Fuyao Glass Goes Where Chinese Carmakers Fear To Tread

This story appears in the April 18, 2016 issue of Forbes Asia. Subscribe to Forbes Asia

Nearly every month Cho Tak Wong (曹徳旺）is chauffeured to his local airport in Fujian Province, boards his private jet and takes a 14-hour flight to the U.S. At a former General Motors car factory in Dayton, Ohio he’s putting the finishing touches on what he says will be the world’s largest facility for making automotive glass. Production began in December; by the end of the year more than 2,000 workers will be making car windows and sunroofs.

Cho started Fuyao Glass in 1987, and it’s made him a billionaire, but now it’s spending $600 million to do something it’s never tried before–manufacture in the tough North American market, where virtually every major automaker now operates a factory.

“We have to set up plants overseas to serve overseas markets, to save on tariffs and transportation fees,” he says in Mandarin (he doesn’t know English). “We follow in the footsteps of our clients.”

Indeed, Fuyao must open factories abroad, since it’s already seized more than 65% of the market in China. That puts it in a global dogfight. Decades of consolidation in the industry have concentrated automotive-glass production in four big players that have won more than 70% of the automakers’ business worldwide. With a roughly 20% share, Fuyao narrowly trails the industry’s long-reigning king, Japan’s Asahi Glass, in the volume of automotive glass sold and narrowly leads Japan’s Nippon Sheet Glass. “Fuyao is doing the right thing,” says Ken Long, a glass specialist at the market researcher Freedonia Group in Cleveland.

The North American market is a smart choice: Worldwide auto production is expected to grow by only 2% a year over the next five years but by 3.8% in North America, with the biggest gains coming in Mexico, says Long.

Cho calculates that in Ohio production costs will stay at the level he now spends on making and shipping the glass sheets from Fuyao’s factories in China, given the lower energy prices, savings from transportation and tariffs, and higher worker productivity in the U.S.

The industry requires huge outlays–for heavy capital investments, prodigious energy use and expensive safety standards. But Fuyao now has the heft to compete for market share outside of China: Its revenue is expected to reach close to $2.5 billion this year–a 14% increase over 2015–and net profits are set to hit $460 million, an 11% rise over last year, according to a consensus of estimates compiled by Bloomberg. It consistently enjoys greater profit margins than Asahi.

Cho says that’s because it focuses on only one product. “I am just a specialist on automotive glass. We devote all our energy to this industry: the management, the factory, the production, everything. We are definitely better than our competitors.”

His rivals may beg to differ, but either way, making windows for cars, trucks and buses has been lucrative. He owns 17.4% of Fuyao, and FORBES ASIA estimates his net worth at $1.5 billion.

Cho, 69, who also goes by his Mandarin name, Cao Dewang, didn’t own his first car, a Toyota Crown, until he was in his 40s. It’s his practical business sense rather than a lifelong fascination with cars that guides him in the industry.

“I entered the glass business not because of any passion about driving,” he says. “Glass is not just a car part but also a decorative item. If you don’t make it look good, it affects a car’s appearance. But first it has to be of high quality, then the looks.”

Automotive glass has always been a complicated business: In its nearly 30 years Fuyao has produced more than 100,000 variations–given that cars typically contain seven windows, if there’s a sunroof, and each car model is different.

But while today’s technology results in smarter and sexier automotive glass, it adds to the complexity. Increasingly, the most expensive vehicles are fitted with panoramic, less-reflective windshields that are also, in effect, antennas. The windows come with water-repellent coating and protection against ultraviolet rays. Just by touching them the tint can be adjusted if it’s too bright or too dark outside.

Roughly 30% of the company’s revenue comes from sales of premium glass, helping to keep margins high.

Specialization has reached the point where Fuyao works with premier customers on individual innovations, such as with Land Rover to develop invisible heating wires so windshields and side windows can be defrosted and not just rear windows, where the wires can be seen but visibility is less important. The new windows, aimed at northern European vehicle buyers, hit the market a year ahead of competitors, says Joseph Wong, an analyst at Nomura in Hong Kong.

Cho has sought an inner peace after an early career filled with tumultuous twists and turns, meticulously documented in a 2014 memoir. He’s a devout Buddhist and a keen reader of history, and often smiles like a Buddha. His office and nearby residence each feature a table-size replica of the Diamond Sutra, limited-edition copies of the Buddhist holy text, the world’s oldest surviving printed book.

The decades of deprivation under chairman Mao Zedong precluded any business success, so most entrepreneurs in China are far younger than he is–the average age of the country’s 251 billionaires is under 54.

Growing up poor in Fuqing City, he was kicked out of school at age 8 for playing pranks on teachers and missing too many classes. In between tending the family’s farm and cattle, he taught himself by reading dictionaries and other books passed along by his elder brother.

His first job was peddling cigarettes on the street with his father at a time when China banned people from trading goods for themselves. He later worked as a food-purchaser at a state-owned farm and then as a salesman for a local-government construction unit.

Only when he was 30–in the year Mao died–did he find a path to a sustained career. A friend outlined the business potential of the glass that goes into household water meters as more homes were being connected to a water supply. He persuaded local officials in Gaoshan, his home county, to set up a rudimentary factory that he would run.

Cho battled endless adversaries–stubborn and scheming officials, stifling bureaucracy, unhelpful government rules and standards–while steering the business to profitability and upgrading the production facilities. His role under his unusual arrangement with the local government evolved from manager of the glass factory to contractor, co-investor and finally controlling shareholder.

“I was only 30, managing a factory,” he says of the early days. “The difficulty was in how to convince employees to trust me, to convince clients, friends and banks to trust me. Now just one phone call and banks will send you cash and discuss how to lower the interest rates.”

After 11 years he started Fuyao to invest in automotive-glass production. This was back when Chinese car owners drove around with broken windows because the only replacements available were foreign and expensive.

Two years later, in 1989, Cho won his first original-equipment-manufacturer, or OEM, orders–from Peugeot’Guangzhou plant–and broke from the bulk of the Chinese industry, which was content serving only the mass aftermarket for replacement glass. In 1995 he decided to do nothing but automotive glass, dropping water-meter glass, real estate and other businesses.

“In the beginning we did not know we needed to specialize,” he says. “We would have had no competitive strength without a focus, because our time and expertise were limited.” He credits a translation published in Taiwan of an American management bestseller: Focus: The Future of Your Company Depends on It, by Al Ries.

The first overseas order, from
Hyundai
, arrived in 2002. And in 2005 he signed Fuyao’s first global-supply contract, with
Audi
, winning a ticket into the tight-knit global auto-supply club.

“Globally, it’s hard to penetrate the carmakers’ OEM supplier circles because of safety concerns,” say Wong of  Nomura. [Carmakers] are reluctant to change their contracts.” The company’s growth has taken off since then, propelled by China’s bulging car market, the world’s largest since 2009, and its low-cost labor.

Today Fuyao boasts 13 production compounds in China, each containing several factories, including the headquarters compound in Fuqing, which has three factories. Aside from Ohio, it has two other factories overseas–one in Illinois, one in Russia.

Cho turns 70 next month, but retirement is not in the cards. “As long as I am alive, I will keep management control,” he says. “Maybe that’s why my son left the company.”

Indeed, his 45-year-old son, Tso Fai, quit last year after working with dad since 1989 to set up his own company, an online supplier of automotive glass nationwide. Cho’s second son owns a non-glass-related business. “They made their own choices,” says Cho, who also has a daughter. He adds that the sons may eventually inherit the business but says anything’s possible.