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Why is Brilliance China against JV independent branding?

While most joint venture OEMs are launching or preparing to launch the so-called “JV independent” vehicle brands, Qi Yumin, chairman of Brilliance Auto Group, has come out with a different voice: JV independent branding would create a series of problems.

Qi’s comment seems to differ from those of his partner, BMW, which has been rather positive, at least publicly, about a JV independent brand. BMW-Brilliance president and CEO Olaf Kastner had commented earlier that his company would follow China’s policy and regulations to launch a new new-energy vehicle brand. Such a brand will not be transient, according to BMW Greater China CEO Christoph Stark. It would be a strategic new brand.

Stark may be diplomatic. But the German company has repeatedly expressed its readiness to launch a new brand at its JV with Brilliance China. It is not clear, however, if BMW is trying only to appear politically correct when partner chairman Qi Yumin openly expressed his reservation about JV independent branding.

What is clear is the unusual relationship between the two JV partners. Unlike all other JVs in China, Brilliance China’s role is little seen or felt in JV operations. In other words, the company is more like a wholly-owned subsidiary of BMW in China.

BMW-Brilliance is a joint venture between BMW AG and Brilliance China Holding Corp. The latter is a subsidiary of Brilliance Auto Group. Logically the business activities of BMW-Brilliance must always reflect the voice of the Chinese partner.

There has been very little executive involvement from the Chinese partner in the daily activities of BMW-Brilliance. Most of the time when major business decisions were made at the JV, the Chinese executives have been sided with the German partner. In comparison, for example, the relationship between SAIC and GM at Shanghai-GM is different. Often we see the voice of the Chinese partner in the company’s decision-making.

Among all Sino-foreign joint venture OEMs, the foreign partner at BMW-Brilliance has the strongest control of the JV.

In terms of JV branding, BMW believes that the JV should prepare for a new brand that could promise “a brand new opportunity for the new energy vehicle segment.” Such a move should benefit both partners and not affect their respective lines of vehicles.

This may be true for BMW. Even if the JV creates a new brand utilizing an existing BMW vehicle platform technology, such a brand would only affect the mid- to high-level instead of the luxury vehicle segment in China.

It would be a different story for Brilliance China, however. As far as product planning is concerned, a JV independent brand at BMW-Brilliance may be a killer for Brilliance’s own independent brands. Moreover, a JV independent brand would involve endless disputes between the two partners over the ownership of the brand, intellectual property rights, supply management, etc. Qi Yumin knows that such disputes have in the past ended in BMW’s favor and this is something that he does not want to see happen. Why would he want to create an independent vehicle brand owned by the JV which is controlled by the foreign partner?

Of the line of passenger vehicles at Brilliance China, the most important are the Zhonghua V5 and the H530, the former modelled off the BMW X3 and the later off the BMW 530.

While such a practice is not normal for BMW, it seems reasonable for Brilliance, especially when such copying helped create a positive market response. Qi Yumin has therefore openly said that the “Zhonghua sedan will definitely be profitable this year.”

In other words, Brilliance China would rather copy BMW than go in for a new brand which belongs to the JV in name but to BMW in essence.

It is still unclear, however, as to how far Brilliance China is able to progress by utilizing a mature BMW technology platform. Past examples have shown that local Chinese carmakers could only benefit for a short period of time by copying each other’s technologies. From a long-term point of view, copying will neither help local carmakers expand their market nor build their brands if they fail to invest in independent innovation and develop new vehicle products according to market needs. To local Chinese automakers, creating JV independent brands may help generate sales revenue and profits by utilizing mature vehicle technologies. But creating a JV independent brand is not necessarily equivalent to a commitment by the multinational partner to offer direct technology support.  

The idea that by promoting JV independent brands the Chinese partner would have access to core vehicle technologies is only wishful thinking. The theory about joint venturing in exchange for technology is misleading and was never well founded. The only benefits of JV independent brands are increased sales revenue and profit by utilizing mature technologies of the foreign partner. Nothing more.

The flip side of JV independent brands, however, is the unavoidable impact and pressure on the market share of local independent brands. JV independent brands will invariably move down to the lower-end of the vehicle market, forcing local carmakers to move up. Under the current market conditions, JV independent brands will undoubtedly outperform local brands.

Brilliance Auto Group is confronted with an awkward position: if BMW-Brilliance launches a JV brand, its own market may one day be threatened by its own subsidiary.

If BMW would like to transfer technology and support Brilliance Auto Group’s Zhonghua brands, Qi Yumin said, it would be much better than launching a JV independent brand. The logic behind his statement is the same as those who support JV independent branding: hoping that the foreign partner would pass on its core technologies.

But the question is: would BMW offer technological support for the development of the Zhonghua sedan and Jinbei van?

Brilliance Auto Group claims that with the support of the BMW partner, the company is putting together a secret team of engineers in preparation of a new vehicle platform. It would be a high-level platform in the B-class segment, according to Qi.

Why would BMW be enthusiastic in trying to help Brilliance elevate its vehicle technology and brands? As a multinational company, BMW must act in its own interests.

The secret team includes consultants from McKinsey. This may tell us that the team is more like a consultancy for product development. Their likely mission is to advise Brilliance on how to elevate its brand image and market penetration by utilizing platform technologies from BMW.

The consultancy may help Brilliance in its branding efforts, but the future of the company depends on whether it has sustainable capability of technology development, sales and marketing. The future of Brilliance China is in its own hands, not those of BMW or McKinsey.

(Based on author’s blog on auto.sohu.com)

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