MG Rover and Shanghai Automotive Industry Corporation have been working together recently under a strategic relationship agreement, but media reports this week have suggested that the partnership may develop into something more. When it comes to securing the Birmingham based manufacturer’s future, strengthening its ties with SAIC would be no bad idea.

Over the last 15 years, Rover has experienced significant fluctuations in its fortunes: one of the largest vehicle manufacturers in the UK in the 1980s, the company was bought by BMW in 1994. On paper this was considered to be a strong strategic fit but it did not work out that way. Ever since its purchase by BMW, Rover’s sales have been steadily declining and the vehicle manufacturer now ranks outside the UK top 10 according to the Society of Motor Manufacturers and Traders.

Since a group of venture capitalists bought the car maker from BMW in 2000, the company has been looking to form strategic partnerships with other vehicle manufacturers to help it bear the costs of developing new models. These partnerships have tended to be forged in developing markets; for example, the company already has an agreement with Tata to import vehicles from India and re-badge them as Rovers.

Its partnership with Shanghai Automotive Industry Corporation represents a similar strategic tie-up with a player in an emerging market, China in this case. However there are three main factors that illustrate why the SAIC partnership is especially important to MG Rover: it facilitates information sharing with a key manufacturer in the Far East, it may provide greater access to the Chinese market, which itself is expected to become one of the world’s largest vehicle markets in the future, and, lastly, it raises the possibility of moving production to China, a significantly cheaper production location than Europe.

In today’s competitive environment, all vehicle manufacturers are seeking agreements with others in a bid to cut costs and remain competitive. For small manufacturers such as MG Rover with lower economies of scale, this takes even greater importance. Whether the nature of their association remains as a partnership, becomes a takeover or produces something in between, MG Rover needs to maintain strong links with companies like SAIC to ensure a profitable and sustainable future.

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