Refinancing Shanghai Gm

Case Study 2

{draw:frame}

Introduction

Question 1:

A joint venture is a legal entity formed between two or more parties to undertake an economic activity together and sharing the risk. General Motors have chosen to enter China through a joint venture. GM viewed China as a vital market through which it could maintain its global leadership position by gaining market share in Asia. With the entry of China in the WTO, it cleared the way for SGM and GM to optimize manufacturing and component sourcing on a global basis. Significant cost savings could be realized from local mass production of high-volume units and importing niche items from centralized facilities that could supply many markets. So why choosing to enter via a joint venture? There are a few reasons for this; first is that it reduces entry risks by using the local partners assets. Second, you gain access to local borrowing powers. Third, there is access through local resources through participation of national partner. Fourth, GM can make use of the economies of scale and the advantages of size. And fifth, GM can access the foreign technology or expertise.

The major important aspect in joint venture is trust, otherwise there may rise conflicts.

Conflicts that may arise are for example financial conflicts. GM and SAIC therefore decided to do a joint venture between General Motors’ finance arm, General Motors Acceptance Corporation (GMAC) and SAIC Finance Company (SAICFC). The four departmental heads of Treasury, Accounting, Comptrolling and Internal Controls need to report to the CFO. Furhtermore, the banking team paid full attention to banks on raising the return on excess cash, dealing with foreign-exchange exposures, interest-rate exposures as well as derivatives trading. A second conflict that may arise are the different tax systems since they also ask for different accounting systems. A final argument that could arise has to do with the insurance. SGM owned substantial fixed assets and...