International Joint Ventures - Assignment Example

? International Joint Ventures Introduction A joint venture is clearly defined as a merger of two or more organisations with the intent of coming up with one major or specific task mainly of business origin. A perfect example of a joint venture is Shanghai General Motor, a multibillion company based in China. Apparently, Shanghai General Motors (SGM) is automotive based company that shares an equal joint venture between Shanghai Automotive Industry Corporation (SAIC) and General Motors (Jennings 2012). Commonly known as Shanghai Motors GM, this renowned automotive company is a large manufacturer and seller of automotive brands in China and its environs such as Chevrolet, Buick, Cadillac, and Opel among others. In essence, Shanghai General Motors was established in mid 1997 with the initiative of a joint venture with another world leading automotive industry known as General Motors (Anderson 2012). The business relationship was meant to be an equal contribution. This relationship was later sealed with the first automotive assemble in 1999 and the first vehicle been Buick Regal. Four years later, the company was rated as the second largest single market that had hit the market with General Motor products. In this regard, Shanghai General Motors is involved with the assembling of components of vehicles that emanate from parts imported from different corners of the globe particularly from US, Korea, Brazil among other countries that are capable of producing automotive parts across the globe. At times, the company makes orders on these parts in advance because some require lengthy shipping to comply with the orders given by customer in various parts of the world (Klein and Abels 2008). From there onwards, this joint venture has immensely improved to become China’s largest automotive manufacturing company. As so now, the company has three manufacturing plants, four vehicle production plants and two power train plants located in major cities in the country. The reason for settling my research in this joint venture is because Shanghai being one of the renowned companies in China decided to enter into an agreement with a similar huge company General Motors in order to come up with new adventures in the automotive industry. According to Luo and Yan 2001, it is worth noting that China is among the leading countries that have advanced technologically and thus the automotive industry is not un exception. Of importance to note is that automotive industry is one of the world’s crucial technological areas as it involves variety of vehicles which are targeted by millions of people globally. Never the less, information gathering from this multi billion company has not been easy because some of their facts keep on fluctuating depending on the behavior of the market and their potential competitors such as Chery and MD Rover. Actually, they believe in coming up with unique brands, which they place into the market without having to advertise first to bar their competitors from coming up with similar brands that might threaten their ever growing market of automotives. In addition, it becomes cumbersome for individuals to easily access their numerous distinct plants where most of the assembling is done in regard to their policy. Type of joint venture It is apparent that Shanghai General Motors Company has been one of the biggest car manufacturing companies in china. The company was formed after a successful collaboration between General Motors and SAIC. With continued lack of advanced technology imported to china by other companies, SAIC decided to approach GM with intent of importing top technology to china on the basis that SAIC would help GM to jointly work in china. In this regard, SAIC and GM privately held a joint venture in 1997 and Shanghai GM (SGM) was born. The investment was valued at $ 1.69 billion. In light of this, it is apparent that the privately held joint venture between the two companies improved their performance (Baran, et al 1996). With GM, china was not only a huge market, but also a gateway to venture into the entire Asian market. In another dimension, for SAIC, collaboration with GM would not only pave way for top technology, but also to enable it venture into the international market due to increased output and top quality. In this regard, the GM’s strategy dovetailed with that of SAIC. For this reason, GM was ready to transfer its technology to China local engineers. GM set training programs to be offered in local universities as well as sending more engineers to North America for more deliberations on production operations. In addition, a local research and development firm was set in order to allow Chinese engineers to get latest GM’s designs and technology (Crumm 2010). Objectives of the collaboration Diversification of GM’s market The collaboration between SAIC and GM was advantageous to GM in the sense that GM had its market diversified. The extent was that since china is one of the biggest markets in Asia, it worked as a gateway to the entire Asia market. On the same note, SAIC benefited from the collaboration in the sense that due to improved technology, it was easy for it to venture into the international market (Wu 2012). In addition, the imported technology was instrumental in the sense that its engineers were able to grasp the required tips on how to advance their local technology for better results. Modernizing sourcing operations It is apparent that the collaboration between GM and SAIC help was instrumental to SAIC in modernizing its sourcing operations. This is arguably true because, in many years, SAIC’s operations were based on the relationship used by Shanghai VW. With coming of GM, the relationship was advanced to a more competitive one, which is noted as market based model. Initiating growth In many years, SAIC had hand in many competing companies including shareholdings. However, most of the times, SAIC had it all wrong with many instances leading to wrong accusations such as impropriety on account of its competitors. For instance, Chery, was accused of impropriety, but the court ruled in the favour of Chery. Nevertheless, although Chery (whose SAIC is a shareholder) won the case, the public domain and the industry observers felt that intellectual property infringement as apparent. In this regard, this ended up tarnishing SAIC’s brand and image. Therefore, the collaboration was intended to help SAIC to improve its image and improve its performance. Evidently, SAIC has been able to purchase some foreign companies such as MG Rover in 2004. In 2011, SGM made total sales of 1.2 million cars with prospect of improving in the subsequent years. Impact of the collaboration It is for undoubted reasons that the merger between SAIC and General Motors has brought a huge impact in the automotive industry in China. To begin with, Shanghai General Motors (SGM) approached Fusion System which was meant to assist them with integration after numerous others were able to handle the issue. In fact, after the company had struggled with the issue for over one year, fusions systems was able to handle the problem within a period of three months and a new solution was implemented through HARP. The purpose for hiring fusion systems was to ensure that there was a designed solution that would assist the company in managing their inventory and purchasing their orders (Nitschke 2011). Rangan et al, 2012 argues that, the imprecise inventory management processes made it impossible to predict the actual breaking point particularly when some parts owned by one vendor would run short indicating that they had to be replaced by parts from another vendor. Moreover, there was the inability to come up with an actual component break point that translated to weak lot traceability in the event of quality challenges. Fusion Systems The company came with a complete solution that had a custom algorithm that was designed solely for the purpose of the joint venture. Through this, it was able to manage their inventory, over and above, optimizing the anticipated purchase orders. In a general sense, the system solution was in a position of generating smooth purchase orders for fluctuating demands and the full integration with its own existing system solution (Klein and Abels 2008). In this regard, potential business clients responded positively to the system and there has been a continuous strong business partnership. In the same way, key managers at Shanghai GM have given a positive response to fusion systems for their approach. Essentially, the system has greatly assisted the company in terms of reducing business risks and protecting existing IT investment for the sake of the future (Luo and Yan 2001). With the use of the specialized software through Fusion Systems, Shanghai GM is capable of giving an estimation of the actual change over time in relation to the components on the production line. As such, the company is able to visualize on the stock levels that facilitate prompt changes in given part. Currently, SGM has an actual account of materials for every vehicle that they own and the complete tracing ability of its associate components. For that reason, therefore, Fusion Systems has been regard as one of the long term partners by Shanghai GM for the great impact that it has made especially on the issue of purchasing orders and integration (Triantis 1999). General Motors General Motors Co. has been named among the world’s largest automakers. Its inception dates back to 1908. It has its global headquarters based in Detroit, and has been one of the few companies offering employment to millions of people across the world. In addition, it has been able to do business with approximately 150 countries in the world. General Motors China is estimated to have over 12 joint ventures with two of them being foreign business ventures. Its main contribution into this joint venture is that it has offered a wide lineup of vehicles and brands through the aid of manufacturing plants in China. For instance, products such as Buick Opel, Baojun among others have been made available through the joint venture of these two companies. Being in a relationship with China for the last eight decades, the collaboration has produced equal shares in terms of technology making it easier for them to produce some of the most marketable brands in the world. In 2012, 4 domestic sales for vehicles increased with approximately 11 per cent as compared to the previous domestic sales. Consequently, the joint venture has improved the economic status of China as international investors tend to follow General Motors and its associates for all related automotive issues. Moreover, there has been creation of employment opportunities to the people of China as a minimal contribution (Zimmerman and Blythe 2005). Shanghai Automotive Industry Corporation (SAIC) This corporation is denoted as the largest manufacturing company in vehicles in China. In fact, it has been listed in the A market of the country, for having sold approximately 4 million vehicles to emerge the best seller and manufacturer. In this regard, the corporation remains notably as one that owns numerous vehicle manufacturing joint ventures with the inclusion of Shanghai Volkswagen, Shanghai GM, Shanghai Sun win among other manufacturing ventures. Essentially, it is engaged in manufacturing, sales development and investment in passenger, commercial vehicles with the inclusion of automotive parts and components. The greatest contribution of Shanghai Automotive Industry Corporation (SAIC) is that it has given General Motors a platform where it can be assemble variety of brands in relation to the joint venture. Additionally, SAIC has taken the initiative of looking for market for the products from both locally and internationally. Through this, it becomes easier for Shanghai GM to come up with new idea on anticipated brands and further implement the ideas to suit the market. Similarly, SAIC has been on the forefront ensuring that environmental conservation is observed by encouraging the usage of product with low carbon (Wells, 2010). Structure and operational performance SGM operations began in 1997 in China. The overall goal was to leverage SGM global architectures to increase the volume of sales. The operations of the joint venture involve production, importation and sales of comprehensive products. The products include production of mini-commercial vehicles and passenger cars. Some of the operations initiate by the joint venture between SAIC and GM includes: the need to cooperate in order to develop new energy vehicles like electric and battery vehicles (Crumm 2010). This initiative was arrived at in 2010 through a memorandum of understanding that binds the two companies in engaging in strategic cooperation that would even take care of environmental considerations. In addition, the operations involve development of vehicles that meet global standards. Conversely, the operations should also entail sharing architectural applications in the bid to help in the reduction of development costs as well as benefiting from economies of scale. It was also agreed that cooperation should involve providing access to SGM’s distribution network beyond the China’s borders. With such deliberations, it is apparent that SGM has thrived in the Chinese market in several dimensions. For instance, in 2005 SGM was ranked the first in passenger car in regard to volume of sales. SGM has also benefited from being the only automaker that received the title of the China’s most respected enterprise for five years in a row. High quality has enabled the company to satisfy the ever-growing market demand. Their vehicles cover luxury, medium- class and entry-level sedans with the latest technologies, safety, comfort and environmental factors being part of their philosophy. In addition, with the GM strategy of globalization, the SGM has been successful in expanding in the Chinese market that account for over 25 percent of the global demand for vehicles. Some of the notable activities of SGM include operations of assembling vehicles, engines and transmissions needed in the automobile sector. As opposed to global operation performance, SGM started to pay off in china when it made approximately $1,200 profit per vehicle. Nevertheless, due to restrictions in the Chinese local market, the strategy of GM is to export the unsold cars to US. However, SGM is faced with the challenge of producing petrol vehicles for the global market. This is because china has restrictions of producing such vehicles since it requires having fuel efficient vehicles. In fact, studies have documented that china has 20 percent of its vehicles running on diesel engines with intent of saving over 19 million tons of oil. In this regard, although the SGM joint venture was intended to serve the Chinese market, some of its products find their way to the international market especially in the US. Nevertheless, the clearing and waiting time affects company’s performance, thus hampering international market entry. In another dimension, china is both a production and consumption market. Therefore, companies manufacture their products for a lower cost. This calls for a need to sell some of the products to their home countries. In light of this, the logistics of SGM become critical for the performance of its businesses (Mohr, et al 2010). In order to keep their market shares thriving and relevant in the domestic markets, SGM managed to set up 250 dealership stores only in four years after the collaboration. They did so by allowing all dealers that had weak financial status to sell sedans. With most of the dealers being in that condition, the plan was successful since this appeared to be a good business deal for the dealers. In order to have a continued growth, SGM embraced the strategy of acquisition of spare parts state-owned companies, which were translated into profit. However, due to continued competition and unregulated market policies, companies had difficult times dealing with inefficient copyright protection (American Bar Association 2006). On the issue of financial stability, SGM has benefitted from loans granted by local banks courtesy of SAIC. This way, the company has managed to improve its performance. In addition, because SAIC was well aware of the Chinese market, the collaboration was advantageous to SGM because the familiarity of SAIC in the market enabled the collaboration to approach the market with improved market knowledge. However, in order for SGM to effectively integrate in the Chinese market, the company had to first understand the Chinese culture through the help of SAIC in order to be able to conduct its businesses effectively. Studies have documented that, for organisations to perform well in a new culture, it is imperative for them to first understand the culture for them to gain access to the market concepts and behavior (Johnson and Turner 2010). It is only after internalizing gradually in the market that organisations can further their markets in outside cultures. The GM’s joint venture with Chinese partner was also beneficial to the American partner because SAIC helped it in dealing with local authorities in an effectively manner. SAIC helped GM get preferential government treatment in several areas. The workforce that has been instrumental for the collaboration was well prepared in helping the joint venture successfully compete with other players in the automotive market (Bellon, et al 2001). Due to its proficient performance with the guide of the SAIC, SGM managed to even acquire more plants in the Chinese market more than any foreign company has ever been allowed. Nevertheless, GM had all the trust in SAIC to give up shareholder majority with intent of making available acquisitions for local organisations. With such deliberations, it is therefore apparent that joint venture combined with strategic operational plan can enhances organisation’s performance and profitability (Nelson 1993). This is also evident in the sense that one of the GM’s subsidiary, Jinbei GM that operated in the Chinese market without any joint venture failed to be profitable because of poor management and inexperienced management (Amtmann 2004). In addition, the company had weak financial status that rendered to poor performance. In this regard, it is evident that joint venture combined with strategic qualified local partner is essential for organisations that want to operate in a foreign market. With this in mind, SGM have been able to benefit above and beyond the business operations. The company has identified initiatives that have played a key part in addressing some issues such as environmental threats. Such initiatives include extensive research fostered by the company to have US and China form environmental protection agencies to oversee protection of the environment. Financial performance GM view china as the fastest growing market in terms of volume of vehicles manufactured and sold. The sales and income of SGM are not consolidated into GM’s financial statements, but rather, the share of the company’s joint venture is noted as equity income. After collabolation between GM and SAIC, SGM expanded its joint venture to Norsom Motor Company, Dong Yue Motors Company and Dong Yue Powertrain. The three joint ventures held by SGM (50%), SAIC (25%) and GM (25%). The thre joint ventures are involved in production, importation and sale of Buick, Chevrolet, and Cadillac brands. In 2012, SGM sold 2.8 million vehicles something that saw the increase of sales by 11.3% from 2011. Buick and Wuling set records throughout the collaboration of SAIC and GM. Even the newly made brand, Baojun made remarkable sales of 84,000 units in 2012. In 2011, SGM made a total sale of approximately 19 million units. The company prospects an estimation of 30 million units by 2020. This will be achieved through among other things, improvement of the already existing brand and introduction of new 10 brands in the market. In addition, new plants are intended to be opened in several areas in order to help in sales. In 2012, export sales from china was estimated at 76,000 units and by the end of 2013, the units are estimated to reach 100,000 units. It is also evident that in 2011, SGM was leading in terms of volume of sales of auto manufacturers. Internationally, SGM seconded Dongfeng Nissan with 16.54% in terms of exports made from china. In 2013, SGM announces sales outcome by November totaling to 1.44 million units. Buick vehicles led totaling to 752, 161 units till November. Chevrolet seconded with 649, 175 units for the first 11 months. With such deliberations, it is apparent that SGM has greatly benefited from the joint venture collaboration of GM and SAIC. SAIC has been able to increase its volume of sales as well as GM (Mytelka 1991). The latter is that the collaboration helps in improving the image and the overall performance of companies in collaboration. Current challenge facing Shanghai GM Currently, Shanghai GM is expected to recall approximately 1.5 million brands of Buick and Chevrolet models that have been manufactured in China due to technical issue that involves the bracket that is meant to secure the fuel pump. Although the issue has not been regarded as serious, the company has warned that, the affected component might crack after a long period of use leading to fuel leakage. Never the less, there has not been any such reported case meaning that the company is extremely interested in the welfare of their potential clients (Wells and Nieuwenhuis 2003). Conclusion In reality, Shanghai General Motors Company has been one of the biggest car manufacturing companies in China formed after a successful collaboration between General Motors and SAIC. With continued lack of advanced technology imported to China by other companies, SAIC decided to approach GM with intent of importing top technology to china on the basis that SAIC would help GM to jointly work toward the improvement of automotive industry. As such, the joint venture that has taken more than 15 years, did not only act as a huge market in China but it also played a huge role of promoting these products to the entire Asia market. Moreover, General Motor was willing to transfer its technology to the local engineers in China. This involvement also gave room for researchers and developers to utilize advanced designs of GM and technology. As of now, the main goal that Shanghai GM hopes to achieve through this joint venture is to increase the volume sales of their products. The operations of the joint venture involve production, importation and sales of comprehensive products such as production of mini-commercial vehicles and passenger cars. Of importance to note is that there was need to have this joint venture particularly due to the development of new energy vehicles like electric and battery vehicles. Having arrived at an initiative through a memorandum, three years ago, it was evident that two companies were engaging in strategic cooperation that would even take care of environmental considerations. For instance, SGM have their vehicles covered with luxury, medium- class and entry-level sedans with the latest technologies, safety, comfort and environmental factors being part of their philosophy. Needless to mention, SGM has not thrived in this business on positive ways only. It has had a number of challenges that has made it more familiar with its market and its competitor as well. For instance, the company faced a stiff competition from Chery when they went ahead to produce a vehicle similar to one of the SGM’s model. After SGM took them to court, they received another blow after the court declared a ruling in favor of Chery. Additionally, the company has been faced by technical issues with most of their model although they have recalled them to make amendment on them. Another challenge that has been faced by SGM revolves around the production of petrol vehicles for the global market. According to automotive rules and regulations, china has restrictions of producing such vehicles since it requires having fuel efficient vehicles. In fact, studies have documented that china has 20 percent of its vehicles running on diesel engines with intent of saving over 19 million tons of oil. As a result of this, clearing and waiting time Affects Company’s performance, thus hampering international market entry. It is for this undoubted reason that Shanghai GM has kept their market shares thriving and relevant in the domestic markets, SGM managed to set up 250 dealership stores in a span of four years after the collaboration. Hence, there has been a remarkable growth in the field of automotive industry as it has widely been argued that a world that has advanced technology is one that utilizes its for the betterment of the world as a whole. Bibliography: American Bar Association., 2006. Joint ventures: antitrust analysis of collaborations among competitors. Chicago, IL: Section of Antitrust Law, American Bar Association. Amtmann, M., 2004. Intercultural Problems Within Joint Ventures In China. New York: GRIN Verlag. Anderson, G. 2012. Designated drivers: how China plans to dominate the global auto industry. Singapore: John Wiley & Sons. Baran, R., et al., 1996. International Joint Ventures in East Asia. New York: Psychology Press. Bellon, B. et al., 2001. 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