1. Executive Summary
TO: Shanghai GM
FROM: Kalvin Lo, Graduate School of International Relations & Pacific Studies
Subject: Maintaining Market Leadership and Strengthening Company Survivability
Current Scenario
Since its entry into the Chinese automotive industry, GM and its flagship JV (SGM) with Shanghai
Automotive Industry Corporation (SAIC) has closed the gap with GM’s primary foreign rival, Shanghai
Volkswagen (SVW). By 2004, SVW market share of the Chinese auto market had fallen to 15.8% , down
from 32.7% in 2001; in contrast, SGM’s market share rose to nearly 11% during the same period. This
was a result of SGM’s superior growth strategy, which in turn also developed some of SGM’s greatest
strengths in its China operations. These strengths are going to be needed in SGM’s imminent fight for
market survival.
Presently, SGM faces a number of unfavorable forces and trends that threaten to reverse its past
gains. In 2004, partially due to intensifying competition, SGM’s growth rate slowed to 26%, a drastic
decline from the 80%-90% growth it had enjoyed in the previous two years. However, the larger factor
that precipitated this fall was the Chinese government’s imposition of a more restrictive policy on car
loans; central government policy are out of SGM’s control and may negatively impact its operations at any
time. Yet, ultimately, the most serious threat that SGM faces comes from its own domestic JV partner,
SAIC, which holds stakes in a number of domestic auto manufacturers. Over the course of the partnership,
GM has transferred much technical know-how to SAIC and their joint ventures. The concern that said
know-how might be illicitly passed onto SAIC interests, as was alleged in the GM Matiz–Chery QQ
controversy, will remain on the horizon. As a caveat, SGM should be wary that over time, its importance to
SAIC will diminish – the potential for future conflict–of–interest is severe.
S.W.O.T. Analysis – Overview of SGM Strengths
As aforementioned, SGM has developed key strengths that will be needed to capitalize on
emerging opportunities and neutralize emerging threats. These key strengths were responsible for
assisting SGM in capturing market share from SVW, and thus, they must be retained and reinforced.
I. Holistic supply chain: one that not only provides superior customer service, but establishes self-
controlled distribution network, as well as a responsive high-quality components industry.
II. Globalized platform of R&D: GM’s common global platform of collaboration and design–sharing, as
exemplified by its PATAC research venture, will assist in its efforts to retain product differentiation and
brand strengthening amidst China’s auto market.

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III. Relations with Asian Universities: Continuing cooperation with up–and–coming local engineering
talent will not only assist with market research, but also indirect brand building.
S.W.O.T. Analysis – Neutralizing Threats and Sustaining Leadership
Market oversaturation and future uncertainty in Chinese government regulation necessitate SGM
to address weaknesses and threats immediately. A recommended holistic approach is described below:
I. Dealing with market saturation: the Chinese auto market will eventually saturate, and the Chinese
government will become more concerned with pollution. Thus, SGM should put greater emphasis into
components manufacturing, and expand/improve distribution network for said industry. Auto sales
may decelerate, but the need for auto repair and maintenance will never contract.
II. Dealing with market saturation (2): SGM must continue to improve its product distinction and brand
equity. Competition intensification will only get worse, especially as domestic manufacturers upgrade
their capabilities. Positive word–of–mouth by way of fostering greater cooperation with universities and
establishing more JVs with domestics and helping them grow will undoubtedly raise brand recognition
and popularity. Building brand equity is of UTMOST importance, particularly pertaining to the long–term
strategy regarding components. Furthermore, SGM must continue to improve its holistic supply chain
and high–quality customer service. Indeed, domestic competitors may illicitly copy product designs, but
replicating top–notch distributional networks and service satisfaction is something much harder to do.
III. Improving its position with JV partner SAIC: There will come a time when SAIC has absorbed all the
technology and know-how it needs from GM, a time when SAIC no longer needs GM. To preclude this
possibility, GM must offer something beyond technology to maintain its importance to SAIC. There are
two possible approaches: a.) form similar relationships with the other two of the “Big 3”; b.) offer to
assist SAIC and its subsidiary stakes make entry into U.S. and European markets – essentially elevating
SAIC as a junior global partner of GM. GM’s global collaborative network will certainly be enticing to
SAIC’s international ambitions.
Special Recommendation to Deal with Counterfeiting by JV Associates and Other Domestic Firms
It is best advised that GM/SGM does not pursue legal action against counterfeiters for now –
navigating through China’s inchoate legal environment will not only be costly, but the public fallout will be
overly injurious: defensive techno–nationalism is a force easily stirred in East Asia, including China.
Particularly concerning the SGM–Chery controversy, SGM must commit itself to the follow actions: learn
how Chery was able to not only copy its Matiz model so speedily, but how they reproduced it for a lower
cost. Moreover, rather than confronting Chery as an enemy, SGM should approach it as a potential

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partner with a potential joint project. SGM should anticipate that Chery eventually will be propped by the
Chinese government and its pillar industry policy, and thus form cooperative relationships with Chery now.
The crucial importance of the components industry is central here. If SGM succeeds in taking
market brand dominance in components, even the issue of counterfeiting is diminished. In fact, as more
domestic producers copy GM designs, the potential for greater future reliance on GM parts and
components in the Chinese auto market increases. Thus, it is imperative for SGM to push for higher
quality and recognition, not only for its automobiles, but for its components. An apt analogy here is the
advertisement by computer manufacturers that Intel CPUs are used in their products. This is the state of
public acceptance that SGM needs to attain in order to preserve its success.