Only need the answer to question 5!!! General Motors and Chinese Joint Ventures
ID: 393525 • Letter: O
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Only need the answer to question 5!!!
General Motors and Chinese Joint Ventures Just a few years ago, the global marketplace was not kind protection, GM saw its U.S. market share slip from 44 to to General Motors Corporation (GM), but the company just 19 percent. The troubled company emerged from is on a much-needed upswing with record earnings in 2016 bankruptcy a few months later as a smaller enterprise with and strong global optimism for the next several years. The fewer brands, and yet, going forward some believe that the Chinese market, in particular, is becoming one of the most new GM could be a much more profitable enterprise. And important foreign markets for GM. General Motors, of 2016 showcased GM's profitability: "By nearly every mea- course, is a U.S-based multinational corporation head sure, 2016 was a great year," GM Chair and CEO Mary quartered in Detroit, Michigan. The company was founded Barra told investors and analysts in Februar in 1908 in Flint, Michigan, and Mary Barra is currently major reason for this the company's CEO. In 2016, GM had revenues of ventures in China. $166 billion and more than 216,000 employees, produced almost 10 million vehicles, and consisted of four core divi ment to establish a joint venture with the state-owned sions (Buick, Chevrolet, Cadillac, and GMC). optimism was the success of its joint GM entered China in 1997 with a $1.6 billion invest- Shanghai Automotive Industry Corporation (SAIC) to But not long ago, GM was hurt by a deep recession in build Buick sedans. At the time, the Chinese market was the United States and plunging vehicle sales. GM capped ny (fewer than 400,000 off the 2000-2010 decade, where it had progressively lost was attracted by the enormous potential in a c market share to foreign rivals such as Toyota, by entering more than 1.4 billion people, a country that also was ex- Chapter I bankruptcy. Between 1980, when it dominated periencing rapid economic growth. While GM initially the U.S. market, and 2009, when it entered bankruptcy recognized that it had much to learn about the Chinese cars were sold in 1996), but GM Cases 627 market, and would probably lose money for a few years in the early years, GM executives believed it was crucial to market of about 9 million passenger and commercial vehicles establish operations and to team up with SAIC (one of sold in China in 2008 to 28 million in 2016, the Chinese the early leaders in China's emerging automobile indus- vehicle market is booming compared with the United States try) before its global rivals did. The decision to enter and Europe. China has now become GM's largest market in joint venture was not a hard one. Not only did GM lack ehicles sold. GM also plans to expand its Chinese dealer knowledge and connections in China, but Chinese gov- network to more than 5,000, and it plans to have 17 assem- ernment regulations made it all but impossible for a for bly plants in China-more than the 12 it has in the United eign automaker to go it alone in the country. It is the future, however, that has people excited. From a States. Driving this expansion are forecasts from GM that While GM was certainly not alone in investing in demand in China will reach 35 million vehicles a year by China-many of the world's major automobile companies 2022, a huge increase from the 28.5 million vehicies sold in entered into some kind of Chinese joint venture during 2016. Underlying these forecasts are thes relatively low his time period-General Motors was among the largest vehicle penetration rates in China. China has about 85 vehi- investors in the country. Only Volkswagen, whose man- cleper 1,000 people compared to around 800 vehicles fo agement shared GM's view, made a similar-size invest every 1,000 people in the United States. ment. Other car manufacturers adopted a more cautious approach, investing smaller amounts and setting more Sources By 2007, GM had expanded the range of its partner Phoenix Kwong. "China 2016 Car Sales Surge at Fastest Rate ship with SAIC to include vehicles sold under the names in Three Years," China Business, January 12, 2017; Melissa Bur- of Chevrolet, Cadillac, and Wuling. The two companies en, "GM Sells Record 3.87 Million Vehicles in China, The had also established the Pan-Asian Technical Automotive Derolt News, January 5, 2017; Brent Snavely, "GM Earns $9.43 center to design cars and components not just for China, Billion in 2016; UAW Workers Get Record Profit Sharing but also for other Asian markets. At this point, it was a ready clear that both the Chinese market and the GM SAIC joint venture were exceeding GM's initial expectations. Not only was the joint venture profita but it was also selling more than 900,000 cars and light trucks annually by 2007, placing it second only to Volk- swagen in the market among foreign nameplates at that Case Discussion time (some 8 million cars and light trucks were sold in China in 2007). Today, GM sells about 4 million vehicles annually in China, and the country's car market is about 28 million vehicles per year. GM's Cadillac, Buick, and Baojun brands set sales records in China in 2016. troit Free Press, February 7, 2017; Tom Krisher, "General Mo tors Exudes Optimism, Raises Outlook for 2017, US News and World Repor, January 10, 2017; K. Naughton, "GM's China Bet Mimics Toyota's Bet on U.S. Last Century." Bloomberg.com, 1. GM entered the Chinese market at a time when demand was very limited. Why? What was the 2. Why did GM enter through a joint venture with SAIC? What are the benefits of this approach? What are the potential risks? Why did GM not simply license its technology to SAIC? Why did it not export cars from the United Much of the GM-SAIC joint venture's success could be attributed to its strategy of designing vehicles explicitly for the Chinese market. For example, in a complex joint ve ture involving GM, SAIC, and also Liuzhou Wuling Mo- tors Co., GM produced a tiny minivan, the Wuling Sunshine. The van costs about $5,000, has a 0.8-liter en- . Why has the joint venture been so successful to date? gine, hits a top speed of 60 mph, and weighs less than 5. As of 2018, GM appears to be increasing its strategic 1,000 kilograms-a far cry from the heavy SUVs GM was known for in the United States. For China, the vehicle was perfect, making it the best seller in the light truck sector. 3. commitments to China by building more factories and opening more dealerships. Why is the company making these bets? Do you think it is doing the right thing? Exporting Desserts by a Hispanic EntrepreneurExplanation / Answer
General Motors and Chinese Joint ventures:
Answer 5: In my opinion GM is making a right decision by increasing its strategic commitments to China by building more factories and opening more dealerships. The reason to back up my opinion is that these decisions are not random decisions these are based on forecast. Forecasts are made by properly researching the markets, business environment and several other external factors. According to the GM forecast demand in China will increase to 35 million by the year 2022. It is also mentioned that vehicle penetration rates in China are still low. There is still lot of scope growth for in Chinese automobile market. Therefore, I find GM’s decision appropriate and worth taking risk.
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