China’s automotive industry has entered a new phase where new car sales growth decelerates, while the car population expands and the average car age increases. This brings enormous opportunities for expansion of the independent aftermarket.
In this paper, we examine the complexity of China’s independent aftermarket including the distribution channel and service shops. We also examine the key success factors, market dynamics and emerging marketing channels in the independent aftermarket. We will highlight the implications of these developments for key players along the value chain.
With a population of over 20 million, Beijing citizens face traffic congestion on a regular basis despite the government’s efforts to maintain a smooth traffic flow, such as tolls, car usage limitations, and public transport subsidies.
But top scientists believe that artificial intelligence (AI) could – and in the near future, will – solve this problem.
Fei Yue Wang, director of the State Key Laboratory for Management and Control of Complex Systems, is certain that Beijing will no longer see traffic jams in five years’ time as they begin implementing AI in everyday tasks, including transportation, the article noted.
AI scientists are attempting to design self-driving cars that are able to drive smoothly and avoid sudden slowdowns and collisions that cause traffic congestion.
According to Tsinghua University Professor Li Keqiang, the Ministry of Industry and Information Technology has outlined a plan that allows autonomous vehicles to access highways within three to five years, and city centers by 2025.
With today’s advancements in science and technology, this five-year prediction is certainly not impossible.
Bill Russo, automobile consultant from Gao Feng Advisory Company, said as it stands, full optimization of self-driving automotive technology is more a matter of regulation than science.
“Unlike other countries, China has the capacity to drive the market from the top down and create the right circumstances for self-driving cars,” Russo was quoted saying.
Therefore, the government needs to open more doors for self-driven and human-driven vehicles to operate side-by-side on roads, he said.
Currently, self-driving cars are banned on public roads in China. Automobile players, however, view this restriction as a slowdown for the industry. Tech giants around the world like Google, Baidu and Alibaba, are already tapping into the automobile industry as their next business target.
As Forbes said last month, China “will be reluctant to forbid semi-autonomous cars completely.”
“The country has too much at stake, it has invested heavily in autonomous technology and urges its automakers and tech companies to develop autonomous cars,” it pointed out.
But after a number of fatal incidents, a ministry official in China recently said drivers could be held liable for accidents with advanced driver-assistance systems, a China Daily report said.
The report quoting China’s deputy head of Bureau of Work Safety Jin Xin said when fully autonomous vehicles hit the road, the manufacturer would become legally responsible for accidents.
But according to Yu Kai, founder of the Institute of Deep Learning – China’s first AI research and development center – the country’s automobile industry is anticipating the commercialization of autonomous vehicles as Chinese consumers are beginning to expect cars to be connected devices.
Yu also believes that self-driving cars could go on roads within 10 years.
“My focus is creating innovative technology to put in the car, to make the car independently intelligent.
“We are working with car manufacturers on how give their vehicles the ability to plan and make decisions, using a combination of sensors, processors, and algorithms,” Yu said, as quoted by Sixth Tone.
A Geely Auto’s SUV model Emgrand GS is presented at the Auto China 2016 show in Beijing. [Photo/ REUTERS]
Chinese billionaire Li Shufu will test whether there’s room for another global car brand by introducing a new marque next week, built on technology jointly developed by his two car companies, Geely Automobile Holdings Ltd and Volvo Cars.
The new brand, called Lynk & Co, will be unveiled on Oct 20 in Berlin and share its underpinnings with Volvo Cars models. Sales are slated to start in the second half of next year, with the first model likely being a sport utility vehicle, according to Geely Auto Chief Executive Officer Gui Shengyue, declining to provide more details ahead of the official announcement.
“The new brand carries great importance for Geely’s development,” Gui said in a telephone interview on Thursday. “We are currently competing against other local car brands, as well as high-end brands with Volvo Cars.” Lynk & Co will help Geely fight against other mass-market foreign brands, he said.
The new mid-tier brand comes about two years after Li killed three sub-brands and unified its models under the Geely nameplate. The new marque, to be produced in China but distributed globally, will allow Geely to compete in the lower end of the market while freeing Volvo Cars to focus on the premium end.
Even so, any new brand would have to fight for consumer acceptance in a market crowded with more than 100 passenger-vehicle nameplates. Geely’s Lynk & Co will join newcomers such as Borgward Group AG, a defunct German brand revived by Chinese State-owned BAIC Group, and a host of electric vehicle startups in trying to carve out a niche.
Geely has some advantages because the new brand would have access to a platform and technology from Volvo, and it may have better insight as a Chinese company in how to tap growth in faster-growing smaller cities, said Bill Russo, managing director of Gao Feng Advisory Co.
“The market is not asking for yet another brand, unless it brings a clear and unique proposition,” Russo said. “I assume Geely has learned a lot from its previous failed multi-brand strategy which they’re unlikely to repeat.”
Li purchased Volvo Cars from Ford Motor Co in 2010 for $1.5 billion and has rejuvenated the Swedish automaker with an $11 billion modernization and investment program. The company unveiled the XC90 in 2014, the first model wholly developed under Geely’s ownership, followed by the revamped S90 luxury sedan.
Under Geely, the carmaker is back in profit and selling well in China. But is it big enough to compete with its rivals?
There is nothing exceptional about the shiny grey chassis on display in western Sweden. Its wheels, suspension and engine are all where you would expect to find them. But it stands out because of what it represents: tangible evidence of progress in one of the most daring industrial stories of recent years.
Known as compact modular architecture, it is a shared platform destined to underpin the small vehicles made by both Volvo Cars, the Swedish premium manufacturer, and its owner Geely, the Chinese mass-market brand. “This is a bridge between the two companies,” says Mats Fagerhag, head of the joint venture that created the platform. “Everything is nice words before you start a common project and face hard facts.”
“The most important thing [Geely] has done is to help Volvo become a China-centric company,” says Bill Russo, a Shanghai-based consultant. “Geely has shifted Volvo from being a marginally global company situated in Scandinavia to being a global one centred in China.”
On May 13, Apple announced a USD 1 billion investment in China’s leading on-demand mobility (ODM) service, Didi Chuxing (Didi). Didi’s legal name in Chinese means “little orange”, and an internal announcement made to Didi’s employees literally welcomed the apple to the orange family.
To understand the logic of this investment, it is important to first understand the popularity and explosive growth of such services in China – along with the role that Didi plays inside the expanding ecosystems of its largest investors, Tencent and Alibaba.
Originating from separate taxi-hailing services in 2012, Didi is now a one-stop mobility solutions provider that provides a variety of services including taxi-hailing, private-car hailing, on-demand bus, peer-to-peer ride-sharing, designated driver and test driving. Didi currently has 14 million registered drivers, completing over 11 million rides per day in over 400 cities across China. With over 87 percent share of the Chinese private car-hailing market, Didi is far larger than all the other ODM service providers in China, including Uber.
As a global leader in smart connected device technology, Apple has been exploring opportunities to expand the reach of its iOS ecosystem. It is an “open secret” that Apple is working on its own vehicle program, code-named Project Titan, investing billions in R&D and poaching talent from leading automakers including Tesla, General Motors and Ford. As a manufacturer of intelligent devices, Apple is a “serial disruptor” of industries ranging from media to telecommunications, and views smart transportation as a key target.
The logic of this collaboration is quite evident: the premier global smart device maker (Apple) has set its sights on disrupting transportation in partnership with the dominant mobility services platform (Didi) in the world’s largest car market with the largest number of mobile internet users. Through this partnership, Apple and Didi will have the opportunity to shape the connected mobility ecosystem for China as well as the rest of the world.
A Collaboration Model for Connected Mobility Innovation
The traditional owner-centric business model of the car industry is being disrupted by shared ODM services. As a result, we have witnessed the rapid emergence of a user-centric business model served by mobility services platforms dominated by Uber and Didi. Apple’s investment in Didi will ensure that they will be able to access China’s dynamic internet and mobility ecosystem.
Apple gains a Chinese partner not only with a strong mobility services brand, but also with a proven market sensing capability and keen understanding of how to address mobility pain points. Apple can leverage this to launch a car that delivers the perfect connected mobility user experience, and this can be leveraged both inside and outside of China. Didi will benefit from being affiliated with the world’s premier smart device company, and also gains a major global strategic partner to help penetrate into overseas markets and compete globally with Uber.
While not the primary motivation, Apple’s investment in Didi can also help foster goodwill in China, signaling a willingness on the part of Apple to collaborate with leading Chinese companies. The importance of maintaining such goodwill was underscored recently when Chinese regulators shut down access to some of Apple’s online media stores, triggering concerns among investors. In addition, Didi expects to turn a profit next year and eventually list their shares, which could provide Apple with a fast return on their capital investment.
The recent loss of momentum in Apple’s profit growth and share price performance has raised concerns among investors that the Apple may not be able to recover its shine. The deal with Didi brings hope that Apple can disrupt the auto industry in the world’s largest auto market.
From Connected Mobility to Connected Lifestyle
However, connected mobility is just one segment of the larger “connected lifestyle” opportunity. The convergence of disruptive technologies such as autonomous driving, artificial intelligence and virtual reality will have the power to transform our everyday lives.The implications of this go far beyond mobility, which is just one of the spaces where we will be connected through a smart device or platform.
Cars will increasingly become smart, connected, electronic and autonomous – and increasingly accessed through a mobility service. A logical interpretation of Apple’s strategy is that it views the car as a “third place” after home and office where people are connected to the internet. Its investment in Didi should be viewed as a strategic opportunity for Apple to capture a larger share of a mobility user’s time online, thereby generating recurring revenue. By creating a more personalized mobility solution, Apple also hopes that the users of such a mobility service would eventually prefer an Apple hardware platform when they are on wheels.
More than just a taxi-hailing service, Didi is a technology-enabled platform. With advanced algorithms to match supply and demand, surge pricing and real-time route optimization, Didi is efficiently moving people and things by maximizing the utilization rate of vehicles. More importantly, with big data and machine learning capabilities, Didi’s competitive advantages are constantly evolving and being reinforced.
Like WeChat and Alipay, Didi has emerged as one of the few “Super Apps” holding a vital part of Chinese consumers’ daily connected lifestyle. These Super Apps typically start by addressing a major pain point and eventually evolve into ecosystems of connected lifestyle services for potentially billions of users.They possess valuable “big data” on a user’s mobility patterns that are of high commercial value.
“Apple + Didi” vs. “LeEco + Yidao”
In fact, the “Apple + Didi” model is already being experimented by LeEco, a leading Chinese internet media company founded (as LeTV) in 2004. Last year, LeEco purchased a 70 percent stake in another Chinese car-hailing app Yidao Yongche. LeEco is also the principal investor in Faraday Future, a U.S.-based electric vehicle startup that is featuring a “subscription model” where users can enjoy the flexibility and convenience of mobility on-demand without having to own the vehicle. Apple’s recent monthly paid iPhone subscription program indicates that they may already be considering such a business model for other smart devices.
The usage-based model effectively eliminates the problem of up-selling features to individual owners by allowing the businesses that generate revenue from the device to cover the cost for adding the technology.
LeEco’s vision is to cover all aspects of consumer’s connected lifestyle by establishing an extensive business portfolio with mobile internet, e-commerce, sports, internet finance, entertainment and others. It is rapidly building a vertically-integrated ecosystem comprised of “Content, Devices, Platforms and Applications” offering premium user experience across multiple screens (i.e. mobile, tablet, computer, cinema, TV and cars).
Disrupt or Be Disrupted
Going forward, we expect to see increasing levels of co-opetition, and more cross-border, cross-industry collaborations:
Co-opetition: Google is an early investor in Uber while Baidu is a strategic investor in Uber China. Alibaba is a major investor in Didi. Meanwhile, Ant Financial Services Group, Alibaba’s affiliate that runs Alipay and other financial services, has partnered with Uber to enable Alipay globally. Apple’s deal with Didi could potentially challenge both Uber and Google. In addition, Didi is a member of an “anti-Uber alliance” including Lyft in the U.S., Grab (formerly GrabTaxi) in Southeast Asia, and Ola in India. With Didi’s aspiration to become a global company, Apple could eventually extend strategic partnerships to other companies in the alliance as well.
Cross-border: China (Beijing) and U.S. (Silicon Valley) will be the leading innovation hubs for connected mobility and beyond. The Chinese government is keen to promote electric vehicles adoption and digital transformation to improve urban mobility and address environmental issues. China could leapfrog and become the epicenter for connected mobility innovation on a global scale, with its massive population serving as a fertile ground for technology commercialization, as well as connected lifestyle. Permutations and combinations of cross-border alliances for connected lifestyle will create tremendous value for Chinese internet users as they trade-up for better products and services.
Cross-industry: The boundary between automotive and internet technology industries will become increasingly blurred. General Motors, as one of the most forward-looking incumbents, has formed a strategic partnership with Lyft, acquired self-driving start-up Cruise Automation and established a new business division named Maven to experiment with new mobility services. Other automakers are also catching up by piloting ODM services, including Daimler’s Car2Go, Ford’s Go!Drive and Ford Pass, BMW’s DriveNow, and Audi On-Demand. We have already seen emerging “disruption clusters” in China, including (1) LeEco, Faraday Future, Aston Martin and Yidao Yongche, (2) Future Mobility, Tencent and Foxconn, (3) NextEV, Tencent and JD.com, and (4) Alibaba and SAIC.
A Partnership to Reimagine Mobility
China is at the epicenter of a disruptive wave of automotive innovation and beyond. The mobility experience is being redefined with innovative usage-based business models. Incumbents and new players must re-evaluate their connected mobility strategies with a new lens for delivering the perfect connected mobility experience. Past success in the old automotive game is not a guarantee for future success. In fact, one would surmise that past legacy could often become a barrier for swift and innovative moves going forward. It is time for the leading companies from China and Silicon Valley to join forces to re-imagine mobility and the marriage between Apple and Didi could offer the promise of doing just that.
For the early part of the 21st century, China has been the growth engine of the global automotive industry. Despite a recent slowdown, China will surpass 25 million units in annual car sales in 2016 and has become the battleground for dominance of the global auto industry.
Several driving forces, which are particularly evident China, are disrupting the status quo of the automotive industry:
The unique context of China’s urban transportation challenge, the high rate of adoption of mobile device connectivity, combined with the rapid and aggressive introduction of alternative mobility solutions.
Disruptive new entrants into the mobility solutions competitive landscape, who draw insights about customers based on their online behaviors and mobility habits in order to offer a diverse pool of new revenue-generating solutions.
The confluence of these forces are changing the landscape of how mobility needs can be served in a rather fundamental way, touching off a wave of experimentation among both traditional automotive and new mobility solutions providers.
The Origins of Disruption
Disruptive business models typically originate from outside the core set of industry players. Traditional Original Equipment Manufacturer (OEM) business models rely on selling products through an established business-to-consumer (B2C) channel, often through an intermediary sales partner that is either owned or franchised to represent the OEM brands in the marketplace. Consumers pay to own the asset outright.
The entry point for disruption is through the “pay-per-use” service-based business model. While this channel has existed for some time in the form of services managed through centralized professionally managed fleets (rental car companies, taxi and chauffeur services), digitally disruptive companies such as Uber, and China’s Yidao Yongche and Didi-Chuxing (created from a merger between rival mobility services from Alibaba and Tencent) have gained rapid and widespread market acceptance.
Once an entry point is established, these services-centric Information and Communications Technology (ICT) disruptors are able to leverage their big data and analytics capabilities to gain insight on consumers and their mobility patterns and behaviors. Essentially, these disruptors view connected mobility services as a natural extension of their ecosystem platform and are viewing the traditional services and perhaps even the OEM hardware business as a way of expanding their ecosystem. Serving the “Mobility on Demand” market is merely the point of entry for an entire suite of Internet-based mobile connectivity services which may include navigation, route planning, e-commerce, vehicle repair and maintenance, usage based insurance, and other very lucrative “owner services” which are very important to today’s OEM business.
ICT disruptors are leveraging connected mobility services as a means to disintermediate the value chain of the automotive industry and capture a profitable services ecosystem. OEMs are at risk of their business model being relegated to a high-risk, asset-intensive, commoditized, business-to-business (B2B) channel for delivering hardware to the profitable ecosystem of the mobility services providers.
Reimagining Personalized Mobility
The motivation for many ICT disruptors to invest and compete in this market is to unlock the services revenue that encircles each user. It is not the mobility service itself that justifies the investment, but rather all the things that we (and our cars) do when mobile. Making such experiences feel more and more “personalized” to our individual needs and lifestyles, which become apparent based on our mobility habits, will ensure the loyalty of the user to the service provider’s ecosystem.
ICT disruptors are leveraging their core value propositions to deliver a more personalized mobility solution. These disruptors may not see the car industry as their destination, but are rather “travelling through mobility”. They view mobility services as a channel for enrollment of users into their broader ecosystem-based platform offering a range of other services. Chinese ICT disruptors aiming at this “personalized mobility” solutions space include LeEco, Future Mobility, and NextEV.
The table below offers a glimpse of how major Chinese players aim to leverage their core while expanding to and beyond mobility as a service. Beyond manufacturing smart, connected, electric vehicles or building technology-enabled infotainment systems and mobility services, these visionary companies are reinventing the mobility experience as a whole. Moreover, they are reimagining mobility as a transaction between a user and an ecosystem services provider, which stands in stark contrast with the traditional model of a transaction between an owner and a manufacturer.
It is important to keep in mind that as cars become mobility service platforms, the technology on board will become more sophisticated and tailored to the individual end-user’s needs. ICT disruptors may in fact decide to contract out the actual production of vehicles to an ecosystem partner, with an end-game of earning recurring revenue by providing car owners with data products and Internet services. While some tech companies may profit from selling hardware, the main focus is on the services that flow through the hardware.
Disruptions typically originate from outside the traditional industry players, which is clearly illustrated in this case. We are approaching an inflection point where the deployment of personalized mobility solutions will expand exponentially and thereby alter the competitive landscape and business models of several adjacent industries.
Over the past few years we have witnessed how ICT disruptors have pioneered new business models and are in the process reimagining mobility as a service. The emergence of Chinese disruptive mobility solutions players such as Didi Chuxing and LeEco, with their innovative ecosystem-based strategic approach, offers clear evidence that something new is happening. This, coupled with the Chinese government’s determination to push new-energy vehicles and build a sustainable transportation infrastructure, demonstrates the potential for China to become the major breeding ground for automotive innovation.
Tech disruptors including AppleAAPL +0.12%, GoogleGOOGL +0.50%, LeEco, NextEV, and others may be garnering the most attention, but as we have observed, they are typically “travelling through mobility” as a means to enroll users into their broader service ecosystems. On the opposite flank, traditional OEMs, who will not easily cede their over 100-year dominance in the auto industry, are pivoting into mobility services.
New players will inevitably join this emerging landscape of competition. Alliances are also being formed among new and traditional players seeking to access complementary strengths and seize a competitive advantage.
The battle will likely be won by those who understand the true potential of connected mobility services and thereby deliver value to the user in the most personalized, convenient, comfortable, and cost-effective manner. It is a battle where profits will be won by offering differentiated mobility-related services through a hardware platform that is most suited to the lifestyle of its end user.
Success will accrue to those companies that are best able to reimagine mobility in the context of a place like China: where mobility needs are uniquely challenging, where innovative mobility experiments are being driven by entrepreneurial activity, and where dreams of exponential business growth become reality.
I am the Managing Director and the Automotive Practice leader at Gao Feng Advisory Company based in Shanghai. With 15 years as an automotive executive, including over 11 years of experience in China and Asia, I have had the pleasure of working with multi-national and local Chinese firms in the formulation and implementation of their global market and product strategies. I was previously the Vice President of Chrysler North East Asia, responsible for the business operations for the Greater China and South Korea markets. In addition, I have 12 years of experience in the electronics and IT industry, having worked at IBM Corporation and Harman International.
The author is a Forbes contributor. The opinions expressed are those of the writer.
We are pleased to share with you a report titled: An Intelligent Urban Transportation Ecosystem for China. This new report is the product of a collaboration between Gao Feng Advisory Company and our partners at the Massachusetts Institute of Technology Media Lab. The core mission of the MIT Media Lab is to design technologies to create a better future.
China’s cities have been the engines powering its rapacious economic growth. Since 1978, China’s urban population has risen from about 18% to over 53% today, and by 2025 about two-thirds of Chinese citizens will live in cities. The 35 largest cities in China recently contributed just under half of China’s overall GDP. However, the wealth accumulated in China’s cities has come at the price of livability. Many cities are struggling with paralyzing gridlock, dangerous air quality, and widening income disparity. There is a growing recognition that the current formula for development is unsustainable, and a more balanced model is being sought.
It is precisely this set of conditions that make China the most likely platform for incubating and commercializing the innovative technologies to serve the “smart cities” of the 21st Century. After several decades of advances in the world of mobile connectivity, big data and social networks, technology is now making the commercialization of smart city transportation solutions feasible. A new “ecosystem approach” must be envisioned to deliver sustainable urban mobility. Such a system should evolve beyond conventional solutions such as private vehicles with electric power trains or bus-rapid transit. This “systems” approach instead focuses on utilizing new technologies, urban strategies, and progressive public policies to create an intermodal and interoperable mobility network that combines existing mobility systems (such as mass transit) with creative new mobility systems.
In this paper, we describe the vision and key elements of an Autonomous Mobility-on-Demand (A-MoD) System, and how a collaborative effort among Academia, Industry and Government can be leveraged to deploy a sustainable urban transportation system in China.
Shanghai, China– March 20, 2015 – Tech Mahindra Ltd., a specialist in digital transformation, consulting and business re-engineering, today announced that it has signed a strategic agreement with Gao Feng Advisory Company (“Gao Feng”), a global management consultancy with roots in China. Both firms will seek to join forces to deliver a unique and comprehensive set of services to their clients in China and worldwide.
It is anticipated that the Internet of Things (IoT) & Embedded Internet businesses will exceed US $14.4 trillion in size over the next decade. Connected devices will increase to 6.8 per person by 2020 from 0.08 per person (2003). By that time, there will be 50 billion connected devices in the world and this number will increase as Internet usage becomes more prevalent.
Several driving forces are creating a greater than US $3.0 trillion IoT market in Greater China.
The sheer size of its population and industrial infrastructure, the high rate of user adoption of social networking and mobile/connected technologies, along with the commercial aggressiveness of the companies competing in the IoT market, will result growth rates higher than other global markets.
Tech Mahindra and Gao Feng will work together to provide services to help their clients harness these forces to achieve competitive advantage. This will encompass providing digital enterprise, smart city, connected mobility, airline safety monitoring & remote health care monitoring, among other services. The current relationship aims to play a significant role in assisting public and private sector organizations to leverage digital technologies to establish global leadership.
“As a worldwide leader, Tech Mahindra continues to invest strategically in Enterprise Business and to support our clients we always look for synergistic relationships. Gao Feng Advisory Company has deep expertise and vast experience in the Greater China market and we look forward to working with Dr. Edward Tse and his team to provide a unique value proposition to our clients in Greater China and beyond“, said Rohit Gandhi, Head – Asia Pacific, India, Middle East & Africa (Enterprise), Tech Mahindra
“Gao Feng is a pre-eminent strategy and management consulting firm”, said Dr. Edward Tse, founder and CEO of Gao Feng. “The agreement with Tech Mahindra allows Gao Feng to offer our clients a broad set of capabilities beyond those typically found among strategy consultancies, leveraging deep expertise in the area of IoT , enterprise IT, engineering and big data solutions”, he added.
Gao Feng Advisory Company is a pre-eminent strategy and management consulting firm with roots in China and global vision, capabilities, and a broad resources network.
Tech Mahindra started operations in China in year 2003 and has global delivery centers in Shanghai & Nanjing and with presence in more than 10 cities in China. Tech Mahindra has key focus in Automotive, Healthcare, Industrial & Hi-tech and Retail segments in China providing IT, BPO, Infrastructure & Engineering Services.
About Digital Enterprise Services
The Digital Enterprise Services (DES) unit of Tech Mahindra offers innovative and customer-centric services and solutions integrating technology with business that answer today’s issues, anticipate tomorrow’s needs and create Future Proof and Future Ready Solutions using seven technologies namely Networks, Mobility, Analytics, Cloud, Security, Social and Sensors.
Gao Feng Advisory Company is a pre-eminent strategy and management consulting firm with roots in China and global vision, capabilities, and a broad resources network. We help our clients address and solve their toughest business and management issues — issues that arise in midst of fast-changing, complicated and ambiguous operating environment. We put our clients’ interest first and foremost. We are objective and we view our client engagements as long-term relationships rather than one-off projects. We commit to helping our clients to not only “design” the solutions but assist in implementation, often hand-in-hand with the clients. We believe that every member of our team can contribute to problem solving for our clients, from the most senior to the most junior.
Our seniors are former senior consultants at leading management consulting firms and/or senior executives at large corporations. We believe clients would benefit the most from a combination of consultants with substantive experience in consulting coupled with line management professionals. In addition to our team in the Greater China offices of Beijing, Hong Kong and Shanghai, we have a global network of collaboration partners with a wide range of experience, capabilities and resources.
We are pleased to share with you a report titled: Competing in the China Truck Market.
While global brands have enjoyed success in China’s passenger vehicle market, the same cannot be said for the commercial vehicle market. This segment has been dominated by local Chinese manufacturers who have relied on sales to local buyers seeking low-priced equipment. However, we anticipate that several factors will be reshaping the market and competitive landscape in the commercial truck sector, creating a “window of opportunity” in China for participation in what has historically been a predominantly local market.
We believe that market conditions and regulatory challenges will create a need within China’s truck industry to form alliances with foreign partners to secure capabilities which are lacking in the commercial vehicle sector in China. China’s truck manufacturers will need to upgrade their technology to meet demanding new regulations, and will need to improve their service and distribution business practices as the market matures. The changing mix of products towards a higher concentration of line-haul HT, along with anticipated policy changes brought about from China’s intention to reform its State-Owned Enterprises, are driving forces which will alter the landscape of competition in the commercial truck sector.
We welcome your comments and feedback on our report or in general about our firm. We would be glad to meet you in person to share our data and perspectives in a fuller manner. Please let us know if you are interested in meeting and discussing directly how we can help you to operationalize these insights.
Thought leadership is core to what Gao Feng does. We will, from time to time, share with you our latest thinking on business and management, especially as it relates to China and China’s role in the world.
In this paper, we offer our “deeply rooted in China” perspective to the analysis of the impact of each of these developments.
As we know, China’s economy has been growing dramatically for more than two decades. China is now the world’s second largest economy. Recently, we see rising concerns over the impact of a deceleration in overall economic growth, especially on the automotive sector.
China’s economic growth is likely to continue over the next decade, driven by a mix of continued (albeit more selective) fixed-asset investment and growth in consumption. Continued investment in infrastructure to support a more than 60% urbanized population is anticipated. Household consumption levels will rise as a result of the growth in the population of middle-class wage earners and overall rising incomes. A broad transformation is expected to continue and will present an environment that is characterized by a long term and sustained shift towards a middle-income, consumption-based economy. This trend would lead to a profoundly different economic landscape.
We believe discontinuities in the political, social and economic landscape have the potential to reshape China dramatically in the next decade. While the outlook is positive, there will likely be discontinuities – some upward and some downward – along the way. We believe that the key to sustainable success for businesses in China will depend on their ability to anticipate those trends and challenges that are in the “blind spots” today – but which can create disruptive threats or discontinuous opportunities for those who are able to respond rapidly. In essence, an “early warning system” is needed which leverages unique insights that can be brought to bear on the question of how the market, the regulatory system, and business models may develop over the next decade in China.
In this analysis, we will apply such a thought process to anticipate plausible scenarios for the China auto industry in 2025.