Hyundai Case Study Assignment | Online Assignment

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HYUNDAI MOTOR COMPANY IN CHINA
At the turn of the twenty-first century, Korea‟s Hyundai Motor Company (HMC) announced
ambitious plans to become a global leader in the automotive industry, and established plants in
various parts of the world, including Europe, India, and North America. In 2002, HMC turned
its attention to China, one of the world‟s largest and fastest-growing economies. China‟s
burgeoning demand for automobiles was forecast to become the world‟s third-largest―even as
the worldwide auto market was stagnating. In this light, HMC had selected China to be site of its
largest, lowest-cost assembly and manufacturing base. So it was that HMC created a separate
China Business Division to lead its move into the Chinese market (Exhibit 1). In May of 2002,
HMC initiated a joint automotive project with Beijing Automotive Industry Holding Corp.
(BAIC) and by October the Chinese government had approved the joint venture, leading to the
establishment of “Beijing Hyundai.” By February of 2003, Beijing Hyundai rolled out its first
midsize sedan, the EF Sonata.
Yet many were skeptical of Beijing Hyundai‟s chances. A number of the world‟s major auto
makers were already established in the Chinese market, while Hyundai lacked an understanding
of the distinct characteristics of Chinese consumers, distribution channels, labor markets, and
parts suppliers. Moreover, while Hyundai enjoyed a strong reputation for quality in its home
market, the Hyundai brand was generally seen as lower status in China. Sung-Kee Choi, senior
executive vice president at the China Business Division of HMC, who was in charge of the
planning and development of Beijing Hyundai in the entry period, explained:
When HMC entered the China automobile market, responses from other major
automobile competitors and the media were lukewarm, as HMC‟s reputation was
not high and HMC‟s joint venture partner, BAIC, was also a very low rated
company when compared with competitors. They teased us as a marriage of two
low ranked classes, and lowered their guard against us.
Undaunted, Beijing Hyundai rapidly established itself in the Chinese market, growing faster in
its first few years than any other automaker in China (Exhibit 2), following the “quality
management” strategy of HMC corporate CEO Mong-Koo Chung. Sung-Kee Choi explained:
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In 2003, the first year of our entrance to the China automobile market, the company sold 50,000 units of the EF Sonata model. The company achieved this result in a year, while such foreign automakers as Honda Motors took three years to achieve the same result. In 2004, the Elantra subcompact was included into the assembly line and both models combined sold 144,000 units, and then 234,000 units in 2005. With such a remarkable achievement, other major automobile competitors became fearful of Beijing Hyundai, and we became a special target for our competitors. Bang Shin Kim, vice president in charge of strategic planning at Beijing Hyundai, described the ensuing competition as resembling the “warring states period” prior to the unification of China under the Qin dynasty. According to Kim, in 2008: The China automobile market has become fiercely competitive, with no company as the dominant market leader. Every automaker in the market has introduced their latest models in an attempt to attain successful market dominance. The excess supply of automobiles in the market has become a worrisome issue as the market entrants have flooded the market with cars. As competition intensified, in 2007 Beijing Hyundai experienced a decline in sales compared to the prior year (Exhibit 3), and by 2008 a full-blown price war in China involved many of the world‟s major automakers. In response, in 2008 Beijing Hyundai launched its second plant in China, along with new plants in India and Russia to complete a global production network across Korea, the U.S, China, India, and Europe. Yung Yu Koo, deputy general manager at China Business Group of HMC, described the thinking at Beijing Hyundai: We are always thinking ahead as to how Beijing Hyundai can achieve sustainable competitive advantages over other major competitors. We continuously revisit forecasts of the future growth of the China automobile market to see what effect this will have in Beijing Hyundai‟s market share both in the short and long term. The first phase of achieving HMC‟s global competitiveness was obtaining production and research capabilities, and the second phase is switching to a market-focused strategy by enhancing marketing skills. While this can be a difficult task, it is not an impossible task to achieve. If the company adopts scientific approaches with future insight, we then strongly believe that by 2010 Hyundai can be a market leader in China, achieving the target of 1.03 million units in sales with a 13 percent market share.
With this ambitious goal, Beijing Hyundai looked forward from 2008 at the challenge ahead. It had increased production capacity to 850,000 units, but was on target to produce less than half that during 2008. Yet its plans included continuing to introduce a variety of models across size classes, even as Hyundai‟s reputation in China remained underdeveloped. Leadership at Beijing
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Hyundai and HMC Corporate were committed to succeed in China, a key market in their global expansion strategy, even as that market had become more challenging than ever.
HYUNDAI MOTOR COMPANY: GLOBAL EXPANSION1
Since the establishment of HMC in 1967 by Ju-Young Chung, and under the leadership of the subsequent chairman, Se-Young Chung, HMC focused on developing overseas markets. With the Korea economy on the verge of collapse during the 1997 Asian financial crisis, many Korean conglomerates suffered a liquidity crisis and went into bankruptcy. In the midst of this dark period, Mong-Koo Chung succeeded his uncle Se-Young Chung in the chairmanship and sought to overcome the financial challenge through the acquisition of Kia Motors, another Korean automaker, in 1998. In 1999, Mong-Koo Chung became chairman of the Hyundai–Kia Group and reorganized HMC to reduce costs and share knowledge across Hyundai and Kia. He then turned the company‟s attention to an ambitious plan for global expansion.
Starting in 2000, Chung aggressively sought to build automobile plants outside Korea. At that time, combined sales for HMC and Kia Motors were 2.76 million units, of which 2.46 million units were from sales in Korea. Overseas sales accounted for 300,000 units, and most of these were KD (Knockdown) sales.2 Given that the domestic (Korea) market was small, Chung and his leadership team decided that expanding into the overseas market was imperative for Hyundai and Kia Motors. But moving beyond Korea confronted HMC with the need to do business in markets where its reputation was not yet well developed.
Quality Management Improvements
One of the biggest challenges faced by Chung and his management team was Hyundai‟s reputation in markets outside Korea. HMC‟s reputation was very strong in Korea, and its product quality had been improving worldwide, albeit slowly, in the 1980s and 1990s. But the company discovered that its reputation outside Korea was not changing along with its improvements in quality. On a visit to the U.S. in 1999, Chung was shocked by the fact that Hyundai cars were treated as shoddy products. Product quality had improved, yet public perceptions of quality were slow to change. Apparently Hyundai‟s initial entry into that market with lower-end vehicles was having an enduring affect on the company‟s reputation there.
In response, Mong-Koo Chung redoubled HMC‟s worldwide efforts at quality improvement. He established the Quality Control Division, and chaired monthly quality control meetings with senior quality management and executives to take control of product quality from the initial stage of the automobile development. The “Quality Pass,” or so-called “Line Stoppage,” was also developed at that time. This standard was devised to prevent the initiation and production of automobiles on the assembly lines when potential problems in products were not resolved at the quality control meeting, even if it meant a delay in the launch of a new model. Further, to improve subcontractors‟ quality, the company initiated the “five-star rating program,” an
1 See “Hyundai Motor Company” GSB No. SM122 (written by Mooweon Rhee, William P. Barnett, and James G. March) for detailed information on the historical and organizational background of HMC, as well as its operation in the U.S. market. 2 Knockdown sales are of cars that are fully manufactured but not fully assembled in the home country, and then are exported in kit form to be assembled in another country.
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incentive program for subcontractors that demonstrates quality improvement gains, while penalizing non-cooperative subcontractors. Finally, Mong-Koo Chung led the implementation of the 10-10 policy (10-years, 100,000-mile warranty), in an effort to improve Hyundai‟s brand image.
In the wake of all these changes, published quality rankings improved greatly for Hyundai, as shown in Exhibits 4 and 5. The 2004 report by the IQS (Initial Quality Study) ranked the Sonata number one, over Toyota, in the U.S. midsize automobile market. In 2008, Hyundai‟s small car, the Verna, was ranked number one in the IQS survey, over Toyota‟s Corolla. And Hyundai‟s small-medium model, the Elantra, became the „Top Small Car‟ of the year 2008, beating out the Honda Civic, according to Consumer Reports. These remarkable achievements continued when Hyundai‟s midsize SUV, the Santa Fe, was also listed as a „Top Pick” of the year 2008 by Consumer Reports. Meanwhile, across the world in India, Hyundai‟s major compact model, the Santro, was ranked number one in the Vehicle Dependability Survey (VDS) by J.D. Power and Associates. Yet worldwide perceptions of the Hyundai brand still seemed to lag behind reality, as evidenced in this headline: “Man bites dog. The earth is flat. Hyundai builds better quality cars than Toyota. ….. The impossible has happened.”3
Overview of HMC’s Global Expansion
United States Mong-Koo Chung saw the need to establish automobile assembly plants in the United States. This was mainly to position Hyundai as a „locally produced automobile maker‟ in the U.S. market, and also to help the company mitigate any possible future trade conflicts. When HMC planned to launch an assembly plant in the U.S., the company expected that the U.S. market would grow by 4 percent annually until 2010, with especially expansive growth in the SUV market. Based on their market projection, therefore, the company was interested in producing highly profitable small and midsize SUVs, along with midsize sedans. In 2003, HMC selected Alabama to manufacture the company‟s core models, the Sonata and the Santa Fe, by May of 2005. Chung used a mass introduction strategy to flood the U.S. market with the automobiles assembled there, which he also expected would increase public awareness of HMC‟s production in the United States. Despite the difficulties in producing automobiles in an unfamiliar territory with culturally different human resources, the Alabama plant did not take long to stabilize its assembly line. The Alabama plant manufactured and sold 236,000 units (amounting to $3,589 million) and 251,000 units (amounting to $3,830 million) in 2006 and 2007 respectively, with a 6.3 percent growth in number of units sold and a 6.7 percent growth in sales amount. In 2008, HMC released new models, the Sonata F/L and the Genesis, and planned to focus on small car sales, as fuel efficiency became a hot topic in response to the rising oil prices that year. HMC also expanded its dealerships from 790 in 2007 to 820 in 2008, increased the number of independent dealerships, and developed a range of dealer capability enhancement programs. Europe
Towards the end of 2000, HMC also began basic preparations to build production sites in the European market. While HMC already had an automobile assembly plant in Turkey with a yearly production capacity of 60,000 units, the plant was too small to meet the demands of the
3 Excerpted from Automotive News, April, 2004.
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entire European market. While HMC considered the possibility of expanding its assembly plant in Turkey and acquiring Daewoo‟s assembly plant in Poland, their feasibility analysis led to the conclusion that establishing a new assembly plant was more favorable. HMC‟s market survey in 2003 also concluded that to effectively target the European market, the company needed to build an automobile assembly plant designed to produce small-sized cars, which were Kia Motors‟ strengths. In 2004, Kia Motors built its assembly plant in Slovakia. Since then, Hyundai and Kia Motors have cooperated to penetrate the European market through this production facility. Meanwhile, sales by the HMC Turkey assembly plant increased from 87,000 units in 2007 to 108,000 units in 2008, an increase of 23.6 percent. HMC in 2008 also established its Czechoslovakia assembly plant with a yearly capacity of 200,000 units. India India was one of the first targets for HMC‟s global expansion, attractive because of its low costs and huge growth potential. In 1996-97, HMC constructed an automobile assembly plant in only 17 months, and within another six months Hyundai Motor India (HMI) ranked number two in the Indian market in quantity of automobiles manufactured. In 1998, HMC introduced a new model, the Santro, which became the number one selling car in India in two years (see Exhibit 6). Inspired by such success, Chung often encouraged executives of other global divisions to benchmark the localization and productivity of HMI. During an inspection tour of the company’s manufacturing complex in the southeastern port city of Chennai in 2005, he announced a plan to build a second assembly plant with a yearly capacity to produce 300,000 units, which would double the existing capacity. He envisioned that HMI would be able to serve neighboring markets, including the European and Middle East regions, as well as India. By 2006, for example, HMI exported 100,000 units, 30 percent of total production, while the production capacity continued to increase from 250,000 units in 2005 to 300,000 units in 2006 to 600,000 units in 2007. HMI‟s success within India has been attributed to its development of Indian versions of the automobiles (e.g., the Santro is the Indian version of the Atos). These designs took into consideration India‟s high temperature, humid environment, and poor road conditions. Also, HMI management realized complementary product lines through the careful selection of car models and release periods. For example, HMI‟s pricing strategy was structured to promote sales of the Santro, while its other model, the Accent, was priced to increase profit margins. According to K.A. Song, general manager at Global Command & Control Center of HMC, who was then responsible for the establishment of assembly plants in India: Our sales strategy was another success factor in the Indian automobile market. In order to be on top of the Maruti, which had 80 percent market share, Hyundai entered the market at a 5-10 percent lower price than Maruti. The company initially introduced a basic model to enhance brand recognition, and then added other optional features onto the basic model to increase profit margins. That is, we were successful in a „sequential entry strategy‟ by having introduced two different models for two different purposes: one for market penetration and the other for profit margin creation.
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HMI‟s geographic location in Chennai, India, contributed to the minimization of logistics costs and the standardization of parts supply. Hyundai executives reported that the conscientious and hard-working habits of the southern Indians (Chennai is in South India) also were attractive. Once the assembly plant was established, the company initiated a slogan “NO CASTE, NO RELIGION,” in an attempt to reduce discrimination by social class and religious affiliation in the workplace. While the Indian labor market was experiencing a high labor turnover rate, HMI was able to keep its turnover rate lower than the industry average through the use of such human resource policies. HMI grew successfully in India, but leadership remained concerned about the possibility of increasing competition. In response, HMI diversified its product lines, including more upscale models. The company also increased the number of dealers from 235 in 2007 to 300 in 2008, formed a stronger sales network, and expanded corporate advertising to strengthen the company‟s brand. As of 2008, HMC manufactured cars in different parts of the world, including the U.S., Europe, India, and China, to accommodate diverse market needs (see Exhibit 7). Consequently, the company ranked sixth in the volume of production among global automakers (Exhibit 8). But HMC‟s record of success would be dwarfed by its future growth rate if it could succeed in its ambitious plans for China after 2008.
THE AUTOMOBILE INDUSTRY IN CHINA4
Development of the Chinese Automobile Industry
The Chinese automobile industry got started during the 1950s with technical assistance from the former Soviet Union, but remained little developed until 1984. China‟s first automobile manufacturer, Di Yi Motors (predecessor of the FAW Group), was established in 1953 with assistance from ZiL, a major Soviet Union truck and heavy equipment manufacturer. The production system of Di Yi Motors was vertically integrated, which later had a significant impact on the structure of subsequent Chinese automakers. The „Great Leap Forward,‟ led by Mao Zedong from 1958 to 1960, strengthened the authority of local governments. This political shift, combined with a shortage of automobile supplies, led local governments to build small automobile plants to manufacture imitations of foreign models. The SAIC (Shanghai Automotive Industry Corporation) and Beijing Motors (now BAIC) were two well-known examples to emerge during this period.
Towards the end of 1950s, the Chinese automobile industry faced difficult times due to the deteriorating relationship between China and the Soviet Union. For the next 20 years, Chinese automakers had to find a way to develop their own automobiles without help from other countries. In order to promote economic and industrial development, the Chinese government
4 Parts of this section benefit from the information provided by HMC and Hyun-Chul Kim, “Recent Trends and the Future of Chinese Automobile Industry,” International Seminar on the Productivity Innovation and Global Productivity in the Age of Limitless Competition, Korea Productivity Association, June 2008, and Jangro Lee, “The Marketing Case Study on the Chinese Market – Hyundai-Kia Auto Group,” 2007, Muyok Publishing Company.
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saw the need to intensify the capacity of national transportation, designating the automobile industry as essential to the country‟s economy and giving it greater financial support from the government. During the period of the Cultural Revolution, for example, Dongfeng Motors (DFM), which now ranks second among Chinese automakers, was founded at the behest of Mao Zedong in 1968. Automobile plants were later scattered all over China due to the policy of “one province, one assembly plant.” But this policy led to over-construction of automobile plants, and impeded the effective division of labor within the industry as well as the standardization of auto parts. Over time, these forces created a unique automobile industrial structure: on top of the pyramid there were large automobile manufacturers, such as FAW Group and DMC, controlled by the central government; next were medium-sized companies governed by the municipal governments (e.g., Shanghai, Beijing, Nanjing); and at the bottom were small automobile manufacturers overseen by municipal governments.
The China automobile industry has boomed since the introduction of the open economy policy in 1979. The period from 1984 to 1990 has been called “the exploratory period,” during which there was a large increase in demand for automobiles. Companies that were under municipal jurisdiction became independent, and many merged or were acquired by other domestic competitors. In 1984, Beijing Automobile Works (BAW, a subsidiary of BAIC) and the U.S. company AMC formed the first joint venture in China, known as Beijing Jeep. In 1985, SAIC formed a joint venture partnership with Volkswagen. As the open economic policy continued and the Chinese economy grew rapidly, its automobile market suffered a severe shortage in the mid-1980s. In response, since the 7th Five-Year Plan, the Chinese government established a policy aimed at localizing automobile manufacturing. In 1987, at the China Executive Cabinet meeting, a consensus was reached to introduce policies to foster the growth of the Big Three (FAW Group, DFM, and SAIC), and in 1988 the policy was extended to include three additional companies (BAIC, Guangzhou Automobile Industry Group (GAIG), and Tianjin Xiali). In the 1990s, the world automobile market suffered excess supply and stagnant demand, which resulted in a major overhaul of the industry worldwide. While the world market was in turmoil, in China the automobile market was growing rapidly due to the strong performance of China‟s economy. Between 1990 and 2000, the China automobile industry introduced the concept of the family automobile to the market. In response, almost all global automobile makers sought to enter the China automobile industry through a variety of joint ventures. In 1990, DFM formed a joint venture with the French company Citroen, named the Dongfeng Peugeot-Citroen Automobile (DPCA); in 1991, FAW Group formed a joint venture with a German company Volkswagen, named FAW-VW; and in 1992, the Jinbei Automotive Company joined with U.S. company General Motors, forming Jinbei GM. Also in March of 1997, SAIC and GM formed a joint venture known as Shanghai GM. In April of 1999, Shanghai GM built an automobile plant with a yearly capacity of 100,000 units to manufacture GM‟s Buick series of automobiles. In 1997, GM America, in partnership with SAIC, also established the Pan Asia Technical Automotive Center to develop next generation automobiles. In 1997, Toyota established a joint venture company with Tianjin Xiali; and in 1998, Honda Motors established a joint venture company with GAIC.
Beginning with the 10th Five-Year Plan in 2001, the Chinese government reaffirmed its commitment to the utilization of foreign direct investments. For example, the Plan mandated
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that automobiles endorsed by the Chinese government should be adopted by the general public. In the same year, China joined the World Trade Organization (WTO), creating new opportunities for global automakers aiming to enter the Chinese automobile market because China‟s WTO entry was conditioned on liberalized market access for foreign companies in China. From 2001 to 2006 the market grew explosively. In 2004, the Chinese government announced a new automobile industrialization policy, through which the government hoped to enhance the market competitiveness of Chinese automobiles and restructure the automobile industry. By 2008, the Chinese automobile market had become an arena of competition for the global automakers, as described in Exhibit 9. The normal process for an overseas automobile manufacturer to enter the Chinese automobile market was through its initiation of automobile exports. Once the market was better understood, the importer would then shift to KD exports for assembly in China. Finally, foreign direct investment might be the next step, though this was required to take place through a joint venture with a Chinese counterpart.
The Chinese Automobile Market
The average growth rate of the Chinese automobile market from 1992 to 2000 was 25.2 percent, and from 2000 to 2006 was 38.3 percent. One reason for the rapid growth since 2002 was a large increase in the purchase of personal automobiles. In 2006, the China market sold 4,260,000 units, seven times more than in 2000 (Exhibit 10). Experts‟ estimates on the prospects for the China market also continued to increase. As of 2007, for example, the estimated supply for 2010 was 7,814,000 units, according to the State Information Center of China (SIC)―a 9.4 percent upward adjustment from the 2006 estimate. The Chinese economy had been growing rapidly up to 2008, increasing the class of potential automobile purchasers. However, China also expected a larger income gap, particularly between city and rural people (see Exhibit 11). The Chinese automobile market was mainly driven by individual consumers, and it was expected that personal consumption would account for 90 percent of total purchases by 2010. Growth rates in automobile markets typically differ depending on the size class of vehicle. Exhibits 12 and 13 describe the growth rates of the various vehicle size classes using a classification system common in China, in which vehicle and engine size increases as one moves from A through E. Sales expansion in the China automobile market has occurred in various classes of automobiles simultaneously. The C2 models have enjoyed the fastest growth, showing an increase from 33 percent in 2006 to 37 percent in 2007. The portion of SUVs sold also has demonstrated a continuous increase. The portion of the C1 and smaller models (class A and B) showed a slight decrease.
The SIC estimate of 2010 demand by automobile classes showed that the growth of car sales would be primarily in classes C2 and D cars. The Chinese automobile makers, which have focused on class A and B models, were expected to release upper class models, so the portion of classes C2 and D sales was forecasted to increase. According to the SIC estimates, the total annual demand would grow by an annual average rate of 13.1 percent from 2007 to 2012. SIC
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forecasted that compared to 2007, the 2012 demand for classes C1, C2, and D cars would have more than doubled to reach 1,520,000 units, 3,580,000 units, and 2,140,000 units, respectively. The SUV models were estimated to increase at a moderate rate.
Competition
The period 2000-2008 saw the Chinese market become highly competitive. The Chinese government played an important role in the formation of this competition, as it advocated an “independent technological development model.” This phrase refers to use of joint ventures with global automakers, where the Chinese partner “offers the market and obtains the technology.” Global automakers have typically resisted transferring their technology to local makers by manufacturing only older models in China. In response, the government introduced the traditional “以夷制夷 (yi yi zhi yi: using barbarians to control other barbarians)” strategy, where easing the entry of multiple global automakers stimulated competition among them. This competition, in turn, triggered the introduction of newer models with the latest technologies, and local sourcing of auto parts. Furthermore, these newer models were selling for ever lower prices, as the global automakers waged fierce price wars. As a result, car prices dropped by approximately 35 percent on average since 2004. By 2008, intensifying competition drove many foreign automakers to introduce newer models, despite the risk of low-quality imitations. For example, Volkswagen, an early entrant to the China automobile market, initially produced the Santana, a representative taxi model in Shanghai, through a joint venture Shanghai VW. But VW did not upgrade the Santana for a long time, which along with the poor quality of parts from local suppliers, dissatisfied Chinese consumers. As Shanghai GM, Beijing Hyundai, and others entered the market, VW began to lose out to their newer models. Shanghai GM entered the China automobile market with the same models as those sold in the U.S. market, and was able to establish an image as the purveyor of advanced cars. Other later entrants were also aggressive in introducing their newest models. Toyota began to produce its main model, the Camry, and even planned to manufacture the hybrid Prius in China, while Honda manufactured its eighth generation Accord in China. As competition raged, former market leaders Shanghai VW and FAW-VW saw their market shares fall, as Shanghai GM took over the number one spot. The availability of newer technologies to be imitated, in turn, increased competition from private local automakers, such as Chery Automobile and Geely Automobile. Geely Automobile, located in Wenzhou, started to manufacture in 1997 and built its own independent models. Geely maintained a top-ten spot since 2003, and its sales skyrocketed from 98,000 in 2004 to 218,000 units in 2007. Geely Automobile also expanded to overseas market with 18 dealerships and 108 stores in other countries. Chery Automobile was formed through the consolidation of five companies in the Anhui province. Although its model, the Chery QQ, created disputes of being the “carbon copy” of GM Daewoo‟s Matiz, the company expanded its sales aggressively (85,000 units in 2003, 189,000 units in 2005, and 381,000 units in 2007). The number of car models in the market increased from 46 in 2001 to 305 in 2008 (Exhibits 20 and 21).
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Chinese Consumers
Since Chinese consumers lacked experience with automobiles, they tended to equate brand recognition with product quality. They often sought advice from others who were knowledgeable about cars, primarily due to the lack of public information on the evaluation of automobiles. Hence, it was very important to attract consumers by improving brand recognition and brand position. Further, Chinese consumers had a tendency to value the brand image based on the country associated with an automaker. According to Bang Shin Kim at Beijing Hyundai: As a result of globalization, Chinese consumers obtained some knowledge on brands, yet they are very sensitive to country brand. Preference exists towards German, U.S. and Japan-made automobiles. Consumers in the U.S. market have access to information from quality evaluation institutions such as Consumer Reports and J.D. Power Associates, but Chinese consumers do not. Because of this, such makers as Beijing Hyundai suffer from a weak brand image compared to the actual quality and performance of their cars. Chinese consumers were cautious when purchasing cars, and payment on credit was very rare. This was due to the underdeveloped financial infrastructure and a high level of uncertainty in the Chinese economy. (Exhibit 16 presents the results of a survey study conducted by Beijing Hyundai regarding Chinese consumers‟ primary motives for automobile purchase.)
The Chinese market was geographically large and motorization was more developed in some regions than others. Motorization first developed in the coastal area of the Southeast, and then spread inland. Major cities such as Shanghai, Beijing, and Tianjin already showed significant progress in motorization. By 2008, such regions as Guangdong, Fujian, Jiangsu, and Zhejiang were in the process of developing motorization as a result of economic development. Some regions, including Shandong, Hubei, and Heilongjiang, were in the beginning stage of motorization, while there were many other regions where motorization had barely begun. Such regional differences in the Chinese market led to differences in consumers‟ brand recognition and purchasing patterns.
Distribution Channels
Up until the mid-1990s, China‟s automobile distribution system was embedded in complex pyramid channels, making it difficult for automakers to control pricing and sales or to maintain a stable brand image and promotion activities. Further, it was almost impossible to respond to the changing needs of customers in a timely manner. These channels were also costly and resulted in the separation of after-sales service from sales.
As of