Importance of technology transfer

Imitation is not only the sincerest form of flattery, it may also be one way of jumpstarting the development of a country’s fledgling automobile manufacturing industry. Examples: Cars built in Japan before World War II were often imitations of European or American models. In the 1930s, Nissan Motor’s cars were based on the Austin 7 while the Toyota AA was based on the Chrysler Airflow.

Between 1925 and 1936, the Japanese subsidiaries of Ford, General Motors and Chrysler produced 200,000 more vehicles than domestic producers. In 1936, the Japanese government passed the Automobile Manufacturing Law to promote the domestic auto industry and reduce foreign competition. By 1939, the foreign manufacturers had been forced out of Japan.

More recently in China, Shuanghuan Motors copied the exterior design of the Honda CR-V and pirated Audi’s four rings emblem, using two rings as a logo. Both Honda and Audi sued Shuanghuan to no avail. A year after General Motors introduced the Chevrolet Spark in China, the Chery QQ, looking exactly like the Spark, appeared.  The Chery QQ is exported to emerging markets, including the Philippines.

Japan’s auto industry eventually progressed to such a high degree that Japanese brands became globally competitive and successfully invaded the European and American as well as Asian markets. Now, China’s national auto industry is aiming to compete in the world market, mainly by developing car brands that use cutting-edge foreign automotive technology.

Largest

In 2009, China overtook the United States as the world’s largest car market. Last year, China produced almost 17 million cars, minivans, pickup trucks and sport utility vehicles, up from less than two million in 2000. Today, Chinese auto production is almost twice the size of US or Japanese industries and far bigger than any European country’s auto manufacturing sector.

But the spectacular growth of China’s automotive output and car market has not brought about a corresponding increase in the transfer of foreign technology, despite the expanding joint ventures of American, European, Japanese and South Korean car manufacturers with local companies. China’s big ambition is to become the world leader in making fuel-efficient “green” cars to curb its domestic fuel consumption, lower the air pollution choking its cities and reduce traffic congestion as well tap into a growing global market for fuel-efficient vehicles.

So the Chinese government is implementing a new policy that stringently limits the number of new car registrations in Beijing and Shanghai each month and urges auto makers to sell less motor vehicles but instead produce more technologically advanced, fuel-efficient models such as gasoline-electric hybrids and all-electric cars. Corollary to this, some Chinese joint venture partners are complaining that they never gained access to cutting-edge foreign technology for the production of high-tech green cars. What they get instead is old technology, they grouse.

Recently, in a Reuters news report datelined Beijing, Xu Liuping, the chairman of the Chinese state auto group Chongqing Changan Automobile, a joint venture partner of Ford Motor Co. and Mazda Motor, was quoted by the state-run Shanghai Securities News as saying, “Take a product 20 years old and tweak a few parameters—it’s like displaying mutton but handing over dog’s meat. If this is to be counted as innovation, shame on the Chinese auto industry.”

Joint venture brands

Xu was referring to joint venture (jv) brands built on existing platforms of foreign partners instead of jvs developing a totally new car together, with the Chinese partner getting half the patent rights and, more important, learning something that could be beneficial to China’s auto industry. But it didn’t work out that way and the Chinese ended up hardly learning anything.  What’s more, these low-cost jv brands are poised to grab market share in inland areas from independent Chinese companies like Geely Automobile Holdings and Chery Automobile, industry observers point out.

For example, Guangzhou-Honda’s Everus is based on Honda’s City compact sedan with some changes and tweaks made to suit the Chinese consumer’s taste. The Everus is priced as low as the F3 by BYD, China’s best-selling car for 2009 and 2010. Meanwhile, sleek foreign cars, both imported and locally made, far outnumber Chinese brands on the streets of China’s major cities, reflecting the fragmented weakness of the national car industry.

This snag in the development of China’s auto industry should interest those of us who are concerned about the Philippine motor vehicle industry’s progress—or lack of it. If a giant powerhouse like China cannot get near foreign automotive technology, what more a small player like the Philippines with its screwdriver car assembly plants?

But going back to China, which wants to become the global leader in making fuel-efficient vehicles.  China is drafting new rules regarding green car technology that include requiring foreign automakers to form jvs controlled by local companies. The Wall Street Journal reported earlier this month that Toyota Motor Corp. is thinking of shifting to China the production of some of the key components for hybrid and other heavily electrified cars that are currently made in Japan.

Old model

However, the Prius hybrid model and key components that Toyota is looking to produce in China will be more than two years old. Toyota once assembled the Prius in China, but halted it in 2009 due to falling demand and as it ceased producing that version in Japan and stopped selling it globally. Toyota will keep its most advanced core technology for the next generation Prius out of the reach of Chinese companies.

The foreign automakers in China cannot be blamed for balking at sharing their technologies with local jv partners. They know that once they do so, the local companies would no longer need them. China could follow the path of pre-World War II Japan and pass an automotive industry law that will promote domestic producers and eventually ease out foreign manufacturers.

Meanwhile, at least one Chinese company has succeeded in fast-tracking its access to foreign technology. In August 2010, Zheijang Geely Holding Group bought Volvo, the Swedish luxury car manufacturer, lock, stock and barrel from Ford.