Tech-hungry car firms take risks overseas

• Source: Global Times
• [22:31 September 15 2009]
• Comments

Despite ambitions of forging global brands to compete with the likes of Mercedes-Benz and Volkswagen, mainland carmakers still lack the engineering know-how to expand in the world's biggest vehicle market. That knowledge gap has put mainland carmakers on a new, but potentially risky, road to upgrade their manufacturing knowledge.

The strategy in the past has been to form joint ventures with global car giants to obtain technology. But, protective of their intellectual property rights, foreign firms are often reluctant to share everything with their mainland partners.

To get around this, Chinese carmakers are increasingly venturing overseas and taking direct stakes in car firms. "Overseas acquisition is the quickest way to get advanced technology," said analyst Chen Qiaoning at ABN Amro Teda Fund.

But with many global carmakers swimming in red ink and under the sway of powerful labour unions, Chinese companies have been urged to exercise caution.

Geely research and development director Zhao Fuquan said the economy carmaker needed to learn the lessons of Toyota Motor Corp, which became a world leader by putting new models into showrooms in quick succession.

Senior car executives acknowledge that the original plan to replicate the engineering and marketing success of Western and Japanese carmakers and produce world-quality vehicles has fallen short. Xu Changming from the State Information Centre said that a solid car components sector was needed to form the basis of the vehicle industry.

Geely faces a critical problem as it lacks advanced engines. State-backed big carmakers, most in 50-50 joint ventures with global carmakers, are not faring any better than small, privately owned Geely. Although in existence for more than 20 years, joint ventures with global carmakers have failed to attain Beijing's original aim of technology transfers.

The emphasis now appears to be on obtaining the technology by venturing overseas. However, analysts and market watchers question whether domestic carmakers will be able to manage complicated global firms, which have strong labour unions and are sometimes struggling with losses. Analyst Li Chunbo at Citic Securities said state-backed carmakers were hunting for global assets at a time when the world's car giants had lower bargaining power.

However, Beijing is likely to become more particular about overseas investments.

Source: SCMP, September 15

For the Chinese version, see P6 in today's Global Times Chinese edition