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GM In China
Chinas Economic Overview
China with the largest population holds an integral position in worlds economy. It holds
the position of the second largest economy based on GDP and Purchasing Power Parity with
U.S.A on the top. China is the major exporter and second biggest importer of commodities that
marks its trade surplus, which was about $35 billion in May of 2014. This factor gives China an
edge over its trade rival, America that is a service-based industry. China is a socialist economy,
which means that manufacturing and logistics of every industry is owned by the state.
Being a socialist government has its own pros and cons. The most considerable advantage
is that there is economic stability in the country. Organizations are less affected by fluctuations
of business related activities, as the matter of availability of raw materials, provision of
competent human resource and other factors of production is the responsibility of the state. The
state tries to ensure that social equality persists in the state and in order to achieve that, the
government imposes certain rules and regulations with the intention to consistently provide
resources to the population. The disadvantages of this system are that the organizations have to
follow a standardized work that is set by the government. The government bodies control how
much to produce and what to produce; this limits any sort of innovation on the part of
organization to try something new with the purpose to enhance its market in anyway.
China has successfully used this form of economic system to its advantage and although
socialist economic system provide a lot of restrictions, which a privately owned company may
not be accustomed to but still China attracts many multinationals that generates exuberant
amount of foreign direct investment. The reason why China is such an attractive market for
MNC is due to its great population and cherry on top is the purchasing power parity (PPP) of that
population is very high. It is also reported that China may surpass America as being the number
one economy of the world by 2014. This assumption is based on the recent calculation of PPP,
which is likely to cross that of America.
Industry Analysis
One of Chinas main industries is the automotive industry. China holds the position of
being the largest unit producer of automobiles in the world since 2008, beating entire European
Union and Japan as well. China is the biggest populated place in the world, which has
exceedingly high demand for all kinds of automotives. Majority of units produced by the
Chinese manufacturers are utilized to meet demand of China but still exports reached 814,300
units in 2011.
Chinas local companies hold 44.3% of the automobile production. Some local
manufacturers are Dongfeng Motor, FAW Group, SAIC Motor and Rowe etc. The rest of the
production share is owned by joint ventures with foreign companies like Volkswagen, Honda,
Nissan and General Motors etc. With such a high demand and supply all of the stakeholders of
the automobile industry benefits. Due to this foreign investors are motivated to enter Chinese
market, this helped Chinese automobile industry to evolve with respect to technology and design
etc. This increasing demand worldwide resulted in high exports. With such a huge numbers of
automobiles in China and the industry growing rapidly, government is worried about the fuel
consumption and in turn the pollution caused by this industry. Government is fixated on making
clean, fuel-efficient and environment friendly vehicles that is why Chinese government is
focusing on promoting alternate fuel vehicles and electric vehicles.
General Motors
General Motors (GM) is home to worlds most renowned car brands like Buick, Cadillac
and Chevrolet etc. GM is a multinational company with its headquarter residing in Detroit,
Michigan. It is present in 37 countries and it also has a number of joint ventures like Shanghai-
GM and SAIC-GM Wuling in China and Ghandhara Industries in Pakistan etc. General Motors
had a hard financial time in the automobile industry of the world, which includes the claim of
bankruptcy in 2009. It revamped its status of leading manufacturer in 2010 by earning $4.7
billion and in 2011 GM had a market share of 11.9 % in automotive industry worldwide. It faced
a crippling issue in 2014 in America when an ignition problem in its small cars resulted in 13
deaths. Department of Transportation imposed a $35 million fine on GM for delaying the recall
of cars. GM recalled 800,000 of its small cars in May 2014. This issue resulted GMs profits to
fell to around $108 million in the initial three months of 2014.
Problem statement
How to formulate strategies when facing issues like copying of overseas vehicles
designs and fake branding of components? In addition, inflation was on a rising path; further the
government was uncertain about monetary, fiscal and investment policies.




Challenges and Economic Analysis (China)
In the beginning GM has created many ventures in china. Since the beginning GM has been
creating tremendous profits in china but at the end of year 2004 they were found threatened with
several issues. To keep the control of the driving seat the Chinese government has planned to
bound the foreign investment to 50% with the government enterprise to have the control in their
own heights. As the part of their macroeconomic policies the government of china has imposed
a ban on the automobile financing to overcome the restraining inflation. Further more
government might allow the foreign exchange rate grow significantly which would as a result
decrease the competition in China vehicle industry. Due to tremendous inflationary pressures
government has imposed the credit limitation to restrain vehicle purchases. Chinas fast
economic growth has supported the point of view that in future more and more Chinese would
purchase the car. As per the exhibit 3, Due to un-equal income allocation as a result of which
top 20% of the Chinas population would soon be able to buy vehicles. Since the Chinas
economy is getting better day by day so the risk associated with its economy and industries are
very low. Chinas economic liberty score is 52.5, assembling its economy or financial system
the 137th freest in the year 2014 Index. Its general score is 0.6 point superior to last year, with
unassuming development in investment autonomy, business independence, and monetary liberty
outweighing decline in liberty from dishonesty or corruption, labor liberty, and the
administration of government spending. China is now ranked at 29th out of 42 countries across
the Asia Pacific area, and its on a whole score remain on a lower side than the worldwide
averages.
Porter Five Forces Model
The porter five forces model examines the market conditions with respect to the ease of
doing business. It examines the extent to which different market forces are capable of driving
demand and controlling profit terms for the companies in the market. It also determines the
extent to which external forces may affect the performance of companies in the respective
market.


Threat of new entrants is low
The overall threat of new possible participants in the automobile industry of China is low.
This is because in order to enter this market, a company needs significant initial capital for
investment in technology and certain necessary facilities like processing, assembling,
warehousing, transportation and meeting quality standards. New entrants will face difficulties in
installing plants since they need a huge amount of capital.
Bargaining power of buyers is high
The economy and the financial system of the country is departing towards betterment day
by day. The lifestyle of people of China is also improving. This means that they are becoming
economically stable. However, the population of China is well over a billion, which means that
there are different market segments with different preferences. Most of the Chinese look for
better prices before making a purchase. Due to greater competition from the local companies,
which provide cars at lower prices and with a great deal of variety, the bargaining power of
buyers is high.
Bargaining power of suppliers is medium
The bargaining power of suppliers is medium. The reason for the medium buying power
is that these suppliers and companies both actually go for strategic alliances. Since the supplier is
an important aspect to attain overall success, so a company always tries its level best not to lose
that supplier so that the quality standards can be consistent. Similarly, a supplier always tries its
level best that its strategic alliance with a certain company should be aligned and run smoothly
without any hurdle because when a supplier looses a contract so he will for sure face some
serious lose in market reputation.
Degree of competitive rivalry is high
The competitive rivalry in the automobile industry is high. The Chinese automobile
market consists of large domestic competitors. These competitors compete head to head in the
national as well as international markets. The main competing aspects are price, variety and
quality differentiation. In China, cost of labor is low and the government supports the automobile
industry so the competitive rivalry is high.
Threat of substitution is high
The threat of substitution is high because there are so many other alternatives to the
vehicles. People may consider traveling through the local trains and other passenger vehicles
instead of cars and buses in order to save fuel and other maintenance cost. In China these local
train system has a vast network, which is advantageous for the people and can be considered as
an effective substitute. Excellent mass transit system provided by government of China makes
the threat of substitute high for the automobile industry.
PEST Analysis
Political
In China, automobile companies play an important role in the efficiency and growth of
the Chinas economy. It is now one of the largest unit sellers of automotives in the world, the
reason for the sustainable growth of the automotive industry and automobile companies
consistently nurturing in Chinas economy is the constant attention from the Chinese
government. It is a known fact that the Chinese government favors local manufacturers to the
extent that foreign companies find it difficult to compete in Chinas market. Nevertheless,
foreign automobile companies are dying to enter China due to its large population and higher
demand of vehicles, as per capita income has increased and is rapidly growing. The socialist
government of China does not favor foreign investors thus; the new policy released recently
further restricts foreign investment in this sector.
Economical
Automobile companies have outperformed the sector in terms of the overall turnover
growth. This was evident as aggregate demand increased in China and abroad for cars
manufactured in China as Chinese cars are noted for good quality in good price. The demand for
vehicles in China has been derived from the increase in purchasing power parity of Chinas
economy. This is stated in the light of the reality or a fact that there are more than 6000
automobile companies that exist in the Chinese market and this number is growing rapidly.
Socio-cultural
The Chinese culture is an important aspect of the market. It is important to understand the
culture in order to provide relevant products for the target market segments. Chinese society is
normally illustrated as the multifaceted creation of three classifications of thought, which
includes Taoism, Confucianism and Buddhism. The local Chinese people are now in favor of
purchasing the midsized cars, which is relatively less costly.
Technological
The technological infrastructure in China was underdeveloped. The automobile industry
needs to be highly developed specifically when it comes to technological infrastructure. China
does not have an excellent technological infrastructure to support the aggressive global
automobile industry. At this time United States of America and another giant Japan are leading
in this regard. To overcome the issue Chinese government has planned to attract the foreign
investors but by having control in their own hands. entire world.
SWOT Analysis
In order to make a judgment regarding the future of General Motors in China and to
determine which path will be most sensible about fulfilling its needs and to achieve its strategic
objectives; it is important that the strengths, weaknesses, opportunities and threats of the
company should be properly analyzed. Moreover, in order to determine where the company
should look to capitalize in the market and where do the threats lie for the company; it is even
more significant to appreciate all the perspectives from different angles that the Chinese market
possess.
Strengths
Global existence
Aligned vision
Strong existence in China
Range of brand names
Large market share
Financial stability

These strong factors allow the company to maintain a high brand image in the customers
mind. It also helped the company in creating goodwill in the market earlier on at the time of
entry. It reacts well to the local market preferences and creates market specific range according
to the preference of the local Chinese people. Their global existence and aligned vision helps
them to achieve their strategic goals here in China as well. World famous automobile brand
names are associated with the General Motors, which play a vital role in achieving strength in
China. GM has the biggest market share in China, which results in strong financial stability and
allows them to pay out extra on research and development to overcome upcoming competitions.
Weaknesses
Poor Organizational Structure
China in WTO, result in Weakness of strategy for GM.
Out dated technology
Expecting decrease in profit.
Huge reliance on US markets

Across the globe, including America General Motors have been facing the poor
organizational structure issue, since there is a requirement of proper communication platform
between employees from the top to bottom; which has not been successfully provided by the
company to its employees. China in WTO, result in Weakness of strategy for General Motors in
a way that this will allow new players to enter into the market that will be an addition to the
previous hurdles and this will weaken the strategy of the company, specifically in China. As
compared to US and Japan, the Chinese market is lacking in technology, which threw the
General Motors in China at the back.
Opportunities
Opportunities in promising marketplaces
Increasing demand for electric/hybrid vehicles
Increase in buying power
Change in living standards
Global import and export opportunities.
They can make an excellent use of opportunities associated with this industry and country
as well. General Motors trusted brand image will help them to grab and work upon these
opportunities in an optimistic manner. Increasing demand for electric/hybrid vehicles can be the
biggest opportunity for General Motors because this technology is new so customers will try
their level best to purchase it from the trusted brand name. Across the globe, buying power of
customers is increasing so this can be an opportunity for General Motors to produce more and
more units and try their level best to be price conscious
Threats
Changing consumer need for new category, model and style
Intense competition
Fuel prices
Weakness in Global Automobile Industry (commercial Vehicles)
Raw material and Supply cost.

There is a growing presence of competitors across the globe and in China as well. This
means that the organization in this automobile manufacturing industry will be more aggressive in
their marketing and distribution strategies with the intention to give a try to increase their market
share through reduced pricing and differentiation. Fuel prices are increasing in rapidly across the
globe, which can be a major threat for automobile industry because the customer may switch to
the mass transit systems. The suppliers have increased the raw material prices that have now
become a threat to the automobile industry because this will force them either to increase the
price or to reduce the quality of the vehicle.



Strategic Position and Action Evaluation Matrix (SPACE)
Financial Strength (FS) Environmental Stability (ES)
Return on Investment + 6 Technological Changes -2
Leverage +4 Rate of Inflation -3
Liquidity +3 Demand Variability -1
Working capital +6 Price of competitive products -4
Cash Flow +5 Barriers to entry -2
Ease of Exit +4 Competitive pressure -3

Average Score = 29/6 = 4.83

Average Score = -15/6 = -2.5

ES+ FS = -2.5+ 4.83 = 2.33


Industry Strength ( IS)

Competitive Advantage (CA)
Growth Potential +5 Market Share -2
Profit potential +6 Product Quality -3
Financial stability +5 Product life cycle -3
Technological Know-how +4 Customer loyalty -2
Capital intensity +5 Competitions capacity utilization -1
Ease of entry +3 Technological know-how -2

Average Score = 28/6 = 4.66

Average Score = -13/6 = -2.16

CA+IS = -2.16 + 4.66 = 2.5





An aggressive profile propose leadership strategy; the business is in a situation to put in
more capital and can bring in new market offerings, market development and product
development, which can be genuine options here. GM in China is a well-established company
from all aspects. They can invest more money and can go for both market development and
product development. The score at the space matrix is ES+ FS = 2.33 and CA+IS = 2.5 which at
the graph reflects an aggressive profile. In an aggressive profile, a company is in stable position
to look forward for more aggressiveness in terms of product development, market development
and required diversification.



Balanced Scorecard
The balanced scorecard is an organizational tool that is widely used in industry, business,
non-profit organizations and by governments globally to bring into line all industry and business
activities as per formulated in the final strategy, overall mission and vision of the company. It
also helps an organization to progress and develop external along with internal infrastructure and
keep a check on business performance against strategic goals.

The balanced scorecard consists of four components. These four components include the
financial, internal, learning and customer perspectives.



Financial Perspectives
GM China has incorporated with six different business groups. They have been spending
millions of dollar as investment in terms of strategic alliances with different business groups.
The company has contributed over 2 billion dollars in China. As per the statistical data, GM
China was earning remarkably elevated profits by the year 2004. The statistical data shows that
GM China and its Chinese partners put together combined net earnings of around $875 million
or in another way, they actually earned around $2,267 on per unit sale as compared to last year
sale, which was relatively low from the current year. Last year GM North America earned
around $811 million on sales of nearly 5.6 million vehicles and earned $146 profit on per unit
sale. This reflects that GM China is around 15 times more profitable as compared to GM North
America.
Internal Perspective
GM China has been producing high quality vehicles. Their performance reflects that they
are internally sound and continuous product innovation leads them to success. Due to excellent
performance in terms of financial perspective, their shareholders look satisfied but as per the
case in upcoming years, they may face some issues that will create some hurdles in achieving
strategic goals and desired mission. As per the survey, the new government policies may create a
serious hurdle for the companies including GM China in implementing their further expansion
plans. Therefore, to overcome such issues they must further align their internal standpoint.


Learning and growth perspective
Since automobile in China on domestic level is facing some issues of lacking in
technological aspects, production potential and somehow managerial capabilities. To overcome
the issues, government has come up with a strategy for allowing 50% of a foreign partner into
business so that government or local partner can have the control as well. GM China is
threatened by the arrival of new foreign competitors who may be more advanced in technological
perspectives; therefore, to overcome the issue they must focus on their learning perspective and
come up with more training sessions specifically for their R&D department, which will help
them to differentiate their vehicles from their competitors.
Customer Perspective
In customer perspective, the focus is on increasing customer satisfaction and making
customer loyalty strong as much as possible. GM in China is doing a tremendous job but due to
expected competition in terms of technology, they may face some issues. As per the statistical
data of 2004, customers are shifting towards the less expensive models in a huge quantity so now
GM must work on this issue of producing less expensive vehicles for customer.
Financial and Economical Assessment 1999-2014
In 1980s China started rising economically and showed some great performance year by
year. As per the provided statistical data, from the year 1999 onwards the economical and
financial position of China is satisfying. Analysis can be better performed through the analysis
under different head.

Gross Domestic Product
The GDP growth of China ranges between 8-9. The Average GDP growth rate of China
is 7.98% between the year 1999 2003.
GDP growth added as per year wise (1999-03)= 7.1+8+7.5+8+9.3 = 39.9
= 39.9/5 = 7.98


Current Situation
Chinas economy and financial system cultivated at a very slow speed in last 18 months
in the very opening quarter of the year; elevate doubts that the government or administration will
fail to spot its 2014 growth objectives. GDP formally known as gross domestic product amplified
by 7.4% in contrast with the similar era a year prior, which followed 7.7% expansion in the last
quarter of 2013. Chinese cream of the crop is targeting an increase in GDP of 7.5% this year. It
was a very slow pace of expansion in the world's succeeding biggest economy or the financial
system since the second last quarter of 2012, as per the National Bureau of Statistics data
(NBSD), but it was quicker than the 7.2% enhancement forecasted by some economic experts.
The dawdling growth rate will elevate assumptions of new stimulus from Beijing, as per
Mr. Michael Hewson, who is the chief market forecaster at extend gambling firm, CMC Markets.
"It is the quite tepid nature of some of the statistics that will encourage assumption about
additional act from Chinese establishment as they look to meet up their 2014, 7.5% growth
objective. The truth is, these figures won't slash it and, given the lack of capacity Chinese
establishment have in admiration of additional stimulus measures because of shadow banking
considerations, the problem is that the 7.5% gross domestic product objective may get repeat
inferior in the upcoming months."











Recommendations
The General Motors will be coming across numerous issues as mentioned in this analysis.
They have been surrounded by several issues, which may occur in near future. The changing
economic situation and overall industry situation, which is expected to occur in the future, may
hurt the companys strategic approach and policies. As mentioned in the case General Motors is
doing a good job currently. First of all, they need to redesign their new strategy in the light of
economic fluctuations and governments agreement with world trade organization in a very
professional and workable manner. This recommendation is viable for the company in the long
run, as it will allow the company to build on its resources and capabilities on professional
approach. Moreover, General Motors must focus on the technical competitive advantage of the
company because the competition is expected to increase soon and the demand for electric as
well as hybrid cars is rising across the world, so it is certain that customers will ask for these
cars. They must technically align themselves in a way that they must set all their plants before
time, which will incur high initial costs; however, the long-term benefits outweigh initial costs
for the company. In order to remain competitive in the market, it is important for the company to
establish such added capabilities so that it will be able to provide competitive advantage and
pricing in a highly competitive market. Moreover, the company will be able to maintain its
quality vehicles production at lower operational costs as it is among the massive pioneers. They
can also acquire some small manufacturers to grab more market share and technical expertise.
They must design a new R&D department to produce excellent electric or hybrid cars in a cheap
price as much as possible because people of China are looking for midsized cars, which makes it
obvious that they are not that much expensive. They must analyze the world trade organizations
agreement with the Government of China to predict sales and growth for both the industry and
the company itself.
Action Plan
Objective Action/Activity Target dates Status
GM must develop the
Action plan against the
expected issues, which
may occur soon.
Generate Immediate plan based on
highlighted report.
Start From Year
2004
Needs
to be
done
GM must overcome
fake branding and
copying issues.
Create a department that will look at
these issues regarding the copying of
designs and must take the legal action
(if required).
Develop draft by
12/31/04 and get
it approved.
Needs
to be
done
Define need and wants
and grab the new
expected opportunities
( Conduct Research
From Customer
Perspective)
1.Identify research team members and
ask them to design research plan.
2.Review research analysis within
past five years and upcoming 5
years.
Start
Immediately
Needs
to be
done
Create a team to look
after the expected
financial and
economical
fluctuations.
Perform trend analysis, generate the
expected outcomes regarding future
fluctuations, and predict future
possibilities in the light of current
government policy.
Develop draft by
6/30/05 and
Provide
suggestions.

Needs
to be
done
Appendices
Porter Five Forces Model








Degree of Rivalry is High
-The competitive rivalry in the
automobile industry is high. The
Chinese automobile industry
consists of large domestic
competitors. The main
competing aspects are price,
variety and quality
differentiation.
Threat of New Entrants is Low
- The threat of new entrants in the
automobile industry of china is low.
- In order to enter this market, a
company needs significant initial
capital for investment in technology
and certain necessary facilities like
processing, assmebling plants and
transportation.
Bargaining Power of Buyers is
high
-The economy of the country is going
towards betterment day by day.
- The lifestyle of people of china is also
improving. This means that they are
becoming economically stable.
- Most of the Chinese look for better
prices and quality both before making a
purchase , specially when it comes to
automobile industry
Threat of Substitute Products is High

The threat of substitution is high
because there are so many other
alternatives to the vehicles.
- People may consider travelling
through the mass transit system
instead of personal cars.
Bargaining Power of Suppliers is
Medium
- The suppliers have medium
bargaining power. The reason for the
medium buying power is that these
suppliers and companies both actually
go for strategic alliances, therefore if
supplier losses contract so he may
suffer a serious loss.
Pest Analysis


SWOT Analysis


Politcal situation Suitable in China.
Insutry supportive enviornment.
Political
Econimoically Established Country
Huge Potential in market
Economical
Diversiifes believes.
Culture given importance and midsized
cars prefered.
Social
Lacking in Technology as compared to
US and Japan.
Technological
Threats Opportunities
Weaknesses Strengths

*Established global
brand image
*Diversified range of
products
*Strong financial
position
*Market leader in
China
*Poor Organizational
Structure
*China in WTO, result
in Weakness of strategy
for GM.
*Out dated technology
*Expecting decrease in
profit.
*Huge reliance on US
markets




*Changing consumer
demand for new model
types and styles
*Intense competition
*Fuel prices
*Weakness in Global
Automobile Industry
(commercial Vehicles)
*Raw and Supply
material cost

*Opportunities in
promising marketplaces
*Increasing demand for
electric/hybrid vehicles
*Increase in buying
power
*Change in living
standards
*Global import and
export opportunities.
Balance Score Card Prespective











Financial Perspectives
Esxtremly healthy Profits
Per unit profit is $2,267
Overall financial position
is Established
Internal Perspective
Performance reflects that
they are internally sound
and continuous product
innovation leads them to
success and stake holder
are satisfied.



Learning and Growth
Perspective
GM China threatened by
the arrival of new
foreign competitors who
might be more ahead in
technological
perspectives and more
need to spend on R&D.






Customer Perspective
Customers are shifting
towards the less
expensive models.
Cutomers want solution
for expensive fuel issues.




Strategic Position and Action Evaluation Matrix (SPACE)
Y axis X axis
Financial Strength (FS
Return on Investment
Leverage
Liquidity
Working capital
Cash Flow
Ease of Exit
Risk involved in business
Industry Strength ( IS)
Growth Potential
Profit potential
Financial stability
Technological Know-how
Capital intensity
Ease of entry
Productivity, capacity utilization
Environmental Stability (ES)
Technological Changes
Rate of Inflation
Demand Variability
Price range of competitive products
Barriers to entry
Competitive pressure
Price elasticity of demand
Competitive Advantage (CA)
Market Share
Product Quality
Product life cycle
Customer loyalty
Competitions capacity utilization
Technological know-how
Control over suppliers and
distributors