This is a great piece by business author Michael Masterson, pointing out a recent Wall Street Journal article that teaches some valuable business lessons for entrepreneurs starting their own business:
A recent Wall Street Journal article about a joint venture in China highlights a couple of ideas that we have been talking about for many years:
1. Many businesspeople (and apparently some business writers) think competition is bad and that reducing or eliminating competition is good. This is an enormously stupid and dangerous idea. Competition is good because it expedites natural economic selection, weeding out bad companies and bad products and promoting good ones.
2. When some people say they favor "win-win" deals, what they really mean is they like 90/10 deals - i.e., we both win, but I win much more than you do. This, too, is stupid thinking.
The best and smartest businesspeople welcome competition because they know it will make them perform better. They bend over backward to make every deal they do good for their partners because they understand that, over the long run, it is much easier and more profitable to grow a business when everybody wants to work with you.
To build better cars, Shanghai Automotive Industry Corp. teamed up with General Motors Corp. in 1997 to produce Buicks, Cadillacs, and Chevrolets for China's booming middle class. During that time, GM became the biggest car maker in China and SAI learned a lot about the manufacturing and marketing of American-quality cars.
Now SAI, using the knowledge it gained and the money it earned by working with GM, is producing its own line of mid-priced luxury cars... and they are selling well.
Does this bother GM?
Not at all. GM Chief Executive Rick Wagoner told The Wall Street Journal, "We made a big bet back in 1997, and it's paid off for us very well."
The Journal wonders if GM gave away too much. "Its Chinese partner could end up competing against GM both in China and, someday, abroad. SAI, owned by the Shanghai city government, already makes cars that rival GM's in a joint venture with Volkswagen AG."
And SAI probably will end up competing against GM. Hu Maoyuan, Chairman of SAI, is clear on his ambitions. "We want to build a global Chinese brand," he says. His company intends to "take full advantage of the technical and management experience that [they've] accumulated" in the GM and Volkswagen joint ventures.
Does that mean GM shouldn't have gotten involved with SAI?
Of course not. During the last 10 years, GM made hundreds of millions of dollars a year in profits. Plus, it took a first position among Western car manufacturers in the world's biggest market. Finally, it learned a great deal about selling to the Chinese people. Yes, it will have to compete with its ex-partner in the future, but it will do so from a much stronger position than it would have ever gained had it not made the deal.
The moral to the story? Find out in part two...
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