The international expansion of Chinese auto producers: typology and trends

Résumé:

The paper examines the international expansion of Chinese auto producers over the last decade. Unlike what happened in other sectors, where production growth has been massively export driven, the role of domestic demand has been dominant in the auto industry, especially in the second half of the 2000s, and made China the largest market in the world, with over 13 million vehicles produced in 2009. More recently, in the early 2000s, a massive wave of internationalization began, as Chinese enterprises were encouraged to expand abroad looking for new markets, new resources and new technologies through direct investment, either in the form that the form of greenfield investment and of mergers and acquisitions with other companies. The automotive industry is currently the only manufacturing industry in the top positions, with more than 12 percent of the total value of the stock of Chinese FDI since 2003.
A first research objective is to understand the host country determinants of Chinese FDI in the automotive sector. With data from FDIMarkets including several variables (date, company name, source country and state, investment size, number of jobs created and business activity), the paper will provide a detailed map of Chinese FDI in the automotive sector. A total of 33 Chinese manufacturers of motor vehicles (including both OEM and component suppliers) carried out FDI abroad since 2003 (for a total of 81 FDI), in 27 countries around the world. Although a large number of foreign direct investments are directed toward other Asian countries, the preferred destination by far for FDI in the Chinese automotive sector is Europe: 38 percent of the number of FDI since 2003 have been directed towards Europe, compared with 30 percent to Asia (of which around 12 percent to Japan), 12 per cent to North America, and around 9 per cent each to Africa and Latin America. The business activities of foreign branches are very different, ranging from headquarters to retail sales. The distribution of FDI activities is very different for OEMs and component suppliers. Overall, production is an important motivation for both groups, but relatively more for auto manufacturers, while logistics and distribution are critically important for component suppliers, but not for manufacturers.
Among the Chinese manufacturers who made direct investment abroad, the majority (60 percent) achieved a maximum of only two projects (50 per cent only one). In the segment of auto components, all but one of the 15 companies that have invested abroad has created a single investment. Only a few companies are heavily internationalized. It is worth noticing that these companies are among the largest Chinese car manufacturers, but not the largest of all. In fact, the major Chinese manufacturers are primarily interested in the internal market and other markets of countries at a similar level of development, with small cars selling at low prices, and therefore their business strategy does not target the acquisition of market share in advanced markets, nor has the high technological capabilities necessary to compete in advanced markets.
A second research objective is to investigate the relationship between motivation of FDI and business activity carried out in foreign affiliates. A few Chinese automotive OEM MNEs are heavily internationalised. Three companies have been engaged in FDI since 2003 and these are also those who invested most in terms of No. of FDI, but with very different investment strategies: SAIC Chery Automobile shows a great majority of FDI to developing countries and a few to the UK. All FDI for manufacturing purposes except UK and the Philippines. Nanjing Automobile Group made most FDI to industrialised countries with a concentration of FDI in the USA. In other industrialised countries FDI mainly for non manufacturing activities. For Changan Automobile Group FDI are more balanced between industrialised (for non manufacturing activities) and developing countries (for manufacturing activities).