The Chinese are a coming’

THEY’RE NOT revealing the make or models but the folk at McCarthy Limited, the automotive division of The Bidvest Group Limited, have confirmed that the company will be introducing a range – including medium commercials - of fully-imported Chinese vehicles onto the South African market before the end of the first quarter of next year. 

According to Brand Pretorius, chairman of McCarthy Motor Holdings (MMH), the company’s Chinese venture provides it with a meaningful opportunity for growth. "It will expand our vehicle import and distribution division substantially, increase the size of our dealer network and deliver meaningful benefits to our Financial Services division." Commenting on the Chinese market, Pretorius says the Chinese motor industry is coming of age following ten years of dramatic growth. "In 2005, new vehicle sales in China exceeded five million units which earned it the distinction of being the second largest new vehicle market in the world. China’s next objective is to penetrate the international market and South Africa has been identified as an important export opportunity." 

According to Jolyon Nash, executive director at MMH, the new range will compete for leadership in the value segments of the market, boasting competitive selling prices and low costs of ownership. "The light and medium commercial vehicles in particular will be welcomed by all users of utility vehicles. These low cost vehicles will undoubtedly play an important role in our economy as we gear up for World Cup Soccer in 2010. The value segment of the market has grown significantly over the past three years and we are therefore confident of the success of this exciting venture." 

It wasn’t a question of ‘If’ but rather ‘when’ the first Chinese truck ‘onslaught’ would be made into our market. One may rightfully say that FAW has been here for some time but really, hardly in ‘onslaught’ form. The onslaught has yet to come and me’ thinks it will start from the McCarthy camp. FleetWatch has always contended that with a main part of China’s export strategy being based on competitive pricing due to its low labour costs, the southern African market would be a natural target for the country’s trucking export activities. We say this because in Europe, Chinese products would have to compete in the high tech stakes where they would lag. In Africa, however, low price still gets you a slice – and Chinese products will be low priced. We also read the writing on the wall some time ago that once China had satisfied its internal demands, it would focus outwardly and embark on vigorous export programmes – not only in the motor and truck sectors – but across a broad spectrum of products and activities. It started doing this some time ago and is already active in Africa in many guises. Even the dreaded Bob Mugabe turned to China when no-one else wanted to touch him. Surprisingly, they sent him home with empty pockets. This writer has questioned the ‘wisdom’ of international companies – including most major truck manufacturers – of rushing into China to gain a slice of its internal growth by flogging their technology to obscure Chinese partners who they are forced to get into bed with in order to operate in that market. In my humble opinion, these companies are giving away their hard-earned technologies to a country which is one day going to eat into their own home markets. It’s tempting though for China is a shareholder’s delight providing grand opportunities for the Chairmen of corporations to delight their AGM audiences with dividend cherries that other markets are just not able to provide. But why my scepticism? Well consider this…

A survey carried out in a prominent international financial journal about a year ago put the Chinese population of children – yes children, not adults – at 100-million. Each one of these kids will need a job in the future and China itself is not going to be able to provide all those jobs without growing its customer base beyond its own borders. Certainly the country is currently doing a sterling job of providing employment for its people but that’s because of its incredible internal growth. The place is booming but if it had to rely on that growth as the only sustainable job provider for those 100-million future job seekers, it wouldn’t cut it in the long term. It has to look for outside growth. Of course, those 100-million kids along with the millions of Chinese adults currently manning the growth, will continue to be paid much lower wages than their counterparts in Europe, the USA, and indeed South Africa which means that Chinese products, wherever exported, will enjoy a lower price tag than those imported from Europe, the USA and even Japan. 

I reckon the company which should take most note of the McCarthy development is Tata which has proved that there is still a large sector in South Africa that goes for upfront price as a primary purchase consideration. Tata’s performance in South Africa has been nothing short of phenomenal with the company usurping Toyota’s traditional top spot in the medium truck segment for some months now. There is no doubt at all that the company has used its pricing strategies as a tool to get that market share. In fact, when the chairman of the company, Ratan Tata, visited South Africa, FleetWatch asked him if the low price was being used as an entry strategy to get metal on the roads or whether it would be sustainable over the long term. He clearly stated that it was sustainable based on the economies of scale accruing from being a volume manufacturer (the 6th largest in the world) and from having a lower wage bill than other manufactures in Europe, USA and other markets. China boasts the same so I reckon Tata has some serious competition heading its way through the McCarthy- Chinese connection. 

While FleetWatch congratulates McCarthy on its Chinese deal, my advice to Mr Brand Pretorius would be to rush out and buy the book titled ‘The Art of War’. It’s compulsory reading in primary schools in China and it’s not just about making proper ‘war’ – you know, guns, tanks and all that. The principles and philosophies are used by the Chinese in all facets of life – and especially in business dealings. And, of course, in any war, you want to be the conqueror and the victor. China is not just selling product at a cheap price to "penetrate the international market." There’s much more to it than that - but you have to look far down the road to see it.

Patrick O'Leary
Managing Editor