Driving Towards the Sustainable Green Future
—— Proposed Strategies for SK to EnterChina’s Car Battery Market
Li Yuen, Guanghua School of Management
Hu Yunzhi, College of Engineering
He Yu, Guanghua School of Management
Outline
Competitor Analysis Customer Analysis
The Li-ion battery represents the future trend of car battery industry.
SK’s Status in the Market
SK should exploit China’s car battery and after-sales service market by providing Li-ion batteries to HEV.
SWOT for Entering China
External Environment
Market Analysis
SWOT Analysis
Proposed Strategy
GoalExploit China’s car battery market and driving service business by cooperation with HEV (hybrid electric vehicle) manufacturers.
HEV Demand in China
Overview of New Energy Vehicles
HEV Policies in China
The bright future of HEV brings opportunities to car battery market.
S1:Pure Supplier
S2: Strategic Partner of Chery
S3: Cooperation with 3 Bus Companies
S2: Basic Car Strategy Partner
S3:Bus Producer Cooperator
√ Criteria & Evaluation
Proposed Strategies
Optional Strategies
Market Analysis SWOTExternal Proposed Strategy
1 WTI Crude Oil Posted Price in Last 12 Months
Source: World Oil Outlook 2007, Monthly Oil Market Report Apr 2008, Wikipedia
Outlook of Oil Shortfall in China
Low Energy Engine Efficiency of Traditional Energy Vehicles
45%Diesel
30%Gasoline
Energy EfficiencyEngine
3 Environmental Pollution of Traditional Energy Vehicles
0
2
4
6
8
10
12
14
16
18
2005 2010 2015 2020 2025 2030
mb/d
Supply
Demand
Transportation Demand
Increasing Shortfall
1.1 Threats to Traditional Energy Vehicles
Threats bring opportunities to new energy vehicles.
External
Photo-Chemical
Smog
Others
x xNO &CH
• The largest component of vehicles’ exhaust gas.• Greatly damage the oxygen carrying ability of hemoglobin.• Cause the Greenhouse Effect.
• Severe toxicity which leads to lung cancer.
• Harm people’s eyes and respiratory system. • Reduce air visibility.
• may cause acid rain.• Suspended particles could harm people’s respiratory system.• Pb compounds could influence the intelligence and growth of children.
2SO
2CO & CO
2
Market Analysis SWOTExternal Proposed Strategy
HEV demand
Car demand
1.122.04
3.79
million
W
orst
Best
1 The Comparison of Different New Energy Vehicles
1.2 Overview of New Energy Vehicles and HEV Demand in China
Key Features
HEV will take 25% of the total market in 2020
Future demand of HEV makes it a great potential market. - 1.12 million(2010), 2.04 million(2015), 3.79 million(2020)
Source: China Automobile Industry Yearbook 2001-2007, Auto Manufacturing and Production
2 HEV Demand Prediction in China
Hybrid electric vehicle represents the future trend.
External
A vehicle that uses hydrogen as its on-board fuel for motive power.
Such as highly efficient energy accumulator and dimethyl enther (DME), etc.
Descriptions
A vehicle that combines a conventional propulsion system with an on-board rechargeable energy storage system.A vehicle that utilizes chemical energy stored in rechargeable battery packs, and electric motors and motor controllers.
Vehicles with other energy
sources
Hydrogen Engine Vehicle
Battery Electric
Vehicle (BEV)
Hybrid Electric Vehicle (HEV)
Uncertainty/ Risk
Technology Realization
Level of Marketization
Production Cost
Energy Efficiency
Market Analysis SWOTExternal Proposed Strategy
Source: Chinese Automobile Industry Year Book(2007), Wikipedia, ,www.qiche.com.cn
2000 The Tenth Five Year Plan
Initiated the 863 Electric Vehicle Project, supporting the research and development of key components and electrical whole-vehicles with special financial fund of ¥ 0.88 billion
2007.12 Guiding Catalogue of Industrial Structure Regulation
Included new energy vehicle in the Encouraged Industry List supported by policy in production, test, approval, consumption and tax reduction.
2004.6 Policy on Development of Automotive Industry
Guided customers to purchase and use the automobiles with new energy sources and new power.
2007.8 HEV Technical Standard Seminar
HEV has the greatest market potential among the new energy automobiles.Discussed key fields of HEV technical standards
2000
1.3 HEV Policies in China
The excellent performance, increasing demand and policy support of HEV promise a bright future to the rechargeable automobile battery market.
2007.11 Rules on the Production Admission Administration of New Energy Automobiles
Issued by National Development and Reform Commission.Set three technical stages of new energy vehicles.To manufacture new energy automobiles, enterprises must obtain the production qualification upon the approval of the National Development and Reform Commission.
2005 The Eleventh Five Year Plan
Initiated the 863 Electric Vehicle and Cleanly Fuelled Vehicle Project, with special financial fund of ¥ 1.1 billion.
20042004 2005 2007.8 2007.11 2007.12
External
3 Chinese Policy of HEV and Related Industries
Market Analysis SWOTExternal Proposed StrategyOutline
External Environment
Market Analysis
SWOT Analysis
Competitor Analysis Customer Analysis
The Li-ion battery represents the future trend of car battery industry.
Proposed Strategy
Market Analysis
Market Analysis SWOTExternal Proposed Strategy
2.1 Competitor Analysis - Segmentation of HEV Battery Market Participants
Ni-Cd Ni-MH
Source: Nomura Research Institute
Li-ion battery will soon be large-scale applied to HEV
2 Performance Comparison of HEV batteries
Main HEV Battery Producers in China1
2003HEV bus research by Wuhan government
Li/MnO2, Li/SOCI2 and Li-ion Batteries
Wuhan LIXUN Power Co., Ltd.
Supported by China Green Material Developing Centre
2003863 Project----HEV battery industrialization
Ni-MH & Ni-Cd Cylindrical Batteries
FOREVER BATTERY Co., Ltd
Subsidiary of Johnson Controls, Inc
2005Supply Ni-MH batteries to Chery & Shanghai Automotive
Plug-in Ni-MH Batteries
Shanghai Johnson Controls International Battery Co., Ltd.
The biggest producer of Lithium cobaltate.
2002Li-Ion battery supplier of Beijing Olympic Project
C/LiMn2O4 Li-ion Batteries
CITIC Guoan MGL New Technology Institute
Holds 80% market share in Ni-MH battery market
2007863 ProjectNi-MH BatteriesJIANGSU CHUNLAN Co., Ltd
N/A
Explanatory NoteProductsCompany Name HEV Projects Start time
5%
50%
0%
10%
20%
30%
40%
50%
60%
1996-2005 2006-2010
Worldwide Market Share prediction of Li-ion batteries (for HEV)
Highest
Green Product
Capacity
Cycle Count
Output Density
Weight Energy Density
Lowest1 2 3 4 5
• Include Li-Polymer battery
• So far the best green battery but the highest in cost.
Market Analysis
Li-ion
• Low-end battery with low cost, small voltage and short battery life.
• Green battery with relative better performance and higher cost.
Market Analysis SWOTExternal Proposed Strategy
Battery & ProducerPriceMilestones on HEV
SHELL
BP
EXXON-Mobil
TOTAL
TOTAL
TOTAL
1997 Came out in Japan
2006.1 First sales in China
HEV in China
Prius 1.5AT¥ 269,800
6.5Ah ,274V Ni-MH
Panasonic (Japan)
2003 Came out in Japan
2007.11 First sales in ChinaCIVIC Hybrid
¥ 269,800 6Ah ,120V Ni-MH
Panasonic (Japan)
2008.3 Showed on China Auto Show (Beijing)
Buick LaCrosse
Eco-Hybrid
¥ 260,000 E-Flex Fuel Cell & Ni-MH
General Mobile (U.S.A)
2007.6 Exhibited in Korea
2009. Plan on mass production
Avante LPG Hybrid
N/A 6,5AhNi-MH
N/A
2008 Plan on small-scale production in China
Touran
N/A NI-MH
N/A
2007.10 Exhibited and would come out soonJiexun HEV
¥ 150000144V 6Ah Ni-MH
Hunan Shenzhou
TOTAL2008.3 Gained approval by NDRC2008.3 Received an order of 50 vehicles for Olympic Games
SQR7130 ¥ 84,800 144V 6Ah Ni-MH
Hunan Shenzhou
TOTAL 2008 Ready for small-scale productionHysoul 305 N/A288V Ni-MH
N/A
TOTAL 2007.10 Launched in Chinese marketF6DM/F3DM ¥ 180,000 3.3V 60Ah ET Power
BYD
DOMESTIC PLAYERS
MNC PLAYERMNC PLAYERS
Source: news.sina.com.cn; www.autoinfo.gov.cno;
MNC
Toyota gained first-mover advantages by extending Prius in Chinese market
Many other famous MNCs followed Toyota
High-end strategy .
Consider HEV as a good opportunity to catch up with foreign counterparts
863 Project
Low-end strategy
2.2.1 Customer Analysis - Major HEV Producers in China (Basic Car)Market Analysis
1 Major HEV Producers in China (Basic Car)
Domestic
Market Analysis SWOTExternal Proposed Strategy
Source: news.sina.com.cn; www.chinabus.info;
Battery & producerMilestones on HEV
SHELL
BP
EXXON-Mobil
TOTAL
TOTAL
2007.3 Started a production line.
2007.8 Won a 50-bus bid for Beijing HEV Bus Demonstration Project.
HEV in China
LCK6110G ZHONGTONG
40Ah Ni/MH
Taizhou CHUNLAN Institute
2005.1 Won a 25-bus bid of Shenzhen Bus.2006.4 Expanded the American market
FDG6120HEVG WUZHOULONG
12V VRLA gelled-electrolyte Shenzhen QIANWANG Technology
2007.10 Began mass production.2008.1 30 buses came to use in Guangzhou.
BJ6123C7B4D
AUV
Li-ion battery
Eaton (U.S.A)
40Ah Ni/MH
Hunan SHENZHOU Science &Technology
2005.11 20 buses came to use in Wuhan.2007.7 Won the bid for Beijing Olympic Project.2007.8 Got a 100-bus bid for Wuhan Bus Co.
EQ6110HEV DONFENG
2007.1 ANKAI HEV was put into production.HFF6110GZ-3 ANKAI
TOTAL2006.4 Showed a HEV sample in Shanghai.2007.4 Began to cooperate with DONGFENG for HEV development
SQR7130 N/A
TOTAL 36V 40Ah Ni/MH
Taizhou CHUNLAN Institute
2005.12 Showed a HEV sample in ChangchunCA6110HEV JIEFANG
MNC PLAYERMARKET PLAYERS
N/A
Ni-MH batteries are now dominating China’s HEV battery marketBecause of the limits of Ni-MH batteries, many producers are looking
for potential substitutes, e.g. Li-ion battery.
Implications to car battery market
2.2.2 Customer Analysis - Major HEV Producers in China (Bus)Market Analysis
2 Major HEV Producers in China (Bus)
Key Features
Local governments give financial support to HEV bus development.
Dongfeng, Zhongtong and Wuzhoulong develop faster than others.
The early birds established close cooperation with local governments.
Foreign companies haven’t entered the market.
Market Analysis SWOTExternal Proposed Strategy
Toyota will sell plug-in Li-ion Prius before 2010
Acclaimed to produce Li-ion batteries in large-scale in 2009
Japan
Mercedes Benz will produce s400 bluehubrid HEV in 2009
BMW X6 Active HEV----cooperates with Benz & GM
Germany
Chevy---Volt series plug-in Li-ion HEV
Johnson Controls-Saft Advanced Power Solutions
US
Source: Wikipedia, www.autoinfo.gov.cno
2.3 International Cases of Cooperation between HEV and Li-ion battery producers
Many leading auto manufacturers are developing Li-ion HEVs.International cooperation between HEV and battery producers implies great market
chances.
Market Analysis
Market Analysis SWOTExternal Proposed StrategyOutline
External Environment
Market Analysis
SWOT Analysis
SK’s Status in the Market
SK should exploit China’s car battery and after-sales service market by providing Li-ion batteries to HEV.
SWOT for Entering China
Proposed Strategy
SWOT
Market Analysis SWOTExternal Proposed Strategy
SK Korea’s Schedule in Car Battery Market
Performance of SK’s Li-Polymer Battery (included in Li-ion Battery)
Source: www.skenergy.com, Nikkei Electronics Asia -- July 2007, SK Prius Evaluation Test(2007)
2007.5 20102005 2008 2009
Launched HEV Battery Project , focusing on R&D of rechargeable automobile battery.
Tested the newly-developed Li-Polymer rechargeable battery in Prius.
2007.12
Completed a prototype line capable of manufacturing 3000 cells/month.
Evaluate batteries and negotiate with vehicle manufacturers.
Start full-scale volume production.
Capacity
Weight Energy Density
Output Density
Safety
High Heat Resistance
Ni-MH BatteryLi-Polymer Battery
1.6kWh
110Wh/kg
4000W/kg
Polymer design offers improved safety, especially in cases of overcharging.
1.3kWh
55Wh/kg
3000W/kg
In abrupt start/stop trials, the temperature of Li-polymer keeps under 40*C, while Ni-MH exceeds 50*C.
SK’s Li-Polymer car battery performs much better than the original Ni-MH battery in all aspects.
SK in Total Driving Service
1
SK’s Entrac uses telematics to provide total service to drivers, including directions, safety services, and traffic information.
SK Cartizen is a practical pay-as-you-go automobile service that allows users to avoid the maintenance and repair costs involved in owning a vehicle.
3.1 SK’s Status in Car Battery and Driving Service Market
2
3
SWOT
Market Analysis SWOTExternal Proposed Strategy
3.1 SWOT Analysis——SK’ Strengths and Weaknesses in China’s Car Battery Market
Strengths
Weaknesses
SWOT
Financing Strength
Solid financial foundation
Strong R&D financial support from headquarter
3
Strong management team
China-centered globalization strategy
Successful experience in after-sales service in Korea
1 Operating Strength
Productivity Strength
High quality Li-ion battery: rank No.3 in the world
Leading technology of Li-Polymer battery in HEV
Localization experience: set up subsidiary in Suzhou in 2003
2
Network Weakness
Ni-MH batteries are now dominating China’s car battery market
Negotiation barriers with HEV producers since some of them have aligned with SK’s competitors
Entry Difficulties
Lack of mature sales channels and sophisticated logistic circulation in China
Higher production cost than Ni-MH battery
Sales & Distribution Weakness
Latent obstacles in law issues
Relative weak relationship with local governments
3
1
2
SWOT
Market Analysis SWOTExternal Proposed Strategy
Opportunities
Threats
HEV as a trendy consumption in automobile market
Increasing purchasing power because of rapid economic development
1 Booming Market
New energy related projects are strongly supported by Chinese central government.
Chinese government positively introduce foreign techniques and capitals to develop the new energy industry.
Policy Support2
Possibilities of mergers and acquisitions in car battery industry
First-mover advantages
Potential New Energy Market3
3.1 SWOT Analysis——SK’ Opportunities and Threats in China’s Car Battery Market
Competition pressure from Chinese factories
International battery producers like Johnson Controls have occupied considerable market share.
1 Fierce Competition
Limits & Regulations
Unfavorable limits from regional government
Negotiation uncertainties caused by local regulations
3
Development of Other New Energy Vehicles2
Some corporations and scientific institutes are still devoting to the research of other new energy vehicles such as hydrogen electric vehicles and DME vehicles.
SWOT
SWOT
Market Analysis SWOTExternal Proposed StrategyOutline
External Environment
Market Analysis
SWOT Analysis
S1:Pure Supplier
S2: Strategic Partner of Chery
S3: Cooperation with 3 Bus Companies
S2: Basic Car Strategy Partner
S3:Bus Producer Cooperator
√ Criteria & Evaluation
Proposed Strategies
Proposed Strategy
Optional Strategies
Proposed Strategy
Market Analysis SWOTExternal Proposed Strategy
Profitability
BrandMarket
Strategic Goal and Decompositions of SK in Car Battery Market
Short-term: Supply Li-Ion batteries
Long-term: Merger & Acquisition
Short-term: Extensive cooperation in all aspects
Long-term: Further cooperation in other new energy automobiles
Short-term: Refit existing buses into HEV buses (mainly in major cities)
Long-term: Expand to small and medium-sized cities in China
Strategy Options
Exploit China’s car battery market and driving service business by cooperation with HEV (hybrid electric vehicle) manufacturers.
1 2
4.1 Strategic Goal and Strategy OptionsProposed Strategy
Goal
Goal
S1: Pure Battery Supplier
S2: Strategy Partner of HEV Basic Car Producers
S3:Cooperator of HEV Bus Producers
S1: Pure Battery Supplier
S2: Strategy Partner of HEV Basic Car Producers
S3:Cooperator of HEV Bus Producers
Market Analysis SWOTExternal Proposed Strategy
Profitability Criteria: To quantify expected revenue and cost of strategy options
Feasibility Criteria: To measure the risk and potential blocks of strategy options
•Entry Barrier Difficulty for competitors to follow the strategy
Current strength in different segments•Own Strength
Degree of exclusion and implementation
Technical condition & customer relationship
•Political Risk
•Negotiation Risk
•Economy Volatility
Consistence with government regulations
Difficulty to acquire target customers
Possible downside risk due to instability of segmented market
Degree of restriction
Bargaining power
Degree of risk dispersion
Sub-Criteria Explanation EvaluationCriteria
Competitiveness
Risk
Criteria
Expected Profit
Potential Market
Brand Building
4.2 Criteria and Explanations for Strategy Options Evaluation
Sub-Criteria Explanation Evaluation
•Market Size Current size of target HEV marketsExpected incremental market share in segmented car battery marketsGrowth of the relevant economySegment growth trend
•Growth Potential
•Expected Revenue
•Expected Cost
•Brand Quality The possible influence on SK brand awareness
•Expected Leverage
Brand Awareness
Sales of Li-ion batteries and relevant technical standard
Potential benefits to other business (car service, etc)
Incremental capital expenditure
Annualized HEV demandTarget level using benchmark
GDP growth rateSegmented growth rate
Market share multiply HEV demandDegree of benefits brought to SK Energy & SK TelecomInitial investment & operation cost
Proposed Strategy
Market Analysis SWOTExternal Proposed Strategy
Quantitative Strategic Planning Matrix
S1 S3S2Pure battery supplier Strategy partner of HEV producer (basic car)
Cooperator of HEV producer (bus)
*The weighted score reflects the attractiveness of the optional strategies.
*The matrix takes relative external and internal factors that affect strategic decision into consideration, dividing them into profitability and feasibility.
2
2.5
3
3.5
4
4.5
5
2 2.5 3 3.5 4 4.5 5
Strategy Options Positioning
S1
S3S2
Pro
fitability
Feasibility
Source: Data analysis and strategically analysis
4.3 Evaluation for strategy options and recommendation
1 2
* HEV in mass transportation is gaining more and more attention all over the world. * The segmented market is less competitive. * Good opportunity to raise public awareness.
S1 The least profitable and feasible
* The strategy is easy to be imitated. * S1 cannot bring added value to other businesses.S2 The most profitable and feasible
* SK can easily participate in the market by strategy cooperation with 1 or 2 HEV producers. * By influencing partner’s strategy, SK can integrate its automobile service chain.S3 Inevitable trend, but relatively less feasible
√
√
Proposed Strategy
×
S1 S2 S3
Profitability 3.52 4.36 4.12
Market Size 40% 5 4 3
Growth Potential 60% 5 5 4
Expected Revenue 40% 3 4 4
Expected Leverage 20% 4 5 3
Expected Cost 40% 2 3 5
Brand Building 20%
Brand Quality 100% 2 5 5
Feasibility 2.96 4.84 3.72
Entry Barrier 40% 1 5 4
Own Strength 60% 4 5 3
Political Risk 40% 4 5 4
Negotiation Risk 40% 2 5 4
Economy Volatility 20% 4 3 5
Expected Profit 40%
Competitiveness60%
Risk40%
Strategy OptionsWeight
Potential Market40%
Key Factors for Evaluation
Market Analysis SWOTExternal Proposed Strategy
Cooperation Analysis: Strengths and Benefits2
Market Performance
400,000 vehicles per year
Products Positioning
Low price strategy targeting low-end customers
Pay little attention to auto service
HEV Plans
2008.3 Self-developed HEV SQR7130 has got approval by NDRC.
Strategy goal on HEV: over 50% of Chery vehicles will adopt HEV system after 2010.
2007China’s Total Basic Car Market Share
Reduce R&D cost
Enhance the security and capacity of existing HEV
Introduce SK’s Total Driving Service
High market share and brand awareness
Mature techniques in HEV
Policy support
Strengths Benefits
Strength & Benefits of Chery
Brand Separator
Technical advantages of Li-Polymer automotive battery
Well-known in driving service market
Strengths BenefitsLower entry barrier
Raise brand awareness and set an environmental friendly image
Establish relationship with Chinese government
Strength & Benefits of SK
Source: http://money.163.com/, http://auto.sina.com.cn, www.sk.com, www.chery.cn
4.4.1 Proposed Strategy 1: Strategic Partner of HEV Producer (Basic Car) Proposed Strategy
1 Selected Strategy Partner: Chery
Market Analysis SWOTExternal Proposed Strategy
Provide Li-Polymer battery and other products for Chery’s HEV
•Li-Polymer battery
•Auto parts
•Lubricants
Implement SK’s Cartizen with Chery’s 4S to provide high-quality maintenance and repair service
•Car washing
•Car decoration
•Safety testing
•Car repair in a short time
Cooperatively build a platform for SK Entrac’s telematics service
•Traffic information
•Direction
•Safety Service
•Emergency road help
Negotiation risk with Chery and Chinese government
Management risk
We cooperate to provide safe, clean and user-friendly HEVs.
3 Strategy Consistency between Chery & SK
5 Cooperative Scope
China-centered globalization.
Service-oriented.Wings of Happiness
– social responsibility.
Independent innovation.Pursuing the leading
techniqueEmphasizing
competitiveness and internationalization.
4 Potential Risk
Auto Related Products Telematics Service Auto Maintenance Service
4.4.2 Proposed Strategy 1: Cooperative Scope and Goal
Source: SK’s Annual report 2006, www.chery.cn
Proposed Strategy
Market Analysis SWOTExternal Proposed Strategy
PROCESS 2008.6 2009.1 2009.6 2010.1 Long term
Timeline
b) Team Construction
Cooperationa) R&D in HEV Engine System
b) Marketing & Sales Promotion of Cartizen
c) After-Sales Service
d) Effectiveness Review of the Strategy
a) Multilateral NegotiationPreparation
Plug-in research team to Chery
Conduct regular road-test for HEV
Chinese market expertsR&D core experts
Management team from Korea and China
Negotiation with Chery on cooperative proposal
Negotiation with governments
Marketing SK Cartizen through sales process
Implement Cartizen to Chery 4S as a support team
Provide SK Entrac's telematics serviceProvide other SK car relative service & products for Chery HEV :e.g. GPS, ERS, phone charger
cooperate with
4.4.3 Proposed Strategy 1: Execution TimelineProposed Strategy
Market Analysis SWOTExternal Proposed Strategy
Target Regions: on the mapChangchun
Shenyang
BeijingTianjin
Shanghai
HangzhouWuhan
Changsha
Guangzhou
Shenzhen
Mature HEV technique and plan
Convenient location
Harmonious relationship with local government
Dongfeng
Zhongtong
Wuzhoulong
Jinan
Policy support by local government.
Urgent need for environment improvement.
Bus exhaust gas accounts for a huge portion of total air pollution
Short-term 2008-2010
Mid-Term2010-2015
Long-Term
Start cooperation by chance of Beijing Olympic Game(2008) Shanghai World Expo(2010) & Guangzhou Asian games(2010)
Expand the scope to other target regions.
Li-Ion battery supplierCooperative R&D in refitting HEV
busesBus maintenance service.
1 Cooperators Choosing
4.5 Proposed Strategy 2: Cooperators of HEV Producer (Bus)
2
Cooperative Scope3
Executive Timeline4
Exploit new market in small and medium-sized cities
Source: www.chinabus.info; Chinese Automobile Industry Yearbook 2007
Proposed Strategy
Market Analysis SWOTExternal Proposed Strategy
Now it's China
Market Leader Sustainable Growth
Wings of Happiness
Li-Polymer battery for HEV
Cooperate with Chery
Conclusion
Cooperate with Bus Producers
Thank You!
Li Yuen: [email protected]
Hu Yunzhi: [email protected]
He Yu: [email protected]
Contact: