Joint venture balance to local brand

Gaming was doomed to arise since the first joint venture was found followed an idea to exchange techniques for markets brought by the government 20 years ago. It could be divided to 3 courses, one after the other as between the Chinese and foreign parties in a single joint venture, between the joint ventures, then the administration policy making and foreign capital application.
In the period that the joint venture occupied the whole market, hot argument are always found in decision making between China and foreign parties in a joint venture era, in the interface of production layout, market strategy, brand running and hr arrangement etc. The 50% VS 50% stock holding application led much gaming in a joint venture; and the diversification of market competition and multilayer of competitive factors have the managers game on one thing in different space-time with different persons. Joint venture but with different purposes comes as a common feature of that time. For instance, some pursued to rule alone or just accepted the cooperator’s products, techniques but never intent to lead an innovation and reform. The gaming mainly featured inside a joint venture.

When the foreign capitals were rooted in China and began to develop their business among the Chang Jiang, Jing Guang Railway, the joint venture gaming moved into a the second stage called the gaming between joint ventures. For example, there were south Volkswagen vs. north Volkswagen, and different partners of HYUNDAI & KIA in China. The battle of contesting production resources between Chinese parties provided the foreign entities the most favorable conditions to make a joined venture in china and benefited them a lot. When joint ventures were met with overproduction and less profits, they began to reconsider and then explore a more harmonious way to develop the business. The policy maker also was forced to rethink the winnings and losses of the strategy to exchange techniques for markets. The He Long argument (the former minister of mechanic administration He Guanyuan and the former negotiation representative for WTO entering Long Yongtu) in the HUADU Auto Forum in Aug, 2005 was an epitome.

He Long argument heated the topic of self-owned brand, which was taken advantages by the foreign entities as a chance to boost their price. Thus the strategy to exchange techniques for markets was crumpled, which forced the policy maker to advocate the self-developed & self-owned brand. The scattered Chinese entities were ranged to practice the idea. Since that time the gaming between the administration policy making and foreign capital application emerged.

Without question the change of game rule impacted enterprises. Some were sensitive to make a move to develop the self-owned brand, like Anhui JAC Auto ended its partnership with South Korea Hyundai. After this, many important industry policy published, official releases & actions proved that the self-R&D is no longer a slogan but being carried out smoothly. FAW Group, CHERY, Geely and Yutong Passenger this four were selected as the pioneers to test-run self-R&D. CHERY have successively gain a financial support nearly 0.3b Yuan from the Commission.

When the administration and its favorable policy both leaned to the self-R&D enterprises, leaving the foreign entities discontent which turned into action in Mar, this year when The Measures for the Administration of Import of Automobile Components & Parts Featuring Complete Vehicles were issued in Feb, 2005. EU, America, Japan, Canada are preparing to bring an accusation against this. Meanwhile, it slows down the development of joint ventures by controlling the overproduction. “The joint ventures must get to know that the new added production capacity should be used by both sides”, the related department explained for the action.

The joint ventures were in a temporary weak position in this gaming, and then they saught to take the advantages of the new policy: Dongfeng Citroen launched a new vehicle model named Kaixuan sharing the techniques and brand; Shanghai Volkswagen brought its self-designed and developed concept vehicle named NEEZA, even Japan auto makers, the most unwilling ones to raise a powerful opponent in its doorway turned to help FAW to generate its self-owned brands like Besturn and HONGQI HQ3---though they could still benefit from the procurement of auto components. After all it is a breach for itself.

In Beijing Auto Show, Shanghai Auto, CHERY with the self-owned brands firstly have approached the same scale of the foreign brands. The confidence of the self-owned brands came from a good market record; for the first three quarters this year, the self-owned brands take a 26.1% proportion in the domestic passenger vehicle market, surpassed Germany, Japan and South Korea brands for the first time, and became the first in market. That is a tiny victory since the self-owned brands were advocated

“But, that is just the beginning of the battle” said the GM of CHERY Yi Tongyao. “The foreign entities are going to strive for the market lost and the South Korea autos are accelerating their development in China. It will turn to be a more severe market. The time for market reorganization may come in advance.

The optimistic of foreign entities think that, today the seemingly success of the self-own brand will be proved to a highly cost one as the success today is based on the supports from government not from the severe competition in markets, the low cost strategy will finally lead them the quality problem. As the advancing of the auto market and the development of used-car market, consumer will get an in-depth knowledge of brands and qualities, and benefit from the foreign entities. It will be hard to make the second convert for Chinese parties that time—since joint ventures are making the localization design to followed the new policy. On the other hand, they are enhancing their strength for market competition.