Jack Smith on Emerging Markets and Changes and Challenges for GM
Until the 1990s, General Motors was an also-ran — and in some cases not even a player —in major markets outside Europe and North America. Today, in contrast, China is the company’s second-largest market (behind the U.S.). GM also set all-time sales records for the first six months of 2008 in the Asia-Pacific region and the Latin America, Africa, Middle East region.
How did this transformation come about? The groundwork and strategy for operating as a single global team and moving aggressively into emerging markets were put in place during the 1990s under the leadership of CEO Jack Smith and his executive team. Smith retired from GM in 2003 after a career with the company that spanned 42 years. He recently sat down with GMnext to discuss emerging markets and changes in GM as well as his view of the future. Following are excerpts from that interview:
Why did you put such a priority on establishing a presence in emerging markets, especially in the Asia-Pacific region?
Jack Smith: Well, it started when I was running international operations (before 1992). And actually it was kind of a no-brainer — we looked at GDP per capita versus car sales in various countries. One of the things that stood out right away was that China had a GDP per capita that was very similar to what was happening in Central and Eastern Europe. Take, for example, Poland. Poland had around 40 million people as I recall and around the mid-90s they were selling more cars than were being sold in all of China. If you look again at GDP per capita, there were about 400 million people in China that fell into the same category of what we saw in Poland and Eastern Europe, and there were no cars to speak of. So it was obvious that at some point, China was going to be a huge market. And the same was true in India and many other countries.
If you want to hear more from Jack Smith about GM presence in emerging markets, click here
Describe how GM established itself in China.
Jack Smith and Chen Xlang sign the GM-SAIC joint venture agreement in Beijing’s Great Hall of the People. VIP observers were U.S. Vice President Albert Gore, Jr. (standing behind American flag) and Chinese Premier Li Peng (standing next to Gore, behind Chinese flat).
JS: It started long before 1998 and one of our first ventures was in a fairly remote province, pretty rugged country. There were no hotels, the GM people who went there were real pioneers. That was never a very successful venture but it was a start. Then in 1998, the opportunity presented itself to link up with the largest Chinese auto manufacturer, Shanghai Automotive Industry Corporation (SAIC). They had a joint venture with Volkswagen and they wanted another separate venture because Volkswagen had not renewed the product, they wanted modern product. It was open to Ford and Toyota as well, so we went to work on a plan.
We decided that we would treat our effort in China just like we would a hundred-percent-owned foreign subsidiary — like Brazil, where they do the whole product concept. We sold that — sold it hard. We took SAIC people to see the operations in Brazil. We said this is the way this will work, and it will be a joint venture. That was our risk, to do it as a joint venture but run it just like we run Brazil or other subsidiaries that are 100 percent owned by GM. And that was a winning strategy . . . . I got a call saying that it looked like our joint venture was going to be approved at the same time U.S. Vice President Al Gore was in China. So I got over to China and we had a signing ceremony with the Vice President toasting the joint venture. And we went from there, we built the Shanghai plant, and the Wall Street Journal questioned whether it was a good move, whether there would ever be a car market in China — they thought we were taking a big risk. We did make a big investment there before the market developed, but the market did come and it’s been a huge success.
Video Courtesy of General Motors Corporation
Why did GM end up so successful in China and with Daewoo in Korea?
JS: I think they’re two separate cases. In the case of our venture in China, you needed good people in place. General Motors stepped up to the plate, we had some great people in China — and still do today. We had a long experience of running operations outside North America and we treated the China operation as part of the family, we ran it as part of the family and it’s been hugely successful. That also applies to Daewoo as well. It had been part of the family years earlier, its heritage was our product, and so it was a natural fit for us. We put good people in place. Daewoo uses our global systems and it’s now a terrific opportunity because Korea is probably the lowest cost source of product any place in the world today. And it gives us an opportunity to cover markets that we hadn’t done a good job with, particularly the Middle East, Africa, and some South American countries. Daewoo fills out the product line with very competitive product.
If you want to hear Jack Smith tell more about GM in Korea, click here
Why has the process of change been longer and more difficult for GM than for many other companies?
JS: On one hand, senior management was reluctant to change because of the past success of General Motors. And what Alfred Sloan had put together in the 1920s — no one seemed to want to tear that up, it was like the Holy Bible. Also, when changes were pushed down from the top of the organization, there were very strong divisional managers — very strong — who weren’t exactly excited about taking change from the top. So, you had a lot of push-back. . . . We also had been so successful. We thought we were on top. And that was the attitude. So, it fostered little change.
Describe the process of moving from separate operating divisions to a single North American organization.
JS: In the late 1980s, I came back from running Europe to run all international operations. Subsequent to that, when General Motors went through some hard times and the management was changed, I wound up in 1992 first as President of General Motors and then a few months later, CEO. Because of the learnings in Europe, where we broke down a culture of each country running separately, I knew that we couldn’t afford to run as separate units in the United States — it just didn’t make any sense, we needed to run common, we needed to be one unit. So we created a strategy board right out of the chute. We eliminated all of the policy groups and we eliminated the divisional requirements for processing and so forth and cut the central office staffs and so forth. But most importantly, we brought another idea from Europe — global purchasing. The combination of streamlining the North American operations into one operation with a strategy board, with the benefit of global purchasing, was a big turnaround for GM.
Describe how you moved from a single North American organization to a single global organization.
JS: Well, we let the international area run its own way until we got through a lot of the difficulties in the United States. But after a couple of years, it was quite obvious that the way we were running in North America — a single team — was the way we should be running globally. We couldn’t afford the luxury of doing a small car in Europe and a similar small car in the United States. We needed to do things the same way everywhere. We needed to run common — that is, process a vehicle the same way everywhere in the world . . . . General Motors was also a very bloated company back in 1992. There was lots of opportunity to run lean and I’d say the current management team has made terrific progress in getting lean. General Motors is also a lot faster in developing products today, but there are opportunities to be even faster. I must say, a lot of this took a significant amount of time but today, I see how things run in the manufacturing world and it is absolutely fantastic. We do have a common global system and my hat’s off to the team.
Looking at the world and the industry today, where do you see the growth in the future and what does GM need to do to succeed?
JS: I see growth opportunity continuing in many large countries outside the United States — Brazil, Russia, India, China, to name just a few. Those are the big ones but we’ll also see growth in markets that are still in the motor bike era. Vietnam is an example. With a population of 85 million people, it’s going to be a big small car market. There are lots of opportunities for growth . . . I think the GM team knows what they need to do. My judgment is, if the U.S. market is swinging back to cars, we need to get very lean in order to be profitable in the U.S. car market . . . but GM can do it. Clearly, the auto industry will change dramatically. There will be lots of exciting opportunities. The drive systems that we’ve known for over a hundred years are going to be radically different in order to deal with the high price of fuel. I think it’s going to be a very exciting time. It’ll be a great place for young people, to be part of that new frontier that develops the cars of the future.
If you want to hear Jack Smith recount more about the future for GM, click here
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