Comparative Advantages and Disadvantages for introducing car audio company in China

Topics: Investment, International economics, Foreign direct investment Pages: 3 (689 words) Published: July 23, 2014

1.Comparative Advantages and Disadvantages for introducing car audio company in China 1.1Market assessment
China’s automobile industry is booming with a steady and steep growth. Between 2001 to 2005, the growth rate of China’s car consumption was 54.42% [China Economy, 2008]. This rapid development in china’s auto industry has provided a broad space for auto-parts industry [Yan, 2008]. However, the car audio market in China seems to be in infancy stage. Foreign car audio brands have taken up more than half the market share [China Car Audio Industry Report, 2008] with Japanese brands accounting for 56% market share and Euro-American brands taking up 34% market share – leaving a paltry 10% market share for Chinese brands.

Demand for the product
By the end of 2007, the demand for car audio almost doubled from 2003, indicating a steady growth in demand for car audio. The demand is derived from the demand for car.

1.2Competition
There are bright forecasts for a steady growth in demand for car audio, especially foreign brands. With China being a market of more than 1.3 billion people, competition for this newly emerging market is rich. The following brands are competing in the Chinese market.

1.3National comparative advantage
The theory of comparative advantage propagated by the classical economist David Ricardo proposes that a country’s attractiveness to foreign investment is determined by its inherent natural factors such as land, natural resources, labor, and the size of the local population. Michael Porter’s Diamond of National Advantage extends the theory to propose that a nation can create new advanced factor endowments such as skilled labor, a strong technology and knowledge base, government support, and culture. Kicker uses Porter’s model here to determine the national comparative advantage.

1.3.1Factor conditions
Cheap labour: The dominance of Chinese products around the world suggests that China can offer quality...
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