When the primary concern of Chinese auto firms was increasing manufacturing capability, Shanghai firms had a critical advantage: the municipal government and SAIC were able to ease the risk of individual firms and nurture the development of an entire sector. The Shanghai municipal government, to use Lindblom's memorable characterization of authority systems, was all thumbs at this stage, and that was fine. With the comfort of high tariff barriers, even relatively crude means of channeling resources into the sector would be rewarded with increased sales. Shanghai firms were able to rapidly achieve economies of scale and capture market share. The considerable profits were plowed back into the supply network, and this created the strong foundation that later allowed them to upgrade their technical capabilities.

The challenge as competition and global integration increased, however, was matching technical progress with the ability to cut costs. Cultivating a supply network of efficient firms – as opposed to merely capable – was a task that imposed far greater demands on municipal institutions for two reasons. First, the governance structures within the local business group had to be improved, so as to create mechanisms of discipline and control. Rather than simply channeling resources to all firms within the network, resources had to be allocated according to the effectiveness with which they were utilized; those firms that were operating efficiently had to receive further investment, those that were not, had to be cut off.