Competition and bidding wars between Chinese motorcycle companies affects sales in ASEAN countries

May 3, 2018

Competition and bidding wars between Chinese motorcycle companies affects sales in ASEAN countries

 

 

Three years ago Chinese Premier Li Keqiang outlined a roadmap for a shared "diamond decade" in the relations between China and the Association of Southeast Asian Nations (ASEAN), and pledged to expand bilateral trade to $1 trillion and two-way investment by $150 billion by 2020. Given that China, the world's second largest economy, and ASEAN, a 10-country economic bloc of some of Asia's largest manufacturing hubs such as Indonesia, Malaysia, the Philippines and Thailand, have already signed free trade agreements (FTA) that cover goods and trade in services and investment, expanding bilateral trade and investment should not be an impossible mission.

 

China has been ASEAN's largest trading partner for seven consecutive years and ASEAN has been China's third-largest trading partner for the past five years. The ASEAN region has been a major investment destination for Chinese firms. Reaching the diamond decade trade and investment goals will only be a matter of time.

 

However, there are a number of obstacles that have hindered China's expansion of investment and trade in ASEAN. Chinese firms have been competing viciously with their Chinese peers for market share, a situation that is most prominent in ASEAN countries. There is an urgent need for Chinese firms to remain rational and avoid engaging in price wars to win bids and lure local customers as they seek to expand in ASEAN countries. Chinese government agencies should also exhibit restraint in granting guarantee letters, which authorize Chinese firms to bid for projects in ASEAN countries.

 

In countries such as Myanmar, Vietnam and the Philippines, there is a huge demand for infrastructure construction and Chinese developers have been welcome in these countries given their competitive edge. But the problem is that it is too easy for Chinese firms to obtain guarantee letters from Chinese government agencies, which in turn leads to a situation where several Chinese firms are bidding on one project. In order to win bids, firms have resorted to pushing down prices and competing with their Chinese peers. This results in lower quality construction and tarnishes the image of Chinese firms and brands. Furthermore, firms risk being blacklisted if their projects malfunction.

 

In a contrasting situation, Japan tends to authorize only one firm to bid for projects in ASEAN countries. In doing so, Japanese firms do not have to compete with bidders from their home country but can instead focus on convincing their counterparts by delivering high-quality construction and products.

 

Vicious competition among Chinese firms is not limited to bidding for construction projects but also appears in products sales. Take motorcycles in Vietnam, for example. Chinese motorcycles were once popular in Vietnam given the good quality and cheap price. However, as Chinese motorcycle makers engaged in price wars to compete for a larger market share in the country, the quality of their products has been compromised. This lower quality drove Vietnamese customers to choose Japanese brands despite higher prices. Now Chinese motorcycles are rarely seen on Vietnam's streets. This is a tragedy for Chinese firms who are entirely capable of producing high-quality competitive products, but hav

 

e lost ground to Japanese firms because of a price war with their peers.

 

Such a situation should emphasize the need of Chinese government agencies to be diligent and careful in selecting qualified firms for bidding projects in ASEAN countries. Local firms also need to abandon their short-sighted mindset of instant profit and focus on a more sustainable development as they invest in ASEAN countries. Furthermore, industrial associations and chambers of commerce in China and ASEAN countries should work together to create a category of creditable Chinese brands so that local customers will be confident in what brands can be trusted.

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