Shanghai General Motors

The Asian market has been an attractive one for global corporations for many years and of late China has been the region’s crowned jewel of multi-national companies looking to drive revenue and earnings. Therefore, it is no surprise that General Motors saw significant importance in the Chinese market in the 1990s and as such made a concerted effort to penetrate the local automobile industry. But there are several specific reasons why GM found China attractive and as such aggressively pursued. The first, obvious reason is the high population of the country that is currently underserved from an automobile perspective. The country makes up 20% of the worlds’ population but only owns 1.5% of the worlds’ vehicles. The second reason is the high profit margin expected from the market. The Chinese automobile market had an average margin of 30%, while the global auto market was only 5%. The third reason is due to the limited existing competition. There was a limited mix of providers and competitors in the market – and they were not very strong. The final reason was the way the government managed the volume of new entrants. High tariffs and close management of how international corporations could engage meant that if GM could successfully enter the market, the competition would likely be manageable.
General Motors took a joint venture approach with SAIC to enter the market, for reasons of benefit as well as government requirement – the latter reason having a bit more weight in the decision making process initially. In this agreement, the joint venture worked quite well across the companies and the Chinese Government for three main reasons. The first reason why it worked well was that there was significant, influential support at the most senior levels across all parties. The partnership had high-level SAIC and GM executive support in China as well as in Detroit. And at the signing ceremony, both the Chinese Prime Minister as well as VP Al Gore were present to show the government alignment. This makes these types of agreements go a long way. The second reason why it was successful was because there were some clear expectations and goals set at the beginning of the partnership. GM had clear “gives” which were requested by SAIC and acknowledged by GM from the very start such as significant technological enhancements/improvements in the Chinese automobile industry and global coordination and training for Chinese workers in this area. GM had clear initial “gets” which were acknowledged by SAIC as well. These “get goals” were assistance in becoming a significant player in the Chinese auto market, controls over marketing and distribution, rapid sales growth, China as a central point in the Asian market, and the opportunity to leverage a government owned company in policy making activities to help drive success. The last reason why the joint venture was successful was because there was rapid sales and earnings growth. It is amazing how well partnerships work when both sides are making money! This was the case for several years and as such helped buoy the activities to the next level.
General Motors did a very good job driving innovation in the automobile industry in the Chinese market which helped create success and these activities were found in several key components of the automobile industry. The first area was sourcing. GM leveraged leading global practices the drive the greatest cost, quality and efficiency optimization. They also split the sourcing of equipment with about half from within China and half imported. The second area was ensuring the product was technologically advanced from a global perspective, but still meeting the local user needs. The perfect example was the adjustment of the Buick where they made some changes to deliver a good riding experience and privacy in the back seat as the boss typically sat in the back. This is different from the “global Buick” which typically had to make room only for child safety seats! The third area is distribution through the dealership model which really didn’t exist in the past. This helped drive more effective and targeted car sales, but it even expanded into a broader GM auto world that provided multiple options for the customer across the GM product line in a single location – a new advance in the market.. The fourth area which needed significant focus was logistics. They brought-in a logistics company to dynamically manage the ins and outs of the fleet for sales. This prevented backlogs which typically existed with other manufacturers. The last area was marketing in both the online and offline arena. While this wasn’t completely new, it was different for China and it helped GM significantly as it was important to build the GM brand and reputation across the country. These areas of focus and innovation helped drive success for General Motors in China and make the joint venture with SAIC an advantageous one for all parties.