Joint venture self-owned brands and independent brands are the same side of the coin

Joint venture self-owned brands are fast becoming the most discussed subject within the auto industry in China.

National-level organizations like the Ministry of Industry and Information Technology, and the National Development and Reform Commission, have on several occasions stressed the importance of joint venture self-owned brands and their key role in fostering independent innovation in China. They have also reiterated that joint venture self-owned brands will be given due importance at all levels of policymaking.

There are three main reasons as to why joint venture self-owned brands are suddenly in the limelight.

The main reason is obviously the government's desire to steer a new path for the automobile industry in China. This calls for industry restructuring, with appropriate policies for technology development, government procurement and financing channels, along with steps to make self-owned brands the main corporate strategic focus for auto companies.

The government should also support the automobile manufacturing companies to achieve this goal through a variety of ways, such as self-development, joint development or domestic and international mergers and acquisitions.

Recent regulations also provide that if joint ventures are willing to expand by building new plants, the prerequisite is that they should first meet the requirements for setting up self-owned brands.

In addition, the Regulations on Development of Energy-Saving and New Energy Vehicles (2012-20) issued in May requires enterprises to vigorously promote research and development of new-energy vehicles of their own brand.

One of its purposes is to promote the development of core technologies for the automobile industry in China, to solve the long-standing complaint that Chinese auto companies are being given the technology short shrift by their foreign counterparts.

The second factor that has been channeling the joint venture self-owned brand concept is the growing penchant of most automobile companies to enhance their own research and development capabilities, and their desire to spruce up their brand image with new ideas.

The third reason is the rapid development of the self-owned brands in the low-end market and the overwhelming response received by joint venture companies.

Many believe that the introduction of the joint venture self-owned brands policy will put independent local brands in an unfavorable position, although there is no exact proof for that. But the sales numbers of many independent brands like BYD have fallen sharply in recent times. Its production, sales, revenue, profits, and market share have been on a roller coaster ride, and the decline is alarming.

While the policy of joint venture self-owned brands has been in vogue for more than a year, it is also time to take stock of whether the policy has actually lived up to the expectations.

The main aim of the policy was to attract core technologies for localization in China. But I think, from the previous "market for technology" policy to today's joint venture self-owned brand policy, the desire of bringing foreign core technologies to China has still proved elusive. It can be said it has always been wishful thinking. Although we have introduced a number of policies, foreign joint ventures always have ways to circumvent and avoid it, at least so far.

Take a Shanghai joint venture as an example. To respond to the government requirement that joint ventures set up self-owned brands before expansion, and the requirement to introduce new-energy automobiles, the company simply combined the two policies into one, releasing its brand of electric vehicles, and then claimed that due to the immature market, the time for large-scale production is yet to be decided. They have said that they will act according to market changes. In this case, though both the policy requirements set by the government have been met, the core technology is still in the hands of the foreign brands.

The joint ventures usually purchase or introduce technology platforms from the foreign side. On this basis, they re-develop brands and models whose intellectual property rights belong to the joint venture itself.

So in reality, the joint venture self-owned brand policy has failed to live up to its original purpose. In most cases, outdated car models are being shelled as a new brand and called the joint venture self-owned brand. Once again it brings profit to the foreign joint ventures. In fact, even if the technology is obsolete, they will not easily give up this setup. The "traps" include patent and technology licensing issues.

Most of the independent Chinese brands regard the "joint venture self-owned brand" policy as one of the reasons for their shrinking market share. I think there is a certain truth in this, but the slump is largely due to the downturn of the car market as a whole as well as the changes in auto consumption policies.

The majority of joint venture self-owned brands are still market newbies. With the scarcity of dealer outlets, they are not well known among consumers for the time being. Therefore they do not pose a threat to domestic brands.

The sales of the top four joint venture self-owned brands have proved this. The case of BYD is largely due to its internal development strategy mistakes.

In fact, joint venture self-owned brands and independent brands are the same side of the coin. The key to the development of China's automobile industry is not decided by what brands are called, but ultimately by the uniqueness of the "Made in China" tag that these foreign transnational companies do not have.

The author is a professor at Shanghai Jiaotong University. The views expressed here are not necessarily those of China Daily.

(China Daily 11/30/2012 page7)