A Resilient Supply Chain For Domestic Car Makers

Fuyao Glass Americas is the Moraine, Ohio based subsidiary of Fuyao Glass Industry Group Co., Ltd., based in Fuqing, China. Founded by Cao Dewang in 1987, the company rode the boom in Chinese auto manufacturing to become the largest automotive glass supplier in China. In 2021, the company became the largest automotive glass supplier in America. It had some challenging years starting up its U.S. operation, including getting featured in the Oscar-winning documentary American Factory, But it is gaining market share, and winning many of the hot new electric vehicle start-up as customers. It’s probably one of the most successful Chinese transplant factories, and being close to its domestic customers make it a more resilient part of their supply chains.

It was only eight years ago that Fuyao purchased the vacant former General Motors Truck & Bus assembly plant in Moraine, and decided to start building a presence to serve the North American market. Also that year it purchased a float glass plant located in Mount Zion, Illinois from PPG Industries that produced flat glass sheets. Flat glass sheet is a key input for making automotive glass, and because it is heavy and not that high in value, it is important to be geographically close to where it is consumed. Mt. Zion served the residential and construction markets, and for PPG the exit represented a shift in focus to higher value-added coated glass segments.  

Back in 2017, I wrote a Harvard Business School case study on this factory, so I had the opportunity to visit Moraine, as well as the Fuyao factory in Tianjin, China. Labor costs were and continue to be much higher in the U.S., so the company invested heavily in automation in Moraine. Much of the production equipment was designed and built in China. The main reason I wrote the case at the time was to highlight the underlying factors that were at play in any off-shoring: tradability, labor arbitrage, and the choice whether to use more capital or more labor at a particular location. It was the usual narrative, except backwards. Here was a Chinese company that was off-shoring production to the U.S., and Fuyao founder and chairman Cao Dewang faced harsh criticism in China for sending jobs to America. 

American Factory highlighted cultural and labor issues at Moraine, and a scan of Internet postings certainly reals a wide range of views on working at the facility. But the real story, which probably didn’t come through in American Factory, was regionalization: how companies who want to supply the auto industry need to be close to the OEMs’ assembly plants. The Moraine factory was different from the company’s Chinese factories, which was immediately evident in the videos I shot to accompany the case. Tianjin used much more labor, and they also made more labor intensive pieces like the corner windows (the “quarter glass”) at the front of the side windows. Moraine made heavy use of automation, and used many Chinese workers to get production ramped up. This mirrored the practices of American, Japanese, European, and other global manufacturers who set up factories in China in the 1990s and 2000s – they too sent expatriates in to train the local workforce. And they had the same kinds of cultural surprises and learnings that Fuyao experienced in Moraine, many vividly documented in the movie.

Jeff Liu, Fuyao Glass America’s President and CEO, explained on a recent call that “we have officially become the number one auto glass supplier in America.” As was the case for other automotive suppliers, the pandemic has been tough on Fuyao. Though revenue exceeded $482 million in 2020, the combined Mount Zion and Moraine operations generated a meager net profit of less than a half million dollars. But 2021 looks to have been a record year, and as the big automakers concentrated their production on their most profitable vehicles like SUVs and pickup trucks, Fuyao has been able to sell more higher end glass. The company recently announced an expansion into South Carolina to serve major customers there, complementing additional facilities in Plymouth, Michigan and Puebla, Mexico which perform value-added operations. It is also in the process of hiring 300 additional workers to meet demand, and it has been winning new programs from all of the major battery electric vehicle start-ups. “The start-ups like us because they say we are fast,” commented Liu. “We’re not like traditional automotive guys to them. We work seven by 24, and we act like we really want their business!”

Liu’s goal has always been to build an American company. While there is a perception that he was sent from China by Fuyao to shape up its operations, perhaps fostered by American Factory, he actually grew up in Detroit and spent 30 years working in the U.S. including many years at General Motors working in procurement. “My vision is actually to build a great culture, and a great American company,” he explained. He is recruiting and promoting more locals for the executive team, and he has been hiring recent college graduates for his management rotation program. “That’s my goal, build a truly American company,” he adds.

Fuyao has been way ahead of other Chinese companies in building a globally regionalized business. It is in a niche business – its main domestic competitors are Vitro, Asahi Glass, Pilkington, Carlex, and Saint-Gobain. Like others in the automotive supply chain, Fuyao is constantly squeezed by the big OEMs. But it’s timing has been impeccable. It moved into Moraine when the Chinese RMB was relatively strong, it picked up the Moraine and Mount Zion sites at attractive prices, and was able to leverage state economic development funds. “We have a great team, and we received all kinds of support from our local government,” Liu explained. “They have been behind us 100%, and we have brought a lot of jobs to the region; really revived Moraine.”

Fuyao was able to establish a U.S. manufacturing footprint ahead of the U.S.-China trade war flare-up during the Trump administration, and critically it was able to get domestic supply lines up and running in advance of the chaos that has engulfed ocean container shipping over the last two years. For U.S. automobile factories who rely on Fuyao, that part of their supply chain is in good shape. Its proximity to factories helps it meet the just-in-time requirements of their supply chains. If instead Fuyao had relied on imports over the last two years, it would have been in big trouble. In a larger sense, Fuyao is following a path that Toyota took 35 years ago, not quite two hours south in Georgetown, Kentucky. It is building a greenfield presence in an important market, and has joined regional supply chains, a move that very few Chinese companies have accomplished so far. And it is building an American company.