By Clay Chandler
September 16, 2017

China is the world’s largest car market, and Chinese leaders are notoriously sensitive to matters of face. So it was something of a shock when General Motors chief executive Mary Barra, during a visit to Shanghai Friday, publicly challenged the Chinese government’s declaration that it intends to follow the lead of European economies including France and Britain in phasing out gas-powered vehicles.

Barra said that, while GM is moving at full speed to develop electric cars, consumers, not government should decide how cars are powered: “I think it’s best when, instead of being mandated, customers are choosing the technology because it meets their needs,” she said.

The statement was straightforward but brave. GM sells more cars in China than it does in any other market, including the United States. And yet GM’s strategy for producing energy efficient vehicles is focused on hybrids propelled by a mix of electric and fossil fuels. That’s because the U.S. auto giant needs to satisfy the needs of customers in China, where people use cars primarily for intra-city travel, and also the United States, where a large percentage of drivers use cars to get from city to city.

New York Times Shanghai correspondent Keith Bradsher, who covered the global auto industry from Detroit for many years before coming to Asia, hinted China’s decision to ban gas-powered vehicles was motivated by mercantilism as much as concern for the environment. China, he noted, is “unenthusiastic about plug-in hybrids because most of the patents are owned by foreign automakers, particularly Japanese multinational companies [while] Chinese carmakers have been stronger in battery-electric cars.”

That may be so. But it’s also true that GM is among a growing number of Fortune 500 companies struggling to satisfy consumers in China and the rest of the world at the same time. Apple faces a similar dilemma as it rolls out the iPhone X. Not long ago, Apple was the top seller in China. But, as the Wall Street Journal notes, Apple’s market share has fallen to about 7%, from an estimated 16.5% in late 2014, as Chinese rivals have improved their technology and proved more agile in offering models adapted to local tastes. Greater China, which includes the mainland, Hong Kong and Taiwan, accounted for 22% of Apple’s sales last year. As I’ve noted previously in this space, Chinese consumers are far less willing than global counterparts to pay a premium for Apple’s operating system because they get all the services they want from the Internet via WeChat, which functions just as well on Android as it does on iOs.

Only a few years ago, it was widely assumed that large multi-national firms enjoyed an enormous competitive advantage in China and could succeed there by tweaking products developed for Western markets. But as China’s economy matures, it’s increasingly evident that what works inside China and outside China are different things. The experiences of GM, Apple and others suggest to me that more often than not global firms, distracted by operations in multiple markets, operate at a competitive disadvantage in China relative to more nimble local players who can focus on winning at home.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

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