Nowadays, VW has more than 40 entities all over China. 90 000 employees work for the Volkswagen Group in China and since their entry into China 30 years ago, VW has delivered more than 22 million cars to Chinese customers (Isensee, 2015). This statistics are witnesses of a 30 year long success story, where for the very first time, a German carmaker was able to cooperate successfully with a Chinese carmaker. The paper has highlighted the most important factors, that were mainly important during the early days.
In the early 1980s, when VW basically was “asked” to enter China, conditions there were so very much below those of Germans, that it was hard to imagine what would become of China and that the risk of being one of the first movers would be worth it. Martin Posth writes:
“ 120-odd automobile factories and 2500 to 3000 automotive suppliers at the time had a total annual production output of 250 000 vehicles a year, a pitiful 6000 of which were cars. In the whole of Shanghai – and you have to remember that Shanghai had a population of 11 million even then in 1985 – there were just three public gas stations.” (Posth, 2006, p.18)
As comparison, Germany was number three behind Japan and the US in car production worldwide and produced nearly 4.5 million cars. The huge difference in numbers, even more astonishing when taking into account how small a country is Germany compared to China. VWs farsightedness in how the Chinese market would develop to their advantage, mainly induced my Dr. Hahn, can therefore not be underestimated. This being the prerequisite of VW going to China at all, there are also some other factors that have led to its success.
VW’s management showed a quite exceptional cultural sensitivity in all dealings with their Chinese partner. They took them seriously and relied on them to know best how to do business in China.
Meaning that they did not try to enforce their ideas but rather tried to do business in a way that both parties would benefit and reach their goal. By providing the Chinese with what they craved most for – namely knowledge and skills of all kinds – they went far beyond what other companies had done.
This also meant that they took up a big risk, because no one knew how fast the Chinese would be able to develop their own cars and brands, once they had acquired the necessary knowledge. But VW’s management had recognized one thing that many other foreign companies had missed: Chinese companies are in for long-term relationships, opposed to the foreign entrants into China, they were not aiming for a short-term arrangement in which they wanted to grab whatever knowledge and skill they could and then just leave and develop their own industry. On the contrary, they were looking for
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long-term partners, willing to invest into a long- term relationship from which both parties would benefit. In VW, China had found the perfect match for SAIC. VW was willing to employ its resources to help the Chinese to develop their very own supply network, while at the same time being culturally sensitive and not afraid to see SAIC as an equal partner with equal decision making rights. One could actually say, that VW acted like a big brother for SAIC, as they taught them the ropes of everything SAIC needed to know if it wanted to become successful in the car making business. Surely, VW did not do all this out of goodwill and selflessness, VW’s management foresaw the rapid development and the huge opportunity that presented itself in the form of the Chinese Machine Minister, when he knocked on the door of VWs headquarter in Wolfsburg. VW took up a great risk, but also it did benefit immensely from it.
So if a company entering China at this point would act exactly like VW, would it be equally successful?
Can VW’s model of success be repeated? This is a question that cannot be answered with a simple yes or no. VW’s model was right for the time and stage of development the Chinese market was in at that time, also, VW was lucky enough to be partnered up with SAIC, one of the biggest SOEs at that time. Surely, a good portion of cultural sensitivity, and seeing the Chinese partner as equal, are still hugely important for a successful international JV in China, but nevertheless, having experienced more than 30 years of doing business with foreigners, also the Chinese side has acquired many of the ways of doing business that are common in other countries and has learned from mistakes it made in the past. Not only have companies developed and learned from their international business, also the Chinese government has changed and is nowadays more experienced in the art of regulating not just business in their own country but also the foreign entrants. In addition to this, the pressure the Chinese government is able to exert at this stage is even higher than before: whereas in the past, there was only the prospect of a highly profitable but only developing market, nowadays this market had become reality and every day a company is not able to enter this market or to gain market share in it, it is loosing actual money.
Another things that has changed, is the companies in China. Much time has passed since workers in China have been the “kings”, meaning that their behavior nowadays is more in line with what foreign managers would expect from them, also things like performance – bound salary and other “capitalistic”
measure by now are also a standard in China, making it easier for foreigners to enter and to deal with the Chinese companies. However, having recognized the uncompetitiveness of SOEs and their low
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profitability, the Chinese government is and has implemented restructuring measurements, trying to make them more suitable for today’s environment.
One of VW’s big advantage in the beginning was that it did not need to worry about competition within China but rather could develop its operations slowly without fearing other grabbing their market share. Nowadays this is not the case anymore, the race for market share in China is extremely competitive, and companies have to develop their market share at a fast pace if they want to survive.
One of the big players in the automotive industry worldwide is Mercedes-Benz; the company however did not jump on the China train fast enough and only ended up producing Mercedes Benz locally together with the Beijing Automotive Group in 2006, after Daimler AG had merged with Chrysler.
The story of Mercedes-Benz in China is not a successful one and the most likely cause for it is its late
“real” entry into China. There had been cooperation between Mercedes-Benz and the FAW Group (First Auto Works) before, but it was not successful. Even though Mercedes- Benz has the same or even more resources than VW, and has definitely recognized the importance of the Chinese Market, therefore must be equally committed, it is unable to copy VWs success story in China.
To sum it up, it must be said that VW did many things right when it entered China, but it was also helped by circumstances and the environment at that time. But still, the way of VW conducting business in China was very instrumental in its success and companies today can definitely increase their chances of succeeding by copying these practices. However, they do not guarantee success.
Further research would have to be done towards which additional things would have to be done and in which way exactly and in detail the environment changed and how this exactly does influence the business world in China.
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