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Does PSA find the crux of its problem in China?

by He Lun 

It is recently reported that PSA Peugeot Citroën is talking with Chang’an Auto Group about a joint venture, which has attracted much public attention. Some people in the industry circles maintain that the government should deny PSA the establishment of another joint venture in China since the French automaker’s first JV, Dongfeng-Peugeot-Citroën (Shenlong Auto) has been underperforming. I beg to differ with these people. We have no reason to allow PSA to “hang itself from one and the same tree.” PSA has the right to choose a new partner as long as it does not violate the Automotive Industry Development Policy

It is my concern, however, whether or not PSA has found the crux of its problem in China. If not, then a PSA-Chang’an partnership may result in another Shenlong. 

People rightly claimed in the past that the French automaker failed to see the importance of the China market. Such claim is no longer true now. The fact that PSA’s top executive has frequently flown to China in search of a new partner despite opposition from Dongfeng, its existing partner, says much about its changed view of China and its intention to win a bigger share of the market. PSA has evidently realized that not only is the Chinese auto market the biggest in the world but it has great potential, too. But does PSA see that the Chinese auto market is also of a particular kind that needs to be treated in a particular way? It seems that PSA does’t. 

Organizationally, unlike leading multinational auto giants that are committed to the China market, PSA China seems to perform just two functions: import and financial services. PSA China’s position within the PSA structure is negligent and is wholly out of step with the importance of the China market in PSA’s global strategy. People at the PSA headquarters who know little of China make strategic decisions. Worse still, recruits from distant France fill all positions of department heads and higher within PSA China. Locals are off limits. 

The French may have a reason to mistrust local talent. The Chinese side, which took the reins of Dongfeng-Peugeot-Citroën gave the Citroën ZX a Chinese name, Fookang, depriving the French brand of its foreign luster. Nor has the Chinese name of the joint venture, Shenlong (Eolus), helped in burnishing the corporate image. Negative effects of these decisions are still felt today. But the French are not free of blame. Unlike Volkswagen of Germany, which has sought localized production of parts and localized assembly of cars in accordance with German standards, the French were concerned mainly with making a profit from the importation of auto parts. Once, the French even refused to deliver imported parts when their own joint venture had a temporary cash flow problem, hurting the feelings of their Chinese partner.    

The French side takes control of PSA China’s import business. Their job consists basically in “translating and selling.” The French side took it for granted that, since sales of the Audi A6 could reach 30,000 units a year, they should have no problem selling 5,000 imported Citroën C6s a year. In recent years PSA China indeed has done a fairly prosperous import business but last year’s sales of imported Citroën and Peugeot were fewer than 3,000 units. 

Having learned a lesson from the “total localization” of their joint venture and products, the French side has now gone to the other extreme of “Frenchification,” so to speak. Is’t it time for the French to seek a balance between the two? 

France and China have different cultural traditions, values and political systems. Unless they have full, effective communications, the two partners are unlikely to find a win-win cooperation. But the biggest obstacle to communications comes precisely from what the two have in common: a brilliant cultural tradition, strong nationalistic feelings, a fairly high self-estimate, suspicion of things alien and people that are not of one’s own kind, and a love of face. To overcome the obstacle, both sides need to communicate with each other with sincerity and patience. Is PSA ready for this? 

PSA has been building a $1 billion R&D center in Shanghai, its first outside France, indicating that PSA has been awakened to the particularities of the China market. Sales of both locally made French cars and imports have picked up, indicating that PSA and its Chinese partner are doing a better job. But this is far from enough. To completely reverse its competitive weakness on the China market and have its China strategy go into the right orbit, PSA should set up an investment company in China. The investment company must hold an important position within PSA group with management that really understands or is willing to understand China. Such a company should take the reins of PSA’s business in China and even in the Asia-Pacific region. For a multinational company, China is so peculiar that problems here can only be solved by corporate executives who have a thorough knowledge of the China market. 

Rewritten by Raymond Chen based on author’s article carried by

Guoji Shagnbao or International Business Daily

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