Video #29: China Car Sales
Monday, June 05, 2006BACKGROUND INFORMATION
Over the past few years, China has overtaken Britain, France, Germany and Japan in domestic car sales and is now the world’s second-largest market for automobiles (after the U.S.). Its demand for cars is predicted to continue growing steadily, and while American and other foreign countries are competing for sales, they’ve faced surprising competition from local Chinese companies that are trying to use their “home advantage” in the market.
In a little over a decade, domestic vehicle makers like the Chongqing Lifan Industry Co. and Geely Automobiles have taken off within their own country. Lifan is listed as one of the top motorcycle manufacturers in the world and as of June, 2005, had annual revenues of roughly $735 million. As of 2004, Geely had already sold 96,000 vehicles or 4% share of the domestic market, making it China’s 6th largest manufacturer. Both firms are also developing plans to expand their operations worldwide. In September 2005, Geely was one of the first Chinese auto companies to attend the Frankfort Motor show, and announced five lines which it plans to sell in Europe in 2007. Geely is also currently planning to be the first Chinese automaker to export its cars to the United States in 2008. In 2006, Lifan was the sole bidder for a DaimlerChrysler car engine manufacturing plant in Brazil, which is regarded as one of the more advanced in the world and whose technology would enhance its global export ability.
However, if Chinese companies hope to market their products worldwide, they must address the stigma that Chinese-made products are of inferior quality and less safe than those from other countries. To counteract these stereotypes, many companies plan to launch aggressive marketing campaigns. As John Harmer, Geely USA’s Vice-President and COO argues, many of Geely’s engineers have spent years training in Detroit, working for major US auto manufacturers. He adds, “they know their industry and they know engineering standards.”
The main advantage these companies have over foreign competitors is their access to China’s gigantic pool of cheap labor. Although Lifan only hires 8700 employees compared to General Motors’ 324,000, it pays them a fraction of what American GM workers make (sometimes paying as little as 75 cents an hour). The Chinese government also forces multi-national companies like GM and Ford to form 50-50 joint ventures with local companies as a condition of being allowed to assemble automobiles within the country. As a result of these ventures, Chinese automakers often stand to make a lot of money and to acquire sophisticated technology and design resources. Utilizing these advantages, analysts believe they are poised to cause a major shake-up in the global auto industry within a few years.
SOURCES
“Car Type : Lifan Logo”
Segura Incorporated. May 10th, 2006
http://www.cartype.com/page.cfm?id=1424
“China Seeking Auto Industry Piece by Piece”
The New York Times. February 17th, 2006.
http://www.nytimes.com/2006/02/17/business/17auto.html?
ex=1297828800en=e573b9457b475a84ei=5088partner=rssnytemc=rss&pagewanted=print
“Thanks to Detroit, China is poised to lead”
China Radio International – English. May 17th, 2006
http://en.chinabroadcast.cn/2946/2006/05/17/189@90384.htm
“Pedal to the Metal in China”
MacroChina. July 25th, 2001.
http://www.macrochina.com.cn/english/analysis/commentary/20010725001729.shtml
“China’s Geely makes it’s mark in Detroit”
MSNBC.com. January 11th, 2006.
http://www.msnbc.msn.com/id/10779158/
“Humble Tycoon wants to take on Detroit”
New Zealand Autocar. May 24th, 2006.
http://www.stuff.co.nz/stuff/0,2106,3678554a30,00.html
“Geely Automobile” wikipedia.com.
May 21st, 2006.
http://en.wikipedia.org/wiki/Geely
LESSON PLAN
GRADE LEVEL/SUBJECT:
10-12 grade Economics, International Relations, World History, Geography, International
Baccalaureate Programs (IB), Current Events.
PURPOSE:
To present activities to be used in a variety of classroom situations to enhance
student understanding of the Chinese market for automobiles, and the ability
of Chinese manufacturers to computer for a share of the auto market domestically
and abroad.
MATERIALS:
1. Background information provided.
2. Resources on China available at your school’s Media Center and the
Public Library System in your area.
3. Background information available through Internet “search engines.”
OBJECTIVES
Students will be able to:
1. understand the advantages and disadvantages of running a car manufacturing
operation in the US or in China.
2. gain a basic understanding of the challenges faced with competing with larger
businesses worldwide and domestically.
3. conceptualize start-up business strategies in an emerging market.
ACTIVITIES:
May be assigned as group activities or as individual tasks. They may also be
designed as preparation for related presentations either by individuals or groups.
1. Have the students research and draw a table demonstrating the pros and cons
of an American carmaker entering the Chinese market or a Chinese carmaker entering
the American market.
2. Have the students list the stereotypes associated with items that originate
from a certain country, like China. Debate whether these stereotypes are justified.
Then ask: how would they combat such stereotypes if trying to market a product?
3. Split the students into small groups. Each group will represent their own
start-up business in a country of their choice. Have them research and report
on how their strategy for breaking into and holding marketshare. Also incorporate
research as to
why that country represents a good potential market for the product or service.
EVALUATION:
Individual assignments should be graded by the teacher using established criteria.
Group activities, presentations and projects may be evaluated by teachers and
students using the following criteria and scale:
Content 1 = Superior (A)
Creativity 2 = Excellent (B)
Clarity 3 = Good (C)
4 = Fair (D)
5 = Poor (F)
