This paper presents an analysis of the case study by Danielle Cadieux of the Richard Ivey School of Bussiness, The University of Western Ontario. The case is about the GM’s venture in the automobile industry of China. It starts with an analysis of the conditions in China at the time GM ventured into the Chinese market, highlights the key points that attracted GM to invest heavily in the country, and also mentions the problems faced by GM during the course of its stay in the country. In the past few years China has seen key changes on the economic and social front.
Thjis has led to the government coming up with new policies one of which is the automobile related policy and another relates to the currency exchange policy. The case highlights these issues which are analyzed in this paper. There has been a radical shift outlook of the government, currency and financial aspects, and also the socio-economic conditions prevalent within the country which necessitates a shift in strategy for GM in the country. The paper would present a detailed analysis of the situation and based on this would propose some strategic recommendations for GM.
This would be followed by a detailed plan of action which GM could follow to take advantage of the existing situation in China. Main Issue in the case study Chinese government had embarked upon a new automobile policy which was specifically meant to take more control over the Foreign Direct Investment FDI in this sector. The policy served to encourage the domestic automobile manufacturers who were in the danger of seeing a total collapse against their foreign competitors.
The key points of the policy is to restrict the foreign ownership in China to 50 percent which was unexpected given its agreement with WTO, a very tight policy on the joint ownership which had proved to be very successful for GM, a required minimum investment size making it more difficult for other foreign companies to invest in China in addition to a non-transferable automobile manufacture license policy which would make it more difficult existing foreign non-automobile companies to enter in this segment, an increase in taxes forcing the foreign companies to localize their production further, and also taxing the R&D expenses.
In addition to this here is also the Chinese government stance on its currency policy which is making new foreign investors uneasy. All these issues have a direct impact on the GM’s automobile venture in China and necessitate a change in its present strategy. The paper would analyze these issues and present the positive and negative impacts of the situation to come up with a recommended strategy and plan of action with GM could follow regarding its investment in the country.
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