How to deal with the "sole proprietorship" strategy of China's spare parts companies

past. Multinational auto parts companies are eager to establish Sino-foreign joint venture auto parts companies in China. Is this still the case now?
During the interview, the reporter was informed that: Now, some Chinese companies are eager to establish joint venture parts and components companies with multinational companies; however, some multinational auto parts companies always negotiate with the Chinese side in the name of a joint venture. Once they understand the details, they will The Chinese abandoned it and established a wholly-owned auto parts company in China.

For example, a multinational automotive parts company visited several companies in China, and some of them also reached a cooperation intention. Just as many parts and components companies in China were looking forward to the successful cooperation with the multinational parts and components company, the multinational parts and components company seemed to evaporate overnight. While many parts companies in China dreamed of doing it Baidu, it suddenly announced the establishment of a wholly-owned parts and components company in China.

Some of the spare parts companies eager to find foreign partners suddenly became aware of the changes made by some multinational companies: Some multinational companies have changed their Chinese strategy and are no longer eager to establish a Chinese-foreign joint venture component company in China. Instead, they are studying the Chinese market and use magic tricks to establish wholly-owned parts and components companies in China.

"Sole investment" is an inevitable economic phenomenon

At present, in the developed countries, the supply of vehicles exceeds demand. The profit of vehicle production is getting smaller and smaller, and many vehicle companies have already suffered losses. The market competition has become increasingly fierce. This has led to increasing cost pressures for vehicle companies. In this case, the entire vehicle company was forced to shift the pressure to reduce costs to the coveted parts. China has abundant and cheap labor and raw material resources. There are great cost advantages in the production of auto parts. Therefore, multinational companies are eager to transfer parts and components production to China.

In the past, multinational companies established wholly-owned parts and components companies in China were subject to policy restrictions. China’s accession to the World Trade Organization has provided government support for multinational auto parts companies’ large-scale entry into China to establish wholly-owned enterprises.

The lack of technological development capabilities of China's auto parts industry cannot stop the entry of multinational parts companies with advanced technology.
Prof. He Desheng, executive director of the Society of Automotive Engineers of China, predicted for a long time that “China will inevitably have a monopoly of cross-border parts and components companies.” In an interview with reporters recently, he pointed out: “Some multinational companies establish wholly-owned parts and components companies in China. The result of the interaction of various factors is an objective socio-economic phenomenon, and it is an inevitable trend that is not based on people's will."

The "sole proprietorship" phenomenon should be valued

The auto parts industry is an important part of the country's pillar industries. It plays a decisive role in the development of the national economy and involves China's economic security issues.

At present, Chinese auto parts companies are not competitors of multinational corporations, whether in terms of capital, technology, or other aspects. Therefore, the competition between China's auto parts companies and multinational companies (China)'s wholly owned parts and components companies cannot be equal. If China’s relevant parties do not attach importance to the phenomenon of “sole proprietorship” or face the “sole proprietorship” phenomenon, then the fragile Chinese auto parts industry may be squeezed and it may be a crisis for China’s economic security.

He Desheng said: "If we let multinational companies squeeze out China's auto parts industry, then our generation of Chinese automakers will be paralyzed by future generations."

The upper-level decision-makers should stand at the strategic height of safeguarding national economic security. They should seriously consider this issue. They must recognize the rationality and inevitability of the "sole proprietorship" phenomenon, and must take strong measures to support the autonomy of domestic auto parts enterprises. Development, less engage in some "XX speed" performance projects, training more auto parts and technical personnel, so that the five-star red flag flying high in the Chinese auto parts market.

Knowledgeable advice

How to deal with the strategic adjustment of multinational auto parts companies?

Some insightful people made some suggestions in an interview with reporters:

In terms of investment strength, output, product specifications, product variety, technology level and product price, etc., establish certain thresholds for multinational companies to establish wholly-owned auto parts enterprises in China, and timely adjust the threshold according to changes in the situation. Is it still too time for the United States to enter other countries' tourist visas for entry into China, not to mention that China has set up a wholly-owned parts and components company that has seized the market for multinational corporations?

Distinguish between right and wrong: Domestic parts and components are parts and components that Chinese people produce, develop independently, and own brands. Parts produced using foreign brands and foreign technologies and technologies are not domestically produced parts. The state shall increase policy support for enterprises providing domestically-made parts and components.

Developing auto parts technology requires a huge price. The government is duty-bound to promote the technological advancement of China's auto parts and components. The government should organize a strong technology development team for auto parts and establish an auto parts development institute.

Of course, the rationality of some of the proposals is open to question, but one thing is clear: the state must encourage Chinese-funded auto parts enterprises to increase their international competitiveness and go abroad to participate in international competition.
Author: Yaofu Tai