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Decoding The Chinese Auto Industry Success Formula : Special Feature
Posted on 24 Jan 20124,568 Views Comments
The rise of the Chinese automobile industry at our shores, can it be sustained? Tarandeep Ghai is the Principal of the Delhi office at the Boston Consulting Group and he has penned this feature exclusively for ZigWheels
The decade gone by brought much to cheer to the Chinese automobile industry. While the early part of that decade saw the global attention to meet the ever increasing local demand and the blossoming of multiple strong names on the local automotive landscape, the latter half saw the emergence of China as a hub for automotive exports to countries across the world. For example, the exports of motorcycles increased from over 2.5 million in 2001 to over 9 million units last year, and that for passenger cars rose from a mere 10,000 units plus to over 200,000 in this period – symbolising the emergence of China as a hub for automotive exports for countries across the world1.
Three key drivers have led to this phenomenal growth. Firstly, massive economies of scale, distinct labour advantage and much lower spends on R&D have enabled the Chinese to offer price tags which the local players in India and the rest of the world find hard to match. Secondly, agility and flexibility of the Chinese players in their speed to market of new products, features and specs on existing line-up is unmatched, providing them the springboard to capture share, much before local players can react to it. Thirdly, industry friendly policies of the Chinese government have played a key role. Incentives in the form of friendly tax structure, cash benefits for setting up new units and strong export benefits are offered to promote investment in the sector. Being an export-driven economy, the government keeps a strong control over the exchange rate and further, the Free Trade Agreements entered into by China with several export destinations allows auto manufacturers to be more competitive.
The dragon's personality
Looking at the success of the Chinese players, two clear traits can be best associated with their game plan – price warriors and market creators. The clear value proposition in most markets that the Chinese players offer is lowest price. They have established new norms of pricing and putting significant pressure on the local incumbents in several markets. In many others they have just driven the competition out. Many markets in which the Chinese are now successful are those where they went in and created a completely new segment which had no prior access to automobiles. For example, several African countries like Kenya, Morocco, Egypt etc have witnessed the rapid increase of motorcycle sales, largely driven by Chinese-led OEMs trying to create a market which did not exist earlier.
But the sustainability of such a strategy is always a question – so far, the Chinese seem to have targeted multiple markets, with a higher focus on less covered markets like Africa, Middle East and South America. But eventually the compromises on quality for lower costs will catch up, and there may not be any new silver bullet market left! The question is what will the dragon do then?
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