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3 Lessons Every Auto Policymaker Must Learn From China

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Though Chinese automobile manufacturers may not have had exemplary reach in the 1990s, but they will become a monopolistic player as the world embraces future mobility.

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China has not only positioned itself to become an agile global leader but has also addressed its environmental degradation follies alongside expeditious growth. From becoming the largest automobile producer in 2008 to converting almost its entire public mobility fleet into electric, the country has taken many dicey decisions and maneuvered the results in its favor. The strategies that place China on top of the value chain of new mobility paradigm, ahead of major economies of the world that had led the previous mobility revolution, are key lessons for emerging market leaders.

Trajectory

Ever since China’s communist party announced a series of economic reforms in 1979, the country had created a model of duplication that was required for creation of corporate’s to absorb manpower. Largely inefficient on the industrial front, the challenge was to be able to catch up with the standards set by world leading automotive companies and ultimately ameliorate per capita incomes. The bureaucratic macro-economic policies started focusing on growth, infrastructure and education through the medium of perfect competition model, that became key drivers for mass production in the auto arena.

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The demand for automotive products, which was mainly created by state companies initially, started increasing with emerging middle class. The domestic producers along with foreign expertise, though limited due to state interference, were able to meet the demand and expand their portfolio. Value chain was built as per mature markets: Assemblers had to set up an externalized supplier base, majority of which were imported due to lack of in-house expertise and scale. But due to presence of massive raw materials, cheap as well as competent workforce and provincial autonomy, exports of vehicles propagated.

China soon turned into a major automobile production hub, third only to United states and Japan. The nation was never again seen as a mere assembling platform for exports by international companies. Around the 2000’s, China became World’s Factory, supplying everything that came into the market at an acceptable quality but at a very competitive price which eventually became China’s USP. Initially the objective for the province was inclined towards establishment through economies of scale but with time, innovation also became an integral part of the scheme as China now moved towards becoming a technological leader with volumes.

Today, China has become an epitome of electric and renewable mobility. The nation’s strategic expertise, after the ‘Ten Cities One Thousand Vehicles’ program adopted in 2009, towards electric and autonomous fleets has positioning it towards a monopolistic future.

Foreign competition and Protectionist measures

The cooperation between local and international firms has been a major foundation of growth. But collaboration of a local player with the foreign player was a must for operating inside the nation. Automotive firms from Germany, United states and Japan were early entrants in the Chinese ecosystem, impacting technology, network development and value chain escalation. But the Chinese state, whose word was law, has always been the common link between any joint effort.

The bureaucratic structure divided the Chinese industry into government supported companies and domestic manufacturers that jointly work with international companies. The foreign competition were hence integrated inside the diplomatic channels without any discussions. Political directives still remains a dominant influence in the Chinese auto industry, majorly affecting market access, investments, localization, tariffs and even volumes.

Early foreign players enjoyed the right to hold majority stakes in their mandatory joint undertakings but with time the national interest was given ultimate priority. Foreign ownership now remains low and foreign competition is actively controlled to protect local interests. But because of the vast demographics of the nation, many global leaders have not given up on the opportunity and are following a ‘wait and see’ strategy ’.

Industrial strategies

China’s industrial dynamics revolve around the intensity of state control and region’s ability to raise investments, that eventually trifurcate the nation into potential auto clusters. These clusters were majorly dominated by international components, assembly and technology companies, with only labor intensive products developed locally. But state policies, with time, has ensured transfer of technology to domestic players making them self sustaining. With time, this support from the state has given domestic players the strength to deepen their roots not only inside the country but also at the macro levels.

Chinese firms have entered many emerging economies and have disrupted the market with products that are high on cost effectiveness but low on safety. And now, new customers have arrived: Nations that are looking to explore electric and autonomous mobility options in the personal as well as commercial vehicle space. Influencing initial buyers, which are local governments in majority of cases, through expertise over low cost with precision and positioning themselves deeper in the macro environment through mergers and acquisitions is something Chinese manufacturers are really good at. The way the nation has shown its mettle is a good learning for countries like India. Such learning’s should not be used as a reverse-engineering model but as a blue ocean case study.

This column first appeared in http://www.entrepreneur.com / Entrepreneur India. To read the author’s previous columns, please go to https://www.entrepreneur.com/author/pranav-jain

The columnist, a consultant, is an author at http://www.entrepreneur.com,  https://yourstory.com/ & http://www.businessworld.in/

Linkedin: http://www.linkedin.com/in/pranav-jain-04a1527b

Twitter: @jainpranav94


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