Joint Venture in Chinas Automotive Industry - Coursework Example

The 13.64 million Chinese auto sales in 2009 surpassed the United States 10.42 million revealing the dramatic gains made in this segment of the industry (Electro Auto Forum, 2010). The above was achieved through a number of policy approaches and internal market conditions. The Chinese government’s active involvement in the economy has set policies to boost automotive sales in regional cities as well as rural areas as a way to stimulate the economy (Electro Auto Forum, 2010). This was achieved by lowering the vehicle purchase tax to 10 percent for vehicles with engine displacements of 1.6 liters or lower (Electro Auto Forum, 2010). The above is important as it focused consumer sales on domestic auto companies as opposed to joint ventures (Electro Auto Forum, 2010). Another aspect of government stimulation and incentives focused on providing a subsidy to encourage Chinese residents to upgrade their older vehicles to new compact models (Electro Auto Forum, 2010). As a further incentive, the government included a rebating scheme through taxes that allowed 10 percent of a new vehicle costs up to 5,000 Yuan. This was permitted when citizens replaced a three-wheel or four-wheel farm vehicle with a light truck (Electro Auto Forum, 2010). The replacement represented new trucks or minivans with an engine displacement of 1.3 liters or smaller (Electro Auto Forum, 2010). By providing a means for citizens to upgrade or purchase new vehicles, the government helped to stimulate sales and strengthen the automotive segment which is a classical example of its active involvement in the economy (Electro Auto Forum, 2010). The Chinese government has put forth policies that are geared to the development of domestic technology for its brands, however foreign manufacturers hold 70 percent of the market (Wagner, 2012). The key to this vast market share lead is Chinese citizens prefer foreign models over domestic brands (Wagner, 2012). In explaining the difference the president of United States Ford Asia Pacific and Africa region, Joe Hinrichs, stated: “There is a belief at this point in time that international brands have more technology, in some cases better craftsmanship” (Bloomberg News, 2012). The governmental design behind the joint venture process was designed to counteract this. The plan represented that through joint ventures technology would be transferred to Chinese partners. The would represent a means for domestic companies to develop their own capabilities to the point where foreign partners would no longer be needed (Luo, 2005). The above factors are important base facets in understanding the Chinese automotive sector, government policy design, and the findings uncovered under this analysis. In equating the success or failure rate of joint venture projects globally, research conducted by Perkins et al (2006) uncovered most joint ventures tend to wind up being unsuccessful. An analysis conducted by Perkins et al (2006) a host of contributing factors was uncovered concerning the reasons behind joint venture failure.  In looking at the reasons, Tsang (2000) provides the following explanation. He states an important factor in the success rates of joint ventures is the long-term economic climate of the host country. This is where China’s government policies have made a difference, along with its huge build in consumer market size. Read More