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New script, old plot in technology sharing
By Lu Nengneng |
April 20, 2013, Saturday
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Print Edition
Print Edition
Car brands jointly developed by Chinese and foreign partners were supposed to be the promising new dawn of the industry, but so far the concept is evolving along familiar old lines.
When the government invited foreign carmakers into the country in the mid-1980s, it offered entry into a lucrative new market in exchange for sharing of advanced Western technology. The foreign partners managed to gain a solid foothold while sharing as little as possible.
Now the government is offering them the opportunity to ramp up production capacity in exchange for greater access to those technologies. Is there any reason to believe they will acquiesce?
While being careful not to get on the wrong side of the government, foreign carmakers have continued to play coy with their technology expertise.
Nearly three decades after international giants like Volkswagen, Toyota, General Motors, Hyundai and BMW came to set up production lines in China, most of their joint ventures are still mainly assembling key components rather than making them.
Small wonder that doubts have arisen about the commitment of foreign players to creating brands with Chinese partners and making cars from scratch here.
Since 2010, three joint-venture brands have been officially launched in China, with mass-produced models available for sale. Except when hosting brand campaigns with much fanfare, foreign carmakers seem quite "absent-minded" in pursuing this new business dawn, said Zeng Zhilin, research director of LMC Automotive, Asia Pacific.
In many cases, the joint-venture China brands are nothing more than "recycling" outdated manufacturing platforms or models owned by foreign partners and giving them new logos, he said.
"It might be an experiment for foreign carmakers to tap China's lower-tier markets without bringing down their own image, but it can hardly be counted as a multi-brand strategy since most of their China-only brands don't have independent dealership networks," he added.
Too ambitious
On the other hand, starting everything from scratch seems too ambitious and risky, especially when there is not much space left for newcomers in China's auto market as demand and economic growth slow.
"If you don't think the whole hog joint-venture brand thing is promising but have to do it anyway, you can easily find a way to muddle through," said Yale Zhang, managing director of Automotive Foresight. Besides reusing old stuff, jumping on the "green" bandwagon is also a convenient way of seeming to appease government policy, he added.
At the front of this new trend are Ranz, produced by FAW Toyota, and Zhinuo, manufactured by Brilliance BMW. Both were unveiled recently, with a special focus on electric cars. The government is touting the development of green cars, even though heavy subsidies have not made them very commercially viable.
Zeng and Zhang said new energy brands don't have the power to change market dynamics.
Some joint-venture China brands involve production of only about 10,000 cars each year. Even the best-selling one, Baojun, a product of SAIC-GM-Wulin, which has put a lot of independent thought into reinventing an old platform, is not selling well. Sales of the flagship model Baojun 630 dropped to 4,167 units in February from 6,634 last November.
To keep a brand vital requires constant updating of models. That is especially important for joint-venture products based on outdated models and technologies because they have shorter life cycles, said independent auto analyst Zhang Zhiyong.
Concerted efforts
The future of joint-venture brands lies in the hands of both foreign and Chinese owners, he said. But how can there be any concerted effort when one side expects the other to contribute more than its fair share?
"Local carmakers must have their own intellectual properties … and if there are foreign partners willing to share their technologies with us for free, then it is progress," Su Bo, vice minister of Industry and Information Technology, once said. "At least, it is better than buying brands and technologies (from them) at costly prices."
It may be delusional to think that joint-venture partners will be happy to share everything with each other if they may one day compete head-to-head. Saying no is nothing personal. It is just business.
There is some "charitable giving" to the Chinese side, like the 50 percent ownership of the joint venture brand, but that doesn't include the expertise behind developing it, said Zeng. Whether it is about managing the full vehicle design and production process or establishing the brand DNA and dealership network, knowledge can never be given. It needs to be taken.
What Chinese carmakers have learned from joint-venture brand projects so far is mainly how to share the credit. For the moment, policymakers seem content to call that an accomplishment.
As Su once argued, if innovations by joint ventures are not considered as China's own, then the research and development efforts won't contribute much to the nation's industrial competitiveness.
It's true that joint-venture brands are increasingly mentioned in the same breath as domestic models.
"It sounds like a form of self-consolation for us market observers," said Automotive Foresight's Zhang. "But for policymakers, it is a way to achieve their target of boosting Chinese-held market share."
According to the 12th Five-Year Plan for the auto sector, domestic car brands should comprise half of the country's passenger car market by 2015. It is an ambitious goal unlikely to be met. Last year, domestic brands held a 41.8 percent market share. Still, it is all a bit of a boon for joint-venture brands to some extent. At least it may provide an excuse to keeping them alive for quite some time.
When the government invited foreign carmakers into the country in the mid-1980s, it offered entry into a lucrative new market in exchange for sharing of advanced Western technology. The foreign partners managed to gain a solid foothold while sharing as little as possible.
Now the government is offering them the opportunity to ramp up production capacity in exchange for greater access to those technologies. Is there any reason to believe they will acquiesce?
While being careful not to get on the wrong side of the government, foreign carmakers have continued to play coy with their technology expertise.
Nearly three decades after international giants like Volkswagen, Toyota, General Motors, Hyundai and BMW came to set up production lines in China, most of their joint ventures are still mainly assembling key components rather than making them.
Small wonder that doubts have arisen about the commitment of foreign players to creating brands with Chinese partners and making cars from scratch here.
Since 2010, three joint-venture brands have been officially launched in China, with mass-produced models available for sale. Except when hosting brand campaigns with much fanfare, foreign carmakers seem quite "absent-minded" in pursuing this new business dawn, said Zeng Zhilin, research director of LMC Automotive, Asia Pacific.
In many cases, the joint-venture China brands are nothing more than "recycling" outdated manufacturing platforms or models owned by foreign partners and giving them new logos, he said.
"It might be an experiment for foreign carmakers to tap China's lower-tier markets without bringing down their own image, but it can hardly be counted as a multi-brand strategy since most of their China-only brands don't have independent dealership networks," he added.
Too ambitious
On the other hand, starting everything from scratch seems too ambitious and risky, especially when there is not much space left for newcomers in China's auto market as demand and economic growth slow.
"If you don't think the whole hog joint-venture brand thing is promising but have to do it anyway, you can easily find a way to muddle through," said Yale Zhang, managing director of Automotive Foresight. Besides reusing old stuff, jumping on the "green" bandwagon is also a convenient way of seeming to appease government policy, he added.
At the front of this new trend are Ranz, produced by FAW Toyota, and Zhinuo, manufactured by Brilliance BMW. Both were unveiled recently, with a special focus on electric cars. The government is touting the development of green cars, even though heavy subsidies have not made them very commercially viable.
Zeng and Zhang said new energy brands don't have the power to change market dynamics.
Some joint-venture China brands involve production of only about 10,000 cars each year. Even the best-selling one, Baojun, a product of SAIC-GM-Wulin, which has put a lot of independent thought into reinventing an old platform, is not selling well. Sales of the flagship model Baojun 630 dropped to 4,167 units in February from 6,634 last November.
To keep a brand vital requires constant updating of models. That is especially important for joint-venture products based on outdated models and technologies because they have shorter life cycles, said independent auto analyst Zhang Zhiyong.
Concerted efforts
The future of joint-venture brands lies in the hands of both foreign and Chinese owners, he said. But how can there be any concerted effort when one side expects the other to contribute more than its fair share?
"Local carmakers must have their own intellectual properties … and if there are foreign partners willing to share their technologies with us for free, then it is progress," Su Bo, vice minister of Industry and Information Technology, once said. "At least, it is better than buying brands and technologies (from them) at costly prices."
It may be delusional to think that joint-venture partners will be happy to share everything with each other if they may one day compete head-to-head. Saying no is nothing personal. It is just business.
There is some "charitable giving" to the Chinese side, like the 50 percent ownership of the joint venture brand, but that doesn't include the expertise behind developing it, said Zeng. Whether it is about managing the full vehicle design and production process or establishing the brand DNA and dealership network, knowledge can never be given. It needs to be taken.
What Chinese carmakers have learned from joint-venture brand projects so far is mainly how to share the credit. For the moment, policymakers seem content to call that an accomplishment.
As Su once argued, if innovations by joint ventures are not considered as China's own, then the research and development efforts won't contribute much to the nation's industrial competitiveness.
It's true that joint-venture brands are increasingly mentioned in the same breath as domestic models.
"It sounds like a form of self-consolation for us market observers," said Automotive Foresight's Zhang. "But for policymakers, it is a way to achieve their target of boosting Chinese-held market share."
According to the 12th Five-Year Plan for the auto sector, domestic car brands should comprise half of the country's passenger car market by 2015. It is an ambitious goal unlikely to be met. Last year, domestic brands held a 41.8 percent market share. Still, it is all a bit of a boon for joint-venture brands to some extent. At least it may provide an excuse to keeping them alive for quite some time.
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