Study On Longitudinal Expansion Effect Of Product Line Of Chinese Car Industry

Since Reform and Opening, the automobile industry has been developing quickly and become an important industry which provides significant support to the development of economy in China. The final products of automobile industry are used in almost everywhere in our society, economy and our life. The upstream of automobile industry covers lots of important industries including the iron industry, electronic industry and petrochemical industry. We can claim that the automobile industry plays a major role in the modern society and economy. The sedan industry is the most important part of automobile industry.Sedan industry has the property of vertical differentiation, while vertical product line expansion is a major strategic tool for the firms within this industry. This dissertation aims to observe the vertical product line expansion cases in China’s sedan industry, then analyze the effect of this action over market performance, show the internal cause of the effects, and provide suggestions for relevant firms within or outside this industry.First, this dissertation reviews the relevant literatures about product differentiation, product line expansion and the automobile industry, then introduced the vertical production line expansion cases from two aspects, the segment markets aspect and firm aspect. After that, based on previous researches, the dissertation analyzes the potential influence of vertical product line expansion over the firms’ market performance, and suggests several hypotheses. Finally, the dissertation tests the hypotheses through both empirical study and experience observation.The data set for this research is the relevant data of China’s sedan industry from2003to2008. The dissertation uses both simultaneous equation model and multi-variable linear regression to test the hypotheses. The main finding is that the influence of vertical production line expansion is closely related to the direction of the expansion. Upward expansion is highly risky and may have negative effect on the firm’s performance in both the newly entered market segment and its original segment.Based on the findings, this dissertation provides some useful advice to the firms with potential incentive to conduct vertical product line expansion, within the industries with vertical differentiation property.