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Why joint ventures of commercial vehicle companies are difficult
In recent news, talks between Sweden's Volvo Group and China's Dongfeng Motor Corporation are nearing completion. If everything goes smoothly, the two companies are expected to start their collaboration in May next year. After a long and complicated negotiation process, they finally reached an agreement on a commercial vehicle project, which was initially described as "bundled" due to the complexity of the deal.
One of the most intriguing aspects of China’s automotive industry is the stark contrast between the success of passenger car joint ventures and the struggles of commercial vehicle partnerships. While car manufacturers have seen numerous successful joint ventures, the same cannot be said for commercial vehicles. In fact, many commercial vehicle collaborations have failed or remain stuck in the negotiation phase. Why do some joint ventures thrive while others struggle?
The author identifies three key reasons behind the challenges faced by commercial vehicle joint ventures.
Firstly, the high pricing of foreign brands plays a major role. Many commercial vehicle joint ventures aim to produce high-end heavy trucks using foreign technology. However, the demand for such high-end models in China is relatively low. Heavy truck users prioritize cost-effectiveness over brand prestige. Without mandatory policies, they tend to go for cheaper, locally produced models that offer better value for money. Unlike cars, which are often seen as status symbols, commercial vehicles are tools for generating income. If foreign brands don’t align with local needs, they risk being overlooked.
Secondly, China has a longer history and stronger foundation in commercial vehicle manufacturing. Over decades, domestic manufacturers have developed mature technologies and gained experience in management and sales. They also have well-established talent pools. This gives them more leverage during negotiations compared to passenger car companies. Many joint venture failures can be traced back to equal equity splits, where both parties struggle to maintain control. Domestic manufacturers, who already hold a large market share, are reluctant to give up their influence, while foreign partners, confident in their technology, are unwilling to compromise. This leads to conflicts and hinders progress.
Thirdly, cultural integration between Chinese and foreign partners remains a significant challenge. Differences in consumer preferences, market strategies, and internal operations often lead to misalignment. Foreign investors may focus too much on technical specifications while overlooking the practical needs of Chinese customers. Additionally, when foreign models are introduced, they often come with features that are not suitable for the current stage of the Chinese commercial vehicle market, leading to poor cost-performance ratios and missed opportunities.
Despite these difficulties, many global commercial vehicle giants continue to seek entry into the Chinese market, driven by its vast potential. Although joint ventures in this sector face unique challenges, the promise of growth keeps international players motivated to find ways to succeed.