China became a net exporter of cars for the first time in 2005, due in part to the large-scale inward investment from non-Chinese car manufacturers, channelled into joint ventures with local firms in this industry. But exports account for a small proportion of total sales. By 2015 annual production in China had reached 21 million and by 2018 this increased to 28 million. Demand from the domestic automotive market has grown fast enough to make China the largest automotive market in the world. VW entered China well ahead of the competition through a joint venture with the government-owned Shanghai Automotive Industry Corporation (SAIC) in 1984. A second joint venture with the First Automotive Works (FAW) in 1991 helped it reach a dominant position (56 per cent market share) in the growing Chinese car market before other foreign competitors were even allowed to enter. GM was a later entrant and had been involved in a range of technology transfer initiatives before being allowed to establish manufacturing operations in 1997 through a $1.6 billion joint venture with SAIC. GM reached a 10 per cent market share to challenge VW. But both GM and VW faced growing competition from new foreign entrants after the 2001 WTO deregulation rulings began to take effect. Ford, Honda, Toyota, Hyundai, and Suzuki all entered the market in the early to mid-2000s. More significantly, local car makers also started to come into their own around this time. SAIC, which merged with Nanjing Automotive Corporation (NAC) in 2008, Chery Automobile, and FAW are the largest local producers. SAIC has a string of joint ventures, including with VW and GM, while FAW has partnerships with Mazda and Toyota, in addition to its main ally, VW. In contrast, Chery is one of the more independent local players, as is Geely Automotive Holdings. Initially established as a fridge maker, Geely has steadily accelerated sales and expanded its manufacturing operations to reach a 5 per cent share of the mainland market. Low cost is the one key advantage at this stage for indigenous car firms, gained through cheap labour, available land and capital (in China much of it initially from the government). This only temporarily makes up for weaknesses in most other areas, from manufacturing technology, process innovation and product design, to sales and branding. But the industry has moved up the value chain in its short history. Low-cost advantages are increasingly complemented by capabilities in design, engineering, manufacturing, marketing and management, which are driving process and product innovation. Most firms have partly developed and partly bought into these assets and capabilities through joint ventures with Western car-makers. More unusually, NAC accessed them directly by acquiring one of the oldest and best-known car firms in the UK, MG. Based in Longbridge in the heart of the West Midlands manufacturing region, MG was part of MG-Rover, a corporation that combined two famous British car brands that dated back to the early 1900s. A turbulent history of takeovers and management failures had brought the firm to collapse in the early 2000s, despite the strength of its design, engineering and technology divisions and the loyalty of its customers. In May 2005 NAC bought the MG brand name, physical assets including the powertrain technology, and the manufacturing rights to the MG range of cars in a deal worth over $80 million. In parallel, NAC’s then competitor SAIC announced it would build the Rover 75 (relaunched as the Roewe) in China using the rights it had bought from MG-Rover in 2004. NAC shipped the MG assets to China and, in the space of a year, by March 2007 the firm had set up production in the Pukou High-Tech Development Zone in Nanjing and locally made cars were rolling off the plant line. The aim was to develop the plant to eventually produce 200,000 autos, 250,000 engines and 100,000 gear boxes, with an explicit strategy to keep costs low by expanding and improving the local Chinese supply chain. To do this it has embarked on a wide range of recruitment and training programmes, which involve ex-MG-Rover plant managers, engineers, designers and other employees from the UK operation and from suppliers. These are providing the Chinese with the capabilities not just to operate the plant, but to improve the product design, manufacturing quality and cost, and to conduct R&D and engineering development to create future automotive products. The acquisition provides an interesting illustration of how far the kinds of advanced assets and capabilities required to produce and sell complex products can be bought and transferred across continents. It begs the question: how far can changes in ownership drive geographic shifts in competitive advantage? What it shows is that knowledge, expertise and skills have to be transferred alongside hardware and technology for the full set of manufacturing process and product competencies to be developed by the recipient firm. This takes a long time, during which the recipient remains dependent on knowledge and expertise from the firm and/or regional ‘cluster’ of firms in which the original capabilities evolved. Some of these capabilities will be transferred via training programmes and by recruiting some of the MG-Rover managers, designers and engineers directly to work in China. Others will be accessed by redeveloping some functions at the original Longbridge plant in the UK, linked to the main manufacturing plant in China.

Subsequent plans by NAC for Longbridge have included an R&D, engineering and test centre for MG models; HR recruitment and purchasing and logistics centres to serve China and Longbridge; a sales and marketing base for the UK and Europe; and eventually a local assembly plant for European markets. NAC is effectively developing a new multinational network to leverage the location-specific complementarities between the Midlands and Nanjing. It hopes to produce cars for both markets, taking on competitors in both regions. With one acquisition a new MNE is born.

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