JV changes landscape of Our auto industry

In 1988，Mr. Zhu Rongji, the former mayor of Shanghai, inspected Shanghai Volkswagen. Martin Posth, who was the first foreign manager of Shanghai Volkswagen, put forward an opinion that VW had not got any news about the construction work which was supposed to be performed in accordance with the contract.

At that time, a road named Luopu stretched itself through the production base of Shanghai Volkswagen. According to the contract signed by Chinese and foreign parties, this road should be closed. Since the road was adjacent to the paint shop of Shanghai Volkswagen, dust would affect the quality of paint used on Santana. In the eyes of Chinese people, Volkswagen just nitpicked a very tiny flaw. However, in terms of German standards, such a road which had been signed to Shanghai Volkswagen plant could be fatal.

After hearing the report, Mr.Zhu Rongji promised to solve the problem within 24 hours. At first, Posth did not care about the case. However, when Mr.Posth went to work on 6:30 a.m. the next day, he was shocked by the scene that a giant crane had blocked the intersection of the Luopu Road. A lingering problem was eventually solved within 24 hours.

Three questions

In fact, when Zhu Rongji visited the Shanghai Volkswagen, they each raised three questions to the other side. The second question raised by Martin Posth was about how to discharge the paint wastewater. The last one was about how to price Santana. After Posth raised these questions, Mr.Zhu Rongji said that it was his turn to ask questions.

He said: "Please allow me to talk about three issues. First, localization efforts are not fast enough; second, Shanghai Volkswagen recruits an excessive number of foreign workers; thirdly, I think Shanghai Volkswagen does not work enough to deal with the issue of foreign-exchange balance of payments."

More than 20 years later, any newly-born joint venture will not face the problems that Shanghai Volkswagen once encountered. Now Shanghai Volkswagen's localization rate has been close to 100%. The vast majority of employees are Chinese people, even in the management level. Finally, China's foreign exchange reserves rank first in the world. As a result, all the domestic-invested enterprises will not fell nervous when they spend a lot of foreign exchange. If it had been today, Mr. Posth would have answered Zhu Rongji's questions more calmly. The questions raised by Posth 20 years ago are no longer real issues. The attitude of local governments for foreign investment has already changed with a 180-degree turn. In China, foreign capital is no longer a special thing. We have witnessed a tide of inviting foreign investment throughout China, a country which has attracted the largest foreign investment for several years.

Therefore, Shanghai Volkswagen, the first auto joint venture in China, demonstrates its significance by setting the paradigm for local government and enterprises about the issue of cooperating with foreign capital.

　　The best rule

In the early stage of China's reform and opening up, a joint venture had to care about several factors in order to survive in the market. As to the issues of technical level, management, market environment and policy orientation, any of them could play a key role in a company's development process.

Today, the proportion of 50 to 50 has become the best rule for Sino-foreign automobile joint ventures. In the original Shanghai Volkswagen, Shanghai Automobile Corporation held 25% share and China Automotive Industry Corporation accounted for 10%. Bank of China and Shanghai Trust and Investment Corporation had 15% share in all. Volkswagen was in charge of the other 50%.Now SAIC has become the Chinese investor.

Actually 50/50 is a double-edged sword. On one hand, both sides should shoulder the same responsibilities and administrative privileges. At the same time, both share the same benefits. On the other hand, in a 50/50 joint venture, it may be difficult for both parties to make a decision.

In Martin Posth' memoirs, he recorded the first thousand days filled with bitterness since Shanghai

Volkswagen was founded. Perhaps the most impressive memory is about the German people's unique characteristics. From the beginning, the German staff treated Shanghai Volkswagen as a career rather than a project. The interest of Shanghai Volkswagen was the top priority. Maybe that's the reason why Shanghai Volkswagen could survive in the market.

In accordance with German staff's attitude, Chinese managers and directors believed that the boom and bust of Shanghai Volkswagen was an important practice during China's reform and opening up.

Dr. Carl Hahn, the former chairman of Volkswagen, visited the Shanghai joint venture during the mid 1980s. He told the management officials that Shanghai Volkswagen was lack of a maintenance department. Every plant of Volkswagen across the world has a football-field-sized maintenance unit in order to repair those unqualified products. German executives of Shanghai Volkswagen said that it was unnecessary to establish a maintenance department since the pass rate was 97%, which was higher that any other plant in the world. (Qinghua/Hanxin)

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