Chinese Lessons: What GM Has Learned in China

I saw this on Edmunds' inside line today. very interesting...
Chinese Lessons: What GM Has Learned in China By Michelle Krebs, Contributor Email
Date posted: 01-01-3000 STORY TOOLS Print thisPrint this     Save thisSave this     Digg this storyDigg this! Email thisEmail this     Most PopularMost popular     del.icio.usdel.icio.us
SHANGHAI, China General Motors in China would make a great case study for an MBA student. While GM tries to turn things around in the U.S., its sales are soaring in China, where the automaker surpassed Volkswagen to become No. 1 in passenger car sales.
The contrast between GM China and GM North America is stark and not lost on top GM executives. Indeed, they smartly are making a case study of their own of GM China to see what valuable lessons translate to other markets.
Here's an outsider's view of what that case study should consider.
A little bit of luck: No question, GM has lucked out. Wise GM executives should recognize some of their good Chinese fortune, indeed, has been luck. Everyone knew China eventually had huge potential; no one knew when it would be realized. Absolutely no one including GM's analysts predicted how high vehicle sales would soar in such a short period of time. GM executives in China joke how every single forecast for industry sales and GM's volume and share have been way off the mark. In contrast to its North American forecasts, which have been equally wrong as GM has underperformed in both sales and market share, GM China has enjoyed higher sales and share than predicted.
GM China has ridden the crest of the wave. In 1998, China's total vehicles sales were under 2 million units a year. Last year, they were just shy of 6 million vehicles, and 2006 is expected to be just north of 7 million. No one now doubts that China will be the world's largest market for vehicles in the next decade or so. China currently is GM's second largest market behind the U.S.
Timing is everything: While lucky, GM, at the same time, deserves credit for its timing. In particular, now retired GM Chairman Jack Smith deserves and receives from current GM management credit for moving early and fast in China. Smith chose to take the China risk with no guarantee there would be any wave to ride in short order.
Arriving early allowed GM to partner with the best players (see below), grab up sales and market share for a dominant position and earn hefty profits. China has represented a license to print money for early arrivals as profit margins have been hefty due to demand for vehicles far outstripping supply. Those margins now are being squeezed as competition intensifies.
Solid partnerships: Latecomers have been forced to partner with also-rans, and they have not enjoyed GM's success. Chinese law requires that a foreign automobile manufacturer operate in China under a joint venture agreement with a local manufacturer. GM gained a solid partner with Shanghai Automotive Industries Corp. (SAIC), China's largest auto manufacturer, which also partners with others, including Volkswagen.
GM has had the luck of a crap shoot with many global partners. Failures include the costly Fiat fiasco and largely unfruitful Subaru affiliation. But partnerships related to China have operated well. In part, success appears to be due to the fact that the partnerships have been allowed to flourish and develop a life of their own rather than either partner gaining the upper hand.
In addition to SAIC, GM formed a three-way venture with SAIC China's Wuling that has been awesomely beneficial. The venture is No. 1 in the mini truck market with sales soaring by double-digit annual increases; they are now at more than 400,000 vehicles a year. The big seller is the Wuling Sunshine, a boxy, vanlike vehicle that starts at under $5,000 U.S.
Further, GM China has capitalized on its non-China ventures, including GMDAT, the new entity formed from the ashes of South Korea's Daewoo. The venture has provided critically needed small cars in China as well as other markets.
Fast and furious: With the foundation laid, GM, notoriously slow-moving, has traveled at light speed in China.
In 1998, GM had a single assembly facility to build a single model, the Buick Regal. GM sales that year were about 61,000 Regals.
Today, GM China sells five brands Buick, Cadillac, Chevrolet, Opel, Saab and Wuling more than 30 models with sales forecasted at nearly 864,000 vehicles this year. In China GM has eight vehicle assembly plants, three powertrain facilities, an engineering and design center, an automotive financing arm and some of its supplier operations, like AC Delco and Allison transmission. GM employs more than 20,000 people in China.
Part of the success for its lightning speed in China has been support without meddling from corporate headquarters. Further, China's Wild West environment has forced new business methods. Troy Clarke, now president of GM North America who previously headed GM's Asia-Pacific region, said decision-making there is fast and different compared with GM North America. Here, decision-making relies on the meeting calendar. Everyone gets together, they discuss (likely endlessly) and then decisions are made. Clarke noted such meetings are impossible in the far-flung Asia-Pacific region. So they are made in series through phone calls, which result in quicker decisions.
Thinking global, acting local: GM has capitalized on its global capabilities, but applied them locally. The Cadillac SLS, introduced at the recent Beijing auto show, addresses the needs of the Chinese market for a roomy, luxurious backseat for chauffeur-driven riders. The SLS is a stretched version of the STS. Same, too, for the Buick LaCrosse. Both were designed and engineered largely in China (the LaCrosse) or with heavy influence from China (the SLS). In the same vein, GM China has been able to take vehicles from other markets and create new niches, addressing a specific need in China.
GM China appears to be doing a better job of truly listening to customers and partnering with dealers as well as doing more with less than GM North America has.
WARNING: But dangers are arising on GM's Chinese horizon. Indeed, GM executives acknowledge that major challenges confront them: increased competition with virtually every automaker in the world doing business in China; additional vehicle price reductions that further squeeze profit margins; government changing regulations on short notice and seemingly at whim; and managing its own size and complexity of its China operations.
In addition, here's what an outsider sees as dangers. It's brilliant that GM is bringing executives from other global operations to China, presumably to learn. What GM China needs to guard against is executives bringing in their cronies who may not be best suited for the job or execs who are not open-minded to learning from the Chinese and smother the Chinese with their way of doing things.
Clarke relates the tale of his first visit to GMDAT in Korea. With a background in the metal part of the auto business, Clarke immediately recognized how the Koreans' body-in-white process represented a best practice standard that should be spread throughout GM. He told headquarters, which sent a half-dozen people. They must have been of the notoriously GM "not invented here" variety since Clarke noted: "They apparently forgot everything they'd seen on the flight home, because nothing happened." Clarke was persistent. Six more came and then the top dogs. Finally, the new practice was adopted.
Too much of many things could be a downfall for GM China: too much attention, i.e. meddling, dictates, etc. from headquarters; too much production capacity; too many brands; too many dealers. All have been downfalls for GM North America.
So the lessons go both ways. GM China needs to learn from the lessons of GM North America and steer clear of them. And, so far, that seems to be the case as GM China appears to be moving carefully and wisely. Indeed, if GM China suffers the same pitfalls as GM North America did, it'll see its Chinese fortune cookie crumble
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Bob The Builder wrote:

Dangers are arising on GM's Chinese horizon. Indeed, GM executives acknowledge that major challenges confront them: increased competition with virtually every automaker in the world doing business in China; additional vehicle price reductions that further squeeze profit margins; government changing regulations on short notice and seemingly at whim; and managing its own size and complexity of its China operations.
GM is bringing executives from other global operations to China, bringing in their cronies who are not be best suited for the job and execs who are not open-minded to learning from the Chinese and smother the Chinese with their way of doing things.
Notoriously GM "not invented here" variety: "They apparently forgot everything they'd seen on the flight home, because nothing happened."
Too much of many things will be a downfall for GM China: too much attention, i.e. meddling, dictates, etc. from headquarters; too much production capacity; too many brands; too many dealers. All have been downfalls for GM North America.
GM China needs to learn from the lessons of GM North America and steer clear of them. GM China will suffer the same pitfalls as GM North America did, it'll see its Chinese fortune cookie crumble
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The real danger is that China has little tradition of respect for intellectual property rights and will simply kick GM out once they have learned everything they can from GM.
John
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