Summary of Key Points
Mercedes-Benz's 40-year localization journey in China has evolved through three phases: an exploration period (1986-2004), an expansion period (2005-2019), and a transformation period (2020-2024). Each phase involved adjusting strategies in response to external factors (such as policies and competition) and internal needs. The company has shifted from simply adapting to the Chinese market to becoming a global innovation hub. However, this process has also exposed challenges, such as reliance on core technologies and lagging transformation, providing valuable insights for Chinese automakers looking to expand internationally.
Phase 1: Exploration (1986-2004) – From “Foreign Visitor” to “Local Player”
- Motivation: China had just opened up to foreign investment, but Mercedes-Benz believed the luxury market was not yet mature and chose to test the waters by selling imported vehicles through agents.
- Actions: The company partnered with Li Xing Hang as an agent, established a subsidiary in Hong Kong, and opened its first 4S store in Shanghai. It also set up Daimler Greater China Investment Company in 2001. However, it did not build local manufacturing plants or research and development (R&D) teams, with only 10% of its management being Chinese.
- Results: Sales increased from 3,000 to 11,500 units, but Mercedes-Benz fell behind Audi, which had already started localization and gained an advantage through government orders and a network of stores in lower-tier cities. After-sales parts took 28 days to arrive (compared to Audi’s 7 days), and its service coverage was limited to 300 kilometers (versus Audi’s 500 kilometers).
Phase 2: Expansion (2005-2019) – Rooting the Entire Supply Chain
- Motivation: The luxury car market grew as China's wealthy population expanded, and competitors like Audi and BMW had already localized their operations. Additionally, policies were relaxed to encourage more foreign investment.
- Actions:
- Manufacturing: Mercedes-Benz partnered with BAIC to establish Beijing Benz and expanded its factory in Shunyi (the largest Mercedes-Benz production base globally), with an annual capacity of 500,000 units. It also collaborated with BYD on electric vehicles.
- R&D: The company shifted from “German design, Chinese production” to “Chinese design, for the Chinese market.” A R&D center was established in China in 2014, focusing on longer-wheelbase models and the MBUX user interface. The R&D team grew from less than 100 to 1,500 people, with 88% being local.
- Sales: The number of 4S stores increased from 50 to 550, reaching more third- and fourth-tier cities. A local parts logistics center was set up to reduce delivery times.
- Talent: The proportion of Chinese management rose from 45% to 75%.
- Results: Sales soared to 702,100 units, with 79% being domestic-produced vehicles. Mercedes-Benz surpassed Audi and BMW in SUV sales. However, it still relied heavily on imported components (e.g., engine control units), and faced a shortage of new energy credits in 2019, forcing it to purchase Tesla credits at an additional cost of $4,500 per vehicle.
Phase 3: Transformation (2020-2024) – Embracing Electrification and Intelligence with China as the Global Hub
- Motivation: The rise of electric vehicles and advanced technology, along with the impact of the pandemic on supply chains, challenged Mercedes-Benz’s traditional fuel-based models.
- Actions:
- Electrification: It partnered with Geely to develop electric vehicles and invested in Foton Energy for battery production. Beijing Benz built a pure-electric factory.
- R&D: A digital technology company was established in Shanghai to advance L3 autonomous driving technology tailored for Chinese road conditions, with a R&D team of 2,300 people (the largest overseas R&D center).
- Talent: The proportion of Chinese management reached 80%, and Duan Jianjun became the first Chinese CEO.
- Results: Sales in 2024 reached 714,000 units, with 83% being domestic products. Although profits declined, the transformation continued.
Four Pillars of Localization
Mercedes-Benz’s success in China relies on four key areas:
1. Local Manufacturing: It has moved from importing and assembling to locally manufacturing vehicles, reducing costs and improving market responsiveness.
2. Local R&D: The company has evolved from validating German designs in China to independently developing products and even exporting technology globally.
3. Local Sales: It has expanded its presence to all cities, with a 90% increase in 4S stores, and improved after-sales services by increasing local parts procurement and reducing wait times.
4. Local Talent: The management is now 80% Chinese, allowing for better understanding of consumer needs and faster decision-making.
Challenges in Localization
Mercedes-Benz has faced several challenges:
1. Core Technology Dependencies: Heavy reliance on imported components, especially engine control units, which increased costs during the Sino-US trade war.
2. Slow Transition to New Energy: Initial underinvestment in electrification led to a shortage of new energy credits and poor sales of electric models like the EQC.
3. Decision-Making Sluggishness: Early partnerships required joint signatures from both Chinese and German parties, slowing down decision-making and missing market opportunities.
Lessons for Chinese Automakers
Mercedes-Benz’s experience offers valuable lessons for Chinese automakers looking to expand internationally:
1. Long-Term Approach: Take the time to build a strong brand and service network, rather than seeking quick profits.
2. Gradual Localization: Start with local manufacturing to mitigate tariffs, followed by R&D tailored to local markets and supply chains, and building sales teams that understand local customer needs.
3. Customer Experience: Focus on providing excellent after-sales services and new technologies (charging, vehicle connectivity) to gain customer trust.
In summary, Mercedes-Benz’s localization in China is a story of adaptation and leadership, with both successes and lessons. Chinese automakers should adopt a similar approach, focusing on long-term planning and comprehensive localization while addressing core challenges to successfully enter international markets.