Strategies of German Car Companies in China.

By: Schrott, PatrickPublisher: Hamburg : Diplomica Verlag, 2013Copyright date: ©2014Edition: 1st edDescription: 1 online resource (88 pages)Content type: text Media type: computer Carrier type: online resourceISBN: 9783954895861Subject(s): Strategic alliances (Business) -- Germany.;International business enterprises -- ManagementGenre/Form: Electronic books. Additional physical formats: Print version:: Strategies of German Car Companies in ChinaDDC classification: 658.044 LOC classification: HD69.S8 -- .S3 2014ebOnline resources: Click to View
Contents:
Strategies of GermanCar Companies in China -- Table of Contents -- List of Figures -- List of Abbreviations -- 1 The Biggest Automobile Market of the World -- 2 Market Analysis of the Chinese Automotive Market -- 2.1 Political-legal Factors -- 2.2 Economic Factors -- 2.3 Socio-cultural Factors -- 2.4 Technological Factors -- 3 Internationalisation Strategies for the PRC's Car Market -- 3.1 Timing Strategy -- 3.2 Establishing and Developing Business -- 3.3 Choice of Location and Partners -- 4 Internationalisation strategies of German car companies in the People's Republic of China -- 4.1 Volkswagen Group -- 4.2 Bavarian Motor Works Group -- 5 Conclusion -- 6 Works Cited -- 7 List of Enclosures.
Summary: In 2009, the PRC overtook the USA as the biggest automotive market in the world in production as well as in sales. With economic problems like stagnating real income, rising raw material prices and credit-driven consumerism in the industrial countries the importance of the Chinese market for car companies will even grow. Saturated passenger car markets in the USA and Western Europe and low rates of motorization in new automotive markets like China focus the attention of the market participants on these new, growing markets. The focus of this study is on the passenger vehicle market and lines out why the Chinese market is profitable and attractive for international manufacturers. Moreover, it shows how to deal with the problems and how to use the opportunities regarding the dimensions of internationalization. Firstly, the PEST-Analysis of the Chinese automobile market lines out the political-legal, economic, socio-cultural and technological factors. In such a rapidly changing and growing as well as culturally completely different country like the PRC, the framework conditions and circumstances are of big importance for foreign enterprises willing to do business there. The third chapter deals with possible internationalization strategies for China by showing possibilities of timing and market development strategies plus options for locating business markets. This is also further established in the fourth chapter, in which the internationalization strategies of two German enterprises are analyzed. Furthermore the fourth chapter analyses the internationalization strategies of VW and BMW. At the end of this thesis, the results are summarized in two SWOT-analyses of both firms including measures on how to deal with threats in the PRC and on how to benefit from strengths and opportunities.   Auszug aus dem Text Text Sample: Chapter 2.4, TechnologicalSummary: Factors: Especially for a technical-based industry, the framework and infrastructure are of big importance. The technological conditions are strongly influenced by environmental problems, the society and government expects the car manufacturers to respond to this trend. To become 'greener" the participants on the whole market in the PRC invest in the R&D sector. At last, with more and more automobiles in the PRC, the infrastructure has to be adapted. 2.4.1, Technological Trends - The Chinese E-Mobility Programme: In the context of the leading position of the industrialised countries in combustion engines, increasing oil and energy prices, environmental pollution and carbon dioxide legislation, the PRC decided to put the focus on the research and development of Electric Mobility. Especially with carbon dioxide emissions that were eight times higher than Germany's (figure 24) and the growing burden through the transportation sector. The fact that China is an automotive market in an earlier phase is good for sales of alternative fuel technologies because potential clients have no reservations about the new technology like in the Western countries. The head of states in the PRC fund these branches to become the technological leader in the segment of hybrid electric and electric automobiles. The regional proximity is a strategic advantage for the aims. The E-Mobility programme of the governance aims to boost the sales of environmental-friendly, efficient vehicles It creates incentives for alternative power automobiles with small cubic capacities, for instance. For all-electric cars people can get up to ¥60,000 (€6,690) and for plug-in hybrids ¥50,000 (€5,575). Secondly, scrapping premiums for old cars from ¥5,000 (€560) to ¥18,000 (€2,010) were introduced, depending on the age of the vehicle. At last, the government decided that drivers of small cubicSummary: vehicles get tax abatement: If the capacity is lower than 1.6 litres, they just have to pay 2.5% less. Besides the subsidy, in general the PRC has spent USD2.5bn in supportive measures like acquiring busses with electric engines for the public transportation and requirements like public charging points in 13 cities between 2009 and 2011. The number of cities was enlarged in 2010 to 20. The target is to have 30,000 electric vehicles on the roads in 2012. A list with the cities can be seen in the appendix (figure 25). Worldwide, the tendency will go from combustion engines towards more hybrid and pure electrical powertrains. In 2025, gasoline and diesel will still be the number one fuel but bio fuels, natural gas and particularly electricity will catch up: From 2010 to 2025 the share of E-cars will rise from under 1% to between 3% and 12%. The main driver of this will be the PRC. For innovative enterprises, like the German car manufacturers, the tendency to hybrid electric or electric powertrains normally should be a favourable circumstance and the premium car manufacturers seize on the trend: As described in 2.2.2, BMW created the brand 'Zhi Nuo" together with ist partner Brilliance. Even if 'Build Your Dreams" is a pioneer in the E-car segment, Daimler has already had ist first nightmare with ist partner as written in 2.2.2. VW wants to sell about 10,000 E-automobiles between 2014 and 2018, the subsidiary Audi will develop such a car based on the Audi 'A6L' with the Tongji University, too. In summary, the E-Mobility programme is auxiliary, particularly for innovative and creative companies like VW and BMW. 2.4.2, Research and Development Landscape: As a result of the demographic change, China can not only continue to be the world's extended workbench but has to strengthen the research and development area. The fundament of the new economy shouldSummary: be own High-Tech products instead of cheap items. The PRC uses three ways to achieve the required expertise. The first is to force foreign companies to find joint venture partners in China. The technological transfer does not always happen legally from a Western perspective as explained in chapter 2.1.5. However, not only in the automotive industry theft of ideas is a practice, in the promising sectors of information, environmental, nano- or biotechnology Chinese companies get the know-how through joint ventures. Consequently, the technological landscape changes e.g. the world's biggest nanotechnology centre is currently built in the country. Selfish exploitation of the PRC as workbench in the past is also a reason for the know-how transfer to enterprises in China. Secondly, the governance, military, companies and research institutes has raised the research and development expenditures extremely over the last ten years from USD15.7bn in 2002 to USD139.7bn in 2011 (figure 26). In 2010, the PRC's expenditure in this important area were comparable with the EU, one aim in the last Five-Year Plan was to have R&D expenditures of 2.5% of the economic performance of the country. Furthermore, the government set the goals to have 60% national innovation in 2020. Moreover, combined platform of military and civil research, an accelerated launch of scientific and technological innovations and to reduce the dependence of foreign technology to 30% are objectives. Above all, the R&D field should not depend on foreign know-how and capital transfer and not only copy foreign products but create innovations in high-tech sectors. Thus, the PRC moves from labour and capital intensive production to research intensive sectors. The target of the current plan is to double the expenditures in this field until 2015 (figure 27). Chinese research methods differ extremely fromSummary: the Western. Instead of quality with detailed plans, they focus on the quantity, because they do not have a lack of researchers. The human capital is made up in the high-tech zones of the East (see 3.3.1). Nevertheless, research and development is important for the market strategies of foreign enterprises to get knowledge about the patterns of consumption as well as usage and the basic research. For automobile enterprises, it is particularly crucial to develop the products bottom-up to extend brand identification and to meet the needs of customers in the PRC, also in the various regions. Daimler and BMW have located many R&D activities to China because they have the highest turnover in this market, for example. Hence, they also comply with the request of the governance to not only produce, but also develop products in the PRC. Especially the carbon dioxide legislation forces automobile enterprises to produce environmental friendly E-Cars for the Chinese market, research activities in this field are essential or to say it in the words of Norbert Reithofer, CEO of BMW: 'Gefährdet ist, wer mit der aktuellen Technologie noch erfolgreich ist". More and more suppliers have moved their R&D centres to Asia and particularly to the PRC, too. The last way to get the know-how is to buy foreign competitors. Examples in the car industry are the Chinese Geely which purchased Volvo or the supplier Hebei Lingyun Industrial which overtook Kiekert. The PRC has already desired first interim successes on the way to a research- and knowledge-based society: In a survey 80% of the interviewed German companies recognised improvements concerning the quality of Chinese product (figure 26). On balance the creation of R&D centres the PRC will considerably influence the worldwide car market. In order to be a trend-setter, it is important for well-known firms like VW or BMW toSummary: grow.
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Strategies of GermanCar Companies in China -- Table of Contents -- List of Figures -- List of Abbreviations -- 1 The Biggest Automobile Market of the World -- 2 Market Analysis of the Chinese Automotive Market -- 2.1 Political-legal Factors -- 2.2 Economic Factors -- 2.3 Socio-cultural Factors -- 2.4 Technological Factors -- 3 Internationalisation Strategies for the PRC's Car Market -- 3.1 Timing Strategy -- 3.2 Establishing and Developing Business -- 3.3 Choice of Location and Partners -- 4 Internationalisation strategies of German car companies in the People's Republic of China -- 4.1 Volkswagen Group -- 4.2 Bavarian Motor Works Group -- 5 Conclusion -- 6 Works Cited -- 7 List of Enclosures.

In 2009, the PRC overtook the USA as the biggest automotive market in the world in production as well as in sales. With economic problems like stagnating real income, rising raw material prices and credit-driven consumerism in the industrial countries the importance of the Chinese market for car companies will even grow. Saturated passenger car markets in the USA and Western Europe and low rates of motorization in new automotive markets like China focus the attention of the market participants on these new, growing markets. The focus of this study is on the passenger vehicle market and lines out why the Chinese market is profitable and attractive for international manufacturers. Moreover, it shows how to deal with the problems and how to use the opportunities regarding the dimensions of internationalization. Firstly, the PEST-Analysis of the Chinese automobile market lines out the political-legal, economic, socio-cultural and technological factors. In such a rapidly changing and growing as well as culturally completely different country like the PRC, the framework conditions and circumstances are of big importance for foreign enterprises willing to do business there. The third chapter deals with possible internationalization strategies for China by showing possibilities of timing and market development strategies plus options for locating business markets. This is also further established in the fourth chapter, in which the internationalization strategies of two German enterprises are analyzed. Furthermore the fourth chapter analyses the internationalization strategies of VW and BMW. At the end of this thesis, the results are summarized in two SWOT-analyses of both firms including measures on how to deal with threats in the PRC and on how to benefit from strengths and opportunities.   Auszug aus dem Text Text Sample: Chapter 2.4, Technological

Factors: Especially for a technical-based industry, the framework and infrastructure are of big importance. The technological conditions are strongly influenced by environmental problems, the society and government expects the car manufacturers to respond to this trend. To become 'greener" the participants on the whole market in the PRC invest in the R&D sector. At last, with more and more automobiles in the PRC, the infrastructure has to be adapted. 2.4.1, Technological Trends - The Chinese E-Mobility Programme: In the context of the leading position of the industrialised countries in combustion engines, increasing oil and energy prices, environmental pollution and carbon dioxide legislation, the PRC decided to put the focus on the research and development of Electric Mobility. Especially with carbon dioxide emissions that were eight times higher than Germany's (figure 24) and the growing burden through the transportation sector. The fact that China is an automotive market in an earlier phase is good for sales of alternative fuel technologies because potential clients have no reservations about the new technology like in the Western countries. The head of states in the PRC fund these branches to become the technological leader in the segment of hybrid electric and electric automobiles. The regional proximity is a strategic advantage for the aims. The E-Mobility programme of the governance aims to boost the sales of environmental-friendly, efficient vehicles It creates incentives for alternative power automobiles with small cubic capacities, for instance. For all-electric cars people can get up to ¥60,000 (€6,690) and for plug-in hybrids ¥50,000 (€5,575). Secondly, scrapping premiums for old cars from ¥5,000 (€560) to ¥18,000 (€2,010) were introduced, depending on the age of the vehicle. At last, the government decided that drivers of small cubic

vehicles get tax abatement: If the capacity is lower than 1.6 litres, they just have to pay 2.5% less. Besides the subsidy, in general the PRC has spent USD2.5bn in supportive measures like acquiring busses with electric engines for the public transportation and requirements like public charging points in 13 cities between 2009 and 2011. The number of cities was enlarged in 2010 to 20. The target is to have 30,000 electric vehicles on the roads in 2012. A list with the cities can be seen in the appendix (figure 25). Worldwide, the tendency will go from combustion engines towards more hybrid and pure electrical powertrains. In 2025, gasoline and diesel will still be the number one fuel but bio fuels, natural gas and particularly electricity will catch up: From 2010 to 2025 the share of E-cars will rise from under 1% to between 3% and 12%. The main driver of this will be the PRC. For innovative enterprises, like the German car manufacturers, the tendency to hybrid electric or electric powertrains normally should be a favourable circumstance and the premium car manufacturers seize on the trend: As described in 2.2.2, BMW created the brand 'Zhi Nuo" together with ist partner Brilliance. Even if 'Build Your Dreams" is a pioneer in the E-car segment, Daimler has already had ist first nightmare with ist partner as written in 2.2.2. VW wants to sell about 10,000 E-automobiles between 2014 and 2018, the subsidiary Audi will develop such a car based on the Audi 'A6L' with the Tongji University, too. In summary, the E-Mobility programme is auxiliary, particularly for innovative and creative companies like VW and BMW. 2.4.2, Research and Development Landscape: As a result of the demographic change, China can not only continue to be the world's extended workbench but has to strengthen the research and development area. The fundament of the new economy should

be own High-Tech products instead of cheap items. The PRC uses three ways to achieve the required expertise. The first is to force foreign companies to find joint venture partners in China. The technological transfer does not always happen legally from a Western perspective as explained in chapter 2.1.5. However, not only in the automotive industry theft of ideas is a practice, in the promising sectors of information, environmental, nano- or biotechnology Chinese companies get the know-how through joint ventures. Consequently, the technological landscape changes e.g. the world's biggest nanotechnology centre is currently built in the country. Selfish exploitation of the PRC as workbench in the past is also a reason for the know-how transfer to enterprises in China. Secondly, the governance, military, companies and research institutes has raised the research and development expenditures extremely over the last ten years from USD15.7bn in 2002 to USD139.7bn in 2011 (figure 26). In 2010, the PRC's expenditure in this important area were comparable with the EU, one aim in the last Five-Year Plan was to have R&D expenditures of 2.5% of the economic performance of the country. Furthermore, the government set the goals to have 60% national innovation in 2020. Moreover, combined platform of military and civil research, an accelerated launch of scientific and technological innovations and to reduce the dependence of foreign technology to 30% are objectives. Above all, the R&D field should not depend on foreign know-how and capital transfer and not only copy foreign products but create innovations in high-tech sectors. Thus, the PRC moves from labour and capital intensive production to research intensive sectors. The target of the current plan is to double the expenditures in this field until 2015 (figure 27). Chinese research methods differ extremely from

the Western. Instead of quality with detailed plans, they focus on the quantity, because they do not have a lack of researchers. The human capital is made up in the high-tech zones of the East (see 3.3.1). Nevertheless, research and development is important for the market strategies of foreign enterprises to get knowledge about the patterns of consumption as well as usage and the basic research. For automobile enterprises, it is particularly crucial to develop the products bottom-up to extend brand identification and to meet the needs of customers in the PRC, also in the various regions. Daimler and BMW have located many R&D activities to China because they have the highest turnover in this market, for example. Hence, they also comply with the request of the governance to not only produce, but also develop products in the PRC. Especially the carbon dioxide legislation forces automobile enterprises to produce environmental friendly E-Cars for the Chinese market, research activities in this field are essential or to say it in the words of Norbert Reithofer, CEO of BMW: 'Gefährdet ist, wer mit der aktuellen Technologie noch erfolgreich ist". More and more suppliers have moved their R&D centres to Asia and particularly to the PRC, too. The last way to get the know-how is to buy foreign competitors. Examples in the car industry are the Chinese Geely which purchased Volvo or the supplier Hebei Lingyun Industrial which overtook Kiekert. The PRC has already desired first interim successes on the way to a research- and knowledge-based society: In a survey 80% of the interviewed German companies recognised improvements concerning the quality of Chinese product (figure 26). On balance the creation of R&D centres the PRC will considerably influence the worldwide car market. In order to be a trend-setter, it is important for well-known firms like VW or BMW to

grow.

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