Auto joint ventures come to a crossroad in China

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Last updated at: (Beijing Time) Sunday, January 18, 2004

Auto joint ventures come to a crossroad in China

Some say since we can generate profits and taxes and we can create employment opportunities what's the point of going after brands and technologies? We would rather "copy them" than waste time in exploiting new products and fostering brands while letting market opportunities slip away. Whether to make a breakthrough in brands and technology by making more efforts or lying down to become the assembling factory of others, automobile joint ventures have come to a crossroad.

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According to a foreign medium the president of Nissan, Carlos Ghosn recently said that the contribution by its partner Dongfeng in the area of sedan-cars was almost none. Shortly afterwards Nissan clarified by saying it was fabricated by reporters. Yet through this we can feel indistinctly the position of the Chinese automobile industry in the mind of transnational corporations.

Though transnational companies have strengthened the partnership and cooperation with Chinese automobile industry over the past two years since China joined WTO, although more and more new models and new technologies in line with the world have been brought into China and the sales volume and profit-earning of Chinese automobile companies keep on increasing we have to admit, when pondering over joint venture history of the 20 years in the past the Chinese partner's right to speak still remains inaudible.

Big Chinese automobile companies with strength have already entered into partnership with foreign capitals one after another. Some even selected more than two partners. The late-coming auto tycoons have to choose among relatively smaller companies. These companies, in order to take a share in the rapid-expanding market, were ready to lower their negotiation weight. The result was joint venture agreements with much loosened reservation point of cooperation. Though the shareholding ratio was still 50 to 50 yet the right to speak on the part of Chinese partners was compromised.

The plight of the right to speak also exists in old joint ventures. In the past disputes between the partners were centered round the upgrading of models, authentication of spare parts and so on. Now competition is heated up and it is the foreign capital who suggests the localized production of new model. In the meantime joint ventures themselves are equipped with spare part authentication ability. However the disputes about the right to say has not only not been eradicated but have extended to the key areas including the setting of new model prices, the standard fee charging for technology transfer and the acceleration of key technology transfer.

Last year certain new products of the transnational corporations failed in Chinese market. In such areas as new model selection and marketing strategies the Chinese partner who is more familiar with local market is now supposed to have more authority than it ever had before. Regrettably the self-confident transnational partners still believe that they are more experienced in the decision of matters of key importance. The president of a transnational corporation once said they knew they were in a country totally different from his and were unfamiliar with the Chinese market, but they would introduce more localized talents into their agencies in China and emphasize the work on abroad training. Therefore the final decisions regarding models and marketing strategies would still be left in the hands of foreign partners.

The reason that Chinese partners lack of the right to speak is, to speak the truth, due to their own inadequacy. Their large amount of yearly earnings is from products whose brands and key technology are granted by the foreign partners. Even if the Chinese partners were the holding company instead of 50 to 50 it would still be the foreign partner who took control.

Some say since we can generate profits and taxes and we can create employment opportunities what's the point of going after brands and technologies? It is not that the viewpoint holders do not wish to see Chinese auto companies with independent brands and intellectual property rights grow stronger. It is only because to fill up the gap of brands and technologies is too hard a job for them. We would rather "copy them" than waste time in exploiting new products and fostering brands while letting market opportunities slip away.

Granted that China - the largest auto market of the world did make it possible for Chinese auto industry to become the processing factory of transnational corporations, processing however is only a link in the chain of auto industry - a very thin-profit link indeed. Chinese auto industry, with a massive market to support it, is entirely possible to provide full value chain service. Whether to make a breakthrough in brands and technology by making more efforts or lying down to become the assembling factory of others, automobile joint ventures have come to a crossroad.

By People's Daily Online

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