Question

1. Read Mini-Case #22 entitled, “ Does GM’s Future Lie in China? . Consider the implications of this case and apply what you have read to the following questions.

How important are non-U.S. sales to GM? What implications does this have for GM’s global and business strategy? Think about the integration-response framework to inform global strategy and different strategic positions to inform business strategy. In 2014, GM held almost 15 percent market share in China, while Ford held only 3 percent. Why was GM so successful in China, while some of its rivals, including Ford, struggle to gain a stronger position in the world’s largest automobile market? What are the challenges GM is currently facing in the Chinese automobile market? How should GM’s CEO address them? Be specific.

Does GM’s Future Lie in China?

GIVEN THE SHEER size of the U.S. automotive market, the “old” GM concentrated mainly on its domestic market. GM once held more than 50 percent market share in the United States and was the leader in global car sales (by units) between 1931 and 2007, before filing for bankruptcy in 2009.1 In its heyday, GM employed 350,000 U.S. workers and was an American icon. The future for the “new” GM may lie overseas, however; most notably in China. Some 70 percent of GM’s revenuesare now from outside the United States. This is quite a high level of globalization for a company that once was focused on the domestic market only. GM sold more than 3.6 million vehicles in China, 37 percent of total GM cars sold. The Chinese market is becoming more and more important to GM’s performance, accounting already for almost 30 percent of total GM revenues of some $155 billion (in 2014). With a population of 1.4 billion and currently only 11 vehicles per 100 people—compared with a vehicle density of 81 per 100 in the United States—China offers tremendous growth opportunities for the automotive industry. Since China joined the World Trade Organization (WTO) in 2001, its domestic auto market has been growing rapidly and has now overtaken the United States as the largest in the world. Although the growth of the Chinese auto market has slowed in recent years because of the economy’s downturn, GM CEO Mary Barra remains convinced that China offers significant long-term growth opportunities. Unlike some of its main rivals, GM entered the Chinese market early. In 1997, GM formed a joint venture with Shanghai Automotive Industrial Corp. (SAIC), one of the “big four” Chinese carmakers. SAIC is one of the largest companies worldwide and ranked 60th on the Fortune Global 100 list. Over almost 20 years, GM was able to develop guanxi— social networks and relationships that facilitate business dealings—with its Chinese business partners and government officials.

GM’s China operation has been cost-competitive from day one. The company operates about the same number of assembly plants in China as in the United States, but sells more vehicles while employing about half the number of employees. Chinese workers cost only a fraction of what U.S. workers do, and GM is not weighed down by additional health care and pension obligations. Although struggling in the United States, GM’s Cadillac luxury brand is in high demand in China, where owning a Cadillac is considered a status symbol. GM’s best-selling model in China, however, is the Wuling Sunshine, a small, boxy, purely functional “micro van” priced between $5,000 and $10,000 depending on what options the customer chooses. The SAIC-GM joint venture sold almost 2 million Wuling vehicles in China in 2014. The Wuling Sunshine may help GM further penetrate the Chinese market; it also may be an introductory car for other emerging markets, such as India. GM’s low-cost strategy with this vehicle has been so successful that the firm is planning to expand the Wuling product line and offer the vehicle globally. GM already sells the Wuling Sunshine in Brazil under the Buick nameplate.

Taken together, China and other emerging economies in Asia, Latin America, and the Middle East are becoming more and more critical to GM’s future performance as it strives to become a lean and low-cost manufacturer of profitable small cars (at least for its non-U.S. markets). To back up its strategic intent, GM has quadrupled its engineering and design personnel in China and is investing a quarter-billion dollars to build a cutting-edge R&D center on its Shanghai campus, home of its international headquarters. Moreover, GM is spending an estimated $14 billion to build five additional manufacturing plants to support anticipated annual sales of 5 million vehicles. Yet, given the slowdown in the Chinese economy combined with devaluation of the Chinese currency (the yuan), the competitive intensity in the world’s largest automobile market is becoming more intense. Moreover, several government-supported domestic car manufacturers in China are initiating a cut-throat price war to gain market share and with it scale. In contrast, low gas prices in the United States have fueled high demand for sport utility vehicles (SUVs) and trucks, where GM and Ford hold strong positions.

Answer 1

General Motors international strategy

Importance of non-US sales to GM

Non-US sales add to the capital injection to the organization which enables it to innovate and satisfies customer demands globally.

Sales ensure the organization breaks even in an economy of scale so that the company business is sustainable competitively.

Implication for the global business strategy is as follows;

General Motors is able to be positioned strategically in the market through international business strategy hence attracting customers some who are long-term for its products offered in the market. Long-term customer base offers reliable income to the organization which is a positive market perception reducing the risk of investment. The strategy of the organization is to position itself as a customer-centric to be able to satisfy the needs of the consumer.

GM was successful in China due to the following reasons;

GM was the early organizations that believed in the Chinese market hence created a positive perception towards customers. GM had successful joint ventures with local organizations in China market. This enabled the penetration of the GM products in the market hence accelerating higher sales to control a higher market share. Gm adopted a Chinese business model of performance which enabled its rise with likeability from influential marketing community creating a positive marketing reaction.

Challenges GM is facing in Chinese automobile industry is as follows;

Competition from local automobile manufactures leads to low sales from the company. Preference of local products over international products in the Chinese market lowers sales from the GM. Unfavorable business laws that suit local manufacturers over the international business in order to promote local products.

GM CEO should address them as follows;

Custom made cars that suits the Chinese culture will make it favorable for the positive market perception which would in turn increase sales. The company needs to form production partnership to lower the risk of investment hence avoiding a-unfair business rules that favor local manufacturers over the international business community. Increase sales through shifting production bases that employ Chinese citizens which will increase positive reaction in the market as they would believe its for the Chinese market and manufactured by its citizens (Kolk, 2016).