Monday, February 17, 2014

china busxxrb1In mid-October, two businessmen from a small Canadian bus manufacturer in Aldergrove, B.C., found themselves seated in a parking lot among 3,500 dignitaries in the Chinese city of Yangzhou, just outside Shanghai, watching dragon dancers and listening to pounding drums.

“We’re looking at this going, ‘What the Hell?’ ” said John Sutherland, Grande West Transportation Group Inc.’schief financial officer. “I don’t speak Chinese.”

They were invited by Weichai Power Co. Ltd., a massive state-owned enterprise that was opening an enormous bus manufacturing complex that included two buildings that stretched under one roof for 10 acres, and another facility that was at least seven acres. In due course, beneath a billowing Canadian flag, Grande West CEO Will Trainer signed his name in a ceremonial book. And later that day, in checking out of the Shangri-La Yangzhou hotel, the two men found their bill already paid for – and a few gifts tossed in, including an exercise kit and some local Chinese wine.

It was a fitting exchange for what has become a mutually beneficial business relationship between Grande West and Weichai subsidiary Yaxing – as well as a sign of China’s continual evolution from cheap labour to more skilled forms of outsourcing that are less vulnerable to rising wages and China’s broader economic slowdown.

Grande West, after failing to find a bus manufacturer in North America willing to help them build a smaller bus for public transit authorities in Canada, turned to China. Yaxing’s immense scale helps Grande West shave $75,000 off of each 27-and-a-half-foot bus they sell to buyers such as BC Transit for about $270,000. These smaller buses – as opposed to larger, 40-foot ones – are able to handle transit routes with less density, as well as urban routes with fewer passengers, or challenging terrain – such as mountainous West Vancouver, where brakes need to be frequently replaced.

For Yaxing and Weichai, however, the relationship is more than just an outsourced contract for assembly.

Canada has higher safety standards than Europe when it comes to buses, Mr. Sutherland said, and BC Transit wanted the Grande West buses to meet even more stringent emissions standards from California, meaning Yaxing had to up its game in a number of areas – particularly in handling electronics.

Meeting those higher standards, in turn, helped Yaxing land a 1,200-bus order from Brazil, which netted Mr. Trainer and Mr. Sutherland that place of honour in Yangzhou – despite how small their orders are, comparatively. There are currently 15 buses running in B.C. and 18 in production at Yaxing: Three are going to Nova Scotia and 12 to Quebec. The order also includes two 27.5-foot demonstration buses, and a 30-foot demonstration bus for Ontario.

For Grande West, which went public on the Toronto venture exchange in December, the arrangement allows the company to remain nimble in their cost structure, building buses without an assembly line, on an order-by-order basis.

“With Yaxing, we can go over with a 50-bus order, a 100-bus order,” Mr. Trainer says. “We’ve tried to be efficient and global by taking Canadian engineering and bringing it to China.”

At the same time, although Grande West is bypassing unionized factories in North America, the outsourcing comes at less of a cost to North American workers, since the bus manufacturers that originally rejected Grande West – such as giants Nova Bus and New Flyer – had facilities that were running at capacity, Mr. Trainer said.

In fact, Grande West’s relationship with Yaxing may even benefit workers in Canada, since it has helped introduce Parker Vansco’s advanced electronics – which are built at a factory in Winnipeg – to Weichai’s massive Chinese facilities, which can pump out 30,000 buses each year.