Change at China's State Owned Automakers is Slow

SHANGHAI June 18, 2008;(Via Gasgoo) Yang Jian writing for Automotive News China -- Corporate marriages are difficult, even under ideal circumstances. But they are particularly difficult for foreign automakers with large state-owned automakers in China.

Take Volkswagen AG. It recently withdrew an executive dispatched to reform its joint venture with state-owned China FAW Group Corp.

On June 3, the VW executive, Weiming Soh, was replaced by an executive appointed by FAW as sales chief of FAW-Volkswagen Automobile Co.

That marked an abrupt end to the reform that Soh has waged since the beginning of 2006 to improve operations at the joint venture's sprawling sales operations.

In the past two years, Soh managed to cut from nine to four the number of regional sales centers. He also streamlined procedures to speed up decision making.

When Soh joined, FAW-Volkswagen was struggling. But in 2007, its sales surged 34 percent from 2006 to nearly 470,000 units.

However, while improving the efficiency of the sales system, Soh made a mistake. The Singapore-born and U.S.-educated Soh failed to recognize that the joint venture was controlled by a major state-owned company, FAW.

Soh told the domestic press he hoped his colleagues at FAW-Volkswagen could be as open-minded as Americans, as attentive to details as Japanese and as compliant with processes as Germans.

Such expectations were way too high.

FAW is one of the earliest state-owned enterprises in China. Most are still learning to operate as business entities. Many managers at FAW-Volkswagen were not comfortable with the pace Soh had set to reform the all-important sales function.

Right after he came on board, Soh took quick steps to revamp the joint venture's sales operations: he reshuffled the management at the sales arm of FAW-Volkswagen; he delegated more power to regional sales managers, leaving some executives in the headquarters with less authority; he also weeded out a large number of underperforming dealers.

These measures earned him many enemies in the company. That is why throughout his stint as the sales tsar of FAW-Volkswagen, Soh was dogged with rumors that he would be forced to leave the company sooner or later.

Soh may have been able to exert more influence on the operations of FAW-Volkswagen if he had taken a more measured approach to coaching and leading the management of FAW.

There is a lesson here for other foreign automakers to learn.