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Brand Competitiveness Enhancement of China’s Self-owned Car Brands Via Transnational M&A

Author: HeJiaCai
Tutor: CheLiJuan
School: Dongbei University of Finance
Course: International Trade
Keywords: Transnational Mergers and Acquisitions Self-owned Car Brand Brand Competitiveness
CLC: F271
Type: Master's thesis
Year: 2011
Downloads: 151
Quote: 0
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China is experiencing a major prosperity in its auto market. The total production and sales volume in 2010 amounts to18.2647 million and 18.0619 million respectively and solidified its leadership in the world auto market with a year-on-year growth of 32.44% and 32.37%. However, foreign brands take up over 70% of the total market, over 90% of the middle and high end market and 100% in the luxury car market. Most of the domestic carmakers are in essence OEM factories for those multinational automotive companies. They were intended to acquire advanced technologies and management know-how from their joint-venture partners. This is what we called the "market for technology" strategy. The inveterate business mode satisfied most of the domestic automakers with considerable profits as a car manufacturer while, however, to a large extent, disabled them from obtaining independent R&D capacity and relaxed them on the development of their own auto brands. The self-owned brands are pathetically way lagged behind in their development.For the self-owned auto brands, the situation is not as optimistic as it looks like. They are suffering aggressive competitions from the joint venture foreign brands. On the one hand, their foreign and joint venture competitors continuously promote their new models in the low-end market where the self-owned brands used to have a dominant position. Relying on their brand advantages, these models such as Honda Fit, Chevrolet New Sail, Ford Fiesta and Toyota Yaris has acquired recognition of the market soon after their introduction. Threats have been posed constantly for the self-owned brands in their traditional advantageous market segment. On the other hand, self-owned automakers have been making their trial moves in the middle and high-end market since 2006, but few have succeeded. Foreign brands are still dominating the middle and high end market owing to their advantages of brand and technology. Furthermore, some of the favorable bail-out policies like subsidies for rural residents to purchase motor vehicles and purchase tax remission etc. would be withdrawn by the government as the economy recovers from the global financial crisis. The low-end-focused self-owned brands are definitely the first to be affected. Under this awkward situation, the developing space for the self-owned brands is increasingly contracted by their foreign and joint-venture competitors.Most of the self-owned automakers have aware that the ultimate challenge for their development is not management, technology, production or marketing, but the "brand-ceiling" that impedes them from exploiting new development space. The self-owned auto brands are associated with unfavorable images of low quality, low end and low price all along with their development. But unequivocally, brand and all of the product characteristics embodied in it are the most important and direct contributing factors for the purchasing behavior of the consumer. The low-end brand image severely limited the premium ability of their products, development ability in the higher-ended market and the overall profitability of the self-owned enterprises. The self-owned brands are apparently in a disadvantageous position in the competition and what they can do is lower the price and offer substantial discount packages.Fortunately, the sustained and rapid development of the national economy and the ever-changing world economy are offering unprecedented opportunities for the self-owned auto enterprises, especially for their overseas investment. China holds the world largest Foreign Exchange Reserve of over 3 trillion dollars till the end of March,2011 and it is encouraging its businesses to make brave investments in the overseas market. And, on the other side, Mergers and Acquisitions have become the primary mode of Foreign Direct Investment (FDI) since the last decade of the 20th century. According to the statistics from UNCATD (United Nations Conference on Trade and Development), the global FDI reached 1.24 trillion dollars in 2010,5% more than the previous year. As the world economy is bouncing back from the recession, the Global FDI will resume its sound momentum. The amount of M&A transactions in the global scale add up to 2.2 trillion dollars in 2010,43% of them are transnational M&A deals.For the Chinese self-owned car manufacturers, they are in urgent need of high-end automotive technologies, advanced management know-how, brilliant talents, and most importantly, the enhancement of brand competitiveness.Therefore, questions are elicited that if transnational M&A can be an effective approach for Self-owned carmakers to build up their brands and how does transnational M&A work during the process of enhancing the competitiveness of self-owned car brands. That is the question the paper tries to answer. In order to effectively demonstrate the answer, the following chapters will be presented in sequence.Chapter one introduces the background information, significance, structure and literature review of the thesis. Theories and researches concerning brand competitiveness and transnational M&A are introduced in detail and the embarrassing situations for self-owned auto brands are discussed here.Chapter two delivers a detailed introduction on the development status quo of the Chinese auto market and the self-owned car brands. The analysis of the China’s auto market is conducted from four aspects:the notable achievements of the automotive industry, the prosperity of multinational automakers in China, the brand-based market structure and the trials made by self-owned brands in the middle and high end market. Through the analyses, we will find that the joint-venture foreign brands are successfully intruding into the low-end market and dominating their traditional manor——the middle and high end market; Most of the self-owned brands are still lingering at the low end market while striving to compete with their foreign counterparts for a slice of cake in the higher-ended market. The development status quo of the self-owned auto brands also goes to four aspects, which unveil the fact that the self-owned brands are fast in their development but unreasonable in their growth structure, large in quantity but small in size, low in brand image so does its premium ability, and in short of core technologies and R&D capacity. The status quo analyses concluded in the necessity and urgency of improving the competitiveness of the self-owned brands.A further Competition Environment analysis of China’s auto industry is conducted in chapter three in which Porter’s Five-Force model is applied. In order to have a more comprehensive look at the auto industry, industrial concentration ratio (CRn Value) and economies of scale are analyzed in Chapter 3 as well. The "Five Forces" analysis tells us the specific external environment of self-owned brands including the bargaining power of the consumers and the suppliers, the threats of substitute products, new entrants and existing competitions within the business. The CRn value is intended to uncover the concentration level of our auto industry, so as to emphasize the fact that domestic M&A are necessary to enhance concentration level and avoid resource wasting because of a large number of small-sized automakers. The economies of scale analysis further research into the overall condition of the auto industry. Altogether, the analysis urges the self-owned auto enterprises to enlarge their scale to be more concentrated through mergers and acquisitions home and abroad.Chapter four is the core of this thesis. In this chapter, a thorough discussion on international M&A and its promotional effect on brand upgrading of self-owned auto brands will be delivered with extensive case illustrations. Cases from Volkswagen and General Motor are discussed here to demonstrate that transnational M&A played a very important role in their global expansion and development. Experience and lessons are drawn from these cases. The following section introduces two successful overseas M&A cases conducted by domestic auto manufacturers:SAIC’s acquisition of MG-Rover and Geely’s acquisition of Volvo. Through these cases, we can get to view how does M&A benefits the development of the self-owned brands. The next section carried out an anatomy on the positive role played by M&A in enhancing the competitiveness of self-owned brands. Six positive effects are presented in sequence: enhancement of technological level and R&D capacity; acquiring synergistic effects; elevating brand image; reaping economies of scale; optimizing growth structure and amelioration of competition environment.However, it doesn’t necessarily means that transnational M&A is the best way to enhance brand competitiveness. It has its own defects. For example, it is highly risky owing to the fact that the companies involved hold different nationality, culture background, operating system, technological level and corporate values etc., so that integration would be a huge challenge for the self-owned auto enterprises.. And, almost all of the domestic automakers do not have any experience in international operations, hence abundant and effective investigations are required before initiating any transnational M&A transactions.Chapter five presented three other approaches for brand competitiveness enhancement for self-owned auto brands. They are export expansion, domestic Mergers and Acquisitions and brand innovation. A comparative study is addressed here in between these different approaches in terms of their respective pros and cons so that the self-owned enterprises can take advantage of them comprehensively.Chapter six is the conclusion of the research.

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CLC: > Economic > Economic planning and management > Enterprise economy > Enterprise system
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