The Chinese automobile market is maturing with growing competition and emerging new market segments, as well as new consumer groups (Kasperk et al. 2011, Gadiesh, Leung & Vestring 2007). The automobile companies present on the Chinese market cope with the upcoming changes in combined efforts of their established joint ventures. Those have been the premise for foreign carmakers to participate in the market, while at the same time supporting Chinese companies with technology and process-knowledge transfer (Kasperk et al. 2011, Deng & Ma 2010). Now these joint ventures are being carried to a new level in developing automobile brands together. Regulations of the Chinese government for building new plants and its goal of building global brands drive companies to encourage in such a joint venture brand development.
In 2010 and 2011, several major carmakers, have announced cooperations with a joint venture partner in establishing a new brand for the Chinese market. Already existing brands stemming from such efforts are Shou Wang (BAIC and Hyundai) and Wuling (GM, Liuzhou Wuling Motors, and SAIC). The confirmed announcements of new joint venture brands are aggregated in the following overview. Rumors furthermore suggest a joint venture of Chery and Jaguar.
All of the joint venture brands announced include manufacturing in China. In case of Chana and PSA Peugeot Citroen the two companies are going to develop joint R&D centers which are aimed at potentially providing saving potentials. Chinese companies in addition have the advantage in creating a joint venture brand to learn from foreign car makers in this field, also thinking of Chinese car makers’ strive for internationalization. Developing a new brand might be even harder and more time-intensive, than developing a new technology (thinking of the example of Volkswagen’s Audi). Risks and resource inputs in developing a new brand are reduced in doing so within a joint venture.
For many foreign companies still struggling with manufacturing low-priced cars, this is a major goal of the new brand development. With a new brand, the own brand of a foreign car maker is not impacted by brand value erosion when aiming at a lower segment, at the same time the cars in the new brand still can be sold to the Chinese middle class market (about 40% of the total market) with regard to a famous mother company’s brand. The German car makers focus on electric cars, to learn from their Chinese counterparts (BYD and Daimler) and to test concepts in a market that is relatively responsive to the concept of E-Vehicles.
Therewith a bridge might be built over those conflicting tendencies, also adhering to individual characteristics and the price sensitivity of consumers in rural areas. High-priced cars in the near future are likely to continue to be in the hand of foreign brands. Dongfeng and Honda’s car specifics of creating a brand to target low- and high-priced markets seem to not fit, still more Chinese brands and joint venture brands might target the luxury markets for its growth potential.
The wave of new joint venture brands will help the Chinese market to become more mature and make use of synergy effects and knowledge transfer on a process level above technology and manufacturing. 2012 and 2013 will reveal to what extent Chinese and foreign car makers will utilize the potentials of new brands and how their competitiveness in the Chinese market will be strengthened.
Chan, T.-S., Cui, G. & Zhou, N. 2009, “Competition Between Foreign and Domestic Brands: A Study of Consumer Purchases in Chinaâ€, Journal of Global Marketing, vol. 22, no. 3, pp. 181-197.
Deng, H. & Ma, A. 2010, “Market Structure and Pricing Strategy of China’s Automobile Industryâ€, The Journal of Industrial Economics, vol. 58, no. 4, pp. 818-845.
Gadiesh, O., Leung, P. & Vestring, T. 2007, “The Battle for China’s Good-Enough Market”, Harvard Business Review, vol. 85, no. 9, pp. 80-89.
Kasperk, G., Drauz, R., Wilhelm, J. & Laeuppi, U. 2011, “Internationalization of Chinese Automobile Companies”, Lulu, Raleigh.
These new brands are the worst thing to ever happen to the Chinese automotive industry. Yes, worse than the JVs themselves, which I criticized for a long time.
These brands were created to compete with China’s real indigenous brands (Chery, Geely, etc.). They will take away market share from them, and hardly touch foreign brands’ share.
There’s no new technology being developed. The Li Nian S1 is a badge-engineered older gen Honda City. The Venucia D50 is an old Tiida. Just rehashed, going-out-of-the-door yestertech.
The real question is, what is this going to accomplish? Further undercut real Chinese brands, which already struggle to survive in the Chinese market. All while bringing no innovation at all.
And these brands, will they going to be able to compete internationally? Of course not. These brands are an evolutionary dead-end.
This is terrible news for real Chinese brands. This is further evidence of how state-owned enterprises (especially if said state is already corrupt) are an utter failure.
I agree that these JV brands could potentially serve as a bridge from foreign brands to purely Chinese brands. For now, the perceived quality gap between foreign and Chinese brands is simply too large (in the minds of Chinese consumers).
I also find it interesting that, even though China is forbidden by its WTO obligations to demand technology transfer as a condition for approval of foreign investment, all of the major foreign automakers are suddenly “voluntarily” plunging into development of JV brands with their SOE partners.
Q: Why would the foreign automakers “voluntarily” help their Chinese partners get closer to the day they no longer need foreign help?
A: It’s not voluntary.
Foreign automakers should be recalculating their cost-benefit analyses for being in China.
Not so easy to get one’s arms around this one, a possible Chinese translation…..
If I understand correctly, the new brand created by the SAIC-GM-Wuling joint venture is the Baojun. “Wuling” on the other hand is an indigenous Chinese brand dating back to 1985.
And to update that chart, Dongfeng-Honda’s new brand was given the name “Ciimo” (SiMing) in 2010, while GAC-Honda was given the brand name “Everus” also in 2010.
If all of this leads to the Chinese jumping in to get down and dirty, side by side, with foreign partners, well that’s a good thing. Til now the ventures have been lopsided.
These JV brands are a good way to get rid of the “real” Chinese car makers. Those are still *far* behind quality wise and can only compete by being even cheaper. But being cheaper also means having no money for development. And a lower price for a foreign car means more customers being able to buy one of them.