SHANGHAI GENERAL MOTOR: THE RISE OF

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E S K A A N I S A N . F. A - 2 9 1 1 47 7 7
R I N I A M E L I A - 2 9114 8 57

HISTORY OF SHANGHAI GENERAL MOTORS

1922
Moved GM Manila
branch to
Shanghai

2002
Launching of new
Buick G sedan
model

1998
Start producing
Buicks

1997
GM signed US$1.6
billion contract
with SAIC

1999
Signed MOU with
5 Chinese
universities

2004
Launching of
Buick Excelle HRV
hatchback and
Buick Royaum
premium sedan

1.

WHY WAS GM SO DETERMINED TO

ENTER INTO PARTNERSHIP WITH SAIC IN
1997, A TIME WHEN AUTOMOBILE
INDUSTRY WAS EXPECTING
OVERCAPACITY, PLUMMETING DEMAND
AND DROPPING CAR SALES?

REASONS FOR PARTNERSHIP BETWEEN GM

AND SAIC

GM faced crisis in the early 1990s due to lack of productivity, lower quality cars
than Japanese, lengthy new-model cycles and lack of workforce in the US

Chinas big population and aggressive economic expansion which resulted in

middle class growth

China lowered import tariffs, which allows GM to enter easily

SAIC (Shanghai Automotive Industry Corporation) was one of the big three
automobile manufacturers in China.

SAIC was wholly-owned by the Shanghai Municipal Government (state-owned

enterprise) and SAIC was supported by and closely linked to the policy makers
(government).

GM officials envisaged that 20 years after the joint venture, the company would
sell more cars in China than in the US.

GM saw a US export potential of US$1.6 billion in the first five years after the
partnership was formed.

2. EXAMINE THE JOINT VENTURE

RELATIONSHIP BETWEEN GM AND SAIC.
WHAT IS THE AGENDA OF GM AND SAIC
RESPECTIVELY?

JOINT VENTURE

A joint venture is a business enterprise under-taken by

two or more persons or organizations to share the
expense and (hopefully) profit of a particular business
project.

TYPES OF JOINT VENTURE

Equity-based joint ventures
benefit foreign and/or local private interests, groups of
interests, or members of the general public.

Non-equity joint ventures (cooperative agreements)

the parties seek technical service arrangements, franchise
and brand use agreements, management contracts, rental
agreements, or one-time contracts.

The types are actually depends on the objective the company

want to reach

THE JOINT VENTURE RELATIONSHIP BETWEEN GM AND SAIC

Based on the case:

The partnership was frankly like symbiotic

mutualism where each party could get
advantages by doing joint venture as the
parties tried to reach the objective
(developing and leveraging the automobile
industry in China), such as absorbing the
advanced technology

THE AGENDA OF GM AND SAIC RESPECTIVELY?

GM

Increasing the sales performance

of automobiles in China

Strive to build a world-class

automotive industry in China

SAIC

Strive to become competitive in

international level by
establishing joint ventures

Attract international automobile

to upgrade the local automotive
Build a holistic supply chain in
China that globally competitive and industry and reduce large-scale
imports
form a good distribution system
(dealership)

the agenda of GM and SAIC respectively? (Contd)

GM

Redesign the Buicks to suit

customer preferences in Chinese
market, which were classified into
4 (high, mid-high, medium, lowend)
Develop modern marketing
practices so that the Chinese
customers would value the GM
brand

SAIC

Together with GM, the joint

venture partnership set up the
three-way (Chinese-ChineseForeign) joint ventures with local
Chinese companies and other
new joint initiatives

Besides, the joint ventures

jointly established the US$50
Million PATAC

3. THE PARTNERSHIP BETWEEN GM AND

SAIC CAN BE CONSIDERED A LEARNING
ALLIANCE. DISCUSS THE BALANCE OF
POWER BETWEEN THE TWO PARTIES.

SGM AND SAIC CONDITION PRIOR TO JOINT

VENTURES
SGM

Could supply
components and
assembly 13,000
vehicles
3,500 employees in
China
Currently has 3 joint
ventures

SAIC

One of 3 biggest automobile

manufacturers in China
65,000 employees

Currently has 33 joint

ventures
Annual production of
600,000 cars

ADVANTAGE FROM THE JOINT VENTURE

SGM

Granted permission to
establish its own distribution
and sales network in China
Could reproduce supply chain
similar to the one in the US
Could apply auto financing
business license by forming JV
with a subsidiary of SAIC

SAIC

Absorbed imported technology

from GM

Could develop manufacturing

competencies

Acquire competitive advantage

and trust from Chinese
government

BALANCE OF POWER BETWEEN SGM AND SAIC

From SGM and SAIC

partnership, they made
Pan Asia Technical
Automotive Center
(PATAC), which was
equipped with
advanced equipment.
They re-engineer the
Buick Regal, which was
introduced in
December 2002 under
GMs' name, and quickly
became the best-selling
car in China.

4. DISCUSS THE POTENTIAL CONFLICTS

THAT CAN ARISE IN GM-SAIC JOINT
VENTURE. DO YOU THINK THE GM-SAIC
PARTNERSHIP WILL SUSTAIN? WHAT ARE
THE FACTORS FOR SUSTAINABLE JOINT
VENTURE PARTNERSHIP?

THE POTENTIAL CONFLICTS THAT CAN ARISE IN

GM-SAIC JOINT VENTURE
Overcapacity in production pushed such joint
venture business to close their company
Foreign participants feel that governments
policy of China take sides in local producers
One of the parties is against the contract
Exposed to high risk of intellectual property
infringement

WILL THE GM-SAIC PARTNERSHIP SUSTAIN?

Yes, it will. GM-SAIC partnership will sustain as long

as both of the parties do their best in running the
business. The facts regarding the sustainability are
as follow:

BECOMING THE BIG THREE OF AUTOMAKERS

MARKET IN CHINA

THE TRENDS OF SGM MARKET

SHARES SHOW SIGNIFICANT
GROWTH YEAR TO YEAR

THE FACTORS FOR SUSTAINABLE JOINT VENTURE

PARTNERSHIP

SGM reached GMs

projected capacity
within four years,
much faster than
that achieved by
any other foreign
auto company .

The success of the

partnership laid a
solid foundation for
GMs fulfillment of
its long term
strategy in China.

Annual sales of
vehicles in China is
growing.

Skillfully leveraged
the SAIC
partnership to
acquire competitive
advantage and
trust from the
chines government.

5. PERFORM A SWOT ANALYSIS OF GM IN

2004, A YEAR THAT IT HAS ACHIEVED
STRONG GROWTH IN MARKET SHARE AND
PROFITABILITY. WHAT ARE THE SUCCESS
FACTORS THAT CONTRIBUTE TO GMS
RAPID GROWTH? WHAT ARE THE
THREATS AND OPPORTUNITIES FACES BY
SGM IN THE COMPETITIVE AUTOMOBILE
MARKET?

SHANGHAI GENERAL MOTORS SITUATION IN

2004

SGMS SWOT ANALYSIS

STRENGTH

Strong brand recognition for

luxury cars under Buick
Has its own distribution and
sales network in China
Early entrance to China
market
Extensive GM product lines
that targets different
segments
Joint ventures with SAIC
Products tailored to Chinese
market requirements

WEAKNESS

Higher price compared to

local automotive market

Some models mostly still

manufactured in the US

SGMS SWOT ANALYSIS (CONT.)

OPPORTUNITIES

T HR E AT S

Growing economy car

market

Chinese government
lowered import tariffs

Increase in size of the

middle class in China

Higher influx of imported

cars for high end segment

New automotive policy in

2004 for autonomy in sales
and distribution (Exhibit 7)

Maturation of Chinese car

manufacturers for middle
and low end segment