Gm in China Case Analysis

GM in China Case Analysis

Shauna M. Vinson        

DeVos Graduate School

Dr. Tara Peters

Founded in 1908, GM was the world’s largest vehicle manufacturer, with 15 percent of the global vehicle market and manufacturing operations in 32 countries (Cadieux. D., 2004, pg. 1). In the year of 1992 GM and the Chinese government started joint ventures within the China markets and help form GM in China.  Although GM in China had rapid growth and profits, there were many issues that had to evaluated with the move into China and GM needed to assess. Which now leads, GM China Investment Corp.  to find ways to reduce risks, while managing their joint ventures so that profits may be sustained.

         Issues with supply and demand seemed to be a big part of what GM needed to figure out within the Chinese market and what steps to take toward its corporate strategy in China. As Exhibit 3 in the “GM in China” article, 20% of China’s population would be able to afford and purchase a vehicle. Based on this factor the population would continue to grow in the percentage of population who would be able to afford a vehicle in the China market. Growth rates were projected sales volume would be high from the period of 1999-2003(Cadieux, 2004, p.6). Looking at Exhibit 2 a continuous growth in of approx..8% on average of real GDP in the China market shows substantial demand for the products and an overall how well the market was producing. Still concerns of inflation was on the rise in China. “The article GM in China” states, Essentially, there was a substantial increase in aggregate demand due to higher consumer incomes, increased levels of exports and substantial foreign investment (Cadieux, 2004, p.13).  Demand for best-selling models declined, increase for less expensive models. Analysts pointed to a series of new forces: loss of consumer confidence, expectations of further vehicle prices decrease, the threats of oil shortages and higher gasoline prices, government rationing power of supplies and the government’s abrupt imposition of credit restrictions of automobile financing. Air pollutions were a major concern and this could also limit China’s motor vehicle growth. (Cadieux, 2004, pg. 7). With decreases in sales price of 25% from 2001 to 2004, will profits still exist in vehicle sales thru joint venture, with an expectancy of prices to continue to drop 10% each year thereafter.  Current profits for vehicles in the China market, is listed in the GM Corp 2003 report, which indicates $437 million just how profitable GM is in Chin thru its ventures which represents only half of the four joint ventures profits.  “A Brief Introduction to Macroeconomics”-will help GM to understand the issues with supply and demand and how GDP plays a major factor in determining the demand for certain products. . The “4M’s Four Markets Analysis for Emerging Economies”, can analyze and give understanding of which type of markets GM in China, should seek to do business and if there would be long term success.

How can GM China Investment Corp. improve consumer confidence and continue growth in the market? “Background Note on Open Economy Macroeconomic Equilibrium”, will assist in how income, outputs and spending in the GM China market should move forward. “Principles in Pricing”- analyzes if their profits are still attainable with a decrease in sale prices of GM vehicles.

Challenges protecting intellectual property were evident in with GM China Investment, Exhibit 4 in the article details just how the certain policies would impact China’s market. In addition, many thoughts of competitors making substitutes models and designs was major concern. In the article “Introduction to Economics”, markets that specialize in the exchange of goods and services and are defined by the law is known as property rights (Lehenbauer, 2016, p. 6).   With little to no control over the China government’s regulations, and not having the expected protection needed to protect intellectual property. GM in China speaks of the conflict between the automaker and Chery. The GM complaint is complicated by the fact that Chery is 20% owned by GM’s main joint venture partner in China, Shanghai Industrial Corp. (Cadieux. D. 2004, pg.12).  An article titled “Defining Property Rights-The Case of Knowledge Based Resources”, breaks down two different types of property rights in economic literature 1. Economic Property Rights 2. Legal property rights., the article talks about a similar situation GM in China faces, through an example in the pharmaceutical industry. States once a new product is developed by one industry participant, others can appropriate the knowledge relatively easily, therefore some form of property rights protection (e.g. patent protection) is necessary to create incentives for investment (Costello, A.O., Costello, T.G., (2005), pg. 152).

 For GM in China to assess what reduction in risks needs to take place and the proper ways to manage joint ventures with the Chinese market, they must first take a glimpse into issues that surround demands and supplying the demands. If GMCIC, uses the three equivalent ways 1. the output approach 2. expenditure approach and 3. income approach in understanding and measuring GDP (Gross Domestic Product), this will help identify which areas of risks needing reductions as well, give areas for opportunities in which GMCIC can sustain profits in the China In the article, “A Brief Introduction into Macroeconomics”, tells how macroeconomy help firms evaluate how demands for their products evolve, as well how changes in interest rates. inflation, and exchange rates affects their costs and revenues (Murphy, D., 2014, p.1).  Being able to understand GDP is important factor for GM in China, it will give the organization valuation of the vehicles being produced through the many joint ventures created in the China marketplace. Look for ways to rebuild the trust of the consumer. If a partnership with SEPA can be formed to work on how GMCIC and SEPA (State Environmental Protection Administration) can work together to improve the polluted environment, could gain the confidence of consumers again with a plan in place to help clean China air and environments from pollution. To forecast and measure profitability in a decrease of pricing, a formula provided in the Principles of Pricing article, (Profits= [Unit Price-COGS] *Unit Sales Volume, should be used to track this data.