Gm in China

GM IN CHINA

Q1

The investment by domestic manufacturers in research and development (R&D) is far below that of foreign competitors.

Even though China's car market has grown rapidly, it is still many years away from being large enough to provide domestic car manufacturers with revenue sufficient to support a major R&D effort.

Research facilities, both inside and outside of the Chinese automotive industry that could be devoted to automotive research and development are limited in contrast to the facilities available to original equipment manufacturers (OEMs) around the world.

Even if the physical facilities existed, it remains to be seen whether enough engineers and scientists could be mobilized to carry out the necessary research and development.

Most of the existing Chinese companies are large, state-owned enterprises that are required to adhere to practices that increase their costs and make them noncompetitive, such as providing housing, schools, and other employee services.

Under terms imposed on members of the WTO, China must discard measures intended to protect an indigenous industry from foreign imports, such as tariffs on vehicles and components. Quotas and import licenses must be eliminated and tariffs reduced by factors of two to four from present levels. These changes, to be phased in over a five-year period, will bring tremendous competitive pressure to bear on China's motor vehicle industry, which enjoys few economies of scale. Some analyses described that China's domestic motor vehicle production will have changed little by 2005, but both vehicle imports and auto component exports will grow. The implication is that some of the motor vehicle growth over the five-year period from 2001 to 2005 will result from imported vehicles, signaling that China's motor vehicle industry could face strong competition in its domestic markets during this period.

The future structure of the Chinese automotive industry will likely include a combination of the following forms:

1. Stand-alone indigenous OEMs

2. Chinese enterprises, each in partnership in a single distinct joint venture

3. Chinese enterprises, each in partnership in several joint ventures, including some overlap of joint venture members among the various Chinese enterprises, which is common today

4. Motorcycle or farm equipment companies capable of developing a small car

5. Wholly owned foreign subsidiaries with the capability to manufacture new vehicles

6. Small or modest-size entrepreneurial Chinese companies that provide engineering support to all of the various enterprises in China.

A competitive Chinese industry must have access to the results of research on both conventional and advanced technologies if an efficient, low emission China car is to benefit from technological advancements. Agreements and relationships with joint venture partners should be restructured to allow the Chinese partner to participate more fully in re-search and development. Greater participation may require limiting the partnership to one foreign company per Chinese enterprise, with appropriate sharing of technology and knowledge.

Q2

Among the three major intellectual property laws, the patent law was the first to be revised, with amendments entering into effect on July 1, 2001. There is no doubt that some of these amendments were introduced to conform the statute to the Agreement on Trade-Related Aspects of Intellectual Property Rights "TRIPs Agreement". For example, the amended law now prohibits the "offers for sale" of products that infringe upon invention patents and utility models. It also tightens the standards for obtaining a compulsory license as permissible under Article 31 of the TRIPs Agreement while allowing for judicial review of patent invalidations pursuant to Article 41of the Agreement

China's ever changing and suddenly shifting policies have always been a threat to company operating in the country. In addition to this the country also turns a blind eye to the issues of IP, trademark and copyright infringement complains. This is evident in the situation given in the case study faced by Toyota. This encourages the domestic manufacturers to copy the technologies of their foreign counterparts and sell them with similar identifications that border on trademark infringement laws. This also affects the operation of joint ventures in the industry where the new companies would be just as much worried to put in newer technologies for risk a technology copy. GM itself has been at the receiving end of some such issues.

The company's currency policy has benefited GM till now. However, its parent country United States as well as many European countries are not happy with present currency exchange value. They might serious put pressure on China to appreciate the value of the currency which might in turn increase the existing inflation rate leading to a possibility of economic depression.

China's pollution levels and a marked lack in the number of highways also prove to be a future threat to the companies operating in the domestic market. This is because the government would soon need to address the issue of serious pollution that is inevitable seeing the international concern over the issue. Also the lack in the number of highways would have a direct impact on the possibility of increase in automobile market because of government's obvious blind-eye to the situation

Challenge Management

The situation faced by GM, the best possible strategy available for GM at this point would be to diversify the nature of its operations as well as the country of operations. The company should decrease its present stake in the domestic operations market as well as use the investment for taking the advantage of using China as a base for export market.

A further part of the reduced investment could be put in India to take advantage of its existing market. The country's booming economy, balanced growth and a large market is exactly what GM needs at this point. A number of its fellow rival companies like Honda and Toyota have already ventured heavily in the country in the automobile segment. Further a shift in technology from the nearby China to India would be easy because of certain culture similarities. Also India would be more recipient and open to GM's venture because of its open competition with the country in terms of attracting foreign investors

Plan