1、Global carmakers could manage their costs and capital in Chinaand gain a strategic option for their global operationsby contracting out the manufacture of whole vehicles to Chinese companies.PAUL GAO The McKinsey Quarterly, 2002 Number 1Faced with the prospect of stagnant global sales over the next
2、five years, the world抯 biggest carmakers are jockeying for a share of one of the few buoyant national markets. China抯 domestic car sales, growing at more than 10 percent annually, will probably account for 15 percent of global growth over the next five years. So far, global automakers have pursued s
3、uccessful joint-venture strategies by investing heavily in assembly plants operated by Chinese partners. But as competition in China heats up, a new tack may be needed in the quest for profitable market share.An asset-light strategy would have the major auto companies concentrate on what they do bes
4、tdeveloping products and brandswhile contracting out not just component supply but also the whole assembly process to Chinese automakers that can capitalize on competitive cost structures. Although scaling back capital investment in such a healthy market might seem bold, outsourcing manufacturing is
5、 neither uncommon in other industries nor entirely unprecedented in this one. Moreover, the nature of the Chinese auto industry and market makes outsourcing particularly attractive. Outsourcing might also help Chinese automakers take their first steps to becoming a global manufacturing resource. But
6、 if the strategy is to work, global carmakers must build up the skills of these Chinese partners, which in turn must embrace contract manufacturing as a more profitable path to creating a globally competitive industry than launching their own brands.COMPETITION IS ABOUT TO HEAT UPWith sales of 2.1 m
7、illion-plus units in 2000, China buys more four-wheeled vehicles than all but six other national markets, yet its passenger car market is still in the early stages of growth. Indeed China, with only 600,000 car sales a year, has fewer than 10 passenger cars on the road per 1,000 people, compared wit
8、h 250 in Taiwan and more than 500 in Germany and the United States. But demandpromoted by better roads, new sales and distribution channels, the deregulation of the auto market, and China抯 entry into the World Trade Organization (WTO)will increase as the country抯 economy continues to grow (Exhibit 1
9、).The dominant production and sales joint ventures between global and local companies have the best position for meeting that demand. Only 15 years after Volkswagen entered the market, more than half of the passenger cars sold in China roll out of VW抯 Changchun and Shanghai joint ventures. Other for
10、eign joint ventures account for nearly all the resta further 43 percent (Exhibit 2). In the shadow of these foreign alliances, 20 domestic carmakers share just 3 percent of the market.As global companies focus more and more on China, local manufacturers will do well to hold even that meager share; t
11、hey concede too much ground in R&D, product development, and sales and marketing. In addition, DaimlerChrysler, GM, and VW plan to expand; Ford Motor has set up the company抯 first passenger car joint venture; and BMW has announced that it is discussing with Brilliance China Automotive the possibilit
12、y that the Chinese company might assemble its 3-series and 5-series models in China.What is more, these global carmakers are planning, for the first time, to introduce new models and upgrades in China within months of their launch in more mature markets. This development will surely end the reign of
13、 the VW Santana, a 1970s-era model that has long been out of production elsewhere but, offered without even a facelift for over 15 years, is China抯 best-selling car. China抯 entry into the WTO will cut import tariffs drastically, heightening pressure on local producers (Exhibit 3). It will also allow
14、 global carmakers to own businesses in which they have unmatchable advantages: sales, service, and distribution, as well as loan services to car buyersservices that are sure to be welcome in a market where personal credit is scarce.For global brands, the strategic issue is no longer whether to enter
15、 the market or how to compete with Chinese companies but rather securing or consolidating profitable market share. For Chinese automakers, this means that their ambitions will increasingly depend on the strategies of those global companies.THE NEED FOR AN ASSET-LIGHT STRATEGYCompeting in China invol
16、ves big money: a capital investment of $1.5 billion for GM抯 Shanghai plant alone, for example, as well as $1.7 billion for the two facilities of VW抯 joint ventures. Thanks to protection of the industry, this investment has largely paid off: with tariffs ranging from 80 to 100 percent, models bear price tags up to 150 percent higher than those in the United States and Europe, allowing successful joint ventures in China to enjoy levels of profitability no
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