GM CHINA

Summary
General Motors was founded on September 16, 1908 by William Durant. GM is one of
the large major auto manufacturers in the United States. The company is also known for creating
innovative designs such an air bag system and the catalytic converter (GM Media). GM
eventually decide to expand their operations and began to increase their foreign direct
investments in potential areas such as China. The firm had also adjust to the foreign market
demand that were quite different than their home countries demands. For example, in China,
consumers were interested in compact vehicles with smaller engines, the exact opposite of
American consumers (Miller). In order for General Motors to achieve success in China, GM had
to design and innovate their products to specifically appeal to their host countrys interest.
Today General Motors is one of the largest global auto manufacturer and a major investor
in China. In 2012, GM announced they would open four manufacturing plants in China by the
end of 2015. General Motors likely does not need to export cars from other southeast
manufacturing locations as they have a established good market presence in China and they can
avoid compromising their profits because of the rising costs. Second, China has shown excellent
growth in 2009 when 13.8 million and in 2010 18 million automobiles were sold in their own
country (Miller).
GM China started a joint venture with SAIC due to strict PRC government regulation.
This joint venture came with the advantage of being partnered with a successful company that
was familiarized with the Chinese market and helped guide GM to establish a new branch.
Although GM succeed through this joint venture, it came with the potential risk of losing a major
part of the company.

Qs.1:
General Motors wanted to enter the Chinese Auto market due to its low demand and few
number of cars being sold which meant less competitors. However, GM had to face one major
entry barrier with strict Chinese government regulations which had been troublesome for foreign
companies before. In 1997, General Motors had spent a 1.6 billion dollar investment to establish
a joint venture with Shanghai Automotive Industry Corporation, one of the largest four
automotive corporations (Miller). This joint venture served two main purposes for GMs strategy.
The first purpose for the joint venture was to overcome the government restrictions and Shanghai
Automotive Industry Corporation (SAIC) was a state-owned business which helped put GM in
good relations with the Chinese government. The second purpose was for General Motors to
understand the Chinese market needs, demands and consumers. GM went further and established
joint ventures with other business such as the local producers which helped obtain more costeffective supplies and materials for their productions. These joint ventures also helped GM gain
an advantage over competitors such as Volkswagen.
One major part of General Motors strategy was modifying their products for their Chinese
customers. GM had consulted with SAIC over various designs, features, etc. that consumers had
been requesting. GM at first would bring their own brands such as Buick and Chevrolet to the
host countries and innovate them for consumers. This strategy rationale quickly began to pay off
as GMs products sold very rapidly in a market where cars were not sold in high numbers nor
were they for personal uses (Miller). Unlike other firms that were present in China, GM did not
make small investments, due to how small the market small at the time (Schifferes). General
Motors believed by innovating their cars for a specific small market, they would quickly become
the dominant force in the auto industry along with SAIC. This strategy became so successful that

General Motors had managed to surpass their competitors and even surpass their sales in the
United States by 2010 (Schifferes).
Another vital part of GMs strategy rationale was how flexible GM was with their plan. While
General Motors had generating large amounts revenue in China, GM had faced the trouble of the
2008 financial crisis. Sales began to drop at this time but GM had quickly adapted to a new idea
that was still part of their strategy. General Motors had decided to design fuel efficient vehicles
as the Chinese government had established numerous environmental programs. This course of
action quickly proved to beneficial to both GM and consumers as the government offered
benefits such as tax rebates for energy efficient vehicles. Also, one important thing to understand
was that gasoline prices during this time had begun to rise sharply (Miller). GMs decision had
quickly became a win-win scenario for both consumers and the government who had been
encouraging citizens to switch to environmental friendly cars. General Motors had demonstrated
their ability to quickly adopt new ideas while maintaining their overall strategy rationale.
Today, General Motors is one of the leading automotive corporation both in China and in global
markets. GM has established a significant market presence in China and has managed to stay on
top of their competitors. Currently, GM has a total of 11 joint ventures and is interested in
continuing to increase their sales and operations while innovation their brands (GM Media).
Qs2:
GM decided to enter China through a joint venture with SAIC because government
regulation made it harder for foreign companies to enter the Chinese Market alone. WFOE has
been used as a way for foreign investors to operate in China, but unfortunately not all sectors are
open to WFOEs (Folta). Joint Ventures are preferred when foreign companies want to enter
industries where PRC (People's Republic of China) government restricts foreign investment.

PRC keeps domestic companies dominant and getting approved by the PRC government is
difficult to obtain which makes it almost impossible for a foreign company to successfully
expand in China (Folta). Joint venture with a local industry can help speed up the process and get
approval.
Advantages for GM's joint venture was that SAIC was familiar with government
regulations, competitive conditions, and the Chinese business system which made it easier for
them to expand in China. Over the past years, GM has had more sales than their host country
than their home country. In 2010 GM, sold about 2.3 million and continues to show a strong
growth (China business review). One major advantage for General Motors was the cost
effectiveness of entering the Chinese markets. GM had began to hire local workers for more cost
effective labor and procure materials from Chinese suppliers as they were significantly cheaper
than their U.S. counterparts (Ross). Also, General Motors initially had the benefit of relaxed
environmental regulations in China compared to EPA standards.
Although GM had positive outcomes from its joint venture, it had one main disadvantage
which was losing some or all control of company. In this case GM acquired a 44% stake and
SAIC 50.1% stake (White). GM has less control than SAIC, but GM has gain more control than
previous years which was 34% stake (White). Another challenge for GM would be the possibility
that consumers in China might not be attracted to the products they produce in the future and
lose consumers to its competitors. Also a risk China might face is not being able to maintain a
strong auto industry in a country that consumes a high amount of imported oil on transportation
without running the risk of not having enough oil for all autos they are producing and selling in
China.

Qs3:
GM did not simply license its technology to SAIC for several reasons. GM would of been
the licensor because they were looking to expand their business and products into a market that
they had no presence in but it was a good way to test the waters in a new country and try to
extend the life of their product. Shanghai Automotive Industry Corporation would of been the
licensee which is a company that already had presence, familiarity with the market, and name
recognition in China most likely in return for a royalty payment to GM, the licensor. General
Motors was not planning on opening a plant in that China, they were going to continue to
operate this plant from the United States where their current corporation and name recognition
was. If they would of licensed its technology they would of had no manufacturing or marketing
control because a licensee has no control over these. By licensing their technology they would
of also created more competitors. Knowing that this territory was new for them but seeing the
potential growth they decided to take a chance and enter it and kept in mind that they were going
to potentially lose money the first couple of years. They acknowledged it was best to team up
with a current existing company in China instead and decided to partner up with Shanghai
Automotive Industry. During that time the automobile industry in China was very small even
though population was over 1 billion and growing so GM saw the potential to sell over 3 million
vehicles per year by the year 2000. Also, Chinese government regulations were so harsh and
strict that it was challenging to enter their market in China. This is why GM decided to enter as a
joint venture instead of licensing their technology. By entering as a joint venture, GM gained the
experience, knowledge and contacts to run a successful company in China.
Qs.4:
General Motors have various plants in South East Asia such as South Korea, Thailand,
Philippines and Indonesia, but China has been the most profitable and effective plant until now.

General Motors can produce suitable vehicles car for Chinese market if it opens a facility of
SAIC in other southeast countries. Generals Motors does not produce suitable cars for China in
Southeast countries or South Korea as China has a lot of rules and regulations to import cars.
Second, the Chinese government encourages it's own automobile industry. It can also import
parts from the Pan Asian Technical center which is responsible to design cars in China and they
made components for other southeast countries which makes China to export cars to other
nations in the world. Earlier this year in June, GM closed down its plant in Indonesia too where
they used to manufacture the Chevrolet as Toyota beat them with their 35% market share
compared to their 2% share only. According to Mr. Jacoby based in Singapore and GM chief of
International operations, We are focusing our investments where the opportunity for GMs
growth is greatest, (Grant). This is one of the reasons that General Motors chose China to make
most of its cars. These decisions were taken after GM saw weakened sales in Thailand which fell
more than one-third to only 881,800 units. GM also has hurdles in Indonesia where its Japanese
rivals have beaten them in sales as well they have established supplier and dealers networks.
According to an old article, August 122013, we also see that GM planned to shut down the plant
in South Korea where one-fifth of all GM vehicles were built. The rising costs of manufacturing
and various unions related issues caused them to relocated the Opel Mokka from Korea to Spain
earlier in 2011. Even if other southeast countries were able to produce vehicles for Chinese
market, China would be most feasible because of the above obstacles in the mentioned southeast
countries.IHS forecasts that GM would be selling about 38,000 Envisions in the U.S. by 2017,
compared to about 126,000 it is now selling annually in China. (Isidore).
In conclusion, China is now the largest automobile market for manufacturing cars, the
other southeast Asian countries are introducing new schemes and chosen for low labor and

manufacturing costs. Based on this data, China is a suitable location to produce and sell cars.
China is going through tough times at the moment, but it is still feasible to run the plant and it is
not at a risk which will force GM to transfer to another country. The above reasons also apply
that GM China should not even import cars from other Southeast Countries.
UPDATE
There have been minor updates where there was a decline in sales in China for GM cars
after 2010. That was mainly because Chinas economy overall had slowed down as well GMs
models had some issues. In the media report from GM china that starting of 2015; they sold 1.9
Million cars in the first seven months. This helped make the decision to open four manufacturing
plants in China by the end of 2015. This success was possible because the demand rose from
2014 by 3.3%, new product launches and the mix of SUVs and MPVs. GM China also had new
model changeovers and they phased out the old Chevrolets. (GM Media).GM has also seen a
decline in Chinas economy where even automobile sales fell by 3.4% in August compared with
a year ago. Even though the growth rate has slowed down from 14% in 2007 to 5%, it still
represents more economic output because the economy is much bigger in numbers.
GMC is selling one of their most popular car brands, Chevrolet Le Chi mini-car, under
Baojun brand in China which is one of chinas lowest-cost automobile in China (GM Media).
Since China imports its oil and GM is producing an enormous amounts of cars, the Baojin will
benefit the Chinese government helping save on oil since the car will has a 5.1 liter fuel
consumption (GM Media).General Motors plans to continue and increase their operations in the
Chinese sector. GM had also release a statement claiming that the firms plan to double their sales
to 5 million by the end of the year (Huffington). China has shown to be a lucrative market for the
auto industry and will likely be so in the future as interest in the market continues to grow.

TAKE AWAY VALUE

It was a great knowledgeable learning experience, where I toured General Motor all the
way, starting from its history until when I got to know their recent plans. There was extensive
research involved where I also realized that China has become the leading manufacturer of
automobiles in the world. China being poor is still attractive to foreign investment because it is
showing rapid growth. I also learned that when entering a new foreign market, it is not easy to
compete against the Domestic competition so the major success of General Motor came to
existence when they collaborated with SAIC. The time of entry is also very vital and GM did
some good quality market research before joining their hands with SAIC when they saw
potential of selling over 3 million cars over three years.
This projected helped me understand the material from the textbook by actually
experiencing it on an actually successful company like GM China. I learned that its not easy for
a company to expand in a foreign company without the help of a domestic company. Companies
who want to expand to foreign countries most have a localization strategy in order to meet the
taste of
consumers in the host country and also beware of the resources available in order to produce
products that can successfully be sold.
The assignment shown me how invaluable a joint venture can be in a foreign market
with completely different customer demands. GMs joint venture with SAIC was almost a
necessity just to enter the Chinese market alone. Government restrictions had become
increasingly strict for foreign firms who wished to enter China and the regulations were very
costly. Also, this assignment brought to my attention strategically appealing to consumers
demand and further innovating existing products to attract new consumers. The strategy itself

was not without risk, as some of the cars GM had designed had no guarantee that they would
become popular or even successful enough to cover costs.
CITATIONS
Grant, Jeremy. "GM Faces Reality Check in Southeast Asia - FT.com."Financial Times. 27 Feb.
2015. Web. 19 Oct. 2015.
<http://www.ft.com/cms/s/0/a336b45e-be2d-11e4-9d09-00144feab7de.html#axzz3p4J9gnQQ>.
"GM to Build Wuling Vehicles in Indonesia with Chinese Partners." Bloomberg.com.
Bloomberg, 1 Feb. 2015. Web. 19 Oct. 2015.
<http://www.bloomberg.com/news/articles/2015-02-02/gm-to-build-wuling-vehicles-inindonesia-with-chinese-partners>.
Isidore, Chris. "GM May Import a Buick Built in China." CNNMoney. Cable News Network, 18
Aug. 2015. Web. 19 Oct. 2015. <http://money.cnn.com/2015/08/18/autos/gm-export-buickchina-us/>.
"GM Sells Record 1.95 Million Vehicles in China in First 7 Months of 2015." Media.gm.com. 6
Aug. 2015. Web. 19 Oct. 2015.
<http://media.gm.com/media/cn/en/gm/vehicles.detail.html/content/Pages/news/cn/en/2015/aug/
0806_sells-record.html>.
S. Schifferes, Cracking Chinas Car Market, BBC News, May 17, 2007; N. Madden, Led by
Buick, Carmaker Learning Fine Points of Regional China Tastes, Automotive News, September
15,
2008, pp. 18690; GM Posts Record Sales in China, Toronto Star, January 5, 2010, p. B4; and
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Sales in China Top US, Investors Business Daily, January 25, 2011, p. A1.
Mourdoukoutas, P. (2013, February 19). How GM Wins In China. Retrieved October 19, 2015,
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(2014). Retrieved October 19, 2015, from
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Miller, P. (2011, April 1). General Motors Races Ahead in the China Market. Retrieved October
19, 2015, from http://www.chinabusinessreview.com/general-motors-races-ahead-in-the-chinamarket/
Ross, L. (2010, September 1). Choosing a China Investment Vehicle. Retrieved October 19,
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Folta, P. (2005, January 2). Cooperative Joint Ventures. Retrieved October 30, 2015, from
http://www.chinabusinessreview.com/cooperative-joint-ventures/
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Chevrolet Le Chi to Be Sold Under Baojun Brand in China. (n.d.). Retrieved October 31, 2015,
from
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5_Lechi.html