Case 10 – Shanghai Volkswagen
(SVW)

Background
SAIC
Established in the 1950s Typical SOE Ill-equipped and inefficient auto production system

VW
Global German auto company Advanced technology and management experience Difficult in going into Chinese auto market by itself

50%

50%

SVW
Established in 1985, expiration date of JV is 2030 Santana—its first and the only product model till 2000

Background
SAIC
Plant space Distribution network Good relationship with the government

VW
Advanced technology Managerial expertise Renowned global brand

SVW
First Mover Advantage: Monopoly situation High revenue and profit Market leader

Background
First Mover:

Advantages:
•No competition •Buyer switching cost •Pre-emption

Disadvantages:
•Inertia •Legacy

Background
Problem – Losing market share drastically since 2000

Mission: To regain market share
80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%
85 19 19

Market Share

70% market share in 1987
46.30% 2001, 32.70%

Percentage

year

Plunged to 16% in June 2004

87

89

93

97

99

91

95

01

19

19

19

20

19

19

19

20

03

Chinese Automobile Market
1994 – High government control (Corporate buyer market) First mover advantage, single product strategy works 2001 WTO – invite more players – keen competition / new models (Buyer’s market => private buyers) 2002 to 2003 – Rapid growth – World’s top 10 automakers already in China (competition =>lowered pricing) 2004 – New Automotive Industry Development Policy (austerity program) Encourage local makers to up-grade technology Same sales channels can be used for local / imported vehicles Relax JV mergers / raise investment entry barriers

Chinese Automobile Market
Future Fierce competition from both local and foreign players Lower import tariffs – more import cars