Vw plans to increase Chinese car parts exports

Volkswagen is planning to export $1bn of Chinese car parts by the end of this year, providing a big boost to the country’s export plans and increasing pressure on the carmaker’s threatened German component factories.

VWsays it expects to increase exports from just $100m to $1bn, taking advantage of labour rates that average a fifth of those in developed markets.

VW has been burdened by a poor supply network in China after its early start – it led the market after setting up its first car assembly joint venture in 1985 – left it stuck with high-cost, lowquality suppliers tied to joint venture partners.

A year ago the Government set an ambitious target of increasing exports of parts from just $5bn to $100bn by 2010, putting local companies under pressure to meet developed-world cost and quality standards.

Today large foreign component producers, such as Germany’s Bosch, Japan’s Denso or Delphi of the US, are likely to make up the majority of exports from China. Toyota, the Japanese carmaker, has built a factory in Guangdong province to export engines to Japan, while Ford has been increasing its purchasing from China to lower component costs.

The Financial Times, March 31^st, 2006

№ 19

HOW DANONE’S CHINA VENTURE TURNED SOUR

Corporate China in the 1990s was littered with the wreckage of failed joint ventures between multinationals and local companies but the tie-up between Danone, a French food giant, and Wahaha Beverage, a Chinese firm, was held up as one of the great success stories.

The partnership seemed a good fit at first. When Danone, acquired a 51% stake in Wahaha, in 1996, it considered it a coup. In what has become a painfully familiar experience in China, the company has since run into trouble.

Danone is hardly the first to have been hit. Faced with a geographically vast but promising market obscured by a thicket of complex and contradictory rules, many foreign firms have entered China via joint ventures – and then been left grinding their teeth. Given the inherent instability and culture clashed in many China joint ventures the Danone case will be closely watched by many multinationals.

In theory, the case for joint ventures was compelling. The foreign partner provided capital, expertise, product research, access to international markets and jobs. The Chinese partner provided access to cheap labour, local regulatory knowledge and access to what used to be a relatively unimportant domestic market. The Chinese government protected swathes of the economy from acquisitions, but provided land, tax breaks and at least an appearance of a welcome to attract investment.

In practice, these arrangements have collapsed. China’s hunger for foreign investors has been sated. The availability of labour and land has fallen, domestic capital is abundant, the local market is now understood to be among the most attractive in the world and sentiment has become more nationalistic and self-satisfied. So there is less interest in providing access to foreign partners. Danone faces an uphill battle if it is to restore stability to joint venture, which accounts for 75% of its China operations.

The Economist, April 21^st, 2007

№ 20

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