In his recently published book, Michael Dunne reveals the secrets behind General Motors' phenomenal success in China while at the same time it was going through disasters in the U.S. "This is the story of how GM got into China, what it confronted, and how it tackled the formidable challenges presented by the Middle Kingdom - an arena of competition entirely different from America. The hard lessons learned will be instructive not just to companies making cars, but to any foreign company with aspirations to make it in China - an enormous market that will remain highly unsettled, and unsettling."
Coco Kee of Kee Global Advisors LLC conducted the following interview with Michael to learn more about the "story" behind the story. They worked together in Beijing between 1996-1999 when Coco was the Chief Representative of China Operations for ARA, a firm founded by Michael.
|Coco: Mike, congratulations on the book! As a Chinese native, I usually do not read books on China written by foreigners, but I have to say I really enjoyed your book, very well written. My first question is why you decided to write about General Motors in China instead of Volkswagen, which shared the same Chinese partner.
Mike: GM offers a much more fascinating storyline: How could the GM go bankrupt in the US and thrive in China at the very same time? I figured that the GM that operates in China must be different in some important ways. The book brings these differences to life in the form of stories - some intriguing, some hilarious - about key people and the events they shaped.
But my larger ambition was to use GM in China as a lens through which readers could get a better understanding of China and Chinese business culture. Events in the book offer clear lessons to anyone who wants to do business with the Chinese.
Coco: One of the most often asked questions by foreign companies interested in expanding to China is how they can protect their intellectual property. What is the answer from GM's success story in China?
Mike: Protect IP in China? Forget about it. No, you can't. GM got ripped off just like Honda, Toyota, BMW and others. One chapter in the book describes how a Chinese firm even managed to introduce a copy of the GM product BEFORE GM had even launched it onto the China market! Imagine the shock. There have been many IP infringement cases brought to Chinese courts and for every hundred cases, the foreigners win about one. GM, like the others, understands that the only practical way is to keep moving - to keep introducing new products with new technology so the purloined stuff looks old.
Sometimes your partner can help. Sometimes. GM's partner, the city of Shanghai, has been helpful in curbing the copy or Buick and Chevy products in recent years. With 51% ownership in the joint venture, Shanghai Auto has a real incentive to tamp down on copy cars.
Coco: What is the first key to GM's success in China?
Mike: A small legion of intrepid managers who arrived in China in the mid 1990s and decided to shape a culture and operations that were entirely different from GM back in America. The attitude was: The only way we're going to win in China is if we build cars that Chinese people really want to drive. There are no gimmes, no hand-outs -- we're playing an away game and will have to scratch and claw for every "win".
Coco: Chinese car companies have been trying to surpass foreign auto makers. What are the major barriers do they need to overcome? I am trying to understand how long this love affairs between GM and its Chinese partner and other joint ventures will last.
Mike: Oh, you're invoking the old Chinese adage: Sleeping in the same bed, dreaming different dreams, are you? Well, you're right. The Americans clearly want to get very tight with Chinese consumers. The Chinese partners want the technology so that they can become the car factory for the world. So far, demand (and profits) inside China has been so sensational that the Chinese are happy to make some easy money at home. But once the market sows, look for the Chinese to become more insistent about exporting to the world. Last month, Sergio Marchionne, Fiat's CEO, warned global automakers of just such a threat coming out of the China in the next few years.
Coco: The growth of China's car industry will some day slow down due to maturity and market saturation like other developed markets such as the U.S. and Japan. If you were an investor, where would you put your money in the next 5 to 10 years in China's car market?
Mike: Two areas: I'd invest in parts makers who specialize in safety and emissions. Given China's aim to export worldwide, cars coming out of China will need to feature the very newest technologies when it comes to safety and fuel emissions. Imagine the potential scale! An even more exciting area will be dealer networks. China is home to perhaps the most highly fragmented dealer networks in the world, with thousands of individually-owned stores in large cities and small ones. When the market slows, there will be a great opportunity for consolidation. Such a strategy is already starting with companies like Zhengtong.
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Click here for the Wall Stree Journal's Book Review
Click here for CNBC's interview with Michael Dunne
About the Author
Michael J. Dunne is president of Dunne & Company Ltd., a Hong Kong-based investment advisory firm specializing in Asia's car markets.
Three weeks after earning an MBA from the University of Michigan in 1990, Michael boarded a flight to Asia. He soon founded Automotive Resources Asia (ARA), a car consultancy. ARA expanded operations in China and Southeast Asia over the next decade and, in 2006, was acquired by J.D. Power Associates.
Michael's opinions have been published in the Wall Street Journal, International Herald Tribune and Automotive News. He was also featured in an acclaimed National Geographic documentary on China's car culture.
A native of Detroit, Michael speaks Chinese and Thai. He worked in Beijing and Shanghai during the 1990s and 2000s and currently divides his time between China and Jakarta, Indonesia, where he lives with his wife Merlien, and their three children.