中國汽車產業的發展：從上海福斯汽車的案例來分析國際合資企業的成功因素 - 政大學術集成

全文

(1)國立政治大學商學院國際經營管理英語碩士學位學程 International MBA Program College of Commerce National Chengchi University. 碩士論文政治. 大. 立Master’s Thesis. ‧. ‧ 國. 學 sit. y. Nat. 中國汽車產業的發展：從上海福斯汽車的案例來分析國. n. er. io. 際合資企業的成功因素 al v i Development of the Chinese Automobile Industry: Analysis of n Ch U engchi. success factors for International Joint Ventures at the example of SVW. Student: Martina Sabrina Maria Teumer Advisor: Professor Tse- Kang Leng. 中華民國一〇五年六月 June 2016.

(2) 中國汽車產業的發展：從上海福斯汽車的案例來分析國際合資企業的成功因素 Development of the Chinese Automobile Industry: Analysis of success factors for International Joint Ventures at the example of SVW 研究生：杜娣娜. Student: Martina Sabrina Maria Teumer. 指導教授：冷則剛. 治 Professor Tse- Kang Leng 政 Advisor: 大學. ‧ 國. 立. 國立政治大學. 商學院國際經營管理英語碩士學位學程. ‧. 碩士論文. er. io. sit. y. Nat. a. A Thesis. n. iv l to International MBAnProgram Submitted. Ch. U. i e n g c hUniversity National Chengchi. in partial fulfillment of the Requirements for the degree of Master in Business Administration. 中華民國一〇五年六月 June 2016.

(3) Acknowledgements To my mum and my dad, who always supported me in everything I did, who always believed in me and will always be the ones I look up to. Without your love, support and encouragement I would not be able to write this today.. To my sister Stefanie and my brother Yannick, because they know me and still love me. To my Taiwanese Family, 張正宜, 李文傑, 李昶鴻 and especially Cynthia 李立婷. Thank you for. 政治大. welcoming me into your family with such open arms and showing me the beauty of Taiwan, the Taiwanese culture and language.. 立. ‧ 國. 學. To my friends, all over the world, who accompanied and stayed with me throughout this constant back and forth between Germany and Taiwan. A very special thanks to my dear friends Fani Jasmine. ‧. Bahar and Saskia Drechsel. You know why.. y. Nat. io. er. possible and through this enabled me to have this great experience.. sit. Stefanie Buchert, Charlotte Reith and Emily Huang, thank you for making this double degree program. al. n. v i n C h you for alwaysUgoing out of your way to make the Professor Samuel Chen and Li-chi, thank engchi impossible possible.. Professor Tse- Kang Leng, thank you for your support in this project and enabling me to write about what is my passion.. To everyone in the IMBA program, this program is so amazing because of its people, because of you.. At last, I would like to express my thankfulness to the DAAD. Thank you for granting me a scholarship and through this making participating in this program so much easier.. i.

(4) Abstract Development of the Chinese Automobile Industry: Analysis of success factors for International Joint Ventures at the example of SVW By Martina Sabrina Maria Teumer. The Chinese Market is the fastest growing market in the world. Especially in the car industry, where most countries are already saturated, in China the number of cars per person is still increasing, which makes it even more interesting. Many foreign companies have tried to enter the Chinese market in. 政治大 China need to do this through a Join Venture (JV) together with a Chinese company. Often, these JVs 立 order to get a share of the profit. In the Automotive sectors, foreign companies that want to enter into. fail, due to different reasons. However, Shanghai Volkswagen, the JV between the German. ‧ 國. 學. Volkswagen AG (VW) and the Chinese Shanghai Automotive Industry Corporation (SAIC) company, which was founded as early as 1985, is one of the very few successful, if not the most successful. ‧. international JV in the Chinese automotive market.. y. Nat. This paper tries to identify the main reasons for success of the German –Chinese JV, of which. sit. intercultural sensitivity, mutual respect for the other sides’ way of doing business, the willingness to. er. io. commit long-term and with a high investment, were the main results.. al. n. v i n C h for companiesUwho want to enter the Chinese market of the factors can still be a point of orientation engchi at this point of time.. Even though many of the factors are mainly concerned with the environment as it was in 1985, some. Keywords: JV, China, Automobile Industry, Germany, VW. ii.

(5) TABLE OF CONTENT 1. Chinas Automobile Industry: International Joint Ventures ................................................... 1. 2. The Automobile Industry in China ............................................................................................ 2 2.1 Development........................................................................................................................... 2 2.2 Overview: The Chinese Automobile Industry today.......................................................... 5. 3. International JVs in the automobile Industry .......................................................................... 7 3.1 Why the Chinese government opened up the market ........................................................ 7 3.2 Why the foreign companies were eager to enter the market ............................................. 8. 政治大 Conditions .............................................................................................................................. 9 立. 3.3 Problems ................................................................................................................................. 9 3.4. A Chinese company: SAIC ....................................................................................................... 13. ‧ 國. 學. 4. 4.1 Chinese Work Culture ........................................................................................................ 13 4.2 Development of SAIC .......................................................................................................... 15. ‧. International JV partner ........................................................................................................... 18. 6. A German company: VW ......................................................................................................... 19. sit. y. Nat. 5. er. io. 6.1 German Culture in comparison to the Chinese ................................................................ 19. al. 6.2 Development of VW ............................................................................................................ 23. n. v i n Ch 7 The SAIC/ VW JV: SVW .......................................................................................................... 25 engchi U 7.1 Development......................................................................................................................... 26 7.2 Knowledge Transfer ............................................................................................................ 27 7.2.1 Technical Knowledge.................................................................................................... 27 7.2.2 Employee Training ....................................................................................................... 30 7.2.3 Management Training .................................................................................................. 30 7.3 Relationship to the Chinese Government .......................................................................... 32 7.4 Relationship with the German Parent Company ............................................................. 34 7.5 Relationship with the German Government ..................................................................... 35 7.6 Forex ..................................................................................................................................... 37 7.7 Localization .......................................................................................................................... 38 7.8 Current Status ..................................................................................................................... 41 iii.

(6) 8. Other Joint Ventures ................................................................................................................. 43 8.1 SAIC and GM ...................................................................................................................... 43 8.2 VW today.............................................................................................................................. 44. 9. Conclusion .................................................................................................................................. 45. 10 Reference .................................................................................................................................... 48. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. iv. i n U. v.

(7) List of Figures and Tables Figure 1 Automobile Industry Development in China (1980 – 1998) .................................................. 4 Figure 2 Hongqi Limousine CA772T ................................................................................................................15 Figure 3 Shanghai SH760 .....................................................................................................................................16 Figure 4 Hofstede comparison of China and Germany ..............................................................................22 Figure 5 The first VW produced in China ......................................................................................................26 Figure 6 VW Santana ..............................................................................................................................................27 Figure 7 Audi, 100 ...................................................................................................................................................28. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. v. i n U. v.

(8) 1 Chinas Automobile Industry: International Joint Ventures This paper will provide an introduction into the Automobile Industry in China. Specifically about international Joint Ventures in the Chinese automobile market. The topic has been chosen due to the actuality of it. The Chinese automotive industry had been constantly growing for 15 years until in 2015, when the sales of trucks and buses declined for the first time. But despite the fact that growth numbers have declined, China is still one of the very few markets where the car market is not fully saturated. In comparison to the US, with a population of approximately 324 million in population and 265 million vehicles on the road, China only has 172 million vehicles for 1381 million in population. 政治大 especially for automakers, this was 立a big chance for automakers from all over the world. But at the (Perkowski, 2016). When the Chinese government opened its doors for foreign companies, and. ‧ 國. 學. same time it also was a huge risk, as there was no existing market for automobiles and therefore the companies couldn’t just go into China and grab market share but they first had to develop this market share. The entry into the Chinese market has also been aggravated by the regulations the government. ‧. put upon foreign companies. These factors make the entry of a foreign automotive company into the. y. Nat. Chinese market very interesting.. io. sit. Since China first opened up, its automobile market has come a long way but it stays of high interest. er. for all international automotive or automotive part supplier companies. Many companies who. al. n. v i n C h which basicallyUwalked all the way with the Chinese the German car manufacturer Volkswagen, engchi. attempted to enter China have failed only few have succeeded. One of the most successful cases is. economy and government from the very beginning when China opened up to the outside world to where is stands today as one of the biggest and fastest growing economies in the world.. All these factors, in addition to the author’s personal experience and interest in the automotive industry have led to this specific topic having been chosen. The paper will start with an overall introduction into the Chinese automobile industry, will then take a closer look at international JVs within this industry and finally the case of Volkswagen and SAIC will be analyzed in depth with regard to why this specific JV was and is so successful where other have failed.. 1.

(9) 2 The Automobile Industry in China “GM predicted that (…) by 2025, China will surpass the US to become the largest automobile market.” Writes Lin Gan already in his 2001 working paper on the Globalization of the automobile industry in China (Gan, 2001). This prediction became true more than a decade earlier than expected and in 2009 China’s sales volume of cars was higher that the sales volume in the US (Economist, 2009). In 2013, China produced 25.3 percent of all automobiles worldwide (Zhang, 2014, p.1) and in 2015, China sold 21.15 million passenger vehicles and 3.45 million commercial vehicles, whilst in the US merely 7.8 million automobiles have been sold. Considering that until 1985 China’s automobile industry was practically non-existent, the pace of the development and expansion of the Chinese. 政治大. automobile industry is even more extreme.. 立. 2.1 Development. ‧ 國. 學. Eric Thun writes in his 2006 book “Changing Lanes in China”:. “The automobile industry has an enduring appeal for developing countries because the broad. ‧. supply network creates extensive linkages and because it is often seen as a symbol of a modern industrialized country.” (Thun, 2006, p. 83). y. Nat. sit. From this, one can already see the importance of the automobile industry to the Chinese government.. al. er. io. Its development can be divided into four parts. The first one ranges from 1953 – 1965. During this. n. period, only about 60000 vehicles were produced in China. The Chinese government then worked. Ch. i n U. v. closely together with the Soviet Union and as the Chinese lacked technology and management skills,. engchi. these were imported and mainly shaped by the Soviets. The Chinese automobile industry was completely isolated from international business, with the Soviet Union as its only outside contact. In 1960, the automobile production at the regional level became profitable; there were only 16 automakers and 28 assembly companies existing in China by then (Gan, 2001). The second phase ranges from 1966 to 1980. In order to shield its automobile industry, from 1965 on the Chinese government invested into the automobile production capacity development in the western regions, which were further away from its borders, less strategically important and therefore more secure from outside attacks. However, the seclusion of these plants did not only provide security, but also brought along a lack of infrastructure, energy supply and materials, as these regions, namely Sichuan, Shanxi and Hubei were not very developed. This disadvantage greatly impaired the industry. Having previously mostly concentrated on heavy military vehicles, by the early 1970s, the demand. 2.

(10) for passenger cars rose above supply. The government decided to decentralize the production, which led to a peak in capacity development in different regions. By 1980, the number of automakers had risen to 58 and the number of assembly companies had risen to 192. In order to meet the demand, the state invested 5.1 billion Yuan to increase production to 160,000 vehicles. However, due to the decentralized production, economies of scale and cost reduction could not be reached. The third phase, one of “adjustment and high speed development” (Gan, 2001, p. 4) was from 1981 to 1998. In 1978 Deng Xiaoping announced the new Chinese policy, which was an open door policy. As Mark Beeson wrote in his 2013 article: China’s re-emergence as a regional and world power was the result of a series. 治政 up’ the Chinese economy has been extensively detailed,大 as have its remarkable 立 consequences (Beeson, 2013, p.238).. of internal reforms driven primarily by Deng Xiaoping. The process of ‘opening. ‧ 國. 學. China opened its doors to foreign business in order to modernize China and get Foreign Direct Investment (FDI). In 1980, the first Special Economic Zones (SEZs) were set up. These were special. ‧. zones, through which Chinese politicians hoped to attract FDI by offering favorable and market oriented policies. As said before, the demand for automobiles greatly exceeded the supply and this. y. Nat. al. er. io. (Gan, 2001, p.3).. sit. can also be seen in the fact that passenger transportation increased by 7.4 times during 1978 to 1998. n. Having decentralized production, it then was easy for the provincial governments to step in and invest. Ch. i n U. v. further. In the two years from 1983 to 1985 the number of automakers doubled from 65 to 114 and. engchi. market competition intensified greatly. From the 1980s onward, encouraged by the new policy and the huge potential of the Chinese market, foreign automakers started to establish themselves in China, which led to a change in the structure of the industry. As Lin Gan writes in his paper 2001 paper “Globalization in China”: “The industrial development was characterized by an increase in joint ventures, which led to the establishment of seven major corporations. Together, these corporations accounted for more than 60% of the market share in products in this period. By 1998, total investment amounted to 120 billion yuan and production output accounted for 262 billion yuan, or equivalent to 0.8% of the GDP.“ (Gan, 2001, p.4) From 1995 on, the Chinese government subsidized the automobile industry heavily (total investment: 58.8 billion yuan from 1995 to 2000). Most of this investment was going into the major 13 state-. 3.

(11) owned companies (Gan, 2001, p.5). As a result, output increased immensely from 8.84 million yuan value in 1980 to 298.76 million yuan in 1998: Year. Enterprise. Employee. Output Value. Fixed Assets. Equipment. (million). (million yuan) (million yuan) (1000). 1980. 2379. 0.91. 8.84. 5.36. 201.1. 1985. 2904. 1.41. 23.53. 9.62. 318.7. 1990. 2596. 1.57. 46.81. 17.99. 394.8. 1995. 2479. 1.95. 204.27. 64.54. 541.5. 1998. 2426. 1.96. 298.76. 141.88. 636.9. 政治大 The fourth phase of automobile industry development started in 1999. Two main points are 立 influencing the development. First of all, the Chinese government started in 1998 to promote the. Figure 1 Automobile Industry Development in China (1980 – 1998) (Source: Gan, 2001, p.5). ‧ 國. 學. private ownership of cars, by for example offering low interest rates (Gan, 2001). However many of those promotions were also regionally driven, with each province implementing specific regulations. ‧. to promote their regional automotive industry, meaning the companies producing in their region. This could easily be done be implementing for example tax exemptions or tax reliefs for specific brands. sit. y. Nat. or models.. al. er. io. The second driver in the automobile industry is the increased concern for environmental impacts.. v. n. Therefore the Chinese government started to promote fuel efficiency and sustainable urban transportation.. Ch. engchi. i n U. Another outside driver for the development of the Chinese automobile industry was its accession to the World Trade Organization (WTO) in 2001. After joining the WTO, many more opportunities opened up for the Chinese economy. Mark Beeson describes China’s accession to the WTO (quoting Susan Shirk) as: ‘The best thing that ever happened to China’s regional relations’, and it is not hard to see why: not only did this have the effect of further accelerating the process of economic expansion and integration, but it did so in a way that indicated Chinese leaders were going to play by the rules established under the auspices of US hegemony. (Beeson, 2013, p. 238) To sum it up, the Chinese government was very much involved in the promotion and development of the Chinese industry. However, the industry started to really take off only when foreign companies got involved.. 4.

(12) 2.2 Overview: The Chinese Automobile Industry today Having taken a look at the early development of the automobile industry in China, the paper will now focus on its more recent development. In 1998, China was ranked as number 10 car manufacturing country and after merely 10 years, in 2008, it finally won the race of the leading car manufacturing country. However, since the winning of the race, another 8 years have gone by and we need to take a look at the Chinese automobile industry today. Nowadays China has 90 automotive brands, three times as much as the US, but it is still heavily subsidized by the government. About 30% of these companies’ profits are actually financial subsidies. (Putre, 2015).. 政治大 to that, the fragmentation which is due to the decentralization, led to every province promoting their 立 own company and extending its production capability above the demand. This is also due to the fact. Receiving such huge subsidies, gives companies little incentive to increase efficiency and in addition. ‧ 國. 學. that the automotive industry is often source of “pride and pillar of the local economy” (Putre, 2015). Instead of trying to build a strong and combined Chinese automobile industry together, the provinces. ‧. stand in rivalry to each other and try to only promote their local cars, whilst discriminating against the cars produced in other provinces.. y. Nat. sit. Still, the Chinese Market held what it promised and was growing with an annual rate of 15% between. al. er. io. 1978 and 2008. The China Yearbook reported in 2008 an output of four trillion yuan of all the. v. n. industries linked to the auto sector, such a steel, plastic, aluminum, glass and rubber (Yu & Yang, 2011, p.18).. Ch. engchi. i n U. 95% of the cars sold in China, are also produced there, leading to about 60 car brands being produced in China (in 2014). There are more brands produced in China than in any other market in the world. Next to many domestic brands, such a Geely, Chery, Great Wall, Brilliance and BYD, there are many international brands from Germany, France, the US, Korea, Japan and Italy (Khizhnyakova, 2014, p.4&5). Competition is fierce and in 2009 alone, there were 80 new car models introduced to the Chinese market (Yu & Yang, 2011, pp. 19-20). However, the global economic crisis helped the Chinese automakers in recent years to strengthen their stand against international car companies, which suffered under the international financial crisis (Yu & Yang, 2011, p. 20). Having to operate in the very restrictive environment of the Chinese market is not always easy for international companies and the Chinese government is well aware of this. In 2009, Vice premier Wang Qishan’s response to complaining EU business executives was: “I know you have complains…. 5.

(13) but the charm of the Chinese market is irresistible” (Khizhnyakova, 2014, p.17), meaning that due to its huge potential and promising development, the Chinese government just expects foreign investors to adhere to the rules and restrictions it sets them. Concluding on the current state of the Chinese Automobile industry one can say that the Wang Qishan was right in his assessment of the situation. Foreign firms have no other choice then to accept the regulations the Chinese government sets if they want to have their piece of the cake. In the next step, we will take a look at the environment and the conditions in and under which international companies have to operate in China.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 6. i n U. v.

(14) 3 International JVs in the automobile Industry As mentioned before, the Chinese government closely regulates whom and in which manner foreign companies can enter the Chinese market, especially when dealing with the automotive sector, as the Chinese government had and has its own agenda with regard to this industry. The main point in the regulations is, that in order to enter the Chinese market, international car manufacturers have to form a Joint Venture with a local company. These JVs not just helped, but where the actual reason for the transformation of the automobile industry in China during the 1980s and 1990s (Chin, 2010, p.6). However, in order to understand this, one first needs to take a look at why the Chinese government was so eager to have international car manufacturers entering their country.. 治政 3.1 Why the Chinese government opened up the 大 market 立 The Chinese government had several reasons as to why they allowed the foreign companies to enter ‧ 國. 學. their market and why they chose to only allow them to enter in the form of JVs: Through this arrangement, the Chinese government can still influence the foreign partner in a way that they. ‧. contribute to the local economic development (Wang, 2013, p1).. Equally important is the following reason: in a JV, each of the two participating parties is supposed. y. Nat. sit. to bring something into the corporation and the Chinese government is and was eager for the part. al. er. io. they expected the foreign entrants to contribute: The main reason as to why the Chinese government. n. opened up its market to the foreign car companies was the lack of knowledge and technology of the. Ch. i n U. v. Chinese about the making of a car. In a horse-trading manner, the Chinese granted the foreign. engchi. automakers access to their huge and until then nearly untapped market in exchange for technology (Wang, 2013; Abrami et al., 2014, p.150). The Chinese governments ultimate objective in this opening up definitely is and was the development of a domestically driven auto industry. (Chin et al, 2015, p.1). They knew that for the Chinese partner it would only be possible to get hold of the essential knowledge, if it owned a certain percentage of the JV. At the same time, the Chinese government was well aware of the fact that the foreign companies would not be willing to contribute much into a JV where they did not have a certain ownership percentage either. 50:50 JVs seemed to be the best solution for the objective of the Chinese government. This specific ownership framework promised to offer a solution to make up for the underdeveloped knowledge and technology, whilst at the same time still being able to influence and therefore control. 7.

(15) the foreigners as well as building linkages to global production and distribution networks (Wang, 2013, p. 1). The control of the foreigners materialized through pressure from the central government on the international JVs with two main points that were needed in order to expedite national development: Localization of modern parts supply and foreign exchange (FOREX) control (Chin, 2010, p. 79). Once more one can clearly see the huge role the central Chinese government played in the development of its national automotive industry. With its clear goals and the fact that they held the key to huge profits for foreign companies in their hands, in their mind, they cleverly shaped the environment in a way that made sure that they would also benefit.. 政治大. 3.2 Why the foreign companies were eager to enter the market. 立. As mentioned before, the international companies that went into the Chinese market had to put up. ‧ 國. 學. with many restrictions and rules implemented by the Chinese government that will be discussed in the next chapter. Nevertheless these companies went into China, because of the sheer size of the. ‧. Chinese market and its virginity. In a society where status and reputation are of great value, with rapid increases in the average household income and an emerging new upper and middle class, which. sit. y. Nat. sees the possession of a car as a reflection of high economic and social status, the Chinese market promised the biggest growth potential for the future and that was enough reason for many. io. n. al. er. international companies to put up with the perks of the Chinese government (Chin, 2010, p. 21).. i n U. v. Another reason as to why international companies agree and agreed to enter the Chinese market. Ch. engchi. through a JV arrangement with a local Chinese company is that it is often easier and safer for them to partner up with someone who knows the market and its risks. This is especially true for the entry into emerging markets, where the uncertainty risk is even higher (Wang, 2013, p.1). It must be especially mentioned for the case of international car manufacturers entering China, that in the early days, many of them entered with the mindset of offsetting the losses they had incurred in their home markets with gains in the Chinese market. Companies with this mindset were for example the US American brands General Motors (GM) and Ford, as well as the Japanese Toyota (Yu & Yang, 2011, p.3). Later on, it will be shown that this mindset let to problems. Summing up the reasons of both sides as to why they came to an agreement: Each of the two sides had something the other desperately wanted: China had a huge profit potential and the foreign car. 8.

(16) manufacturers had technical knowledge and skills. This meant that foreign investors as well as Chinese authorities came to agree over very specific entry modes.. 3.3 Problems From the previous chapters, one can see that the intentions of the two sides were different. That this would lead to future difficulties is not hard to foresee and so the relationship between the two sides not only held difficulties due to cultural differences, but also and mainly due to different goals. Whilst the foreign investors aimed to sell their products in a new market and make huge profits with this, the Chinese did not really care for the foreign products but were eager to acquire knowledge about the. 政治大. technology of these products in order to develop their own domestic market (Abrami et al., 2014, p. 150). One of the problems that occurred from this difference in mindset was that the Chinese. 立. Government effectively stimulated vehicle consumption and made it “very easy for money to come. ‧ 國. 學. in, and very difficult for you to move it back out”, as one experienced attorney in Shanghai put it (Khizhnyakova, 2009, p.9). One of the most famous cases where mainly the repatriation of profits. ‧. lead to serious problems and in the end to a disastrous result, is the JV between the American Motors Corporations (AMC) and Beijing Jeep. Both companies partnered up during an episode of struggle. sit. y. Nat. and later on disagreed about basically everything: product, customer and strategy (Abrami et al., 2014, p. 150). To further understand the problems arising out of the different mindsets and approaches, the. io. n. al. er. next section will take a look at the conditions under which the Joint Ventures were and are formed.. 3.4 Conditions. Ch. engchi. i n U. v. As said before, the Chinese Central Government made sure that it kept the foreign companies under close observation and very closely regulated (Khizhnyakova, 2009, p.4). When China allowed foreign auto manufacturers access to its market in 1983, this access was and is still tied to several conditions. The most important will be introduced in the following. First of all, foreign company cannot choose with which Chinese partner to cooperate, but get a company assigned by the Chinese government. Until 2001, only state owned enterprises (SOEs) were allowed as Chinese partners (Chu, 2011, p. 76; Chin, 2010, p. 117). The reason for this was, that having SOEs partnered up with the foreigners ensured that the state had a say in the JV (Chin, 2010, p. 116). In addition to that, to ensure a long-term control over the JVs, in the JV contracts a review of the JV agreement is predetermined every two to three decades (Wang, 2013, p.2). 9.

(17) In 1994, China decided over a new set of guidelines called the AIP (automotive industrial Policy), which determined the dealings with foreign entrants. The following are rules either introduced or confirmed in the 1994 AIP. The arguably most known of the rules is, that operations in China have to be undertaken on a JV basis together with a Chinese firm. Within this JV agreement, the non-Chinese firm was not allowed to claim more than a 50 percent ownership. However, at the same time, the Chinese ownership could not be less than 50 percent, so basically the Chinese government strictly determined a 50/50 percent ownership. The reasons for this strict requirement are quite simple: the Chinese government on the one hand wanted to prevent the foreign partner from gaining too much control and wanted to be able. 治政大 than 50 percent of the JV. As the Chinese stated: 立 “The Chinese government will not allow foreign investors to control and carve up this big. to meaningfully influence the JV, which would not be possible with the Chinese side holding less. ‧ 國. 學. cake at their will. The leadership realizes that this sector is key for China’s future growth. We cannot allow foreign capital to control us.” (Chin, 2010, p. 116).. ‧. On the other hand, the Chinese were well aware of the fact that the involvement and interest of the foreign partner in the JV would decrease with decreasing ownership and therefore the anticipated. y. Nat. sit. benefits of the Chinese would decrease (Chin, 2010, p. 116). Therefore the 50/50 arrangement seemed. al. er. io. to be the best solution for both sides.. n. Another regulation intended to prevent foreign partners from taking over the Chinese market, was the. Ch. i n U. v. exclusion of foreign participants in the field of distribution and sales. This part was to be strictly left. engchi. to the Chinese partner, who was therefore responsible for selling the products inside China and realize returns on investment (Chin, 2010, p. 116). Moreover, a rule intended to keep the foreign partner in check and maximize the learning of the Chinese partner, was the strategy of partnering up only extremely larger Chinese corporations with the foreign companies. As the foreign partners were larger international automakers, the Chinese felt that it was necessary to use large-scale Chinese state automakers as partners to prevent the foreigners from having too much influence by the sheer comparative size of their company (Chin, 2010, p. 117). Additionally, the foreign side also had to meet certain requirements in order to be admitted to the Chinese market. Those requirements essentially ensured that only world-leading automakers were allowed. 1. The foreign partner must basically be “a famous brand”.. 10.

(18) 2. The foreign partner must have its own world leading and export ready technical expertise. 3. The foreign partner must have a global and export ready sales network. 4. The foreign partner must be financially strong and have the capacity to raise further financing (G.T. Chin, 2010, p. 118). The reasons behind the Chinese government requiring its foreign partners to have strong financial capacities and be export ready, was that they had had bad experiences (Beijing Jeep and Guangzhou Peugeot), where the Chinese subsidiaries had been used as “foreign exchange cash cows” with short term returns on minimal investment. Also the financial stability of the foreign partner should ensure the possibility of project expansion and further investments.. 治政大engine capacity below 1600cc, 100 minimum in the 1994 AIP: 150 000 for passenger cars with an 立 000 for light trucks, 50 000 for vans, 10 000 for heavy trucks and 200 000 for motorcycles with an. Also, in order to ensure a long term engagement, the Chinese government set a yearly output. ‧ 國. 學. engine capacity below 150 cc. (Chin, 2010, p. 118).. As mentioned before, one of the goals of the Chinese government was to acquire knowledge and. ‧. skills to be able to produce their own cars. However, many of the foreign companies were reluctant to give away the knowledge about their world-class technology so the Chinese partner and so the. y. Nat. sit. Chinese government decided in the 1994 Autosector Industry Policy (AIP) to demand the JVs to. al. er. io. fulfill the following conditions in the R&D part:. n. 1. A technological R&D center, which is not only able to develop designs for product changes. Ch. i n U. v. but also able to design new products, must be established within the new company.. engchi. 2. The JV must be able to make products equivalent to the then current technology standards (1994). 3. The JV must intend to export products and achieve foreign currency balance. 4. Chinese parts producers have to be considered equally when the JV is choosing its part suppliers (Chin, 2010, p. 124). One more thing the Chinese government decided to change in the 1994 AIP was that it defined the amount of localization they then required from the foreign partner. Before, localization was expected, but no real number had been mentioned, in the 1994 AIP then, 40 percent localization was demanded (Chin, 2010, p. 123). In 2001, China decided to once more update their official policies and therefore implemented further requirements: the initial investment must be greater than RMB$2 billion and an R&D center with a. 11.

(19) minimum initial investment of RMB$ 0.5 billion must be set up and engines must be produced by the JV itself. This is due to the fact that the Chinese now try to mostly promote their own brand and therefore wants to increase the requirements for foreigners to actually enter their market. Having understood the general rules under which the JVs had to operate, in the following, the case of Shanghai Volkswagen (SVW) will be closely investigated.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 12. i n U. v.

(20) 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.. 治政 In order to give an overview of Chinas culture, this paper will 大 apply the Hofstede Analysis. Hofstede 立 measures cultures according to six dimensions: 4.1 Chinese Work Culture. ‧ 國. 學. . 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. y. sit. al. er. Individualism vs. Collectivism: this dimension measures how much individuals are expected. io. . Nat. accepted.. n. to only take care of themselves. The higher the number, the less the individual is expected to. Ch. i n U. v. care for close or far flung family members or even the whole society. This dimension. engchi. 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.. 13.

(21) . 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. 政治大 approach and encourages modernization in order to prepare for the future. With a ranking at 立 87, the Chinese society is extremely long-term oriented. All Asian countries have a rather society is acting rather normative whilst a society scoring high here has a rather pragmatic. ‧ 國. 學. 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. y. Nat. sit. companies are in the middle of massive urbanization, fierce competition and endemic. er. io. 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”:. n. al. Ch. i n U. v. “Even remote areas could be changed overnight by the force of international economy” (Abrami et al., 2014, p. 141). . engchi. 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. 14.

(22) 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. 政治大. One of the biggest companies on the Chinese side that was and is partnered up with the foreign. 立. companies, nowadays is known as SAIC Motor (Shanghai Automotive Industry Corporation). Today,. ‧ 國. 學. 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. In the following it will be. n. al. er. io. sit. y. Nat. units (SAIC Group, 2016).. Ch. engchi. Figure 2 Hongqi Limousine CA772T (Source: de Feijiter, 2012). i n U. v. explained how this came about. In. 1976,. Chairman. the. year. Mao’s. of. 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. 15.

(23) 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:. 立. 政治大. ‧ 國. 學 ‧. Figure 3 Shanghai SH760 (Source: Posth, 2016). Firstly, SAIC essentially was an extension of the Shanghai Municipality and therefore had not only. sit. y. Nat. 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. io. al. n. SAIC.. er. development and success of SAIC cannot be separated from the fact that VW got partnered up with. Ch. engchi. i n U. v. 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).. 16.

(24) 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.. 治政大2002). It also acquired 48.9 percent acquired a 10 percent stake in Daewoo (The New York Times, 立 of SsangYong Motors (China Daily, 2004). Even though the later one of the acquisitions ended in a SAIC undertook several acquisitions between 2000 and 2010, among others in Korea, where it. ‧ 國. 學. 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. y. Nat. sit. restructurings. However, for reasons of simplicity, the company will be referred to as SAIC. er. al. n. as 2011.. io. throughout this text, even thought officially the SAIC Motor Corporation Ltd was founded as recently. Ch. i n U. v. From this quite brief overview of the history of what nowadays is known as SAIC Motor Corporations. engchi. 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.. 17.

(25) 5 International JV partner After having taken a look at the Chinese side of the JV arrangements, their intentions and goals, one now needs to take a closer look at the foreign side of the deal. As mentioned before, the goals of the foreign companies and of the Chinese government differed quite widely. However, it was not only the attractiveness of the yet untapped Chinese market that drew the attention of the foreign partners, but at the same time they also saw chances to make money with their older models. Many of the foreign companies entered China with the idea of selling their old models and technology to the underdeveloped Chinese market. As VW’s Stefan Messmann, who formerly led the China and Asia operations, noted:. 政治大 produce their latest models in China. They knew full well that the Chinese are very capable, 立. “None of the other foreign automakers, not GM, Toyota, Renault, Peugeot, were willing to. and would develop technology out of the international transfers to build their own industry,. ‧ 國. 學. and eventually to export to Asia and globally.” (Chin, 2010, p. 95-96). However, this was a practice that went totally against the goal of the Chinese government to acquire. ‧. knowledge about modern technology and therefore- as G.T. Chin writes in “China’s Automotive. y. Nat. Modernization”:. sit. “The Chinese already, even in this early stage of “opening to the outside world”, had experienced. er. io. their “fair share of unpleasant experiences with other companies that cared little for Chinese. al. v i n C h the Chinese market Many of the foreign companies that entered e n g c h i U were actually driven by desperation, n. interests and situations”. (Chin, 2010, p. 98). as they had had major losses in their home markets. Many of those early JVs failed or at least did not bring the results both sides had hoped for. However, up until today one of the earliest JVs still is alive and actually thriving. This JV is the JV between the Chinese SAIC and the German company VW. In the following chapter, the JV between the two companies and its factors for success will be analyzed.. 18.

(26) 6 A German company: VW When reading about how the idea of VW entering into China came up, one wonders about how much of it only happened due to luck. Martin Posth, formerly responsible for the VWs operation with SAIC, describes in his book “1000 days in Shanghai” how the Chinese Machine Minister one day just stood in front of the VW headquarters on Wolfsburg and said “I am the Chinese Machine Building Minister and I would like to speak to someone in charge at Volkswagen” (Posth, 2006, p.4). The Minister and his entourage had come to Germany to take a close look at the automobile industry there. They knew only Mercedes Benz so therefore they came to Stuttgart, where the Mercedes headquarter is located, and expected to see the streets flooded with Mercedes Benz. But instead they saw Beetles and Golfs. 政治大 all these cars, is, the minister decided to take a detour to Wolfsburg together with his whole retinue. 立. all over the streets. So after inquiring about where the headquarters of this VW brand, which produced As Martin Posth writes “This episode gives us a foretaste of the kind of pragmatism that the Chinese. ‧ 國. 學. show no matter what task faces them.” (Posth, 2006, p.4). But it was not only the sheer volume of VWs on the German streets that intrigued the Chinese, it was also the practicality and relatively. ‧. cheaper price of the VW cars. The VW cars seemed to match better to the requirements and demands. y. Nat. of future Chinese car owners. VW on its side however, never had a choice. For them it was entering. er. io. to partner up.. sit. China with SAIC or not at all, as the Chinese government dictated the foreigners with whom they had. al. n. v i n take a close look at the German cultureC inh comparison to the U e n g c h i Chinese and VW as a company.. In order to be able to understand the obstacles and difficulties SVW had to overcome, one first has to. 6.1 German Culture in comparison to the Chinese As before when describing the Chinese culture, once again Hofstede’s five dimensions will be applied. . Power Distance: Here, Germany displays a rather low index of 35, actually much lower than the world average of 55. This means that German companies tend to consult their subordinates about ideas, manage democratically and treat everyone as equal. This also expresses itself in a narrower range of salaries. However, German work culture still is very ordered and bureaucratic, which matches well with the Chinese way of doing things, even though China has scored a high 80 in Power Distance. The main difference causing the most trouble between German and Chinese companies in regard to this dimension, might be the. 19.

(27) fact that Chinese senior management might have a hard time accepting ideas not coming from their own ranks. Also, as power is generally exercised from above in China, whereas in Germany a rather independent work attitude is expected, a German manager in China might be surprised by how clearly he or she will need to instruct the Chinese subordinates. . Individualism vs. Collectivism: Whilst the world average is at 43, Germany scores at 67 and therefore shows a very high tendency to individualism. This is in line with Hofstede’s finding that wealthier countries tend to have a higher individualistic score. This means, that values such as individuality, self-determination and independence are highly valued. However, whilst individualism is highly valued on a private basis, in the workplace things are often. 治政大 This also materializes in the fact 20 is one of the most collectivistic countries in the world. 立 that Chinese companies tend to build long-term relationships as a ways of “group building” decided by committees and decisions are made jointly. China on the other hand with a low. ‧ 國. 學. and forming a bonding relationship. In a work environment, where the two cultures have to work together, it is important for the German participants to try not to stand out from the. ‧. crowd. Very different from the German culture, where individualistic ideas and individual fulfillment is seen as desirable, when working with China, it is important to blend in with the. y. Nat. al. er. Masculinity vs. Femininity: The world average here is a score of 50, whilst both – China and. io. . sit. group and avoid any action that might draw attention to oneself as an individual.. n. Germany do score a 66, meaning that they are very compatible in this dimension. The high. Ch. i n U. v. masculinity score in both countries expresses that money, material possessions and. engchi. recognition are highly valued. Both countries are still male dominated but it must be mentioned that this is slowly changing in Germany and this might lead to a change in the masculinity score. Even though officially in China, men and women have the same rights, this is not the case when one looks at the reality. Therefore one must say that even though on the outside the two countries look similar in respect to this dimension, the similarity might become undone soon, leading to even bigger obstacles as there has been some similarity before. Female managers operating in China will have to be prepared to be confronted with some kind of sexism, as the Chinese counterpart will assume that the real decision power lies with their male colleagues. . Uncertainty Avoidance Index: The world average for the uncertainty avoidance index is 64. Therefore Germany with an uncertainty avoidance index of 65 is pretty much average, whilst. 20.

(28) China with an index of 30 is clearly more into allowing individuals to manage their own risk. Germans are prone to a need for security. Therefore they insist on written rules and detailed code of conducts. Carful planning and adherence to those plans and rules are a must in the German business world. Through this, Germans try to reduce the risk of uncertainty to a minimum. This is completely opposite to the Chinese way of doing business. The Chinese are not afraid of an unforeseen future and are welcoming of bending rules and changing plans as new situations emerge. This difference in how tasks are approached, can lead to misunderstandings in situations where Germans have to deal with Chinese business people. The German side has to be aware of the fact that contracts and rules are guidelines but by no. 治政大not aware of the cultural difference. be very distressing for German businessmen if they are 立 Long-term (normative) vs. short-term (pragmatic) orientation: Germany and China score means are a strict code of conduct. Meetings and schedules are frequently changed. This can. 學. ‧ 國. . very similar her with 83 and 87 respectively. However, still there is a big difference in how the two countries deal with their partners. Germans like efficiency so therefore their high. ‧. long term orientation number stems more from the fact that a long term orientation is often more efficient. Despite the high long-term orientation score, they are still very pragmatic. y. Nat. sit. oriented and rely on facts when doing business. The results in a directness that might be. al. er. io. mistaken as hurtful or cold especially by Asian cultures, who tend to prefer stable, strong,. n. reliable and personal long term relationships, which are built not on facts but on mutual trust. Ch. i n U. v. that has been developed over a long period of time. This long-term, normative orientation. engchi. means that the Chinese take their time to develop mutual trust, whilst Germans rely on the bare fact, contracts and rules. This difference can be annoying for German business people when dealing with Chinese, as it takes very long until things really take off, which goes totally against the efficiency Germans like and demand. . Indulgence vs. Restraint: Here the German score is 40, whilst the Chinese score 24. This means that Germans are restraint, as their score is only 40 however, not as restraint as the Chinese. The two countries are similar in this. Comparing China or Germany with the US in this aspect would give a different picture. The US scores a high 68 in indulgence and that means that the Americans have a much stronger sense of “work hard play hard”, which goes against the Chinese restrictiveness. One needs to keep that in mind when talking about the success or failure of US American JVs in China.. 21.

(29) The comparison of the Chinese and the German culture here already gives a sense about where problems in JVs can occur and that the source of them is often due to differences in the two cultures. Martin Posth writes about the difficulties to overcome those cultural differences when working together with the Chinese in the SVW JV. For example in the early stages of the opening up to the world, the communistic mindset was still very prevalent and strong, so the workers were the “kings” as one of Mr Posth’s colleagues describes them. In the early stages that let to a lack of authority of managers (M. Posth, 2006, p.49). In his book Martin Posth also expresses his frustration about the cultural differences when he writes: “We couldn’t just push a button and have the Chinese workers march in the right direction” (Posth, 2006, p.58).. 政治大. The Graph illustrates the differences some more:. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 4 Hofstede comparison of China and Germany One can conclude here that, even though China and Germany are very different in certain aspects, in some others they are quite close and definitely the German work culture fits better to China than for example the American work culture, because despite the fact that differences are existing, they are still not as extensive as they could be and in some aspects the two cultures actually are quite matching. Having looked into the specifics of German culture, the paper will now focus on the German partner company of the German Chinese JV: Volkswagen (VW).. 22.

(30) 6.2 Development of VW Nowadays, the “Volkswagen Aktiengesellschaft” (VW AG) is one of the largest automakers in Europe and together with Toyota and GM it is one of the largest worldwide. The Volkswagen AG is the parent company not only of Volkswagen (VW) but also of Audi, Seat, Skoda and some more premium brands such a Bentley, Lamborghini, Bugatti, Ducati and Porsche. The history of the VW AG is closely linked to the Third Reich, as Adolf Hitler was the one who in 1934 demanded that a car should be developed that would be affordable (less than 1000 Reichsmark), has four seats, is fuel efficient and able to hold a speed of 100km/h, which was needed if one wanted to use it on the new and modern German “Autobahn” (Highway). Ferdinand Porsche, later the. 政治大 most famous model – the VW Beetle was born (Hawranek, 2009). 立 The VW AG was finally founded on May 28 1937. Later on, in 1972, the VW Beetle broke the founder and main engineer of Porsche AG, was asked to develop a model and that was how VWs th. ‧ 國. 學. record of the Ford Motor Company’s Model T of 15.007.034 cars sold. In 1964, VW acquired what later became known as Audi.. ‧. In 1982, Dr. Carl Horst Hahn became chairman of VW and stayed it until 1993. By that time, VW had operations in Brazil and Mexico, where it had helped to built up the automobile industry and. y. Nat. sit. therefore was already an international company. However, up to that point, VW had no direct. er. io. operations in Asia (it had licensed its Santana to the Japanese Nissan but was not directly involved in. al. v i n also grew) and therefore when the Chinese came to the VW headquarter in C h Minister of Machines U i e h n g ca big decision for the company weather to risk Wolfsburg and suggested a cooperation, it was quite n. the production. Only later, after the China JV had already been established, the operations in Japan. this or not. Especially since the Chinese Market at that time had only just opened up to the world and was still very underdeveloped. However, Dr. Carl Hahn approved the JV with SAIC and not only that but through his constant support of the China operations he is mainly responsible for the founding and success of it. In addition to that, its operations in China became extremely important for VW as means of income. As one Chinese planner in G.T. Chin’s “China’s Automotive Modernization” says: “We believe that China, in fact, has saved VW. VW had lost out to the Japanese on the U.S. market. Their decision to come to China turned out to be really beneficial for them. They have made huge earnings in China. We can see this in the fact that the largest share of VW’s profits, globally, came from its China investments. “ (Chin, 2010, p.74).. 23.

(31) The Chinese planner might be a little bit biased but there definitely is some truth in what he said. During the 1980s, Volkswagen of America had decreasing sales figures. This was mainly due to the Japanese brands that successfully had managed to transition their image from makers of “cheap, flimsy boxes on wheels to sporty, high-performance, attractive cars” (Chin, 2010, p. 74). We therefore see, that as much as SAIC and the Chinese automotive industry as a whole benefitted from the SAIC – VW JV, also VW recurred many benefits from the cooperation with China and the risks it took as one of the first movers into the Chinese market. In the following, the founding and development of the Chinese – German JV will be discussed.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 24. i n U. v.

(32) 7 The SAIC/ VW JV: SVW As mentioned before, the whole idea of a German Chinese Joint Venture started with a visit of the Chinese Machine Minister to Germany and his discovery of all those VW on Germany’s streets. This already shows that the entry of VW into China was different from the entry of many other foreign automakers. Also VWs approach was different. The automakers from Wolfsburg (the hometown of VWs HQ) were not driven to China by desperation such as AMC or Peugeot, whose main goal was to set off the losses they had suffered in other markets by selling their old and outdated models to the underdeveloped Chinese market (Chin, 2010, p. 72). Even though the German automaker had suffered losses in its US market due to the enhanced and cheaper Japanese products that were. 政治大 to China what could no longer be sold to the rest of the world, but rather they aimed for a long term 立 competing against VWs Beetle, they entered China not with the idea of making fast money by selling. commitment from the very beginning. (Chin, 2010, p. 72). But still, the early days and the. ‧ 國. 學. development of the JV were not an easy task and so Qiu Ke employed on the Chinese side of the JV remembers: “Cooperation between the Shanghai Automotive Industry Corporation (SAIC) and. ‧. Germany’s Volkswagen AG wasn’t easy at first.” (Posth, 2006, p. 20). He admits that deciding to. y. Nat. work together with the Chinese under the given circumstances was not easy and emphasizes:. sit. “Despite these difficult conditions, all the obstacles and risks, the management of Volkswagen. er. io. AG, led by Dr. Hahn, decided to cooperate with Shanghai, demonstrating a far-sighted approach.. al. n. v i n C hVenture with us.”U(Posth, 2006, p.20). decisive role in the success of the Joint engchi. The management team in Wolfsburg asserted this far-sighted guiding idea which played a. However, nowadays researchers and companies agree on one thing: entering China at that stage and being partnered up with SAIC in Shanghai was beneficial for both parties involved: “Changing Lanes in China” author Eric Thun emphasizes SVWs good influence on the development of Shangahi: “What was good for Shanghai Volkswagen was good for Shanghai” (Thun, 2006, p.103), whilst G.T. Chin on the other hand hints at how fortunate VW was at being partnered up with SAIC of all companies: “In hindsight, it was highly fortuitous for VW to be partnered with SAIC, and to have the opportunity to establish its JV in Shanghai.” (Chin, 2010, p. 76). From the very beginning, one can see how different the VW in China Project was handled form the German side in comparison to other foreign entrants. This foreshadows the exceptional success that the project reached later on.. 25.

(33) 7.1 Development The very first “VW produced in China” was done on April 11th 1983. It was a VW Santana (Handelsblatt online, 2013). But before that could happen, the Chinese first went to see the VW factories in other parts of the world, whilst the Germans went to China,. investigate. the. circumstances there. VW dispatched 政治大 two seasoned employees to China, in order to represent the German. Figure 5 The first VW produced in China (Source: Posth, 2006). 學. ‧ 國. 立. to. interests. there.. Martin. Posth. originally had not intended to go to. ‧. China when over a discussion about who should be dispatched he slipped “Before we go on talking like this all day, I’ll do it myself” (Posth, 2006, p.11). He had been the HR board member of Audi. y. Nat. sit. before. The second half of the “German Dream Team” was Hans-Joachim Paul, head of division of. er. io. VW’s plant in Kassel, Germany (Posth, 2006, p.14). These two people were very instrumental to. al. v i n mentioned before, very important in China, C h the JV most likelyUwould have failed. e n g cresponsibility hi The structure of the JV was that of an equally shared and management, which meant, n. SVWs early development. Without their tireless efforts and personal involvement, which is, as. that both parties were to decide together about all matters. Board and executive committee were appointed 50:50 by the Chinese SAIC and the German VW. However, directors and executive committee were both chaired by Chinese, while only the deputies would be German. Even though this was frowned upon by some Germans, it proofed to be a good decision: after all, the JV was located in China and there were many official and representative duties to this positions, as this is the nature of doing business in China and for a German person, fulfilling these duties would have been very difficult, if not impossible (Posth, 2006, p. 15-16). Already here, one can see how responsive and culturally sensitive the VW management was acting. VW was very willing to adapt and respond to the mediating efforts not only of the Chinese partner company but also of the Chinese party state. 26.

(34) as a whole. Many of its foreign rivals in China acted opposite, which contributed to their failure. (Chin, 2010, p. 76). On the German side, the rationing for this willingness to adapt to the Chinese stemmed from the fact that they believed in that the Chinese would “have a long memory and remember their friends” (Chin, 2010, p. 96). That is also the reason for the extraordinary effort the VW executives applied in order to constantly show presence in China.. 7.2 Knowledge Transfer 7.2.1 Technical Knowledge. 立. 政治大One of the topics that at the beginning created some uneasiness, was the question about which. ‧ 國. 學. model should be produced in the new JV. In Germany, until the very. ‧. present day, rumors about that VW was set to do exactly what many. y. Nat. to do: make money with their old. er. io. sit. other foreign automakers had tried. Figure 6 VW Santana (Source: Wang, 2012). al. v i n China. However, that is not the truthC at Martin Posth alsoU h e n g c h i mentions in his book “1000 Days in n. models and old technology in. Shanghai (Posth, 2006, p. 19). Actually, the Santana model, which was ultimately chosen, was equipped with state of the art technology, was VWs newest model at the time and a very good match. for the requirements of the Chinese market (Posth, 2006, p. 19; G.T. Chin, 2010, p. 95). Actually Dr. Hahn insisted on introducing the newest model and by that, he gained the trust of the Chinese authorities as that matched their ultimate goal of modernizing the Chinese automotive industry by technology transfers from foreign carmakers. Many other carmakers were not willing to having their newest technology produced in China, exactly because of that reason. They were afraid that the Chinese would be capable of copying the technology and develop their own industry and eventually export cars made in China to other Asian countries or even globally, and by this “stealing” the foreign carmakers current market shares (Chin, 2010, p.95).. 27.

(35) In fact, VW did not only produce its newest model in China but also actually let the Chinese choose on their own. After the initial setup of the JV, it seemed like the Chinese started to fancy the Audi 100, a model belonging to the Audi brand, which is owned by the VW AG. The Audi 100, however was a totally different kind of car than the Santana, much more luxurious but also much Figure 7 Audi, 100 (Source: audi-klassik.de). more expensive and therefore actually not what. 治政大 took first steps towards producing However, Dr. Hahn, sensing the Chinese liking for the Audi 100, 立 the Audi 100 in China and in May 1985, even sent the Audi production director Hermann Stübig to the Chinese had initially wanted.. ‧ 國. 學. Shanghai in order to assess if production of the Audi would be possible there. Mr Stübig’s verdict was disastrous. By that time, the circumstances under which the Chinese produced, were very much. ‧. below the German standards as far as cleanliness and other things were concerned. Mr Stübig was clear about one thing: the Chinese would never be able to produce a high quality car and for sure not. y. Nat. sit. the Audi 100. However, after a trial production and much back and forth, the Chinese in Shanghai. al. er. io. never were able to make a final decision weather they wanted the Audi 100 or not until it was too late. n. and the First Auto Works (FAW) in northern China started a JV with Audi producing the Audi 100,. Ch. i n U. v. and therefore the decision was taken out of their hands (Posth, 2006). So one can state very clearly,. engchi. that VW was willing to accommodate the Chinese wishes for a modern model and was willing to transfer knowledge with regard to technical know how. Knowledge was highly needed: As the production lines in China were extremely backward, VW started off with importing SKD kits from Germany and assembling them in China. SKDs are “semi knocked down” kits, where only axles and wheels have to be installed. Later on, VW moved on to CKD kits (completely knocked down kits). In the beginning, the Shanghai plant only produced two Santanas per day, with planned production of 6000 to 8000 for the first year. The highly praised, most modern VW “Shop 54” in Germany produced 3000 cars per day by that time, which means it could produce the planned output of the Chinese plant within a day or two. From the low planned output number, one can see that the German VW management team was very well aware of the fact that they had to start from scratch in China and therefore very slow. Martin Posth mentions in his book “1000 days in Shanghai”: “we weren’t. 28.