products are driving towards carbon neutrality and a better sustainable environment. We at UFI are dedicated to sustainability and in 2022 we published our first Sustainability Report to stress the commitment that the Group is undertaking to support the environment sustainability. We are currently preparing the report for the year 2022. We not only stop at products that support the reduction in Green House Gases (GHG) emissions and the drive to carbon neutrality, but we are also involving our supply chain in the effort and we are studying the renewable energy strategy for the Group in order to be compliant with the Paris Agreement undertakings that are supported by all our clients. It is a global movement that involves all the layers of the value chain UIF filters Group included.
Q: In 2023, what are the business trends that you think need the most consideration in China? Answered together as one question.
Q: One year from now, what do you envision will be main talking point of the Chinese marketplace for foreign investors?
The world has changed with the pandemic and has moved from a global to a more local approach, in which every nation was an island onto itself. We are now rediscovering traveling and international trade, although the process is slow and not without issues that still need to be fixed. We at UFI Filters believe that the road forward will still be growth and development of new markets and technologies, and we are investing in this new trend that has been borne by the NEVs. We have just started construction of our biggest factory yet in China. In Jiaxing, Zhejiang province, around 80 km from our existing industrial sites in Shanghai, we are building a new 40.000 m2 production facility with a state‐of‐the‐art laboratory and R&D facility that will be dedicated to these new products and their development. This will give us added capacity and potential to grow even further so that we can be the talking point of the marketplace.
We believe that, investing in China to bring new innovative products, will be the way forward for foreign investors and to partake in this big market that is the People’s Republic of China. We have always thought of bringing know‐ how from European and American countries to China, but we need to get used to what the future will be and, the fact is, China is outpacing us in so many technologies. Therefore, in the future we may need their know‐how. We must remember that China in the 1500s was the most advanced country in the world, the first to discover gunpowder, fireworks and so many innovative products never before seen in Europe. We need to keep our relationship with this immense nation open because it is the largest market in the world and because of this population's enormous ability to innovate.
Conclusion
From our discussion with Mr. Girondi, certain aspects from the experiences of UFI Filters arise as vital for success in the Chinese marketplace, the most pronounced of which can be summarized as innovation and constant adaptability. As previously know-how and R&D had been traditionally something which European investors brought to China, it seems that now, the pendulum has swung in the opposite direction. In recent years, due to the rapid development of the China marketplace, the R&D conducted domestically in China (by both Chinese and foreign enterprises) is now quickly outpacing its European and American counterparts, therefore, for foreign investors to have a chance to compete in their own market as well as in the global market moving forward, a presence in China is crucial for grasping the technologies of the future, for fear of being left behind.
In addition. owing to the success of UFI Filters Group in the China marketplace, during the recent 7th Italian Design Icons Exhibition 2022, held in Shanghai, China, UFI Filter Group won the “Most Trending Brand” Award of the event, which was presented to Mr. Simone Trazzi, Chief Operating Officer of the Asia Pacific Region, by the Italian Consul General Tiziana D’Angelo. This award greatly aligns with the ethos of UFI Filters Group and its presence in China, specifically as the Group seeks to find the most innovative and sustainable solutions in the filtration and thermal management systems alongside China’s carbon neutrality drive for 2060, UFI Filter Group has followed suit on this trend with the planned opening of its seventh industrial site in Jiaxing, China becoming the Group’s largest green factory.
In such a dynamic industry, which depends primarily on innovative solutions, intellectual property, especially in the Chinese market, is of utmost importance. Although China's intellectual property protection system has greatly expanded and improved, especially in recent years, there are still some important differences between Europe and China. Therefore, Italian companies should be cautious about the risks of intellectual property infringement in the market; UFI Filters will be ready to act diligently on such issues.
Our Italian Companies in China Series will continue to bring the experiences and knowledge of major Italian players in the Chinese marketplace to our reader base, across different industry sectors as well as size, stay tuned!
[1] International Energy Agency – Statista
[2] China train booking
[3] China Ministry of Commerce Jan 31st 2023.
