Summary
The case study is about General Motors and its recent success due to Chinese joint ventures. The company, which became the largest automobile company in the US in 1980 and then entered bankruptcy protection in 2009, the case has highlighted its rise and fall but ended with a rise in 2016. According to the case, General Motors has decided timely to enter the Chinese market. It is not paying off, and the future of the company looks promising. The article highlights how a company can explore avenues of growth by decisions like joint ventures. China has a high potential growth in the coming decades.
GM entered the Chinese market at a time when demand was very limited. Why? What was the strategic rationale?
The strategic rationale to enter the Chinese market for GM was clear to make inroads into the huge Chinese market despite the low penetration of vehicles in the market. The company entered the Chinese market in 1997 with a huge investment of $1.6 billion, and at that time, its US business was also profitable. Also, China was posting high economic growth in those years. Entering a country which has protectionist policies was the strategic decision of the company to be the first mover while developing expectations that the Chinese automobile market would grow in the future. Companies have to invest money as well as time to develop the market of their products, and this was what GM did.
Why did GM enter through a joint venture with SAIC? What are the benefits fo this approach? What are the potential risks?
A joint venture with SAIC was inevitable for GM. First, it was necessary because GM lacked knowledge of the Chinese market, which might otherwise be a costly decision. Second, GM was anxious to enter the Chinese market to capitalize on its potential in the coming decades, and Chinese regulations and law do not allow any foreign automobile to do business alone. The benefits of the joint venture are obvious as GM gets knowledge and expertise of local culture. Risks involve a lack of integration between the parties which have not emerged yet. However, there may be a stage when both parties may FACE differences, especially when SAIC was confident enough to challenge GM.
Why did GM not simply license its technology to SAIC? Why did it not export cars from the United States?
Apart from the joint venture, GM could have decided in favor of licensing or exporting cars from the US. Certainly, these are also modes of foreign entry, so far as textbook topics are concerned. However, exporting cars to China from the US was not viable when it might require the presence of such policies between countries. The automobile is not an ordinary product like common commodities. Moreover, Chinese policies discourage large imports, and they want the production to take place on their soil. Licensing to SAIC might have been an option, but it was not in favor of GM. This decision could not give it firsthand knowledge about the Chinese market, and it had to be dependent wholly on SAIC.
Why has the joint been so successful to date?
Joint ventures are highly successful to date because of the active involvement of both parties in the venture. Both parties rarely develop a conflict of interest because they add their expertise and knowledge to the relationship, and they feel each party is important to the relationship. The case of SAIC and GM joint venture can be given as an example where both parties need each other fundamentally. GM has long experience of the automobile business, and SAIC has Chinese specific knowledge; therefore, both parties are successful to date. Other than a joint venture, any party might gain more than others, which may develop confrontation in the future.
As of 2018, GM appears to be increasing its strategic commitments to China by building more factories and opening more dealerships. Why is the company making these bets? Do you think it is doing the right things?
As of 2018, GM seems to be highly strategically interested in the Chinese automobile market, and it is inevitable for the company given the nature of the industry. Automobile industry requires a huge strategic investment, which requires some serious effort with strategic partnerships. In recent years, the company’s sales have increased year by year, and it required the whole chain of factories and dealerships in China. Moreover, its joint venture with SAIC is also progressing successfully. Therefore, there is no need to raise questions on this policy. In case of any real threat, the decision can be taken on the occurrence of such an incident.
