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4 A Chinese company: SAIC
As mentioned before, the Chinese government only chose SOEs as partners for entering international automakers. Mainly they chose big ones, in order to match the foreign companies power. Therefore, when the German Volkswagen AG (VW) decided to enter into China, the Chinese government chose SAIC (Shanghai Automotive Industry Corporation) as their partner. Or rather, the Chinese government chose VW to be SAICs partner. In this section, SAIC and the Chinese working culture will be introduced, as this is essential to understand the problems that can occur in an international JV.
4.1 Chinese Work Culture
In order to give an overview of Chinas culture, this paper will apply the Hofstede Analysis. Hofstede measures cultures according to six dimensions:
Power Distance: This measures, to which degree inequality with regard to power is accepted by the less powerful members of society. Unsurprisingly, China here ranks at a very high 80.
This number is high, even in comparison to other Far East Asian countries, where the average is 60. This means that in China inequality in the distribution of power as well as wealth is accepted.
Individualism vs. Collectivism: this dimension measures how much individuals are expected to only take care of themselves. The higher the number, the less the individual is expected to care for close or far flung family members or even the whole society. This dimension measures to which extend an individual is expected to see himself as “I” (high) or rather as
“we” (low). China is ranked at 20, so as extremely collectivistic. On average, Asian countries rank at 24. This collectivistic trait manifests in an extreme commitment to the group and the belongingness to a group. Being inside or outside of the group is crucial. Loyalty, support and responsibility to members of the group is paramount.
Masculinity vs. Femininity: A masculine society is in general more competitive; it is one where achievements, heroism, assertiveness and material rewards are seen as preferential. A feminine society on the other hand is more consensus-oriented and cooperation, modesty, quality of life and caring for the weak are seen as more important. In this context, China ranks at 66, this means that China is a rather competitive culture, however, the US rank similar to China in this dimension.
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Uncertainty Avoidance Index: this dimension expresses to what extend the members of a society prefer security to uncertainty or ambiguity. A high uncertainty avoidance index means, that a society tries to control the unknown future by maintaining rigid codes of belief and is intolerant to new ideas. As in the Masculinity vs. Femininity Dimension, the Chinese here score 30. This means that they are highly accepting of ambiguous and/ or uncertain situations.
It also means that the Chinese are willing to bend or change rules when a situation requires it.
Long Term (Pragmatic) Orientation vs. Short Term (Normative) Orientation: A low score in this dimension means, that a society prefers to maintain traditions and norms and being suspicious of societal change. In the business context this means that a short-term oriented society is acting rather normative whilst a society scoring high here has a rather pragmatic approach and encourages modernization in order to prepare for the future. With a ranking at 87, the Chinese society is extremely long-term oriented. All Asian countries have a rather high ranking here. This means that they dedicate a lot of time to prepare for the future, build relationships and trust that will withstand future difficulties and obstacles. This is especially important since the Chinese economy is developing and changing at such a fast pace. The environment, in which Chinese companies are operating in, is changing extremely fast and companies are in the middle of massive urbanization, fierce competition and endemic corruption (Hout & Michael, 2014). The internationalization of the Chinese market has advanced this fast development even more. As Abrami et al. write in “Can China Lead”:
“Even remote areas could be changed overnight by the force of international economy”
(Abrami et al., 2014, p. 141).
Indulgence vs. Restraint: This sixth dimension is measuring how freely a society does accept gratification of basic and natural human drives related to enjoying life and having fun.
Basically it is a measure of happiness. It is defined as the extend, to which people try to control their desires and impulses. A society that suppresses these gratifications has strict social norms and regulates needs. China ranks here at 24 and therefore has to be seen as a restrained society.
Emphasis on leisure time is very low and indulgence is seen as wrong. This might also explain the excessive working hours.
Having explained Hofstede’s Assessment of China, one will not be surprised to know that the Chinese management style is rather loosely structured and agile. Information is being processed quickly and
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managers can act independently. The company and its members are seen as members of a family but in return, a lot is demanded from them.
Chinese like to structure their organizations in a simple, very hierarchical way. Leaders like to control from the very top. However, at the same time, in order to adapt to the fast evolving market, some companies give their subdivisions a high degree of autonomy (Hout & Michael, 2014).
To sum it up, the Chinese culture, which hugely influences the working culture, is quite distinct. One can clearly see that this might lead to some difficulties of one is not accustomed and familiar with this type of environment.
4.2 Development of SAIC
One of the biggest companies on the Chinese side that was and is partnered up with the foreign companies, nowadays is known as SAIC Motor (Shanghai Automotive Industry Corporation). Today, SAIC is the largest auto producer in China, producing under several own brand names such as MG and Roewe but also under the brand name of its JV partners (VW and GM). Whilst MG is a historic British brand, Roewe is a domestic Chinese luxury car brand. In 2015 the whole SAIC group sold 5.902 million motorcar units (SAIC Group, 2016).
In the following it will be explained how this came about.
In 1976, the year of Chairman Mao’s dead, China as a whole produced around 150 000 vehicles per year (Economist, 2008, p. 2). This extremely small market was dominated by First Auto Works (FAW), which had been producing then Hongqi Limousines for members of the party since the 1950s.
SAIC, then known as Shanghai Auto Works produced the Shanghai SH760 for party officials of a lower rank. As there was no competitive pressure, the two companies did not do any remarkable innovations during the 30 years until the first foreigners arrived in China. The government decided Figure 2 Hongqi Limousine CA772T (Source: de Feijiter, 2012)
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that VW was to partner up with SAIC. The opening up to the international market changed the whole dynamics of the car industry in China (Economist, 2008, p. 2).
Nowadays, SAICs success can mainly be traced back to two sources:
Firstly, SAIC essentially was an extension of the Shanghai Municipality and therefore had not only guidance and authority in the JV but also influence into politics.
Secondly, it was extremely lucky for SAIC to be partnered up with VW and nowadays the development and success of SAIC cannot be separated from the fact that VW got partnered up with SAIC.
In 1984, VW and SAIC made a cooperative agreement and in 1985, Shanghai Volkswagen Automotive Co Ltd. was set up as a JV between the two companies. From 1985 to 1996, SAIC managed to build up an entire automotive supply chain from scratch, as the conditions under which it operated up to then were definitely not fit for a modern automotive industry. In Martin Posth’s book he quotes financial journalist Michael Jungblut, who described how and under which circumstances SAIC (then called STAC) workers built the Shanghai SH760:
“Shanghai body shells that have been painted, but lack wheels, are dumped on the roads and lawns of the factory site, including places with puddles and potholes. Some of the windows have not been closed despite the drizzle, and despite the fact that the seats have already been fitted.
The drab factory shop paints a similar picture. Body shells with undercoating lay around as if they were destined for scrapping rather than for ongoing work” (Posth, 2006, p.33).
Figure 3 Shanghai SH760 (Source: Posth, 2016)
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However in the next 11 years until 1997, SAIC managed to increase its annual production capacity to 300 000 units/year and raced to the top of Chinas automakers. Without the cooperation with VW, this fast and successful development would not have been possible. The Chinese learned from the German automaker and therefore were able to increase the quality and number of the locally produced parts . How exactly this went about will be described in a later chapter.
In 1997 SAIC set up a second international JV: Shanghai General Motors Co Ltd, with American General Motors (GM). This second JV helped to drive production numbers even more. Today, this second international JV with GM is also one of the most successful international JVs in the Chinese automotive market.
SAIC undertook several acquisitions between 2000 and 2010, among others in Korea, where it acquired a 10 percent stake in Daewoo (The New York Times, 2002). It also acquired 48.9 percent of SsangYong Motors (China Daily, 2004). Even though the later one of the acquisitions ended in a disaster with Ssangyong being placed in receivership with the Korean government, SAIC still did benefit from exposure to the technology. Also, SAIC managed to acquire technology from British MG Rover.
Name wise the Chinese company nowadays known as SAIC is the result of several mergers and restructurings. However, for reasons of simplicity, the company will be referred to as SAIC throughout this text, even thought officially the SAIC Motor Corporation Ltd was founded as recently as 2011.
From this quite brief overview of the history of what nowadays is known as SAIC Motor Corporations Ltd., one can already see that the company must have hugely benefitted from the knowledge and technology it acquired through its international partners. However, VW was SAICs first international partner and therefore many of the lessons learned with and from VW, SAIC could employ in its later dealing with other international companies. Therefore one could say that VW was and is one of the primary factors responsible for the huge success of SAIC.
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