Invest in China

Invest in China

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Invest in China

The best industry for investment in China is the bubbling automotive sector. In 2013, the industry broke through the twenty million-unit threshold, marking a fourteen percent increase from the previous year’s sales. The automotive industry in China is currently the largest in the world, following the rapid growth that followed the sector’s deregulation between 1990 and the 2000s. This deregulation allowed Chinese consumers to purchase foreign vehicles without paying large tariffs, as was the case in the 1980s. The deregulation process also removed import quotas that allowed the automotive industry to boom, as foreign companies flooded the Chinese market with their products (Oliver, Holweg & Luo, 2009). The best kind of investment in this case would be a joint venture, which is the option that many other companies have chosen. The joint venture would allow the investor to work with international suppliers and act as a conduit that enables them to sell their products in China.

China’s automotive market is an excellent investment option for various reasons. Firstly, the nation has a large population that exceeds a billion people. This means that there is a large market for the sellers to target and exploit (Oliver, Holweg & Luo, 2009). The second factor favoring investment in China is the fact that the nation’s automotive sector is growing steadily. In 2006, the Chinese market purchased 7.3 million automobiles. By 2013, this number had grown to twenty million. This made China the largest market in world for vehicles, ahead of major producers such as Germany, the United States, and Japan. Even more positive is the fact that experts expect this growth to continue until sales in the industry reach thirty-one million units by 2020 (Oliver, Holweg & Luo, 2009; Accenture, 2013).

The best way to invest the one hundred million dollars into China’s automotive industry is to form a joint venture with an international supplier. Currently, the two largest ventures in the market are affiliated with Volkswagen. Shanghai-Volkswagen and FAW-Volkswagen control the bulk of the market, with Volkswagen being the foreign manufacturer with largest market in China (Oliver, Holweg & Luo, 2009). Three large foreign manufacturers are currently struggling in the Chinese market and would be eager to collaborate in the joint venture. Ford, BMW, and Mazda are all lagging behind industry heavyweights such as Toyota, Volkswagen, and GM (Accenture, 2013). The companies would likely be willing to form a joint venture worth one-hundred million dollars. Based on its resurgence in the American market, Ford Motors would be the ideal partner for the joint venture.

The venture is likely to succeed because of the fast rate at which the automotive industry in China is growing. Future prospects for a venture with Ford Motors look bright because of the manufacturer’s resurgence in the American market and China’s bubbling automotive sector. The growth figures that experts project for Chinese industry reflect positively on the company and make it likely that the investment will have positive returns. The optimistic scenario for the investment is that the low availability of Ford automobiles in the Chinese market will help the joint venture become successful. This high demand will also help Ford Motors increase its share of the Chinese automotive industry. The realistic scenario is for the investment to gain positive returns, boosted by the continued growth of the Chinese market. However, this success may only last for a decade and is susceptible to any economic shocks in the country. The pessimistic scenario is that the Chinese consumers prefer other vehicle models to those that Ford Motors produces. This will mean that the joint venture will have trouble attracting customers and will have negative returns. This may force the investors to pull out of the venture and invest in another industry or look into a partnership with a different automobile manufacturer.

 

References:

Accenture. (2013). China automotive industry. Retrieved from http://www.accenture.com/SiteCollectionDocuments/PDF/Chinas-Automotive-Market-Cosumer-Digital-Marketing-Insights.pdf.

Oliver, N., Holweg, M. & Luo, J. (2009). The past, present and future of China’s automotive industry: A value chain perspective. International Journal of Technological Learning, Innovation and Development, 2(1-2), 76-118.

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