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  • 1. Presented by- Pranjal joshi SAIC’s Strategies For Global Expansion
  • 2. Flow of Presentation
    • Chinese Economy
    • China Past and Present
    • China’s Industry Parks and Provinces
    • China’s Automobile Industry
      • Pre-Reform period
      • Post reform period
    • Market Overview
    • Analysis Of The Structure Of China’s Automotive Industry
    • Regulatory Framework
    • About SAIC
    • SWOT Analysis Of The Company
    • SAIC’s Strategies For Expansion
    • Future Scenario For SAIC
  • 3. Chinese Economy(2007 Figures)
  • 4. China: Past and Present
  • 5. China: Past and Present Parameters Pre-Reforms(before 1979) Post Reforms(1979-2007) 5. FDIs At a very low level as there were restrictions, quotas in place, the only foreign investment that came in was because of imports of those materials which couldn’t be produced domestically Cumulative level stood at $760 billion in 2007 6. Productivity in Industrial Sector Very inefficient as most of the industrial output was under the control of the government Economic Reforms led to increase in Productivity
  • 6. China’s Industrial Parks & Provinces
  • 7. China’s Industrial Parks & Provinces Province Industries Anhui Producer of white goods, motor vehicles Beijing Mobile phone Technology Research, real estate, financial service sector Chongquing Largest industrial, commercial in interior China, large companies are relocating their business here Fujian Agriculture, light industry, important hub for international trade Guangdong Textiles, garments, electrical appliances, this province account for a third of China’s trade Jiangsu Near to Shanghai, 3 rd largest province, plastic , semi conductors, automobiles Shanghai Manufacturing giant for cars, computers, chemicals
  • 8. China’s Industrial Parks & Provinces Province Industries Tianjin Automobiles, Electronics, Petrochemicals Zhejiang Attracted a lot of foreign investors in sectors like garments, plastics, fibers. Has become a Shipping hub Shandong Cars, shipping
  • 9. China’s Automobile Industry
    • Pre-Reform 1949-1979
    • 1980-Present
  • 10. Pre-Reform(1949-1979 )
    • Domestic Automotive didn’t exist in China before 1949
    • After 1949 help from USSR to develop its own large scale industries, Automotive industry was on the list.
    • 1956- FAW was founded which produced trucks
    • 2 years later it produced first passenger cars named Honqi
    • Shanghai Automobile Assembly plant produced Phoenix model passenger car in 1958
    • Mainly the production was into trucks, buses, tractors for agriculture and jeep for military
    • Before 1980s government did’nt allow to buy motor vehicles and produce sedan for individual use
    • Most of the passenger cars that were being made were catering to Government officials and the bureucrats.
  • 11. 1980- Present
    • Production of motor vehicles changed from centralized plan to market orientation
    • Central government relaxed its market entry rules. Result- All Provinces established their own automobile plants.
    • Markets became less concentrated
    • Mid 80s restriction on sedan production was removed
    • In 90s government even tried to promote passenger production
    • Foreign auto corporations allowed to make investments through joint venture format
    • Sedan production share increased and that of trucks of decreased
  • 12. Market Overview
    • Volume(Domestic Cars): 2,537,868 units in 2004
    • Market share of the top five manufacturers, in number of domestically produced cars registered
    • in 2004:
    • Market share in 2004
      • 1. VAG -25.8%
      • 2. GM- 10.0%
      • 3. Hyundai -9.4%
      • 4. Honda -8.4%
      • 5. Suzuki- 5.2%
  • 13. Market Overview
    • Market share of the top five domestic models:
      • 1. VW Santana and Santa 2000/3000- 8.8%
      • 2. VW Jetta- 6.1%
      • 3. Hyundai Elantra- 4.0%
      • 4. Buick Excelle notchback- 3.4%
      • 5. VW Passat- 3.0%
    • The main Chinese Companies are-
      • FAW( JV partners- Toyota, Mazda, Volkswagen)
      • SAIC( JV Partners- Volkswagen, General Motors)
      • DFM( JV Partners- Nissan, Kia, Honda, PSA)
  • 14. Analysis of structure of China’s automobile industry China Automobile Industry
  • 15. Analysis of structure of China’s automobile industry
    • Threat of Potential entrants
      • Monopolistic position of Volkswagen
      • . Emergence of independent Chinese car makers.
      • A ggressive pricing policy.
    • Threat of substitutes
      • Emergence of petrol-electric hybrid passenger cars .
      • Chinese government priority.
    • Bargaining Power of Customers
      • Growth in purchasing power and sophistication levels of customers
      • Growth in private ownership
      • Progressive credit facility.
    • Bargaining power of suppliers
      • Presence of capable specialized players
      • Scattered Distribution systems
  • 16. Analysis of structure of China’s automobile industry
    • Threat of rivalry among competitors
      • Automotive industry policy – declare pillar industry in 1985
        • To shift the product mix of the industry from commercial vehicles to passenger cars
        • To boost economy of scale by restructuring the industry
        • To seek technology transfer by inviting the participation of foreign companies.
      • China WTO membership – in 2001
        • Liberalization of trade.
        • Tariff for the automobile reduced from 50% to 25%.
        • Foreign automobile can enter the china with local partners (50% shareholding)
  • 17. Policies adopted
    • FDI- Foreign automakers not allowed to set up wholly foreign owned enterprises to produce automobiles
    • Joint Venture with local partners with 51% share possessed by local partners.
    • Domestic content requirements policy set for purchase of auto components failing which hefty import tariffs were charged
    • Industrial policy 1994 identifying automobile industry as one of the pillar industries
    • 2000- Co captured 45% of the auto market
    • 2004- stake purchase in Ssangyong Motot Co
    • China’s accession to WTO, local content requirement removed
    • Recently after China accession to WTO, tariffs have been reduced considerably
  • 18. About SAIC
  • 19. SAIC Production Bases
  • 20. SAIC
    • 1984- Joint Venture between Volkswagen with Shanghai Tractor & Automobile
    • 1990- government merged most of smaller automobile enterprises to form SAIC
    • SAIC produces cars, trucks, motorcycles as well as auto components
    • 1991- SAIC stopped producing its own line of cars to strengthen the JV
    • 1997- Joint Venture with GM
    • November 2004-SAIC formed SAIC Motor Corporation Ltd
    • 2007- Fortune 500- Ranked 402
  • 21. SWOT Of SAIC
  • 22. SAIC’S STRATEGY Consolidation & Increasing Production within China Exploring foreign markets Developing own branded cars
  • 23. SAIC’s Strategy- Consolidation and increasing production
    • Involved joint ventures with foreign partners like Volkswagen and GM
    • SAIC-Volkswagen JV-
      • started in 1984, first passenger vehicle Santana under their belt was produced
      • 50-50 partnership
      • Chinese side included SAIC, Shanghai branch of Bank of china & China National Automotive Industry corporation
      • Located in north west of Shanghai, employed 10,600 people
      • 1991 SAIC stopped producing its own line of cars to strengthen the JV
      • Was a dominant presence in Shanghai and Chinese automobile industry
      • Venture received several concessions and preferential treatments
      • Manufacturing strategy was Automation
      • Technical center was also set up
      • Annual output rose from 1700 at the start of the venture to more than 2,50,000 in 2004
      • But dispute crept in w.r.t design being used
  • 24. SAIC’s Strategy- Consolidation and increasing production
    • SAIC-GM Joint Venture
      • Established in 1997 with a capital of $1.52 billion
      • Manufacturing strategy used was labor intensive to take advantage of cheap labor. Eg- steel stamping plant doing welding 75% manually but no affect on quality
      • Employed 4000 workers in an industrial park on the eastern side of Shanghai
      • Technical center was set up giving training on western manufacturing techniques
    • SAIC’s JV with Behr GmbH & Co
      • 50-50 JV
      • Produced air conditioning and cooling equipment
  • 25. JV Advantages and Risks
    • In 1999 SAIC generated 88.29 billion RMB in sales revenue
    • By 2000, company had captured 45% of auto market in China and ranked first amongst Chinese auto companies
    • Helped in increasing the local employment of people
    • Use of Foreign technology and Joint R & D would help the domestic companies
    • Funding by foreign companies helped in new projects
    • Risk on foreign firms included-
      • SAIC had the majority stake so had the power to decide which company it wants to go for a JV with or even restricting the activities of the foreign partner
      • Since Company was government owned if foreign partner had any trouble with the domestic partner then court’s decision could go in favor of the domestic partner only.
      • Risk of Proprietary information being leaked. E.g.- Chery QQ and Matiz resemblance, Toyota logo and merry dispute
  • 26.  
  • 27. SAIC’s Strategy- Exploring the Foreign markets
    • Company’s plan to become global and become one of the six best companies in the world
    • 2003- acquisition of 10.6% stake in GM Daewoo automotive and technologies
    • 2004- purchase of 49% stake in Ssangyong Motor Co
    • SAIC exporting vehicles to middle east and Africa in 2004
    • International share issues worth $1.5 billion on the cards
    • Owning rights to a number of rover models ,getting the MG name and the Long bridge factory in British West Midlands
  • 28. SAIC’s Strategy- Building own branded Cars
    • 2005- announcement of SAIC of building own branded cars by early 2007
    • Why no branded cars up till now?
      • Possible reasons-
          • Initially company wanted to learn foreign tips and tricks
          • Didn’t have enough capacity to create a world class brand
          • Government policies stringent which had a clause of JV so may be SAIC didn’t want to upset its foreign partner by creating its own brand from whom it was transferring technology taking money for projects
    • Why a want to create a Brand of its own?
      • Possible Reasons-
          • Accession to WTO could make foreign companies start their own wholly owned companies in China
          • To be on a global stage having a brand for itself is very important
          • After the JV exposure company had enough expertise to go for such thing
  • 29. Future Scenario and Strategies
    • Company can make the Long bridge Factory as its base for its supply in Europe
    • Company can also try to be more efficient in production in its existing plants
    • Opening up of more R & D centers in Europe, US
    • More and More Auto Expos can be arranged so that company can compare itself with the foreign makers and improve upon its shortcomings
    • It can hire people (for management) from top notch foreign auto companies
    • Company increasing its production for the domestic market in China by moving to interior provinces of China
    • Company can also go for more JVs in the future as well to understand as to how it can be more efficient
    • Removing of more barriers due to WTO rules can lead to more companies coming in
    • Promotions-
      • Company can display itself and create an image for its brand by showing itself in the upcoming Beijing Olympics 2008
  • 30. Merry Logo Toyota Logo
  • 31. Cherry QQ Matiz
  • 32. Market Concentration and Dominance(Sedan Production in %ge terms )
  • 33. References
    • Detroit news edition
    • China Daily
    • Icfai Journal