Speech Harvard Case Solution & Analysis

Shanghai General Motors is the joint venture between the General motors and Shanghai Automotive Industry Corporation (SAIC).

This joint venture was made in early 1998 by the CEO of GM.

The investment made was considered a great risk as the economy of China was unstable and had a very low technical support on their back.

But the success story of SGM is way too different from the speculations made by the different analysts. According to the analysts at that time the investment in China by GM was of high risk and not worth wile to be made.

After a great struggle SGM was able to prove the point initiated by the CEO of GM. The company captured almost 27% of the market share in China.

Slide 3:

The aim of CEO of GM’s is to make the company flourish in the Asian region as well.

The advantage to GM’s was that the SAIC was a government owned company.

The government of China wanted to make the local industry of China a success, for this cause they restricted the foreign investors to make fully owned investment and allowed to make investments through joint ventures or less than joint ventures only.

By this investment GM increased their profit margins from 5% globally to 10% from investing in china.

Slide 4, 5, 6 and 7:

The win-win situation between the relation of GM and SAIC is due to the gains received to both the companies.

SAIC received the technical infrastructure from GM which helped them to increase their capacity of production and lower the costs. This ultimately helped them in competing with the world.

GM as discussed above wanted to increase his market share in Asian region so GM’s opted to invest in China as the labor is cheap and can be trained as per their requirements.

The other reason was that GM knew that the profit margins will increase by investing in China due to suitable conditions of China and because of this investment GM can increase its production capacity.

Slide 8:

The companies were enjoying a balance in power as it is a joint venture both the companies were in equal positions.

The only restriction in the contract between SAIC and the GM was that the work force to be used should be local and the components to be used in manufacturing as raw material should also be locally produced.

GM was given the freedom to make its own supply chain and this was the first time in China that any company was developing its own supply chain in China.

Slide 9:

The companies were in a good relation until the joint venture project of Volkswagen and SAIC.

At first GM’s were of the view that this joint venture between Volkswagen and SAIC should not have happened and the second shock that was received by GM was the launch of a car by Volkswagen which was going to be introduced in the market with a similar sounding name by GM with similar shape and specifications.

GM filed a law suit against this act of Volkswagen but lost. This incident happened again just after few years but no fruitful results were received by GM.

Slide 10:

It was predicted that the company will not make enough profits in the 4th year of the company. This was due to the world market and unemployment increase due to a hit of recession in the same year.

But the company made enough profits even after experiencing a hit from the recession phase.

Slide 11:

Strengths and opportunities:

Strengths of SGM were as discussed in my previous slides that with the experience and technological support of GM and a great work force of SAIC made the company a strong competitor in the automotive industry.

The supply chain experience of GM helped SGM to increase its revenues in China.

GM and SAIC made a joint venture of an institute for the technical development of the people of China which further helped the company by its research.

Weaknesses:

Economy of China was a risky business to invest in at the time the investment was made. The economy was developing in this stage and the market is unstable. The prices of commodities fluctuate to a great extent in such an economy..............................

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