Competition in the Chinese Automobile Industry

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(Competition in the Chinese Automobile Industry)

Some early entrants (such as Volkswagen) succeeded, while some early entrants (such as Peugeot) failed. Similarly, some late entrants (such as Honda) did well and some late entrants (such as Ford) continue to struggle. From a resource-based standpoint, what role dose entry timing play in determining performance? After long and difficult negotiation that began in 1978, Volkswagen in 1984 entered a 50/50 JV with Shanghai Automotive Industrial Corporation to produce the Santana model using completely knocked down (CKD) kits. VW entering the China market in the early 1980s, and took a proactive approach in spite of great potential risks, and the German multinational not only committed enormous financial resources but also practiced a rather bold approach in its dealing in China, so this involved a great deal of high-level political interaction with China's central and local government authorities for which the German government frequently lent its official support. Moreover, VW was willing to avail the Chinese partners of a broad array of technical and financial resources from its worldwide operations. Peugeot started to search for JV partners in 1980 and in 1985 set up a JV, Guangzhou Peugeot, in south China. The JV mainly produced the Peugeot 504 and 505, both out-of-date models of the 1970s. Many domestic users complained about the high fuel consumption, difficult maintenance, and expensive parts, so in it began to go into the red in 1994, with its losses amounting to $349 million by 1997, forcing Peugeot to retreat from China, and sold its interest in the JV to Honda in 1998. Honda entered and won the fierce bidding war for the takeover of an existing auto plant in Guangzhou Peugeot JV. The partner selection process followed a familiar pattern: Beijing was pitting several bidders against each other to extract a maximum of capital, technology, and manufacturing capabilities, as well as the motor vehicle types...
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