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Attaining Sustainable Competitive Advantage
Adrian Carrión � Guarang Kalsaria � Lia Leibgold � Diego Ocampo � Patrice Senior
Agenda
• Chinese Auto Market • Chinese Auto Industry • Company Overview • Recommendations • Questions
China has surpassed Korea, France, Germany, and the United States, trailing only Japan in terms of [2008] production volume
◦ Growth has shifted from heavy vehicles to passenger vehicles ◦ which accounted for more than 65% of production in 2008
◦ Some contributing factors include: ◦ Cheap and ample manufacturing capacity ◦ Falling car prices - down by nearly 6% from 2006 ◦ Urban residents per capita income increased by 12.2% to $1,942/yr ◦ Infrastructure
◦ China doubled its network of high-speed roads between 2006-2008 to 37,282 miles (United States = 46,603 miles).
◦ 2008 Car ownership rates = High Demand in China ◦ Global average - 120 per 1000 people ◦ China - 22 cars per 1000 people ◦ US - 600 per 1000 people
Chinese Auto Market
Chinese Auto Industry
� Largely dominated by international companies, constrained only by China’s 50/50 rule (FDI-JV). ◦ Reverse Engineering ◦ Intellectual Property
� @ 117 Auto Mfrs ◦ Domestic 2/3 state owned
� State Council, 3/09: Automotive Readjustment and Revitalization Plan ◦ Mergers Encouraged
� Acquisition ◦ Rover-SAIC ◦ Volvo-Geely ◦ Hummer-Sichuan Tengzhong ◦ Various parts mfrs
000s % 000s %GM 1,032 11.7% 1,074 11.3%VW 918 10.4% 964 10.1%TOYOTA 460 5.2% 538 5.6%HONDA 422 4.8% 470 4.9%HYUNDAI-‐KIA 355 4.0% 437 4.6%CHERY 387 4.4% 356 3.7%NISSAN 272 3.1% 346 3.6%FAW 294 3.3% 302 3.2%GEELY 220 2.5% 237 2.5%MAZDA 222 2.5% 209 2.2%TOTAL 8,819 100% 9,541 100%
Table 1. Motor Vehicle Sales in China and Market Share of Selected Manufacturers,
2007-‐2008
Source: Ward’s Auto InfoBank.
� China’s leading independent auto manufacturer ◦ Founded in 1997 ◦ Started as an engine manufacturer ◦ Chery’s annual production capacity is expected to rise from its current level
of 650k to more than 1 million vehicles by early 2012
� Models include: A3, A1, A5, V5, Tiggo, Cowin, QQ3, QQ6, QQme. ◦ First entry was a chassis licensed from VW (Seat Toledo) ◦ Today they manufacture over 10 original models
� 09 vehicle sales reached 500k and 2010 projected sales are 900k ◦ It took 7 years to produce 1 million vehicles, but only took 2 ½ years to
double that output
� Has operations in Asia, the Middle East, Africa, North America, South America, and Australia
� Accounts for 50% of China’s car exports
Company Overview
Quality Control
� “We must learn lessons from international automakers and make high-quality cars while providing good service.
- Yin Tongyao, Chairman � Poor Quality ◦ Issues of poor quality inhibit exports to developed countries (i.e. U.S.,
Europe) ◦ Chery/Chrysler ◦ http://www.youtube.com/watch?v=5kQGAK550LE
� Recent Improvements ◦ The Chery A3 recently received a 5-star crash rating from the CNCAP ◦ Chery QQ3 and QQ6 received top honors from J.D. Power Asia-Pacific ◦ http://www.youtube.com/watch?v=FnXT1agrus4
� Recommendations Moving Forward ◦ Ongoing development and implementation of a standard quality
management system is essential ◦ Differentiation à Quality and Safety
Innovation: New Energy Technology
� “Green” Technology ◦ Chinese government putting pressure on companies to develop “green” technology ◦ Government subsidies to spur demand
� Cost Leadership ◦ Chery excels at manufacturing small, gas-efficient vehicles at low cost ◦ Cost leadership strategy reduces: � Threat of new entrants � Threat of substitutes � Threat of rivalry
International Expansion
� Current Expansion ◦ 1st Chinese Auto Manufacturer to open a foreign facility, $370M plan in Iran, 2003.
- Russia, 2005 - Malaysia, 2006
◦ Political Ties - Long term business relationships with Syria,
Iran, and Cuba.
International Expansion
� Opportunity for Further Expansion ◦ Emerging Markets (Latin America and Middle East) � Example: Brazil
� Recommendation ◦ Build brand awareness and reputation through
emerging markets. ◦ Continue to produce economy vehicles
Financial Capital Resources
� If Chery can maintain its financial resources, flexibility and its financial control, it can gain competitive advantage and possibly sustained competitive advantage
◦ Obtain cheaper cost of funds than its competitors.
◦ Maintain relationships with local government
◦ Advantage over foreign firms from obtaining local capital
Questions?