VW's Long-Term Negotiation Thinking pays off in China

VW's Long-Term Negotiation Thinking pays off in China

by Dr Bob March

Reveals how Volkswagen, the first Western auto manufacturer to enter China, has managed to build a leading position in the Chinese car market and the key business negotiation factors behind Volkswagen's success in China for many years.

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Negotiation Overview

Volkswagen (VW), the first overseas carmaker in China, is the only foreign manufacturer to have been making a profit in China over the past ten years.

It all began in October 1984, when VW signed a joint venture agreement with China. One of the country’s first major joint venture agreements, it involved several government authorities, including the Ministry of Foreign Trade and Cooperation (MOFTEC, now MoCom), the State Planning Commission, the State Economic Commission, the Ministry of Finance, the Bank of China (BOC), the Municipal Government of Shanghai, and the China National Automobile Industry Corporation (CNAIC).

A manufacturing facility was built in Shanghai, and VW’s partners were Shanghai Tractor and Automobile Corporation (STAC), with a twenty-five percent share, as well as the BOC, Shanghai Trust and Consultant Company, and the CNAIC, which together had a twenty-five percent share.

In the beginning

Being first into China has proved lucrative for VW. In 1986, its first plant had a capacity of 30,000 vehicles; in 2003, there were two plants turning out 400,000 vehicles. Again in 1986, national car sales were less than 30,000; in 2002 they were 720,000, of which VW had a fifty-three percent share.

The company has achieved market leadership through product quality, reputation, and pricing; indeed, every Chinese knows VW. In terms of the potential of China as a car market, it is still early days. Since its entry into the WTO, the prices of imported cars have decreased significantly, but no other carmaker has yet been able to whittle away VW's competitive edge. In addition, plans are afoot to import VW's lower priced Skoda to China, to position the maker in the cheaper segments of the market.

VW was approached by the China National Technical Import Corporation in 1977, and in 1978 a Chinese delegation visited VW headquarters in Wolfsburg, Germany. The first VW delegation went to Beijing in 1979. So there were six years of negotiations, involving at least seven parties on the Chinese side, and major contracts were negotiated, including a joint venture contract, a technology transfer agreement, articles of association, supply agreements, and a planning agreement.

According to Heinz Bendlin, one of the original VW negotiators with China, even in the early days the Chinese behaved courteously. He has commented as follows:

"I learned in China that foreigners tend to have a typical mode of behavior. They want to achieve results quickly, get answers

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