CONCLUSION

CONCLUSION

 

The development of the Chinese automobile industry and its entire economy is propelled by the shift from the command economy to an open economy that allows free flowing foreign investment. China's automobile industry has yet to develop the necessary technological and personnel expertise that an assembly line needs. (Gaba et al, 2002) This is not to mention the capital needed in developing the industry and exporting it to the world market. Thus, the reliance of its automobile industry on foreign technology and capital is not altogether surprising. This implies that foreign investors determine the course that Chinese automobile industry has to take. However, the process of globalization in the automobile industry and accompanying global linkages has also begun to restructure the manufacturer-supplier relations in the Chinese auto industry.

In recent years, the Chinese government has instituted policies that will significantly help the Chinese automobile industry. Programs such as the Five-Year plan for the Development of the Automotive Industry will drive local investors in developing a national industry that is both competitive and reasonably priced. Further, the technological and skill absorption derived from the experiences in foreign companies will bring the boost that the automobile industry needs. (Zhao, 2000)

The analysis also finds that market restrictions on foreign companies should be loosened immediately. Rules confining insurers to invest premiums in government bonds and bank deposits should be lifted, and foreign insurance brokers should be allowed to obtain licenses. At the same time, however, the domestic industry should continue to receive some protection in order to give it room to develop in the face of new foreign competitors. Restrictions on the scope of products that foreign insurers may sell should be loosened only gradually. Geographical restrictions, city-by-city controls, and ownership restrictions should also be loosened slowly. Moreover, the nature and pace of structural reform and consumer demand in China require strategies to be reviewed constantly. As margins become tighter, producers will need strategies that both pursue market share and manage costs. To win market share, global automakers should concentrate on their new sales and distribution networks in China and on their product-and brand-development efforts around the world. To manage costs and capital, contracting out the manufacturing of whole vehicles to Chinese companies may be a leapfrog strategy for those Western carmakers that are willing to take the first steps now.

In this time frame, manufacturing companies such auto manufacturers have to contend to the fact that joint ventures are essential. These companies have realized that Chinese partners are necessary to accomplish goals in the Chinese system. In addition, partners understand the functioning's of the markets and the business norms. Managing the cross-cultural aspects of relationships in China is often the most difficult aspect of conducting business in China. (Tung, 1991) Moreover, companies often approach the market in a manner similar to their system. The difference lies in the fact that unlike the Western approach to control of enterprises, in China a majority shareholder can make all of the decisions, but may not be able to enforce them and put them into practice.

Similarly, the study also shown China's vastly different culture, language, business climate, and political environment will continue to plague foreign investors for some time to come, and the joint venture is still among the best way to acquire the necessary familiarity with China's market conditions. However, it should now be viewed as a means to an end rather than as an end in itself. Because the Chinese have made great strides in adapting to the Western mindset, an environment now exists in which foreign managers can realistically envision greater control over their Chinese operations and seriously consider the creation of wholly-owned subsidiaries, a strategy not previously thought realistic. In that respect, and to improve the quality of their current joint ventures in the interim, the recommendations made here should be seriously considered.

Moreover, some foreign investors have shifted their concerns about basic issues of profitability to more sophisticated issues of securing management control and creating long-term strategies for China's market of the twenty-first century. Current investment laws in China are not well-suited to meet the investment objectives of at least some large foreign investors, which seek substantial management control while maintaining the joint venture form. (Gaba et al, 2002)

China at times faces more restraints, being a weaker partner in its rapidly emerging global linkages. (Zirin, 1997) This has resulted in greater policy ambivalence and contradictions. As the experience in the automobile industry suggests, China relies on cross-border partnerships to obtain the foreign capital and technology needed for introducing new products and modernizing the production process. For this reason, China has sometimes to allow the local decision units to retain more policy autonomy. It has also to retreat from disallowing the foreign partners access to the Chinese partners' domestic market. The process of globalization in the automobile industry and accompanying global linkages has also begun to restructure the manufacturer-supplier relations in the Chinese auto industry.

In automobile sector, more than in any other industries, China has witnessed the permeability of the economic boundaries thanks to the extensive linkages it has built with the global economy. In the same industry, China has also had frequent opportunities to display its policy ambivalence and contradictions towards the global market forces. The Chinese have had to rely on the global linkages to develop their auto industry, despite their preference for having a national industry. (Zhao, 2000) They want to develop it into a "pillar industry", one that represents the maturing of the industrial revolution in China, even though it contributes only modestly to its employment and national income.

The Chinese need foreign partnerships because they do not have the technology to develop new products. Neither do they have the capital to finance the design and manufacture of these products or the capacity to export them to the world market. Therefore the country is a weaker partner of the technologically and financially powerful foreign corporations. In comparison, inter-corporate strategic alliances in the advanced economies arise among firms of equal strength on the basis of complementarity in skills, competencies and technology. They are pulled together by a competitive strategy for developing better products in a faster and/or a more efficient way.

Firms forge alliances with former business rivals, because reliance on internal resources alone no longer suffices for competing simultaneously across many functions, multiple cultures and many regulatory boundaries so as to add as much value as possible in each functional activity, wherever it is located. Thus, they have replaced bilateral "multi-domestic" investment of the 1960s and 1970s with multi-lateral deals of the past two decades. Unlike in a "multi-domestic" operation, where a corporation keeps its R&D at the home country while duplicating other functions for targeted foreign national markets, a global firm executes each functional activity and competence at any given location for the global market, attending to diverse national preferences from the stage of product design onwards. (Che, 1999)

Moreover, the increasing integration has come from China's shift from self-help during the first half of the 1980s to an emphasis later on using joint ventures with foreign corporations to develop its auto industry. (Tung, 1991) In this transition, cross-border partnerships have taken on a fundamental instead of previously incidental function in the overall development of this industry, one that serves to rebuild the inter-firm organizational linkages on the competitiveness in performance. While obligated to raise the domestic content of the car assembly, the foreign partners of the joint venture assemblers have come to exert great influence on who may participate in domestic sourcing and at what pace this process may proceed.

The discussion so far suggests that China's integration with the globalizing auto industry is finding expression in not only the formal legal partnerships which its automotive enterprises have reached with their foreign counterparts, but also certain rules and standards in the economic system towards which they are gradually converging. The Chinese suppliers have to worry about the quality of their products and learning to meet the expectations of the joint venture assemblers when it comes to getting domestic sourcing deals from the latter. This is quite a break from the past when most of the suppliers would not care much about the minimal quality and performance standards in production.

Furthermore, China's integration with the globalizing industry, however, remains limited. Most of its outputs, complete vehicles as well as parts and components, are still made for domestic use only. In other words, China has still a far distance to travel to become fully integrated with the globalizing industry, when its complete vehicles will be exported to the Triad and be tested in the world's toughest markets. As a first step towards that point, it needs to get the automotive enterprises competitive at home. Whether it likes it or not, the global linkages in place are already helping to turn the domestic market increasingly into a battleground. In order to be truly competitive, China will have to move away from cuddling the infant industry with high tariffs, imports licensing, "buy import substitutes" campaign, as well as a captive consumer base whose demands are elastic to the government's fiscal policies instead of product price so as to escalate the competitive pressure among both the joint venture assemblers and their Chinese suppliers. It may want to adjust the geographical jurisdictional boundaries in marketing and sales and building a pool of meticulous consumers, perhaps among a rapidly growing middle-class.

 

References:

 

Che, Y. M. (1999, July 21). More than 332,700 foreign-funded enterprises       operate in China. People's Daily (Overseas edition), p. 1.

Gaba, V., Pan, Y. and Ungson, G. (2002). Timing of entry in international market:       An empirical study of U.S. Fortune 500 firms in China. Journal of           Internaional Business Studies, Vol. 33.

Tung, R. L. (1991). Handshakes across the sea: Cross-cultural negotiating for           business success. Organizational Dynamics, 19(3), 30-40.

Zhao, J. (2000). The Chinese Approach to International Business Negotiation.           The Journal of Business Communication, Vol. 37.

Zirin, J. (1997). Confucian confusion. Forbes, 159(4), 136-137.

---

Be a better friend, newshound, and know-it-all with Yahoo! Mobile. Try it now.