China’s carmakers ten years away from being competitive in the US and Europe, says new Economist Intelligence Unit report China’s carmakers are gearing up to compete internationally and have strong political backing, but they still have much to do Are China’s car manufacturers about to take the world by storm? Not yet, says Driven: Are China’s car manufacturers ready to compete in the US and Europe?, a new report by the Economist Intelligence Unit. The Chinese government’s long-held desire to develop an internationally competitive indigenous vehicle industry is coming closer to fruition, however. Although China’s carmakers do not present an immediate threat to their counterparts in the US and Europe, the speed at which the Chinese are moving suggests that “foreign carmakers should watch out”, says Graeme Maxton, regional director of the Economist Intelligence Unit's Corporate Network and co-author of this briefing paper, sponsored by Roland Berger Strategy Consultants. China has an under-developed automotive sector which the government hopes will become part of the future economic foundations of the country. China’s carmakers will start exporting cars to the US and Europe within the next few years. But it will take 10-15 years before Chinese firms begin to technologically challenge producers in North America and Europe. The Economist Intelligence Unit report says that China’s carmakers are expected to ship low-cost cars of doubtful quality at first, to get a foot in the door—just as the Japanese and South Koreans once did. But China’s cars will have to compete on brand, quality, safety, emissions and technology if they are to succeed long term. The following are key findings of the briefing paper, which is based on interviews with industry analysts, manufacturers, suppliers and Chinese and joint-venture carmakers: - China’s carmakers must develop a strategy to become fully integrated automaking enterprises. The industry’s traditional reliance on reverse engineering is reducing, with an increasing number of Chinese firms instead deciding to partner with global design and engineering consultants in order to launch new vehicles. Domestic carmakers are also borrowing management and technological skills from their European, US and Japanese joint-venture partners. But, while this will assist carmakers in bringing vehicles to market in the short-term, longer-term success will require the development of more indigenous skills.
- The trend towards buying foreign automotive brands carries risks. While companies like Shanghai Automotive Industry Corporation have the courage and money to develop their own brands, some of China’s carmakers are choosing to acquire existing brands, as Nanjing Automobile has done with MG Rover of the UK. Acquisition gives China’s carmakers access not only to a target company’s products but also to its technology and customer base. Industry experts warn, however, that such overtures by China’s carmakers could provoke a political backlash in the target companies’ countries of origin. There are also questions about the real value of these ailing foreign brands and their capabilities.
- The Chinese government has put its political and financial might behind automotive exports. The central government wants auto exports to increase substantially from 2005 and China’s share of the global vehicle trade to climb to 10% between 2020 and 2035. Towards that end, it is helping automakers with funding and the introduction of beneficial policies. The Chinese government’s support is being augmented by financing from foreign dealers and investors keen to import Chinese-made cars to Western markets.
Driven: Are China’s car manufacturers ready to compete in the US and Europe? is sponsored by Roland Berger Strategy Consultants and available free-of-charge at:
http://www.eiu.com/site_info.asp?info_name=eiu_executive_summary_China_cars Editor’s notes:
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Edgar Fernandez, Tel: +852 2585 3826, e-mail: edgarfernandez@economist.com About the research
The report is based on numerous interviews with car manufacturers and suppliers, consultants and Chinese and joint-venture carmakers, as well as analysis of China’s standing in the global automotive industry. The findings and views expressed are those of the Economist Intelligence Unit alone. About the Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper. The Economist Intelligence Unit provides geopolitical, economic and business analysis on more than 200 countries, as well as strategic intelligence on key industries and management practices. With over 300 full-time professionals in 40 offices around the world, supported by a global network of more than 700 contributing analysts, the Economist Intelligence Unit is widely known for its unparalleled coverage of major and emerging markets. Available in October 2006 from the Economist Intelligence Unit –
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Edgar Fernandez, Tel: +852 2585 3826, e-mail: edgarfernandez@economist.com About the Economist Intelligence Unit
The Economist Intelligence Unit, the business information arm of The Economist Group, publisher of The Economist, is the world's leading provider of country intelligence, with over 500,000 customers in corporations, banks, universities and government institutions. Our mission is to help companies do better business by providing timely, reliable and impartial analysis on market trends and business strategies. |
