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Carmakers strive to take risks abroad
May 21, 2012, Monday
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IN 2011, 850,000 vehicles were shipped out to the world from harbors in China, which was a 50 percent year-on-year increase.
The exports contributed US$11 billion to the country's trade balance, up 57 percent from 2010. With most of the Chinese domestic brands suffering to some extent from declining market share at home, surging exports might help them counter the decline.
Chery, the largest Chinese carmaker, recorded sales of 642,000 units in 2011, down 6 percent from a year earlier. But export volume reached 160,000 units, comprising a quarter of the company's sales.
Last July, the Wuhu-based carmaker finished installing a complete production line in its US$400 million fully owned factory in Brazil - the carmaker's 17th overseas plant.
Last year Great Wall Motors, China's second-largest vehicle exporter, shipped 83,000 units to 128 countries. Export volume accounted for 17 percent of sales in 2011. The company owns 12 production facilities overseas.
Most global players start to approach overseas markets only after securing a robust market share at home. By contrast, Chinese original equipment manufacturers aren't waiting for a strong domestic foothold before investing outside China. That strategy could involve considerable risk. It's safer to crack the low-end market at home first.
Most of Chinese carmakers, including Chery, JAC, Zotye and Lifan, have been major players in the small end of the car market for years. Though often criticized for poor quality and copycat designs, these cars are still finding strong demand in emerging markets.
Capturing volume
With China's market now so dominated by the global brands, it is not easy for the Chinese brands to compete. But in foreign emerging markets, where the competition is less intense, they stand a better chance of capturing volume.
Being an early bird in those market helps them to get a march on rival, much in the same way the Japanese and Korean auto industries evolved. Overseas markets are expected to play an increasingly important role in China's auto industry development.
Yet, caution lurks. In many emerging markets, government regulations and market orders can be unpredictable, and trade protection measures often hurt investors.
Russia is a prime example. The country was the largest export destination for Chinese-made vehicles in 2007, when over 57,000 cars from Chery, BYD, FAW, Geely and several other companies were shipped there.
However, during the financial crisis in 2008, Russia implemented several protectionist policies, such as increasing import duties and tightening the validation standard for locally assembled foreign branded vehicles.
As a result, China's car export volume to Russia plummeted to 7,000 units in 2009.
Similarly, Brazil, China's largest vehicle export destination in 2011, raised its import duties by 30 percent last September. This action, aimed at protecting the local auto industry, is expected to hurt Chery, Chang'an and Jianghuai just as they were starting to expand their businesses there.
Thanks to low labor and manufacturing costs back home, Chinese cars broke into the emerging markets with competitive price offerings. But domestic costs have been rising in recent years, and now Chinese carmakers are seeking new production bases in those emerging markets. But the cost advantage will invariably disappear there, too.
Compared with mature markets, overall car demand in emerging ones is still low.
In the past few years, many Chinese carmakers announced ambitious plans to enter the European and US markets, but few have achieved any real success.
Safety and emissions standards are tough the meet, not to mention consumer concerns about the quality and design of Chinese-brand cars that need to be overcome. It is, therefore, important for Chinese companies to remain focused on becoming competitive at home before reaching too far to markets outside. Otherwise, they could eventually find themselves left with nowhere to go.
The exports contributed US$11 billion to the country's trade balance, up 57 percent from 2010. With most of the Chinese domestic brands suffering to some extent from declining market share at home, surging exports might help them counter the decline.
Chery, the largest Chinese carmaker, recorded sales of 642,000 units in 2011, down 6 percent from a year earlier. But export volume reached 160,000 units, comprising a quarter of the company's sales.
Last July, the Wuhu-based carmaker finished installing a complete production line in its US$400 million fully owned factory in Brazil - the carmaker's 17th overseas plant.
Last year Great Wall Motors, China's second-largest vehicle exporter, shipped 83,000 units to 128 countries. Export volume accounted for 17 percent of sales in 2011. The company owns 12 production facilities overseas.
Most global players start to approach overseas markets only after securing a robust market share at home. By contrast, Chinese original equipment manufacturers aren't waiting for a strong domestic foothold before investing outside China. That strategy could involve considerable risk. It's safer to crack the low-end market at home first.
Most of Chinese carmakers, including Chery, JAC, Zotye and Lifan, have been major players in the small end of the car market for years. Though often criticized for poor quality and copycat designs, these cars are still finding strong demand in emerging markets.
Capturing volume
With China's market now so dominated by the global brands, it is not easy for the Chinese brands to compete. But in foreign emerging markets, where the competition is less intense, they stand a better chance of capturing volume.
Being an early bird in those market helps them to get a march on rival, much in the same way the Japanese and Korean auto industries evolved. Overseas markets are expected to play an increasingly important role in China's auto industry development.
Yet, caution lurks. In many emerging markets, government regulations and market orders can be unpredictable, and trade protection measures often hurt investors.
Russia is a prime example. The country was the largest export destination for Chinese-made vehicles in 2007, when over 57,000 cars from Chery, BYD, FAW, Geely and several other companies were shipped there.
However, during the financial crisis in 2008, Russia implemented several protectionist policies, such as increasing import duties and tightening the validation standard for locally assembled foreign branded vehicles.
As a result, China's car export volume to Russia plummeted to 7,000 units in 2009.
Similarly, Brazil, China's largest vehicle export destination in 2011, raised its import duties by 30 percent last September. This action, aimed at protecting the local auto industry, is expected to hurt Chery, Chang'an and Jianghuai just as they were starting to expand their businesses there.
Thanks to low labor and manufacturing costs back home, Chinese cars broke into the emerging markets with competitive price offerings. But domestic costs have been rising in recent years, and now Chinese carmakers are seeking new production bases in those emerging markets. But the cost advantage will invariably disappear there, too.
Compared with mature markets, overall car demand in emerging ones is still low.
In the past few years, many Chinese carmakers announced ambitious plans to enter the European and US markets, but few have achieved any real success.
Safety and emissions standards are tough the meet, not to mention consumer concerns about the quality and design of Chinese-brand cars that need to be overcome. It is, therefore, important for Chinese companies to remain focused on becoming competitive at home before reaching too far to markets outside. Otherwise, they could eventually find themselves left with nowhere to go.
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