The German economy is the leader of the European economy; the successful companies and the abundant capital establish Germany as a stable foundation of international investment. Since the reform and opening policy, German companies have achieved a lot. By 2011, the number of German companies in China reached 7000 and the amount of investment exceeded 19.3 billion dollars. This is the result of both the strengths of German companies and the advantages of the Chinese market. But behind this achievement, there are also problems and challenges that the German companies have to face.
The Chinese market has the following factors that appeal to German companies. First, in comparison with German labor, Chinese labor is relatively cheap, which can considerable reduce the cost of a company’s operations. Second, the great production capacity maintained by the quick development of the Chinese economy strongly supports German companies to conduct business in China. Third, the large population of China and the improvement of living standard offer a broad market, in which enterprises have great prospects. Finally, the protection and encouragement under Chinese policy and law guarantee the safety of capital.
70% of the investments from German companies concentrate on the fields of automobiles, chemistry, machinery and electrical industry: the pillar industries of Germany. This is due to the features of German industry but also the capital attraction policy in China. The service industry and energy and environmental protection will also be key points for investment in the future.
Volkswagen was the first German automobile enterprise that entered the Chinese market since the reform and opening policy was established. VW entered the market through a joint venture with Chinese state-owned enterprises in Shanghai and Changchun. Volkswagen has done well since entering the country. In 2011, the sales volume of VW in China exceeded the sales volume in Germany for the first time. The profit in China occupied 20% of the company’s total worldwide profits. Despite this increase in sales volume, Volkswagen’s market share in the Chinese car industry has decreased from 40% to 17.7% since 2002. One reason why they have lost some of their market share is because more big-name international players such as Toyota and Hyundai have entered the Chinese car market. Another reason is the increased use of private vehicles in place of public transportation.
In order to recapture its market share, Volkswagen has set up Volkswagen China, an organization which is directly led by the board of VW. This organization will enhance the connection between the production and the market. VW has also started the “Olympic Program” to sponsor the Beijing Olympic games to improve its image. VW plans to introduce 3 to 4 new models every year to meet the demand of consumers. Through these measures, VW has successfully stopped the decline of market share and its sales volume reached 14 million vehicles in 2009.
With the development of the infrastructure in China, the electrical market has great demand and promising prospect. The electrical market in China reached 195 billion Euros in 2004, the third largest market in the world. Siemens forecasted that the market would grow 10% per year, with additional growth opportunities during the Beijing Olympic Games and Shanghai Expo. Based on this forecast, Siemens started its “profit and growth strategy” in 2004, which included following factors to exploit markets further, utilize the potential of local employees and improve the position of Chinese market in global business. The concrete measures are increasing the number of agencies in different regions of China to get closer to the market, introducing the “Siemens integration” program to provide the clients with integrated solutions, setting the goals of its six main sections and boosting the investment in China.
Metro has expanded rapidly since entering the Chinese market in 1996. By 2012, it opened the 55 branches in China, but its sales volume and profit in recent years have not been very optimistic. With its unique “Carry and Cash” business philosophy, Metro has achieved great success worldwide, but it has encountered some difficulties in the Chinese market because it refuses to adjust its strategy. Metro’s customers can only enter the supermarket if they have a membership card. Although this enables the company to manage its customers efficiently, Metro also loses many customers who are unwilling to get a membership card. What is more, Metro insist on constructing the supermarkets by itself which causes a burden for the company.
To conclude, there are three principles that the German companies must follow if they want to be succeed in China. First, they must adjust and change their management ideas to adapt to Chinese customers. Second, they have to be sensitive to the changes in markets and respond to these changes. Third, the local talent training system is an invaluable tool and German companies must take advantage of it.
Picture: Volkswagen China