Multi National Corporations (MNCs) are gaining competitive advantage by leveraging core strengths across both geographies and partners. From a geographic standpoint, this could be termed “horizontal capability building” where capabilities resident in China, India or other markets are leveraged in the other respective markets and beyond. For example, across the China-India geography, there is a full value chain of low-cost capabilities with the opportunity to achieve scale within those two markets. These scaled-up capabilities can then provide the foundation for successful global market expansion. For foreign MNCs, local partners in the Chinese and Indian markets can evolve from “market access partners” to “low-cost-structure-providing go global partners”. In the case of Chinese and Indian companies looking to go global, foreign MNC partners can evolve from “technology and know-how partners” providing competitive advantage in the local market to “brand-and-distribution-providing go global partners.” From either perspective, partnering provides an opportunity to accomplish far more than either party could accomplish alone.
An excellent example of this dynamic is General Motors’ leveraging of its Chinese partner Shanghai Automobile Industry Corporation (SAIC) across geographies to successfully compete in markets where it would struggle to do so alone. In China, like all foreign OEMs, GM is required to assemble and distribute product through partners. GM has taken this constraint and turned it to its advantage by leveraging the mutual strengths of not only its Chinese partner SAIC, but those of its Daewoo subsidiary as well. This has led to market-leading sales in China with 1.1 million unit sales in 2009 of a Wuling-branded minivan. By leveraging its partnership with Daewoo, GM has also been able to introduce lower-priced Chevrolet branded vehicles to China through its partnership with SAIC.
GM and SAIC are now poised to replicate their success in India and beyond. GM/SAIC/Wuling plan to introduce a Chevrolet-branded minivan in India based on the Wuling low-cost platform. Consideration is also being given to selling this product in Latin America and other emerging markets, also under the Chevrolet brand. This can be seen as the first step of leveraging this partnership, driven by the scale of the Chinese and Indian markets, as the foundation for a powerful emerging market strategy. This major strategic effort would not have been feasible by either of these partners independently.
From GM’s perspective, it now has the capability of deriving low-cost platforms from its Daewoo subsidiary while simultaneously securing low-cost assembly and economies of scale in China through its SAIC-Wuling partner. Working from this low cost-point, it can also benefit from leveraging SAIC’s Wuling brand name in China. These scale effects can be leveraged for entry into the Indian market. Since the Wuling brand would not be appropriate for the Indian market, the minivans will be sold under the Chevrolet brand.
SAIC benefits from this relationship through a solid platform for sales in China, India and beyond, as well as the opportunity to achieve sales through GM’s distribution network and the Chevrolet brand name outside China. SAIC also benefits from GM’s localization of diesel engine production in India allowing for the appropriate powertrain configuration to be delivered to the Indian market at a competitive price. Given GM’s weakened position in North America and rapidly strengthening position in Asia through partnership, the potential exists for GM to be “reborn” as an Asia-centric growth company.
About the authors:
Dr. Glenn Hodges is a Senior Advisor with Booz & Company as well as a Professor of Management & International Business at Walsh College in Troy, Michigan. He has over 20 years of industry experience, having served most recently as an executive responsible for strategic planning with Chrysler LLC.
Bill Russo, Gasgoo.com's columnist, is a Senior Advisor with Booz & Company as well as the Founder and President of Synergistics Limited. He lives in Beijing and has more than 20 years of experience in the automotive industry, most recently serving as Vice President of Chrysler's business in North East Asia.