Comments on: China’s automobile market – an example of Economies of Scale http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/ for students and teachers of Economics Wed, 08 Feb 2012 23:39:55 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Jessica Ng http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3149 Jessica Ng Mon, 29 Oct 2007 10:43:09 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3149 China's automobile industry is rather young, especially compared to that of Japan's, Germany's, and many other foreign countries. A lot of these foregin firms have already set factories in China, dominating much of the Chinese automobile industry. This oligopoly makes it difficult for new private Chinese firms to enter and expand into extensive economies of scale. These private firms economies proabbly has economies of scale that are exhausted quickly, then immediately followed by diseconomies of scale. Its minimum ATC occurs at a relatively low output. Compared with the larger dominating industries in which its ATC occurs at a very high output, these small private industries thus have to struggle in this competitive industry. China's automobile industry is rather young, especially compared to that of Japan's, Germany's, and many other foreign countries. A lot of these foregin firms have already set factories in China, dominating much of the Chinese automobile industry. This oligopoly makes it difficult for new private Chinese firms to enter and expand into extensive economies of scale. These private firms economies proabbly has economies of scale that are exhausted quickly, then immediately followed by diseconomies of scale. Its minimum ATC occurs at a relatively low output. Compared with the larger dominating industries in which its ATC occurs at a very high output, these small private industries thus have to struggle in this competitive industry.

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]]> By: timothysun http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3075 timothysun Fri, 26 Oct 2007 00:25:43 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3075 The automobile industry isn't as large in China as in Japan. I would imagine that Japan is facing diseconomies of scale. I think this difference is due to the government differences. China only started having a free economy what, after Mao's death? On the other hand, Japan started decades before. The automobile industry isn't as large in China as in Japan. I would imagine that Japan is facing diseconomies of scale. I think this difference is due to the government differences. China only started having a free economy what, after Mao's death? On the other hand, Japan started decades before.

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]]> By: Richard Tu http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3058 Richard Tu Thu, 25 Oct 2007 21:11:55 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3058 Entering the car manufacturing industry isn't easy, there are lots of costs to start up the company, while other firms that had been in the industry for a long time, they will have a lower cost for producing the same things that a newly entered firm. It takes time for a company to mature and developed in an industry such as car manufacturing. I agree with what Judy said, that Chinese car manufacturing companies are having difficulty achieving the economies of scale, because lots of famous foreign brands are already set foot in china, producing the products that consumers want; at this point, small Chinese brands will have a hard time catching up. Entering the car manufacturing industry isn't easy, there are lots of costs to start up the company, while other firms that had been in the industry for a long time, they will have a lower cost for producing the same things that a newly entered firm. It takes time for a company to mature and developed in an industry such as car manufacturing. I agree with what Judy said, that Chinese car manufacturing companies are having difficulty achieving the economies of scale, because lots of famous foreign brands are already set foot in china, producing the products that consumers want; at this point, small Chinese brands will have a hard time catching up.

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]]> By: MichaelChow http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3055 MichaelChow Thu, 25 Oct 2007 20:23:14 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3055 The car manufacturing industry has many factors to be considered before deciding on whether or not to enter the industry. Costs of a car manufacturing industry is extremely high, with the account of the machinery and technology as well as labor necessary needed to make the company work. Like Judy I also believe that the Chinese car brands have difficulty in achieving Economies of scale, mainly because of the other foreign popular car brands such as BMW, Toyota, Nissan etc. The car manufacturing industry has many factors to be considered before deciding on whether or not to enter the industry. Costs of a car manufacturing industry is extremely high, with the account of the machinery and technology as well as labor necessary needed to make the company work. Like Judy I also believe that the Chinese car brands have difficulty in achieving Economies of scale, mainly because of the other foreign popular car brands such as BMW, Toyota, Nissan etc.

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]]> By: kxc.024 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3046 kxc.024 Wed, 24 Oct 2007 21:18:00 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3046 The cause of these firms not having economies of scale originates from the nature of the government. Since China is a communist country (despite having a "free" economy), the majority of the people live in a lower standard of living. This also means that the resources in China is of lower quality than those around the world. Even though China is quickly catching up to the West techonologically, they will probably be never as successful if they continue using cheap materials that does not sustain for long. Therefore, if the government would just have less control over the economy (because currently, they still control some aspects of the economy), these automobile firms might have greater economies of scale. The cause of these firms not having economies of scale originates from the nature of the government. Since China is a communist country (despite having a "free" economy), the majority of the people live in a lower standard of living. This also means that the resources in China is of lower quality than those around the world. Even though China is quickly catching up to the West techonologically, they will probably be never as successful if they continue using cheap materials that does not sustain for long. Therefore, if the government would just have less control over the economy (because currently, they still control some aspects of the economy), these automobile firms might have greater economies of scale.

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]]> By: Jack Lo http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3041 Jack Lo Wed, 24 Oct 2007 17:45:38 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3041 The Chinese car firms will have difficulty achieving economies of scale because of the presence of foreign companies. Foreign companies such as Ford, GM, or Toyota already have an established brand name and years of experience under their belts, not to mention the economies of scale they have already built up. I think that the automobile industry is somewhere caught between a monopolistic competition and an oligopoly (perhaps more towards oligopoly). It is very difficult for these new Chinese brands to enter an oligopoly market and to compete with these corporate beasts. If the Chinese automobile firms wish to survive, I believe that it would be in their best interest to merge into a larger company. The Chinese car firms will have difficulty achieving economies of scale because of the presence of foreign companies. Foreign companies such as Ford, GM, or Toyota already have an established brand name and years of experience under their belts, not to mention the economies of scale they have already built up. I think that the automobile industry is somewhere caught between a monopolistic competition and an oligopoly (perhaps more towards oligopoly). It is very difficult for these new Chinese brands to enter an oligopoly market and to compete with these corporate beasts. If the Chinese automobile firms wish to survive, I believe that it would be in their best interest to merge into a larger company.

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]]> By: judychen http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3038 judychen Tue, 23 Oct 2007 23:35:01 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3038 i think Chinese automotive companies is having hard time achieving economies of scale, is because there were already many foreign brands exist before those small chinese brands exists. Therefore, normally, people trust foreign brands more since they are much famous and having better qualities. So, Chinese automotive companies should improve their qualities, captials and labor work in order to compete with foreign brands i think Chinese automotive companies is having hard time achieving economies of scale, is because there were already many foreign brands exist before those small chinese brands exists. Therefore, normally, people trust foreign brands more since they are much famous and having better qualities. So, Chinese automotive companies should improve their qualities, captials and labor work in order to compete with foreign brands

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]]> By: Alex Goldman http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3033 Alex Goldman Tue, 23 Oct 2007 21:24:55 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3033 As the article mentions, "few of the Chinese brands are anywhere near achieving the economies of scale needed to guarantee long-term survival." Building on David's point, it is indeed unrealistic to aspire to compete with foreign cars. This is because the car market is an oligopoly, the major players being companies such as Toyota, GM, Hyundai, and Volkswagen. As we have learned, a market dominated by an oligopoly is hard to enter, especially for Chinese companies that do not have the technology, quality, prices, and brand names to compete with these giants. As it has been mentioned above, the Chinese need to consider investing heavily in capital to get on the same level as foreign producers. As the article mentions, "few of the Chinese brands are anywhere near achieving the economies of scale needed to guarantee long-term survival." Building on David's point, it is indeed unrealistic to aspire to compete with foreign cars. This is because the car market is an oligopoly, the major players being companies such as Toyota, GM, Hyundai, and Volkswagen. As we have learned, a market dominated by an oligopoly is hard to enter, especially for Chinese companies that do not have the technology, quality, prices, and brand names to compete with these giants. As it has been mentioned above, the Chinese need to consider investing heavily in capital to get on the same level as foreign producers.

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]]> By: optional.xu http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3022 optional.xu Tue, 23 Oct 2007 20:01:43 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3022 Well, of course China's newly developed privatized automobile companies are going to have trouble developing into large economies of scale. China's relatively young free market system only allowed them to exist for a short time while foreign automobile producers have had forever to develop the best techniques and obtain the most efficient means of production. These companies will have trouble if they cannot compete price-wise with the foreign companies. Chinese makers need to consider investing heavily in capital to even dream about competing with the top producers. Well, of course China's newly developed privatized automobile companies are going to have trouble developing into large economies of scale. China's relatively young free market system only allowed them to exist for a short time while foreign automobile producers have had forever to develop the best techniques and obtain the most efficient means of production. These companies will have trouble if they cannot compete price-wise with the foreign companies. Chinese makers need to consider investing heavily in capital to even dream about competing with the top producers.

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]]> By: Jenny Kim http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3018 Jenny Kim Tue, 23 Oct 2007 19:07:33 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3018 I think China's car manufacturing firms have a hard time achieving the economies of scale because of the foreign manufacturers that are already present in China's automobile industry. Consumers buy products from famous brands rather than the beginning brands, thus making it hard for them to achieve the economies of scale. Maybe because the consumers think that the smaller firms will have lower quality cars than the big firms. Effort to appeal to the consumers that their products are high quality automobiles will be important to those Chinese firms in order to achieve economies of scale. I think China's car manufacturing firms have a hard time achieving the economies of scale because of the foreign manufacturers that are already present in China's automobile industry. Consumers buy products from famous brands rather than the beginning brands, thus making it hard for them to achieve the economies of scale. Maybe because the consumers think that the smaller firms will have lower quality cars than the big firms. Effort to appeal to the consumers that their products are high quality automobiles will be important to those Chinese firms in order to achieve economies of scale.

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]]> By: kevinchiu http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3014 kevinchiu Tue, 23 Oct 2007 10:28:53 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3014 There should be an expected dropout of a great deal of the small firms attempting to survive in the car manfacturing market in China, as their targeted consumers will begin seeking for better quality cars. However, there will still be a substantial amount of people who will not be able to afford the high-quality cars, so if the small firms do merge to form a larger company that can overcome the economies of scale,there will be a greater influence caused by local car manafactures in China. There should be an expected dropout of a great deal of the small firms attempting to survive in the car manfacturing market in China, as their targeted consumers will begin seeking for better quality cars. However, there will still be a substantial amount of people who will not be able to afford the high-quality cars, so if the small firms do merge to form a larger company that can overcome the economies of scale,there will be a greater influence caused by local car manafactures in China.

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]]> By: Chan Min Park http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-3002 Chan Min Park Mon, 22 Oct 2007 18:53:27 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-3002 First in order to do this car manufacturing business, the costs are very big and thus not many companies tend to set foot in this industry. However in this industry although the number of companies is not that great, it is hard for them to be able to take up a big part of the market. Certain companies don't even take up one percent and thus will not be able to achieve economics of scale. Over time, many companies will fall out of the competition while some companies are going to start taking up a big part of the industry. First in order to do this car manufacturing business, the costs are very big and thus not many companies tend to set foot in this industry. However in this industry although the number of companies is not that great, it is hard for them to be able to take up a big part of the market. Certain companies don't even take up one percent and thus will not be able to achieve economics of scale. Over time, many companies will fall out of the competition while some companies are going to start taking up a big part of the industry.

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]]> By: Mike Fladlien http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-2998 Mike Fladlien Mon, 22 Oct 2007 09:32:35 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-2998 A new menard's is being built next a super Wal-Mart that is 1.5 times larger. In Iowa where you can see corn forever, significant economies of scale will lower LRATC dramatically for the building and trades super store...The Menard's now sells groceries... A new menard's is being built next a super Wal-Mart that is 1.5 times larger. In Iowa where you can see corn forever, significant economies of scale will lower LRATC dramatically for the building and trades super store…The Menard's now sells groceries…

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]]> By: Helen http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-2996 Helen Mon, 22 Oct 2007 00:25:56 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-2996 The article mentions a few factors of why it is so hard for Chinese automobile producers to achieve economies of scale, and they all boil down to a vicious cycle. For the small local producers to expand, they need "capital" (money speaking) to buy more efficient capital that generates greater output. But compared to the firms backed up by big foreign companies, these small firms can't compete. So while the big get bigger, the small get smaller (relatively). Relating this to the issue on quality - the small local Chinese firms will experience difficulty with attracting more customers after the first wave has gone since its poor quality, again, can't compete with the better quality automobiles produced by large firms. They therefore won't be able to increase output, since demand would be already down, and that's another obstacle on their path to expansion and economies of scale. The article mentions a few factors of why it is so hard for Chinese automobile producers to achieve economies of scale, and they all boil down to a vicious cycle. For the small local producers to expand, they need "capital" (money speaking) to buy more efficient capital that generates greater output. But compared to the firms backed up by big foreign companies, these small firms can't compete. So while the big get bigger, the small get smaller (relatively).

Relating this to the issue on quality – the small local Chinese firms will experience difficulty with attracting more customers after the first wave has gone since its poor quality, again, can't compete with the better quality automobiles produced by large firms. They therefore won't be able to increase output, since demand would be already down, and that's another obstacle on their path to expansion and economies of scale.

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]]> By: emilyyeh http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/comment-page-1/#comment-2983 emilyyeh Sun, 21 Oct 2007 13:56:01 +0000 http://welkerswikinomics.com/blog/2007/10/21/chinas-automobile-market-an-example-of-economies-of-scale/#comment-2983 I think that China's lack of economies of scale may be a remnant of communist policies regarding industries. Before China opened up to wider global market, each industry was dominated by state-run companies with no other competition, and many of these firms still hold a lot of power despite less state-backing, and hence are capable of limiting the power of new firms to grow. All in all though, China's automobile market is still often dominated by foreign auto firms, especially as the Japanese take an active effort to take a slice of the huge market. I think that China's lack of economies of scale may be a remnant of communist policies regarding industries. Before China opened up to wider global market, each industry was dominated by state-run companies with no other competition, and many of these firms still hold a lot of power despite less state-backing, and hence are capable of limiting the power of new firms to grow. All in all though, China's automobile market is still often dominated by foreign auto firms, especially as the Japanese take an active effort to take a slice of the huge market.

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