negotiation of volkswagen and saic

1. NEGOTIATION BETWEEN
CHINA & VOLKSWAGEN

2. NEGOTIATION OVERVIEW
Volkswagen (VW) was the first foreign overseas car-maker in China to
have been making a profit in China. Shanghai Automotive Industry
Corporation SAIC Volkswagen was formed in March 1985, as a joint
venture between Volkswagen and SAIC. This was a 25-year contract to
make passenger cars in Shanghai with a limit of 50 per cent foreign
ownership.
SAIC Volkswagen's Shanghai plant was by the far the winner among all
new JVs, as it produced cars that could function as taxis, vehicles for
government officials and transport for the newly emerging business elite.
SAIC Volkswagen began automobile production in 1985. As car imports
fell to some 34,000 in 1990, SAIC Volkswagen's production of
its Santana models reached nearly 19,000 vehicles that year. By 1993
SAIC Volkswagen’s output had reached 100,000 vehicles. Volkswagen
was aided by some Shanghai municipal efforts. Various restrictions on
engine size, as well as incentives to city taxi companies, helped ensure a
safe market in the company’s relatively wealthy home arena. Volkswagen
also encouraged its foreign parts suppliers to create joint ventures in
China, and their resulting product helped SAIC Volkswagen achieve an
85 per cent local content rate by 1993.

3. IN THE BEGINNING
The First Challenge
The Chinese government insisted on foreign businesses
forming joint ventures with domestic companies. But most
Chinese automobile makers concentrated on vehicles for
industrial use rather than cars. Also, design and technology
were both basic. As for consumers, a tiny fraction of the
population earned enough to buy a car. Keeping a vehicle
running was also problematic: Shanghai, for example, had a
population of 12m in 1985 but 70 petrol stations at most.
The market would have to develop substantially before
western carmakers could operate there profitably.

4. THE INITIAL RESPONSE.
Most of Volkswagen’s competitors were content to export small
volumes to China and wait to see what would happen. The German
company opted instead to establish operations on the ground, with a
view to building its brand slowly and also establishing key relationships,
including at various levels of government. Volkswagen accepted that it
would be years before it saw financial returns – if ever. It established a
joint venture, called Shanghai Volkswagen, with Shanghai Automotive
Industry Corporation in 1985; and a second, with First Automotive
Works, in Changchun that began production in 1991. The Chinese
companies and Volkswagen held equal shares in both cases.
Volkswagen shared its technology, and factories were built or retooled
to make Volkswagen brands. Good relationships with government were
cultivated, partly because of the levels of state control over business
but also because government bodies were important potential
customers. These relationships bore fruit early on when Volkswagen
won contracts to supply taxis to the municipalities of Shanghai, Beijing
and other cities

5. CONT…
. Red Volkswagen Santana taxis became a common sight
on Chinese streets. The taxis put the Volkswagen brand in
the public eye. As more people bought their first car,
Volkswagens made in China were a natural choice for
many. By 1995, Volkswagen had at least 70 per cent of the
Chinese domestic car market. It had achieved a powerful
first-mover advantage, and for several years other
carmakers, domestic or foreign, were in its shadow.

6. THE SECOND CHALLENGE
AND RESPONSE.
By the early 2000s, that first-mover advantage was diminishing.
Aggressive marketing of low-cost brands by other foreign companies,
such as General Motors, and improved quality on the part of local
carmakers meant that by 2004 Volkswagen’s market share had fallen to
15 per cent. Its response was to introduce new technologies at the two
joint ventures to bring down unit costs of production, and to launch
new low-cost models such as Skodas. Chinese customers still had a
favourable view of the brand, and once Volkswagen was again
matching rivals on price – and outdoing many on quality – they flocked
back. By 2010, Volkswagen was once again the leading car company in
China, with Skodas accounting for about 20 per cent of sales.
Volkswagen has achieved an almost “heritage” appeal, and the
company is admired for its long commitment to China.

7. VOLKSWAGEN GROUP CHINA
As the most reliable partner of China, Volkswagen not only provides high-
quality products and reliable services to Chinese customers, but also spares no
effort in carrying out its corporate social responsibilities. In November 2014,
Volkswagen Group China announced to fund 50 million RMB to charity in China.
The funding further supports raising awareness for child safety, reconstruction
efforts, junior football and education.
Children are the future in every society around the world, and for this reason
Volkswagen Group is deeply involved in creating future opportunities for
China's next generation. Beginning in April 2014, Volkswagen Group began
rolling out a series of child safety awareness programs and road shows to
promote children’s road safety in 17 cities.
By continuing to bring the most advanced and environmentally sound
technologies and products to China, as well as providing professional services
for an even higher customer satisfaction, Volkswagen Group is driving toward a
sustainable future with China’s automobile industry.

8. COMMENTARY BY VW
Looking back on its successful negotiating style with the Chinese, VW
suggests seven points as the keys to its success:
 Have a small team and don’t change the team members.
Show up as a team.
 Remain patient and never negotiate under pressure of a deadline.
 Explain facts and figures and your ideas as often as you are asked to
do so.
 Convince your partners through facts and figures that yours is the
best offer.
 Do not become nervous when the Chinese use the mass media to
influence their position in negotiations.
 Do not seek quick results, since they could be bad results—
especially in China.