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Essay Example on Automobile Industry in China

6 pages
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University of California, Santa Barbara
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1. Chinas Innovation and Competitiveness

China's economy has increasingly grown making China economically influential in the region. The countrys social and political influence has also increased (Corben, 2017). The country has grown from a third world country to a developed country and can associate China with its production capacity, and aggressiveness (Fish, 2014). Over the last five decades, the country's economic transformation has seen it grow into a global giant to become a global manufacturing hub. The countrys growth has not only attracted billions in foreign direct investment (FDI), and the country has an investment in infrastructure, education and innovation competitiveness (Karodia, Soni and David, 2014). The country's current expansion into the US, Africa, and the EU cannot be underestimated as it GDP which was a quarter of Japans GDP in the year 2000 is now the worlds second-largest economy (, 2018). The country's GDP is only comparable to the US GDP and will most likely be the worlds largest economy regarding GDP by the year 2020. The automobiles manufacturing has grown by leaps and bounds with the major four domestic manufacturers such as SAIC Motor, Dongfeng, FAW and Chang'an. Managing a larger portion in addition to smaller Chinese car manufacturers such as Beijing Automotive Group, Brilliance Automotive, BYD, Chery, Geely, Jianghuai (JAC), Great Wall, and Guangzhou Automobile Group (, 2018). Additionally, there have been several multinational automobiles manufacturers that have partnered with the domestic manufacturers to increase their production volume giving impetus to the local automobile industry.

2. The international competitive advantage of the automobile industry in china-Porters Single Diamond for China2015 can be considered mass the country's watershed years for the automobiles as it marked the peak of the country's fast growth in the automobiles industry. However, the year also marked the country expansion into more markets and a significant increase in the sales of the vehicle. With the latest development in the new energy vehicles market, it is quite clear the country's competitive advantages (country-specific advantages- CSAs)are just increasing (CAAM, 2018). While over 24.6 million vehicles were sold in 2015 alone that is approximately 7.5% increase over 2014, there has been a decline in some segment such as the sales of trucks. The country's domination of the car's market can be attributed to their relatively low priced cars as compared to competitors from other countries. The country's workforces are large as can be provided by the country's population above the age of 18 years. This is not the only source of cheap labor but also a market for the produced goods. By examining the porters diamond model, the researcher argues that the chinas home bases play an important role in creating the countrys advantages in the global market. The countrys competitive advantages provide the basic factor that supports it in building advantages in the global competition.

Figure 1: Market share of China in global light vehicle sales in 2000, 2013 and 2020. Adapted from Statista (2018)

The Chinese population has increased, and their price sensitivity is dying with the increase in their disposable income. The price conscious consumers become choosier of the quality and type of vehicles they bought. Many companies had to cut their prices to suit the local consumers and but have also adjusted their car prices. The tax cuts also increase the disposable income allowing the people to afford high-end luxury cars, SUVs. By improving their production standards, the local consumers preference for the locally produced card increased (CAAM, 2018).

3. The countrys economic growth drivers

The country's economic growth can be attributed to manufacturing industry, services industry, and agricultural industry. For the sake of this paper, the manufacturing industry is given primacy (Karodia, Soni and David, 2014). China makes and sells most of its manufactured goods than any other country in the world. The country's wide range of manufactured goods includes iron, steel, aluminum, textiles cement, chemicals toys, electronics, cars, ships and aircrafts (WU, 2007). The country's manufacturing was the largest by 2015 standards, and the manufacturing was the most diverse sector. Currently, over 80% of the air conditions the Chinese firms produce units. Secondly, China is also said to be manufacturing 50 times the amount of personal computer per person. For example, almost all computers, and smartphones have components sourced from China. Shoes, solar panels, mobile phones, ships are all made up of parts sourced from China (Constantine and Mazzanti, 2010).

While other countries such as Sweden receive credit, China does not receive credit, had the country been receiving credit like Germany and Japan, the country would have been fully developed (Camagni and Capello, 2010). The country currently has one of the most thriving n automobile manufactured industries (Perkowski, 2018). The country's national focus on automobiles started in the early 1990s, and by the end of the year, the county's automobiles production tripled, and these cars were mostly ma manufactured for the export market (Riasi, 2015). As at 1990, a large percentage of the country's citizens were poor and could not afford the products manufactured locally, and that is how the country came to dominate the export market and developed in export business. Another driver of the country's manufacturing and export business is that the country's workers but very little proportion of their high-end manufactured products leaving a larger portion of their products for exports. When the government devalued the country's currency, the people could not afford the locally produced goods because the devaluation lowered the country's real wages.

4. Determinants of National Competitive Advantage: Porters Diamond

Based on the competitive advantage of nations coined by Michael E. Porter (Porter, 1990), the theory can be used to analyze how the country's competitiveness advantage gives the country a competitive edge over its competitions and peers. According to the Porter, the international competition of any country is highly determined by the configuration of four major attributes that make up the country's home base. Each corner of the porter's diamond is made upon of primary determinants while government forces and chances are considered secondary facto as they were introduced later (Riasi, 2015). For sustainable economy and competence, congruent or perfect Combination of the primary and additional factors. Lack of specific resources also cans constraint the competitiveness of a country (Webber, 2011). Based on the model it is believed that the positive influence of the factors stated can significantly increase the countrys competitiveness by decreasing the complexity and ambiguity of the competitiveness

4.1. Government and Factor Conditions

With the access to natural resources and the large population to provide cheap labors in additional to the government investment in infrastructure, the countrys automobiles industry has developed in leaps and bounds. Over the last two decades, the Chinese government has consistently formulated and implemented its economic strategies. It is 11th economic development plan; the Chinese government outlined its string will to promote the automotive industry which was also the countrys major industry since the country gained its independence (, 2018). The government understood that there were technological gaps between the automobile a manufacturing company and the world leaders such as Ford Motors when it comes to the field of combustion engines. The government has increasingly focused on the electric mobility and has plans to produce atlas 10,000-hybrid cars and electric cars per years by the end of 2020. The countrys annual production capability has been extended by over 1milion to support the internal growth processes. The government is also concerned that the extended production volume would significantly affect the environment


Figure 2: China automobile production volume 2014-2016. Adapted from

4.2. Home Demand Conditions

The country has to enjoyed economies of scales in both production and demand. For example, with the population explosion, the countrys marks for locally produced automobiles increased. The country had the highest population growth rate between 1980 and 2010. Additionally, with the countrys investment in international relation, the market for the locally produced automobiles widened. Between 2010 and 2017, the countrys position growth has increased and the population is highly concentrated in the urban centers and in the developing countries where automobiles are required for megacities for easy mobility (Ebner, 2004). In the year 2015, it is estimated that over 80% of the world population would be living in the cities creating a market for the automobiles and other electronics. This would cause a major shift in the vehicles segments. 15% of all the manufactured vehicles would be used in the countries major cities, as electric mobility would be highly demanded. It is also estimated that over 53milion, people would demand automobiles in the 2020 and this would be a bigger market that also creates the need for more production; the production volume would increase significantly (Perkowski, 2018). The global market for electric mobility is expected to rise after 2020 drive-by costs saving and environmental concerns. There will be more state, and government subsidies will be a major driver for more electronic mobility purchases (Simona Segre, 2005). The average Chinese consumers have developed a mentality for fast adaptability to change and take advantages of the technological advances and this is expected to see more Chinese customers consum...

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