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

January 2006

Authors:

Indian Institute of Foreign Trade

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.

: Auto Production and Sales by Type in June, 2005 (In Units)

…

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.

…

Figures - uploaded by Saikat Banerjee

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Content uploaded by Saikat Banerjee

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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

IN THIS ISSUE

Global Vistas Volume-5(1) April-June 2006

Editorial Committee

Chief Editor

V.K. Kumar

Editor

MV Lakshmi

Members

AD Madhavi

V.L. Rao

R.Venkateswarlu

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

Email: mvlakshmi@gift-india.org

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

relevance.

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

lens.

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

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

region.

(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 - gksaini@iimahd.ernet.in

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

a SAFTA.

(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

world.

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

Developed

Countries

E. Europe &

C. Asia

M. East & N.

Africa

Sub-Saharan

Africa

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

Andean

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

SAFTA.

(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.

Conclusion

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.

References

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

Press).

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

Economics).

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

Maryland

12. Panagariya, A (1999). “Trade Liberalisation in

South Asia: Recent Liberalisation and Future

Agenda”, The World Economy, 22, 3, pp 353–

78.

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

Economics).

Global Vistas Volume-5(1) April-June 2006

Introduction

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

free.

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 (saikat1972@rediffmail.com) is Assistant Professor in Indian Institute of Foreign Trade (IIFT-Deemed University under Ministry

of Commerce), New Delhi, India

Abstract

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

Objectives

•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.

Restructuring

•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

certificates.

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

million.

•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

players.

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

Million

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

million

2004 2.2478 38 29 11 22

million

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

§Domestic

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

Passenger

Car 367,306 1,851,713 3.28 375,472 1,843,024 10.55

§Diesel

Fueled 4,431 23,894 54.57 3,934 21,537 63.18

§Gasoline

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

Ownership):

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

Forecast

Year Forecast Forecast Forecast Forecast Forecast

Sales Sales Sales Sales Annual

(million (RMB (% (% Growth

units) Million- value Volume Rate

Constant Share) Share) (%)

2002

prices)

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

Market

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

ØSVW—Polo

ØSGM—Sail, Aveo

ØChang’an Suzuki—Swift

Sedan ØSVW—Santana/Santana2000

ØFAW-VW—Jetta, Bora

ØDFM-Citroen—Citreon ZX

ØSAIC—Chery

ØShenlong Auto—Fengshen

Full-Size

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

MPV ØSGM—GL8

ØDFM-Citroen—Picasso

ØGuangzbon Honda—Odyessy

ØHainan Mazda—Premacy

ØJianghui Auto—Refine

ØDFM—Future

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.

Conclusion

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.

References:

•Automobiles In China-A Market Analysis, Access Asia Report,

2003

•Competitiveness of the Indian Automotive Industry-An ACMA-

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

•Cygnus: China Industry Monitor, August 2005

•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-

117

•Prahalad, C. K., & Hamel, G. (1990): The Core Competence

Of The Corporation, Harvard Business Review, 68 (3), pp.

79-91

•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

essential:

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

culture.

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

grows.

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

qualities.

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

service.

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

are:

(a) optimizing response time

(b) an open door approach to tackling issues

(d) meeting people’s aspirations while keeping in mind

the corporate interest

2.vi. 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

world.

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

by:

- 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

propagator.

- 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

billion.

• 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

economies.

• India has emerged as one of the largest consumer markets

in the world, making it one of the most attractive

investment destinations.

http://commerce.nic.in/April06_release.htm

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://

www.dipp.goc.in/.

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

http://www.dipp.gov.in/

http://commerce.nic.in/April06_release.htm

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.

http://commerce.nic.in/Mayl06_release.htm

For Copies Contact : giftindia@gift-india.org

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

2003

4Technological Divide and Future of (R)etail Banking, Ganti Subrahmanyam, October

2002

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.

Regional Trade Blocs in the World Economic System

Book

Full-text available

Jan 1997

Jeffrey A. Frankel

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.

A Comparative Performance of Eleven Cement Companies During 1998 – 2002

Conference Paper

Full-text available

Jan 2004

What Does Regional Trade in South Asia Reveal about Future Trade Integration? Some Empirical Evidence

Article

Full-text available

Mar 2005

Nihal Pitigala

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.

China's Automobile Industry: Policies, Problems, and Prospects.

Article

Jul 1996
CHINA J

The Core Competence of the Corporation

Article

Jan 1990
HARVARD BUS REV

‘A Plan to Strengthen Regional Trade Cooperation in South Asia’

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Jan 2000

Japan and Australia: The Prospect for Closer Economic Integration

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Apr 2010
Econ Paper Econ Soc Aust

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Trade Preferential Agreements in Latin America: An Ex-Ante Assessment

Article

May 1996

Michael Michaely

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.

The move toward free trade zones

Article

Jan 1991

Paul Krugman

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).

Trading Blocs and the Americas: The Natural, The Unnatural, and The Super-natural

Article

Feb 1995
J DEV ECON

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.

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

Abstract and Figures

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