ReferencesGeely Annual Report. 2009. Geely Automobile Holdings
Geely holdings limited
PingQing, L., HuaJie, S & Qiang, G. 2008. The Global Value
Chain And China Automotive Industry Upgrading Strategy. Management
Science and Engineering. 2(1), 11-19.
Qin, F. & Huchen, X. 2006. The Management Strategy in GEELY
Automobile Marching towards International Standard. College of
Business and Administration Zhejiang University of Technology, P.
R. China. 738-743.
**Risk factorsValue propositionSupply chain pricingforecast auto
sales growth in China, worlds largest market, to slow to 15 percent
next year after strong growth of about 30% 2010, & 40% 2009
government policies played an important guiding role in high
speed growth of China's automobile industry. 3 major
policies--halving of taxes on buying vehicles, "automobiles going
to the countryside, "the old for the new"--helped stimulate huge
consumption potentials for privately-owned cars and accomplish feat
of 30%-40% per month of the year-on-year growth in both auto
production and sales in 2009 in China**27 May 2010 PAPE
Presentation*27 May 2010 PAPE Presentation****Geely has strong
drive to become international player - Zhejiang Geely Holding
Group, bought Volovo in August 2010Volvo last made a full-year
profit in 2005. Its main plants are in Torslanda, Sweden, and
Ghent, Belgium. also has manufacturing units
The committee will meet at least twice a year to create
synergy,.Ford had originally paid $6.5 billion in 1999. Acquisition
helps Geely better tap into domestic luxury Chinese market where
BMW, Lexus, and other foreign brands have dominated in the past.
Geely will learn a lot about American and European auto markets
through Volvo in terms of Marketing, Distribution, And Global
What are the challenges and risks:Strategic alignment in
governance > huge gap betw Geely dynamic family bus mode vs
Volvo European management modeWhat are benefits for Geely and Volvo
> Technology insights vs Economies of ScaleCan they manage the
**Initial low-cost competitive strategy through innovation in
Geely has moved into a new phase of development, which means
that it will no longer manufacture cheap cars, but instead focus on
cars with advanced technology, high quality and great service.
Geely's new goal is to build good cars which are the safest, most
energy-saving/fuel-efficient and environmentally-friendly.
At first, Geely based its competitive strategy on low price.
This strategy corresponded with the low-end segment where the
importance of price outweighs quality and brand image.
Geely launched series of price wars to keep its leadership -
effectively spurred sales. average growth rate ito sales was 59%
between 2001 and 2006:Geely started to expand its product range
from the low-end economic cars (1.1 l) to middle range (1.8 l)
roadster produced in small quantities. By 2007, Geely had built
eight brands: Haoqing, Meiri, Ulio, Beauty Leopard, Maple, Free
Cruiser, King Kong and Vision.2010: other models such as SUV, MPV
and hybrid power cars.**Other Competitors: Chery, BYD and Great
Suppliers: Zhejiang Geely Automobile Parts and Components
Company Limited and Shanghai Maple Engine Company Limited, Are
related companies controlled by Geely & is first largest
supplier and second largest supplier, respectively.
Major restructuring of suppliers implemented in 2008, including
the introduction of a new evaluation and management system for all
theGroups suppliers, the elimination of some suppliers that failed
to satisfy the Groups new quality requirements and the building up
of the Groupscore supplier base. 2009, 88 suppliers disqualified
and eliminated from list of suppliers, added 69 new suppliers, of
which 37 are leading international players.
Choosing the right suppliers and effectively managing inter-firm
relationships is vital:Geographic location, Key competencies -
price, component quality & service ito on-time delivery / after
sales/ ISO9000, QS9000, Double sourcing - two suppliers for the
same type of component -> trade off between economies of scale
(favoured by single sourcing) and the risk of opportunistic
behaviour and bilateral hold up (minimised by multiple sourcing)...
road infrastructure is not highly developed, Power shortages are
common, peak periods (summer) plants have to adjust working hours
either to include more night shift work or temporarily shut down
operations. For the time being, double sourcing reduces the risk
associated with component delivery.
***innovative use of product architectureSignifying Geelys
leading position in technological development and Innovations in
China and reflecting the official endorsement and recognition by
the Central Government of its technological achievements.
Geelys MR4790Q engine can be produced at one third of the price
of a Toyota engine because the components of Toyotas engine have
become imitation-turned-versatile parts that can be produced at low
costs and in large volumes. In terms of total cost, Geelys plant
manager observed:If our competitors are selling their vehicles (of
the same category) at prices as low as ours, they are losing money,
whereas we still make profit.
Breakthrough strategy involves a complete reconceptualisation or
reconfiguration of an existing business model.Geely was able to
identify precisely what the consumer wanted but, in addition, was
able to develop a new product architecture thatallowed it to
produce a low-price/low-cost product that was designed to meet
specific local needs.
As elsewhere, components from best selling foreign cars were
reverse engineered and copied, but the approach pioneered by Geely
differed from traditional copying in one important respect: the
architecture of the copied product was progressively altered in
such a way that the high-level mixing-and-matching of components
from different sources became possible.
Architectural change requires a significantly higher level of
technological and engineering capability than copying
interface between the engine and the rest of the car has been
designed to allow the manufacturer to mix-and-match major
components in a flexible and efficient way. This architectural
innovation, both at the level of the engine and that of the whole
car, has helped Geely to significantly reduce its costs (Wang,
2008). For example, Geelys MR4790Q engine can be produced at one
third of the price of a Toyota engine because the components of
Toyotas engine have become imitation-turned-versatile parts that
can be produced at low costs and in large volumes. In terms of
total cost, Geelys plant manager observed: If our competitors are
selling their vehicles (of the same category) at prices as low as
ours, they are losing money, whereas we still make profit.
The final element in Geelys breakthrough -> enabled creation
of innovative inter-firm relationships that support its overall
strategy. A high percentage (around 70 percent) of components,
including parts of the engine, are outsourced; consequently, Geely
and its suppliers need to work very closely together. Geely strives
to lower the price but must also maintain an acceptable level of
quality to meet the local markets needs. To achieve this goal it
has built on its links with its suppliers from its motorcycle
business who are experienced in high volume production at low
costs. This category accounts for 50 percent of its total number of
suppliers. To ensure quality is maintained, the suppliers of big
companies such as Volkswagen, Toyota, and General Motors are also
integrated into the sourcing system. Having Geely as the customer
helps those suppliersrealize economies of scale because of the
higher production volume. Thus, the architectural innovation that
has taken place at Geely, is now contributing to a wider change at
the industrial level.**27 May 2010 PAPE Presentation*launch three
new models this year to be delivered next year. With a total
capacity to produce up to 680,000 cars a year, the company was well
prepared for growth,***