Thursday, September 22, 2011

GM, China & Technology

I found the recent article in the Wall Street Journal discussing GM's China business to raise some interesting questions.

Unsurprisingly, GM management feels constrained by Chinese rules which demand technology sharing in exchange for investing for substantial growth.

Fortunately, one theme of the article is the risk both Ford and GM take if they expand, only to find themselves in an over-supplied market. Which would not be too hard to imagine, as every auto maker views China as the last great untapped market. I'd say it's more likely that there will be too many producers, driving prices and margins down.

But on the technology topic, there's something that puzzles me. Most vehicles are more assemblages of supplier components than they are totally manufactured by the company whose name is on the car. Thus, much of the technology in a modern car may be purchased off the shelf from existing vendors.

I suppose there are some proprietary transmission, engine and perhaps high-end electronics. But what can't be bought from suppliers can be bought, disassembled and reverse engineered.

The article mentions GM closely guarding its Volt technologies, which I found to be laughable. Nobody buys the thing in the US without hefty government subsidies. I have trouble believing China will have a ready-to-use, adapted power grid to handle the Volt.

To some extent, I think that companies wishing to do business in a country become embroiled in situations much like those of extractive industries. When you are bound to a location, the host country can pretty much demand whatever they like, even change terms, and the companies being victimized have to constantly reassess their decision to operate in that country.

It seems that GM and Ford will continue to experience this dilemma for the foreseeable future, with ongoing risk for their investment and whatever truly proprietary technology they offer.

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