Shanghai General Motor Case

Shanghai General Motor: The Rise of Late Comer YP50A – Syndicate 6 Alexius Justianto 29113332 Dwi Aprilia 29113338 Denia Fadila Rusman 29113360 Talitha Marcia Farid 29113382 Delfi Kusumawardhani 29113545

No.1 Why was GM so determined to enter into partnership with SAIC in 1997, a time when automobile industry was expecting overcapacity, plummeting demand and dropping car sales?

• Before the formation of Shanghai-GM in 1997, despite having worldwide revenues, General Motors was in crisis. Market in USA has been “saturated” which only offers a limited space for GM’s business expansion and growth potential. Also, car sales in Europa was dropping. • But market in Asia continues to be an important part of GM expansion strategy and China is an example, GM Management observing that China auto market is growing rapidly. Chinese sales of new automobiles grew 18% each year annually.

• So, GM insist to find a way to put a stake in China, Even though GM is little bit late when it comes to enter China market, who already been filled with Volkswagen (the first investor to make business operations profitable in China), to Daimler-Chrysler, Ford Motor, Toyota, Honda and Nissan. • But still, GM top management believed that the IJV (International Joint Venture) business model could be an excellent platform for establishing and expanding business within China and GM actually had a lot of previous international alliance experiences. So, they move forward with their strategy to established GM contribution in automobile market in China.

No. 2 Examine the joint venture relationship between GM and SAIC. What is the agenda of GM and SAIC respectively?

GM & SAIC Relationship • The joint venture (JV) between General Motors (GM) and Shanghai Automotive Industry Corporation (SAIC) in 1997, was regarded as the largest single foreign investment ever made in China. • The JV was considered by many as a high-risk investment for GM at that time. Eight years after the signage of the joint venture, GM proved to the world that its investment in China was justified, with its growing market shares and successful partnership with SAIC. • GM and SAIC have their own strategic aliance. Their relationship contributes to the success and rapid growth of GM in China. It also analyses the strategies adopted by GM and the potential threats and challenges imposed on foreign automobile companies in China. • By Using JV, it was closing the gap with sales increased by 26% year-onyear to 252.896 units. But SGM’s growth rate down drastically in 2004.

GM & SAIC Relationship • GM was determined that its venture in China was long term and willing to invest in the development of China’s automobile market. • Because too many local automobile industries, they merged into 3 or 4 large scale motor vehicle conglomerates within 15 years. • Market-for-technology strategy  accelerate the country’s absorption of foreign investment • GM estbalished JV with Chinese enterprise because China was a huge potential automobile market

Join Venture Policy Joint venture  increased capacity more than twice the current demand • Consolidate the dozens of automobile companies  into “Big Three” in US. • Foreign ownership in JV was limited to 50% to give more control and bargaining power • All JV had to localise their parts and components by at least 40% • Encourage knowledge transfer to the local firms, give Chinese vehicle producers enough time for competition • Net profit margin for entire automobile sector as about 30% in 2004. SGM’s own margin was 10%, that was twice its global average of around 5%.

Join Venture Agenda GM & SAIC did the Joint Venture in some areas of Supply Chain : • Localised sourcing • New product development • Distribution • Logistics • Sales & Marketing

Join Venture Agenda Key strategy of GM  foster auto component production in China • GM bringing their latest technology of vehicle to develop China’s auto industry • GM established a sophisticated research and development centre for SGM • GM sent Chinese engineers to Cana to observe the start-up production of new cars models • SAIC established 50-50 Joint ventures with Volkswagen and General Motors • GM wanted to compete on both product level and the basis of “whole system”  built holistic Supply Chain

Join Venture Agenda • GM could establish its own distribution and sales network in China and reproduce Supply Chain. • SGM adopted similar systems and process of GM’s Global Purchasing and Supply Chain department • SGM implemented a quality control process • The Buicks were redesigned to suit customer preferences in Chinese market SGM Goals : build a comprehensive product portfolio that could satisfy the diverse and changing demans of Chinese customers and become pioneer among its competitors. SGM Product Structure targeted diferent customer segment  High, Mid High, Medium, and Low-end

Join Venture Agenda • Built brand name and developed modern marketing practices and used attractive website • GM launched SGM BuyPower (e-commerce system)  enabled customers to select option packages & order online. • GM strengthened its relationship with SAIC  by setting up 3 way joint ventures with Local chinese companies and other new joint initiatives • GM & SAIC joined to purchase Yantai Body Workd in east China, which enabled SGM to concentrate on making Buicks

No. 3 The partnership between GM and SAIC can be considered a learning alliance. Discuss the balance of power between the two parties.

• GM transferred technology know-how to the venture, and helped boost sales. • SAIC could use GM expertise and technology to transform itself into a global auto powerhouse that challenges the American car maker down the road. • Both parties agreed to pursue the development and commercialization of hybrid and fuel cell vehicles in China. • Since pairing up with SAIC in a joint venture, GM has become the dominant foreign player in China, the world's second-biggest economy and busiest auto market. • Along the way, GM helped rear SAIC into a fullfledged auto maker, with top-tier designers, engineers and marketers.

No.4 Discuss the potential conflicts that can arise in GM-SAIC joint venture. Do you think the GM-SAIC partnership will sustain? What are the factors for sustainable joint venture partnership?

Potential Conflicts That Can Arise In GM-SAIC Joint Venture: • Miscommunication between GM and SAIC. • Lack of understanding between partnership. • Lack of patience and motivation among partners. • Benefits lower than expectations. • Operational difficulties due to geographical location of the partners. • Incompatibility of culture and management styles of both partners.

Do You Think GM-SAIC Partnership Will Sustain? • Yes, I do. The partnership between GM and SAIC is strong and gives benefits to each party. They are both more profitable as a joint venture than doing on their own alone. • In fact, today GMSAIC is still exist, being the market leader for commercial minivan in China. Back in 2002, GMSAIC adding Liuzhou Wuling Motors Co. Ltd. As their third partner and soon become the largest mass-volume micro vans manufacturers in China. • Majority of their products are sold in China, but starting 2009, they exports some of their cars to South America, Middle East, and North Africa under GM Chevrolet brand. • This year, their plan is to expand their Asian market, including the project to building factory facility in Indonesia in 2015, aiming Indonesia and South-East Asian markets.

Factors For Sustainable Joint Venture Partnership: • Good communication, cooperation, and coordination among partners. • Common goals and shared vision among partners. • Dedication towards success and long term sustainability of Joint Venture. • Proper sharing of profits and benefits among partners. • Joint Venture works towards benefit of all partners. • Proper planning and research prior to the incorporation of the Joint Venture.

No.5 Perform a SWOT analysis of GM in 2004, a year that it has achieved strong growth in market share and profitability. What are the success factors that contribute to GM’s rapid growth? What are the threats and opportunities faces by SGM in the competitive automobile market?

SWOT Strength

Weakness

1. 2. 3. 4.

1. Unperfect production result, sometimes there are car recalls 2. The culture of bureaucratic 3. High cost structure

Strong Brand Portfolio Strong Presence in China Global Presence Well brands’ performance

SWOT (2) Opportunities

Threats

1. Its high technology can bring it to economical fuel consumption, it is good opportunities due to the increasing of fuel price 2. The changing of customer needs

1. 2.

3. 4. 5.

The fuel price is fluctuated. The increasing price of raw material The green emission standard Exchange rates The Japanese/Korean Car which provides better models and cheaper price

Success Factor • The more reliable quality than other brands (Japanese or Korean Brand) • Provide the model which is suitable for young generation people • Simplify the bureaucracy to make the decisions through market responds • Anticipating consumer tastes more sensitive