Heading Out: Chinese Commercial Vehicles Companies Look Overseas

China Economic Review, March 2010

In July 2009, German commercial vehicle manufacturer MAN Group (EMG.LSE) bought a 25% share in Sinotruk (3808.HK), the subsidiary of China National Heavy Duty Truck Group, for US$827 million.

Supported by MAN's global sales network and technological expertise, Sinotruk is now preparing to push into developed markets like Europe and America.

The firm already exports to South Africa, Russia, and other developing countries, and according to Jia Xinguang, chief analyst at China's Auto Magazine, Chinese commercial vehicles have achieved a degree of global competitiveness in emerging markets like the Middle East. However, only a few Chinese manufacturers - Sinotruk included - have followed the lead of international truck makers and vertically integrated their supply chains.

Bill Russo, senior advisor at Booz & Company, said China's undeveloped powertrain technology remains the bottleneck for export growth, but as Western brands like MAN and Daimler (DAI.NYSE) become premium vehicle manufacturers, it leaves the door open for Chinese players.

Domestic manufacturer Beiqi Foton Motor (600166.SH) signed a deal in 2009 to export a range of heavy-duty trucks in South Africa, and set up a joint venture with Daimler that will target Russia and South America. The domestic success of Chinese firms like Shanghai-GM-Wuling (SGMW) has also assisted with export plans: SGMW has established a factory in India to bring its successful Sunshine minibus to foreign markets.

"The Chinese companies today have enough opportunities in their home market, and they are pursuing that as their primary objective," said
Russo. "But there is prestige and incremental growth that is achievable if you can access some of these regional markets first."

However, Chinese commercial vehicle companies may be getting ahead of themselves if they target developed markets too soon. Even before overcoming challenges of sales and branding, they must meet requirements like international emissions standards. For now, it might be easier to rely on less exacting developing markets for a chance to build sales networks and new customer bases.

"I think it's going to be a while before you see any Chinese-branded vehicles in more mature markets,"
Russo said.

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