The Evolution of Chinese Automobile Industry in the Process of Globalization

Transcription

1 The Evolution of Chinese Automobile Industry in the Process of Globalization ZUO Zhanping 1, 2 1. School of business and administration Hebei University of Economics and Business, China, Management School Wuhan University of Technology, China, Zuoalice@126.com Abstract: The paper compares and traces the development and issues of the evolution of Chinese automobile industry. By taking the methodology of comarison with the Western automobile manufacturers and taking a holistic perspective, China s gap and achievements are revealed in production, management and strategic operation, etc of the autombile industry. And finally, the paper states the point that globalization is inevitable trend and China s automobile industry will play a leading role. Keywords: the automobile industry, evolution, globalization 1. Introduction With China s joining the WTO, the globalisation of economy and by taking up China s manufacturing as workshop of the world and the adaptation of applying the frame of corporate strategy theory, China has entered the most representative automobile institution in the world. The globalization of markets, the regionalisation of technical and scientific expertise, and the rapid change in technologies are forcing car manufacturers to review the development of the industry and their organizations. 2. Adjustment Process of the Chinese Automobile Manufacturers In the middle of 1950 s, the Chinese automobile manufacturing came into being and the production scale and technological level of automobile manufacturers are advanced in terms of international comparison. The First Auto Works, a medium truck manufacturer with 30,000 annual outputs, was not inferior to the Japanese truck manufacturing at that time in technological level and till 1970 s, South Korea possessed no similar scale of automobile factory. For more than 20 years from the opening reform at the end of 1970 s till present, with the industrial protection and policy support of the government, the competitiveness of the industry with foreign manufacturers has lessened and the export of completed automobile accounts for only 2% of domestic productivity. Along with China s joining the WTO and the globalization of economy, in contrast to the Chinese electric home appliance manufacturing, the automobile manufacturing didn t make inroads into foreign markets, without making no local production & the establishment of sales network in foreign markets. Instead, with the entry of foreign enterprises, automobile manufacturers pursued new alliances with them as partners. There exists adjustment process of the Chinese automobile manufacturer performance from policy-orientation to market orientation. In accordiance with Jin Chen, 4 periods can be divided: plan economy regulation period from the beginning of 1950s to the latter half of 1970s; market opening & technological introduction period from the end of 1970s to the middle of1980s; localization of introduced technology period (import replacement) from the latter half of 1980s to the middle of 1990s; transition to globalization period from the latter half of 1990s. (Jin Chen, 2008) 2.1 Formation of Industrial Architecture of Major Manufactures from the Beginning 1950 s to late 1970 s At that time new China was just established, the heavy industry was focused on the national-construction. And by the long-term loans by the Soviet Union, the First Automotive Works 72

2 (FAW) was built. Later followed by Dongfeng (the Second Automotive Works), mainstay manufacturers such as Shanghai Automobile (passenger car), Beijing Automobile (jeep), Nanjing Automobile (small truck) and Jian Autombile (large truck) and some local small manufacturers in Tianjing, Shenyang, Guangchou and Wuhan. Either large-sized or small-sized, they are state-owned enterprises, depending on central government investment, instruction and functioning as production factories. 2.2 Technical Introduction of Complete Models and Rapid Increasing of New Production Participation from the end of 1970 s to the middle of 80 s Along with the opening policy at the end of 70 s, the government approved joint ventures of Beijing Automobile with America s AMC (1984) and Shanghai Automobile with Germany VW(1985) to shorten the technique gap. But due to import limitation and demand increasing of market, no improvement was made in production and management. 2.3 The Entry Limitation and Competing Exclusion of Passenger Car Production from the latter half of 1980 s to the middle of 90 s The framework of so called Three Bigs, Three Smalls and Two Minis of Chinese vehicle manufacturers were formalized. And there was not so much pressure on the improvement of production management and the quality control with no direct competition among manufacturers protected by central government protection policy under the restriction of the investment policy. 2.4 Impact of Joining the WTO and the Market Globalization from the latter half of 1990s With joining the WTO, the import duty rate of passenger cars began to lower and the multinational automobile manufacturers enter China positively and concentrates on the joint venture of passenger cars, with the target of the Chinese opened market. The system of eight companies broke down with manufacturers, like Nanjing Automobile, Chery, Yueda, Geely evoving newly into the production of passenger cars around 2000 and the state monopolized by the state-owned manufacturers for years kept destroying. The late-evolved ones grow up steadily by releasing low-priced products and expanding their sales by a flexible strategy. While three Bigs kept connecting with more partners in order to avoid the risk of relying excessively on only one foreign venture partner and end with reorganizing their structure under the leadership of foreign venture. 3. Evolution of China s Automobile Industry in Globalization With more than one hundred years of history, the auto industry has entered a new business environment. Several mega trends will continuously sharpen auto industry in the future. These trends can be identified as over-capacity in developed markets, rising of emerging markets, globalization, technology advances, regulation and environmental consideration, and market framentation and product proliferation. To cope with these new business challenges, some dramatic changes or evolution, has taken place in China s automobile industry. 3.1 R&D and Technology Evolution: In the Chinese auto industry market, most technologies are imported. In terms of technology transfer, adaptation and product innovation., joint venture companies dominate, while Chinese carmakers have comparatively weak R&D capacity for product innovation and new designs. It is a new phenomenon that major automakers are attempting to introduce new technologies into the Chinese market, compared with that in the 1980s and 1990s. Volkswagen plans to tap into the diesel car market in China with its latest technology. China s R&D efforts on electric cars started in the early 1990s. According to Science Daily, May 2, 2001, the government invested more than 350 million yuan for R&D and demonstration projects of clean vehicle. In April 1999, 13 key government organizations started implementation of the Air Clean-up Program: Clean Automobile Action Plan,, which involves programs to promote R&D on 73

3 fuel cells, electric and hybrid cars, and dissemination of mature alternative fuel technologies. The greening of road transportation through improving energy efficiency and use of alternative fuel has redued environmental impacts of automobile emissions and its effect on the way industries respond to market will last. The Chinese government views the auto sector development as a pillar industry and places strong emphasis on developing indigenous R&D capabilities. In accordance with the State Administration of Machinery Industry, 1995, vehicle assemblers or OEMs in short should include 5-10% of total reinvestment for developing or expanding their technological centres. Secondly, R&D spending should reach at least 2-3% of sales within five or ten years. Thirdly, key component suppliers should apply 10-20% of their reinvestment to set up R&D facilities and technical centres and the government provides financial and taxation support for joint R&D projects. With regard to technological aspect, major changes took place esp. in the operational mechanism of large, state-owned enterprises( SOEs): they absorbed a great deal of modern technology; learned how to compete in the marketplace; substantially upgraded the technical level of their employees; learned wide-ranging new managerial skills; and gained substantial understanding of international financial markets. 3.2 The Evolution of MNE Source Alliances in the Auto Industry Strategic alliances can be effective ways to diffuse new technologies rapidly, to enter a new market, to bypass governmental restrictions expeditiously, and to learn quickly from the leading firms in a given field. Since the early 1980s, automotive assemblers and component suppliers worldwide have been forming alliances and a few large MNE networks have emgerged as a result, Garcia-Pont and Nohria, 2002; Nohria and Garcia-Pont, Most multinational firms that have entered the Chinese auto industry are large MNEs with multiple alliances and wholly-owned subsidiaries in different countries. For instance, GM, the world s largest vehicle manufacturer, has manufacturing operations in 32 countries and sells its vehicles in 192 countries. The GM Group of global partners consists of Fiat Auto Spa of Italy, as well as Fuji Heavy Industries Ltd. Isuzu Motots Ltd, and Suzuki Motor Corp. of Japan, which are involved in various products, power train, and purchasing collaborations. In addition, GM also has technology collaborations with BMW AG of Germany and Toyota Motor Corporation of Japan, Shanghai Automotive Industry Corp. of China, etc. (Zheng Zhao, 2005) Global M&A rose from $ 156 bn in 1992 to around $3,300bn in 1999 and it will leave a long-lasting imprint on the global business structure. In late 1990s saw an explosion of mergers and concentration, esp. in the car components industry. The world s leading car components companies, such as Delphi, Bosch, Michelin, Denso, Valeo and Commins Diesel entered China, incorporating local joint venture partners into their global system. At the same time, China s independent car makers, such as Yuchai, compete on the global level. (Peter Nolan, 2002) The role of suppliers in implementing a strategic vision. Competitive pressures are forcing new alignments throughout the Western Automotive industry. In this developing environment, the relationship between manufacturers and their key suppliers has become a new and important element of competitive advantage able to influence effectiveness, cost and cycle time. 3.3 The Evolution of Industry Structure and Standardization of Production First there exists a kind of standardisation in production systems of the automotive industry to prevent global production the same quality. Three major production system evolved in the twentieth century: Ford s system of mass production, the Toyota Production System and the reflective production system of Volve Uddevalla, among which the Toyota Production System emerged as the dominant model and currently introduced standard production systems are modelled upon it. China has formed the frameworks of automotive standard system, which includes compulsory standards, recommended standards and industrial standards. But among China s various standardization 74

4 organizations, there exists a lack of coordination and restraint. Manufacturers often feel confused about the standard. China s standard formulation, as part of the world leading standard should integrate the world to further upgrade its standards and therefore the entire auto industry. Since the early 1980s, the auto industry has been marked by intensifying competition and increased globalization, which has resulted in lower costs and also improved product quality. With the advent of lean production by the principle Japanese automakers initially led by Toyota, just-in-time systems emphasized clse assembler-supplier relations and flexible forms of production in which quality control or total quality management was viewed as an essential element at all stages of production process (Womack et al.,1990;dicken, 1998,chs. 5 and 10). U.S as well as foreign motor vehicle assemblers employ supply chain management to diffuse lean production methods and high performance work organization practices into the broadker automotive industry. (Grary Gereffi, 1999) Globalization is changing the nature of relationships between automakers and key suppliers. As first-tier suppliers, global suppliers taking on a new, larger role in the industry have moved to module design and second tier component sourcing, and the provision of local content in the context of emerging markets. The growing need to provide automakers with modules on a worldwide basis is driving a wave of consolidation and geographic expansion among first-tier suppliers. For suppliers that serve multiple automakers, the geographic scale of operations can surpass that of any single customer. In the long run it may well be suppliers, not automakers, that generate the vast majority of the industry s future foreign direct investment- and associated economic and social benefits (e.g. employment). (Timothy Sturgeon, Richard Florida, 2000). 4. Conclusion China is already the world s third largest producer of motor vehicles, following only the USA and Japan. The road transportation is still in the early stage of development, according to World Bank of 2001(page of ), passenger car ownership in China was 3 per 1,000 people in 1999, compared with 478 in the USA. With a total population of 1.3 billion, there is a tremendous potential chellenges and opportunities related to road transportation in terms of energy use and environmental impacts. China has only experienced the last 15 years of the modern auto industry development, compared with Western nations with a history of a century of experience and know-how development in the automobile industry,. All these contribute to the globalization of the world economy, dramatic changes of technological knowledge and adequate policy support and measures accelerating industrial innovation and rationalizing resource use. In the world of globalization, in order to economically survive, firms will need to expand into the expanding global markets in a long run. the relentless challenges of globalization will not go away. And properly managed alliances are among the best mechanism that companies have found to bring strategy to bear on these challenges. In today s uncertain world, it is best not to go alone. (Ohmae, 1992) References [1]. Jin Chen, The Competitiveness Accumulation of the Chinese Manufacturing, Bicc Working Paper series, No. 8, January 2008 [2]. Zheng Zhao, Jaideep Anand and Will Mitchell, A Dual Networks Perspective on Inter-Organization Transfer of R&D Capabilities: International Joint Ventures in the Chinese Automotive Industry, Journal of Management Studies 43:1 January 2005 [3]. Peter Nolan, China and the Global Business Revolution, Cambridge Journal of Economics; Jan 2002; 26,1;!BI/inform Global pg

5 [4]. Gary Gereffi, A Commodity Chains Framewok for Analyzing Global Industries, Duke University, August 12, 1999 [5]. Timothy Sturgeon, Richard Florida, Globalization and Jobs in the Automotive Industry, final report to the Alfred P. Sloan Foundation, March, 2000 [6]. Ohmae, K. Transnational Management, Richard Irwin, Inc., Chicago, IL, pp , 76