The uprising of the Chinese and Indian automobile industries

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The uprising of the Chinese

and Indian automobile

industries

How is the automobile industry of China and India

different/similar focusing on the development of the

passenger car industry and why?

University of Groningen

Faculty of Management and Organization International Business and Management

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This research serves as a Master Thesis in the field of International Business and Management at the University of Groningen, June 2008.

Supervisor: Dr. F.A.A. Becker-Ritterspach Co-assessor: Dr. J.A. Neuijen

Student: Simone Lautenbach (s1508202)

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University of Groningen

Faculty of Management and Organization Msc International Business and Management

The uprising of the Chinese

and Indian automobile

industries

How is the automobile industry of China and India different/similar focusing on the development of the passenger car industry and why?

ABSTRACT

This paper gives an overview of the differences and similarities of the Chinese and Indian automobile industry focusing on the passenger car industry. First the conditions for growth regarding the Chinese and India automobile industry are looked at. They show more differences than similarities compared to one another. The only thing they seem to have in common is their growing market and rising GDP per capita. Then the institutions financial system, internal structure, industrial relations, education and training and finally inter-firm relations of the Chinese and Indian automobile industry are compared to one another and explained according to the theory of varieties of capitalism of Hall and Soskice (2001). Looking at these institutions the Chinese and Indian passenger car industries show more similarities than differences. The main difference found is in the internal structure of the Chinese and Indian passenger car industry which shows the largest influence of path dependency.

keywords

Automobile industry; China; India; varieties of capitalism; conditions for growth

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Preface

Lying in front of you is the paper which represents my final work as an International Business and Management student at the University of Groningen. The reason for this subject stems from my interest in Asia’s giants China and India and the growing importance of their automobile industry and the effect it has on the world economy.

This paper describes the differences and similarities of the automobile industry of China and India using the varieties of capitalism of Hall and Soskice (2001) as a framework. The findings may provide you with a different perspective of the Chinese and Indian automobile industry when compared to one another and their future course of development.

A word of acknowledgement need to be given to my supervisors dr. F.A.A. Becker-Ritterspach and dr. J.A. Neuijen for their time and patience and for providing me with valuable information, comments and guidance during my research. Furthermore I would like to thank my family and friends for their support and feedback. Last but not least, I would like to thank my boyfriend for his ongoing encouragement and trust in me while writing this thesis.

Simone Lautenbach Groningen, June 5, 2008

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Introduction

China and India are two economies in a developing world benefiting from globalization and taking different paths to economic prosperity in which the automobile industry plays a big part. They both underwent structural transformations due to the effect of globalization and started to modernize at more or less the same time (in the early 1950s), creating a more attractive environment for foreign investment in the automobile industry. The automobile industry is an important manufacturing sector of both countries. The economic development is further ahead in China than in India which economic transformation began almost a decade later. The government wanted China to modernize and decided that in large and high-tech industry foreign automobile companies (like Volkswagen) should show local automobile companies how to run their business. Approximately 23 years ago, most local automobile companies in China were owned. Foreign automobile companies like Volkswagen were hooked up with a state-owned company. Nowadays, local privately state-owned automakers as Chery Automotive and Geely Automotive are beginning to thrive on their own, without having a foreign partner (Woetzel, 2004).

The Indian government is still cautious concerning foreign investment. The most important break through was the joint venture of Suzuki Motor Corporation of Japan and the Indian government establishing Maruti Udyog Ltd in 1983. Maruti Suzuki is the biggest automobile firm in India (Becker-Ritterspach, 2007). Deregulation of the automobile industry started twelve years ago. The Chinese government pays more attention to economic activity than India does. It values its physical infrastructure and determines which automobile companies get government funding and a listing on local stock markets. Indian government intervention on the other hand is decreasing since the mid-1980s. India’s field of expertise lies in the field of software, biotechnology and service industries while China has strong manufacturing skills (Khanna, 2004). As for foreign direct investment, China has opened up for it while India still keeps its distance.

The thesis firstly describes the automobile industries of China and India regarding their history, market and conditions of growth. The conditions of growth are production

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and sales, types of enterprises, export and import, product structure and market demand. Then insight is given in the influence of their political systems, economic policies on their auto industry, using secondary data. The theory of Hall and Soskice (2001) looks at the institutions finance, internal structure, industrial relations, education and training and inter-firm relations. The conditions of growth together with these institutions are the focus of this thesis to find differences and similarities of the Chinese and Indian automobile industry and explain them. By looking at the way the institutions are shaped a country can be categorized as a coordinated market economy (CME) or a liberal market economy (LME) according to Hall and Soskice (2001). Finally a comparison is made between the automobile industries of China and India leading to the following research question:

The next chapter shows the theoretical framework and conceptual model followed by the methodology in chapter three. Then in chapter four, the differences and similarities are given between the Chinese and Indian automobile industry. Chapter five contains the analysis of the theory of varieties of capitalism. Finally, the conclusions and discussions are presented in chapter six.

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2.

Theoretical framework

To explain the differences and/or similarities between authoritarian China and democratic India the VOC-theory of Hall and Soskice (2001) is used as the theoretical framework. The late 1940s is the starting point of the description of China and India’s economy, as India became democratic in 1947 and China became a communist country in 1949. Although both countries are still in a transitional, developing phase, in this paper they are regarded as capitalist economies. Hall and Soskice (2001) developed a theory of varieties of capitalism (VOC), which is regarded as an actor centered approach. This theory regards companies as important actors in a capitalist economy and analyses liberal market economies and the existence of coordinated market economies which is used to describe and explain the variation in the institutions finance, internal structure, industrial relations, education and training and inter-firm relations in China and India. Firms in a LME tend to resolve a coordination problem with hierarchical and competitive market mechanisms, while in a CME firms use strategic interaction among other firms and actors to deal with coordination problems. Figure 1 illustrates the main differences between a coordinated market economy and a liberal market economy.

Figure 1 Difference between a CME and a LME

Varieties of Capitalism CME LME

Financial System Depends on network and

reputations

Depends on publicly available information

Internal Structure Consensus decision-making; top managers, shareholders, major suppliers and customers

Top managers capacity for unilateral action

Industrial Relations Industry-level bargains between trade unions and employer associations

Market relationship between individual worker and employer Education and Training Supervised by trade unions and

employer associations; industry (or firm) specific skills

Formal institutions provide training; general skills

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Inter-firm relations Institutions support forms of relational contracting and technology transfer

Standard market relationship and formal contracts

Source: Hall and Soskice 2001

These five institutions as mentioned above shape the economic and political environment of China and India, influencing the development of their automobile industry. By looking at these institutions, it is important to understand how they are shaped throughout the years in to their current state. Understanding the role of path dependency on the institutions makes it possible to explain found differences and/or similarities in China’s and India’s passenger car industry.

2.l Conceptual Model

China and India are compared with one another, focusing on the institutions financial system, internal structure, industrial relations, education and training and finally inter-firm relations. According to the theory of Hall and Soskice (2001), the way coordination problems are resolved in these five spheres distinguish the liberal market economy (LME) from the coordinated market economy (CME). These institutions all have their influence on the structure and development of the automobile industry of China and India, as shown by figure 2, the conceptual model.

Figure 2 Conceptual model

9 China and India

Finance Internal structure Industrial relations Education and Training

Inter-firm relations

Automobile industry

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3.

Methodology

In the next section, the methodology is described. It contains the research question, sub questions, goal of research, data collection and analysis.

3.1 Research question and sub questions

Based on the theoretical framework the following research question is created:

In order to explain these found differences/similarities between the Chinese and Indian passenger car industry, a closer look is needed concerning the conditions for growth of this industry. The development of both markets looking at production and sales, types of enterprises, export and import, product structure and market demand answers the question how the automobile industry of China and India is different and/or similar regarding the conditions for growth. Then the role of the supporting institutions finance, internal structure, industrial relations, education and training and inter-firm relations are discussed focusing on their influence on China’s and India’s political system and economic policy. The following sub questions will help to establish a clear picture of the passenger car industries of China and India as the quantitative and qualitative differences cover the main differences and/or similarities regarding the conditions for growth. The institutions of Hall and Soskice (2001) explain the differences and/or similarities concerning their political system and economic policy. The sub questions are:

1) What are the quantitative differences/similarities between the Chinese and Indian automobile industry (demand and supply)

2) What are the qualitative differences/similarities between the Chinese and Indian automobile industry (users, products and production)

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3) What is the role of the political system of the Chinese and Indian automobile industry (supporting institutions)

4) What is the role of the economic policy of the Chinese and Indian automobile industry (policies and regulations)

3.2 Goal of research

The goal of this research is to gain more insight in the automobile industry of China and India by looking at their conditions for growth, political system and economic policy as the determinants creating differences and or similarities among their automobile industries. It provides insight in the way that resolving problems concerning the institutions finance, internal structure, industrial relations, education and training and inter-firm relations influences the structure of the automobile industries of China and India towards a CME or a LME. Knowing how the institutions influence their automobile industry and why they influence them the way they do, gives us an understanding of the importance of the five institutions on the development of the automobile industry and makes it possible to predict its future course of development. This is important because the developments of Asia’s giants and its automobile industry greatly affect the automobile industry and the economy on a global basis.

3.3 Research strategy and data collection

To answer this research question a case comparative study is performed. The two-case study is a descriptive research. This type of research is chosen because it provides an explanation for found differences/similarities between the Chinese and Indian passenger car industry. The focus of a descriptive research is to provide an accurate description for something that is occurring, like the growth of the Chinese and Indian automobile industry (Yin, 2004). For example, production and sales, types of enterprises, export and import, product structure and market demand. This type of research is used when the research purpose is to find and explain differences/similarities and can also be used to a lesser extent to help make predictions and for discovery. Due to time limitations this descriptive analysis is based on secondary data conducted by desk research. The desk

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research consists of collecting secondary data; this can be defined as information that has already been collected and thus readily available. This data is collected by using:

• Internet resources • Books and Papers • Scientific articles

3.4 Expectations CME/LME

As China is a communist country, its institutions finance, internal structure, industrial relations, education and training and inter-firm relations are expected to influence the automobile industry towards a CME. The automobile industry of India, being a democracy, is expected to be influenced towards a LME. Therefore it is expected that when comparing the automobile industries of China and India with each other, more differences than similarities will be found.

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4.

Chinese and Indian automobile industry

The automobile industry of China and India affect their country’s economy in three ways. Because of the complexity and scale of the automobile industry, it offers a growing number of job opportunities providing employment. Secondly, the value of their automobile industry increases as technology in the automobile industry creates more added value. Lastly, the automobile industry accelerates the development of new technology and other related (service) industries (Cui, 2007). This chapter gives an overview of the Chinese and Indian automobile industry focusing on its development, the market and the conditions for growth: production and sales, types of enterprises, export and import, product structure and market demand.

4.1 Chinese automobile industry

The Chinese automobile industry was protected by tariff barriers and import quota for a long time but it opened up its domestic market after accession to the WTO in 2001. The Chinese government is seeking to develop an automotive industry that is fully competitive with the world’s leading original equipment manufacturers (OEMs). China is ranked third after the US and Japan as automobile producing giant. After the liberalization of China’s automobile industry, the market changed significantly. The people in China were able to choose between different kinds of models and because the Chinese automobile industry was no longer protected from foreign competition, domestic state-owned automobile manufacturers had to lower their prices, making different models more affordable for consumers (Bose, 2006).

4.1.1 Development

China has an authoritarian regime due to the Chinese Communist Party (CCP) creating The People’s Republic of China (PRC) in 1949. It was then that the first five-year plan was developed focusing on investments and technology to strengthen the domestic economy including the automobile industry. In 1953 the first auto manufacturer called First Auto Works (FAW) was founded in Changchun with technical assistance from the

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former Soviet Union. In 1958, during the “Great Leap Forward” the different Chinese provinces caused an up-rise in automobiles by copying and assembling them using old automobile accessory factories and repair plants. Most of the regional automobile manufacturers were not able to cope with the high production costs. During this year, FAW developed the first passenger car named the Red Flag. FAW was followed by Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motors Corporation in 1967. These three domestic auto manufacturers are also known as The Big Three. From 1969 to the early 1980s automobile plants were established in all provinces.

In the 1980s, China began its economic reforms and started to introduce foreign technology, investment and support. Between 1981 and 1990, China introduced 170 technologies and established 39 joint ventures (Tao, 2005). In the 1990s, the automobile industry became the core industry in China’s economic development. There is a big gap between economic and political modernization which remains a political challenge. China has made great investments in infrastructure, promoting its special economic zones (SEZ) and the coastal regions, this created backwardness with the rest of the country. The government started to decrease the gap by making more public investments to the mainland.

In 1994, the “Automobile Industry Policy” was created by the State Council to provide for a stable policy environment for the automobile industry. Since 1994, the tax system of China was adjusted. The automobile industry turned into a buyers market und prices went up. The improvement of products, service and focus on new product and technology development increased (Ota, 2003). Although the automobile industry of China showed a change as mentioned above, at that time, the Chinese government was still boycotting the private purchase of cars (Wang, 2000). The 1994 Auto Policy stood for consolidation, protectionism and technology transfer. Its aim was to consolidate all the automobile companies into only six companies called “The Big Three” and “The Mini Three”. The Chinese government established import quotas and tariffs on vehicles and parts of 80% to 100% to protect all manufacturers in China from international competition. To give the Chinese partners more control and bargaining power, a 50% foreign ownership cap was introduced. Specific requirements on foreign investors were

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created like the localization of parts and components by at least 40%. Foreign firms looking for new joint ventures had to transfer more knowledge to their Chinese partners and establish joint technical centers for training Chinese workers. This did not have a negative effect on the willingness of foreign firms to create a joint venture with a Chinese partner. In fact, after the 1994 policy was issued, many big multinational automobile firms wanted to establish a joint venture with Shanghai Auto Industry Corporation (SAIC). General established its $1.2 billion joint venture (Gallagher, 2002).

In 2001, China entered the World Trade Organization (WTO), indicating a commitment to reform. Joining the WTO means more transparent institutions creating a stable economic environment and the rule of law. It also brought confidence and optimism to the automobile industry. While China’s entering into the WTO should lead to the enforcement of copyright and trademark laws, improved property rights, it is still not sure that this will be the case. In 2004 the National Development and Reform Commission (NDRC) introduced a policy which primary goal was to consolidate domestic car manufacturers to develop a strong domestic industry that can compete on a global basis with The Big Three. Provincial governments will make this goal difficult while they each want their own auto industry (eg. Beijing Automotive, South East Automotive, Guangdong Automotive and Fujian Automotive). Appendix A gives an overview of the key passenger car companies in 2005 (Wang, 2007.

Services markets such as distribution, financing, and insurance that will have a significant impact on the automobile sector were opened. The Chinese government also imposed stricter laws regarding emissions and fuel economy standards with stiff penalties and broad coverage. Furthermore, the law called for incentives for clean and renewable energy. Most small players are inefficient and technologically outdated. Therefore many larger players entered into joint ventures with foreign original equipment manufacturers (OEMs). The sudden surge in demand has prompted most major joint ventures to expand their operations to the extent that there is an excess supply. Though the automobile industry is growing rapidly, there are issues of poor quality which are attributed to a lack of R&D capabilities of the country. Since 2005, the government restructures the auto industry creating large Chinese OEMs. Falling margins and continued restrictions on

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equity dampened the spirits of some foreign players. But considering that growth levels and margins continue to remain higher than western markets, China is still attractive. In the future, competition is expected to intensify (ICMR, 2006).China committed itself to reducing tariffs gradually in 2006. Sales and distribution have become an increasingly important part of the auto industry as competition intensifies, pressure rises on margins and automakers can no longer simply increase production volume to boost revenues and profits. Tension between dealers and automobile manufacturers rises as car sales growth slows giving manufacturers an incentive to move closer to the customer. Direct contact with consumers gives manufacturers the critical information on consumer trends, preferences and behavior. Dealers may see the manufacturers’ desire to become more involved in sales and distribution as a threat. Pricing inconsistency has become a major issue as dealers won’t wait for a manufacturer to lower prices in the increasingly competitive market. High fragmentation and channel complexity are features of China’s sales and distribution sector (Ernst & Young, 2005).

4.1.2 Market

The automobile industry of China has seen a growth since it entered the WTO in 2001. The economy of China has a vast consumer base and is growing steadily. Its automotive market is the second largest in the world and ranked third when it comes to automotive production (RNCOS, 2007).

4.1.3 Production and sales

Auto production and sales in China both surged more than 20% to a record 8.8 million units in 2007 despite decreasing sales in global markets according to the China Association of Automobile Manufacturers. China had 57 million motor vehicles by the end of last year. Among them were only 15.2 million privately-owned cars, according to latest government figures. China’s motor vehicle production and sales increased by 27.32% and 25% over the year 2005 respectively and sales crossed 7 Million Units in 2006 (Xinhua News Agency, 2008). Figure 3 shows the passenger car production in China in relation to world production in 2006 and appendix A the production of cars per region and main carmaker.

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Figure 3 Passenger car production China (thousand) 1961 1971 1981 1991 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL world 11,391 26,453 27,407 35,287 35,730 36,111 37,318 38,474 37,286 38,816 40,732 40,144 41,215 41,782 42,832 44,113 U.S. percent of world 48% 32% 23% 15% 19% 18% 16% 15% 15% 15% 14% 12% 12% 11% 10% 10% China N N N 81 250 321 382 482 507 570 620 704 1,091 2,019 2,316 3,118

KEY: N = data do not exist; U = data are not available.

Source: RITA, U.S. Department of Transportation 2006

4.1.4 Types of enterprises

The majority of the enterprises is from the mainland. The market for passenger cars in China is dominated by joint ventures between state-owned enterprises and major international automakers because of the 50% ownership cap. The major players in the Chinese auto industry are called the ‘Big Three’. They are FAW, SAIC and Dongfeng who partnered with major global OEMs like GM, Volkswagen (VW) and Toyota. Joint ventures control about 90% of China’s passenger car market (appendix B). There are other domestic players like Geely and Chery who show promise. Geely wants to penetrate the American market (Gayathri and Rajakumari, 2006). The Chinese auto industry, especially the passenger car segment is still dominated by foreign models and brands as VW and GM, followed by Honda, Suzuki, Toyota and PSA Peugeot Citroën (ICMR, 2006).

4.1.5 Export and import

According to the China Trading Center for Automobile Impart (CTCAI), the number of automobiles imported to China reached 300,000 in 2007, up 30% year-on-year. Ding Hongxiang, general manager of the CTCAI, attributed the growth to stable policies for car imports since the country promised to reduce the tariff to 25% by July, 2006. Customs statistics showed that in the first eleven months last year, the number of imported vehicles stood at 277,093 units, up 37.6%. More luxury cars were imported in 2007. Those with an engine size larger than 2.5L accounted for 69.4% of the total. Sports Utility Vehicles were likely to overtake sedans for the first time to become the most

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popular imported cars according to Ding Hongxiang. From January to November, the number of imported SUVs rose 65% to 126,659. Japan, Germany, the Republic of Korea and the U.S. were the major source countries for China's imported cars. From Germany, 42% of sedans were imported and 48% of SUVs were imported from Japan. China's automobile industry has entered the world's top three by output and sales, with exports surpassing 410,000 units in the first three quarters of this year (China Daily, 2008). The China Chamber of Commerce for Import and Export of Machinery and Electronic Products show an export of 413,000 automobiles between January and September. That is a rise of 63% compared with the same period last year. Meanwhile, total export turnover reached nearly 4.8 billion US dollars, doubling that of the same period from 2006.

4.1.6 Product structure

Production of passenger vehicles - including sedans, sport utility vehicles and minivans - went up 21.94% to 6.38 million, while sales rose 21.68% to 6.3 million. Sales of sedans reached 4.73 million units, accounting for 53.76% of the total vehicle sales. About 1.24 million were indigenous models such as Xiali and Chery QQ. FAW Volkswagen, the German auto giant's venture with FAW Group, sold 458,300 sedans last year. It overtook Shanghai General Motors, the Detroit-based automaker's venture with Shanghai Automotive Industry Corp., to become the top sedan seller for 2007. Shanghai Volkswagen was the runner-up, posting sales of 445,800 sedans, followed by Shanghai GM with 432,000. In February, Volkswagen reported a sales record of more than 900,000 vehicles in China in 2007, up 28%, while GM said its sales in the country were up 19% to 1.03 million vehicles. A total of 479,427 vehicles were sold through Shanghai GM (Xinhua News Agency, 2008).

4.1.7 Market demand

China's car consumption showed a CAGR of 54.42% from 2001 to 2005. Per 1000 people passenger car penetration of China was around 11 units in 2006. This was significantly lower than other countries (RNCOS, 2007). According to Dong Yang, vice chairman of the Automobile Association, vehicle ownership in China was 44 for every 1,000 people in 2007. This was compared with the world average of 120. He also claims that China's car market has huge potential as the economy continues to grow rapidly and

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the government tries to encourage people to spend money. Per capita GDP (which is an indicator of the purchasing power) of China is rising steadily. It was less than US$ 1000 in the year in 1991 and was around US$ 7600 in 2006. Auto financing loans are available

to Chinese consumers making it easier to purchase cars. The demand for cars is

concentrated in China’s East coast: Shanghai, Beijing, Tianjin, Zhejiang, Jiangsu, Fujian and Guandong. The combined population is about 300 million. Demand is especially strong in places where per capita income exceeds US$ 2000 (Asia Case Research Center, 2005). Most Chinese car buyers are making their first automobile purchase and exhibit little brand loyalty. Across all market segments, car buyers are more price sensitive than their counterparts in developed countries. Successful passenger cars in China have one thing in common: a high price/performance ratio. Excess supply due to consumers inability to buy and intensified competition caused by globalization, result in falling margins creating tension in the automobile industry.

4.2 Indian automobile industry

The Indian automobile industry followed a protectionist approach until 1991 when the government initiated the process of economic liberalization. During the following years many players were attracted to the low-cost passenger car market in India. Indian consumers had a wide variety of vehicles to choose from other than the domestic ones. The passenger car industry in India grew rapidly in the late 1990s. Companies launched new models in different segments to fulfill consumer aspirations. The Indian government wants to make the market a favorable low cost destination for car makers. They want to develop the automobile industry as a global hub for cost-efficient vehicles (Mate & Chopra, 2005).

4.2.1 Development

In 1942, Hindustan Motors Ltd. was established by the Birla group at Port Okha near Gujarat. Two years later, Premier Automobiles Ltd was established by the Walchand group in Bombay (Singhal & Tagore, 1997). Both companies were set up without any support from the government. After gaining independence in 1947, the government adopted a protectionist approach in the automobile industry. A licence had to be obtained

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from the Indian government for import of technology, components, increasing capacity or setting up a new unit. Obtaining a licence involved bureaucratic procedures while imports of technology and components were difficult and unprofitable. As a result barriers were high. The automobile market was dominated by the ‘Ambassador’ of Hindustan Motors and the ‘Premier Padmini’ of Premier Automobiles from the 1950s to the early 1980s. These cars were costly in relation to purchasing power of most Indians, had low fuel efficiency, were of old technology and were unaffordable for the common man.

In 1983, Maruti Udyog Ltd. was established as a joint venture between the Indian government and Suzuki Motor Corporation of Japan to manufacture a low cost car within the means of the common man. Soon after, in 1985-1986, the government initiated certain policy measures in the automobile industry to liberalize the import of technology. The impact of these measures was nominal and not much growth took place. Only the new entrant Maruti, who had entered the market with small and fuel efficient cars and new technology, achieved success and leadership in the market. Until 1991, there were only three major players in the passenger car market, Maruti Udyog Ltd, Hindustan Motors and Premier Automobiles. Maruti occupied the largest market share of 62.5%. In 1993, the automobile industry was de-regulated by the new auto policy which included delicencing, abolition of the Phased Manufacturing Programme, automatic approval of 51% equity by foreign holding in Indian companies and reduction of duties (Mate & Chopra, 2005).This attracted a lot of foreign car manufacturers. Sensing the growth in the auto sector, other Indian manufacturers also ventured into the small car segment in the late 1990s (appendix C). In 2006 the government created The Automotive Mission Plan 2006-2016 to make India a global automotive hub (Sontish, 2006).

4.2.2 Market

The automobile industry of India is expanding rapidly since the economic liberalization in 1991. India wants to develop as a hub for small car manufacture and as an outsourcing centre that offers the global automotive industry solutions high up the value chain

(Government of India, 2006). The Indian automotive industry is ranked fourteenth

regarding production and it is Asia’s fourth biggest auto market (RNCOS, 2007).

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4.2.3 Production and sales

Since 1995 a number of foreign companies entered the Indian auto-manufacturing market-scape (appendix D). It is estimated that the industry has over a 100 auto manufacturers competing with each other. Domestic car sales increased from 388000 units in 1997-1998 to 819000 units in 2004-2005 (SIAM, 2008). Indian passenger car sales for the year 2006 were 1,099,712 units in comparison of 920,239 units in 2005. The three carmakers, Hyundai, Maruti and Tata Motors, were the major sellers of passenger cars in the year 2006 (RNCOS, 2007). Figure 4 shows the passenger car production in India from 1961 to 2005 and figure 5 the best-selling vehicles in 2007.

Figure 4 Passenger car production India (thousand)

1961 1971 1981 1991 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 TOTAL world 11,391 26,453 27,407 35,287 35,730 36,111 37,318 38,474 37,286 38,816 40,732 40,144 41,215 41,782 42,832 44,113 U.S. percent of world 48% 32% 23% 15% 19% 18% 16% 15% 15% 15% 14% 12% 12% 11% 10% 10% India 22 42 42 179 237 330 396 410 384 519 514 548 706 907 940 999

KEY: N = data do not exist; U = data are not available.

Source: RITA, U.S. Department of Transportation 2006

Figure 5 Best-selling vehicles 2007

Many of India's best-selling vehicles are small and inexpensive

Maruti 800 US$5,093

Tata Indica US$5,945

Maruti Alto US$6,093

Hyundai Santro US$7,100

Maruti Wagon R US$8,299

Sources : Maruti Udyog Web site; DriveInside.com Car Pricing Website. Note : Prices as of May 2007.

Source: Mate & Chopra, 2007

4.2.4 Types of enterprises

The Indian automobile enterprises are spread across four different industrial areas (appendix E). Unlike China, foreign makers in India are encouraged to set up their own production plants instead of being forced to enter a joint venture. However, when

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entering India, most automakers entered into a joint venture because of the Auto Policy requiring a fixed amount of investment (which could be divided with the joint venture partner) and rapid localization (requiring knowledge of the vendor base and customers) and also because local firms had contacts with government officials. Most of these joint ventures did not last long. Some of the prominent joint ventures between Indian and foreign partners, failed to mature and the foreign partners assumed full control. These included DCM-Daewoo, Tata-Mercedes, Mahindra-Ford, Hindustan Motors-General Motors, and PAL-FIAT. The main reason for these buyouts was the inability of the Indian companies to infuse additional funds needed for expansion and because of differing management styles and strategies (Mate & Chopra, 2005). The major players in the India auto industry are Maruti Udyog Limited, Hyundai Motors India Limited and Tata Motors Limited.

4.2.5 Export and import

Passenger car exports from India increased by 9% in January compared to the same month a year ago. Total cars exported from the country during January were 13,132 as compared to 12,023 units in the corresponding period last year, while Maruti figures dropped to 1,514 from 3,153 as compared to January 2005, according to figures released by Society of Indian Automobile Manufacturers. The export figure was largely influenced by three players, namely Hyundai Motors India Ltd, Ford India Pvt. Ltd. and Tata Motors. For the cumulative nine month period from April to January 2005-06, the passenger car industry witnessed a 4.57% increase in exports. During the nine month period as many as 144,151 four-wheelers moved out of the country as compared to 137,852 motor cars exported during April to January period a year ago. The export figures for the leading player Hyundai Motors India Ltd for the nine month period stood at 84,884 units as against 68,475 during the corresponding period in 2004-05 followed by Tata motors that posted 14,882 units against 5,466 units on its export list (Raha, 2006).

Most foreign cars are imported to India rather than being manufactured there. This is mainly because even though luxury cars are in high demand, only a small segment of people can afford to buy such expensive cars. Indian manufacturers feel that it is not feasible to manufacture cars in small numbers. Importing a car causes further increase in

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prices. But that does not stop the rich in India - the higher the car price, the more the prestige that goes with it. In 2004, India exported passenger cars worth more than twice China’s car exports (727 million US dollars vs. 317 million US dollars), but where China imported 4.6 billion US dollars worth of passenger cars, India imported just 7,500 cars, worth only 98 million US dollars (Noble, 2006).

4.2.6 Product structure

The market for small cars now occupies a substantial share of 70% out of the annual production of 1 million cars in India. Maruti Udyog, with its Maruti -800 is the leader in the small car market. The most recent launch in the small car market in India is the Tata Nano by Tata Motors followed by Getz Prime by Hyundai Motor Co. and Palio Stile by Fiat India Pvt. Ltd. Mid-sized cars are normally cars ranging from 30,000 US dollars to 80,000 US dollars and generally meant to be 4 seaters. The mid-sized car section has recently moved beyond the 100,000 US dollar target. The recent launches in the mid-size car market in India are 1.4 SXI Duratorq by Ford Motor Co and Indigo XL by Tata Motors. Luxury cars and premium cars are expensive and purchased for their design, innovation, and technology. They are usually priced over 200,000 US dollars and have many takers in India. The recent launches in the premium car market in India and the luxury car market in India are Sonata Embera H-Matic by Hyundai Motor Co. and Nissan Teana by Nissan Motor Co. Ltd. Sports Utility Vehicles (SUVs) have also become very popular in India as they are considered advantageous due to their ability to accommodate more passengers. The Sport Utility Vehicle market in India is the most booming market in India presently and SUVs have become the fastest selling cars of India (Maps of India, 2008).

4.2.7 Market demand

Per 1000 people passenger car penetration of India is around 7 units in 2007 (Achterholt & Nagporewalla, 2007). This is (like China) rather low, but as GDP per capita grows, the automotive market might grow also (appendix E). GDP per capita is US$3000 in 2007. Also, like in China, auto financing loans make it possible to purchase a car for people who can not afford one. Furthermore, India has a young population below 35 years (70%) that will be added to the working class (Shanghai Daily, 2007). Small and medium cars

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will remain dominant but a shift toward high end cars is expected. The SUV market is expected to develop rapidly. Higher disposable incomes coupled with the availability of easy financing (as in China) have driven the passenger vehicle segment. Indian consumers value price, fuel economy, brand image and after sales service as important factors when purchasing a passenger car. Besides the fuel cost, the insufficient infrastructure has led Indian consumers to purchase primarily small cars (Belowski et al., 2007).

4.3 Analysis

The main differences and/or similarities regarding the development of the automobile industry, its market, production and sales, types of enterprises, export and import, product structure en market demand are listed below in figure 6.

Figure 6 Quantitative and qualitative differences/similarities automobile industry China and India

Automobile Industry China India

Development • 1949, China became The

People’s Republic of China • 1994, Automobile Industry Policy • 2001, WTO • 2004, NDRC policy • 1947, Independence • 1985, liberalization import technology

• 1993, The Auto Policy • 2006, The Automotive Mission Plan 2006-2016

Market Growing. Its auto market and

production is ranked third globally. Its goal is to develop an automobile industry that is competitive with leading automobile industries.

Growing. Its auto market is ranked fourth on a global basis. Its auto production is ranked 14th globally. Its goal is to develop as a hub for small car manufacturers.

Production and sales Production 2006 > 7 million Decreasing sales.

Production 2006 > 1 million Increasing sales.

Types of enterprises Mostly joint ventures. 90% of the joint ventures are between

Mostly joint ventures. MNC’s are allowed to set up own

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SOE’s and MNC’s. There is a 50% ownership cap.

production plants. Export and import Import value passenger cars in

US dollars 4.6 billion in 2004. Export value passenger cars in US dollars 317 million in 2004.

Import value passenger cars in US dollars 98 million in 2004. Export value passenger cars in US dollars 727 million in 2004. Production structure Sale of sedans account for

53,76% of total vehicle sales this year.

Production of small cars account for 70% of total vehicle production this year. SUV’s are the fastest selling cars.

Market demand The rising GDP per capita and arrival of auto financing increases the demand for passenger cars. Consumers are very price sensitive and show little brand loyalty.

The rising GDP per capita and arrival of auto financing makes the demand for passenger cars grow. Consumers value price, fuel economy, brand image and sales service.

China imports more cars than India, mainly luxury cars (SUVs) from Germany and Japan. India exports more cars than China, the leading player being Hyundai Motors India and Tata motors. This can be explained by the notion that India is developing as an export hub for many (foreign) automobile manufacturers. Also in India foreign car manufacturers are able to set up wholly owned companies, while in China only joint ventures are allowed with an ownership cap of 50%, making total ownership in China impossible. Furthermore China imports more cars than India because Chinese people like luxury cars (SUVs) more than the Indian consumers do. Indian consumers value cost efficient small cars rather than luxury cars which are prominently made in the country itself. The insufficient infrastructure is also a reason why Indian consumers primarily purchase small cars. However, India has a young population below 35 years (70%) that will be added to the working class. Small and medium cars will remain dominant in India but a shift toward high end cars is expected as the GDP per capita (which is an indicator of the purchasing power) is expected to keep on growing as is the SUV market. China produces more passenger cars than India, than again it had a head start in the automobile

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business of almost a decade. In China sedans are mostly produced and sold, India produces and sells mainly small cars. FAW Volkswagen sold the most sedans in 2007. In India Maruti Udyog is the leader in the small car market. In China per 1000 people the passenger car penetration is around 11 units in 2006. According to Dong Yang, vice chairman of the Automobile Association, vehicle ownership in China was 44 for every 1,000 people in 2007. In India this was 7 in 2007. This is compared with the world average of 120. However, as per capita GDP of China and India is rising steadily and auto financing loans are available to Chinese and India consumers making it easier to

purchase cars, this is about to change.Most Chinese car buyers who are making their first

automobile purchase exhibit little brand loyalty unlike Indian consumers that highly value brand loyalty. Successful passenger car companies in China have one thing in common: a high price/performance ratio. Indian consumers value price, fuel economy and after sales service. Higher disposable incomes in China and India coupled with the availability of easy financing is driving the passenger vehicle segment.

China started to reduce its tariffs slowly by 2006 which was the beginning of the services markets influencing the automobile industry. The government’s laws regarding emissions and fuel economy standards called for incentives for clean and renewable energy. This created a problem for many automobile manufacturers as most small players are inefficient and technologically outdated. Many larger players entered into joint ventures with foreign OEMs. There is an excess supply caused by the expansion of operations of major joint ventures creating tension between the manufacturer and dealers in the automobile industry and making it more profitable for car manufacturers to move closer to the consumers. Though the automobile industry is growing rapidly, there are issues of poor quality which are attributed to the lack of R&D capabilities of the country. The Chinese government wants to create large and efficient Chinese OEMs causing margins to fall and restrictions to continue for foreign automobile manufacturers. In India, the automobile industry was de-regulated in 1993 by the new auto policy which included delicencing, abolition of Phased Manufacturing Programme, automatic approval of 51% equity by foreign holding in Indian companies and reduction of duties. This attracted a lot of foreign car manufacturers. Sensing a growth in the small auto sector,

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other Indian manufacturers also ventured into this segment in the late 1990s. In 2006 the government created The Automotive Mission Plan 2006-2016 to make India a global automotive hub.

Then there are the differences and similarities created by the institutions financial system, internal structure, industrial relations, education and training and finally inter-firm relations, influencing the direction in which both markets develop.

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5.

VOC – Analysis

Hall and Soskice (2001) contend that differences in the institutional framework generate systematic differences in corporate strategy across LMEs and CMEs. In this chapter we will look at five institutions to explain possible similarities or differences between the automobile industry in China and India. These institutions are finance, internal structure, industrial relations, education and training and inter-firm relations.

5.1 China - VOC

According to the varieties of capitalism, China is considered a coordinated market because of the central role of the state. The automobile industry depends more heavily on non-market relationships to coordinate their endeavors and with other actors and to construct their core competencies.

5.1.1 Finance

The financial crisis of 1997 caused a financial sector reform. Now, state banks disclose more detailed and accurate financial systems creating greater transparency. Also, a new loan classification system was made to improve prudential regulation. Banks have recapitalized and non-performing loans (NPLs) transferred to newly established asset management companies. Lastly, state banks are strengthening governance and credit risk analysis by establishing boards of directors and by upgrading credit risk analysis and approval practices. These internal reforms are further motivated by China’s goal to reduce NPLs in state banks.

China’s financial system, its institutional framework is characterized by weak and fairly illiquid capital markets. Stock exchanges in Shanghai, Shenzhen and Tianjin have a low actual trading volume resulting in a high sensitivity to speculation and in a low market capitalization. China’s centrally planned economy places the banking sector under strict governmental control. Two-third of its financial assets and 90% of the bank assets are accounted for by four major banks (Industrial and Commercial Bank of China, the Agricultural Bank of China, Bank of China and the China Construction Bank).These

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banks are tied to SOEs to which they have a heavy exposure. The People’s Bank of China issues all the Chinese currency. A high domestic savings rate (40% of GDP) has allowed China to pursue rapid growth without dependency on foreign loans. However, China suffers from a high percentage of non-performing loans (NPLs). The communistic history of China has resulted in a large amount of inefficient SOEs, employing a large part of the working class in China which can not be ignored since the abolition of the iron rice bowl. 80% of the loans of State Owned Banks is towards SOEs and are in general non performing loans. Limited competitive forces and asset management techniques result in low efficiency regarding the banking culture.

The financial sector in China is bearing the risk of a financial crisis if the economic growth stops (Boomsma and Fischer, 2006).The monobank changed into a multilayer system with a central bank at the helm. State banks were relieved from policy lending duties through the creation of policy banks, and the banking law laid the foundation for commercially-oriented banking. Interbank, securities, equity and foreign exchange markets have been established and progress has been made in the use of indirect instruments of monetary policy. Despite progress made, important weaknesses in the financial sector remain. Non-commercial lending to SOEs has continued, albeit on a diminishing scale; prudential regulation and enforcement still lag behind international best practice; banks are undercapitalized and their risk management, lending practices, and internal controls remain inadequate; and the stock of problem loans is very large.

The government of China has encouraged banks to provide easy car loans and reduce taxes by permitting private car duties to be determined by public tenders. However due to the overproduction, the Chinese government tries to rein in bank lending to temper car demand. The China Banking Regulatory Commission (CBRC) urged commercial banks to thoroughly examine car loans to guard against possible default. Because of increasing disputes between banks and car dealers who are usually underwriters of the loans, the CBRC called on banks to strictly control offers of loan contracts with the sellers. Car loans were one of the earliest financial products offered by Chinese commercial lenders. The business enjoyed rapid growth from 2001 to 2003 with an average annual growth rate of 148%. However, commercial banks registered

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performing car loans worth more than 100 billion Yuan (13.7 billion U.S. dollars) in 2004, the latest figure available. About 81% was held by the four largest state-owned commercial banks, according to the National Development and Reform Commission. Regulators blamed an inefficient credit recording system, distorted market competition and fluctuations in auto prices for the bad loans. Key regulators, including the CBRC, the central bank and the insurance regulator, have since stepped in, helping to halve outstanding car loans in China to 96 billion Yuan (Ingves, 2002).

Since China entered the WTO in 2001, the country opened up to FDI. The import of technology and the possibility of cooperation with Western automobile companies through joint ventures increased the output. It also brought product specification and management improvement (Kang and Su, 2005).

China its financial system finds itself in a transition phase from dependence on dense network and reputations to dependency on public available information. However, China still has a long way to go considering the role of the state controlling its major banks.

5.1.2 Internal structure

In the automobile industry, most Chinese car manufacturers have formed joint ventures with a Western car company. There are no wholly owned foreign enterprises because of the 50% ownership cap and only Chery QQ and Geely are independent Chinese car companies (Luo, 2006). For China, joint ventures are appreciated as a government instrument to gain technology transfer and rapid growth of the industry. However as foreign partners bring direct investment, capital flow, advanced technological and managerial expertise and export market expansion, the Chinese partner offers manufacturing facilities, access to the domestic market, cheap labor as well as skilled Chinese managers with knowledge of local government regulations and bureaucracies (Cui, 2007).The structure of these joint ventures is complicated. Figure 7 shows the main differences between western companies and traditional Chinese companies.

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Figure 7 Western and Chinese company differences

Western company Chinese company Main company purpose Maximized shareholder value Serve family interests

Financial openness Public financial reports Financial information kept secret Financial sources Public sale securities Family and friends of family

Transfer ownership Mergers and acquisitions Companies not sold due to family obligation

Management Professional management recruited on qualifications

Senior managers are recruited from within family

Time horizon Short-term emphasis on bottom-line profit and shareholder value

Long-term family prestige is emphasized

Motivation Economic Economic and social

Individual and organization Separate Impact one another

Network organization Independence Mutual dependence

Governing authority Contract Personal trust

Source: Ming-Jer Chen 1999

These differences may create problems in managing the joint venture. Whereas Western business culture is transaction based, Chinese business culture is relationship based. In the West a successful business person is described as wealthy while in China a prominent businessman is well connected. The conventional translation of the Chinese word Guanxi is “connections”. Guanxi networks are a valuable source of information on issues for which official channels are inadequate. In a society in which laws are not enforced uniformly, Guanxi networks help businesses deal with one another (Chen, 1999).

Traditional aspects of Chinese family business are changing as markets become more global. Traditionally passing the business to the next generation was a means of family heritage. Now, it is beginning to be seen as an opportunity for reorganization. Many new-generation family members receive western education and are beginning to break away from the family network and conservatism. Despite these changes, the sense of family remains strong and it is likely that the family first, business second attitude will

continue in the future.There also seems to be a principal-agent problem in many Chinese

state enterprises. Managers are appointed by government officials and see themselves as agents instead of principals. The evaluation of their work relies on employment and

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financial performance, stable employment and reasonable profits are sufficient eliminating the need to actively engage in monitoring causing them to not always act in the shareholders best interests (Cui, 2007).

Cross-shareholding is another important feature of the Chinese automobile

industry. Cross-shareholding is a form of business partnership or partial merger between companies that agree to buy a significant percentage of each other’s stock. Foreign companies and shareholders criticize cross-shareholding as an inefficient use of capital. However, the resurgence of the Keiretsu approach is different in nature. A Keiretsu is a network of businesses that own stakes in one another as a means of mutual security, especially in Japan, and usually including large manufacturers and their suppliers of raw materials and components in the automobile industry. This is comparable with China’s Guanxi network. The increasing competition creates pressure to develop new technologies for safety and the environment. There is a growing necessity for automakers and parts manufacturers to partner from the most basic stages. Cost reduction and cross-shareholding are used to improve competitiveness and strengthen relations. Keiretsu business ties are viewed as a means to show mutual trust and a way to maintain growth (European Business Counsil, 2007).

There is a complicated pattern of multiple investments and cross-shareholding making the transfer and development of technology difficult. In the 1980’s, Shanghai General Motors started a joint venture with Volkswagen. Then, after a decade it began another new joint venture with GM. At the same time Shanghai General Motors was in business with the Chinese automaker Chery. This is a complicated situation because the transfer of technology gets more difficult and there is the danger of copying one’s technology. For example, Chery was accused by General Motors for using its Opel car model without permission (De Simone, 2007).

It is difficult to say which of the two ways of leadership dominates in the joint-venture. Since western car manufacturers have a 50% ownership cap, it is assumed that the internal structure of a car company regards consensus decision-making with managers, shareholders, major suppliers and customers rather than top managers’ capacity for unilateral action.

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5.1.3 Industrial relations

The Chinese government has drafted a new employment contract law and is unionizing foreign-invested automobile companies. This draft increases the protection of employees but still suffers from instances of vague language. The current PRC (People’s Republic China) law has restrictions regarding the termination of employees.

Most employers use fixed-term contracts because such contracts can be allowed to expire without having to pay severance. The draft allows only two fixed-term contracts. If an employer wants to continue employing an employee after the expiration of the second term, an open-term contract must be signed at the request of the employee. However employees who already have served two terms will not become automatically entitled to open terms when the law becomes effective. Because of the strict limitations on employee termination, this essentially represents a step back to the old “iron rice bowl” system where employees were guaranteed continued employment with an entity. Moreover, the draft law stipulates that severance must be paid to the employee on expiration of a fixed-term contract, though this would not apply if an employee rejects an extension offered by the employer that contains terms at least equal to the terms currently enjoyed by the employee. Company rules like codes of conduct and employee handbooks are important tools for car companies to maintain legal compliance among its employees. The draft law has vague requirements regarding the procedure for issuing company rules. The rules first must be discussed by all employees or by an “employee representative congress” before being determined through negotiations by the employer and a union or employee representatives. This requirement may be difficult for foreign-invested enterprises to comply with in practice because most foreign-invested enterprises do not have employee representative congresses (these are seen mainly in state-owned enterprises) and discussing company rules with all employees would be a burdensome procedure.

An increasing number of companies use employment agencies rather than hiring directly. Migrant workers especially tend to be employed as agency workers. The draft law provides that secondment shall “generally” be limited to temporary, auxiliary, or substitute job positions. A list of positions shall be announced later, thereby creating the possibility that secondment may be permitted only for employees in non-core positions or

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in certain industries. One other change may result in increased costs for employers to use seconded employees. The Second Draft provides that seconded workers have the right to receive “equal pay for equal work.” This rule may require employers to increase salaries and benefits of seconded employees to meet those of direct hires and effectively prohibit two-tiered wage systems. One important tool that companies often use for retaining talent is signing a training contract under which the employee must work for an employer for a minimum period of time or otherwise reimburse the employer for some or all of the training costs. The First and Second Drafts called for minimum lengths of off-the-job training periods that an employer must provide to an employee in order for an employer to recover training expenses from employees who do not serve required term of service. Thus, employers likely could not recover expenses for in-house training programs or tuition for academic programs. Under the third draft, recovery of training costs is allowed without requiring any minimum period of off-the-job training. The one requirement would be that such training expenses must exceed what the employer is legally required to pay under separate regulations (Global Auto Industry, 2007).

The new labor contract law gives Chinese workers new rights, especially when it comes to long-term job security. Employees with ten consecutive years at a company are entitled to a contract without a fixed end date, essentially giving them lifetime employment. Severance payments will be mandatory for anyone whose contract expires or who leaves after giving 30 days’ notice or is laid off. The change in employment regulations was needed in the face of China’s fast industrial development and the growing number of unprotected laborers. Most provinces in China require labor contracts between employers and their workers, but contracts are typically for one or two years. Many companies have been ignoring labor agreements altogether. Foreign multinational corporations, generally regard the law as too restrictive. They have warned that it will add labor costs and could hurt foreign investments in China (Lee, 2007).

The All-China Federation of Trade Unions (ACFTU) changed its tactics by focusing more on the workers rather than the company management. The ACFTU pressures company management to organize workers into an enterprise union while this is not required by national laws or regulations. Some foreign-invested enterprises have

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decided to cooperate with the ACFTU in encouraging their employees to form enterprise unions and sign on as union members. The expectation is that enterprise unions are relatively passive, and refusing to actively cooperate in union organization to avoid the risk of negative publicity in the state-run press or possible bad relations with the government. However, the unions do have significant powers granted under the law that enable them to play a more active role in the future. For example, a company should consult enterprise unions when discussing major operational matters. Furthermore, when a foreign-invested enterprise holds a meeting to discuss matters directly related to the rights and interests of employees, a union representative must attend the meeting and the enterprise should “obtain the cooperation of the union”.

The various laws and regulations when read together could be interpreted to essentially grant the enterprise union a veto power. Another power granted to enterprise unions is to demand that company management engage in collective bargaining; if a request for collective bargaining is made by an enterprise union, management must respond to the request within 20 days and may not refuse to negotiate unless it has sufficient reason for doing so (the period in which a response must be given is less in certain localities). In addition, enterprise unions have the right to be notified prior to any unilateral termination of an employee and to make comments regarding the termination. While enterprise unions do not have direct powers to veto a unilateral termination of employment, they can raise objections that should be considered by the company. If the company then goes ahead with the termination despite union objection, the union may assist the employee in bringing a claim against the company for wrongful termination. In addition, many enterprises have attempted to co-opt the enterprise union by ensuring that mid-level managers are elected as union chairman and/or vice-chairman. Regulations issued by the ACFTU in December 2006 prohibit persons responsible for the administration of an enterprise, partners, or any of their close relatives from being union committee members (Global Auto Industry, 2007).

In response to the rising incidence of worker unrest and labor disputes of all kinds in recent years, the central government has adopted various measures aimed at safeguarding workers basic rights. The most noteworthy such measure has been the

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introduction of the labor contract law. However, because this is still in its initial phase, industrial relations are still dominantly controlled by the market relationship between the individual worker and employer.

5.1.4 Education and training

The automobile industry is diverse and to be and remain competitive, companies in this industry require different technical and management skills. The pace of change over recent years makes it necessary to continuously increase these skills. Because of this rising demand for skilled labor, China is experiencing a growing inequality in wages. China’s cheap but skilled labor is very attractive for foreign automobile companies (appendix F). Xian, which is regarded as a high tech zone because of its number of universities attracts many hi-tech firms. Shanghai and Beijing also attract car manufacturers because of their availability of cheap and skilled human capital. China has 1,731 universities proving for approximately 3.4 million graduates (China Country Report, 2006) and is continuing to build more universities and trade schools. Xian has 43 universities, Shanghai 52 and Beijing 76. However, besides the skilled graduates from Chinese universities, there are also Chinese students who are educated abroad and learning from innovative centers like Silicon Valley. There is an emphasis on high education especially in software and technical training and the Chinese universities account for 600,000 engineers each (Clayton, 2005). The government in China provides education and training systems and ensures that the education fits the firms’ needs. Workers emerge from their training with both company-specific skills and the skills to secure employment elsewhere.

5.1.5 Inter-firm relations

The leading Chinese automakers are for the most part owned by the Chinese government. High ranking officials have been involved in setting up the companies and shaping national policies that influence industry development (Asia Case Research Center, 2005).When China joined the WTO in 2001, the auto industry entered a new era. China cut customs duties and opened its domestic market. While China’s entering into the WTO should lead to the enforcement of copyright and trademark laws, improved property rights, it is still not sure that this will be the case. Recently Chery was sued by GM

The uprising of the Chinese and Indian automobile industries

The uprising of the Chinese

and Indian automobile

industries

How is the automobile industry of China and India

different/similar focusing on the development of the

passenger car industry and why?

The uprising of the Chinese

and Indian automobile

industries

keywords

Preface

Table of contents

Introduction

Theoretical framework

Methodology

Chinese and Indian automobile industry

VOC – Analysis