Volkswagen China

Ivan R. Wikanta | Alben Octorys Suherman |Xing Liting

Why CHINA??

Why Auto Manufacturers are very eager to invest in China?

To capture the demand by growing Chinese market - By 2002, VW AG has already sold over 500,000 cars in China (Business Monitor, 2008) Country Attractiveness : - China has biggest population in the world (over 1.3 billion people). (Chinese Government Statistics, 2008) - The biggest Export & Import in Asia : Export US$1.581 trillion. Import US$ 1.327 trillion. (CIA World Factbook, 2008) - The biggest in current balance : US$305.4 billion (CIA World Factbook, 2008)

Why China? (continued)

Industry Globalization Potential (Michael E. Porter, 2010) Source : http://growthequity.wordpress.com/2011/05/19/global-expansion/

Why China?
China Competitiveness Index
Shanghai Taxi Taxi Shanghai Beijing Number of Automobile Per 100 Urban Households (unit) Total Amount of FDI (USD million) Foreign Funded Co. 2006 2005 2004

Number of Staff Employed by Foreign Funded Units

Shanghai Beijing Average Wage hired by Foreign Funded Company (rmb/year) Shanghai Beijing Average Wage (rmb/year) GDP (100 million yuan) 0 200,000 400,000 600,000 800,000 1,000,000

2003

2002
2001 2000

Volkswagen CHINA

Volkswagen China

Volkswagen China Timeline (Volkwagen AG, 2010) Source : http://www.vgc.com.cn/cds/?menu_uid=551

VW China

The investment of Volkswagen in China : > 6 billion Euros (1984 to 2005). Volkswagen is currently represented by 13 companies in China
1. Shanghai Volkswagen Automotive Company II. FAW Volkswagen Automotive Company III. Further Companies

Shanghai Volkswagen Automotive Company Founding year 1984 (production start: 1985) Headquarters Shanghai Equity holders Volkswagen AG (40%), VW (China) Invest (10%), SAIC (50%)

Employees 2006 11,111

Products Passat, Touran, Polo hatchback, Polo saloon, Golf, Santana, Santana Variant, Santana 3000
Source : http://www.vgc.com.cn/cds/?menu_uid=556

VW China

FAW-Volkswagen Automotive Company Founding year 1990 (production start: 1991) Headquarters Changchun/Jilin province Equity holders Volkswagen AG (20%), VW (China) Invest (10%), Audi AG (10%), FAW (60%) Employees 2006 8,847 Products Volkswagen: Sagitar, Golf, Bora (hatchback and notchback), Jetta, Caddy

Source : http://www.vgc.com.cn/cds/?menu_uid=556

VW China

Further Companies Volkswagen (China) Investment Company in Beijing (VW AG 100%) Volkswagen Transmission (Shanghai) Company (gear boxes), VW (China) 60%, FAW 20%, SAIC 20% Volkswagen FAW Platform Company (power train), VW 60%, FAW 40% Shanghai Volkswagen Powertrain Company (engines), VW (China) 60%, SAIC 40%

Volkswagen FAW Engine (Dalian) Company (engines), VW (China) 60%, FAW 40%
SAIC-Volkswagen Sales Company, SAIC 50%, VW (China) 30%, SVW 20% FAW-Volkswagen Sales Company, FAW-VW 99%, FAW 1% Volkswagen Import Company, VW (China) 100% Volkswagen Finance (China) (financial services) VW AG 100% Sitech Dongchang Automotive Seating Co. (seats), Sitech GmbH 60%, Dongchang 20%, Etern 20% Volkswagen Beijing Center Company (sales, service), VW (China) 70%, Source : http://www.vgc.com.cn/cds/?menu_uid=556 Automobile Repair Company Beijing 30%

Pricing Strategy of VW China

The NMS Passat is made in China by the ShanghaiVW joint venture and called New Passat. It was launched yesterday two days before the start of the Shanghai Auto Show. Engines: 1.8 TSI, 2.0 TSI and 3.0 V6. Price starts at 218.800 yuan and ends at 310.800 yuan. See below for details.

Source : http://www.carnewschina.com/2011/04/18/volkswagen-new-passat-listed-priced-in-china/

Market Competitiveness

Source : http://www.vgc.com.cn/cds/?menu_uid=556

Government Policies & International Regulations (WTO)

WTO and China

China joined the WTO on December 11st 2001 as the 143rd member. Conditions for China to enter WTO include (1) the lowering of tariffs for imports, (2) the permission of foreign firms to sell directly in the Chinese domestic markets and (3) the opening of the telecommunication and finance sectors to more foreign competition.

Source: www.wto.org

WTO and China

Source: www.people.com.cn

WTO Changes for the Auto Industry

Source: Gao (2002)

Source: Asian Automotive Industry Forecast Report. Global Insight, April

Local Partners

Source: MBAlib

Local Partners

SVW Shanghai plant was by far the winner among all new JVs, as it produced cars that could function as taxis, vehicles for government officials. Incentive to Shanghai taxi companies, helped ensure a safe market in the companys relatively wealthy home arena. This is an ongoing business as old taxi with 500,000 thousand km mileage will be replaced by new cars. This is a sustainable business for Volkswagen.

Impact of WTO in China

Positive impacts: 1. The Chinese economic system is a bureaucratic market economy. The bureaucrats in many state enterprises are politically protected. They can receive substantial gains without working hard for the enterprises. The same bureaucracy applies to the banking sector. Foreign competition could provide a powerful force to combat bureaucracy and inertia in Chinese economic institutions Firms that fail to compete will have to find ways to downsize, to reorganize or to adopt new technology and new ways of management in order to survive

Impact of WTO in China

2. The gain from specialization through international trade. The gain is achieved by a change in the composition of outputs. With lower tariffs and more foreign goods made available in domestic markets, total products for consumption will increase. Increased exports will also stimulate the growth of GDP. 3. Competition from imports and from foreign owned enterprises in China will force domestic firms to become more efficient. 4. The psychological effects resulting from the status of membership may make the leaders more willing to adopt democratic reforms and make the Chinese citizens more willing and patient in following their leaders in guiding the gradual political changes in China towards a more democratic government

Impact of WTO in China

Negative impacts: 1. Additional unemployment can be caused by the failure of domestic manufacturers 2. Rapid changes in legal institutions may involve breaking down the social fabric of the Chinese people as they abandon their former ways to settle disputes and attempt to adjust to the new legal system. As political stability is important in promoting changes toward democratic institutions, rapid changes in political institutions may generate political instability and be harmful to the adoption of democratic institutions

Competition

Competition
General Motors
In 2001, GM begin selling the Buick Sail, based in Opel Corsa, starting at $12,000 and equipped with dual airbags and anti-lock brakes

Ford
Ford bought a 30 percent stake in China's Jiangling Motors. Beginning in 1997, Ford began producing a commercialpassenger van, the Transit, and other small trucks with Jiangling Motors In September 2008, Ford announced it would begin construction on its 3rd plant in Chinaa $490 million factory in Chongqin

Japanese Automakers
Japanese carmakers are in a tough fight for shares of the skyrocketing Chinese auto market.

A Joint Venture with China Brilliancie produced a version of the Chevy Blazer and S1-10 pick-upbrakes

Despite the explosive growth of the Chinese market, sales of Japanese cars have failed to expand, with market share actually dropping from 25.7 percent in 2008 to about 20 percent in 2010 Nissan Motor Co. was the only Japanese firm to sell a million cars in China last year.

Future Competition : In April 2011, GM said it hoped to double sales in China by 2015 to 5 million vehicles

The plant will make 150,000 vehicles a year boosting Fords annual production to 600,000 vehicle

Source : http://www.chinatoday.com.cn/English/y200212/wto.htm

Competition

China imported 17,268 automobiles -- an increase of 12.6 percent Import value amounted to US $442 million -- an increase of 16.3 percent. Total imports of luxury cars with an exhaust volume of 3.0 or higher at six ports of entry increased by 94.7 percent

Source : http://www.chinatoday.com.cn/English/y200212/wto.htm

Future Predictions

By 2015 -> become greatest number of domestic car sales and produce the most (export). Expected exceed 18 million (january october 2010 sales figures already exeed to 14.7 million)

Auto imports will not soar since china is expected to cancel its car import.

Source :

Sustainability

Is VW China Sustainable?
Current Market Situation & Outlook
The opening up of the Chinese market as a result of their WTO membership in 2001 means, that all internationally active car manufacturers are now present in China with joint venture partners. The unchanged fierce competition steps up the pressure on the entire sector. The opening up of the Chinese market as a result of their WTO membership in 2001 means, that all internationally active car manufacturers are now present in China with joint venture partners. The Chinese passenger car market grew in Mainland China 2006 by a further 26.1%, expanding to 4.15 million units. The VOLKSWAGEN Group again leads the Chinese passenger car market in 2006 with a share of about 17.1%. The Chinese passenger car market is expected to show healthy development in the mid-term. The still low motorisation rate in comparison with international levels and the governments highly goaloriented policies serve to substantiate these assumptions.
Source : http://www.vgc.com.cn/cds/?menu_uid=556

Is VW China Sustainable? (continued)

Demand & Sales Figure Sales in Asia Pacific were up 17.6% at 2.15m with China accounting for 1.89m of those. (Just Auto, 2008) With annual growth hovering above 30 percent in recent years, the Chinese auto market is rapidly surpassing the United States as the worlds most lucrative and strategically important. Foreign-origin brands, most of which are manufactured in China through joint ventures, accounted for 64 percent of total sales in 2010, according to the China Association of Automobile Manufacturers. (New York Times, 2008) In 2007, the Group's sales of 1.9 million units in China represented 26.7% of its worldwide sales and this rose to 27.4% in the first nine months of 2008. Note that VW's two Chinese joint ventures, Shanghai-Volkswagen Automotive and FAW-Volkswagen Automotive, are not consolidated subsidiaries but VW reports their vehicle sales in its consolidated totals. (Automotive World, 2008)

Product Piracy

References

Industry Globalization Potential (Michael E. Porter, http://growthequity.wordpress.com/2011/05/19/global-expansion/ Volkswagen Group China (Volkswagen AG, http://www.vgc.com.cn/cds/?menu_uid=551

2010) 2010).

Source: Source

: :

China News Daily (2008). Source http://www.carnewschina.com/2011/04/18/volkswagennew-passat-listed-priced-in-china/ China Today (2002). Source : Source : http://www.chinatoday.com.cn/English/y200212/wto.htm KPMG (2010). Source : http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/GlobalAuto-Executive-Survey-2011.pdf Just Auto (2008). Source : http://www.just-auto.com/news New York Times (2008). Source : http://www.nytimes.com/pages/world/index.html Automotive World (2008). Source : http://www.automotiveworld.com/news/oems-andmarkets United States Office of Automotive Affairs (2002) Chinas Automotive Market World Trade Organization www.wto.org Gao, Paul (2002), A Tune-up for Chinas Auto Industry, McKinsey Quarterly, No.1, p144155 MBAlib source: http://doc.mbalib.com/view/efb668cde3bfbf988493ade2c364d123.html

Thank Youuuuuuuu for Listening!