Thursday 30 August 2007

BMW: Copied in China

Le Monde reports that BMW and Daimler are threatening legal action against Chinese car constructors, notably Shuanghuan, for copying their designs.

A scan of the news shows that this story broke some time ago but it's getting attention now because Angela Merkel on a visit to China, has backed the German auto companies by saying that this kind of copying is not acceptable. The other issue of timing is that the International Auto Fair is due to open in Frankfurt in a couple of weeks and the Germans are threatening to expel the offending Chinese maker, Shuaghuan.

Apparently the Chinese maker has made a an SUV called the CEO that is strikingly like the BMW offering, the X5. And they have released a micro-car, Noble, that looks like a clone of Daimler's micro, Smart.

It is easy to see how the Chinese could devastate their German rivals if they get away with this form of copyright fraud. If the Chinese have in fact copied the German designs their behaviour is cheating pure and simple.

The German makers will attempt to sell at their marginal cost, which is a function of their variable and fixed costs. Certainly the Chinese will benefit from cheaper variable costs, essentially cheaper labour and other variable inputs. But the crux of the matter is the fixed costs. These encompass the cost of not just the plant but crucially the R&D work that has put German makers at the top end of the quality market. If Chinese makers simply copy the German design, they are avoiding a huge chunk of the fixed costs.

Of course, the Chinese are probably a long way off hitting the German quality, but there is no reason to believe that if allowed to simply copy their European rivals, they will eventually reach a level sufficient to do real damage. Recall how the Japanese took the American market by storm in the 80s (Not by copying but by reaching high quality and availing of favourable exchange rates. The latter is also in favour of the Chinese far more dramatically then for the Japanese).

This tiff is another symptom of Globalisation and its corollary, the rise of Asia (the article also noted that this year China is set to pass Germany as world largest exporter). Information flows so easily and markets are so open and accessible that a leader can be quickly undermined. That would be fine if the playing field was level. But in this case, clearly it is not.

I would certainly hope that Germany can prevail in making China play by the rules. But I'm not confident that the means exist to make that happen. The result of failure to do so, however, will put relentless pressure on European jobs.


vince said...

What was in no-ones interest was the offshore island idea. Which, since the 50's acted as the offshore island to everyone and for everything. China is, and as such will trade. But that in no way means, she should/will trade in the US owned market, any more than she should have/did in the former UK owned one.

CoreyCotta said...

China can and will flood the world market with Chinese made cars in the near future. China has undergone and industrial revolution. While the world economy moves toward globalization and service orientated jobs.

Corey Cotta, Author of All of Yesterdays Tomorrows