MASTER THESIS
Does Chinese automobile industry
have competitive advantage in the
international competition?
June 2009
Author: Yang Tianshu S1810030
1st Supervisor: Mr. J. Hotho 2nd Supervisor: Mr. de Vries
Msc International Business and Management Faculty of Economics and Business
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Abstract
This thesis investigates Chinese automotive industry. The research is from the aspects of demand side, supply side, and the role of government. There are three stages: (1) Survey research, which is aim at investigating the demand of Chinese customers. (2) Collecting secondary data, which is aim at collecting data about supply side and the role of government. (3) Answering the research questions by SWOT analysis. Although Chinese automotive industry has relative low cost and price, gets support from government, close to the largest market in the world, and the demand of customers is easier to satisfied. Lack of ability of independent R&D in automotive industry and automotive electronic industry, the competition from joint-venture companies, and the lack of oil is the huge obstacle which impedes the progress of Chinese automotive industry. Therefore, Chinese automotive industry does not have significant competitive advantage in the international competition.
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Content
Chapter Ⅰ Introduction ………3
Motivation………3
The development history of Chinese automotive industry………3
Research questions………4
Chapter Ⅱ Literature Review………5
General determinants of national industry’s advantage………5
Automotive industry study………8
Chinese automotive industry study………8
Chapter Ⅲ Conceptual Model………9
Chapter Ⅳ Method………10
Stage 1: Survey research………11
Stage 2: Secondary data………13
Stage 3: SWOT analysis………14
Chapter Ⅴ Results and analysis of stage 1—survey research………14
Chapter Ⅵ Results and analysis of stage 2—secondary data………19
Chapter Ⅶ Conclusion………26
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Chapter Ⅰ Introduction z Motivation
Since the first car factory was established in China in the year of 1953, Chinese automotive industry has experienced three stages: establishment, independent development, and internationalization. Harwit(2001) states that if China is accepted into WTO, automotive industry must face many challenges from foreign competitors. Actually, in December 2001, after Harwit’s article was published, China became a member of WTO. Eight years has past since China joined WTO, China has became the biggest car market in the world. Without doubt, the role of China in the world car market is more and more important. However, in such a huge market, the biggest winners are joint-venture companies. Local car-makers are trying to catch up their joint-venture competitors. Therefore, it is valuable to research Chinese automotive industry.
In my thesis, I would like to investigate the demand, supply and the role of government in Chinese automotive industry. And then, by using SWOT analysis, I will find out what are the strengths and weakness of Chinese automotive industry. Moreover, I will find out what opportunities and threats Chinese automotive industry will meet. In the last, I will give some implications to Chinese car-makers.
z The development history of Chinese automotive industry
There are three stages in the history of Chinese automotive industry.
4 The period from 1958 to 1984 was the second stage of the development of Chinese automotive industry. At this stage, Chinese automotive industry started to develop independently. The symbolized event of this stage is the establishment of Chinese second vehicle manufactory--China Second Auto Works group. The product, process, and workshop were totally designed by Chinese. Moreover, 98% of the equipments were made in China.
Since the middle of 1980s, Chinese automotive industry stepped into the third stage. In last two stages, Chinese vehicle manufactories only produced trucks. From third stage, China decided to develop producing and consuming of saloon cars. Nowadays, producing and consuming of saloon cars has been emphasis of Chinese automotive industry. Besides that, Chinese automotive industry opened its door to the world in this stage. In the year of 1984, Beijing Jeep Co. Ltd., which is the first joint-venture vehicle manufactory, was formed in Beijing city. It was invested by Beijing Vehicle Factory(China) and AMC(America). In the year of 2001, China became a member of WTO. All of these show that the trend of internationalization of Chinese automotive industry is more and more obvious. Furthermore, China plays more and more important role in the world automotive industry. China has been the third largest car-producing country, after the United States and Japan, in 2006. Since January 2009, China becomes the biggest car market in the world.
z Research questions
“Nations are most likely to succeed in industries or industry segments where the national diamond… is the most favorable.”(Porter, 1990, P72)
5 there four determinants to investigate a national industry’s competitive advantage: factor conditions, demand conditions, related supporting, and firm strategy. I divide the four determinants into demand side and supply side, then plus the influence of government. I will find out what are the strengths, weaknesses, opportunities, and threats of Chinese automotive industry, from aspects of demand, supply and the influence of government.
Therefore, the main research question of my thesis is: Does Chinese automobile industry have competitive advantage in the international competition?
Specifically, the sub research questions are:
What are the strengths of Chinese automobile industry? What are the weaknesses of Chinese automobile industry? What are the opportunities of Chinese automobile industry? What are the threats of Chinese automobile industry?
Chapter Ⅱis the literature review of prior studies which are relative to my topic. In chapter Ⅲ, I will introduce the conceptual model. Chapter Ⅳ is the method of my thesis. There are three stages in my research. The first stage is survey research which is aiming at investigate Chinese customers’ willingness of car-buying on the demand side. At the second stage, I will collect secondary data about supply side and the role of government. At the final stage, I will list the strengths, weaknesses, opportunities, and threats of Chinese automotive industry. Meanwhile, I will give some implications to Chinese car-makers. In chapter Ⅴ and chapter Ⅵ, I will present the results of the first stage and the second stage. Chapter Ⅶ is the conclusion of this thesis, in another words, is the third stage of my research.
Chapter Ⅱ Literature Review
z General determinants of national industry’s advantage
6 playing more and more important role in the development of an industry. In his book, Porter states that “Nations are most likely to succeed in industries or industry segments where the national diamond… is the most favorable.”(Porter, 1990, P72) National competitive advantage is not inherited. It is closely related to its economic environment. After a four-year study in national competitive advantage, Porter concludes that there are four determinants of national advantage: factor conditions, demand conditions, related supporting, and firm strategy.
Factor conditions include factors and resources which can influence competitive advantage of industries, such as labor, physical resources, knowledge, capital, and infrastructure. All these factors are deeply embedded in national economic environment. If an industry can hold low-cost or high-quality factors of the nation, it can gain competitive advantage. There are two divisions among these factors. One is between basic factors (nature resources, unskilled labor, etc.) and advanced factors (modern digital technology, highly educated personnel, etc.). The other one is between generalized factors, which can be used by most industries, and specialized factors, which are only related to a few industries or even to a single industry. Compared with basic and generalized factors, advanced and specialized factors can provide more vital and sustainable competitive advantage. Moreover, nations are more likely to succeed in industries where they are good at factor creation and updating. In some situations, disadvantaged factors may force firms to innovate and upgrade. It may turn out the creation of advantaged factors.
7 and demanding buyers can drive companies to innovate and to meet high quality. The home market demand can also anticipate the demand of other nations in some circumstances. However, the size of home market plays a complex role in building competitive advantage. On one hand, some authors see a large home market as a strength, because of the large number of potential customers. On the other hand, some other scholars consider the large home market as a weakness, because the lack of local market forces companies to export, which is also important to survive in international competition. Therefore, Porter concludes that the characteristics of home demand influence more than the size of home demand.
Related and supporting industries. Companies can share activities with their related industries. These activities include information flowing, technical changing, marketing or service. At the meanwhile, demand for products and service can be bring by its international successful related industry. For instance, Japanese long-filament synthetic textile fibers industry, silk industry, carbon fibers industry, and water jet weaving machine industry are linked competitive industries. On the other hand, the industry which enjoys suppliers with competitive advantage can gain high quality support and service. Furthermore, the short distance between the companies and their suppliers can save transfer cost as well. Italian jewelry industry, for example, succeeds in part because two-third of the world’s jewelry-making machines are made in Italia. And these machine-makers are also world leaders. Therefore, Italian jewelry industry can get the latest technological equipment earlier than other countries.
8 characteristics. In Germany, the technical background of many senior managers leads to the success in the industries where need highly technology. In contrast, Germany seldom succeeds in industries where marketing and rapid new feature turnover are important, such as consumer goods and service. Although it is often argued that domestic rivalry is waste of energy, Porter’s study in ten countries indicate that local rivalry creates pressures on companies to innovation and upgrades competitive advantage. Swiss pharmaceuticals, Swedish cars and trucks, German chemicals, and American computer and software illustrate this point of view.
z Automotive industry study
Although we can find some prior studies about automotive industry, most of them are about America and Japan. For instance, Langlois and Robertson (1989) use American automotive industry as an example to explain the theory of vertical integration. Carroll and Teo (1996) checked the technical innovation and its impact on American automotive industry in the period of 1885-1981. Mannering, Winston, Griliches, and Schmalensee (1991) state that compared with Japanese automotive industry, American automotive industry must develop its quality and value of the brand to recover from decline in market share. The finding from Dyer’s study (1996) shows different supplier specialization among automakers. Specialization can influence firms’ performance and competitive advantage. Japanese automotive industry is more specialized than its American counterparts. In the study of Ahmadjian and Lincoln (2001), three cases indicate the flow from keiretsu-governance modes to arm-length and administrative management.
z Chinese automotive industry study
9 transition from mass production to mass customization in Chinese automotive industry. They conclude that customer-order-driven production is a development direction of Chinese automotive market.
Although there are some prior studies are about Chinese automotive industry, there are few studies investigate whether Chinese automotive industry has competitive advantage indeed. Therefore, I would like to fill the gap in my thesis, by answer this question form the sides of demand, supply, and governmet.
Chapter Ⅲ Conceptual Model
Demand side and supply side are the most basic aspects while study economics and business. Most micro-economic theories are built on these two sided. Therefore, I would like to investigate my research questions from demand side and supply side. As I state in the chapter of literature review, Porter concludes that there are four determinants of national advantage: factor conditions, demand conditions, related supporting, and firm strategy. In my research, I divide Porter’s determinant into demand side and supply side. In my point of view, obviously, demand conditions belong to demand side, which reflects the market demand. Factor conditions, related and supporting industries, and firm strategy, structure, and rivalry belong to supply side, which reflect the situation of market suppliers.
10 intervention in industries is still more significant than most developed and developing countries. For the above reason, I would like to view government as an aspect which is independent from demand side and supply side.
Moreover, the purpose of this thesis is to investigate the strengths, weaknesses, opportunities, and threats of Chinese automotive industry from demand side, supply side and government side.
To sum up the above arguments, I create a new model by combining Porter’s study and my own ideas (figure 1). Because my research questions are open questions, aiming at searching the relationships between demand, supply and strengths, weakness, opportunities, threats. In my conceptual model, I use broken lines to denote the relationships which are unknown now.
Figure 1 Conceptual model
Chapter Ⅳ Method
11 on demand side. I will send out questionnaires to investigate the willingness of car-buying of Chinese customers. At this stage, I would like to know the answers of some questions, such as how much money Chinese customers would like to pay for a car? What is the motivation of Chinese customers on car-buying? What feature do they think is the most important while buying cars? Can cars with Chinese brand meet their needs? What do they think about cars which Chinese brand? Etc. The second stage is collecting secondary data. At this stage, my aim is to find out the determinants which impact the competitive advantage of Chinese automotive industry on the supply side, as well as the influence of centre government. The final stage is the stage which I will conclude my research, by using SWOT analysis. Because the purpose of my research is to find out whether Chinese automotive industry has competitive advantage? What is Chinese automotive industry good at? What is Chinese automotive industry not good at? What opportunities and threats Chinese automotive industry must meet in international competition? SWOT analysis is the best methodology to find answers of these questions.
Stage 1: Survey research z Design questionnaire.
Firstly, I would like to do descriptive survey, which is usually used to investigate the characteristics and attitude of particular subjects (Gill and Johnson, 2005). To answer my research questions, I would like to know, on the demand side, how much money would Chinese customers like to pay for a car? What is the motivation of Chinese customers on car-buying? What feature do they think is the most important while buying cars? Can cars with Chinese brand meet their needs? What do they think about cars which Chinese brand? etc. Therefore, descriptive survey is the best way to focus on my questions. Meanwhile, it is the most efficient way to get answers.
12 there five factors: culture, subculture, social class, reference groups, and family. At individual side, there are six factors: motivation, personality, self-image, perception, learning, and belief and attitudes. I can not investigate all these factors in my questionnaire, and not all these factors are relative to my research. Therefore, I will focus on the following factors:
Individual motivation. Consumers buy products to make themselves feel satisfied. According to Maslow’s hierarchy of needs, people’s needs are divided to five steps, from the most basic to the most advanced. The five steps are: survival needs, safety needs, social needs, success needs, self-actualization needs. Absolutely, people on different needs step have different consume motivation, different consume motivation lead to different consumer preference. Take the motivation of buying clothes as an example. If a customer buys clothes to meet survival needs, his/her motivation is to cover his/her body or to keep himself/herself warm. In this case, he/she prefers clothes which are cheap and warm. If a customer buys clothes to satisfy self-actualization needs, his/her motivation may be to show his/her social class or taste. Therefore, he/she pays more attention on brand or style. In terms of car-consumption, the consumers whose motivation is to satisfy lower level needs may think security and durability is more important. On the other hand, the consumers whose motivation is to satisfy higher level needs may prefer cars with high speed, fashion appearance, or luxury image. I would like to know what the motivation of car-buying of Chinese consumers is (question 2, part 2&3).
Beliefs and attitudes. The beliefs and attitude of particular products and country of origin may influence consumers’ judgment. Specifically, in automotive industry, image of country-of-origin influence consumers’ beliefs directly, and influence attitudes through beliefs (Erickson, Johansson, and Chao, 1984). Therefore, I would like to know what beliefs and attitudes Chinese consumers hold to Chinese car-makers, as well as to their foreign competitors, by investigate their image of country-of-origin (question 4, 5, 6, part 2; question 4,5, part 3).
13 behavior. I would like to know how subculture and social class influence car-buying willingness of Chinese customers. Therefore, I would like to investigate subjects’ age, gender, education, income, and location in part 1.
Besides consumer behavior, I would like to know which country is the most important competitor of China (question 7, part 2; question 6, part 3).
In the article of Hsieh and Lindridge (2005), there are five dimensions when customers judge car brand: (1) Symbolic dimension: prestigious, brand value, luxury, etc. (2) Sensory dimension: speed and fun to drive, exciting, etc. (3) Economic dimension: oil consumption, price, service, etc. (4) Utilitarian dimension: reliable, durable, safe, etc. (5) Futuristic dimension: last technology, fashion, etc. I would like to know when Chinese consumers evaluate cars, which dimension is the most important (symbolic, sensory, economic, utilitarian, or futuristic dimension) (question 3, part 2&3).
z Sample: cluster sampling
I would like to pick Beijing, Shanghai, and Guangzhou as my sampling units. Beijing locates at the north of China, Shanghai locates at the middle of China, and Guangzhou locates at the south of China. These three cities are far away from each other, therefore the problem which is caused by the same location of population can be avoided. Another reason why I choose Beijing, Shanghai, and Guangzhou as my sampling units is that they are three of Chinese most developed cities. People who live in Beijing, Shanghai, and Guangzhou have more advanced consumption conception than those who live in less developed cities.
I will send the questionnaire to 14 persons by e-mail. And these respondents will be asked to forward the questionnaire to others.
Stage 2: Secondary data
14 literature, etc. By analyzing these data, I will try to find out how these determinants (factor condition, related and support industry, and firm strategy, structure, and rivalry) influence Chinese automotive industry, as well as how the centre government play its role in the development of Chinese automotive industry.
Stage 3: SWOT analysis
SWOT analysis is one of the most straightforward approaches in the area of strategy management (Hill & Westbrook, 1997). SWOT analysis is highly commended for its value in focusing on key issues that may influence business planning process. The key issues include internal strengths and weaknesses, as well as external opportunities and threats (Pickton & Wright, 1998. Houben, Lenie, & Vanhoof, 1999). Although in most cases SWOT analysis is used on the company level, some authors have used it on industry level or in other areas. Bernroider (2002) uses the factors in SWOT analysis to investigate Austrian software industry, and indicates the differences between micro, small-to-medium, and large software companies. Lalitha (2002) uses SWOT analysis to study India’s pharmaceutical industry in the WTO Regime. In Dapice (2003)’s study, the author does a SWOT analysis for Vietnam’s economy. Additionally, the SWOT analysis on recent research on team and organizational diversity (Jackson, Joshi, and Erhardt, 2003) is another example of the widely use of SWOT analysis.
Chapter Ⅴ Results and analysis of stage 1—survey research
15 Figure 2 Price 0 5 10 15 20 25 30 35 Belo w 5 0,000 50,00 0-10 0,00 0 100, 000 -150 ,000 150, 00 0-200, 000 200, 00 0-250, 000 250, 00 0-300, 000 300, 00 0-350, 000 350 ,000 -400 ,000 400, 00 0-500, 000 Abo ve 50 0,00 0 Price Num be r People with cars People without cars
Figure 2 shows that how much the respondents who have cars paid for their cars, as well as how much the respondents who do not have cars are willing to pay for a car. The common price rang is mostly between 100.000 CNY (approximately equivalent to 11.000 EUR) and 150.000 CNY (approximately equivalent to 16.000 EUR).
Figure 3 Motivation 0 10 20 30 40 50 60 70 For daily use Travel on holidays Keep up with my friends This car can show my social class Just because I like this car Motivation Num be r People with cars People without cars
16 features when evaluating cars (Figure 3).
Figure 4 Features (while evaluating cars)(1=the most important, 5=the least important)
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 Symbolic dimension Sensory dimension Economic dimension Utilitarian dimension Futuristic dimension F eat ur es Ave ra ge Sc ore People with cars People without cars
From figure 4, we can see that both respondents who have cars and respondents who don’t have cars give the lowest score to utilitarian dimension (reliable, durable, safe, etc.). The average score of utilitarian dimension given by respondents who have cars is 1.79. The average score of utilitarian dimension given by respondents who don’t have cars is 1.64. The lowest score among all these dimensions indicates that when Chinese consumers evaluation cars, utilitarian dimension is the most important.
Figure 5 Features of Chinese cars (compare with foreign cars) (1=the most important, 5=the least important) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 Symbolic dimension Sensory dimension Economic dimension Utilitarian dimension Futuristic dimension Features A v e rag e S co
re People withcars
17 Figure 5 demonstrates what customers think of Chinese cars. Respondents were asked to rate the features of Chinese cars compared with foreign cars. The average score of economic dimension (oil consumption, price, service), which is 1.57 and 1.25, is lower than other dimensions. Hence, cars with Chinese brand have significant strength in economic dimension. Although economic dimension isn’t the most important feature while evaluating cars, its average score is only lower than utilitarian dimension. Therefore, the advantage of economic dimension can play an important role on influencing Chinese customers.
Figure 6 Cars from which country can meet your needs best? & Which country would your car be from? 0 5 10 15 20 25 30 35 40 45 50
Germany Japan America France Korea India Others China Country
Number
People with cars People without cars
Figure 6 shows that Chinese customers prefer cars from which country.
18
Figure 7 Which country are the cars from the most similar to Chinese cars?
0 5 10 15 20 25 30
Germany Japan America France Korea India Others Country Number People with cars People without cars
Figure 7 shows that customers think cars from which country are the most similar to Chinese cars. 39 respondents think Korea is the country with the most similar cars to China. The number is the biggest among all the countries. In international market, competition always happens among firms who produce similar products. Therefore, in international market, the biggest competitor of Chinese car-makers is from Korea, because of the similarity between Chinese cars and Korean cars.
The result of correlations analysis (Appendix 2) shows that the customers with higher level education or higher income prefer German cars and Japanese cars. The higher their income is, the more important they think utilitarian dimension. Because German cars and Japanese cars are famous for the high quality, customers with high education and income level think quality of cars more important while evaluating cars.
19 Plus, the need for utilitarian dimension is positive correlative with education and income level. While comparing Chinese cars with foreign cars, Chinese customers think economic dimension is the most significant strength of Chinese cars. In domestic market, the biggest competitors of Chinese car-makers are from Germany and Japan, because more people prefer German cars and Japanese cars rather than Chinese cars. On the other hand, in international market, the biggest competitors are from Korea, because of similarity between Chinese cars and Korean cars.
Chapter Ⅵ Results and analysis of stage 2—secondary data
Factor condition. In factor condition dimension of Chinese automotive industry, it is
the low salary that impresses scholars and car-makers most. For example, Chinese average annual salary in the year of 2007 is 24932 CNY (the bulletin of the average annual salary of an urban employee, 2007), which is approximately equivalent to 3.600 USD. German average annul salary in the year of 2007 is 40368 EUR (www.deyinxiang.com), which is approximately equivalent to 55.000 USD.(the exchange rate is according to www.xe.com, 21-05-2009)
Secondly, the shortage of energy is another factor which can influence the development of Chinese automotive industry. Chinese people can not forget the serious oil shortage which happened in 2005 and 2006. At gas stations, the cars which were waiting for oil formed long queues. As result of shortage of oil, the oil price increased a lot. Because of high oil price and the inconvenience which was caused by adding oil, the sales of some Guangzhou car-sellers even decreased by 50% in August 2005(www.southcn.com). Although the shortage of oil has been relieved, the problem is still existent.
20 Therefore, the relative low labor-cost, which can be one of competitive advantage, is the strength of Chinese automotive industry. However, because of the negative impact of high oil price and inconvenience to add oil on car sales, the shortage of oil may be the block of the development of automotive industry. The lack of independent R&D is another block of Chinese automotive industry.
Related and support industry. Automotive electronic industry is one of the most
important support industries of automotive industry. Automotive electronics includes body electronics, car audio and in car entertainment, carputers, chassis electronics and telematics. Nowadays, automotive electronic products make up about 25% of the cost of a car (paper.ce.cn). Furthermore, it is forecasted that in 2010, this percentage will grow to 40% (www.automotive-electronics.co.uk).
Chinese automotive electronic industry, which is similar with Chinese automotive industry, is short of the ability of R&D independently. As a result, although China has a big market, Chinese companies do not have good performance. In 2004, more than 70% of the market of electronic industry is occupied by foreign companies. In the rest 30% of the market, some is occupied by joint-venture firms. The market share of Chinese own brand is inappreciable (www.fmprc.gov.cn).
Therefore, as an important support industry, Chinese automotive electronic industry can not provide powerful support to Chinese automotive industry. Lack of advanced technology is the barrier of the development of Chinese automotive electronic industry, and blocks forming competitive advantage of Chinese automotive industry ulteriorly.
Firm strategy, structure, and rivalry. In the list of Top 30 China automobile
21 plays very important role in the development of Chinese automotive industry. I will state it in the next part.
The most serious threats to Chinese brand are from foreign brand and joint-venture companies. It is joint-venture car firms that occupy the largest portion of Chinese saloon-car market.
The list of sales Top 10 of 2005 shows that, except Tianjin FAW, Chery and Geely, all the other seven companies are joint-venture companies (Figure 8).
Figure 8 Sales of saloon-car in Chinese market, 2005
0 50000 100000 150000 200000 250000 300000 350000 Companies Sa les SHANGHAI-GM SHANGHAI-VOLKSWAGEN FAW-VOLKSWAGEN BEIJING-HYUNDAI GUANGZHOU-HONDA TIANJIN FAW CHERY DONGFENG-NISSAN GEELY
DONGFENG PEUGEOT CITROEN
Source: auto.sohu.com
22
Figure 9 Sales of saloon-car in Chinese market, 2006
0 50000 100000 150000 200000 250000 300000 350000 400000 450000 Companies Sa les SHANGHAI-GM SHANGHAI-VOLKSWAGEN FAW-VOLKSWAGEN CHERY BEIJING-HYUNDAI GUANGZHOU-HONDA GEELY
DONGFENG PEUGEOT CITROEN BRILLIANCE AUTO
CHANGAN-FORD
Source: www.autostr.org.cn
In the year of 2007, in the list of sales Top 10 in Chinese market, only two of them are independent Chinese automotive companies—Chery and Geely (Figure 10).
Figure 10 Sales of saloon-car in Chinese market, 2007
0 50000 100000 150000 200000 250000 300000 350000 400000 450000 500000 Companies Sales FAW-VOLKSWAGEN SHANGHAI-VOLKSWAGEN SHANGHAI-GM CHERY FAW-TOYOTA DONGFENG-NISSAN GUANGZHOU-HONDA GEELY CHANGAN-FORD
DONGFENG PEUGEOT CITROEN
Source: www.reportbus.com
23
Figure 11 Sales of saloon-car in Chinese market, 2008
0 100000 200000 300000 400000 500000 600000 Companies Sa les FAW-VOLKSWAGEN SHANGHAI-VOLKSWAGEN SHANGHAI-GM DONGFENG-NISSAN FAW-TOYOTA GUANGZHOU-HONDA BEIJING-HYUNDAI CHANGAN-FORD CHERY
DONGFENG PEUGEOT CITROEN
Source: www.21cn.com
Figure 12 indicates that among sales Top 10 of saloon-car in Chinese market in the first quarter of 2009, the number of joint-venture car companies is seven. Independent Chinese car producers are Chery, BYD, and Geely.
Figure 12 Sales of passenger-car in Chinese market, the first quarter of 2009
0 20000 40000 60000 80000 100000 120000 140000 160000 Companies Sa les SHANGHAI-VOLKSWAGEN FAW-VOLKSWAGEN SHANGHAI-GM BEIJING-HYUNDAI DONGFENG-NISSAN CHERY BYD GUANGZHOU-HONDA GEELY FAW-TOYOTA Source: auto.sina.com.cn
24
SHANGHAI-VOLKSWAGEN, FAW-VOLKSWAGEN, and GUANGZHOU-HONDA. In line with the results of survey research, the most
important competitor of independent Chinese car companies is Germany (Figure 6). And the biggest winner in Chinese car market is VOLKSWAGEN, which is from Germany (Figure 13).
Figure 13 Sales percentage of car companies in the Top 10 list
2005 2006 2007 2008 03-2009 Joint-venture companies SHANGHAI-GM , 14.70% 15.01% 14.04% 13.34% 11.74% SHANGHAI-VOLKSWAGEN 12.05% 12.78% 14.49% 14.99% 14.73% FAW-VOLKSWAGEN 11.73% 12.71% 14.89% 15.35% 14.41% GUANGZHOU-HONDA 10.00% 9.44% 8.11% 9.16% 7.30% BEIJING-HYUNDAI 11.06% 10.17% N/A 8.51% 10.94% DONGFENG-NISSAN 7.75% N/A 8.49% 10.56% 9.11% DONGFENG PEUGEOT CITROEN 6.91% 7.26% 6.74% 5.47% N/A
CHANGAN-FORD N/A 7.04% 6.92% 6.12% N/A
FAW-TOYOTA N/A N/A 8.74% 10.39% 6.92%
Independent Chinese companies
CHERY 9.06% 10.89% 10.45% 6.10% 9.03%
GEELY 7.38% 7.43% 7.13% N/A 7.27%
BRILLIANCE AUTO N/A 7.26% N/A N/A N/A
BYD N/A N/A N/A N/A 8.55%
TIANJIN FAW 9.35% N/A N/A N/A N/A
25
Figure 14 Market shares of joint-venture car companies among sales Top 10
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% 2005 2006 2007 2008 2009 Year Percen tage
According to figure 13 and figure 14, we can say that the distance between independent Chinese car companies and joint-venture companies is significant. Joint-venture car companies will occupy most share of Chinese car market in a long period. It may take a long time for car-makers with Chinese brand to catch up their joint-venture competitors.
The role of Government
As I stated previously, because of the special characteristics of Chinese social institution, the role of government is significant. “Development policy of automotive industry” is one of regulations which aim at guiding the development of automotive industry and market. This policy came into effect at the year of 2004. The government claimed that they would like to collect ideas to modify the policy on February 10th, 2009 (auto.cnfol.com). It indicates that central government attaches importance to automotive industry.
26 January 1st, 2009 (www.gov.cn). More specifically, the consumption of smaller cars is encouraged. The rate of car purchase duty of cars which are under 1.6L is reduced from 10% to 5% (www.caijing.com.cn). On supply side, according to “New Energy Subsidy Policy ”, the government will offer some subsidies for the sale of cars with the technology of new energy. At the end of this year, the government will provide 60000 CNY to per Chery S18 (electric car). In other word, the price of Chery S18 is 70000 CNY, but customers just need to pay 10000 CNY to get one (CCTV News). It is no doubt that this kind of policy can encourage car producers to R&D cars with new energy.
However, there is evidence that government’s influence on automotive industry is less and less. Central government constitutes a five-year plan for automotive industry. The latest one, which was implemented in 2006, was cancelled in 2008 (www.8cs8.com).
Chapter Ⅶ Conclusion SWOT List
Strengths
z Being good at economic dimension
z Low cost, especially low labor-cost
Weaknesses
z Lack of products with independent intellectual rights
z Automotive electronic industry is no mature
Opportunities z Chinese large market
z Support form government
z Basic needs of customers, which is relative easy to meet
Threats
z Foreign brand and joint-venture firms
z High Oil price
Strengths
27 economic dimension is one of strengths of Chinese automotive industry.
(2)Low cost, especially low labor-cost. Although the salary of Chinese labor increases every year, it is still much lower than the salary of most developed countries, because of the large distance between them. Hence, Chinese automotive should utilize this strength to form its competitive advantage.
Weaknesses
(1 )Lack of products with independent intellectual rights. As the developing of technology, advanced technology is more and more important for car-makers. Lack of independent intellectual rights is the biggest weakness of Chinese automotive industry. It not only slows the research and development of new product, but also cost more cost to buy technology from foreign countries.
(2) Automotive electronic industry is not mature. As one of the most important support industries, Chinese automotive electronic industry can not provide powerful support to Chinese automotive industry. The major reason, which is similar to the automotive industry, is lack of ability of independent R&D.
Opportunities
(1) Chinese large market. There is an old saying in China:” waterfront pavilions are always the first to enjoy the rising moon”. China has been the largest car market in the world. Such a large market can save transport fee for Chinese car companies, so that to sell cars at a low price. Furthermore, Chinese car companies can know about customers’ demand earlier and easier than foreign competitors. Therefore, Chinese large market is one of the opportunities of Chinese automotive industry.
(2) Support form government. As I states above, although the influence of government is less and less, centre government still play important role. Government provides both policy and capital support to Chinese automotive industry to development independent intellectual rights and cars with new energy.
28 Promoting quality is easier than promoting technology, and it can be achieved in a short time.
Threats
(1) Foreign brand and joint-venture firms. The biggest threats, also the biggest competitors, are foreign brand and joint-venture firms. Although China holds the largest market, the market share of Chinese car is much less than joint-venture firms. It is worse that there is no evidence shows Chinese car-makers will catch up their joint-venture competitors in a short period.
(2) High oil price. High oil price is not only the threat of Chinese automotive industry, but also the threat of automotive industry all over the world. This threat can not be solved thoroughly. In contrast, it will become more and more serious as the consumption of old energy.
Hence, Chinese automotive industry does not have significant competitive advantage in the international competition. Although it has relative low cost and price, gets support from government, close to the largest market in the world, and the demand of customers is easier to satisfied. Lack of ability of independent R&D in automotive industry and automotive electronic industry, the competition from joint-venture companies, and the lack of oil are huge obstacles which impede the progress of Chinese automotive industry.
Implications
For the short-term development, Chinese car-makers should improve product quality. Because utilitarian dimension is the first thing which Chinese customers consider when evaluating cars. Furthermore, improving quality is easier than improving technology, and it can be implemented in a short period. At the meanwhile, Chinese car-makers should keep the advantage of low cost. After all, economic dimension is the second important feature while evaluating cars.
29 in international car market, the first thing which Chinese car-makers should do is to improve technology. The more independent intellectual rights they have, the more competitive advantage they will gain. To face the shortage of oil, Chinese automotive industry should develop cars with new energy in advance to prepare for future competition. Meanwhile, the state should provide some capital to encourage the development of related and support industries of automotive industry, such as automotive electric industry, to help automotive industry to gain competitive advantage.
Limitations and future research
30
Reference:
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34
Appendix 1
Questionnaire-willingness of car-buying
调查问卷—购车意愿Introduction: The aim of this questionnaire is to investigate the willingness of
car-buying of Chinese consumers. The results of this survey will be only used in my master thesis. Please fill it according to your actual situations, and mark your answers in red. Thanks in advance！
说明：此问卷调查的目的是调查中国消费者在汽车购买方面的消费意愿。此调查的 结果将仅用于我的硕士毕业论文写作。请根据您的实际情况填写，将您选择的答案 标记为红色字体。谢谢！
Part 1 Personal information
第一部分 个人信息 1. How old are you?
您的年龄？ 2. What is your gender？
您的性别？ □ Male
男 □ Female 女
3. What is your highest completed level of education?
您的教育水平？
□ Below junior middle school 初中及以下 □ Senior middle school 高中
□ Bachelor Degree 本科或大专
□Master Degree and above 硕士及以上
4. How much is your income (RMB, per month)? 您的月收入水平（人民币）？ □Below 1500 1500 元以下 □1500-2500 □2500-3500 □3500-4500 □4500-5500 □5500-6500 □6500-7500 □Above 7500 7500 元以上
5. Which city are you in? 您的所在地？
35 6. Do you have a car (or more cars)?
您是否有汽车？
□Yes. Please go to Part 2. 是。请进行第二部分 □No. Please go to Part 3. 否。请进行第三部分
Part 2 Willingness of car-buying (for people who have car)
第二部分 购车意愿（针对有车人士）
1. How much is your car (RMB)? 您的汽车的价格（人民币）？ □Below 50,000 5 万元以下 □50,000-100,000 □100,000-150,000 □150,000-200,000 □200,000-250,000 □250,000-300,000 □300,000-350,000 □350,000-400,000 □400,000-500,000 □Above 500,000 50 万元以上
2. What is your motivation to buy this car?
您买车的主要目的是什么？
□For daily use 日常使用 □Travel on holidays 假日旅行
□Keep up with my friends 朋友们都买了，我不能落后 □This car can show my social class 这辆车能体现我的社 会地位
□Just because I like this car没有什么特别原因，喜欢就买 了
3. What features do you consider while buying a car? Please rank these features from 1 (the most important) to 5 (the least important).
买车的时候您考虑的因素都是什么？请将 各因素排序，将数字 1（代表最重要）至 5 （代表最不重要）填入括号中
( )□Symbolic dimension (such as prestigious, brand value, luxury, etc.) 象征因素（如：地位体现，品牌价值，奢华等） ( )□Sensory dimension (such as speed and fun to drive，
exciting, etc.) 感觉因素（如：速度与乐趣，兴奋感等） ( )□Economic dimension (such as oil consumption, price,
service, etc.) 经济因素（如：油耗，价格，服务等）
( )□Utilitarian dimension (such as reliable, durable, safe,
etc.) 实用因素（如：可靠性，耐用性，安全性等）
36 4. What are strengths of cars with Chinese
brand, compared with foreign brand cars? Please rank these features from 1 (the most important) to 5 (the least important). 与外国品牌的汽车相比，您认为中国品牌的 汽车的优点是什么？请将各因素排序，将数 字 1（代表最重要）至 5（代表最不重要） 填入括号中
( )□Symbolic dimension (such as prestigious, brand value, luxury, etc.) 象征因素（如：地位体现，品牌价值，奢华等） ( )□Sensory dimension (such as speed and fun to drive，
exciting, etc.) 感觉因素（如：速度与乐趣，兴奋感等） ( )□Economic dimension (such as oil consumption, price,
service, etc.) 经济因素（如：油耗，价格，服务等）
( )□Utilitarian dimension (such as reliable, durable, safe,
etc.) 实用因素（如：可靠性，耐用性，安全性等）
( )□Futuristic dimension (such as last technology, fashion,
etc.)前卫因素（如：最新技术，时尚外观等）
5. What is the country-of-origin of your
car? 您的汽车是哪个国家的品牌？ 6. Do you think the cars from which
country can meet your needs most? 您认 为哪个国家的汽车最能满足您的需要？
□Germany 德国 □Japan 日本 □America美国 □China中国 □France 法国 □Korea韩国 □India 印度 □Others其他 7. When evaluating cars, which country
has the most similar image of country-of-origin with China?
您认为哪个国家品牌的汽车与中国品牌的 汽车最相似？
□Germany 德国 □Japan 日本 □America美国 □France 法国 □Korea韩国 □India 印度 □Others其他
Part 3 Willingness of car-buying (for people who don’t have car)
第三部分 购车意愿（针对无车人士）
37 2. What is your motivation to buy this car?
如果您要买车，最主要的目的是什么？
□For daily use 日常使用 □Travel on holidays 假日旅行
□Keep up with my friends 朋友们都买了，我不能落后 □This car can show my social class 这辆车能体现我的社 会地位
□Just because I like this car没有什么特别原因，喜欢就买 了
3. What features do you consider while buying a car? Please rank these features from 1 (the most important) to 5 (the least important).
如果您要买车，考虑的因素会是什么？请将 各因素排序，将数字 1（代表最重要）至 5 （代表最不重要）填入括号中
( )□Symbolic dimension (such as prestigious, brand value, luxury, etc.) 象征因素（如：地位体现，品牌价值，奢华等） ( )□Sensory dimension (such as speed and fun to drive，
exciting, etc.) 感觉因素（如：速度与乐趣，兴奋感等） ( )□Economic dimension (such as oil consumption, price,
service, etc.) 经济因素（如：油耗，价格，服务等）
( )□Utilitarian dimension (such as reliable, durable, safe,
etc.) 实用因素（如：可靠性，耐用性，安全性等）
( )□Futuristic dimension (such as last technology, fashion, etc.)前卫因素（如：最新技术，时尚外观等）
4. What are strengths of cars with Chinese brand, compared with foreign brand cars? Please rank these features from 1 (the most important) to 5 (the least important). 与外国品牌汽车相比，您认为中国品牌的汽 车的优点是什么？请将各因素排序，将数字 1（代表最重要）至 5（代表最不重要）填 入括号中
( )□Symbolic dimension (such as prestigious, brand value, luxury, etc.) 象征因素（如：地位体现，品牌价值，奢华等） ( )□Sensory dimension (such as speed and fun to drive，
exciting, etc.) 感觉因素（如：速度与乐趣，兴奋感等） ( )□Economic dimension (such as oil consumption, price,
service, etc.) 经济因素（如：油耗，价格，服务等）
( )□Utilitarian dimension (such as reliable, durable, safe,
etc.) 实用因素（如：可靠性，耐用性，安全性等）
( )□Futuristic dimension (such as last technology, fashion,
38 5. If you would like to buy a car now,
which country would it be from? 如果您要买车，会买哪个国家品牌的车？
□Germany 德国 □Japan 日本 □America美国 □China中国 □France 法国 □Korea韩国 □India 印度 □Others其他 6. When evaluating cars, which country
has the most similar image of country-of-origin with China?
您认为哪个国家品牌的汽车与中国品牌的 汽车最相似？
1. Age 104 29.28 5.67 2. Gender 104 1.52 0.50 -0.19 3. Education 103 3.41 0.51 -0.08 -0.12 4. Income 103 5.05 1.85 0.21* 0.07 0.13 5. Location 104 2.17 0.74 0.18 -0.09 -0.41** -0.08 6. Price 104 3.35 1.48 0.02 0.03 0.22* 0.00 -0.05 7. Motivation 95 1.24 0.77 -0.06 0.06 0.02 -0.02 -0.08 0.10 8. Symbolic dimension-while evaluating cars 90 4.06 1.06 0.09 0.11 0.01 0.01 -0.15 0.01 -0.00 9. Sensory dimension-while evaluating cars 90 3.54 1.09 -0.01 0.14 0.03 0.20 -0.08 0.10 -0.01 0.04 10. Economic dimension-while evaluating cars 97 1.93 1.03 -0.15 -0.01 0.15 0.08 -0.04 0.17 0.15 -0.29** -0.24* 11. Utilitarian dimension-while evaluating cars 98 1.68 0.94 0.03 -0.14 -0.15 -0.23* 0.14 -0.16 -0.11 -0.39** -0.54** -0.06 12. Futuristic dimension-while evaluating cars 92 3.71 1.06 -0.01 -0.04 -0.00 -0.06 0.11 -0.08 -0.07 -0.45** -0.37** -0.34** 0.15 13. Symbolic dimension-compared with foreign cars
92 4.23 1.21 0.07 0.02 0.08 -0.01 -0.15 0.05 -0.05 0.57** 0.22** -0.29** -0.37** -0.22*
14. Sensory
dimension-compared with foreign cars
91 3.11 0.90 -0.08 0.13 0.16 0.17 -0.17 0.12 0.12 0.10 -0.26* 0.00 -0.36** -0.07 0.17
1
with foreign cars 16.
Utilitariancompared with foreign cars
93 2.54 1.07 -0.07 -0.07 -0.01 0.03 0.09 -0.06 -0.06 -0.10 -0.09 0.03 0.18 0.05 -0.38** -0.39** 0.08
17. Futuristic
dimension-compared with foreign cars
92 3.64 1.13 -0.03 0.10 -0.14 -0.04 0.12 -0.06 0.04 -0.16 -0.15 -0.01 0.18 0.14 -0.35** -0.37** -0.04 -0.24*
18. Cars from which country can meet your needs best?
100 2.20 2.12 0.04 -0.13 -0.21* -0.20* 0.15 -0.12 -0.04 -0.19 -0.12 -0.07 0.19 0.17 -0.16 -0.22* 0.10 -0.13 0.36**
