This paper aims to explore the cultural barriers that GM encounters while doing business in China especially in terms of language and Asian mind difference. As a matter of fact, we cannot examine all the cultural barriers due to the scope of the paper. On the other hand, some differences emerging from different thinking behavior between US and China are exemplified in the second part of the paper. In the first part, the company information and the SWOT analysis of GM are given before going further with the Asian operations of the company.
A- Company Information:
First of all, General Motors Corporation changed name with the government bailout in 2009. After the government involvement, the company became the new GM as a legal successor of General Motors Corporation. General Motors Company founded by United States Department of Treasury in 2009 which changed into Delaware Corporation and then undertook all the assets and liabilities of General Motors Corporation by the 363 sale (GM quarterly report, 2010 May 17). The old GM was incorporated in 1908 an operated until 2009. The Detroit, MI based automotive company manufactures cars and trucks under the following brand names:
i) GM brands (GM Fact Sheet, GM website) 1- Buick 2- Cadillac 3- Chevrolet 4- GMC 5- Holden 6- Hummer 7- Opel 8- Pontiac 9- Saab 10- Saturn 11- Vauxhall 12- Wuling ii) GM divisions: (10 K annual report, 2010 April 7, GM website) The old GM had four divisions whereas new GM has only three operational divisions. GM Latin America/Africa/Mid-East, GM Asia Pacific are organized under the GM international operations.
1- GM North America (GMNA):
This division has still the largest market for GM. The Company continues to lose its market percentage as its U.S market share declined to 19.6% in 2009 where the pursuer competitor Toyota increased its share to 16.7 % according to the 10 K annual report of General Motors dated 2010, April 17. The total market share of GMNA declined to 19 % in 2009 which is lower than the 25 % 2005 mentioned in the case. The global crisis, the decline of income and the potential bankruptcy of old GM are the reasons for the decline which are mentioned in the annual report.
GM Europe is also the unchanged division in the new GM. The market share of GM Europe has also declined like GMNA. According to the Exhibit-5 the net margin of GME is yielding consistent losses for the company by 2005. In the first quarter of 2010, GM Europe is still losing money ($500m), yet it is better than the last quarter of 2009. McVeigh (2010, May 17) argues that after selling of Saab, GM Europe operations (Opel and Vauxhall) reduced its losses in Europe thanks to the sales of Opel Astra. Selling of Saab also contributed to the decline of loss in the region. The company is expecting €1.8 billion state aid from the European governments to make the operations of Europe profitable by 2012. The company promises new jobs as well in the plan to get the loan from the governments.
3- GM International Operations:
GM Latin America/Africa/Mid-East, GM Asia Pacific are turned into GM international segment in the new GM formation. This segment experienced declines in the market percentage in 2009 as well. However, the dominance in Chinese Market contributed the company to hold the first spot in the global automotive industry. Hence, the Chinese and Indian market and other emerging markets are very important for GM and the other competitors to increase their sales and market share thanks to the increasing demand in those markets.
China has a strategic importance for General Motors. GM China with the local partner SAIC Motor tries to increase its foothold in Chinese market. According to Gao (2010, June 1) in 2010 GM targets to sell 2 million cars in China and as of first five months of 2010, the company already sold more than 1 million cars despite the decrease of central government incentives for the car buyers. The reason of the increasing sales is increasing sales of Buick, Chevrolet, and Cadillac. The target of 2 million car sales is achieved according to GM website as of November 2010. (GM fact sheet, GM website 2010)
GM has a dreadful strategic alliance with Daewoo Company (GM Daewoo) in South Korea as far as the Asian Pacific market concerned like the case indicated. GM Daewoo has started to increase sales, yet, it needs way to go. GM Daewoo is the low cost production base with its facilities in South Korea and Vietnam for some GM brands such as Hummer and Saturn and Opel of European Operations. The subsidiary made some moves to expand its operations in Europe by purchasing former Uzbekistan and Romania plants of Daewoo and Polish car maker Fabryka Samochodów Osobowych (FSO) (GM Daewo Company overview, Hoovers website, 2010, December 5).
This incubation is the financial subsidiary of the General Motors Company through which the dealers of GM offers credits or lease financing, vehicle insurance and extended service contracts (10 K annual report, 2010 April 7, GM website) . GMAC (General Motors Auto Insurance) was the most financially strong subsidiary of the old GM Company.
Yet, GMAC is not wholly owned by GM since 2006. GMAC agreed with Chrysler to provide auto finance services for the Chrysler dealers in 2009, which made the company to leverage its core strength of auto financing. On the other hand in 2009 GM and Cerberus reduced their share in the company and this led to diversification of the ownership of the Company according to the ‘who we are’ section of GMAC website.
B- Top competitors and industry comparison:
According to hoover’s website, the top competitors of GM Company by SIC code are Daimler Chrysler, Ford Motor Company and Toyota Motor Corporation. In the below table, the comparison of GM ratios to the industry average can be analyzed.
Table 1: Comparison of GM financial ratios to Industry averages: Profitability| Company| Industry Median| Market Median1 | Gross Profit Margin| 9.46%| 14.69%| 28.77%| Pre-Tax Profit Margin| 0.26%| 6.08%| 8.48%| Net Profit Margin| 0.49%| (1.12%)| 5.53%| Return on Equity| 2.8%| (3.8%)| 10.1%| Return on Assets| 0.5%| (0.9%)| 1.5%| Return on Invested Capital| 2.0%| (1.0%)| 4.4%| Operations| Company| Industry Median| Market Median1 | Days of Sales Outstanding| 25.08| 82.63| 34.66| Inventory Turnover| 9.1| 13.0| 8.1| Days Cost of Goods Sold in Inventory| 40| 28| 45| Asset Turnover| 1.0| 0.8| 0.3| Net Receivables Turnover Flow| 14.6| 4.4| 10.5| Per Share Data ($)| Company| Industry Median| Market Median1 | Revenue Per Share| 87.36| 67.44| 7.60| Cash Flow Per Share| 4.28| 6.80| 1.22| Working Capital Per Share| 4.54| 15.40| 0.64| Long-Term Debt Per Share| 3.71| 31.24| 4.06| Book Value Per Share| 15.16| 21.79| 3.91| Total Assets Per Share| 90.86| 86.86| 27.90| Growth| Company| Industry Median| Market Median1 | 12-Month Revenue Growth| (29.8%)| (17.8%)| 31.9%| 36-Month Revenue Growth| --| 1.0%| 14.3%| 36-Month Net Income Growth| --| --| (5.6%)| 36-Month EPS Growth| --| --| (14.7%)| 36-Month Dividend Growth| --| (38.5%)| --| 1 Public companies trading on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ National Market. Source: © 2010 Morningstar, Inc. Financial Data provided by
Company has a good inventory turnover, days of sales outstanding and 12-month revenue growth ratio, whereas its profit margin ratios and return on equity ratio is poor when compared to industry averages.
C- SWOT ANALYSIS of General Motors:
General Motors Corporation is one of the giant companies in the world despite its bailout by the government in 2009. The company is doing business in 120 countries worldwide and generated $104.6 billion revenue according GM website. Thus, the company is a huge company with a 11.4 % global market share individually.
* Global business experience and known brands. * Despite the decreasing market share, still high market share in US. (18,7 %) * Variety of brand names (Cyriac, 2010). * Technological know-how. * Good inventory turnover and days of sales outstanding ratios (Hoover’s website, 2010). * High sales figures in China (GM factsheet, GM website, 2010). * Largest dealer network in US (GM factsheet, GM website, 2010). * Investing in various bond portfolios and market securities to reduce risk is an advantage for General Motors according to Rind C. (2010, October 30, freeswotanalysis website)
* Low profit margin as compared to industry average (Hoover’s website, 2010) * Strong domestic and foreign competitors. * Reducing sales and market share in US and Global market (Hoover’s website, 2010). * High labor cost as compared to competitors (Hoover’s website, 2010). * Low quality perception of domestic consumers. (Cyriac, 2010). *
* International expansion opportunities especially in China (GM factsheet, GM website, 2010) * Increase in production of electric and hybrid car. * Potential of increase in US market share. * Increasing quality of the newly produced cars.
D- Chinese culture and GM in China In this part, I will try to scrutinize the language and some cultural differences between US and China in terms of doing business. Firstly, the Chinese and English are so different that this makes the communication worse individually.
Gm quarterly report . (2010, may 17). Retrieved from www.gm.com Gm fact sheet. (2010). Retrieved from http://www.gm.com/corporate/about/gm_fact_sheet.jsp 10 k annual report. (2010, April 7). Retrieved from www.gm.com Mc Veigh, P. (2010, May 17). Gm reduces european loss. Retrieved from www.autonews.com Gao, G. (2010, June 1). Gm china jan-may sales exceed one million vehicles.. Retrieved from www.gasgoo.com Gm daewo company overview. . (2010, December 5). Retrieved from www.hoovers.com Who we are .
(2010, December 3). Retrieved from www.gmacfs.com Cyriac, T. (2010). Gm swot analysis. Retrieved from http://www.scribd.com/doc/7456626/General-Motors-Strategic-Analysis Rind, C. (2010, October 30). General motors swot analysis. Retrieved from http://www.freeswotanalysis.com/automobile/107-general-motors-swot-analysis.html