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The Path to Globalization of China’s Automotive Industry

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The Path to Globalization of China’s Automotive Industry
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Bill Russo Edward Tse Tao Ke

The Path to Globalization of China’s Automotive Industry

Contact Information Beijing Bill Russo Senior Advisor +86-10-6563-8300 bill.russo@booz.com Shanghai/Beijing Edward Tse Senior Partner +86-10-6563-8300 +852-3650-6100 +86-21-2327-9800 edward.tse@booz.com Tao Ke Principal +86-21-2327-9800 tao.ke@booz.com

Booz & Company

EXECUTIVE SUMMARY

China is the world’s factory for “everyday low price” merchandise. Sara Bongiorni’s amusing yet engaging book titled A Year Without ‘Made In China’ chronicles an American family’s futile attempt to boycott purchases of Chinese products for one year. The unexpected challenges of fulfilling such a resolution were felt when attempting to purchase footwear, eyewear, clothing, print cartridges, children’s toys, mousetraps and many other things. According to the US Census bureau, the trade deficit with China in 2008 stood at $266.3 billion, with China imports valued at $337.8 billion compared with U.S. exports valued at $71.5 billion. The message is clear: China dominates the production of everyday household goods. It just seems logical to assume that it’s simply a matter of time before China becomes an exporter of the most symbolic cultural icon: the automobile. In this second article in a 3-part series on the China auto industry, we will describe the challenges faced by Chinese original equipment manufacturers (OEMs) in going global, and will highlight the role of Mergers and Acquisitions (M&A) as a plausible but high-risk means of accelerating this process.

Booz & Company

1

FIRST ThInGS FIRST: FIX ThE BUSInESS ModEl In ChInA

Let’s consider a few facts. As featured in the first article of this series entitled The Coming Structural Realignment of China’s Automotive Sector, China has rapidly become the largest car market in the world. In fact, China has surpassed the US in automotive sales for the first half of 2009, posting sales of 6.1 million units versus 4.8
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