MOST leading Western companies now have joint ventures in China, but they also have enormous problems reaching their customers. The reason: distribution remains largely in the hands of mainland state companies.
The Hong Kong-based Asia-Pacific head of Volkswagen, Martin Posth, supervises two factories in Shanghai and Changchun. They will soon be turning out 1,000 cars a day between them, but Mr Posth and his team have no say whatsoever in sales and distribution.
Sales and distribution are becoming the most serious problem for the more than 100,000 joint ventures which have been established in China. The opening of the market, encouraged lately by tariff reductions, has put joint ventures in a difficult position as they have no distribution licences and have to leave sales to inflexible state-owned corporations.
Foreigners have little influence over the pricing of their goods and many state-owned sales organisations are inept. They are used to fixing unrealistically high prices and are pricing joint venture products out of the market.
'A South Korean car with a modern chassis, but otherwise outdated technology can be sold for 70,000 yuan [about HK$65,000] to China - plus 110 per cent import tax. The latest model from South Korea, therefore, markets in China for 150,000 yuan - only a little more than the VW Santana which sells here for 140,000 yuan,' Mr Posth said.
Joint ventures, not only in the car industry but across the electrical goods sector, have a problem increasing sales as relatively cheap imports flood the mainland market.
