The Chinese automotive market continues to demonstrate the growth rate. At the same time, the Chinese automotive industry is extremely diverse and has a huge potential. Currently, there are more than 130 automobile enterprises in China, which produce a total of more than 90 brands and 260 models of cars (PWC report, 2017).
China has its own factories almost all major international car manufacturers. One of the first foreign companies to open production in China was Volkswagen. Its first joint venture was launched in the early 1980s with a manufacturing base in Shanghai. And soon the company created another joint venture in Changchun in 1990. Currently, the company has 20 subsidiaries in China (Volkswagen Group Annual Report, 2017).
Later Audi used the same mechanism and began to conquer the local market. After a while the Chinese market entered brands such as Citroen, Toyota & Nissan, Hyundai, Mercedes-Benz, Honda, Mazda, Peugeot, Ford, Kia, Suzuki, Fiat, BMW and others. Thanks to the extensive use of cooperation with joint ventures, the government hoped that Chinese domestic firms would learn from their partners and eventually increase its competitiveness both locally and abroad (Wang et al, 2015).
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Nevertheless, the partnership is structured in such a way that the Chinese company is mainly responsible for car assembly operations, and the foreign partner is responsible for developing new cars and branding. Chinese automakers do not form exclusive relationships with their foreign partners. For example, SAIC has formed several joint ventures, including Shanghai-Volkswagen, Shanghai-General Motors and others. Due to the existence of such non-exclusive partnerships and concerns about insufficient enforcement of intellectual property rights, foreign carmakers are still reluctant to share their knowledge with Chinese partners.
The car sales market in China is growing from Year to Year. Along with the automobiles of well-known foreign brands in China there are about 70 local car brands (PWC report, 2017). The most well-known and well-sold in the country are Xiali, Chery, Geely, BYD, Hafei, Brilliance, JAC, etc. However, Western brands are more popular there. At the end of 2016, the six best-selling car brands were: Volkswagen, Honda, Chery, Buick, Hyundai, Toyota (Statista, 2016).
With all the variety of manufacturers in the Chinese automotive industry, there is a trend towards consolidation. Recently, China has formed several major automotive giants —Shanghai Automotive Industry Group (SAIC, 23% of all production in the country), First Automobile Works (FAW, 19%) and Dongfeng Motor Corp (DFM, 13%).
For more than a decade the Chinese automotive market is a dynamic and growing industry that relies on innovation. That is why many automakers are ready to introduce new technologies to this market. In particular, this applies to electric vehicles that are growing as a segment for a couple of recent years. The diagram below shows that many car manufacturers are willing to sell their cars here on alternative power sources.
Working groups in Chinese car companies are usually formed at the expense of people from the southern and central agricultural areas. The low level of qualification and technical culture of workers is compensated by their excessive number and low level of social demands. Meanwhile, widely used foreign experience in the production of cars in Chinese factories, primarily in joint ventures, has increased the requirements for employees (PWC, 2017).
Moreover, in order to increase the production capacity some joint ventures with the world’s leading industrial companies such as Cummins, Bosch, Michelin, Dana, Siemens, TRW were created. These manufacturers are involved in the creation of components for Chinese cars and contribute to the qualitative development of local automotive companies (PWC, 2017).
Based on the porter’s five forces analysis, the Chinese automotive market is described by the following powers:
The power of news entrants can be estimated as moderate. The huge financial cost is one of the main barriers to entry. The boom of the Chinese auto industry attracted large foreign direct investment. Many foreign automakers are keen to create their base in China to achieve the economy of scale. The Chinese government continues to play an important role in the Chinese automotive industry. Government support and lowering auto import tariffs give international companies more access to the market (Moss, T., 2018).
The power of suppliers is treated as moderate. In general, the Chinese market feels pressure from motor vehicles and public transport. Motorcycles and mopeds are more adapted to move inside a modern city with its traffic jams. Moreover, they take up less space when parking and they have much lower fuel consumption and lower maintenance costs. Therefore, motorcycles and scooters can be identified as serious competitors of cars. Public transport is a real alternative to a car for occasional trips inside the city or for long distances.
The demand for cars in China is growing rapidly. The market is characterized by high level of rivalry. The competition is quite moderate in the segment of luxury cars. The Chinese market is dominated by a large number of international brands. These brands are Volkswagen, Honda, Chery, Buick, Hyundai, Toyota and others (Statista, 2016).
The power of buyers is high in the Chinese market, because it is very competitive industry. Many customers are price sensitive, so they will negotiate with car manufacturers about obtaining more favorable terms of buying, otherwise they always have the opportunity to switch to a competitor’s product, similar in characteristics, but at a lower price. To maintain customer loyalty, automakers are trying to create efficient product at a reasonable price. They also try to provide customer with high quality service to convince their consumers to buy cars from them. It should be noted that due to the rapid growth of the upper-middle class, the demand for premium and luxury cars is increasing, respectively.
In general, the power of suppliers in the Chinese market can be defined as moderate. In China there is a large number of foreign manufacturers. Some foreign automakers have a tend to collaborate with suppliers from their country of origin, for example Japanese and German brands. As a rule, they import components in areas where Chinese suppliers are not very strong (security systems, for instance). Foreign manufacturers monitor closely the locally supplied resources and components that have a decisive influence on the quality of the produced goods, as well as on its final cost. The time it takes to produce a car is another concern for foreign manufacturers.
To conclude, the Chinese automobile market is one of the most attractive and promising in the world. In addition, the trend of the past few years is the transition of the market into a more civilized form. Chinese consumers learn fast and gradually get used to Western standards of work, product quality, sales and after-sales service, and at the same time to increasingly widespread foreign cars. Considering government policy and other entry barriers favor foreign car manufacturers the amount of newcomers will be supposed to increase (PWC, 2017).
