As income levels continue to rise, demand may begin to shift towards vehicles and segments offering more appealing content and features, which may create opportunities for manufacturers to improve their product mix. Early-movers in the China market such as Volkswagen and General Motors have enjoyed significant profit margins by occupying mid-size sedan, full-size sedan and MPV segments without a great deal of competition. In such a market environment, strong profits could be made on products such as the VW Santana and the Buick GL8 minivan – older technologies that dominated their segments with good margins. However, today’s China market no longer offers such an easy road to profitability. Virtually every major vehicle manufacturer is now present in the China market. A recent J.D. Power & Associates study has reported that many of the cars sold in 2009 were in low-end segments that are eligible for tax incentives and that many of these cars earn the manufacturers as little as $100 each.

Interview With Robert B. Weiss, Co-Chair of International Automotive Legal Team and Chair of Commercial Law, Bankruptcy and Reorganization Department of Honigman Miller Schwartz and Cohn LLP

Multi National Coproprations (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.