GM, China Venture Sign $607 Million Export Agreement
1. Here is the article I will be commenting on:
2. Summary: The article is about General Motors Co.’s Chinese joint venture (Shanghai General Motors Co., which is equally owned by GM and the Shanghai Automotive Industry Corporation, SAIC) Shanghai GM just signed a $607 million contract to buy automobiles and equipment from its parents. This deal is driven by China's 4 trillion yuan stimulus plan to help automobiles sales in the country.
3. 1.5 External Environment - 1.7 Growth and Evolution - 1.9 Globalization
4. The article talks about an important contract between two subsidiaries of General Motors, a large multinational company, which ties-in with the globalization unit. It says Shanghai GM, owned by both GM and the SAIC, is interested in buying automobiles, machinery and equipment form its parent, in a $607 million (USD) contract that will most likely benefit the company as whole, and help boost automobile sales in China, GM's second largest market. During the past 2 years, the automobile industry in China has grown tremendously, driven by the nation’s surging vehicle demand and the government's stimulus plan worth 4 million yuan ($586 billion). The government's actions represent a big opportunity for GM, which has seen its north american sales decrease dramatically since the start of the recession. GM is greatly influenced by external sources (the government and the chinese population's need for more cars) and the company trades with its venture according to those sources. The fact of having expended the company into multiple different markets globally now allows GM to maintain a certain level of profit coming from a fruitful market, like China, despite suffering huge losses in certain regions of the world, especially America. The article also makes a good point in describing the advantages of a joint venture. Since Shanghai GM is not totally owned by GM, it still allows trade between GM and the SAIC. However, power struggles are often to consider when dealing with joint ventures, which is crucial in such an important deal.
4 comments:
Hi Olivier. Cool article.
First off, I want to say that your analysis was interesting, and I agree with many of your points. The joint venture between GM and the SAIC will definitely be a good, profitable one to make, and I agree that power struggles will definitely be a problem between US-based GM and Chinese SAIC. This being said, I'm curious as to whether or not you think there would be other specific problems that would arise from the joint venture, and to what degree would they be an issue?
I would assume that synergy would potentially not be as strong between the two companies due to external factors such as disputes over Chinese territory and political situations, specifically the situation with the Uyghurs in Xin Jiang, China. The United States Government sides with the Uyghur people in wanting them to separate with China, whereas China is strongly against this split from the parent country. This may cause distaste between the US and China, and although relations seem to be fine at the moment, this external factor, specifically dealing with politics, always has the potential for some conflict or disagreement down the road.
On the flip side, one major benefit of this joint venture would be the exploitation of local knowledge. Since GM is based in the USA, having a Chinese partner help sell cars in China would be a huge benefit to the company, as the native company would know the local and nationwide industry a lot more thoroughly than if a foreigner were to set up shop in a new country, especially one with such great purchasing power while the rest of the world suffers an economic recession.
Once again, interesting article and analysis. Thanks for posting!
Hi Olivier. Cool article. Admittedly there are some parts of this article that I don't feel I fully understand. I think it's because I'm not fully familiar with GM and their situation and some of this other stuff that's going on, or maybe it's because I'm tired and I have a headache. In any case, I really like your analysis and what you said about globalization. I like what you said about GM losing from profits in the North American market, but also gaining more in China. This kind of balance I think really ultimately demonstrates some of the benefits of globalization very well. Of course it isn't always true that globalization will always bring positive numbers on every level; I like this example because it's very real and it shows another different side of globalization that isn't fully profit profit profit, but rather some give and take. I also appreciate what you said about joint ventures because that also shows up in my article, as Lloyd pointed out, and I missed some of that. After having read your explanation in addition to what Lloyd has said and what I've found myself after looking again at joint ventures, I feel like I understand it much better not only in your case but my own as well so I must thank you kindly for that.
As for my wonderments with regards to this article... do you think GM is, will, or should pay more attention to their market in China, since that appears to be blossoming (perhaps 'blossoming' is a bit of a stretch but you get the point), or North America where they are struggling a little more because the recession hit them harder (correct me if I'm wrong). Or should they pay attention to, and fund both sides equally? I suppose basically that means to ask, should they be trying to make even more profit where they are already making profit? Or push to make something out of nothing, so to speak, in the North American market.
Well done!
- Alex -
Hi Olivier, cool article...
First off, I would say that I enjoyed a good laugh reading the cartoon you included at the start of your blog. That really made my day.
I think that Shanghai GM is making a smart choice, purchasing $607 million worth of automobiles and parts from the parent GM company. This is a smart move, as there is a tremendous amount of room for growth in the Chinese car industry. This phenomenon sort of reminds me of America in the Roaring 20's, when Henry Ford's Model T was mass produced, and the automobile industry began to take flight thereafter. This seems to be the case in China, as the overall living standard of Chinese citizens have gone up over the past decade, and now, luxury items such as personal automobiles are more affordable.
I also think that this case is a brilliant example of globalization. I think that General Motors was extremely smart in investing in a joint venture in China. They chose not to run a company entirely by themselves, as they may not be as familiar with the local Chinese culture. Forming this venture with SAIC, a Chinese based company, would compromise the weakness of General Motors. With the venture, Shanghai GM has become the largest domestic automobile manufacturer in China. The parent General Motors saw and opportunity through careful analysis and planning, and executed their tactics carefully. Now they can reap the rewards of economies of scale, bargaining power, as well as being price leaders in a market that they are dominant in.
What are your thoughts of my comment?
Thanks.
Thanks for your comment!
I like the fact you talked about economies of scale. It is another aspect I hadn't thought of. This case really demonstrates the advantages of achieving economies of scale through growth and expansion. I think GM's Chinese venture is probably an important reason why the company is still running since automobile sales in America have been rapidly decreasing since the start of the economic downturn
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