#8 “Nissan's China Business” May, 2009

In 2008, Nissan's sales in China increased 19% year-on-year to 545,000 units. While many markets experienced declines in automobile sales, Nissan exhibited steady growth in China. One of the most important markets, China is a driving force behind Nissan's growth. This issue of Inside NISSAN focuses on Nissan's business in China.

Part 1: Overview of the Chinese Market

The automobile market in China continues to grow. According to the China Association of Automobile Manufacturers, sales in China surpassed Japan and became the second largest automobile market in the world in 2006. In 2008, total industry volume in China increased 7% from the prior year to 9.4 million units.

One characteristic of the market is that foreign automobile companies are required to establish joint ventures with local automobile manufacturers in order to produce vehicles in China. Since the 1980s, the government has actively invited foreign investment in an effort to raise the Chinese automobile industry to an internationally competitive level. However, the level of foreign investment for a joint ventures is limited to 50%, as stated in the Auto Industry Development Policy issued in 2004.

Another unique point of the Chinese market is that there are no automobile manufacturers with market shares over 10%. For the top manufacturers, market shares range from 5% to 10%. As nobody dominates the market, manufacturers have been competing with each other for the last few years. In this competitive environment, over thirty new models are introduced each year. This also leads to fierce price competition.

Part 2: Nissan and the Chinese Market

Nissan first entered China with the export of the Cedric Sedan in 1972. After that initial introduction, the US and European automobile manufacturers expanded rapidly with local production. At that time, Nissan did not employ a full-scale launch and subsequently, fell behind.

In September of 2002, Nissan formed a partnership with the DongFeng Motor Corporation (Dongfeng). Together, they established a 50-50 joint company, Dongfeng Motor Co., Ltd. (DFL), in 2003.

Most foreign companies established partnerships with two local companies, which is the maximum number allowed by the government. In contrast, Nissan has only one partner, Dongfeng. Dongfeng is one of the leading commercial vehicle brands in China with a wide range of commercial vehicles, including trucks and buses, and an extensive local sales network. In comparison, Nissan is a global automobile manufacturer with a product lineup consisting mainly of passenger vehicles. As a result of their joint venture, DFL is the only automobile company in China offering a full product lineup of both passenger and commercial vehicles.

Since its establishment in 2003, DFL has focused on building the foundation of the company. In 2004, DFL announced its mid-term business plan, "Plan23". Under the new plan, DFL set three targets associated with "2", which were "doubling sales volume* and revenues", "achieving two-digit operating margin" and " 'becoming an organization that can learn' through the cooperation of the two companies, Dongfeng and Nissan". In achieving these targets, DFL showed steady growth. Sales volume* in 2007 was 610,000 units, which exceeded the target of doubling sales of 298,000 units in 2003.

  • * Including Dongfeng brand large commercial vehicles

Part 3: DFL

The following is an explanation of DFL's operations.

One of the largest vehicle production plants in China, the Huadu plant in Guangzhou produces passenger vehicles including Tiida, Sylphy, Livina series, Qashqai, and X-TRAIL. With the exception of the Infiniti brand, most of the Nissan passenger vehicles are locally produced in China.

It is essential to further improve quality, so that potential customers purchase Nissan vehicles. As such, Nissan utilizes an R&D facility, Dongfeng Nissan Technical Center, in China. Specifically, engineers conduct vehicle tests on site and throughout the country with the aim of developing vehicles that exceed customer needs. Kaizen activities have continued at Nissan's passenger vehicle plants in China and are comparable to those in Japan. As a result, in the J.D. Power's Initial Quality Study, Teana ranked highest in the upper premium midsize segment for the second consecutive year.

Dealer training is also crucial as dealers are the customers' points of contact. In an effort to provide full after-sales service in China, DFL has been focusing on training for its mechanics. Intensive sales and service education is provided to dealerships at the training center, which opened in 2008. Implementing the policy for customer care, "Nissan Sales and Service Way", DFL aims to provide customers with high-quality, homogeneous service at every outlet. As a result, DFL's score in J.D. Power CSI Study has improved each year.

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