To transform all my locally stored contacts and make them Google contacts I had to first export them to a file, copy them on my laptop, upload to Google, mix&match duplicates and other corrections, download an export again on my computer, delete all my contacts from my phone (which also deleted my contacts from Google), reupload that export to Google, then synchronize my phone with Google's Contacts.
Now everything I do on my phone or in Google's Contacts is kept in sync nicely. I also have Facebook sync set so I get faces of people for free and sometimes email addresses or phone numbers that I didn't have :-)
But it was a painful experience to export my old sim-stored contacts and sometimes I get the feeling that while Google has the right idea about what people want, they are moving too slowly to fix their shit.