by Alessia A. Amighini, Università del Piemonte Orientale and ISPI - Andrea E. Goldstein, OECD Investment Division
We describe the emergence of Chinese and Indian producers as key players in the global car industry, by focusing on their respective country- and firms-specific advantages and disadvantages in a comparative perspective.
Chinese and Indian original equipment manufacturers (OEMs) share a number of similarities and differences. Similarities are mostly related to country-specific advantages arising from industrial and trade policy reforms specifically targeted at the car sector. Fundamental differences are due to diverging firm-specific advantages, largely related to inward FDI. Chinese restricted global OEMs to joint-ventures with large SOEs aiming at improving technological capabilities but little consolidation of state-owned producers, so still mainly rely on foreign designs and technology. On the other hand, Indians have seen FDI as a tool to enhance production, technological and manufacturing skills so India is now a global source for automotive P&Cs.
We analyse the different international expansion strategies of the major car corporations and argue that they are closely related to the diverse corporate strategies for technological catch-up and ultimately to the respective domestic industrial, investment and trade policy frameworks. Two case-studies of salient acquisitions by Chinese and Indian OEM – respectively, Geely-Volvo in Sweden and Mahindra & Mahindra-Ssangyong in South Korea – exemplify major similarities and differences. M&M is a long established business group with a number of successful foreign acquisitions and subsidiaries, while Geely is a corporation with much less international experience. Korea has a very different business environment compared to Sweden and the institutional and technological distances between the home and the host markets are also significantly different. Nonetheless, the two case studies also hint at some broad similarities, far beyond the financial strength derived from favourable corporate financials and supportive home market environments.
The experiences of Geely and Mahindra & Mahindra help explaining how acquisitions of established brands and foreign investments were expected to provide innovation, branding and technology. They have ventured into outward FDI to reduce the passivity embedded in the technological learning model based on “inward” globalisation and upgrade in strategic areas such as engine production and model design.
We argue that differences in corporate governance, organisation and management help explaining corporate strategies, internationalization trajectories, and diverging outcomes. In China, automotive sector’s major constituents were once only SOEs with single manufacturing plants, but have become business groups as a result of their catch-up strategy, involving various knowledge and efficiency-seeking activities. The most successful – SAIC, Chery and Geely – adopted a compact organizational space, while e.g. Dongfeng and FAW did not. In India, despite more sector diversification within BGs, affiliated firms maintain close proximity through active interactions, collaboration, and resource-sharing, encouraging mobilization and integration of internal resources and promoting group-wide synergy for an effective internalization of acquired assets.
Post-Merger Integration is also a critical factor when comparing Chinese and Indian overseas investment performance. To the extent that acquisitions in Europe are mainly aimed at getting access to technology, and that technology development is a creative process, different management cultures are a hindrance to success – Chinese highly hierarchical management style is a limitation for European standards.
Ssangyong’s acquisition in 2011 was rather risky in terms of post-merger integration due to the previous SAIC experience. The corporate turnaround owes a lot to M&M business model and strong emphasis on creating synergies and leveraging competences without engulfing the acquired firm. Our analysis of the car industry contributes to the literature on emerging economy multinationals in terms of our understanding of their corporate, markets and institutional dynamics.
