Enhanced partnership instead of brand acquisition – a model to move forward?

Chinese car makers are keen to become international players on the world stage, and the past 12 months have seen additional steps taken by domestic auto manufacturers to achieve this goal. The Volvo deal negotiated between Geely and Ford and likely to be concluded in 2010 has certainly been the most prominent case of an intended takeover, vastly covered in the media during most part of last year. The agreement on Volvo signifies the supposedly quickest access for a Chinese auto manufacturer to mature technology and international markets: the acquisition of a foreign brand. 2009 has seen another transaction of this nature, namely Tengzhong's acquisition of GM's Hummer brand, also to be finalized and approved this year. Both acquisitions are considered hugely ambitious, and have raised the question about the ability of the Chinese companies to manage and develop these international brands. BAIC has also tried to acquire a renowned brand, Opel. Eventually, it secured the purchase of some core technologies from Saab for the development of self-branded cars - probably a more reasonable and less risky endeavour.

While we can acknowledge that quite some noteworthy actions have been taken in 2009 as regards the acquisition of foreign brands, I personally find that the extended collaboration between GM and SAIC is of great significance for the current and future standing of the Chinese auto industry. Early December, both car manufacturers have announced the establishment of a 50/50 joint-venture to operate together in India.

This collaboration is significant because it lifts the Chinese manufacturer at eye-level with the international car maker, not forced by government regulation, but by appreciation. There is no doubt that the GM and SAIC partnership in China has been successful, and has enabled both parties to mutually benefit, and establish and solidify a powerful market position. The performance of its China ventures has considerably contributed to GM's overall recovery, and from the US car maker's perspective - purely fund-oriented considerations apart - it seems quite logic to try to repeat its China success in another high potential emerging market, India, where GM's market position is still weak. For the Chinese car manufacturer it is a formidable opportunity to "going international" without having to build an infrastructure from scratch. Both partners will have to work hard to ensure success also in India, though. Emerging markets are not at all the same, and the winning formula of collaboration has to be adapted to the specific market characteristics. In addition, both companies are foreigners in India, and the local understanding of local consumers, SAIC's unique selling proposition in its partnership with GM in China, has disappeared.

I do assume that the quality of relationship between GM and SAIC will help to overcome the challenges to achieve a successful extension of their collaboration into the Indian market. Then a question arises: Can this also be a model for the mature markets? As long as it is beneficial for both partners, yes. SAIC would certainly be interested in establishing a visible footprint in Europe or the US. The answer is not so clear for GM, though, and a lot will depend on GM's ongoing progress of recovery overall. We should not expect a further extended collaboration in the near future.

In a broader context, a partnership among equals outside the mainland between a Chinese and an international car maker will much depend on the ability of the Chinese partner to contribute something specific to the joint-venture. All comes down to be recognized as a credible and respected player in the industry. The purchase of foreign brands is considered to be a short-cut to be in such a position, and this is why most likely we will continue to hear about (intended) takeovers. But SAIC's case has shown that Chinese car manufacturers have elevated their profile, and that brand acquisitions are not the only way to move forward.

About the authour: Klaus Paur, Gasgoo's columnist, is Regional Director Automotive for North Asia at TNS China who has over 20 years of experience in marketing and market research, 13 of which have been spent specialising in the automotive industry.