Winning in China's auto industry requires bold strategy

Winning big in China does not need to be a make-or-break proposition. According to a new Deloitte Touche Tohmatsu (DTT) Manufacturing Industry Group report written by Deloitte Research, ''Managing strategic risk in China's unpredictable automotive market: The saga of Tian River Motors,'' achieving profitable growth in the world's second-largest automotive market does require dramatic new strategic responses.

Applying the principles of Deloitte Consulting LLP's Michael E. Raynor's thought provoking book, The Strategy Paradox, the DTT Manufacturing Industry Group unveils an innovative approach that companies across all industries can use to meet their strategic objectives while mitigating the risk of uncertainty.

''The investment climate in China continues to be attractive, but it is also becoming increasingly competitive as a result of the fast pace of consolidation in the automotive, steel, chemicals and other industries,'' says John Hung, partner and China manufacturing industry leader with Deloitte Touche Tohmatsu CPA Ltd based in Shanghai. ''To succeed in this dynamic business environment, companies need to constantly re-examine their strategic options for growth.''

''In the past five years, the landscape of the global automotive industry has changed rapidly,'' says Mr. Steve Laughman, the DTT global automotive sector leader. ''China's situation is especially complex – China's automotive market is not moving forward in a straight line, and new developments bring opportunities and threats alike. This uncertainty can obscure what comes next and any plan may commit a company to investments that have limited returns or become obsolete.''

With this as the backdrop, the new DTT report describes how auto industry players can adopt a bold, high-payoff strategy keyed to a particular vision of how the future will play out, yet maintain alternate plans and the resources to go with them in case it becomes necessary to make a U-turn. The report illustrates the key points through the story of a hypothetical company known as Tian River Motors (TRM). Readers follow the experiences of TRM's senior management as they take the inside lane and position their company to move from middle of the pack to leader.

''The future of alternative fuels is a focus of the report,'' says Dwight Allen, a Deloitte Services L.P. director with Deloitte Research and co-author of the report. ''TRM is faced with deciding whether to bet on one of several alternative fuels or whether to stick with petrol – and different executives have different views on which course is best.''

Rather than being stymied by the divergent opinions, TRM weaves them into its strategy. The executives decide each of TRM's four divisions will champion a different fuel. As each division seeks to ensure that its fuel will emerge the winner, the other divisions are creating strategic options for it by developing other fuels, one of which might turn out to be a better choice. This creates value by reducing the strategic risks each division faces and increasing the universe of strategic opportunities it can pursue.

''The report will be of interest to CEOs, Chief Strategy Officers and other C-Suite executives at multinational and local Chinese automotive manufacturers, and at suppliers with operations in China,'' adds Laughman. ''But the lessons are universal. These insights can help any company facing tough choices in today's uncertain world.''

For a copy of the ''Managing strategic risk in China's unpredictable automotive market: The saga of Tian River Motors'', visit http://www.deloitte.com/chinaautomotive.