Friday, December 28, 2007

Here are a few reasons why Local Motors is not initially setting up in China

In a recent visit to Harvard Business School, I had the unique opportunity to attend a seminar on Automotive Trends in China and discuss “localization” with its speaker, Su Weiming. Su is the current executive vice president of marketing for Volkswagen of China and grew up in the “Detroit” of China, Changchun providence. With 17% market share, VW is the largest foreign automaker in the country with exceptional success selling taxis, police cars, and utility vehicles to the Chinese government.

What surprised me the most in the discussion was the negative sentiment towards “local” automotive manufacturers within China’s own borders. Even with government support (monetary subsidies, regulation adjustments) and recent advances in R&D “replication” (ala Hyundai’s strength) consumers still don’t value locally made cars. According to Mr. Weiming, it appears that the current needs of the Chinese automotive consumer focus on one metric: “durability.” Since the roads are congested and the opportunity to purchase a vehicle is unique (government lottery), consumers are choosing the Jetta over models by Chery and Brilliance. Furthermore, Su believes that “building quality automobiles is a unique culture” that is cultivated over time and the local manufacturers will continue to be outsold by foreign manufacturers for decades. Right, well, I guess you don’t acknowledge low-end disruptors until it’s too late, but I am sure their time will come.

One can’t draw direct parallels between Local Motors and the suffering “local” automakers in China because:
1.) Customer Needs: In China the vast majority of consumers are looking for a “Model T” to fulfill their basic needs for durability, in the US the market fulfilled against non-consumption in the early 20th century.
2.) Design Strategy: Similar to the Korean automakers, the “local” Chinese automakers are primarily focusing on replication first, whereas we will focus on unique community-built designs
3.) Manufacturing Execution: Chinese and foreign governments are pouring billions of dollars into large-scale manufacturing facilities to be shared by domestic automakers –big volumes, big problems. We plan to pioneer micro-factories that will scale properly
4.) Sales & Marketing: Chinese domestics are still focusing on the traditional model of dealer sales, versus our participatory retail experience

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