Case Study China Losing Its Allure - 863 Words

TO: Mary Teresa Barra, CEO FROM: [Student’s name] DATE: December 14, 2015 SUBJECT: China Losing its Allure Since the early 1980s, China has been one of the fastest growing markets. Policy shifts by the Communist government opened their doors to foreign firm investment in the country. The purpose of this memo is to inform you that firms foreign to China, like us in General Motors, will have a difficult time doing business there moving forward. The reasons why are mainly because of a government becoming increasingly hostile to foreign firms and the emergence of local competitors. At an International Corporate Finance presentation at Baruch College on December 8th, we learned that the Chinese marketplace is losing its allure.†¦show more content†¦Na Li made the point that China accounted for 8% of global private consumption during 2011-13. This is of particular importance to us because our GM International Operations accounted for over 4 million cars sold of the nearly 10 million we sold in 2014, according to Statista. We are engaged in several joint-ventures, most notably with state-owned Shanghai Automotive Industry Corporation (10K, 2015). GM cannot be a cost leader in the automotive industry because of the expense of our production costs related to the United Auto Workers union. Recently GM exported its Buick brand to the states using cheaper Chinese labor (Nagesh Stoll, 2015). But as the presentation pointed out, wages for talented workers are going up. Of which we employ 58,000 in China (10K, 2015). One suggestion during the presentation was that we need to automate the manufacturing process. As Alan Tang pointed out, firms that invest in China are exposed to both political and financial risks. He presented examples of high tech firms being singled out by the Chinese government for political reasons. For us, the Chinese government institutes high taxes on what it deems luxury cars (BMI, 2015). This means Chinese consumers need to travel to bypass these expensive taxes on our goods. We do avoid these taxes through sales of our Chinese joint-venture cars like the Baojun, but our wholly owned divisions suffer.