Auto.Sohu.Com, November 16, 2011
Click below to read the article
in Chinese (中文) : 罗威：入世十年 中国汽车业未来任重道远
by Bill Russo
Since joining the World
Trade Organization (WTO) at the end of 2001, the Chinese car market has grown
from about 2 million vehicles to over 18 million vehicles sold in 2010, an
increase of nearly nine times. In fact, over
the past decade from 2001-2010, the compound annual growth rate of the Chinese
car market was an astonishing 34 percent. As the largest market in the world, China has
taken the center stage in the battle for dominance of the 21st
century automotive industry.
However,
automotive companies in China today are finding themselves confronted with
a different set of challenges from what they were facing just a few years ago. From the demand side, Chinese consumers are
becoming more selective and are making more diverse and personal choices:
making their own individual choices, not just for their family. Meanwhile, demand growth is increasingly
driven by lower-tier (Tier 3 and below) cities more than large and mega
cities. The Chinese government has also
released more restrictive regulatory requirements for safety, environmental
care and foreign investment. From the
supply side, almost every international player has recognized China as their
largest source of future profit and has thereby committed significant
investment. Additionally, Chinese local
brands have never been so aggressive in fighting for market share than
today. All these challenges are pushing
global as well as local vehicle manufacturers to alter their thinking and adopt
new strategies to win in the China auto market.
In addition, there are
numerous structural problems in the China automotive industry. While light vehicle sales stand at historic
highs, overcapacity and lack of scale remain major problems. This is true largely because of the highly
fragmented and scattered OEM landscape.
China’s auto industry today includes over 100 registered automotive
manufacturers. This creates a significant challenge to the health of the many
businesses that struggle to sustain operations in an environment where economic
growth is by no means assured.
Additionally, approximately 70% of passenger vehicles sold carry a
foreign brand, which makes it very difficult for Chinese domestic brands to
generate sufficient volumes or profit margins to remain economically viable.
This fragmentation also
makes it very difficult to focus and allocate resources to the development of
critical technologies related to safety and fuel economy. This is an area of particular weakness for
Chinese OEMs who have relied on their foreign partners to lead the development
of key component technologies.
The remarkable growth of
Chinese car market was created in partnership among international and domestic
car manufacturers. Foreign manufacturers
provided funding, technology and managerial expertise to support the
development of Chinese car manufacturers and suppliers. However, Chinese car companies remain
dependent on international sources for technology innovation and product development.
The determining factor in
whether a car company can compete in the international markets is whether they
have the capacity to meet local consumer as well as regulatory
requirements. While Chinese firms have
learned very quickly how to assemble cars and develop supply chains, they are
very inexperienced at the vehicle development and synthesis process. An automobile is a complex engineered system
requiring advanced technology and know-how in order to test and validate the
achievement of benchmark targets in the areas of performance, fuel economy,
safety and quality. It is in this area
that Chinese firms are weakest. Chinese
vehicles, while improving rapidly, are still not up to the world-class
standards required to compete in the mature markets of the world.
Chinese automotive makers typically
lack the knowledge and experience of developing core technologies of important
vehicle components and doing sub-systems integration. Overseas car companies started
by developing and integrating core component technologies internally and have
only recently been seeking external outsourcing partners. World-class vehicle
manufacturers retain the critical skills that define their brand identity in
order to deliver a unique value proposition.
The capabilities of local
Chinese OEMs have come a long way in a short time. This is, after all, a relatively new industry
for China and the Chinese firms will learn quickly as they grow their share of
the domestic market. However, much work
needs to be done to gain acceptance of the Chinese consumer of Chinese
manufactured goods. This must be the
first priority as it stands to reason that if it is difficult to convince a
Chinese consumer, it will be even harder to convince a foreign consumer to
accept a “Made in China” car. The fact
is that with the proper attention to quality management discipline and with the
transfer of critical know-how in the area of vehicle synthesis and development,
it is indeed possible for Chinese firms to compete globally.
Several Chinese companies
are attempting to acquire these capabilities “inorganically” by acquiring the assets of
distressed but well-known international manufacturers. Geely’s acquisition of
Volvo, and Pangda and Youngman’s bid to acquire Saab are recent examples. It stands to reason that such an approach
could significantly shorten the time frame for going global. However, such acquisitions are difficult and
often unsuccessful. For example, SAIC’s acquisition of Ssangyong ultimately
failed because the interests of both parties were not aligned. Those who dare
take on such acquisitions are also wise to learn the lessons from others who have
tried – and often failed – to use an acquisition to accelerate the process.
It is clear that China’s
auto companies aspire to become leading global auto companies. However, for Chinese brands to successfully
compete in the global auto industry they must:
1.
Strengthen their domestic base through consolidation
2.
Determine the Chinese brand value proposition
3.
Build critical vehicle development competencies required to achieve
benchmark targets in line with their brand’s Unique Selling Proposition
And China’s policy makers
must help by accelerating the consolidation of today’s fragmented auto industry
and eliminating the weak brands in order to ensure the survival of the stronger
brands.
No comments:
Post a Comment