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Articles - Publication Date 11.6.2000
Paddy Fields to Full Production
General Motors Corp. reaps rewards from its huge, fast investment in Shanghai.
By Mark Graham
Executives still do a double take when they look at the expansive new General Motors Corp. factory in the Chinese port city of Shanghai. Senior American managers witnessed that piece of land transformed within two years from a sleepy peasant village, surrounded by paddy fields, into a showcase factory that churns out luxury Buick sedans.
The factory, developed and built at a cost of more than US$1.5 billion, was completed in a remarkably short period of time; even more extraordinary was the fact that GM pumped in $100 million before a solid contract was signed, a major gamble in a communist country where rule of law still is an alien concept.
But GM Chairman John F. Smith Jr. was convinced that the time and place were right for investment. Shanghai, the largest city in China with some 14 million people, was desperate to attract a major blue-chip investor for its newly developed Pudong industrial area. It was an open secret that the nationalistic leaders of the country were becoming embarrassed by the proliferation of imported luxury cars, in particular Mercedes, BMWs, and Audis, which were being used by senior Communist Party officials and successful entrepreneurs. GM may well be an American industrial icon and an arch-capitalist conglomerate straddling the world, but at least the Detroit-designed autos would be put together by Chinese workers on Chinese soil using many Chinese-made parts.
The motives in the GM boardroom on the other side of the Pacific were less subtle, but just as vital for the long-term well-being of the company. Senior executives reasoned that if they missed out on the developing Chinese market with its 1.3 billion people and huge potential, it would be a massive opportunity missed, possibly forever.
While negotiations continued throughout 1997, frantic site-preparation work began. First the local government razed family homes and farms and moved the people elsewhere -- the kind of act nonelected governments can carry out without fear of environmental protesters or legal appeals by residents -- before installing water and electricity and building access roads.
Then came the rush to build, with the roof being constructed at the same time that assembly-line machinery was being installed. Philip F. Murtaugh, now chairman and CEO of GM's China operations, still shakes his head with disbelief when looking back at those frantic days. As construction work began, the veteran executive, who previously had worked in England and Japan, was deep in negotiations to secure an equitable deal with his joint-venture counterparts. Long, closed-door meetings became his daily life as he thrashed out details with representatives of Shanghai Automotive Industry Corp. (SAIC), a company with aspirations to become the first Chinese company on the Fortune 500 list.
"We made a decision to work out a joint-venture contract and build the plant simultaneously," says Murtaugh. "We began both in January 1996 and it took us a year to negotiate the agreement. By that time there was steel on the site and we had spent more than $100 million. It was a fairly high-risk approach. GM has never built a plant on this scale this fast in its entire history.
"In terms of the challenges of building a plant, we had about three [potential sites] but settled on this one because of its location and the fact that it was the biggest one. When we came here there were 800 families, seven factories, and canals running through the site. There were people reaping the crops. Typically with construction you do things in sequence. We did everything in parallel. We were doing utilities at the same time as structural work and installing machinery and equipment while we were putting in wires and pipes."
Foreign-Investment Showcase
The rush to complete the Shanghai project was a key element of the Chinese government's bigger-picture plans. It had determined a decade ago that the area of Pudong, across the river from the Bund pr
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"One of their primary objectives was to have GM bring in our management practices, so the capitalist-versus- Marxist/Leninist culture clash wasn't such a big issue."
Philip F. Murtaugh, General Motors China
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