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Opportunities and challenges of the Automobile industry in China

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Introduction

Opportunities and challenges of the Automobile industry in China 1 Executive Summary 2 2 Environment and risk analysis 3 2.1 Internal environmental analysis 3 2.1.1 Political perspective 3 2.1.2 Environment of Car Industry 4 2.1.3 Economic perspective 4 2.1.4 Social and culture perspective 6 2.1.5 Technique perspective 7 2.2 External environmental analysis 8 2.3 Major Domestic Automobile Enterprises and foreign makers 9 3 Policy Review and Trend 11 3.1 Previous Policies on Automobile Industry 11 3.2 Policies in the Liberalization Process 14 4. Conclusion and Recommendations 15 5. References 17 1 Executive Summary The automobile industry, as an old-line heavy industry, which has been nurtured in a protectionist environment, seems one of the most open to a global challenge as the liberalization is moving ahead. Five years following China's accession to the World Trade Organization (WTO), foreign automobile manufacturers are scheduled to be granted full access or greater freedom to the country in the near future, With competitive vantages in attributes, such as size, manufacturing capabilities and international business experiences. The entry of the WTO and the structure reform of the China to transit to market-oriented economy have resulted in the liberalization of the Chinese market. Among them, the automobile sector is thought to be one of the mostly influenced. This dissertation will study the impact of the liberalization on the domestic makers by using survey research and case study. Both primary and secondary data will be used to assist the analysis. Besides, the market policy and future trend, the domestic makers' reactions and recommended steps are also included in the research. The shortages and the recommendations for subsequent researches are also attached in the final parts. Among the differentiated sectors that are affected by the WTO accession, the automobile industry, as an old-line heavy industry, seems to be one of the most open to a global challenge as the on-going liberalization trend is moving ahead. ...read more.

Middle

Actually, one of the very first motives for Chinese government to attract foreign car producers in the beginning of its reform is to try to learn from the new techniques and management. Right now the Chinese domestic car producers are very lacking in their master of car producing technique, in those joint car ventures this could be better for the Chinese part. However, even in these joint ventures, the world biggest car producers still want to keep their core techniques for secrecy, which as a resource to some extent constitutes their competitive advantage (Barny, 1991). So if any new comer wants to enter this potential market, maybe this could be a good reason to bargain and negotiate with Chinese government. Finally, as the Chinese are more awakening the environmental and sustainable development problem, they are asking for more energy-saving and green cars, this indeed has many technique implications for any car enterprises. Actually, the Chinese government has used some policy benefits to encourage the new technique in such applications. 2.2 External environmental analysis From the international perspective, the international environment mainly refers to the global level of the political, economic and other environment. As China is becoming more and more global, this consideration seems justify its efforts. Actually the academics also put great efforts to distinguish the global company and the multinational companies, which mean different strategy, logistics and marketing arrangements through the whole world. For a European or American car company that wants to operate in China this international context should not be ignored. For example, the use of cars consumes great energy, while China right now are consuming much more energy than its production, and the energy reserve is far from need, including some key materials to make a car(like steel). So as multinational car enterprises it should harmonize its global arrangement, and more importantly, with a long-term dynamic eyesight to handle this problem. ...read more.

Conclusion

Since the adoption of the Harmonized System (HS) code in 1992, there have been four rounds of significant tariff cuts. The average tariff rate was reduced from 43.2 percent in 1992 to 17 percent in 1997. At present it is about 13 percent, close to the average level for developing countries. The Chinese government sticks with its promises to eliminate the tariff and non-tariff barriers. Yet, the government also makes unrelenting resolutions to protect the infant auto industry, such as policy instruments to encourage localization, and the levels of tariff on imported components would be reduced, and non-tariff barriers for certain types of imported cars. The Chinese government has gradually liberalized its auto market to fulfil its promises on the entrance of the WTO. Actual steps have already been stepped forward, as the pressure from external entities. Removal of Non-tariff Barriers: In addition to the reduction of tariff levels, China has also removed some significant non-tariff barriers (NTBs) on certain areas to fulfil the promise of entering WTO. 4. Conclusion and Recommendations From the above analysis, it can get much useful information to guide car industry development. When it takes the Chinese specific context, these advantages and disadvantages would take new appearances. However, there are still some basic standards to consider when making entry mode: core competence and the pressure to decrease costs (Charles, 2001). As it said before, the technique environment make any companies which possess technique advantage in energy-saving and reduce cost would probably consider direct investment. Also if the foreign car company could enjoy its core competency from its global logistics or other management levels, then the expansion into china may be the joint venture form. As for the second standard of reducing cost, facing china's low labour cost, this would almost be a good choice to any big foreign car enterprises. Certainly, if the foreign company is not big enough to hold that risk, then different choice of entry mode still means much difference in reducing cost. 5. ...read more.

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