DETROIT -- General Motors has shifted its worldwide electronics purchasing unit from Warren, Mich., to Shanghai to place it at the hub of China's electronics industry.
According to sources familiar with GM's plans, the move is intended to keep GM abreast of trends in automotive electronics and buy more electronic components in China.
"Just about all electronic subcomponents now originate in China or Korea or Singapore," says a source close to GM who asked to not be named. "You are more aware and you buy better when you are where the action is."
GM's other six commodity buying groups will remain in the Detroit area.
The move to China illustrates the strategic importance of electronics. Every year, GM buys $85 billion worth of components worldwide. Electronics made up about 10 percent of a vehicle's value in the early 1990s and will rise to 40 percent by 2010, according to trade publication Electronic Business.
China is widely viewed as the world's new hub for consumer electronics. It also is GM's largest growth market. Much of the electronics that GM buys in China are destined for its Asian assembly lines, not U.S. shores, a senior GM official said Friday, Feb. 24.
It indicates how important GM's Asian assembly plants have become. In 2005, GM produced 1.6 million vehicles in Asia, up nearly 22 percent from the year before. If current trends continue, GM's Asian assembly plants soon will outproduce its European plants, which produced 1.9 million cars and trucks last year.
By 2009, GM expects to buy $6 billion worth of China-made parts annually for its operations in China, more than double its purchases in 2003.
A Shanghai headquarters also will help GM to export more components to plants in Europe and North America. By 2009, the company expects to buy $4 billion worth of Chinese parts annually for GM assembly plants outside China, up from $200 million in 2003.
To ensure the success of its electronics venture, GM has dispatched a top purchasing executive to China. Effective Wednesday, March 1, GM Vice President Jim Bovenzi will run GM's overall purchasing operations in Asia. He will operate out of Shanghai.
Suppliers also are watching Akhil Puri, the 31-year-old executive director who moved the automaker's electronics commodity group from Warren to China. Puri is considered to be a rising star at GM. In his position, Puri will have enormous influence over the electronic guts of GM vehicles.
Five managers from Puri's Warren team have joined him at his new headquarters in the gleaming 88-story Jin Mao Tower near Shanghai's bustling harbor, says the GM source. Puri has hired more than 100 employees in the group.
Puri's job is to engage suppliers, set strategy and work with engineering. GM has about 400 Chinese suppliers, including joint ventures and government-owned companies. It also is developing 50 independent suppliers in China.
"The pressure to source from the low-cost countries has become relentless," says the former CEO of a key GM supplier. "This will give them more impetus."
Bo Andersson, GM's global purchasing chief, has encouraged his staffers to make frequent face-to-face contact with suppliers. Andersson himself spends much of his time in supplier factories looking for ways to cut waste.
Moving the electronics purchasing functions to China gives GM purchasers more daily contact with electronics suppliers.
GM executives "want to spend more time in supplier factories and less time in the office," says the senior GM executive. This helps the company "better understand what we are buying."
Asked about the risks of the initiative, the senior executive admitted that a more intense focus on China could make it too easy for an executive to assume that the China price is always the best solution.
"The end goal is not buying from China," the executive said. "The goal is to (obtain) the best value and the best technology."
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