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Passenger Car Market of China: A Study on Current Scenario and Future Trends


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For successful business venture a firm should have all possible knowledge about its country of operation. Success of long-range planning completely depends on proper knowledge of environment. In today’s global market, China is a highly considered market to get into. Huge opportunities in terms of market growth rate, product acceptance, rising per capita income country, burgeoning middle class stimulate opportunity seekers in business world worldwide to test their luck in this country. Furthermore growing amount of disposable income and changing trend towards materialistic gain make this market an attractive launching pad of luxury commodities. Car is one such example in this bandwagon. In this paper an attempt is made to analysis present passenger car market of China. Changing consumer behavior and competitive landscape have also been studied to offer future entrants a possible idea about the passenger car industry of the country.
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Do Necessary Conditions Exist for the SAFTA?
by Gordhan K. Saini 1
Passenger Car Market of China: A Study on
Current Scenario and Future Trends
by Saikat Banerjee 6
Gaining Competitive Edge In The Market :
Select Business Practices
by M.V. Sastry 15
India: Trade, Investments & Policy Updates 19
Indo-German Relations
India's FDI Policy - Compendium
Patents Amendment Rules 2006
Global Vistas Volume-5(1) April-June 2006
Editorial Committee
Chief Editor
V.K. Kumar
MV Lakshmi
AD Madhavi
V.L. Rao
Support Staff
P. Srinivas Chakravarthy
Ch. Ram Kumar
A. Kiran Kumar
Contributors may contact
The Editor, Global Vistas
GITAM Institute of Foreign Trade
Gandhinagar Campus, Rushikonda
Visakhapatnam 530 045
Ph : 2790505, Telefax : 2790036
GIFT brings out this quarterly
publication GLOBAL VISTAS
to provide analytical articles and
commentaries on issues relating
to international trade
developments, and WTO and
related trade issues. We at Global
Vistas invite contributions with
a word limit of 2000 words from
academics, trade and industry
that are of contemporary
India-Poland: Agreement on Economic Cooperation
With the recent signing of an Agreement on Economic Cooperation, India
and Poland envisage to expand and develop bilateral economic relations
in all areas and sectors of the economies, based on mutual benefit. Indo-
Polish relations are deep rooted and have traditionally been close and
friendly, characterized by understanding and cooperation. Despite
fundamental changes in trade relations with the CIS region in the past
decade, Poland has retained its status as India’s largest trading partner
in East Europe, after Russia. And now as a member of the European
Union, Poland can truly act as a gateway to Eastern Europe.
Though India’s two-way trade with Poland amounts to less than US $
600 million, it is growing at the rate of 43%. India’s merchandise exports
had crossed US $ 100 billion this year and FIIs had invested more than
US $ 12 billion last year, and more than US $ 8 billion came in as foreign
direct investment (FDI). Since 1995, there has been a gradual increase
in bilateral trade and in 2003, trade reached the highest level since 1990.
Since the systemic change in Poland in 1989-90, the country has made
significant progress towards democracy and market economy. While attempting
to integrate itself, politically and economically, with Western Europe, Poland
has carved out a distinctive role for itself as a bridge between East and
West Europe. With the accomplishment of its twin objectives of membership
in NATO and EU, Poland now seeks to reinvigorate its relations with the
other parts of the world. India is a priority country now, in Poland’s economic
Interestingly, educational links between India and Poland predate the political
relations as also the independence of both countries. There is a strong
tradition of Indological studies in Poland, with Polish scholars having
translated Sanskrit classics into Polish as early as in the 19th Century.
There are roads in Warsaw named after Mahatma Gandhi, Rabindra Nath
Tagore, Jawaharlal Nehru and Indira Gandhi. There is also a bust of Mahatma
Gandhi in the central library of the Warsaw University. The current Cultural
Exchange Programme for 2005-07, signed in March 2005 was followed
by the “Incredible India” event organized in April 2005.
Poland’s assurance to liberalise its visa regime for Indian businesses is
a step towards strengthening trade and economic cooperation between the
two countries. The potential for India Poland Relations needs to be tapped.
The Federation of Indian Chambers of Commerce & Industry (FICCI) and
the Polish Chamber of Commerce have also signed a Joint Business Council
Agreement in Warsaw to encourage contacts between commercial
organisations and private enterprises between the two countries.
Now, it’s time that the “warm political relations have an equally
large economic content” as the Commerce minister Kamal Nath stated.
And as Wozniak, Polish Economy Minister hopes the two countries
should see “ a new impulse” in their economic relations.
- The Editor
Global Vistas Volume-5(1) April-June 2006
Global Vistas Volume-5(1) April-June 2006
The proliferation of Regional Trading Agreements
(RTAs) in different regions of the world has been a
significant development over the last two decades. The
South Asian region is also not an exception. Seven
South Asian countries (Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan and Sri Lanka) formed the
South Asian Association of Regional Cooperation
(SAARC) in 1985 as a first step toward the regional
cooperation. After a decade’s existence, the South Asian
Preferential Trading Agreement (SAPTA) was launched
by the SAARC in 1995 as the second step. The signing
of, a framework agreement on South Asian Free Trade
Area (SAFTA) in January 2004 during the 12th SAARC
Summit, held at Islamabad, can be treated as the third
step of South Asian economic integration. Members
have agreed that SAPTA would begin the transformation
into SAFTA by the beginning of 2006, with full
implementation completed between 2009 and 2013.
There is a large body of literature available on RTAs
in Europe, North America, South America and South
East Asia. However, the literature on the South Asian
regional grouping is limited. While there are many
quantitative studies on RTAs in other parts of the world,
similar studies on SAARC (or SAPTA and SAFTA)
are very limited. There are a number of possible reasons.
First, many trade analysts have not paid much attention
to this region until recently since it is not important
in terms of global trade, investment and growth. Second,
data on trade and other variables related to countries
in this region are sparse. Third, the volume and value
of illegal trade are very high in the region and published
data do not reflect the real picture of the trade structure
in the region. Finally, non-tariff barriers on trade are
very important in this region compared to many other
regions in the world, while the recognition and
quantification of non-tariff barriers are difficult. Despite
these constraints, there are several empirical and
analytical studies that have generated a debate on the
future prospects of SAFTA. Further, even within the
limited literature on South Asian economic integration,
there are some controversies that whether SAFTA will
be a successful RTA in the region like other RTAs
such as EU, NAFTA, MERCOSUR, ASEAN etc. The
existing literature raises some questions such as: Do
necessary conditions exist for a successful RTA in South
Asia? Will SAFTA create gains for its members or
not? Why the progress of South Asian regional and
economic integration is so slow as compared to other
RTAs? Whether the south Asian countries possess the
fundamental conditions necessary for a successful RTA?
The main objective of this paper is to address these
questions and to assess whether South Asian countries
possess certain necessary conditions (suggested by
literature) for a successful RTA.
Some of the necessary pre-conditions for a successful
RTA, highlighted in the literature are (a) geographical
proximity; (b) high pre-RTA tariffs; (c) high level of
intra-regional trade; (d) the existence of trade
complementarity; and (e) differences in economic
structure based on competitiveness and (f) less political
tensions among member countries. These fundamental
conditions can serve as a laboratory test to analyze
the potentiality of forming a RTA within a particular
(a) Geographical Proximity and Natural Trading
Partner Concept
It is argued that countries in relative geographical
proximity tend to trade more with each other than with
more distant countries owing to lower transport and
communications costs (Deardorff and Stern, 1994).
Wonnacott and Lutz (1989) also refer to transport costs,
suggesting that geographical proximity between
countries tends to increase trade between them and
reduce trade diversion. Following the natural trading
bloc argument, as suggested in Krugman (1991) and
supported by others (Frankel and Wei, 1995; Frankel,
1997), geographical proximity does promote trade. In
support of the natural trading partner concept, empirical
Do Necessary Conditions Exist for the SAFTA?
Gordhan K. Saini1
1 Gordhan Kumar Saini, Academic Associate(Marketing Area), Indian Institute of Management, Ahmedabad, Email -
Global Vistas Volume-5(1) April-June 2006
works argue that the proximity is in general an important
determinant of bilateral trade around the world.
However, some economists such as Bhagwathi (1993)
and Panagariya (1995) have some opposition about
this argument. The example they have cited against
the argument is the trade between India and Pakistan.
South Asian trade behaves against the natural trading
partner argument. Although India and Pakistan are
neighbours, historically trade between two countries
has been low. The estimates of Frankel and Wei (1995)
indicates that trade between India and Pakistan is 70
per cent lower than two otherwise identical economies.
Supporters of natural trading partner concept argue
that historical political differences have reduced trade
between India and Pakistan and that this is an exceptional
case. In conclusion, despite the difference regarding
their general attitude toward the natural trading partner
argument, all these studies do recognize that the
geographical proximity is not in favour of creating
(b) High Pre-FTA Tariffs
South Asian countries have long maintained high tariff
rates and other protection measures despite their recent
efforts to liberalize trade. In the three large countries
in the region Bangladesh, India and Pakistan, tariffs
are still higher than Southeast Asian countries. This
point has been well illustrated by Panagariya (1999)
who provides a comparison of tariff of the countries
in this region with countries in the South East Asian
region and shows that average tariffs are still high
in South Asian countries than East Asian countries.
Although the average nominal tariff rate has declined
in the South Asian region due to trade liberalisation
attempts over the last two decades, it is still higher
than that in other regions in the world (Bandara and
McGillivray, 1998). This disparity is due to the initial
higher tariff rates in South Asia and the continuous
tariff cuts in other regions in the world. However, the
average for South Asia is still higher compared with
other regions in the world. These views show that high
pre-FTA tariffs as a pre-condition for forming a PTA
does indeed exist in South Asia. The graph shows the
simple average regional import tariff rates all over the
(c) Level of Intra-Regional Trade
Despite difficulties in obtaining reliable data on South
Asian intra-regional trade, mainly because of illegal
cross-border trade, available published trade data
indicate that the level of intra-regional trade in South
Asia is very nominal. Compared to the high level of
intra-regional trade in other regions in the world, the
low level of South Asian intra-regional trade is not
an encouraging sign for the regional integration. The
estimate shows that South Asia has the lowest intra-
regional exports share in the world. The situation of
total South Asian intra-regional trade is also not much
different and the data reflects the same pattern. While
the share of intra-regional trade in South Asia’s total
trade has declined from 3.5 per cent to 2.4 between
1970 and 1990, it has shown moderate rise from 2.4
per cent in 1990 to 4.6 in 1999 (as per Direction of
Trade Statistics of IMF). But still, the share of intra-
regional trade in South Asia is the lowest as compared
with other RTAs around the world such as EU, NAFTA
etc. The other important trend is India’s growing trade
surplus with other SAARC countries. India is the biggest
country in the region and its exports to other SAARC
countries (except Pakistan) have continuously increased.
While the share of India’s exports to the region in
its total exports has increased from 3.9 per cent in
1970 to 5.5 per cent in 1999, its import share from
the region has declined from 1.4 per cent to 0.9 per
cent during the same period.
Table - 1 provides a review of intra-regional trade
between 1981 and 1998 at an aggregate level. The
overall (official) intra-regional trade as a share of total
trade has remained below 5 percent throughout this
Simple Average of Regional Import Tariff Rates(P er c en t)
1980-85 1986-90 1991-95 1996-98
E. Europe &
C. Asia
M. East & N.
E. Asia and
the Pacific
Latin America
& Caribbean
South Asia
Global Vistas Volume-5(1) April-June 2006
period. Bhutan and Nepal trade disproportionately with
the region, with shares of regional trade as high as
71 percent and 33 percent, respectively, in 1998. Due
to the landlocked nature of these two countries, trade
takes place primarily with India. While Nepal has made
some efforts to reduce its trade dependence on India,
Bhutan remains strongly dependent on India as both
a supply source and export destination. For Bangladesh
and Sri Lanka, regional trade accounted for
approximately 12.4 percent and 8.2 percent of their
total trade, respectively, in 1998. For Pakistan, intra-
regional trade is relatively insignificant, accounting for
a modest 3.6 percent of its total trade in 1998. However,
Pakistan has increased its share of regional trade since
it implemented reforms, increasing from 2.7 percent
in 1990. For India, intra-regional trade is even less
significant, accounting for a low 3.2 percent of its
total trade in 1998. Intra-regional trade patterns in South
Asia suggest that all members increased their relative
importance in the region toward the late 1990s. Although
the relative importance of the region increased in more
or less the same ratios for Bangladesh, Nepal, Pakistan,
and Sri Lanka, the increases are based more on imports
from the region rather than exports (see table 1). The
share of intra-regional imports of Bangladesh increased
from 7 percent in 1990 to 17.7 percent in 1998. Nepal
increased its intra-regional imports from 4.0 percent
to 31.7 percent, Sri Lanka from 7.0 percent to 12.9
percent, and Pakistan from 1.6 percent to 2.4 percent
during the same period. However, the relative importance
of intra-regional exports has been decreasing for both
Bangladesh (from 3.1 percent to 2.7 percent) and Sri
Lanka (from 3.7 percent to 2.4 percent) during the
corresponding period and remains marginal for Pakistan.
Table 1: Intra-regional Trade as a Share of Total Trade
Intra-regional Imports Intra-regional Exports Total Intra-regional Trade
1981 1990 1995 1998 1981 1990 1995 1998 1981 1990 1995 1998
India 1.3 0.4 0.6 1.1 2.9 2.7 5.1 5.6 1.8 1.4 2.7 3.2
Pakistan 1.9 1.6 1.5 2.4 5.5 4.0 3.2 4.9 3.1 2.7 2.2 3.6
Bangladesh 4.7 7.0 17.7 17.5 7.9 3.1 2.3 2.7 5.4 5.8 12.7 12.4
Sri Lanka 5.2 7.0 11.4 12.9 8.8 3.7 2.7 2.4 6.5 5.6 7.5 8.2
Nepal N/A 13.4 17.5 31.7 63.8 7.7 9.2 36.2 47.4 11.9 15.0 32.8
Maldives 6 7.4 4.5 7.7 22.3 13.8 22.5 16.6 9.4 9.2 6.7 9.4
Bhutan N/A 10.9 57.5 59.9 N/A 9.6 87.9 81.9 N/A 9.7 73.5 71.8
South Asia 2.4 2.0 3.8 4.3 4.8 3.1 4.3 7.3 3.2 2.4 4.1 4.9
MERCOSUR N/A 14.5 18.1 N/A 8.9 8.9 20.5 N/A 10.7 14.0 21.3 23.0
Community N/A 6.4 12.6 12.0 N/A 4.1 11.8 11.9 N/A 7.9 12.3 11.4
ASEAN 13.2 14.6 16.9 20.9 17.2 18.2 23.4 19.8 15.2 16.3 20.0 20.3
EU (15) 57.3 65.9 62.4 61.8 52.9 63.2 61.0 59.4 55.0 64.5 61.7 60.6
Source: IMF Direction of Trade Statistics
Global Vistas Volume-5(1) April-June 2006
Thus, the low level of intra-regional and preferential
trade should be a major concern for countries and
certainly, is not a good sign to achieve the full
potentialities of a FTA in South Asian region. In
conclusion, the very low level intra-regional trade, as
clear from the official statistics, is not favourable for
the gains of a RTA to be realized within the region.
(d) Trade Complementarity
Trade complementarity is also yet another important
pre-condition that plays an import role in the success
of a RTA. The substantial empirical literature refers
to the existence of complementarity rather than
competitive trade as a pre-condition needed to enhance
the probability of a net trade-creating, rather than net
trade-diverting, regional trade arrangement. The
statistical measures such as the complementarity index
argue that the higher the observed values of the index
between partners, the more likely is it that a proposed
regional trade agreement will succeed (Michaely, 1996).
Furthermore, Trade complementarity indices developed
by Drysdale (1969) can be used to check the existence
of trade complementarity in South Asia. If the calculated
value of the complementarity index based on bilateral
trade flow is greater than one, then there exists trade
complementarity between two countries. Kemal (2000)
have estimated the complementarity indices for all five
leading South Asian countries using time series trade
data and found that there is a lack of strong trade
complementarity in the bilateral trade structures of South
Asia. Therefore the lack of trade complementarities
also raised the questions on the future prospects of
(e) Differences in Competitiveness of the Countries
Countries with different comparative advantage profiles,
in principle, have more opportunities to trade with each
other compared with those with similar comparative
advantage profiles. The prospects of increasing regional
trade depends more on the existence of product
complementarities and export efficiencies (defined by
comparative advantage) and other characteristics such
as the degree of concentration and diversification of
trade profiles amongst the regional partners. The main
problem related to South Asian economic integration
is that countries in the region are producing and trading
similar commodities. To identify different country’s
competitiveness among different commodity groups,
the Export Revealed Comparative Advantage indices
(XRCA) have been estimated by two recent studies
for commodities at the three-digit level using recent
UN trade data (Samaratunga, 1999 and Kemal, 2000).
These indices show the comparative advantage in terms
of the share of a particular industry in a country’s
total exports relative to the industry’s share in total
world exports. The results of these two studies indicate
that countries in South Asia have an almost identical
pattern of comparative advantage in a relatively narrow
band of commodities and these countries do not have
comparative advantages in a wide range of capital goods
and advanced manufactured products. The lack of trade
complementarity in bilateral trade flow and the similarity
of the pattern of comparative advantage in the region
have been the main constraints for the growth of intra-
regional trade (Kemal, 2000). Nihal Pitigala (2005)
in his recent study summarized that the region has
shown a mutual dependency in basic foods and
agricultural products, although they are not fully
liberalized. A narrow group of products which are mostly
made up of agriculture and raw material for manufacture,
on which most countries display comparative advantage
has made inroads in regional trade. Countries have
to develop comparative advantages in the different
commodities especially in the products which they are
trading with non-members to make the SAFTA
successful in its real sense.
(f) Political Harmony in the Region
Many analysts believe that the political tension between
two large countries in the region (i.e., India and Pakistan)
is a main constraint to the regional integration. The
nuclear tests conducted by India and Pakistan, the Kargil
war and the political change in Pakistan are major
obstacles for regional cooperation. SAARC failed to
hold a previously scheduled summit in November 1999
because relations between India and Pakistan worsened
in the wake of their “tit-for-tat” nuclear tests and the
military takeover in Pakistan. Pakistan has also not
given its word on the opening land routes of Wagah
and Karachi for carrying the trade with India. Trade
with Pakistan will not normalize if it does not allow
items to be traded through the land routes of Wagah
and Karachi. Pakistan allows import of only onions,
Global Vistas Volume-5(1) April-June 2006
potatoes, garlic, animals, halal meat, vaccines, medicines
for cancer and AIDS, and sugar through land route
and rest of the items are to be routed through third
countries such as UAE, which complicates procedures
and increases freight costs. Conditions are not much
different with Sri Lanka and Nepal when the LITTE
issue and cross border illegal trade comes into notice
respectively. Unless SAARC countries are able to
develop cordial political relations it would be very
hard to achieve the real gains from SAFTA.
After assessing the different pre-conditions required
for a successful RTA and the capacities of SAARC
countries in satisfying these conditions, it can be
concluded that in present situation South Asian countries
do hardly satisfy most of the pre-conditions and the
deadline proposed in the way of achieving economic
integration in the region seems to be unrealistic. To
realize the objectives stated in the SAARC charter these
countries are required to learn from the examples such
as NAFTA, EU, MERCOSUR, ASEAN and they need
to built upon a strong foundations (as discussed) for
the successful regional trade agreement, leaving aside
their controversial bilateral issue and this is also a
must requirement of the global economy in the era
of trade liberalization.
1. Bandara, J S and M. McGillivray (1998). “Trade
Policy Reforms in South Asia”, The World
Economy, 21, 7, pp 881–96.
2. Bhagwati, J (1993). “Regionalism and
Multilateralism: An Overview”, in J. de Melo and
A. Panagariya (eds.), New Dimensions in Regional
Integration (Cambridge: Cambridge University
3. Deardorff, A and Stern, R M (1994). “Multilateral
Trade Negotiations and Preferential Trade
Arrangements”, Chapter 2 in Deardorff and Stern
(eds), Analytical and Negotiating Issues in the
Global Trading System. Ann Arbor: University
of Michigan Press.
4. Drysdale, P D (1969) “Japan and Australia: The
Prospect for Closer Economic Integration”,
Economic Papers, Vol. 30, pp 12-28.
5. Frankel, J; Stein, E and Wei, S (1995). “Trading
Blocs and the Americas: The Natural, the Unnatural
and the Super Natural”, Journal of Development
Economics 47 (1): pp 61 – 95.
6. Frankel, J A; Stein, E and S J Wei (1997). “Regional
Trading Blocs in the World Economic System”
(Washington, DC: Institute for International
7. Kemal, A R; Din M; Abbas K and Qadir U (2000).
“A Plan to Strengthen Regional Trade Cooperation
in South Asia”, Paper presented at the Second
Conference of the South Asia Network of
Economic Research Institute (SANEI)
(Kathmandu, 28–29 August).
8. Krugman, P (1991). “The Move toward Free Trade
Zones”, In Policy Implications of Trade and
Currency Zones, pp. 7–41. Kansas City: Federal
Reserve Bank of Kansas City.
9. Michaely, M (1996). “Trade Preferential
Agreements in Latin America: An Ex Ante
Assessment”, World Bank Policy Research
Working Paper # 1583.
10. Nihal, P (2005). “What Does Regional Trade in
South Asia Reveal about Future Trade Integration?
Some Empirical Evidence”, World Bank Policy
Research Working Paper # 3497.
11. Panagariya, A (1995). “The Free Trade Area of
the Americas: Good for Latin America?” Centre
for International Economics, University of
12. Panagariya, A (1999). “Trade Liberalisation in
South Asia: Recent Liberalisation and Future
Agenda”, The World Economy, 22, 3, pp 353–
13. Samaratunga, R H S (1999). “Essays in Trade
Policy and Economic Integration with Special
Reference to South Asia”, Unpublished PhD Thesis
(Melbourne: La Trobe University).
14. Wonnacott, P and Lutz, M (1989). “Is there a
Case for Free Trade Areas?” In J.J. Schott (ed.),
Free Trade Areas and U.S Trade Policy, pp 59–
84 (Washington, D.C.: Institute of International
Global Vistas Volume-5(1) April-June 2006
Industry environment is the first responding parameter
where a marketer can feel the pulse of change. Success
of long-range planning completely depends on proper
knowledge of environment. To create a successful future
a continuous selectivity of performing factors and
synergistic effect is required (Prahlad, 1990). Rapid
change has to be addressed directly in the area of
improving operational effectiveness (Porter, 1991). Due
to rapid increase of global economy concept, one can
witness present regime as one of the opportunities and
challenges for the firms. It will be an age of vulnerable
boundaries among businesses. The environmental
scanners have noticed that organizations are now
operating in more complex environments than ever
before (Van de Ven and Joyce, 1981). Obvious results
are high uncertainty and risk because of complexity
in decision-making.
For successful business venture a firm should have
all possible knowledge about its country of operation.
In today’s economy India and China are two upcoming
giants. Huge opportunities in terms of market growth
rate, product acceptance, rising per capita income and
burgeoning middle class stimulate opportunity seekers
in business world, worldwide to test their luck in these
two countries. Furthermore growing amount of
disposable income and changing trend towards
materialistic gain make these two markets an attractive
launching pad for luxuries commodities. Car is one
such example in this bandwagon. Over the years an
increasing sales figure of passenger cars motivates
analyst to paint a rosy picture of this industry. In this
backdrop the aim of this paper is to provide a bird’s
eye view of passenger car market of China to facilitate
future entrants to chart their entry road map bump
China: An Overview
Beijing, the capital of China, administrates 22 provinces;
five autonomous regions comprise minority people
(Inner Mongolia, Guangxi Zhuang, Ningxia Hui,
Xinjiang Uygur and Tibet) and four municipalities with
provincial status (Beijing, Shanghai, Tianjin and
Chongqing). The major advantage of enjoying provincial
status is that other than enjoying greater economic,
Passenger Car Market of China: A Study on
Current Scenario and Future Trends
Saikat Banerjee1
1Dr. Saikat Banerjee ( is Assistant Professor in Indian Institute of Foreign Trade (IIFT-Deemed University under Ministry
of Commerce), New Delhi, India
For successful business venture a firm should have all possible knowledge about its country
of operation. Success of long-range planning completely depends on proper knowledge of
environment. In today’s global market, China is a highly considered market to get into. Huge
opportunities in terms of market growth rate, product acceptance, rising per capita income
and a burgeoning middle class, stimulate opportunity seekers in business world worldwide.
to test their luck in this country. Furthermore the growing amount of disposable income
and changing trend towards materialistic gain make this market very attractive as a launch
pad for luxury goods. Car is one such example. In this paper an attempt is made to analyse
present passenger car market of China. Changing consumer behavior and competitive landscape
have also been studied to offer future entrants a possible idea about the passenger car industry
of the country.
Key Words: Automotive Industry, Passenger Car Sales, Consumer Insight, Competitive Landscape
Global Vistas Volume-5(1) April-June 2006
political and administrative freedom, they can approve
foreign-invested projects worth up to US$ 30 million
independently. Cities like Dalian, Guangzhou, Harbin,
Ningbo, Qingdao, Shenyang, Wuhan and Xi’an are
in the economic status of deputy province-level and
enjoy a higher degree of economic freedom. Two special
administrative regions (SARs), Hong Kong and Macau
are also there but these two enjoy economic and political
autonomy for their operation. In terms of economic
growth, this country is facing a peculiar imbalance
between coastal provinces and inland provinces. Coastal
provinces made use of economic reforms as it was
directed manly through port. Percolation was not that
much impressive towards inland provinces and a clear
division in terms of standard of living is visible.
The government of China is well aware about the
scenario of the country and now much focus is on
encouraging FDIs to develop central and western China.
A close look of Table 1 depicts a clear picture about
the current scenario and future trends of the country.
Table 1: China: At a glance:
PPP per capita (US$) 4,350
Population 2003 (million) 1,289
Population 2025 (million) 1,455
Population 2050 (million) 1,395
% age <15 in 2003 22
% age 15-64 in 2003 71
% age 65+ in 2003 7
% age <15 in 2050 16
% age 15-64 in 2050 54
% age 65+ in 2050 30
Availability of financing medium
Cost of financing low/medium
Consumer price inflation low
Consumer confidence medium
Discretionary income low
Access to goods/services medium
Business confidence high
Import growth potential high
Source: Market Statistical Analysis, 2004.
Present population figure is of 1289 million in 2003
and the projection by 2025 is 1,455 million and in
the year 2050 country is expecting a downward trend
in its population figure (1,395 million). Major
encouraging fact is growing young and middle age
population. They are always a target for any marketer.
This is the chunk which creates enough confidence
in the mind of the marketers about their business growth.
In 2003, the country has 71% population within the
age bracket of 15-64. Current percentage of older
generation is 7% but as the projection for 2050 of
this segment is of 30%, there is a huge scope of marketer
to draw strategy to lure these senior citizens.
Furthermore, the table predicts a high import growth
potential and it is highly encouraging information to
any cross-border player. Business confidence is growing,
price inflation is within the tolerance range, consumers
are confident about business offers, financing
opportunities are increasing in all presenting an
optimistic view about the potentiality of business growth
in this country.
2. China’s Automotive Industry
In recent past China’s automotive industry has witnessed
a clear sign of progress with an increasing product
sales year on year. It is about to take the position
of the second-largest car market in Asia and is able
to throw a shudder into the spine of Japan, the clear
number one auto manufacturing country till date. It
has a basket full of automobile industry which consists
of complete vehicles and parts manufacturing,
manufacturing of complete motorcycles and parts.
Again, automobile repair, motor vehicle assembly and
automobile refitting are also in its menu list. Pre 1978
era of Chinese automobile industry witnessed small
steps towards a bright future. In 1956, FAW (First
Automotive Works Corp.) started its operation with
Soviet designed medium trucks. First JV was initiated
by Beijing Jeep Co in May 1983, followed by Shanghai
VW, FAW-VW and so on. Mid 80’s was a major
landmark towards abolishment of individual motor car
purchase restriction. In 1994, government promulgated
industrial policy for automotive industry and a stable
and rapid growth witnessed in last ten years. China’s
current auto production capacity is 5.5 million units
in a year. Near about 1.89 million people are engaged
in this industry. Total asset of auto industry is 108.8
bn USD.
Global Vistas Volume-5(1) April-June 2006
Box 1: China: Auto Industry Development Policy: Major Highlights
To firmly follow the principle of letting the market play its role of allocating resources and leaving macro-level control
to the government, create a fair and unified market environment, improve legal management system for the auto industry.
Create a favorable using environment for autos, nurture a healthy auto consumption market, protect customers’ rights and
propel private auto consumption.
Automakers will be encouraged to improve R&D and technical innovation capacities, to pro-actively develop products
with their own Intellectual Property Rights (IPR) and practice branding strategies.
Promote the auto industry’s restructuring and reorganization; increase enterprises’ economy of scale and the industry’s concentration
rate, and avoid the repetitive constructions characterized as scattered, disordered and low-level.
Development planning
Mid and long-term industrial development plans and development plans for large auto groups. The National Development
& Reform Commission (hereinafter referred to as NDRC, formerly as SDPC) is responsible for formulating the mid and
long-term industrial development plans and submitting the plans for approval by the State Council
AG an auto group with features as unified planning, self-developed products, independent product trademarks/brands and
integrated distribution/service system management, in the same time whose total domestic market share or whose group
sales revenue of complete vehicles accounts for over 15% of that of the whole industry, is qualified as Large Auto Group
and should formulate its group development plans and submit directly to NDRC for investigation and approval.
Technical policies
Before to 2010, average fuel consumption of new passenger vehicles should be decreased by minimum 15% compared
to 2003.
The state supports the R&D of new fuels for vehicle use as alcohol fuel, natural gas, mixed fuel and hydrogen fuel,
encourages automakers to produce vehicles powered by new fuels.
Establish the withdrawal system for automakers and motorcycle manufacturers. Any manufacturer (including bodybuilder)
who fails to maintain normal operations (including bodybuilders) will be put on a special bulletin. Manufacturers of this
kind are not allowed to transfer their production qualifications to non-automakers, non-motorcycle manufacturers or individuals.
Entry management
Formulate the Regulation on Management of Road Power-driven Vehicles. The manufacture entry conditions should include
the requirements for R&D capacity, the capacity of the production facilities, the consistency in production as well as the
quality control capability, and the capability of providing distribution/service etc.
Trademarks & brands
Starting from 2005, all domestically produced complete vehicles and assemblies should bear manufacturers’ registered trademarks.
They should actively develop products with own IPRs.
Product development state report for R&D
The state supports manufacturers of auto, motorcycle and parts to set up R&D institutions to form independent R&D and
product innovation capabilities.
Distribution network:
Starting from 2005, passenger vehicles produced by automakers are requested to practice brand distribution and service.
Legal action for non-compliance
Legal punishment will be invoked if the following activities occur: selling vehicles banned by the state or vehicles whose
terminations of production have been announced; selling vehicles with phony manufacturers’ names, addresses or quality
Global Vistas Volume-5(1) April-June 2006
China announced a new ‘Auto Industry Development
Policy’. Box 1 and Box 2 explain some of the major
highlights of China Auto Policy.
From box 1, we may identify major objective behind
this ‘Auto Industry Development Policy’. It will allow
market to play its role of allocating resources and leaving
macro-level control to the government by creating a
favourable business environment. Developing products
with their own Intellectual Property Rights (IPR) and
branding is another major focus area. In its development
plan, focus is on separate set of plan for mid and
long-term groups and for large auto groups. A drive
towards decreasing rate of fuel consumption is in agenda
with a target of 15% cut compared to 2003. Protecting
trademarks and brands is a prime area of concern.
After the entry into WTO in December 2001, auto
industry of China witnessed a paradigm shift from a
state capital monopolized industry to a fiercely
competitive market based industry. Major changes
witnessed in three broad areas: the principle of trade
liberalization, the anti-subsidy principle, and the
Agreement on Investment Measures Related to Trade.
Before 2001, China’s weighted average tariff rate for
automotive products was 55%, including 70-80% for
car, 45-65% for passenger vehicles and 30-50% for
freight vehicles. As per the commitment of China, the
tariff rate for cars and passenger vehicles will be lowered
to 25% by July 2006. The average tariff rate for auto
parts will be reduced from the current 25% to about
10% by July 1, 2006. After considering WTO guidelines,
Box 2: China: Auto Industry Development Policy: Investment & Import Management
Investment Management
Two approaches will be adopted to reform the governmental management system on auto investment project: the Filing Management
and the Ratification Management.
Investment projects subject to Filing Management are:
§Projects funded by existing manufacturers of auto, farming vehicle and auto engine to increase production capacity and variety
of the current category of products, including establishment of new manufacturing enterprise(s) without independent legal person
status on different location(s)
§Projects funded to produce motorcycle and motorcycle engines
§Projects funded to produce parts of auto, farming vehicle and motorcycle
Investment projects subject to the Ratification Management are:
§Projects funded to establish new auto, farming vehicle or engine manufacturing enterprises, including existing automakers’ establishment
of new manufacturing enterprises of independent legal person status.
§Projects funded by existing automakers to produce complete vehicles of other categories
Newly-invested projects should meet the following conditions:
For investment projects of cross-category complete vehicle production, total investment (including original fixed assets and intangible
assets) should be no less than RMB 1.5 billion, asset/liability ratio lower than 50% and bank credit rated AAA;
Cross-category passenger vehicle manufacturers should prove to be capable of batch-producing autos; accumulated after-tax profit
exceeds RMB1 billion for the last 3 years (with tax certificates); asset/liability ratio lower than 50% and bank credit rated AAA
For a newly-built auto manufacturing project, total investment should be no less than RMB2 billion, of which self-owned capital
should be no less than RMB800 million; a product R&D institution should be established with investment no less than RMB500
Production scale requirements for the newly-built investment projects are: for passenger vehicles equipped with 4-cylinder engines,
no less than 50,000 units per year; for passenger vehicles equipped with 6-cylinder engines, no less than 30,000 units per year.
Import management
The state supports automakers to strengthen their localization capabilities of auto products to promote technological advancement
of the parts manufacturers and the development of the auto manufacturing.
The automakers, who use imported parts with complete vehicle characteristics to produce vehicles, should report to the MOFCOM,
General Administration of Customs and NDRC strictly by the facts and all imported parts for related models should be declared
in the local customs offices, in order to facilitate the effective management by relevant authorities.
Identification of complete vehicle characteristics consists of: engine assembly, body (including cab) assembly, transmission assembly,
drive axle assembly, non-drive axle assembly, frame assembly, steering system and braking system.
The state designates the four coastal ports: Dalian New Port, Tianjin New Port, Shanghai Port, Huangpu Ports; two land ports:
Manzhouli and Huanggang as well as the Xinjiang Alashankou port (for vehicles imported from the CIS countries and only to
be used within the Xinjiang Uygur Autonomous Region), as import ports for imported of complete vehicles.
Global Vistas Volume-5(1) April-June 2006
Developing own IPRs and compulsory bearing of
manufacturers’ registered trademarks in all domestically
produced complete vehicles and assemblies from 2005
onwards are major milestones towards this direction.
Box 2 is focused on Investment & Import Management
policies of the country. These are the areas which provide
hints about government’s attitude towards cross-border
It shows that the country is in a mood to follow different
approaches to manage auto investment project: the Filing
Management and the Ratification Management. For
existing manufacturers, they will follow the Filing
Management system wherein for any establishment of
new manufacturing enterprises of independent legal
person status and Projects funded by existing automakers
to produce complete vehicles of other categories the
Ratification Management system will be referred. Newly
invested projects have their investment guidelines. For
cross-category complete vehicle production, total
investment should be no less than RMB1.5 billion,
asset/liability ratio lower than 50% and bank credit
rated AAA. Other major guidelines include, a product
R&D institution should be established with investment
no less than RMB500 million and production scale
requirements for the newly-built investment projects
are: for passenger vehicles equipped with 4-cylinder
engines, no less than 50,000 units per year; for passenger
vehicles equipped with 6-cylinder engines, no less than
30,000 units per year. Under ‘Import Management’
headings, the State prefers development of localized
expertise. The definition of complete vehicle
characteristics consists of: engine assembly, body
(including cab) assembly, transmission assembly, drive
axle assembly, non-drive axle assembly, frame assembly,
steering system and braking system. Dalian New Port,
Tianjin New Port, Shanghai Port, Huangpu Ports; two
land ports: Manzhouli and Huanggang as well as the
Xinjiang Alashankou port (for vehicles imported from
the CIS countries and only to be used within the Xinjiang
Uygur Autonomous Region) are earmarked as import
ports for imported complete vehicles.
3. Changing Consumer Behavior
Gone are the days of Communist manifesto, consumers
in China are ready to welcome market economy.
Government is there to initiate market economy in
a cautious way but they are unable to resist the wind
of change for fear of losing overall political control.
Present government is trying to keep a right balance
between popular sentiment and the rule of law. Coastal
provinces are the first to get the benefit of economic
development based on market economy. Consumer
spending is highest here and a rapidly increasing middle
class is roaring to grab all benefits of globalization.
Last year average per capita retail sales in coastal urban
markets already exceeded RMB 10,000 (US$1,208).
Inland provinces are far behind and are trying to catch
the pace of growth quickly. There are remarkable and
visible changes in the mindset of consumers. Increase
in income raises lifestyle expectations. Aspiration level
is high. The young generation is open to any new
concept and ideas. People are much more inclined
towards education. Achievement through knowledge
and arrangement of own welfare provisions are rule
of the game.
Higher income leads to higher need identification. Big-
ticket purchases are very much visible in the priority
list. Asking for loan is no longer a taboo. Government
is there to encourage this trend. They are forcing the
country’s state-run banks to provide major loans for
individual customers. NBFCs are allowed to operate
in this field. More consumers are now able to get loans
to buy a car, and this in turn is expanding the overall
size of the market. In earlier decades, the government
was to set prices and issued price guidelines for domestic
cars according to monopoly production and institutional
purchasing. This practice is at stake. Due to WTO
commitment, Chinese government is gradually widening
the price fixing limits given to car makers.
Auto market is dominated by private purchases. In
1990, private-in-use accounted for only 14.88 %, by
2003 it crossed over 50.33%. This trend is still growing.
Small car is in huge demand. Upcoming middle income
group which consists of white color professionals are
in a great need for compact or minicar. With their
high disposable income and only child in their family,
they can now afford a car that is spacious enough
to offer space to their family member. Pre-owned car
segment is also growing. Car culture completes the
circle with ‘car-club’, ‘car-books’, automotive
magazines and journals, website for car owners,
departmental stores full of car cosmetics, demand for
Global Vistas Volume-5(1) April-June 2006
in -car entertainment systems and so on. Rich section
is much more extravagant. They are ready to spend,
like big cars to satisfy their ego and status. It is small
but it is growing. As economy persists to grow, so
will the numbers.
4. Market Scenario
Growing per capita income, loosening of close State
controlled administration, cross-cultural integration,
rising aspiration level are some of the major factors
behind the highly visible growth of China passenger
car industry. Cars are now much sought after article
in families purchasing list and a positive trend towards
private household ownership gives it a momentum of
growth. Due to increasing disposable income and
availability of choices a larger chunk of population
is in a mood to be a proud owner of car. As a result,
China’s car sales saw significant growth over the years.
Current Sales and Forecasts
Table 2 and Table 3 present a time series sales figure
of passenger cars in China. Year 1994 shows a sale
figure of 0.2448 million units of car. From there, it
showed a continuous growth.
Table 2: China Passenger Car Market: Over
the years
Year Sales RMB/ Sales(% Annual Total
(million Unit value Growth Industry
units) Average Share) Rate Revenue
Price (%) (RMB
1994 0.2448 31,398 10.88 - 29,137
1995 0.3211 39,277 11.13 26.05 33,143
1996 0.3772 44,015 10.67 13.00 40,208
1997 0.4742 52,421 10.74 20.06 42,684
1998 0.5083 56,632 9.82 12.04 46,220
1999 0.5808 75,270 10.54 38.00 62,926
2000 0.6127 79,066 10.94 20.68 75,935
2001 0.7172 76,136 11.05 22.96 93,373
2002 1.1218 57,403 11.13 18.68 110,811
Source: Access Asia
After China’s entry into WTO in 2001, the growth
was tremendous. In 2002 it touched 1.12 million marks
and in 2003 (see Table 3) and in 2004 sales touched
1.98 million and 2.25 million respectively. Industry
projection is that it will grow by 17-20 % by the end
of year 2005. An interesting trend is towards mid-
range and economy cars. Demand for medium and
high-grade cars is not very much encouraging, as the
increasing number of households are in favor of more
mid-range and economy cars, which will become the
leading products in the market (see Table 3).
Table 3: China’s Car Market Share
under different prices (%)
Year Car <US$ US$ US$ >US$
Sales 12000 12000- 18000- 24000
18000 24000
2003 1.9770 24 34 13 29
2004 2.2478 38 29 11 22
Source: Cygnus: China Industry Monitor, 2005
We can see that percentage share of economy range
car (<US$12000) has captured 38 % market share of
total passenger car sale in comparison to its 24% market
share of total passenger car sale in the year 2003.
So, for small car manufacturers, this market shows
clear growth opportunities. Though it will affect their
profitability but volume is always a good motivator.
In age old days of Communist utilitarianism, for most
vehicle consumers, style and comfort was in back seat
and strive for utility was more. Due to growing rich
section of people as a result of market economy and
their aspiration for status, taste for the exotic is very
much visible. It cultivates a ground for high end luxury
cars also. China’s passenger car sales in first half of
the 2005 show an interesting trend (see Table 4).
Global Vistas Volume-5(1) April-June 2006
Table 4: Auto Production and Sales by Type in
June, 2005 (In Units)
Type Production Sales
June Accumu- Change June Accumu- Change
lated % lated %
Total 498,062 2,815,152 5.15 517,041 2,792,376 9.35
Made 456,028 2,641,748 5.21 475,763 2,619,744 8.43
§CKD 42,034 173,404 4.26 41,278 172,632 25.4
Car 367,306 1,851,713 3.28 375,472 1,843,024 10.55
Fueled 4,431 23,894 54.57 3,934 21,537 63.18
Fueled 362,875 1,827,665 2.83 371,538 1,821,328 10.12
§Car 264,397 1,255,385 2.04 258,611 1,227,984 9.29
§MPV 14,491 75,581 29.51 15,684 74,407 39.11
§SUV 16,604 81,192 -12.72 17,306 82,663 -5.76
§Others 71,814 439,555 6.91 83,871 457,970 13.83
Source: China Auto, 2005
In total sales, car accumulates 1,227,984 unit sales
with a 9.29 percent change in sales figure. Gasoline
fueled cars are in high demand with a sale of 1,821,328
unit. There is a negative growth in SUV (Sports Utility
Vehicles) segment. MPV (Multi Purpose Vehicles)
segment is maintaining a stable growth pattern.
Table 5: Passenger Car Sales (By Type of
Year Volume (%) % of Annual Growth
Private Taxi Company/ Private Taxi Company/
house Compa- Institutional house Compa- Institutional
holds nies Fleets holds nies Fleets
1994 11.9 18.7 69.4 - - -
1995 15.2 21.2 63.6 67.5 48.7 20.2
1996 18.4 23.7 57.9 42.2 31.3 6.9
1997 21.1 22.2 56.7 44.2 17.8 23.1
1998 23.8 20.8 55.4 20.9 0.4 4.7
1999 30.4 27.3 42.3 45.9 50.0 -12.8
2000 35.5 30.8 33.7 23.2 19.0 -16.0
2001 40.6 34.3 25.1 33.9 30.3 -12.8
2002 51.4 32.1 16.5 98.8 46.9 3.2
Source: Access Asia on Trade and Government Statistics
A closer look towards car sales figure by type of
ownership gives a more transparent and vivid picture
about the core development areas of business (see Table
5). Chinese passenger car market is segmented under
three broad categories: Private households, Taxi
Companies, Company/ Institutional Fleets.
From 1994 onwards, growth is with private households
segment. It started with a growth of 67.5% growth
rate and in 2002 it touched the figure of 98.8% growth
rate with lots of ups and downs in between. The
introduction of car loans and car insurance concept
in China is a major landmark behind this extraordinary
growth of households market. Reduction in tariffs on
imported cars and lowering price of brands due to
increasing degree of competition in the market are some
other influencing factors. Growth of ‘taxi companies’
as a segment is more or less stable over the years.
It 1995 it had a 48.7% growth rate and in 2002 it
was near about 46.9 % range. Drastic changes can
be witnessed in “Company/ Institutional Fleets’ segment.
With a minus growth rate over the years it has reached
a mark of 3.2% growth in the year 2002. Changing
administrative culture of China, lowering purchase by
government department are some of the reasons behind
the gradual decline of this segment.
To identify future potential of any market, a clear
knowledge about future growth opportunities is almost
crucial. Table 6 is a presentation in this direction. This
table shows future trend of China passenger car industry.
Table 6: China Passenger Car Market: Future
Year Forecast Forecast Forecast Forecast Forecast
Sales Sales Sales Sales Annual
(million (RMB (% (% Growth
units) Million- value Volume Rate
Constant Share) Share) (%)
2005 3.0895 164519 36.48 18.31 24.61
2006 3.6997 197951 38.93 20.63 19.75
2007 4.3099 231383 40.91 22.69 16.49
2008 4.9201 264815 42.53 24.53 14.16
Source: Access Asia
Global Vistas Volume-5(1) April-June 2006
In 2005, projected annual growth is 24.61% with a
forecasted sale of 3.09 million. 2006 projection is in
favour of 19.75% and in 2008 it shows a forecast
of 14.16 %. Industry analysts are optimistic to cross
this forecasted target. Due to huge population, this
country is still a high potential market. As the socio-
political changes are in nascent stage, accurate
forecasting is not possible. Again, as individual purchase
is major force behind the growth of passenger car market;
the level of demand is likely to increase in passage
of time. Future growth trend will largely depend on
the attempt of government to make the purchase easier
to the consumers.
5. Competitive Landscape of China Passenger Car
The market is now open to foreign companies with
some conditions (as discussed under ‘auto development
policy of China’). Changing competitive dynamics
compel domestic players to revisit their plans to make
it both contemporary and competitive. The market has
witnessed the operation of good amount of foreign
players. The entry strategy is either via imports route
or it is through local manufacturing joint ventures route.
Table 7 is a presentation to show competitive scenario
of China auto market. In China, there are four major
divisions of car on the basis of its capacity.
These divisions are: 2.5L-4L, 1.6L-2.5L, 1L-1.6L and
less than 1L. All major categories are popular in Chinese
passenger car market. Market moves by seven broad
categories: Minicar, Subcompact, Sedan, Full-Size
Sedan, Luxury, SUV, and MPV. Other than domestic
players, China’s passenger car market is largely
dominated by Korean and Japanese players. Market
is more crowded in minicar and subcompact segment.
Domestic players are very much prominent in this
segment. Major foreign player in mini and compact
car segment is Suzuki of Japan. Major brands in this
category are Alto, Flyer, Geely, Pride, and Skylark.
Honda-Japan has a presence with ‘Accord’ in full-size
sedan category with a joint venture with Guangzhou
Automobile Group Corporation of China. Other major
brands are Passat, Red Flag. Under sub-compact
category brand are from domestic and global players.
This segment is represented by Charade, Eagle, Palio,
Polo, Sail, Aveo and Swift.
Table 7: Major Players in China Passenger
Car Market:
Category Company-Model Scenario
Minicar ØChang’an Suzuki—Alto
ØQin Chuan—Flyer
ØZhejiang Geely—Geely
ØJiangsu Kia—Pride
ØGuizhou Skylark—Skylark
Subcompact ØTAIC—Charade, Charade2000
ØNAW—Eagle, Palio
ØSGM—Sail, Aveo
ØChang’an Suzuki—Swift
Sedan ØSVW—Santana/Santana2000
ØFAW-VW—Jetta, Bora
ØDFM-Citroen—Citreon ZX
ØShenlong Auto—Fengshen
Sedan ØSVW—Passat
ØFAW—Red Flag
ØGuangzbon Honda—Accord
Luxury ØFAW-VW—Audi A6
ØSGM—Buick Century
SUV ØChang Feng Group—Pajero
ØBeijing Jeep—Cherokee
ØGuangzbon Honda—Odyessy
ØHainan Mazda—Premacy
ØJianghui Auto—Refine
Source: Access Asia
Luxury car market is dominated by Audi brand. It is
promoted through the JV between Volkswagen and the
First Automotive Works Corp. They managed to sell
64,018 vehicles in China in 2004. Recently
DaimlerChrysler has made a plan to float Mercedes-
Benz sedans through its JV with Beijing Automotive
Industry Holding Corp. BMW is another player to try
Global Vistas Volume-5(1) April-June 2006
its luck with their 3 and 5 series sedans through its
JV with Brilliance China Auto. From the table we
can see that there is an increase in the number of
players in passenger car market. Mushrooming brands
in different segments, both from domestic and global
players, place a wide variety of choices in front of
the consumers. A continuous demand for higher liters
of car like 1.6L- 2.5L develop a scope for import for
the time being. It is expected that domestic players
will learn the tricks of the trade quickly. Once domestic
manufacturers overcome their technological deficiency
in comparison to their imported counterparts, scope
of import will decline further. Cars over 3 liters have
all along been dominated by imports over the past
two decades and this trend is likely to continue because
‘brand image’ is an important criterion for decision
making to the consumers of this particular category.
In Table 8 the past figure of passenger car imports
and exports by China over the years is presented.
Table 8: China’s Import-Export of Passenger Car
Year Export Import
(Trade Value$,000) (Trade Value$,000)
2000 30745.22 761509.312
2001 36123.308 1265572.352
2002 47807.56 2608890.368
2003 114131.424 4444491.776
2004 317099.699 4601894.126
Source: Compiled from UN COMTRADE DATABASE-CMT
In 2000 the percentage of value was 8.96% and it
showed a continuous growth after that. In 2001 it touched
double digit growth and in 2003 it occupied 21.98%
value share. In value term, import was 761509.312
($,000) in 2000 and export was 30745.22($,000) . In
2004, import figure touched 4601894.126 ($,000) and
export crossed 317099.699 ($,000) limit. As import
opportunities are increasing over the years, marketers
should offer customized car to Chinese consumers those
cater to their need and their particular living conditions.
One major problem to the domestic market in China
is the inferior grade of auto parts and components.
Purely imported cars are not facing this problem. But
they are unable to match the competitive price of the
market as offered by domestic players. For future players
this should be the major area of concern to ensure
success in the market.
The domestic industry in China still has to go a long
way to match its performance with their counterparts
in rest of the developed world’s car industry. Major
flaws are quantity focused production technology, no-
benchmarked supply of automotive parts, non-serious
approach towards marketing, and sales and service
networks. Chinese government is highly enthusiastic
to transform automobile industry as a major pillar of
economic development. The above analysis shows scope
is the enormous for passenger car industry. In future
forecast, passenger car is a vital source of earning.
A high demand of small car motivates many global
players to start their venture in China. As government
policy is much more favorable in comparison to the
previous decades, ambitious marketers should make
use of this opportunity. Environment performance, safety
performance, comfort and convenience are some of
the areas to focus for further improvement. As consumers
are much more demanding, offering high value added
benefits to consumers is a major weapon to achieve
competitive advantage. To create and retain a set of
loyal customers, these areas should be seriously
addressed in Chinese passenger car market.
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SIAM Report prepared by ICRA,2003
China Auto, July 2005, Vol 15, No.7
EIU Country Report on China
Lei. J (2004), Development of China’s Auto Industry, Discussion
in 6th APEC Automotive Dialogue, Beijing, China
China Market Statistical Analysis Report, 2004
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Harwit, Eric (1995), China’s Automobile Industry: Policies,
Problems and Prospects, London: M.E. Sharpe
Porter, M. E. (1991): Towards a Dynamic Theory of Strategy,
Strategic Management Journal, 12 (Special Issue), pp. 95-
Prahalad, C. K., & Hamel, G. (1990): The Core Competence
Of The Corporation, Harvard Business Review, 68 (3), pp.
Van de Ven, A., Joyce, W.F. (1981): Perspectives in Organization
Design And Behavior, John Wiley and Sons, New York, NY.
Global Vistas Volume-5(1) April-June 2006
1. Introduction
Globalization, liberalization and privatization, together
with rapid strides made by Information Technology,
have brought in their wake intense competition in every
field of activity. To be able to face the competition
and come out successful, a high sense of professionalism
is called for. Professionalism is about conforming to
the technical and ethical standards of work. It is about
setting high standards, showing self-belief, making the
most of opportunities and sharing the rewards of success.
For any company to succeed, the following are
i. Strategic planning
ii. Supply chain management
iii. Building a sound company culture
iv. Adopting marketing approach.
v. Overall development of its employees
vi. Effective knowledge management
vii. Increasing productivity
viii. Increasing satisfied customers
An attempt has been made in the succeeding paragraphs
to present some thoughts on the above issues.
2.i. Strategic Planning
Choosing the right path for business enables a company
to capitalize on its unique mix of assets and capabilities
that will give it sustainable competitive edge in the
market. The questions to be asked while defining a
strategy are: What are we going to do in our business?
What new opportunities will we pursue? What will
we need to accomplish in order to achieve the above?
While analyzing the situation and drawing up a strategy
for development, the following should be kept in view:
- Identify the external factors that affect the business
- Determine aspirations of market segments catered
to in the core business
- Assess competition (its strengths and weaknesses)
- Study the latest trends in technology/regulatory
changes/supplier updates etc.
- Examine your strengths and weaknesses
- Evaluate new opportunities (business environment,
customer requirements etc.)
- Decide whether to take an unexplored opportunity
or the larger path mostly used.
2.ii. Supply Chain Management (SCM)
SCM is about the management of connected activities
involved in the relationship between manufacturers,
their customers and their suppliers. It goes into
improving the way a company finds the raw components
it needs to make a product or service, manufactures
that product or service and delivers it to customers.
The basic components of SCM are: Plan (Strategy),
Source, Make, Deliver, Return (handling returned
products and servicing those with problems)
2.iii. Building A Sound Company Culture
The success of any company relies on sound business
philosophies shared at all levels of the organization.
It requires mastering the basics of a sound company
These basic building blocks of a corporate ideology
are integrity, leadership, dedication, and service. With
them as a foundation, a firm’s culture can develop
positively at all levels, affecting image, growth, and
general business practices. Without firmly implanted
values, a firm cannot fully develop the corporate culture
that will ensure growth. Developing positive, service-
oriented corporate ideologies enables firms to grow
from small companies into larger, more successful
entities. It takes thoughtful planning and a carefully
conceived corporate culture that grows as the business
Gaining Competitive Edge In The Market
Select Business Practices
M.V. Sastry*
*Retd. DG(RD), MoST.
Global Vistas Volume-5(1) April-June 2006
Integrity is the keystone. Without it, there is no trust.
When co-workers trust you, they want to work with
you. When clients trust you, they want to do business
with you. A high level of trust often leads to a low
exit rate and a high percentage of long-term employees,
which in turn makes for good morale. Trust will also
bring in additional projects from valued clients.
Leadership is a value that all members of a firm should
develop. Active participation in technical organizations,
engineering associations, and community affairs can
help reveal and develop leadership potential. Making
presentations at technical meetings, publishing papers,
and coaching co-workers can help develop leadership
Dedication is the value that means always giving more
than what people expect. The result is a happy client
and your extra effort is a cost-effective marketing tool.
Following the same practice in your office creates a
solid team effort, and that in turn creates a richer,
more rewarding work environment.
Service, the fourth core value is not a goal. It is a
primary “deliverable”. Whether you are working in
the office, making a public presentation, or conducting
a job-interview, always strive to deliver first-class
Instilling and practicing these four basic corporate values
will create an observable corporate culture. Projecting
that corporate image is accomplished through marketing.
Ideally, marketing works best when 90% of it is active
and 10% is passive. Active marketing involves hands-
on contact - shaking hands, meeting with potential
clients, maintaining personal contact with existing
clients, making presentations, and being involved in
technical organizations. Passive marketing, on the other
hand, consists of direct-mail efforts, brochures,
pamphlets, advertising, web pages, and other literature.
It can introduce your firm to a client, attract interest,
and build your company profile. Though invaluable,
such hands-off methods rarely close a deal.
When it comes to communicating your corporate image,
try some new ideas. You might be surprised at the
results. A new idea may not always work, but if you
don’t try something new, you are sure to fail. You
can learn a lot from what does not work -sometimes
more than from what does.
Quality is not accidental; it develops as the result of
a positive attitude. While quality control procedures
are reliable tools for helping to ensure a quality product,
nothing can replace an attitude that is positive about
quality right from the start.
Hire individuals who embrace your philosophy, those
you believe will fit comfortably in the corporate culture
you are trying to create. When hiring, consider these
traits in this order: positive attitude; character and
honesty; initiative; teamwork; and technical ability. A
person with a positive attitude is more likely to learn
what needs to be learnt. However, someone who
possesses technical ability without the positive attitude
might never develop a positive approach towards work.
That is why; technical ability is put at the last.
There are three main considerations for maintaining
good working relationships with clients: communication,
communication and, of course, communication. Stay
in close touch with your clients. If something goes
wrong on a project, the best way to stay out of hot
water is by having nurtured a good client relationship.
Communication is a two-way process - half of it involves
listening. Listen to your clients and to your employees.
If someone offers an idea, give it serious consideration.
If someone else suggests the same idea, give it very
serious consideration.
Another key element to setting up a corporate culture
is determining who reports to whom. Sometimes the
best business structure is the least structure; sometimes
too much structure stifles initiative, fresh ideas, and
growth. There should be a team focus on the project
and on the client.
Make sure everyone within the firm knows and
understands your business philosophy. Assemble your
staff and explain in detail. Put down your thoughts
in writing and give everyone a copy. Explain the
philosophy to the new employees as soon as they join.
Success depends on the actions each of us takes
everyday and how we exhibit quality, integrity,
leadership, and dedication.
Global Vistas Volume-5(1) April-June 2006
2.iv. Adopting Marketing Approach
In today’s world of cut-throat competition, marketing
approach is needed in all dealings, whether they are
pertaining to marketing or not. Such an approach will
help in effective functioning in every field. Marketing
is not limited to putting up hoardings. It is a search
for excellence, to give and serve the best. Marketing
is a dialogue and not a monologue. We have to be
flexible enough to offer what the customer wants. The
customer looks for regularity of service, empathy,
reliability, faith and trust: all this can be accomplished
only through relationship marketing (with customer
oriented approach). Product forms must alter to meet
changing consumer needs.
2.v. Overall Development of Employees
For achieving success in any mission, knowledge in
that particular field and management is no doubt an
essential pre-requisite but the factor that will contribute
largely to success is overall development of the
personality and getting the best out of a team. By
rejuvenating themselves at physical, mental and spiritual
levels simultaneously, people can enrich their individual
lives and also bring about lasting change in their
attitudes, whether in the work place or in the family
set-up. This brings about an overall well being in human
life and goes a long way in fulfillment of one’s ambition.
The most important P for success of any organization
is its people. Strategies for its people’s satisfaction
(a) optimizing response time
(b) an open door approach to tackling issues
(c) pro-active HR practices and
(d) meeting people’s aspirations while keeping in mind
the corporate interest Effective Knowledge Management
The Nineties has seen the emergence of ‘network in
the computer’ paradigm. With evolution of ‘Digital
Nervous System’ and other technologies, knowledge
management is receiving attention because of the
competitive pressures that are forcing firms to explore
all technologies to make their organizations work
smarter. Modern day imperatives of ‘getting it right
the first time’ and achieving quality level leave very
little room for experimentation and approximate
solutions. All the knowledge of the organization will
have to be stored and used regularly to ensure accuracy
in all transactions and decisions. In the new millennium,
effective knowledge management will be the difference
between the winners and the also-rans in the corporate
2.vii. Increasing Productivity
The way to increase productivity and reduce cost per
unit is doing the same thing in less time-turning things
around faster. This is possible through continuous
learning. To do that, you need to be able to make
use of the knowledge explosion. Adopt and adapt to
new knowledge. Productivity enhancement can be done
- Connecting knowledge to work (learning the best
practices and latest management principles).
- Leveraging the power of peer net works (learning
from other peoples’ experience and avoid
reinventing the wheel).
- Put CID (Communications, Internet, Desktop)
technology to work for you. Automate your routine
work so that you have time for the bigger issues.
2.viii. Increasing Satisfied Customers
Consistently delivering value to the customer is a must
for enhancing market share and reputation. The
following would help in increasing the number of
satisfied customers :-
- Agreeing with the customer instead of arguing
would bring in better results.
- Make sure that there is no need for argument
with the customer.
- Think that the customer is first and he is right.
- The price we pay to make the customer happy
is rewarding. A satisfied customer is our biggest
- Give plenty of opportunity for the customer to
talk and you hear attentively.
- Give your best to the customer. Then, the customer
will give his best to you.
Global Vistas Volume-5(1) April-June 2006
- A small work done for the customer will get you
a work which even thousand words cannot do.
- Never talk ill of your competitors.
- Unless you take care of your employees, they
will not take care of customers.
- Taking good care of your customers is the best
way to face competition.
- When the customer comes to you for service after
the purchase, solve his problem at the earliest.
- Make it a habit to look straight at the eyes of
your customers as well as your employees.
- A satisfied customer will spread the good qualities
of your products/services.
3. Conclusion
In order to become and remain a global player, a
company has to address itself to three key issues viz.
quality, consumer satisfaction and lowest possible cost
of production/service. The Indian Industry has to become
proactive and improve its overall performance. There
has to be an increase in the awareness and concern
for cost effective production system, upgrading
technology, efficiency improvement, improving quality
and increasing productivity and profitability.
In a competitive business environment, an organization
needs to anticipate many type of changes, including
shifting customer expectation, emerging technological
developments, changing customer segments, or strategic
shifts in the thrusts made by competitors. Benchmarking
is the management tool for search for the best anywhere
in the world. It is the process of identifying,
understanding, and adapting outstanding practices and
processes from organizations anywhere in the world
to help your organization improve its performance.
In order to respond to the continuously changing
dynamic environment, in addition to productivity and
quality, the organizations will be required to focus on
innovation in the 21st century. In order to stay ahead
of competition, organizations are required to
continuously innovate not only products, but also
processes, systems, procedures, rules and policies. In
this age of knowledge, we should provide the workforce
with challenging work environment supplemented by
supporting policy environment, which encourages them
to use their brains to create new ideas and foaster
spirit of innovation.
If you are good at your business, you get good business.
Business relies heavily on a combination of proven
skill and a history of good relationship with customer.
In this connection, the words of Mahatma Gandhi given
below would be appropriate:
A customer is the most important visitor in our premises.
He is not dependent on us. We are dependent on him.
He is not an interruption on our work. He is the purpose
of it.
He is not an outsider on our business. He is a part
of it.
We are not doing him a favour by serving him. He
is doing us a favour by giving us an opportunity to
do so.
Global Vistas Volume-5(1) April-June 2006
Kamal Nath For Big Push To Economic Dimension Of
Indo-German Relations: Outlines Areas Of Cooperation
For SMEs : Calls For Dismantling Of Non-Tariff Barriers
In EU At Indo-German Business Summit In Hannover
Stating that India’s presence as a Partner Country in
Hannover marks the renewal of its strong and robust relations
with Germany, Mr. Kamal Nath, Minister of Commerce
and Industry, Government of India, called for giving a
big push to expanding the economic dimension of Indo-
German relations. The foundation of mutually beneficial
commercial relations between the two countries lies in
leveraging both the countries’ inherent manufacturing
strengths, he said while addressing the second session of
the Indo-German Business Summit today at the Hannover
Fair, which was inaugurated last evening by the Prime
Minister of India Dr. Manmohan Singh and the German
Chancellor, Dr. Angela Merkel.
“The strongest endorsement of India’s emerging potential
as the next global manufacturing champion comes from
the fact that today approximately 80% of all German
investors present in India are manufacturing firms – all
of them world leaders in their field – mostly from the
electronics and electrical sectors, chemicals & mechanical
engineering and auto components. Daimler Chrysler,
Siemens, Bayer, BASF, Robert Bosch, Allianz, Thyssen
Krupp and SAP come to mind”, the Minister said, adding
that the relationship was about to enter a new phase as
Indian companies with new-found confidence in their
competitive strengths were also increasingly looking at
Germany as a base for value-added operations.
The potential areas of Indo-German cooperation outlined
by Mr. Kamal Nath include telecom, engineering,
environmental technology, chemicals, pharmaceuticals and
food processing, besides renewable sources of energy where
India could benefit in particular from German expertise
in wind energy technology. “Closer state-to-state relations
between the Indian and German provinces would help in
providing a boost to our economic ties”, he said, in a
reference to the participation of several Indian states in
the Hannover Fair including Jharkhand, Karnataka, Orissa
and West Bengal.
Small & Medium Enterprises (SMEs) of India and Germany
could cooperate in particular in the fields of auto-components,
machine and hand tools, toys and pharmaceuticals, he said.
Further, with increasing concern about environmental
sustainability, “there is a huge opportunity for strengthening
Indo-German ‘green business’ relations in the areas of dye
and dye intermediaries, textiles, chemicals and waste
utilization technologies”, he stressed.
Referring to the increasing stringency of standards and
complex rules and procedures in the European Union (EU)
which acted as non-tariff barriers (NTBs) to trade, Mr.
Kamal Nath sought the cooperation and support of Germany
– India’s largest trading partner in Europe along with the
UK and Belgium – in settling the issues of various NTBs
that Indian exporters had been facing in the EU.
Bilateral trade and investment
India’s trade with Germany in 2004-05 stood at US
$ 6.5 billion, indicating a robust growth of nearly 20%.
India’s exports to Germany were US $ 2.64 billion
while India’s imports from Germany were US $ 3.86
Bilateral trade has been growing at a record 20% for
the past 3 years.
The inflow of total German FDI into India (1991-
December 2005) at US $ 1.34 billion has been less
than one and a half billion dollars.
There are more than 600 German companies operating
in India and an increasing number of Indian companies
investing in Germany.
The actual figures of FDI inflows, therefore, do not
reflect the synergies and complementarities of the two
India has emerged as one of the largest consumer markets
in the world, making it one of the most attractive
investment destinations.
Kamal Nath Releases Compendium On India’s FDI Policy
Shri Kamal Nath, Union Minister of Commerce & Industry,
released a Compendium on “India’s Foreign Direct
Investment Policy”, here today, which brings together India’s
current policy on FDI along with the relevant Press Notes.
Later addressing media persons, Shri Kamal Nath said that
the government had, for the first time, undertaken recently
a comprehensive review of FDI policy and associated
procedures, given the fact that “Foreign Direct Investment
India: Trade, Investments & Policy Updates
Global Vistas Volume-5(1) April-June 2006
(FDI) plays an important role in the long term economic
development of the country, not only as a source of capital
but also for enhancing competitiveness of the domestic
economy through transfer of technology, strengthening
infrastructure, raising productivity and generating new
employment opportunities”.
As a result of the review, a number of rationalization
measures have been undertaken which, include, dispensing
with the need of multiple approvals from Government and/
or regulatory agency that existed in certain sectors, extending
the automatic route to more sectors, and allowing FDI
in new sectors. “Liberalization of FDI Policy is expected
to attract large FDI inflows in the development of
infrastructure, technological upgradation of Indian Industry
though green field investment in manufacturing, and in
projects having potential for creating employment
opportunities”, Shri Kamal Nath said.
The Compendium “Foreign Direct Investment Policy” is
set in three Sections:
Section A gives an overview of extant FDI policy. In
the sectors listed in the statement, FDI is allowed only
in the indicated activities subject to the equity limits and/
or other conditions, as indicated. FDI in all sectors/activities
is subject to sectoral guidelines and requirements. FDI is
not permitted in Retail trade (except Single Brand product
retailing); Lottery; Gambling and Atomic Energy. In the
remaining sectors/activities, FDI up to 100% would be
allowed on the automatic route.
Section B contains relevant Press Notes on FDI policy
and procedures in a chronological order. All Press Notes,
issued since 1991, are available at the website http://
Section C deals with FDI inflow statistics since 1991,
including the country-wise and sector wise details. It also
gives FDI inflow statistics, as per international practices,
since 2000-01. FDI statistics is also available at the website
Patents (Amendment) Rules Notified – A Major Step
Forward In Developing User-friendly Ipr Regime In
India, Says Kamal Nath
The Patents (Amendment) Rules 2006 have been notified
by the government. Commenting on the Rules, Shri Kamal
Nath, Minister of Commerce & Industry, has said that
“the recent amendments to the Patents Rules represent yet
another major step forward in India’s endeavour to develop
a vibrant and user-friendly Intellectual Property Regime
which would facilitate as well as encourage innovation
and creativity”. The thrust of the Patents Rules is to introduce
transparency, decentralize the functioning of Patent Offices,
simplify the procedures and to make them user-friendly,
he added.
Pursuant to the amendment to the Patents Act, 1970 as
contained in the Patents (Amendment) Act, 2005, the
Department of Industrial Policy & Promotion, Ministry
of Commerce & Industry, has issued a Notification dated
5th May, 2006 published in the Gazette of India No. S.O.
657 (E) further amending the Patents Rules, 2003.
The Patents (Amendment) Rules, 2006 have been finalized
through a consultative process involving Patent Attorneys,
Industry Associations, Government Departments concerned
and other stake holders.
In order to decentralize as well as facilitate the patent
administration, all patent related activities can now be
performed by all the Patent Offices at Kolkata, Chennai,
Delhi and Mumbai.
Patent applications are now to be mandatorily published
within one month after expiry of the statutory period of
18 months and, in case of request for an early publication,
the application is to be published within one month from
the date of request. This step will introduce an element
of certainty regarding the date of publication which was
hitherto not available.
With a view to enforcing transparency and ensuring time
bound disposal of patent applications, definitive time frames
have been prescribed for various activities by the Patent
Offices. A patent application now has to be referred to
an Examiner within one month of a request for its
examination. Further, the Controller will now be required
to take a decision on the report of the Examiner within
one month of its submission and the First Examination
Report has also to be issued within six months of the
date of request for examination of a patent application.
The time for granting permission to file patents abroad
has also been reduced to just 21 days.
In order to make the system user-friendly, timelines available
for applicants and the public have also been extended.
Accordingly, the time frame for making a request for
examination has been extended from 36 to 48 months;
time for filing a pre-grant opposition extended from 3 to
6 months; time for filing reply to pre-grant opposition
extended from 1 to 3 months; and time for meeting the
requirements of the First Examination Report increased
to 12 months.
For Copies Contact :
1Visakhapatnam Export Processing Zone: Evolution, Issues and Policy Directions,
A.D. Madhavi & M.V. Lakshmi, January 2002
2On the Determinants of Foreign Direct Investment and Portfolio Inflows: A Cross
Country Study, R. Venkateswarlu & M.V.S. Kameshwar Rao, January 2002
3Activity Profile and Related Aspects of NGO’s in Visakhapatnam, R. Anita Rao, January
4Technological Divide and Future of (R)etail Banking, Ganti Subrahmanyam, October
5Some Issues in Credit Rating of Sub-Sovereigns, Ganti Subrahmanyam, December 2002
6The Rise of Operational Risk Management, Ganti Subrahmanyam, December 2002
7First Ten Years of Schooling in Visakhapatnam A Review, M.V. Lakshmi, January 2003
8Visakhapatnam District Development Data, R. Venkateswarlu January 2003
9Visakhapatnam’s Industrial Growth: Trends, Prospects and Issues, M.V.S. Kameshwar
Rao, January 2003
10 The Waltair Railway Division: Trends and Issues, Goodwin, D.R., January 2003
11 Public Health Care in Visakhapatnam District, A.D. Madhavi, January 2003
12 Tourism in Visakhapatnam Retrospect and Prospect, A.D. Madhavi, January 2003
13 Teams, Tantrums and Team - Leaderships, Ganti Subrahmanyam, March 2003
14 Bright Future for Commodity Futures, Ganti Subrahmanyam, August 2003
15 The Role of HRM in Insurance Development, Ganti Subrahmanyam, September 2003
16 Whose Globalization is it Anyway? Ganti Subrahmanyam, October 2003
17 A Simple Measure of Credit Risk Concentration, Ganti Subrahmanyam, October 2003
18 A Comparative Performance of Eleven Cement, Companies during 1998-2002,
Ganti Subrahmanyam, Goodwin, D.R. and Kolluru Srinivas, November 2003
19 Globalization, GATS and Trade in Services : Emerging Trends and Implications for India,
M V Lakshmi, March 2005
GIFT Discussion Paper Series
ResearchGate has not been able to resolve any citations for this publication.
Full-text available
The rapid growth of regional trading relationships in Europe, Asia, and Latin America has raised policy concerns about their impact on excluded countries and on the global trading system. Some observers worry that the multilateral system may be fracturing into discriminatory regional blocs. Others are hopeful that regional agreements will go beyond what was achieved in the Uruguay Round and instead become building blocks for further global liberalization and WTO rules in new areas. Jeffrey Frankel shows through extensive empirical analysis that the new breed of preferential trade arrangements are indeed concentrating trade regionally. He then assesses whether regional blocs are "natural" or "supernatural"--that is, whether they enhance or reduce global welfare. He concludes that a move to complete liberalization within blocs, with no reduction in barriers between blocs, would push the trading system into the supernatural zone of an excessive degree of regionalization. More balanced patterns of liberalization, however, give favorable outcomes. He considers regionalism at two levels: both the formal trading arrangements that are already in effect, and the broader continent-sized groupings that are under discussion (the Americas, Europe, and the Asia Pacific). Frankel's study also assesses the political and economic dimensions of regionalization and its implications for world economic prospects and public policy. In conclusion, Frankel proposes several policy prescriptions for pursuing partial regional liberalization among blocs as a stepping stone toward global free trade.
Full-text available
In 1995 the seven South Asian countries-Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka-initiated a multilateral framework for regionwide integration under the South Asian Preferential Trade Agreement (SAPTA). In a recent initiative, members agreed that SAPTA would begin the transformation into a South Asian Free Trade Area (SAFTA) by the beginning of 2006, with full implementation completed between 2009 and 2013. The impetus toward regional preferential trading arrangements and greater regional economic integration raises many important issues, both for the South Asian region as a whole and for the individual countries. The author uses the natural trading partners hypothesis as the empirical criterion to assess the potential success of a South Asian trading bloc. Using various definitions of the natural trading partner hypothesis-based on trade volume, geographic proximity, and the complementarity approaches-the author demonstrates that the South Asian countries can be characterized only moderately as natural trading partners. This characterization is, however, largely a consequence of previous impediments to trade among regional members. The author further demonstrates through additional statistical measures-including revealed comparative advantage indices, trade concentration, and trade competition profiles-that the trade structures that have evolved among the South Asian Countries may not facilitate a rapid increase in intra-regional trade. But there is evidence that previous unilateral trade liberalization efforts in the South Asian countries have already had a positive impact in boosting both intra- and extra-regional trade. Continuing the process of unilateral liberalization, in parallel with regional integration, would aid the South Asian countries to continue to diversify their still narrow export bases and potentially evolve new comparative advantages and complementarities that could facilitate the successful implementation of SAFTA.
In the past decade a sea change has taken place in trade policies in Latin America: within a few years, most of the region's economies have changed from restrictive to open policies. But unlike trade liberalization in Europe, most trade barriers in Latin America have been reduced unilaterally. Recently bilateral or multilateral agreements have been considered, especially preferential tradeagreements within the region. The author evaluates the relevance and desirability of multilateral free trade agreements (such as NAFTA) for the Latin American continent and the Caribbean, with an emphasis on how they affect trade flows. Is a preferential trade agreement among some Latin American countries more or less likely to be meaningful than others - important in intensity of impact, or beneficial, or both? The evidence strongly suggests little likelihood that these agreements will succeed in Latin America. Paradoxically, the intense liberalization in recent years has made it less likely that such agreements would be beneficial - except possibly for agreements between some countries and Brazil, Mexico, or (to a lesser extent) Argentina. When the level of tariffs and nontariff barriers is already low, a preferential agreement is more likely to have an adverse impact than a beneficial one (although in any case only a slight impact). Between countries, the patterns of exports and imports are similar, suggesting a potential for trade diversion. Most countries would benefit from a preferential agreement with the United States, however. And U.S. agreements with blocks of Latin American countries are no more beneficial to those countries than are U.S. agreements with individual countries.
In this paper, we consider a three-stage game in the context of a competing exporters model to compare and contrast the effects of discriminatory and uniform (Most Favored Nation, MFN) tariffs on countries' choice over environmental standards for varying degrees of pollution spillovers. Because of the presence of punishment effects and stronger own and cross-tariff effects, we find that discrimination yields higher standards than MFN (and free trade) independently of the extent of pollution spillovers. When pollution is local and incentives to free ride on other countries' abatement efforts are weak, we show, however, that welfare is larger under MFN than under discrimination. In a dynamic setting, we consider the impact of symmetric and asymmetric treatments on the sustainability of an international environmental agreement (IEA) and obtain that multilateral cooperation is easier to sustain under discrimination than under MFN (or free trade).
Is world trade becoming more regionalized, as a result of preferential arrangements such as NAFTA, the Andean Pact and MERCOSUR? If so, is this deviation from the principle of MFN (non-discriminatory trade policies) good or bad? This paper attempts to answer both questions.Using the gravity model to examine bilateral trade patterns throughout the world, we find evidence of trading blocs in the Western Hemisphere and elsewhere, as in earlier work. Intra-regional trade is greater than could be explained by natural determinants: the proximity of a pair of countries, their sizes and GNP/capitas, and whether they share a common border or a common language.Within the Western Hemisphere, MERCOSUR and the Andean Pact countries appear to function as significantly independent trading areas, but NAFTA much less so (as of 1990). The intra-regional trade bias within MERCOSUR increased the most rapidly during the 1980s. In East Asia, on the other hand, increased intra-regional trade can be explained entirely by the rapid growth of the economies.We then turn from the econometrics to an analysis of economic welfare. Krugman has supplied an argument against a world of three trading blocs (that they would be protectionist), in a model that assumes no transport costs. He has supplied another argument in favor of trading blocs, provided the blocs are drawn along ‘natural’ geographic lines, in a model that assumes prohibitively high transportation costs between continents. In this paper we attempt to resolve the Krugman vs. Krugman debate. We complete the model of the welfare implications of trading blocs for the realistic case where inter-continental transport costs are neither so high as to be prohibitive nor zero. We consider three applications of the model. 1.Continental Free Trade Areas (FTAs). We show that it is not only Krugman's ‘unnatural’ FTAs that can leave everyone worse off than under MFN, but that under conditions of relatively low inter-continental transport costs, FTAs that are formed along natural continental lines can do so as well. We call such welfare-reducing blocs super-natural.2.Partial regionalization. We find that partial liberalization within a regional Preferential Trading Arrangement (PTA) is better than 100 percent liberalization. In the super-natural zone the regional trading arrangement, in contrast to the Article 24 provision of the GATT, reduces welfare. It occurs for combinations of low inter-continental transport costs and high intra-bloc preferences, i.e., when the regionalization of trade policy exceeds what is justified by natural factors.3.The formation of several sub-regional PTAs on each continent. We find that multiple FTAs on each continent could lower welfare, but that multiple PTAs, with partial internal liberalization, would raise welfare.We conclude the paper with an attempt to extract estimates of transportation costs from the statistics. Estimates suggest that trading blocs on the order of the EC are in fact super-natural.