GM in China Harvard Case Solution & Analysis

GM In China

China’s Economic Overview

China with the largest population holds an integral position in world’s economy. It holds the position of the second largest economy based on GDP and Purchasing Power Parity with U.S.A on the top. China is the major exporter and second biggest importer of commodities that marks its trade surplus, which was about $35 billion in May of 2014. This factor gives China an edge over its trade rival, America that is a service-based industry. China is a socialist economy, which means that manufacturing and logistics of every industry is owned by the state.

Being a socialist government has its own pros and cons. The most considerable advantage is that there is economic stability in the country. Organizations are less affected by fluctuations of business related activities, as the matter of availability of raw materials, provision of competent human resource and other factors of production is the responsibility of the state. The state tries to ensure that social equality persists in the state and in order to achieve that, the government imposes certain rules and regulations with the intention to consistently provide resources to the population. The disadvantages of this system are that the organizations have to follow a standardized work that is set by the government. The government bodies control how much to produce and what to produce; this limits any sort of innovation on the part of organization to try something new with the purpose to enhance its market in anyway.

China has successfully used this form of economic system to its advantage and although socialist economic system provide a lot of restrictions, which a privately owned company may not be accustomed to but still China attracts many multinationals that generates exuberant amount of foreign direct investment. The reason why China is such an attractive market for MNC is due to its great population and cherry on top is the purchasing power parity (PPP) of that population is very high. It is also reported that China may surpass America as being the number one economy of the world by 2014. This assumption is based on the recent calculation of PPP, which is likely to cross that of America.

Industry Analysis

One of China’s main industries is the automotive industry. China holds the position of being the largest unit producer of automobiles in the world since 2008, beating entire European Union and Japan as well. China is the biggest populated place in the world, which has exceedingly high demand for all kinds of automotives. Majority of units produced by the Chinese manufacturers are utilized to meet demand of China but still exports reached 814,300 units in 2011.

China’s local companies hold 44.3% of the automobile production. Some local manufacturers are Dongfeng Motor, FAW Group, SAIC Motor and Rowe etc. The rest of the production share is owned by joint ventures with foreign companies like Volkswagen, Honda, Nissan and General Motors etc. With such a high demand and supply all of the stakeholders of the automobile industry benefits. Due to this foreign investors are motivated to enter Chinese market, this helped Chinese automobile industry to evolve with respect to technology and design etc. This increasing demand worldwide resulted in high exports. With such a huge numbers of automobiles in China and the industry growing rapidly, government is worried about the fuel consumption and in turn the pollution caused by this industry. Government is fixated on making clean, fuel-efficient and environment friendly vehicles that is why Chinese government is focusing on promoting alternate fuel vehicles and electric vehicles.

General Motors

General Motors (GM) is home to world’s most renowned car brands like Buick, Cadillac and Chevrolet etc. GM is a multinational company with its headquarter residing in Detroit, Michigan. It is present in 37 countries and it also has a number of joint ventures like Shanghai-GM and SAIC-GM Wuling in China and Ghandhara Industries in Pakistan etc. General Motors had a hard financial time in the automobile industry of the world, which includes the claim of bankruptcy in 2009. It revamped its status of leading manufacturer in 2010 by earning $4.7 billion and in 2011 GM had a market share of 11.9 % in automotive industry worldwide. It faced a crippling issue in 2014 in America when an ignition problem in its small cars resulted in 13 deaths. Department of Transportation imposed a $35 million fine on GM for delaying the recall of cars. GM recalled 800,000 of its small cars in May 2014. This issue resulted GM’s profits to fell to around $108 million in the initial three months of 2014.

Problem statement

How to formulate strategies when facing issues like copying of overseas vehicles’ designs and fake branding of components? In addition, inflation was on a rising path; further the government was uncertain about monetary, fiscal and investment policies.

Porter Five Forces Model

The porter five forces model examines the market conditions with ........................................

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For General Motors (GM), 2004 brought a wide range of new problems that add to the already complex business environment. Structure of the industry is changing rapidly. Supply and demand forecasts for cars promised a significant increase in sales and profits, but all of a sudden optimism disappeared. New China's membership in the WTO have created expectations of a level playing field for foreign investors, but - at least in the short term - the major obstacles remain. Government intervention remain, particularly the requirement for joint venture partners, competition from state-owned firms assembly and arbitrary rules, such as sectoral credit crunch. Intellectual property infringement, the copying of foreign designs of roads and false-branding part, was a constant threat. In addition, inflation is rising, and the government were confident and how to use monetary and fiscal policy. The government deliberately kept the yuan undervalued for many years. The pressure was building for the government to change its foreign exchange rate policy, but higher than the yuan suddenly reduced international competitiveness of GM in China. "Hide
by David W. Conklin, Daniel Cadieux Source: Richard Ivey School of Business Foundation 19 pages. Publication Date: December 20, 2004. Prod. #: 905M07-PDF-ENG

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