Book review: American Wheels Chinese Roads
The book reveals why doing business in China is an uncertain endeavour.
American Wheels Chinese Roads: The Story of General Motors in China
By Michael J. Dunne Wiley
Pages: 227; Price: $29.95
Have you ever wondered why no Indian company has ever made it big in China? Well, the strange and unfamiliar rules prevailing there make doing business in the Middle Kingdom a very uncertain endeavour. Most Indian corporate houses are still testing the waters rather than taking the plunge. Michael J. Dunne, President, Dunne & Company, a Hong Kong-based investment advisory firm, captures the existing climate best in this book saying: "If you gauge China accurately and have a little luck, you make a fortune. Get it wrong and there will be no good Samaritans to help you out of the road side ditch."
One foreign company that has tasted enormous success in China is General Motors (GM). Even as it faced heavy weather after the 2008 financial crisis in all the other markets it operated in, its performance in China remained good. In 2010, GM sold over a million Buicks, Chevrolets and Cadillacs in China and generated profits of about $1 billion. This marked the first time that GM sold more vehicles in China than in the US. Today China accounts for about 25 per cent of the company's total sales. As much as it captures GM's success story, the book also explains the very many 'potholes, detours, U-turns, setbacks, surprises and disappointments' a foreign company faces while doing business in China.
Every foreign company needs a licence to operate in China, and to get the licence, in many sectors, it needs a local partner. While this rule exists in many countries, what is unique about China is that in most cases the partner is the state or city governments. These partners tend to dominate in such a manner that the book quotes a western automotive expert as saying: "Some days it feels we're just like concubines."
When it comes to names, the Chinese partner's name always comes first - Guangzhou-Toyota or Beijing Hyundai, to give two examples. The rules then get stranger. The Chinese partner, if it is a staterun unit, can have multiple joint ventures in the same sector. Thus, Shanghai Automotive Industry Corporation (SAIC), owned by the City of Shanghai, is a partner with GM in Shanghai GM and with Volkswagen in Shanghai Volkswagen. Add to this confusion the regulations that can change without much warning. Again, the government offers subsidies only to select state-run companies, not all. Even worse, as GM realised, its own partner SAIC could hold secret talks with Volkswagen, the partner of its other JV, to bring in a more modern product to counter Shanghai GM's proposed new product. Such an environment is hardly conducive to trust, points out Dunne.
The book reveals many interesting details - how the powerful in China, for instance, prefer to buy black sedans, or how cars which have a long waiting list are seen as superior. Chinese consumers tend to look askance at products that are too readily available, says Dunne. Also, the Chinese value their money and 'keep the change' is an attitude frowned upon.
The 2008 financial crisis and GM's inability to raise funds forced the company to sell one per cent stake to SAIC. Today Shanghai GM is a Chinese-owned company and GM is more or less just a large shareholder, with the company's board dominated by Chinese. GM seems to be just fine with it as of now, but what happens if its relationship with SAIC turns sour? Considering the uncertainty involved in dealing with China, Dunne has chosen to leave that unanswered.
N. Madhavan
By Michael J. Dunne Wiley
Pages: 227; Price: $29.95
Have you ever wondered why no Indian company has ever made it big in China? Well, the strange and unfamiliar rules prevailing there make doing business in the Middle Kingdom a very uncertain endeavour. Most Indian corporate houses are still testing the waters rather than taking the plunge. Michael J. Dunne, President, Dunne & Company, a Hong Kong-based investment advisory firm, captures the existing climate best in this book saying: "If you gauge China accurately and have a little luck, you make a fortune. Get it wrong and there will be no good Samaritans to help you out of the road side ditch."
One foreign company that has tasted enormous success in China is General Motors (GM). Even as it faced heavy weather after the 2008 financial crisis in all the other markets it operated in, its performance in China remained good. In 2010, GM sold over a million Buicks, Chevrolets and Cadillacs in China and generated profits of about $1 billion. This marked the first time that GM sold more vehicles in China than in the US. Today China accounts for about 25 per cent of the company's total sales. As much as it captures GM's success story, the book also explains the very many 'potholes, detours, U-turns, setbacks, surprises and disappointments' a foreign company faces while doing business in China.
Every foreign company needs a licence to operate in China, and to get the licence, in many sectors, it needs a local partner. While this rule exists in many countries, what is unique about China is that in most cases the partner is the state or city governments. These partners tend to dominate in such a manner that the book quotes a western automotive expert as saying: "Some days it feels we're just like concubines."
When it comes to names, the Chinese partner's name always comes first - Guangzhou-Toyota or Beijing Hyundai, to give two examples. The rules then get stranger. The Chinese partner, if it is a staterun unit, can have multiple joint ventures in the same sector. Thus, Shanghai Automotive Industry Corporation (SAIC), owned by the City of Shanghai, is a partner with GM in Shanghai GM and with Volkswagen in Shanghai Volkswagen. Add to this confusion the regulations that can change without much warning. Again, the government offers subsidies only to select state-run companies, not all. Even worse, as GM realised, its own partner SAIC could hold secret talks with Volkswagen, the partner of its other JV, to bring in a more modern product to counter Shanghai GM's proposed new product. Such an environment is hardly conducive to trust, points out Dunne.
The book reveals many interesting details - how the powerful in China, for instance, prefer to buy black sedans, or how cars which have a long waiting list are seen as superior. Chinese consumers tend to look askance at products that are too readily available, says Dunne. Also, the Chinese value their money and 'keep the change' is an attitude frowned upon.
The 2008 financial crisis and GM's inability to raise funds forced the company to sell one per cent stake to SAIC. Today Shanghai GM is a Chinese-owned company and GM is more or less just a large shareholder, with the company's board dominated by Chinese. GM seems to be just fine with it as of now, but what happens if its relationship with SAIC turns sour? Considering the uncertainty involved in dealing with China, Dunne has chosen to leave that unanswered.
N. Madhavan
