Manufacturing editor John Revill speaks to John Russell, the chief executive of taxi-maker Manganese Bronze about the firm's plans to launch into China.
When your product features among the top coolest cars at the Shanghai Automotive Show you must be doing something right. Especially when you are up against the latest Lamborghinis, Porsches and other prestige motors.
But that's what happened to London Taxis International (LTI) when it showed off its latest TX4 cab at the event in April.
Jinpiung Xi, the secretary of the Shanghai Committee of the Communist Party of China also gave his endorsement to the famous black taxi, spending quite a bit of time sitting in the vehicle.
All of which bodes well for LTI's joint venture with Chinese manufacturer Geely which will see the famous black cabs produced in China from next year.
The move represents a way for Coventry-based LTI – the largest predominantly British owned car maker left in the UK – to expand its operations and improve its sales, not just in the Far East, but the rest of the world.
As well as providing a way to access the potentially vast Chinese market, the link up between Geely and LTI could also have positive spin-offs for the UK manufacturing operations.
While some UK firms are suspicious of speaking about their moves into China for fear of alarming their workers, LTI is proud of its association with Geely, which it insists will reinforce, not damage, its operations in the Midlands.
John Russell, chief executive of LTI's parent company Manganese Bronze, explained how this link is set to transform his firm from a UK producer of niche motor vehicles, selling to a mainly domestic market, to a low-cost Chinese producer able to address a global market.
He said: "There was a recognition that we were heading towards being a single product, single market company.
"We had a strong market in London which was driven by having helped create a taxi system.
"Lots of people internationally were interested in our products and having a taxi system like that.
"But the reality was the price of the cabs was too expensive to produce that in many places. For this company to develop we had to find an answer."
The company, which produces between 2,500 and 3,000 cabs per year, did not have the capacity to meet larger demand.
Meanwhile its relatively small size – it has an annual turnover of between #80 million and #100 million – meant the cost of developing new vehicles could be prohibitive.
The latest black cab, the TX4, cost #5.5 million to develop – comparative peanuts in international automotive terms, but a vast amount for LTI.
Mr Russell explained the dilemma.
"We were stuck in a bit of negative circle. To grow the business, we had to sell more vehicles internationally, but we couldn't produce them cheaply enough to sell internationally."
For some years LTI looked at moving some production to low-cost countries to build taxis in parallel with the site in Holyhead Road, which employs around 320 people.
China, because of its preponderance of automotive companies, was at the forefront of deliberations, but various attempts came to nought until the deal with Geely was signed in October 2006.
Under the deal, Geely put up the money for a factory unit at its Shanghai site where it has been building the Maple family car.
The JV is 52 per cent owned by Geely and 48 per cent by Manganese, while Geely is taking a 23 per cent stake in Manganese.
Under the arrangement, Geely will own the rights to sell the black cab in Asia, while Manganese will own the rights to distribute and sell the vehicle in the rest of the world.
In Asia, the profits will be split according to the JV's ownership, while in the rest of the world Manganese will pay cost plus 1.5 per cent and keep 100 per cent of the profits generated.
Mr Russell said the degree of reciprocation made the JV – called Shanghai LTI – stronger than conventional arrangements with Chinese firms.
He said: "They can learn from us. We are not exactly a high-tech company, but we do have a huge amount of knowledge about design, delivery and quality.
"We are the only company in the world which focuses only in the taxi market, and we understand them more than anyone else."
Mr Russell said the link up was about breaking the dilemma the company faced, and allowing LTI to break out of the UK market.
"We were making good progress in cleaning up the UK business, making it profitable. But that was about surviving. Getting involved with China is about growing."
Mr Russell stressed the nature of the joint venture was very different from those normally completed between British and Chinese firms.
"A typical joint venture tends to be based around the Western company accessing lower cost supplies and labour, and accessing that market.
"They tend to be very reluctant to give away their IPR or technology, or use older products. There is tremendous reluctance to support the Chinese partner in their attempt to develop their business internationally.
"With us it is completely different. We only had one product and one market. We are interested in making sure the Chinese partner has access to everything.
"We did not have a second tier product to keep back. In return we want to be able to access Chinese components, and we are offering everything we know so we can develop the business internationally out of China."
Manganese Bronze contributed equity, but no money to set up the #53 million joint venture.
In return, Geely has raised the cash to fund the expansion – partly by a partial listing on the Hong Kong stock exchange which raised HK$700 million (#45 million).
Under the deal around 40,000 vehicles will be produced by 2010 at Geely's facility in Shanghai.
The site, which has been used to build cars, has been converted into a modern facility.
But where does Geely stand among Chinese car manufacturers? The company, which is based in Ziyhang province, just south of Shanghai, has built up a network of factories and builds about 600,000 cars annually.
It has the ninth largest market share at present and is aiming to raise that to one million cars – not bad for a company which only started making motorbikes in 1994.
Mr Russell said: "It is a very fast moving, entrepreneurial business. They are a very ambitious company and have a perfect fit with us.
"We can both develop our businesses together. They see us as a way of expanding their capabilities and building an international business.
"Not many Chinese firms have made that leap into the international market that is the key."
A version of LTI's TX4 will be built and sold in China and the Far East by Geely, while Manganese will sell the vehicles internationally.
The company is now about to embark on setting up a new sales and distribution infrastructure, while vehicles will continue to be built in Coventry for the UK market.
Manganese will also source more components from China for the UK production.
"About 60 per cent of our costs are components costs. Finding some suppliers has proved difficult in the wake of the Rover collapse. By using China, we have forecast in some cases savings in buying components as much as 40 to 50 per cent. Because we will be able to get cheaper components from China, and at a greater scale, there is absolutely no reason to leave Coventry.
"In fact it will help the sustainability of the British business by improving profitability."
Part of the strategy is to pass on some of the savings on to taxi drivers by reducing the price of some of the cars.
Although the TX4, which retails for #28,000, is the car of choice for London cabbies, it has come under increased competition in other parts of the UK.
Volumes are expected to start at 20,000 vehicles per year when production begins in the middle of next year, which could rise to 40,000 depending on how the taxi is accepted in China.
Success will depend on LTI building up its international sales infrastructure – something Mr Russell achieved when he was managing director of Harley Davidson Europe.
Although the vast majority of its vehicles are sold in the UK, a few are sold in North America, Spain and Cyprus.
Meanwhile quality will be assured in the China operations, with a team from LTI overseeing production.
Purchasing teams are at work in China, extending the supply chain over there, while work will begin on building up a sales presence in the Far East.
"Geely has the expertise to perform the task," said Mr Russell. "LTI has its own quality management system, which is of tremendous interest to the Chinese and could be used on their own car production lines. Both companies will learn from each other. They can learn from our quality side, and we can learn from their cost management, for example."
The deal has been approved by the Shanghai regional government – the last stage in the complicated set of approvals which must be reached.
Meanwhile work has gone on establishing the new factory, with delegates from Geely visiting Coventry to discover how to replicate production.
At present tooling for the major components, like body panels, is being finalised, with suppliers and powertrains being selected.
"Most of the machinery is already there, the press shop is up and running, so they are modifying the facility to make our vehicles."
A prototype should ready early next year, while an extended limousine model is being considered to tap into the private club and hotel market.
Mr Russell said: "There is an opportunity in Asia to sell our products to the chauffeur-driven market. There is big market for companies to use it as a transport or for large families.
"The amount of space in the back is very attractive, the fact you can have five people sitting there, facing each other and having a conversation. People also like the fact the driver is separated from them by the glass barrier. They also like them because they look distinct."
This more luxurious model could follow six to nine months after the launch of the original Chinese-built cab.
Further collaborations between the two companies are focused on improving Geely's brand to likely include two saloon models sometime after 2010.
Although these vehicles will be solely produced in China, LTI will have the distribution rights in the UK.
But what of the risks of setting up in China?
Quality assurance has been already cited, although one of the main reasons for Geely's involvement is its plans to use LTI's quality procedures to improve the reliability of its own vehicles.
But what about the whims of the central government in Beijing?
"China is a developing country, and the government takes a strong interest in its commercial development.
"But I don't worry. The Chinese government wants to see privately owned companies do well, because that seems a more sustainable way of developing the sector."
