How do Chinese automakers go to the world?

How does China's rapidly growing automotive industry integrate into the world? This is an intricate and often controversial issue. It is difficult for Chinese brands to become famous in the West. Western automakers also do not know how to deal with this emerging giant in the East. While China is making tentative steps toward gaining market share in Europe and the United States, car manufacturers in Europe and the United States are pondering over what strategies they can use to effectively seize China’s growing middle-market desire for shopping. Classes may bring huge opportunities to make money?

The Chinese auto market surpassed the United States in 2009 to become the world's number one, and is still expanding. According to data from the China Association of Automobile Manufacturers, total car sales in the Chinese market soared by 32% in 2010 to 18.06 million vehicles. In this total, the sales volume of passenger cars in 2010 was 13.8 million, which was an increase of 33% from the total in 2009, which was more than 10 times the market size in 2002.

In the Chinese market, producers form two groups. One is a joint venture between foreign brands and Chinese domestic companies. These joint venture companies mainly produce cars designed abroad, and are usually based on European, Japanese or Korean styles, and are adjusted according to the tastes of the wealthy Chinese society. Chinese partners are often large state-owned automobile manufacturers such as Shanghai Automotive Industry Corporation (Group) Corporation, China First Automobile Group Corporation and Dongfeng Motor Corporation.

The second group is an independent company, namely a company created by Chinese entrepreneurs such as Geely, Chery, Great Wall and BYD. These companies are generally not associated with foreign car manufacturers. They produce their own designs, use their own Chinese brands, and sell cheaper cars to private Chinese buyers.

April 20, 2011, Shanghai Auto Show visitors visited a Geely SUV

Domestic brands account for about one-third of the Chinese auto market, and products produced by joint ventures account for the rest. China is willing to see this change in favor of domestic brands and has set a goal of a 44% share of domestic brands in 2015.

The joint venture company is inherently focused on sales in the domestic market. Independent manufacturers have often appeared at major auto shows in Europe and the United States since the early years of this century. Their strategy is to follow the example of Japan in the 1970s and South Korea in the 1990s, that is, first enter the market as a cheap brand, and then gradually improve product quality to reach the level of a mature brand.

This may have worked in the past, but the 21st century automobile market is obsessed with the brand, far more difficult to deal with than it was originally. The marketing cost of the European or North American market is huge, where the sale of small-displacement and low-cost cars is basically not profitable. In terms of safety standards, the Chinese are also extremely inexperienced.

There is also the problem of misappropriation of design. A Chinese importer was forced to withdraw a car from the recent Frankfurt Motor Show because of this problem, because Daimler proposed similarities between the car and its “Smart” car. Protest.

The issue of piracy is deeply entrenched. In Chinese culture, plagiarism design is not considered as an immoral act. Instead, it is viewed as a steep learning curve that will allow China to reach its own pace faster.

In 2010, Buffett once said that he expects a "significant opportunity" in China to make this world's fastest-growing economy into a "reasonable investment" market. Few people understand the concept of intellectual property, and understanding of details is distortion. If a product is considered "new", it seems to be protected. This interpretation led automaker BYD to launch an F0 model that has flagrantly copied Toyota Aygo. However, Aygo did not list in China, so the Chinese authorities believe that BYD does not infringe on the rights. If not, BYD should be a respectable company.

There are currently two issues at stake: One is theft of intellectual property, which means that a Chinese supplier is blatantly copying another company's parts and doing its best to imitate it and then selling it as its own product; one is counterfeiting, that is, The product is copied and packaged with the foreign company's trademark and brand identity, posing as better imported parts for sale.

Honda or Hongda?

Chinese authorities have already cracked down on piracy and counterfeiting, mainly because of pressure from the entertainment industry. The entertainment industry has taken a tough stance on the behavior of pirated CDs and DVDs. But if no one attempts to "counterfeit" imitation parts, Chinese authorities are unlikely to take action. The current case of success is only the prosecution of trademark infringement, which is the use of similar brands of counterfeit products. Honda successfully prevented a Chinese motorcycle manufacturer from using the "Hongda" brand. Recently, Chinese companies have found another way to expand overseas, which is the acquisition of Western brands. The most striking is that Geely acquired Volvo Car Corporation from Ford in March 2010 for 1.8 billion U.S. dollars. This transaction provided Geely with an important foothold in the West and eliminated Geely’s own R&D design for export pressure. Geely plans to increase the Volvo brand in China through the construction of a new plant with a capacity of 300,000 vehicles. Volvo may soon produce 1 million vehicles a year, which is a production level never reached by Ford.

Coincidentally, the British MG brand was recently re-listed under the leadership of SAIC. Following the bankruptcy of MG Rover in 2006, SAIC Group took turns to purchase the company. The Dutch owner of Saab is struggling to reach an agreement with a Chinese automaker to keep the brand's future and give it an opportunity to enter China.

However, the number of Western car brands available for acquisition is limited. Most of the mature brands are under the umbrella of the major auto groups and have no intention of selling them. This means that other Chinese car manufacturers will have to create their own brands.

The most likely car brand to succeed is BYD. BYD entered the automotive industry about 10 years ago, but its core business is manufacturing lithium-ion batteries. Most of the world's mobile phones and laptops use lithium-ion batteries. This provides BYD with a unique selling point, that is, it has the ability to manufacture electric and hybrid vehicles at a lower cost than Western manufacturers. Warren Buffett has invested in BYD, and he generally does not support losers. Buffett's investment company Berkshire Hathaway currently owns 10% of BYD.

BYD plans to sell its pure electric car E6 in the United States in 2012 and sells for 35,000 US dollars. BYD said that the car's one-time charge mileage is 320 kilometers, which is driven by BYD's 60-million-hour lithium-ion battery pack developed by BYD and can be fully charged in six hours.

This impressive technology may be BYD's biggest selling point. Daimler is working with BYD to develop a car for the Chinese market. One possibility is that BYD develops its business by providing battery and electric vehicle technology to foreign car manufacturers just as it does for the telecommunications industry. Despite the apparent “growing pains”, both Chinese and Western manufacturers have found that working together is the best way to achieve long-term success in the automotive industry.

Large-scale joint ventures established by mature foreign manufacturers and local Chinese auto companies have started to compete with Chinese private manufacturers by independently researching and developing models for the Chinese market. At the forefront of this trend is General Motors, which is currently building Chinese-branded models for the Chinese market. General Motors established a three-party joint venture with Shanghai Automotive Industry Corporation (Group) Corporation and Wuling Group in November 2002. In 2010, the joint venture company produced 1.23 million vehicles, which accounted for more than one-third of the total output of General Motors China.

The creation of the Chinese brand GM is not the only manufacturer to build a new car brand in the Chinese market. Honda has announced the launch of a low-cost autonomous car brand as part of its joint venture with Guangzhou Automobile Group Co., Ltd. Guangzhou Automobile Honda Automobile Co., Ltd. The first model launched by the brand is Concept S1, which will be available before the end of 2011. The car uses a Honda Sidi platform with 1.3-liter and 1.5-liter gasoline engines. Other automakers are also preparing to follow this trend of building Chinese brands. German Volkswagen is currently discussing with the Chinese partner (probably China FAW Group Corporation) on the development of the Chinese brand. Nissan Motors and its partner Dongfeng Motor Co., Ltd. are also planning to launch a product called “Ken Chen” in early 2012. "(Venucia)'s new car brand to meet consumer demand for low-priced models."

These new programs will create a large number of new brands. The target group of all brands will point to first-time car buyers, especially first-time car buyers in small towns. Many of these businesses will be new businesses, but they also mean that Chinese private auto makers will face strong new rivals in market competition. These rivals may think that these markets are the natural market for self-developed low-cost cars.