Joint Ventures in the Chinese Automobile Industry

Q.1
Creates synergy
A joint venture is initiated between two or more parties to exploit the qualities of each
other. One company may have a unique trait that the other firm lacks. For instance, between
AMC and BAW, AMC was to bring its technology and the BAW was to open the market.
Sharing of risks and rewards
In this case, the risks and rewards with regards to a specific activity for which the joint
venture was entered are shared between the partners.
Advantages of a joint venture
Economies of scale
It is through joint ventures that firms can scale up their constrained capacity, for instance,
the Beijing Jeep could produce more than 80,000 units.
Access to new markets and networks of distribution
The joint venture between the American and Chinese firms allowed American firms to
access the Chinese automobile market.
Low production costs
The joint venture between American automobile firms and Chinese firms allowed the
American firms enjoy the low labor costs in China thus reducing the production costs.
Disadvantages of joint venture
Disputes
A good example is the disagreements that went between the AMC and BAW over the
kind of jeeps to be produced, and this led to the dissolution of the joint venture.

Q2
China has been considered as a good ground for producing vehicles and many elements
needed in manufacturing automobiles. Some of the arguments in favor of stem from the demand
side. It is argued that in the developed economies the demand for automobiles is constant. It is
anticipated that in future, the majority of the increased demand will originate from developing
nations such as Brazil and China where demand will be expected to grow at around 10%
annually. It is anticipated that in the next few years China will account for more than 15% of the
world demand. Based on the supply side of why China is suitable for automobile production, it is
said that manufacturing technologies are well identified. China is characterized by a cheap
workforce that is flexible when it comes to training. The level of education of such workforce is
also said to be rising. Thus, the economies of scale and the extent of flexibility would enable
production costs to be low.
Q.3
Product lifecycle
The theory entails three distinct phases. One is a new product, and the second is maturing a
product and finally product standardization. This theory fits well with the Chinese automobile
industry looking at the innovation and manufacturing processes happening across the globe. A
good example is where the American automobile firms conducted research in the Chinese market
and found that highly skilled workforce was cheap there and this is the primary reason they were
seeking joint ventures so that they could tap onto such benefits. China offered both high skilled
labor and research facilities at a low cost to such global firms
Q.4
Asset-light strategy equivalent to licensing