DETROIT – Now that most auto makers and many suppliers have established production bases in China, they face a new frontier: engineering.

Delphi Corp. is meeting this new challenge head on with the establishment of a technical center in Shanghai. By June 2005, Delphi’s operations will employ 500 engineers, working on developing the products made at its 14 separate manufacturing operations there.

General Motors Corp. is developing its Shanghai-based Pan Asia Technical Center to similar capabilities. In 10 to 12 years, the facility will have engineering capability to take a vehicle from the initial design stage to final execution, John Calabrese, executive director-interior engineering, General Motors North America, says here at the Society of Automotive Engineers World Congress.

Moving engineering operations offshore is a political hot button, as the U.S. faces the specter of job losses to less costly labor markets.

“This is a very emotionally contented subject,” says Christopher “Kit” Green, chairman and president, Med:For Inc., who moderated “The China Experience: Value Chain Costing” roundtable at the World Congress.

But auto makers and suppliers assure that, at least for now, their development of engineering capabilities in China are meant to serve the local market.

“Engineers are relatively lacking in experience, but they overcome that with drive and technical ability,” Calabrese says.

Even so, the lack of experience poses a challenge for OEMs looking to build their pool of engineering talent – something they are pursuing at the request of the Chinese government, which is mandating higher levels of locally developed intellectual property.

Auto makers and suppliers acknowledge the difficulty in finding and training high-quality engineers. But the real work comes in retaining them. The Western auto industry runs the risk that after teaching its business practices to China’s engineers, they will leave and take trade secrets – and often actual blueprints – to Chinese firms.

Reverse engineering of products remains a problem – especially because foreign companies are not protected legally against such actions, says Ismael Melgar, global president-manufacturing technologies at Dana Corp.

That threat continues to be a major deterrent to shipping U.S. engineering jobs to China.

Also, China still does not have the capabilities to engineer parts to U.S. levels of sophistication, Melgar says, citing U.S. noise, vibration and harshness standards as one example.

Also considered a barrier is logistics – and not just because China is located on the other side of the world. To integrate China into a global engineering scheme requires a high degree of process focus, as well as round-the-clock communication over time zones and language barriers. And that, say the representatives here, still seems a ways off.

kzachary@primediabusiness.com