Chi­nese brands look two steps ahead of the com­pe­ti­tion as they make their moves over­seas

China Daily (Hong Kong) - - MOTORING - HAO YAN haoyan@chi­nadaily.com.cn

To fur­ther boost China’s econ­omy, the author­i­ties are nur­tur­ing the do­mes­tic auto in­dus­try’s ex­pan­sion in in­ter­na­tional mar­kets with sup­port­ive mea­sures to en­hance their com­pet­i­tive edge, ac­cord­ing to in­dus­try in­sid­ers.

There has been a re­cent series of in­vest­ment deals in­volv­ing Chi­nese and over­seas au­to­mo­tive com­pa­nies, in­clud­ing three merg­ers and ac­qui­si­tions in­volv­ing Zhe­jiang Geely Hold­ing Group and Key Safety Sys­tem’s takeover of Ja­pan’s Takata.

In­dus­trial data show that the over­all value of such deals ex­ceeded $5 bil­lion in the first half of this year.

Se­nior con­sul­tants at global firms share the opin­ion that the gov­ern­ment is back­ing the coun­try’s au­tomak­ers’ bid to “go global”, with ac­tion taken to speed up de­vel­op­ment in the world’s largest car mar­ket.

“T he countr y is giv­ing sup­por t rather than cre­at­ing con­strain­ing fac­tors in or­der to nur­ture the in­dus­try. It is among the pri­or­i­tized sec­tors that help boost the en­tire econ­omy,” Shu Chang, a part­ner of Ger­man firm Roland Berger Strat­egy Con­sul­tants, said.

“A cou­ple of years ago, for ev­ery 1 yuan (15 cents) in value the lo­cal au­to­mo­bile in­dus­try gen­er­ated, the coun­try saw 8 yuan added to its GDP. Also, the in­dus­try is cre­at­ing a large amount of job op­por­tu­ni­ties along the value chain, both within the car­mak­ers and their sup­pli­ers,” Shu said.

Deloitte Con­sult­ing (Shang­hai)’s June 26

May 24 au­to­mo­tive in­dus­try part­ner Marco Hecker said that the gov­ern­ment is help­ing lo­cal car­mak­ers to ac­cel­er­ate their growth rates, for ex­am­ple by unit­ing author­i­ties’ de­part­ments in or­der to make de­ci­sions more quickly.

Wang Xia, chair­man of the au­to­mo­tive com­mit­tee of the China Coun­cil for the Pro­mo­tion of In­ter­na­tional Trade, said in June: “Chi­nese car­mak­ers should fo­cus on their fields of ex­per­tise and con­tinue to in­te­grate the best re­sources from all over the world.”

Look­ing to the fu­ture

DRB-Hi­com Bhd

To­day, Chi­nese au­tomak­ers’ in­ter­na­tional foot­prints tend to re­flect proac­tive ac­tion, with their eyes firmly fo­cused on their next steps, in­stead of sim­ply ac­quir­ing tech­nolo­gies.

51% of Group Lo­tus Plc, and 49% of Etika Au­to­mo­tive Sdn Bhd

£100 mil­lion ($130 mil­lion)

Key Safety Sys­tem’s takeover of scan­dal-stricken airbag maker Takata is viewed across the in­dus­try not only as a step to­ward up­grad­ing pro­duc­tion, but also a bid to break into the Ja­panese­dom­i­nated air bag sec­tor.

Sim­i­larly, Zhe­jiang Geely Hold­ing is ready to make a name for it­self in the South­east Asian mar­ket through buy­ing into Pro­ton and Lo­tus.

Zhe­jiang Geely’s 100 per­cent ac­qui­si­tion of Ter­rafu­gia, a fly­ing-car startup based in the United States, is a bet on the prof­itable fu­ture of the cur­rently fic­tional busi­ness.

Shu at Roland Berger said Chi­nese au­tomak­ers are pre­par­ing for the fu­ture, aim­ing to get ahead of the com­pe­ti­tion through M&A ac­tiv­ity over­seas, for ex­am­ple ex­pand­ing into the new en­ergy ve­hi­cle and au­tono- mous driv­ing fields. He said: “It’s a more rea­son­able strat­egy to buy into the Sil­i­con Val­ley com­pa­nies that are work­ing on new en­ergy and au­ton­o­mous driv­ing ve­hi­cles. Elec­tric cars and au­to­mated ve­hi­cles will be the main­stream within the com­ing five years.

“In this way, Chi­nese car­mak­ers will lay solid foun­da­tions for next gen­er­a­tion ve­hi­cles. They could take a lead­ing po­si­tion in the world, as the na­tion has come to ex­pect.”

Michael Hawes, chief ex­e­cuc­tive of the So­ci­ety of Mo­tor Man­u­fac­tur­ers and Traders in the United King­dom, echoed Shu’s com­ments, say­ing the mar­ket is shift­ing swiftly to­ward au­ton­o­mous ve­hi­cles and new en­ergy ve­hi­cles, es­pe­cially in China.

He added that Chi­nese car­mak­ers need to over­come bar­ri­ers to en­try be­fore es­tab­lish­ing a pres­ence in a mar­ket, giv­ing MG as an ex­am­ple.

SAIC Mo­tors now owns the Bri­tish brand MG, so it has gained in­stant ac­cess to the Eu­ro­pean mar­ket af­ter the deal, Hawes said. Now, MG badges are at­tached to the ve­hi­cles to be ex­ported to many Eu­ro­pean coun­tries, ac­cord­ing to Hawes.

Thanks to MG’s lo­cal ex­per­tise, SAIC un­der­stands that the mar­ket prefers hatch­backs, not the Chi­nese fa­vorite sedan mod­els, he added.

How­ever, Chi­nese com­pa­nies still have to be very care­ful in their over­seas M&A ac­tiv­ity, es­pe­cially re­gard­ing in­tel­lec­tual prop­erty as­pects, and need to make it clear for both sides what will be shared, or not shared, ac­cord­ing to Hawes.

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