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MBA YEAR 2: INTERNATIONAL BUSINESSRead the Case Study below and answer the questions that follow:COMPETING IN THE CHINESE AUTOMOBILE INDUSTRY The Red Hot Market For automakers seeking relief from a global price war caused by overcapacity and recession, China is the only game in town. With just 10 vehicles per 1,000 residents in China as of 2006 (as opposed to 940 in the United States and 584 in Western Europe), there seem to be plenty of growth opportunities. Not surprisingly, nearly every major auto company has jumped into China, quickly turning the country into a new battleground for dominance in this global industry. In addition, China has become a major auto parts supplier. Of the world’s top-100 auto parts suppliers, 70% have a presence in China. China vaulted past the United States to become the world’s number-one vehicle market in the first 10 months of 2009. Reports of record sales, new production and new venture formations were plenty. After China’s access to the World Trade Organization (WTO) in 2001, the industry has been advancing in leaps and bounds (see Figure 1). Between 2002 and 2007, China’s automobile market grew by an average 21%, or one million vehicles year-on-year. At the global level, China has also moved to the first position in production passing the United States and Japan, and was to produce 13 million vehicles in 2009. Around 50% of the world’s activity in terms of capacity expansion has been seen in China for the last few years.Figure 1: Automobile Production Volume and Growth Rate in China 1996 – 2009Because the Chinese government does not approve wholly owned subsidiaries for foreign carmakers (even after the WTO accession), foreign firms interested in final-assembly operations have to set up joint ventures (JVs) or licensing deals with domestic players. By the mid 1990s, most major global auto firms had managed to enter the country through these means (Figure 2). Among the European companies, Volkswagen (VW), one of the first…


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