Betting on China: GM’s Ambitious Plan for Growth Relies on Network Orchestration
General Motors just announced plans to bet big in China. More than 60 new models – all with specialized local market features – are planned for launch in China by 2020. Despite economic headwinds and a slowdown, China remains a growth opportunity. Its auto market is expected to grow between three and five percent annually for the next few years. The Chinese consumer has a thirst for high end cars, and GM intends to fill that demand with lane shift alerts and autonomous technology features – as well as internet connections, something Chinese consumers emphasize as a major feature in their car-buying decision.
Developing a series of new lines with new features to be introduced to an overseas market poses challenges. And then there’s the added hurdles of conducting business in China, where regulations, policies, trade relations, and overall lack of transparency are very real risks. Here are three concerns with a move such as this:
Biting Off More Than You Can Chew
In recent years the automotive industry has seen a simplification movement. Fewer lines and models. Leaning more on a mass customization approach that standardizes processes yet enables options to be available to customers. Adding 60 new lines introduces new levels of complexity. Adding to that is the challenge of new features, such as internet connectivity that appeal primarily to just that consumer market. On top of that, the idea of introducing these new vehicles to a Chinese market that is elusive and volatile, given the social, economic, and political instability of the environment, is questionable.
If GM gets this right and consumers are engaged, there’s still the challenge of fulfilling orders at a profit. Given the potential risk factors and pitfalls of introducing products and conducting commerce in China, uncertainty around total cost to deliver goods to this market are a concern. Setting aside the volatile factors relating to Chinese regulations, economy, and government, the mere logistical challenges of delivering high-end vehicles to China can be daunting. It will place considerable pressure on the supply chain. This includes costs associated with transportation, raw materials, inventory, regulatory compliance, and environmental responsibility. Factor in currency and capital-related risk presented by monetary policy around the yuan, and there are more questions than clear answers.
Many manufacturers have moved to models that enable them to produce goods closer to the end-customer. This move counters the complexities of outsourced manufacturing and alleviates some of the pressures caused by it. GM operates plants and joint ventures in China that help shorten the supply chain. But the addition of 60 new lines and innovative features brings new issues around capabilities. For starters, will it be able to find the necessary resources locally (labor, technology, materials) to support the new vehicle portfolio? Second, producing high-end vehicles that are comprised of highly interdependent parts in a complex supplier network poses challenges around quality and safety when executed locally in China.
In an election year, where the leading presidential candidates all seem to be moving away from free-trade positons, the threat of tariffs and trade war looms. This could be another massive cost and impact to plans for selling cars in China. It’s difficult to say what the world will look like four years from now, in 2020. But many of the signs point to what could be a rough terrain ahead for GM in China.