The Path to Globalization of China’s Automotive Industry

Topics: Automotive industry, Automobile, Automobile industry in China Pages: 12 (3700 words) Published: September 6, 2013

Bill Russo Edward Tse Tao Ke

The Path to Globalization of China’s Automotive Industry

Contact Information Beijing Bill Russo Senior Advisor +86-10-6563-8300 Shanghai/Beijing Edward Tse Senior Partner +86-10-6563-8300 +852-3650-6100 +86-21-2327-9800 Tao Ke Principal +86-21-2327-9800

Booz & Company


China is the world’s factory for “everyday low price” merchandise. Sara Bongiorni’s amusing yet engaging book titled A Year Without ‘Made In China’ chronicles an American family’s futile attempt to boycott purchases of Chinese products for one year. The unexpected challenges of fulfilling such a resolution were felt when attempting to purchase footwear, eyewear, clothing, print cartridges, children’s toys, mousetraps and many other things. According to the US Census bureau, the trade deficit with China in 2008 stood at $266.3 billion, with China imports valued at $337.8 billion compared with U.S. exports valued at $71.5 billion. The message is clear: China dominates the production of everyday household goods. It just seems logical to assume that it’s simply a matter of time before China becomes an exporter of the most symbolic cultural icon: the automobile. In this second article in a 3-part series on the China auto industry, we will describe the challenges faced by Chinese original equipment manufacturers (OEMs) in going global, and will highlight the role of Mergers and Acquisitions (M&A) as a plausible but high-risk means of accelerating this process.

Booz & Company



Let’s consider a few facts. As featured in the first article of this series entitled The Coming Structural Realignment of China’s Automotive Sector, China has rapidly become the largest car market in the world. In fact, China has surpassed the US in automotive sales for the first half of 2009, posting sales of 6.1 million units versus 4.8 million vehicles sold in the U.S. market. It seems like all the ingredients are there for the “Chinese automotive factory” to expand to the global markets. In fact much of the content in cars sold in the US and elsewhere today already does come from China. Because a significant percentage of the total cost of a car is in the manufactured components, there has already been a significant movement of the production of supplied parts to China. A great many of the components used in cars today either are or can quickly be manufactured in China. This is purely driven by the efficiencies gained from sourcing in China. So, for those who are awaiting the arrival of the Chinese car: what you may not

realize is how much Chinese content may already be in your current car. However, our focus here is on the export of Chinese-branded vehicles. Despite the rally in China’s domestic sales, China exported only 61,000 vehicles in the first quarter of 2009, a decline of 62% from the previous year. China auto insiders have pointed to the overall decline in worldwide demand as the reason, particularly in such key markets as Russia where protectionist measures have had a direct impact on vehicles entering the market. But this is not a complete explanation. This article attempts to explain why China has not become a major vehicle exporter, what challenges must be addressed, and highlights the pathways to globalization of the China automotive industry, drawing historical references to the trajectories taken by the Japanese and Korean car makers. Finally, the role of an “inorganic” approach through M&A or the purchase of foreign assets is discussed in detail.

As was noted in the previous article, there are numerous structural problems in the China automotive industry that result from the highly fragmented landscape of licensed car manufacturers. The fact that that there are over 150 registered manufacturers is an outgrowth of a start-up phase for China’s auto sector. Provincial...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • The Automotive Industry Essay
  • Essay on Automotive Industry and Toyota
  • effects of globalization on the automotive industry Essay
  • External Industry Analysis in the Automotive Industry Essay
  • Automotive Industry Essay
  • Toyota's Objectives in Global Automotive Industry Essay
  • Essay on globalization
  • Economic Indicators in the Automotive Industry. Essay

Become a StudyMode Member

Sign Up - It's Free