Much has been spoken about Chinese cars, especially on build quality and pricing. Most of the time, brickbats are thrown at them without much thought and reasoning, even in Asia itself. On the other hand, some venture to say that Chinese cars are coming to Europe and USA soon.
However, it is seldom that we hear reasonable and well-thought argument on this topic. I'm happy to share an example of this type of article, regardless of the position that they are taking.
In the article: Are China’s car manufacturers ready to compete in the US and Europe?, a briefing paper by the Economist Intelligence Unit (EIU) sponsored by Roland Berger Strategy Consultants (RBSC), the findings in perspective is appended below in brief:
1) The Chinese automotive industry has the political and financial support of its government, which is encouraging automakers to develop locally made cars and take them to the international markets. The government is looking toward strong contribution from the industry by 2010 to the tune of about US$1.2bn in export sales.
Quick to spot an opportunity, European and American auto dealers are also promoting the cheap chinese cars in the US and European markets. The Chinese government’s support is being augmented by financing from foreign investors keen to import Chinese–made cars to Western markets. Chery’s entry into the US is being championed by American auto dealer Malcolm Bricklin and reportedly by American investor George Soros.
2) According to an analysis, China belongs to the “autarkic” group of countries which includes Malaysia, Iran, and India. They have under–developed automotive sectors that are striving to become fully integrated. It will take around 10–15 years for a Chinese auto manufacturer to become a serious threat to domestic producers in North America and Europe.
3) Chinese automotive industry is in the “intermediate” stage of development, in terms of production. Autopolis, an auto industry strategy consultancy, found that in order to succeed in the automotive business a country needed a population of at least 50m, a GDP of at least US$500bn and a production output of at least 2m units a year. They have supported the belief with country charts based on the number of vehicles produced relative to population, and found that China makes the grade by those measures, but this is only because of the production volumes of foreign–owned firms. To succeed, China needs domestic firms to produce at least 2m units per year, and to have a band of independent mass–market automakers that own their technology.
4) Industry experts beleive that Chinese cars will initially enter the US and Europe on low prices, but they will be hamstrung by poor quality and safety standards. Price alone will not be sufficient; Chinese cars will have to compete on brand, and to radically improve quality and safety standards.
5) Chinese main domestic automakers are developing a range of vehicles with low prices. They are also keen to develop hybrid and fuel cell vehicles, and they have the backing of the government to do so. They are likely to focus on value and engines and the government has clear plan for their gradual implementation over the next 15 years. This will require the automakers to push up their R&D abilities and technology. Most have already begun to do so. Shanghai Automotive Industry Corporation (SAIC), for one, has a venture with Ricardo Engineering, a UK–based design and engineering firm, where it develops engines and trains a number of its engineers. SAIC also has access to world-class development centre through its venture with Volkswagen and General Motors.
6) The paper supports the notion that Chinese automakers must develop a strategy to become fully integrated automaking enterprises. Presently, Chinese companies own very little technology and rely mainly on reverse engineering. However, it is also reported that a few have moved away from reverse engineering and begun to partner with global design and engineering consultants. Reliance on outside assistance may assist automakers to bring a vehicle to market in the short term. But in the long term, this reliance could delay the development of indigenous design and engineering expertise.
7) It is essential to build or buy a brand. While companies like SAIC may have the courage and money to develop their own brands, some are choosing a quicker strategy to enter Western markets by buying existing brands, as Nanjing Automobile has done with MG Rover of the UK. Acquisition would give Chinese automakers access to the acquired company’s products, its technical knowledge, technology and customer–base. But such overtures by Chinese automakers might also provoke a political backlash in the target companies’ countries of origin.
Wow, I must have put in some time writing this. Got to stop now before i turn into a...
Adieu!
