China Latecomers: GM’s Luxury Drive, Microsoft’s Search

Cadillac, Microsoft come late to China luxury cars, online search

China’s luxury car and online search markets are both well established and quite competitive, which makes it difficult for new entrants to gain traction, even when they’re global giants like GM (NYSE: GM) and Microsoft (Nasdaq: MSFT). In this case GM wants to challenge established giants like Audi (Frankfurt: VOWG) and BMW (Frankfurt: BMWG) with a major new push into the China luxury car market with its Cadillac brand. Similarly, Microsoft is launching its own new campaign for its Bing search engine that has yet to find much of a following despite several years in the market.

Both GM and Microsoft have been quite successful with their core products in China, with the former now the nation’s top selling car maker and the latter a top software seller. Each will face major challenges in breaking into newer areas like luxury cars and online search, though I would give GM a better chance of success in its latest initiative than Microsoft.

Let’s start with a look at GM, which has just broken ground on a plant to significantly boost its Cadillac manufacturing in China. The new $1.3 billion plant in Shanghai will have an annual capacity of up to 160,000 cars per year. (English article) GM sold about 30,000 Cadillacs in China last year, most of those imported, and the brand has been posting very high double-digit growth this year amid a strong promotional campaign. GM said it ultimately hopes to sell about 250,000 Cadillacs annually in China by 2020, which would account for about 10 percent of the luxury auto market.

GM will certainly face an uphill road achieving its targets, as it will have to vie with all the other luxury car makers that are also expanding their capacity with billions of dollars in new investment. What’s more, the market is showing significant signs of slowing, as Beijing pressures government organizations to buy more domestic brands and the broader Chinese economy slows.

Still, I would give GM a relatively good chance for success based on its previous track record in the market. I’ve always been surprised at GM’s success with its Buick brand in the market, positioning it as a stylish, mid-range nameplate despite its more stodgier image in the US. Cadillac also suffers from a stodgy image in the US, but like Buick it has a much more positive image in China. If GM can capitalize on that positive image and create some strong marketing campaigns, it could leverage its strong distribution and after-sales networks to make Cadillac a serious contender in the luxury segment.

From GM let’s move quickly to Microsoft, which has just announced it will bring its global “Bing It On” campaign to China. (English article) The campaign, located at www.bingpk.com, challenges Internet users to compare results from searches using the Chinese version of Bing versus Google (Nasdaq: GOOG).

The fact that comparisons with Google are being emphasized demonstrates just how little thought Microsoft has put into this latest campaign. Everyone knows that Google has become a tiny player in China since its high profile withdrawal from the local search market in 2010, and that the market is now dominated by Baidu (Nasdaq: BIDU) and up-and-coming challengers So.com and Sougou.

Microsoft formally launched Bing in China about a year ago, though the site was in beta testing for a full 3 years before that. Despite that relatively long history, Bing has yet to gain any major following in China, similar to its plight in the rest of the world as it tries to take share from Google. This latest campaign looks poorly conceived and unlikely to gain any traction, and reflects Microsoft’s broader weak track record for developing products outside its core software business.

Bottom line: GM could achieve some modest success for its Cadillac drive in China, while Microsoft’s latest Bing campaign looks like a dud.

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This article was first published in the online edition of the South China Morning Post at www.scmp.com.

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