BUSINESS STRATEGY & ENTERPRISE MODELING (MM5012)

Does GM’s Future Lie in China?

By

Bianda Puspita Sari (29319355)

Gilang Permana Rachman (29319392)

Ibrahim Ma’ani (29319343)

Lauren Angelina (29319486)

Muhammad Arif Rahmanto (29319365)

Class: GM-10

Lecture: Dr. Ir. Muhamad Toha

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT

INSTITUT TEKNOLOGI BANDUNG

2021
Summary:

Given the sheer size of the U.S. automotive market, the “old” GM concentrated mainly on its
domestic market. GM once held more than 50 percent market share in the United States and was
the leader in global car sales (by units) between 1931 and 2007, before filing for bankruptcy in
2009.1 In its heyday, GM employed 350,000 U.S. workers and was an American icon. The
future for the “new” GM may lie overseas, however; most notably in China. The Chinese market
is becoming more and more important to GM's performance. In 2016, GM sold 3.9 million
vehicles in China alone, which is 39 percent of total GM cars sold.

In 1997, GM formed a joint venture with Shanghai Automotive Industrial Corp. (SAIC), one of
the “big four” Chinese carmakers. Over almost 20 years, GM was able to develop guanxi—
social networks and relationships that facilitate business dealings—with its Chinese business
partners and government officials.

Although struggling in the United States, GM’s Cadillac luxury brand is in high demand in
China GM’s best-selling model in China, however, is the Wuling Sunshine, a small, boxy, purely
functional “micro van” priced between $5,000 and $10,000 depending on what options the
customer chooses. The SAIC-GM joint venture sold almost 2 million Wuling vehicles in China
in 2014. GM’s low-cost strategy with this vehicle has been so successful that the firm is planning
to expand the Wuling product line and offer the vehicle globally. GM already sells the Wuling
Sunshine in Brazil under the Buick nameplate.

Taken together, China and other emerging economies in Asia, Latin America, and the Middle
East are becoming more and more critical to GM’s future performance as it strives to become a
lean and low-cost manufacturer of profitable small cars (at least for its non-U.S. markets). Yet,
given the slowdown in the Chinese economy combined with devaluation of the Chinese currency
(the yuan), the competitive intensity in the world’s largest automobile market is becoming more
intense. Moreover, several government-supported domestic car manufacturers in China are
initiating a cut-throat price war to gain market share and with it scale.

Problem Analysis:

20% of China's population will be able to afford a car and the market is expected to maintain the
growth until double digit. On the other hand, the prices have fallen 25% from ‘01 0 ‘04 and
expected to fall 10% per year. GMAC first foreign company allowed to finance car loans and
current market vehicle profit was $2267 in china while itu just $145 in USA. GMCIC has no
control over government regulation, so the problem statement is “GM (china) investment
corporation needs to implement a strategy to manage their joint ventures in order to maintain
profitability.

Background:

The future for the "new" GM may lie overseas, most notably in China. Some 65 percent of GM's revenues
are now from outside the United States. The Chinese market is becoming more and more important to
GM's performance. In 2016, GM sold 3.9 million vehicles in China alone, which is 39 percent of total
GM cars sold. China's share of GM's total sales is on a steady climb, reaching 40 percent of total revenues
in 2017. GM entered the Chinese market early. In 1997 , GM formed a joint venture with Shanghai
Automotive Industrial Corp. (SAIC), one of the "big four" Chinese carmakers. SAIC is one of the largest
companies worldwide and included in the Fortune Global 100 list (ranked 46th,just behind Amazon.com
and before Hewlett-Packaril.z Over 30 years, GM was able to develop guanxi-social networks and
relationships that facilitate business dealings-with its Chinese business partners and government officials.
Although struggling in the United States, GM's Cadillac luxury brand is in high demand in China, where
owning a Cadillac is considered a status symbol. The SAIC-GM joint venture sold almost 2 million
Wuling vehicles in China in 2014. The Wuling Sunshine may help GM further penetrate the Chinese
market; it also may be an introductory car for other emerging markets. After years of losing money and
acrimonious parent-subsidiary relationship, GM sold its Opel (Germany) and Vauxhall (United Kingdom)
divisions to Peugeot of France in 2017. In the same year, Barra also announced that the U.S. automaker
will discontinue selling cars in India. This further retrenchment will allow GM to focus more on China
and Brazil overseas, and to fend off tech startups such as Tesla and Uber in the United States, where it
made an equity investment in Lyft, which in turn partnered with Waymo, Alphabet's self-driving car unit.
Given the slowdown in the Chinese economy, combined with continual devaluation of the Chinese
currency (the yuan) since 2014. Moreover, several government-supported domestic car manufacturers in
China are initiating a cut throat price war to gain market share and, with it, scale. As the quality and
technology expertise is rapidly increasing at domestic car manufacturers, many Chinese consumers are
increasingly turning to local brands instead of the pricey foreign models from the United States and
Europe.

Discussion Question:

1. How important are non-U.S. sales to GM? What implications does this have for GM's
global and business strategy? Think about the integration-responsiveness framework to
inform global strategy and different strategic positions to inform business strategy.

Answer:

The importance of non-U.S. sales to GM is the additional capital that is being injected
into the organization. This allows GM to have the opportunity to be innovative and in line
with consumer demand, both globally and domestically. But it is sales that can ensure an
organization has revenue and doesn't just break even on economies of scale. And in order
to stay competitive, GM needs to ensure that their products are sold not only to get
feedback from consumers, but also to their future demands.

2. In 2016, GM held almost 15 percent market share in China, while Ford held only 3
percent. Why was GM so successful in China, while some of its rivals, including Ford,
struggled to gain a stronger position in the world's largest automobile market?

Answer:

In China, GM’s Cadillac brand is in high demand, since owning a Cadillac is considered
a status symbol. GM entered the Chinese market in early 1997, GM formed a joint
venture with Shanghai Automotive Industrial Corp. The SAIC-GM joint venture sold
almost 2 million Wuling vehicles in China 2014. The Wuling Sunshine may help GM
 further penetrate the Chinese market, it also may be an introductory car for other
emerging markets. GM’s low cost strategy with this vehicle has been so successful that
the firm is planning to expand the Wuling product line and offer the vehicle globally.

3. What are the challenges GM is currently facing in the Chinese automobile market? How
should GM's CEO address them? Be specific.

Answer:

When the 2014 economic situation experienced a devaluation of the Chinese currency
(yuan), the competitive intensity in the world’s largest automobile market was becoming
more intense. Moreover, several government supported domestic car manufacturers in
China are initiating the cut throat price war to gain market share. For instance, GM’s own
joint venture partner SAIC as well as other domestic companies such as great Wall Motor
Co, are increasingly competing with GM for market share. As the quality and technology
expertise is rapidly increasing at domestic car manufacturers, many Chinese consumers
are increasingly turning to local brands instead of the pricey foreign models from the US
and Europe. On the side GM’s they should work in horizontal integration with the local
car manufacturers in this case with Shanghai Automotive Industrial Corp (SAIC) and
work together in innovation such as development in electric cars and how the
environment will impact in the future, with the development of electric cars.