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Brand China Expands to Autos

Posted: December 29th, 2009 | Author: | Filed under: Auto News, China | Tags: , , , , , , | Comments Off on Brand China Expands to Autos
Chinese manufacturers know how to squeeze, they have the ability to produce low-cost versions of goods for mass markets. But they haven’t been able to Value-Add or catch the premium that comes with being a top brand.
News that Ford Motor has agreed to terms with Zhejiang Geely for the Chinese carmaker to acquire its Volvo Cars division is the latest example of the next wave of Chinese foreign investment. Manufacturers, mostly privately owned, not state enterprises are increasingly looking for brands and technology to use as the foundation of a new generation of innovative and branded Chinese products for both domestic and global markets.
The first wave of Chinese foreign investment was led by the country’s huge state-owned enterprises, which aimed to secure critical natural resources such as oil and minerals and bought into basic industries that are capital intensive and need scale, such as steelmaking, shipbuilding, construction and telecom infrastructure.
Chinese companies say that their motivation for foreign direct investment is market access or a pre-emptive securing of access against potential protectionist barriers. Computer maker Lenovo and white-goods manufacturer Haier have made inroads into the markets of the developed world following acquisitions, most notably Lenovo’s of IBM’s PC business ::::
Brand CHINA Expands to Autos
However, the fast-growing domestic market makes international expansion and the acquisition of foreign distribution networks relatively less important to many Chinese manufacturers than it would have been for companies from other developing economies at a similar stage of industrial development.
In most cases, acquisitions have been failing firms, notably in the autos industry, where Detroit’s mistakes offer Chinese acquirers a rare and rich trinity of brands, technology and fire-sale prices. An additional plus: To the extent that these were firms in distress, any potential local political opposition tends to be more muted.
Natural resources and basic industries acquisitions, particularly in Australia, have sparked protests about national economic security being at risk, with state-owned enterprises portrayed as the instruments of an overbearing Chinese government.
Chinese manufacturers know how to squeeze value out of frugal engineering, the ability to produce low-cost versions of goods for mass markets. But they haven’t been able to add on the premium that can be ch
arged for a top brand.
Chinese brands have yet to make global impact. Lenovo and Haier are the best known outside the country, but neither is in the same league as the likes of IBM, Dell, HP and General Electric. China’s automakers have been unable to establish brands outside China of the value of Volvo, GM’s Hummer, whose acquisition by Sichuan Tengzhong is awaiting Beijing’s sign-off, or MG Rover, the last domestically owned mass-production car manufacturer in the U.K., which wound up in 2005 in the hands of Nanjing Automobile Group, now merged with Shanghai Automotive Industry Corp.
Acquisition is not the only route to technology and brands. China’s automakers have long pursued the so-called “‘linkage, leverage, and learning” model of development, by conducting joint ventures with foreign manufacturers seeking access to the Chinese market, SAIC with GM – now jointly heading for the Indian market – as well as an FAW with Toyota.
Baotou Bei Ben Heavy-Duty Truck, China’s sixth-largest heavy truck maker, announced a joint venture earlier this month with South Korea’s Hyundai that will let it revamp its model line based on Hyundai’s existing vehicles by 2014, far faster than it could do alone, and eventually give it access to the U.S. market through Hyundai’s distribution network there.
A similar joint venture approach is being taken in IT, where Chinese software firms have focused on their domestic market by working with foreign multinationals and expanded internationally little further than regional markets in Japan, Taiwan, and South Korea.
Beijing has designated 20 industries in which it intends Chinese companies to become world-class, and it is driving consolidation and vertical integration in many of them. That makes its bureaucrats wary of private company ventures abroad (witness the dallying over Hummer) and subjects potential acquisitions to bureaucratic infighting between ministries championing “their” state-owned companies

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