Market entry


Winning in China has become a top priority for the multinational automotive giants, many of which see the Chinese market as a once-in-a lifetime opportunity to catapult themselves into a position of global leadership. They make their mark on the Chinese market by setting up manufacturing facilities, transferring technologies and establishing service centres .

Tariffs and quotas

Currently, the country's import/export regulations are: Import tariff , VAT, Certificate:

Tariff

  • Raw materials for manufacturing sites: approximately 5 “15 per cent

  • Spare parts or assemble parts using on whole vehicle: approximately 10 “50 per cent

  • Production machinery and test equipment: approximately 15 “25 per cent

VAT

  • Most imported commodities: 17 per cent

  • Some commodities eg books: 13 per cent

Tariff and VAT formula

  • Import Tariff = CIF x Tariff rate

  • VAT=(CIF *Tariff rate) x 17 per cent

As China enters the WTO, tariffs on whole vehicles as well as parts and components will be significantly lowered . Import licences will gradually disappear. This will have various impacts on the automobile and supplier industry. For complete vehicles, the tariff will be gradually reduced from its current level of 70 per cent to 25 per cent by 2006 (from 50 per cent to 10 per cent for automotive components).

Of the different types of motor vehicle, the hardest hit will be passenger cars , high-tech engines, driving axles and key parts assemblies, with high-end heavy- duty trucks next . The impact on mini-vehicles, mediumsized trucks and large and medium- sized buses will be relatively small and the motorcycle industry will be the least affected. The effect of increased import quotas prior to the final disappearance of the quota and licence scheme will be much greater than the reduction of tariffs. It will create tremendous pressures on domestic OE assemblers because once the import licence is phased out there will be a major increase in the number of cars and components imported at reduced tariff rates. For the after market suppliers there will be new opportunities and challenges. The suppliers can import their products, manufactured globally at a lower cost, into the China market, or they can purchase their products from international manufacturing facilities, brand them and import them into China. However, they will be faced by fierce competition.

The liberalization of the automobile service industry

At present, only the Chinese Trading Company, joint ventures and wholly -owned companies are licensed to handle goods import and export. However, joint ventures and wholly-owned companies can only import the raw material/parts for their production and export their own products.

After joining the WTO, China will open its service trade up to overseas companies in the areas of vehicle and parts sales and distribution, automobile import and export, franchised dealership , shipping and transportation, automobile financing, car rental and leasing and financing for production. This will open up more channels for imports and seriously impact on China's market because the country lacks an established system of automobile service trade.

Competition

The after market business has vertical and horizontal distributors. The vertical distributors arrange their products by car models, for example Shanghai Long- feng Auto Parts Limited sells the various parts of Santana. The horizontal distributors arrange their goods by part categories, for example Liaoning Yejin Auto Parts Company sells batteries of different brands. It depends on the company's capabilities and on the market situation and it can of course begin with vertical distributors , and then expand to horizontal channels.

Competition in the after market will originate from both local and international companies. International competitors can be divided into two categories; one being the manufacturers who are also involved in the trading business, for example, Delphi Automotive Systems and Bosch. The second group restricts itself to trading and buying products from manufacturers, putting their own brand names on them and selling on, for example NAPA. Many Chinese local manufacturers are beginning to realize that they must set up their own brand names and distribution network, and that they are enjoying a lower price due to lower costs. Some, such as Hangzhou Wanxiang Group, are becoming strong competition with multinational companies in some market segments.

Table 6.2.2: Global tier one companies with presences in China

Name

Locations

Activities

Bosch

Shanghai

Eight JVs “ EMS; Sparks, etc.

Delphi

Changchun

Fourteen JVs & WFOEs “

 

Shanghai

electronics; chassis; harnesses;

 

Wuhan

climate control

Valeo

Wuhan

Eight JVs & WFOEs “ climate control; electrical products

Visteon

Changchun

Six JVs “ interior;

 

Shanghai

climate control;

 

Wuhan

electronics

Allevard

Shanghai

 

Brose

Shanghai

 

Huchuson

Wuhan

 

Magneti Marelli

Shanghai

 

Pilkington

Changchun, Shanghai, Wuhan

 

Sachs

Shanghai

 

Siemens

Changchun, Shanghai

 

ZF

Shanghai

 

Source: ARA Research




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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