The new automotive landscape in China: local players get in the game.
China's top five automotive companies, which between them control 67 percent of the market, have either already completed M & As or are in merger talks. Recent M & A activity includes Shanghai Automotive Industry Corporation's acquisition of China National Automotive Industry Corporation; Changan's purchase of Jiangling, and potential merger with Zhongxing. Ongoing merger discussions are taking place between Hafei and Changhe, SAIC and Hongyan; Chery and First Automotive Works-Yangzi are in serious talks.
The revised policy marks a radical about-turn for the Chinese government. Over the past 15 years, it has tried to push consolidation within the industry by strictly controlling joint ventures. Its success in creating a consolidated market, in which local players could compete with global OEMs, was limited.
Companies that depend on local protection and local political struggles for their existence continue to be commonplace in almost every province. Their small scale, low efficiency and lack of experience make them inferior competitors to international OEMs, which have the upper hand in product development, branding, cost control as well as sales and distribution management. These companies will become fodder for competitive local OEMs trying to build up their market share. Further M & A activity among local Chinese OEMs is inevitable. This consolidation process will likely leave only four or five automotive giants in China. Yet it will also mean the end of the road for hundreds of small companies.
Global OEMs should be concerned about the Chinese government's revised policy. They need to consider three aspects.
1. Global OEMs should carefully reconsider their overall China strategy and honestly answer the following questions. What are our overall objectives for China? Where do we want to compete? Do we want to treat China as a market only, or are we trying to leverage China as a local cost production For global business?
2. Global OEMs need to reevaluate their partnerships in China. Companies need to determine whether the partner and partnership can survive and thrive under the new policy. OEMs need to decide whether they need to invest in new partnerships or smoothly phase out existing ones.
3. Global OEMs need to act quickly. In coming years, room to maneuver will decrease as Chinese companies take advantage of the new policy. Local OEMs will get larger, become more powerful and will have control over their own strategic development.
By Vivian Zheng, partner, Roland Berger Strategy Consultants, Shanghai, email@example.com
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|Title Annotation:||Original Equipment Manufacturers|
|Comment:||The new automotive landscape in China: local players get in the game.(Original Equipment Manufacturers)|
|Publication:||Automotive Design & Production|
|Date:||Apr 1, 2006|
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