Marcos Arruda, General Motor’s newly appointed Director of Internet Strategy, settled into his seat for the long flight from Detroit to Rio. Marcos could not help but smile with delight as he recalled his first major victory in his new position: relocating the Internet Strategy Department to the more temperate climate of Brazil. However, his thoughts soon turned to the challenges ahead of him. He had decided to reevaluate (and most likely revise), the company’s B2C Internet strategy, starting with three countries: China, Brazil, and the United States. Marcos believed that the Internet would continue to change the way people bought automobiles, and he wanted to find ways to improve GM’s existing Internet distribution efforts. Marcos realized that his strategy would have to account for, among other things, cultural differences in each major market.
He decided that he would start by examining some background on the auto industry in each of the countries. Then, he planned to review existing Internet strategies to see how GM could best profit from the Internet in its B2C marketing and distribution efforts.
Internet and B2C in China
Internet usage has been growing exponentially in China over the past 5 years. Of its 1.3 billion people, 26.5 million now have Internet access via company networks or residential connections. The number is a 57% increase from last year. Such an exploding growth rate is expected to continue through the foreseeable future given decreasing computer prices as well as a continuously improving digital infrastructure. Though only 2.5% of the country’s population can currently access the Internet, it’s believed that China potentially has the largest on-line population of any country.
With the growth in Internet usage, B2C e-commerce has grown quickly. On-line sales of books, electronics, and gifts are becoming more popular. Younger generations are eager to learn and catch up with new technologies. All these factors fuel B2C growth. However, thus far most of the goods sold via the Internet are relatively inexpensive. Heavy, expensive commodities are seldom sold to consumers on-line. For one reason, China’s commercial banking, credit card utilization by the general public, and purchasing behavior of consumers are still in a developing stage. For instance, personal checks are not widely used in daily life; credit cards are not easily available, though debit cards are commonly used. But, each on-line shopping site may only accept the debit card(s) from specific bank(s) (there are over 20 banks / financial organizations offering their customers debit cards), and cards from different banks can’t be cross-used. With free-market business being in its early age, the concept and practice of credit hasn’t been fully developed. These contribute to the public’s lack of confidence in on-line transactions.
The other factor that constrains B2C from offering expensive commodities—at least those for which on-time and convenient delivery is a major concern—is the under-developed transportation infrastructure. Two commonly-used ways to fulfill on-line orders are: one, make the order on-line, then mail the personal check, or transmit cash via the bank to the seller. The ordered goods will be shipped once payment is received. The other approach is to make the order on-line, then the on-line store arranges delivery to the customer’s designated place (home or work place), where the customer pays upon delivery. Delivery service is usually provided by the on-line store, but it can also be handled by the third party.
China’s Auto Industry
Automotive production in China is expected to reach 2.35 million in 2001, up from 2.07 in year 2000, and is expected to reach 5 million by 2010. In the past 20 years, the auto market grew by over 20 percent annually. Richard Wagoner, chief executive officer of General Motors, forecasted that China's auto market would grow 17 percent annually over the next 10 years and could reach the size of the current US auto market - about 17 million units - by 2025 ( –Business Weekly, April 07, 2000)
China currently has over 300 automakers with a combined annual output of less than one fifth of that in the US. From 1950 through the 1980s, under the central planned economic policy duplicated from the former Soviet Union, local administration at the provincial level or city level could build an auto plant to serve its local economy or industry. As a result, there are major automakers built by China’s central government while there are also medium and small automakers built by local governments. To meet the WTO’s admission requirements much competition will be introduced in China’s economy, including the auto industry. By now, almost all major global automakers have a presence in the Chinese market. Ford and GM, for example, are aggressively expanding their market shares.
The competitive landscape and business practice in automotive manufacturing, marketing, distribution, and service are going to change dramatically in the near future. “It’s expected that the on-going domestic automaker consolidation will end up with three to four full-range carmakers plus one to two niche players in the coming decade.” ( –Business Weekly, Sept 18, 2001)
There are two different sales systems in China’s auto market. Medium to small domestic automakers sell their products to dealers as well as directly to end customers. On the other hand, China’s major national automakers and international automakers, GM and VW for example, can only sell their products exclusively to the state-owned dealers (the reason for doing so is the fear of loss of price control). These dealers operate nationwide, delivering automobiles to any places in the country.
Dealers in China have little negotiating power over major manufacturers. Competition is also being introduced into dealership market (For instance, some state-owned dealerships are being broken up, and the automakers are selecting their own dealer networks.)
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