By on June 6, 2012

Dongfeng-Nissan President Kimiyasu Nakamura watches Yao Bin, Huang Kai Fong, and Ye Lei

Yesterday, Nissan’s affable China president Kimiyasu Nakamura brought a Chinese delegation home to Yokohama, to explain to a largely skeptical Japanese press why Nissan had started a new brand in China with joint venture partner Dongfeng.  The brand goes by the name of Venucia. Nissan is not the only one doing that. Nearly every foreign joint venture partner in China either has established a Chinese brand in China, or is intensively thinking about it.

Curiously, the trend of  foreign joint ventures making Chinese cars had been started by GM, which announced its Baojun brand in 2010.  This was quickly followed by Nissan and Venucia. Pretty soon, it became known that these branding exercises had not been totally voluntary.  The Chinese government strongly suggested to all joint ventures that it would be a great idea to launch an independent Chinese brand that is owned by the joint venture. There is no law that requires this, but foreigners quickly realize that is is in their best interest to play along.

When it comes to new energy cars that are supposed to benefit from Chinese subsidies, then the car absolutely must be built and sold under a Chinese brand, Nissan’s CEO Carlos Ghosn said at this year’s Beijing Auto Show. Nissan’s Leaf will be a Venucia when it comes to China.

Except for the cut and dry subsidy issue, the overarching reason for these pseudo Chinese brands is not completely clear.

Officially, it is supposed to make the car more affordable. Lower cost cars definitely are the key to China’s expanding market, as cars morph from toys for the rich to transport for the masses. However, foreign makers privately had long argued that one does not need a new brand to make an affordable car, as the Jetta and Santana vividly illustrate in China. Actually, to seriously launch a new brand can be quite costly.

Conspiracy buffs argued that the insidious Chinese are trying to grab valuable IP with that scheme. Foreign joint venture  partners snicker at that idea. The cars they introduce under the Chinese brands typically are based on previous-gen platforms. And electric cars? “How much protectable IP is in the concept of rigging electric motor to a battery?” the R&D chief of a Japanese carmaker had quipped last year.

Sales and market share passenger vehicles in China by brand nationality, January-April 2012

Country Units Share
Japan 948,000 18.8%
Germany 868,300 17.2%
USA 553,900 11.0%
Korea 399,800 7.9%
France 142,100 2.8%
Total foreign 2,912,100 57.7%
Chinese 2,137,000 42.3%
Total 5,049,100
(Source: CAAM.)

More and more, it appears as if it is a grand whitewashing exercise. The market share of indigenous brands is anywhere between 30 and 40 percent, depending on who you ask and how the counting is performed. All agree that the market share of indigenous brands is sinking. “Despite a massive local presence, the domestic car industry is steadily losing market share,” wrote state-owned  Xinhua in April.

It pains the patriotic pride when that happens. On the other hand, Chinese partners of joint ventures with foreign carmakers are nearly all state owned enterprises, whereas domestic brands are often in the hands of small and medium sized independents. The government would shoot itself in both feet would it favor the independents.

New “Chinese” brands.Developing table

Ford
Studying indigenous brands.
GM Baoyun (with SAIC and Wuling)
Daimler Denza (with BYD)
BMW
Studying new energy brand
Honda CIIMO (with Dongfeng)
Nissan Venucia (with Dongfeng)
Volvo Plans new brand (with Geely)
Kia Dian Yue (with Dongfeng)
Hyundai Shou Wang (with BAIC)
Toyota
Planning two new energy brands
Volkswagen Tantos  (with SAIC)
Volkswagen Kaili (with FAW)

Instead, a Chinese solution was found. The strong joint ventures create Chinese brands that hopefully make the domestic brand statistics look better as time goes on, and at the same time, both laowei and Chinese SOEs keep their lines busy. The foreigners can recycle old platforms and tools that otherwise would have been scrapped. The Chinese can be proud that they don’t have to pay license fees for a brand, something that goes against the grain of a Chinese anyway.  The foreigners more or less happily play along.

Nissan said yesterday that it sold 7,700 Venucia D50 in the first month after its 4/23/2012 launch, which is “a good start,” as Chris Keeffe of Nissan put it.  Venucia outsold the Baojun which had 5,013 units in May. Dongfeng Nissan wants to launch another Venucia car in 2012, for a total of 5 by 2015.

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7 Comments on “Why Foreigners Create Chinese Brands, Explained Using Nissan And Venucia...”


  • avatar

    I finally read “American Wheels, Chinese Roads,” which was reviewed by Ed here:

    http://online.wsj.com/article/SB10001424053111904006104576501302843644740.html

    The author focuses on “how business must be done in China.” Building relationships with the government at the local and national levels is key. We hear very little about the challenges involved in actually manufacturing and marketing the cars–apparently these activities are secondary.

    The main thing I had not realized: city governments are major players, and these do not remotely form a unified block with the national government. The Chinese partner in all of these JVs is actually a city government, Shanghai for GM and VW, Dongfeng for Nissan, and so on.

    In the long-term the Chinese plan to have these JVs function as independent companies that will eventually export their cars and directly compete with the Western partner. While in the short-term forcing the JVs to create a Chinese brand serves as whitewashing, it also fits this long-term strategy.

    The book’s author recommends that the US reciprocate by making Chinese companies follow the same rules in the US. But of course this will never happen.

    • 0 avatar

      ” The Chinese partner in all of these JVs is actually a city government, Shanghai for GM and VW, Dongfeng for Nissan, and so on.”

      Not in all of them. Dongfeng and more are owned by the central government. Others are owned by provinces. Beijing, Shanghai, Tianjin and Chongqing are “direct controlled municipalities,” i.e. both cities (huge ones) and provinces at the same time.

      • 0 avatar

        Thanks for the correction–I now see that Dunne does note that FAW and Dongfeng are owned by the central government.

        So we have companies directly owned by the central government competing with others owned by city/provincial governments? Sounds like this could turn ugly if the central government felt the need to assert itself.

        One thing that remains unclear to me. There’s a “GM China” in addition to “Shanghai GM.” How are responsibilities split between them?

      • 0 avatar

        ‘Shanghai GM’ or ‘Shanghai General Motors Ltd.’ is the name for the joint venture with SAIC. ‘GM China’ refers to the total of Shanghai GM, the JV with Wuling and the small one with FAW.

    • 0 avatar
      tentacles

      Brilliance, BMW’s JV partner, is also a privately owned company, as are Geely and Chery(probable JV partner of Jaguar Land Rover).

      The Chinese government can say whatever it wants about it’s “long term strategy” but the Chinese people would be far better off if their government were even remotely as competent or effective as the American press makes it out to be. Yes, the plan presented to the public is as you say – the domestic state owned firms would eventually get out of their JVs and become car makers themselves, but so far this plan has been a dismal failure because state owned companies have no incentive to do any such thing.

      The current state of affairs is thus. The big state owned companies, SAIC, FAW, etc have the most lucrative joint ventures by dint of having access to capital and political connections. Audi isn’t going to JV with some 2 bit village panel beater company, they JV with FAW (which BTW stands for “First Automotive Works”, from back in the Soviet days when factories had simple number designations. Being the “First” should tell you something about its place in the hierarchy). The domestic market is walled off behind a high tariff barrier, and local startup companies are denied capital and government approval. So Chinese consumers have no choice but to buy, at very high prices local JV-made foreign branded cars. The JV companies are extremely profitable, given their protected status and the fact that the domestic SOEs don’t have to actually *do* anything other than put money(which for an SOE costs nothing) into the JV. GM or VW certainly would prefer that they have as little to do with the actual production of cars as possible and keep the management of the entire production and supply chain close to their chests, for obvious reasons, and of course all the design and research is going to be kept closely guarded, if they are even done in China at all. If they had their way they would simply import everything, but since the JVs, again by dint of their protected status, deliver artificially high profit margins, they swallow their pride and keep up the charade. Meanwhile the SAICs and FAWs continue to fail to develop any of their own cars worthy of note even in China. Why would they bother with allt he risk and investment and effort of developing their own cars when they could ramp up production of their JV Audis or Buicks and rake in guaranteed profits from the protected domestic Chinese market? Never mind the export market, you think a lethargic state owned company that can barely deal with local private Chinese competitors even with all the government regulations on their side is going to go head to head with Ford or Toyota in their home markets? Sheeeeeeit, how much growth has their been in the US light vehicle market in the last 5 years anyway? How does it compare to the double digit growth they get in China?

      So the big State owned Audi and Buick JVs continue to dominate the Chinese market, and the small locally owned Geelys and Cherys keep struggling along, building 1980s deathtraps for the poor rural folks, and maybe export a few to very open markets like Africa, Latin America, Australia or Russia. They will never get the capital or investment to challenge the SAICs and FAWs because the people who run SAIC and FAW control the central government and why would they want any free market competition? The idea that China is going to become a serious car exporter in any way in the near future is pretty laughable, and it has nothing to do with whether the Chinese can design or build a good car. The way that the Chinese car industry is set up simply gives no one any incentive to do so. I highly doubt the people at GM or VW, who are all very intimately familiar with all of this, are losing any sleep over possible Chinese competition in their home markets.

      • 0 avatar
        daveainchina

        While I would agree with most of your assessment I disagree that the private companies are building 1980′s deathtraps to rural people only. I see plenty of chinese brand vehicles here in Shanghai, including the deathtrap QQ.

        Chery motors is a company that is advancing their technology. I see the private Chinese companies more at the stage of Hyundai in the early 1980′s. Give these companies another 10-15 years and I expect them to be competitive the way that Hyundai is.

        Brilliance is learning from BMW and slowly building out their technology too.

        I really have a lot of respect for Chery motors, they are building a business that is profitable and they are managing to export product. Sure it’s not to the USA standards but they are doing this without all the benefits of being a state owned company. I’ve been looking at their newest products and you can see the changes in safety and manufacturing quality between them and vehicles that are only 3 years old. That’s not to say that I would buy one, but there is certainly a difference and I expect the improvements to continue at a fairly rapid pace.

        The state run companies are the ones I have little to no respect for.

      • 0 avatar
        tentacles

        daveinchina, Both Chery and Geely indeed have done remarkably well considering all the forces that are arrayed against them. For Chery it probably didn’t hurt that they were partially owned by SAIC up until a few years ago with the QQ debacle. However they are going to face the same problems that every other entrepreneur in China faces – given that the government can run roughshod over anyone and seize/close/arrest people on a whim, where is the incentive to invest a real branding strategy, a reputation for quality and in design and development? This is the reason that foreign brands are still overwhelmingly trusted in China for everything from electronics to milk powder, with domestic state owned/military affiliated brands trailing a distant second (the idea being that the army, and older domestic state owned firms at least have *some* incentive to uphold their reputation). Now consider the car market, where the state sector/military, in cahoots with their foreign partners, have a huge stake and every incentive to keep private competition to a minimum. Even the “free” markets of the west and Japan, the trend for the last 5 years has been increased government ownership, consolidation and huge ($billions) investments needed to come up with a world class car platform. In the current global economic enviroment it is an open question whether companies like Mazda or Mitsubishi can even survive. What hope does a Chery or Geely have?


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