Blog: Dave LeggettDancing with the dragon (nervously)

Dave Leggett | 11 February 2004

The report in China Business Post that Volkswagen has put a stop to technology transfer with its Chinese partner, SAIC, has drawn a strong denial from VW in China. But the story highlights something that is of growing concern to Western firms - VW included - working with Chinese ones. How much sharing should go on? If too much know-how and technology is given away, there is the danger that the Chinese partner will use that newly acquired capability to design cars 'of its own' - or at least claimed as such. Shock, horror. When I was in China eleven years ago government officials I spoke to made no secret of the fact that this was the gameplan. And looking at the big picture it isn't exactly unfair. Why should the Chinese just roll over and let foreign makers get all the action and run things as the market surges and starts to realise its much-vaunted growth potential?

Start with a protected market, then introduce Western capital, SKD kit assembly, then CKD assembly, increased localisation, move up the value chain, designing and engineering more and more, and then...one day....you can design, engineer and make your own cars.

Western makers are compensated for their investment by their presence in the market in the high margin early days. Later on, Chinese makers take over and the Western technology donator role diminishes (but the pie is growing, so maybe no-one is too upset). 

Western makers need to be planning for that next stage in the Chinese vehicle market and industry's evolution. The Chinese 'own brand' will be growing whether Western partners like it or not. The trick for the Western investor will be to be positioned above the market fray where these vehicles come in and in making vehicles for China that have a better image than local ones. But the good times with no competition will be gone.

http://just-auto.com/news_detail.asp?art=43512


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