Five best tips for foreign auto rental firms

With the car rental industry growing in China, foreign companies are reportedly interested in the market. Roland Berger Strategy Consultants partner John Shen notes that the Chinese market is very different from the market in the United States. Many Chinese customers choose to rent a car with a driver. There are no nationwide regulations in the industry and the government has no bureau or agency to regulate it.

In China, he says, car ownership is still relatively low with about 50 cars per thousand people; in the US, the number is 600. He offers these suggestions to foreign firms:

Don't copy Western practices.

The Chinese market is very different from the US market in terms of customers. In the US, short-term rentals are the big cash cows, while in China long-term rentals are major earners.

Find a strong local partner.

Finding a local partner can bring many local resources to foreign rental companies.

One example is Hertz Car Rental, which set up shop in China as early as 2002, but hasn't achieved success until now. An important reason is that its partner wasn't strong enough. It wanted to win the market simply by setting up a franchise in China and moving the system overseas, but the partner has neither management experience in this industry nor local resources, so the partnership finally failed in 2006.

Sharpen management skills.

Although most car rental companies are small, once they obtain venture capital funds, they can quickly grow by buying a bigger fleet of cars.

A larger scale company has more cars available for customers. Large companies need to think about managing these cars efficiently. Demand for car rentals fluctuate - on weekdays people use cars for business trips, but on weekends they rent cars to travel around for fun. Companies need a balance between the two.

And Companies shouldn't spend too much money expanding into luxury cars.

Pay attention to customers.

The car rental industry in China is still growing but there will be only three or five companies that will become well-known over the long run. When that happens, requirements from customers will rise. The car rental industry doesn't involve any high technology, so companies have to compete on high quality services.

These services are reflected on a series of details, such as the drivers' skills (in China many customers ask for drivers when renting cars), and punctuality.

Get prepared for the big transition.

China is in a transitional stage as long-term rent transforms into short-term individual rent. Businesses are also moving from coastal areas to inland regions as well.

In this market, foreign companies need to take care of existing customers and prepare for a greater market in the long run.