One of the major topics of debate in the Chinese automobile industry is the potential of domestic own brand manufacturers to successfully expand into foreign markets. According to statistics posted by the China Association of Automobile Manufacturers, China exported a total of 486,800 automobiles in the first half of 2013. 294,300 of those exports were of passenger automobiles, up 2.3 percent from the previous year. China Association of Automobile Manufacturers Deputy Secretary General Dong Yang pointed out that Chinese car export volumes in the first half of the year outperformed expectations.
However, compared with more developed markets, China's automobile export output is still relatively low. Furthermore, both total and commercial vehicle exports decreased this year. The appreciating value of the RMB, decreasing foreign demand and increasing barriers to free trade have all hindered the growth of Chinese automobiles exports.
In order to better understand industry opinions on the Chinese automobile market, Gasgoo.com (Chinese) conducted a week-long survey, collecting opinions from 1,508 figures in the industry.
In the first question of the survey, participants were asked why China's total automobile exports experienced slight negative year-on-year growth from 2012 to 2013. 46 percent of respondents stated that the problem lied with the lacking competitiveness of Chinese vehicles when compared with offerings from other manufacturers. The rising value of the RMB and falling demand in foreign markets were each cited as the most probably cause by 19 percent of the votes, while another ten percent of respondents pointed to rising trade barriers.
Automobiles are financially demanding goods to make. On that point, Chinese passenger and commercial automobile manufacturers, due in part to their smaller budgets, are still outmatched by their foreign rivals in the fields of automobile safety, technology and environmental friendliness, leading to their lack of competitive advantages. Furthermore, Chinese automobile exports are still mainly limited to the Middle East, Africa, Latin America and former Soviet Republics, whose citizens have relatively low purchasing power when compared to those of more developed markets. Finally, Chinese manufacturers still specialize at selling economy-class vehicles, which require them to sell higher volumes in order to make substantial profits.
At the same time, Chinese industries specialty in providing cheap goods makes them an easy target for protectionist policies. The country’s automobile manufacturers are not exempt from this phenomenon. China Association of Automobile Manufacturers Secretary General Cui Dongshu pointed out that Chinese manufacturers, which are relatively inexperienced in the export market to begin with, are especially prone to being targeted by foreign governments' protectionist policies. Such governments include Brazil and Russia, which were two of the leading buyers of Chinese automobiles. Both countries have enacted policies limiting automobile imports in order to encourage growth in their domestic industries. The only way for Chinese manufacturers to continue selling in the same volumes to those countries is by manufacturing their vehicles in them directly. However, this would increase their expenditures and in turn boost their prices, thus forcing them to relinquish their competitive advantage.
The steadily rising value of the RMB has been another issue affecting companies from across the country looking to export goods to foreign markets. Furthermore, the RMB, which begun appreciating as early as 2011, is expected to become even more expensive over the next few years. This issue will pose a significant challenge for Chinese companies, including automobile manufacturers, in the future.
Considering the number of obstacles Chinese automobile manufacturers selling in or looking to sell in foreign markets have to deal with it, it seems fair to say that their path to becoming international competitors is much more difficult than ever before. When asked whether or not this is in fact the case, the majority of survey participants, 58 percent, agreed. Only 17 percent believed otherwise, while the remaining 25 percent were undecided.
What sort of company can be considered a global enterprise? While there is some debate as to that answer, the general consensus is that a global enterprise draws upon resources allocated around the globe in order to produce the most cost-effective and highest quality products for sales in various markets. The first step to becoming a global enterprise lies in successful exporting, which includes sales of products via authorized distributors in the target country. This is the phase which most Chinese manufacturers are still in, with only a few of them having taken the next step to establish knockdown factories in foreign countries.
However the current state of international economic relations is continuing to prove a limiting factor for the transnational expansion of China’s automobile industry. Due to the continuing trade deficit most countries have with China, the country is particularly vulnerable to becoming the victim of trade protectionist policies. One prime example of this is the recent decision by Brazil to raise taxes on imported vehicles, which has forced Chery and other Chinese manufacturers to reduce their sales to the country. Combined with the rising value of the RMB, which has led to internal inflation and raised production costs across all industries, Chinese manufacturers have to face quite a challenge if they wish to expand into foreign markets.
How Chinese manufacturers will take on this challenge is one of the most important issues facing the industry. In the final question of the survey, participants were asked to select which method they believe would be most effective for the country’s manufacturers to take to succeed in the export market. 39 percent of participants answered that Chinese manufacturers’ best bet at internationalization is to acquire mature local and multinational manufacturers operating in target markets. 22 percent, meanwhile, proposed that Chinese manufacturers should take advantage of the emerging field of new energy vehicle technology to jump into new markets. On the other hand, 25 percent maintained that the country’s manufacturers must not stray from the traditional process of transitioning from vehicle exports to local regional production, despite the difficulties they are currently encountering. The remaining 14 percent of respondents had other ideas in mind.
Acquiring overseas companies would not only help Chinese manufacturers increase access to distribution and customer service networks in foreign markets, but it would also help them boost their overall technological and quality control levels. However, the complexity involved with these sorts of acquisitions poses a major challenge to still relatively young Chinese manufacturers. Just a quick glance at the history of the country’s manufacturers’ attempts to purchase foreign enterprises reveals how difficult the process actually is. The problems they have encountered are numerous. Firstly, due to the rapid growth of Chinese automobile manufacturers
