The global automotive industry has experienced three waves of internationalization: the first wave represented by Ford; the second wave represented by Volkswagen and Toyota; and the third wave represented by Hyundai. Chinese automotive companies appear to be leading the fourth wave of internationalization. How to secure a place and maintain steady progress in the highly internationalized global market is the challenge faced by Chinese automotive companies. Against the backdrop of escalating trade conflicts and high tariff barriers, Chinese automotive companies must break through thorns and barriers to emerge, and only with courage and strategy can they succeed. The internationalization process and maturity of representative automotive companies, taking the selection of target markets and plant locations as examples, focus on how Chinese automotive companies can make high-quality decisions to avoid detours and how to enhance their soft power to participate in global competition with high quality.
The Internationalization Journey of Global Automotive Giants
Ford: Early Global Layout
Ford was established in 1903 and began its internationalization by setting up a company in Canada in 1904. It successively laid out its presence in North America, Europe, South America, Africa, Oceania, Asia, and the Middle East, completing the layout of major global markets by 1930. In the 1960s, Ford helped Thailand and South Korea establish their automotive industries, completing market layout before the economic takeoff in Southeast Asia and South Korea. In the 1980s, Ford was busy addressing product quality issues on one hand, and on the other hand, it carried out a series of mergers and acquisitions, acquiring Aston Martin and Jaguar to layout in the luxury car segment, and acquiring Hertz (a globally renowned car rental company) to enter the car rental business. It also acquired First Nationwide and ICA Mortgage, among other financial institutions, to lay out consumer credit, neglecting the layout of the Chinese and Indian markets until it established companies in China and India in 1995.
Volkswagen and Toyota: Expansion in the 20th CenturyIn 1937, Volkswagen and Toyota were established, and their internationalization began in the 1950s, with a roughly similar process, both completing their global layout around the year 2000. Toyota's global layout is relatively balanced, but Volkswagen mainly focuses on China and India in Asia, and further strengthened its layout in Southeast Asia from 2006 onwards.
Hyundai: Conquest of Emerging Markets
Hyundai was founded in 1967, and its internationalization began in 1983 with the establishment of a Canadian company, completing its global layout by 2015. In 2016, Hyundai's sales in China continued to decline, prompting a reinforcement of its layout in Southeast Asia. In various regional markets around the world, after a series of deployments by car manufacturers, the industry has become highly internationalized. The advantage is that both consumers and the dealer and service provider systems have been cultivated, while the challenge lies in the fact that there are almost no unexplored blank markets left. After three waves of internationalization, American, European, Japanese, and Korean car manufacturers have all completed their global layouts, both offensively and defensively, and are all battle-hardened. Governments in the United States, Europe, Japan, and Korea have become adept at protecting their domestic automotive industries using tools such as tariff barriers, technical barriers, labor standards, environmental barriers, subsidies and counter-subsidy measures, and green trade barriers.
Comparison of Internationalization Maturity among Leading Car Manufacturers
In terms of internationalization maturity, German, Japanese, and Korean car manufacturers are in the first tier, American, French, and Italian car manufacturers are in the second tier, and Chinese car manufacturers are in the third tier.
First Tier: Germany, Japan, and Korea
German, Japanese, and Korean car manufacturers, on one hand, due to the limited size of their domestic markets, have fully explored overseas markets, covering more than 100 countries and regions, with overseas sales accounting for more than 80% in 2023. On the other hand, their sales, design, research and development, manufacturing, and service networks are spread globally, enabling them to provide highly competitive models tailored to various markets.
Second Tier: United States, France, and Italy
Car manufacturers from the United States, France, and Italy, while also actively expanding into overseas markets, have a relatively smaller proportion of overseas sales compared to the first tier. Their global presence is still significant, but they may not have the same level of market penetration or the ability to adapt to local market needs as quickly or effectively as the first-tier manufacturers.American, French, and Italian automakers have also laid out a global presence, but due to their products' competitiveness not being on par with German, Japanese, and Korean automakers, they have had to strategically withdraw from some markets. Since 2006, General Motors has successively exited the Japanese, European, Indian, Australian, and New Zealand markets, while Fiat, Renault, and Peugeot Citroën have all withdrawn from the Chinese market. By 2023, the overseas sales volume of American, French, and Italian automakers accounted for 50%-80%.
Third Tier: The Current State of Chinese Automakers
Chinese automakers are transitioning from the initial stage of internationalization, which is characterized by export trade and CKD (Completely Knocked Down, referring to the assembly of completely disassembled parts, where the entire vehicle is broken down into components and shipped to overseas markets for local assembly and production), to a deeper level of internationalization. In addition to establishing overseas sales branches, the global layout of design, research and development, and manufacturing bases is also underway. By 2023, the overseas sales volume of leading Chinese automakers accounted for 8%-50%.
Internationalization Strategy of Chinese Automakers
The starting point for the internationalization of Chinese automakers is a highly globalized market with seasoned competitors. To break through in such a market and competitive landscape, it requires both courage and strategy. Firstly, Chinese automakers need to plan clear target markets and competitive strategies, and match them with competitive models. Taking the choice of target markets as an example, market size, competitive landscape, and market openness are the main considerations for automakers from various countries when planning their market layout. In terms of market size, by 2023, the top ten global automotive markets accounted for 75% of sales, and the top twenty markets accounted for 87%. There are 8 countries with annual sales exceeding 2 million vehicles, 17 countries with sales over 1 million, and 23 countries with sales over 500,000. To become a leader, it is necessary to conquer large-scale markets. At the same time, it is important to anticipate future high-growth markets and plan ahead. In terms of competition, all major global markets (except for Japan and South Korea) are fully competitive, with more than ten global automakers present in any single market. In the European market, the main competitors are local automakers and those from Japan and South Korea; in the South American market, it's European, American, and Japanese automakers; in the Middle East and African markets, it's European, Japanese, and Korean automakers; in ASEAN, it's Japanese automakers, but European and Korean automakers are strengthening their presence. Overall, the level of competition in overseas markets is less than in China, and the competitive order is better than in China. However, apart from a few countries like India, Malaysia, Russia, and Iran that still have their own automakers, the competitors in other markets are all European, American, Japanese, and Korean automakers, who have been both allies and rivals with Chinese automakers for decades. In terms of market openness or ease of entry, Japan, South Korea, and India are very challenging markets, where many international automakers have failed. Beyond market factors, geopolitical risks are something Chinese automakers must address in their overseas layout. Chinese automakers should learn from history but not stick to the old ways. Based on a clear understanding of the opportunities and risks in each market, combined with their own strategic goals and product planning, they should choose suitable international markets. For very challenging markets, if resources are limited and short-term business is under pressure, it is not advisable to enter. If there is the strength for long-term sustained investment, it may be worth trying, but one must be prepared for battle. Taking the South Korean market as an example, local automakers dominate the parts supply chain and after-sales service system, which is an extremely difficult non-tariff barrier to break through. If Chinese automakers decide to enter, they must have a way to overcome this.
Global Production Base Layout of Chinese Automakers
Chinese automakers are transitioning from the initial stage of internationalization to a deeper level of internationalization. In addition to the choice of target markets, the selection of overseas design, research and development, and manufacturing bases is equally significant. Among them, the selection of manufacturing base locations requires the consideration of multiple variables and has a high cost of correction, so it must be approached with great caution.I. Key Factors in Manufacturing Base Site Selection
When selecting a site for a manufacturing base, the first consideration is the total factor cost, provided that political and economic stability is ensured. Unlike high-value small electronic components such as chips, logistics costs account for a significant proportion of the total cost of automobiles. Therefore, target markets or industrial clusters near target markets usually have a significant advantage in total factor costs. In 2023, the top ten global automotive production bases accounted for 80% of the production, and the top twenty accounted for 93%, demonstrating a significant industrial cluster effect. Except for Australia and Saudi Arabia, the top twenty global automotive markets are also major automotive production bases. Outside the main automotive markets, automotive production is mainly distributed in low-cost countries near the main markets. Mexico is a low-cost manufacturing base for the US market, while Spain, the Czech Republic, Slovakia, Romania, and Hungary are low-cost manufacturing bases for the European market. Thailand and Indonesia are low-cost manufacturing bases for the Asian market. After decades of development, the aforementioned production bases have formed mature industrial clusters.
II. Comparison between Mature and Emerging Industrial Clusters
Mature industrial clusters have a complete supply chain system, well-trained industrial workers, mature regulatory systems, and infrastructure (including free trade agreements), and are usually the first choice for factory site selection, especially for companies with limited international experience. However, mature industrial clusters also imply mature cost structures and relatively limited room for cost optimization. Different companies and different products have different cost sensitivities. A site that meets the total factor cost requirements of European, American, Japanese, and Korean automotive companies may not necessarily be suitable for Chinese automotive companies. When assessing factory site selection, calculating the profitability of mass-produced products at the selected site based on market and product planning is a crucial step. For Chinese automotive companies that mainly compete on cost, this is particularly critical. To break through the cost structure constraints of factory site selection, in addition to technological innovation and management optimization, it is relatively easier to introduce a new supply chain system with greater cost competitiveness. More effective is to create a new industrial cluster, but this requires the company to have excellent collaborative management capabilities. Site selection for manufacturing bases needs to be tailored to local conditions and timely policies, and should not blindly follow others.
III. Building New Factories or Revamping Old Ones?
Among Chinese automotive companies, and between Chinese automotive companies and European, American, Japanese, and Korean automotive companies, more cooperation and win-win partnerships in joint ventures or joint factory construction can help Chinese automotive companies integrate into the global industrial chain and participate in high-quality competition. The global automotive production capacity exceeds 130 million vehicles, and the utilization rate has been below 70% for several years, with a large number of old factories available for acquisition and renovation. Moreover, compared to building new factories, the overall investment in acquiring and renovating old factories is also lower. In emerging markets or markets with limited scale, joint factory construction can reduce initial investment and lower investment risks, quickly increase capacity utilization rates, and also reduce the difficulty of building supporting supply chains. In mature markets, efficient use of existing capacity through cooperative factories brings cost benefits to both parties and avoids further overcapacity in the industry. Of course, whether it is joint ventures, cooperation, or self-construction, building new factories or renovating old ones, selecting mature industrial clusters or creating new ones, high-quality and scientific decision-making is essential to establish competitive localized production capabilities.
Enhancing Soft Power: Cooperation and ManagementUnlike the mature industries such as textiles and home appliances, which have seen a transfer and succession from the United States to Japan and then to China, the automotive industry is still regarded as a strategic pillar industry by Europe, America, Japan, and South Korea. Particularly, the electrification and intelligence of vehicles have further strengthened the strategic nature of the automotive industry, and all these regions are determined to secure their positions. Against this backdrop, Chinese car manufacturers aiming to break the stable competitive landscape and win a share of the market will inevitably face numerous obstacles. Faced with a highly globalized market and battle-hardened competitors, Chinese car manufacturers must, on one hand, have clear strategies, scientific decision-making, and efficient execution to enhance their competitive hard power. On the other hand, they must foster win-win cooperation and healthy competition to improve their competitive soft power.
Ford's internationalization journey is also a process of nurturing the global automotive industry. Since 1924, Ford has successively assisted South Africa, Turkey, Thailand, and South Korea in establishing their automotive industries. In 1923, Fiat introduced Ford's assembly line production model, which was later followed by Renault, Peugeot, Citroën, and Volkswagen, ushering the European automotive industry into modernization. Not only Ford, but also General Motors, Volkswagen, and Toyota have internationalized, assisting various countries in developing and upgrading their automotive industries while exploring their markets.
1. The Business Philosophy of Win-Win Cooperation
The industrial chain of new energy vehicles differs from that of fuel vehicles. Chinese car manufacturers have the opportunity to leverage their technological advantages and, based on the resource endowments of different countries, build new industrial clusters. European and American car manufacturers were pioneers in fuel vehicles, and Japanese companies were the founders of hybrid technology. Chinese car manufacturers are expected to lead in pure electric vehicles, promoting the global popularization of electrification. By moving upwards in technology and bravely becoming pioneers of emerging industries and builders of industrial chains, Chinese car manufacturers can earn respect in the industry and participate in global competition with high quality. The globalization of Japanese and Korean car manufacturers began with cost-effective entry into the low-end market, followed by a gradual brand upgrade. Chinese car manufacturers, bearing the mission of technological and brand advancement, face the once-in-a-century opportunity of the technological transformation towards electrification and intelligence of automobiles. There is no need to repeat the old path of Japanese and Korean car manufacturers. Differentiated and orderly competition can not only prevent industry profit deterioration and stimulate more conflicts but also help Chinese car manufacturers occupy a more valuable mid-to-high-end market in the era of smart electric vehicles.
2. Building an International Operation Management System
The soft power of internationalization is reflected not only in the business philosophy of win-win cooperation and healthy competition but also in a standardized and scientific international operation management system. The regulatory systems, business practices, and social values of different countries vary, and Chinese business practices are not universally applicable. International vehicle and component enterprises have established mature international operation management systems, cultivating millions of international automotive talents in China and tens of millions globally. By drawing on mature management systems and building experienced international teams, Chinese car manufacturers can start from this foundation to seek innovation and surpass, reduce cultural conflicts, avoid being criticized for poor management, and smoothly integrate into overseas markets to participate in global competition with high quality.
3. Internationalization: The Journey is the Destination
As the process of internationalization continues to deepen, encountering trade conflicts is inevitable. Over the past 100 years, trade conflicts between the UK and the US, the UK and Germany, the US and Germany, the US and France, Japan and the US, and Japan and Europe have occurred continuously without interruption. Taking Japan and the US as an example, since 1956, they have successively experienced trade conflicts in textiles, steel, color TVs, automobiles, and semiconductors. The rise of each Japanese industry has encountered trade wars, with the automotive industry conflict being particularly fierce and prolonged. In the latest Japan-US trade agreement in 2019, automobiles remain a key point of negotiation. In the face of threats of decoupling and supply chain disruption, Chinese enterprises need to forge ahead and firmly pursue internationalization. By going global and creating cooperative win-win industrial chains where "you have me, and I have you," and by overcoming every obstacle, Chinese enterprises can always surpass. Each Chinese enterprise that goes abroad is a business card for China. By practicing the principles of division of labor, standardized operations, healthy competition, and win-win cooperation, Chinese car manufacturers can participate more effectively in global competition and maintain the reputation of China and its automotive industry.
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