Strategic Management assignment on: Business performance – Geely

 Strategic Management assignment on: Business performance – Geely

Content:

1. Executive Summary……………………………………………………………3
2. Introduction……………………………………………………………………4
3. Assessment of current strategy and business-performance…………………….4
4. Findings from External/internal analysis……………………………………….6

4.1  External Analysis……………………………………………………………6

4.2  Internal analysis…………………………………………………………….7

1. Key strategic issues……………………………………………………………..8
2. Evaluation and recommendation of the options…………………………………8
3. Conclusion………………………………………………………………………9
4. Reference……………………………………………………………………….11
5. Appendix………………………………………………………………………..14

Executive summary:

The main aim of this report is to make a case analysis and to make learner skillful for analysis and implementation of strategic interventions in several organizational contexts. Therefore, to organize the entire report, it has been continued in some sections. First part attempts to assess the current strategy of the organization selected for a case study and its capacity to sustain competitive advantage. Further, internal and external analysis has been made to obtain the findings. Then, it explains at least three key strategic issues of the organization and finds out some major concerns in this regard. Afterward, a few options have been recommended to avoid and to mitigate the issues after being evaluated and justified in terms of sustainable competitive analysis.

Introduction:

The organization being chosen for the case analysis is ‘Geely’ a Chinese automotive manufacturing company headquartered in China. One of the cases has been provided with respect to this small to medium level organization related to China’s strategy for producing the product. This case talks about the Geely’s breakthrough strategy which is based on quasi-open approach for structural design of the product and in this regard to win the automobile market by practicing the low-cost strategy (Wang & Kimble, 2010). Next section of the report identifies and assesses the current strategy and business performance of the company and also evaluates the capability of Geely in sustaining the competitive advantage.

Assessment of current strategy and business-performance:

Geely has been progressively presenting growth among all the carmakers in automobile sector. As this segment will move on assessing the current strategy being followed by the company, it is obvious to brief the term strategy first. Strategy refers to the scope of a company from the long-term perspective: which tends to benefit the organization through its pattern of resources within a competitive environment, to meet the extensive need of the market on the other hand and to fulfill stakeholder expectations (Wang & Kimble, 2010).

(Source: Kotelnikov, 2011)

Value proposition: It is the description of the customer’s related issues and their solutions and then solution’s value from customer’s point of view. Its current strategy is to meet the customer’s need by offering them the low price as expected by them. After knowing the price related issue of the customers, Geely produced a low-cost/price product and met the needs of the customers. Similarly, they demonstrated enlargement of more than 11.5% and also amplified its exports to nearly 80 percent. This overall growth of the company presented a data of more than about 200, 000 unit cars sold in year 2008 (Wang & Kimble, 2010).

Growth strategies: Therefore, in December 2001, Geely was accepted formally and got registered itself as one of the best carmaker or car manufacture in China. It moved on growing further and then it became the ninth largest manufacturer of car in China within less than 10 years. In sum, it has developed its manufacturing power to about 500, 000 which is in units and has also established its five more producing locations (Wang & Kimble, 2010).

Product offering & Market segments: Geely targeted the Chinese local middle class people who are more price-sensitive rather than being quality sensitive, but also look for the product’s appearance. Geely has put its main focus on pricing and has adopted a well-structured pricing strategy to grip the best of the market. On the other hand, it has taken different innovative and additional features into account during the manufacturing process (Kotler & Armstrong, 2003).

Value chain analysis:

Simply, value chain analysis is regarded as a model that explains a range of value-adding activities to the company’s supply region with its demand side. Summary of Geely automobile company value chain analysis can be measured on the basis of this model (Acdivoca, 2011).

Therefore, from the perspective of business system, Geely’s current strategy is to reinforce the brand with superior services and form quality services by all potential techniques. By looking at its overall performance, it sold a total of about 415, 800 unit of vehicles in 2010, which was more than 25% more than in 2009. This information was provided as per the data available in the company’s annual report of year 2010 (Geely automobile holdings limited, 2010).

Furthermore, its capacity to sustain competitive advantage can also be evaluated on the basis of its performance and competencies (Barney, 1991).

Findings from External/internal analysis:

External analysis:

Since, Geely is a Chinese carmaker firm; it is obvious to assess the China’s automobile sector. (Chinahourly.com, 2009). Moreover, noticeable in 2010’s first nine months, the overall manufacturing of Chinese market crossed around 13 million units which is high by about 36% (National Bureau of statistics of China, 2010).

Additionally, at present near about 110 producers that produce whole pars of vehicle and approximately more than 7,500 automotive part manufacturers are there in China. Geely is counted in top 10-passenger vehicle manufacturer in China, as per a research done in 2009 (Yu Hong & Yang Mu, 2010). This research further reveals that Geely has only 2.40% market share, while other firms are going well with their annual sales and market share.

Porter’s five forces model:

Porter’s model precisely depicts the image of an organization and reveals their competitive strategy used in the development of business.

• Threat of new entrants: Intensity of entrance of new competitors in the market brings the competition forward and industries start seeking competitive price. Mainly in case of Chinese market, competitors are eager to enter and to catch up the competition. For Geely automobile firm some of the potential new entrants are Changan, Chery, SAIC and Dongfeng.
• Bargaining power of buyers: In case of Geely automobile firm, buyer’s bargaining power is very low because the firm is already offering good quality features with lower prices. Alternatively, domestic buyers and consumers can have the power to negotiate with Geely as other firms try to assure providing the best with the same or lesser price. In some of the developed domains of China country like Beijing, Shanghai and other cities, buyers are inclined to buy standardized products (Huihui, 2012).
• Bargaining power of suppliers: For Geely automobiles, suppliers are those who supplies spare parts of automobiles. Geely has good terms with its suppliers with reference to making a deal with them. It works with its suppliers to lowering the price but on the other hand it also provides good quality parts and features. It deals and negotiates with the suppliers who have experience in producing high volume at low cost.
• Threat of substitutes: In Geely’s case, other several international automobile brands are the available substitutes which can attract pace of the customers. Additionally, recently general motors’ decided to introduce a environment friendly car to the audience which will improve the efficiency and will help reducing the emission of harmful gases.
• Industry competitors: Geely has created an example before the automobile industry. Hence, other local carmakers like Chery, great wall and BYD are also making remarkable changes in their production process and attempting to improve the overall quality. Other competitors Mitsubishi, Toyota, etc are also in line to compete with Geely by presenting different features at the low level of price (Porter, 2008).

Internal analysis:

• Resources: It is profitability, volume of sales, already existing brand, core competencies of workers, research & development
• Capabilities: the main goal is to recognize strategic strengths, weaknesses, issues, and restrictions at an internal level (Prahalad & Hamel, 1990)

Geely has established its plans and objectives very haughty. It has been playing the price game till now as it follows the low-price strategy during its manufacturing process. All its cars are sold below US$9600 with some models also being sold for as low as US$3500. This evaluation helps depicting that Geely can sustain its viable advantage with these effective strategies.

Since, brand is the soul of a product and considered as the income of an organization, it keeps transforming strategies to increase the quality of after-sales services. Furthermore, since 2009, it has started to standardize its service procedures and maintenance and thus initiated “123 service quality project” (Global times, 2012).

Key strategic issues:

Every company faces some challenges regarding production, cost/pricing, marketing and sales promotions, brand formation, competitor’s strategy, etc. Here in case of Geely, key issue is that it has covered only 2.41% market share of China, whilst other firms have good place there with more than 19% market share (Geely automobile holdings limited, 2010).

Next, China’s week R&D, and proposed potentials are also key issues to its competitiveness at an international level (Wang Hong Ru, 2010).

A strategic gap can also be examined in this context by viewing the comparison of Geely’s strategy and its industry market strategies. Although Geely lack in design, engineering and R&D capabilities required as per the Chinese industry’s emerging trends. (Nunes & Kjellen, 2010).

Evaluation and recommendations of the options:

Some of the alternatives can be offered and recommended to address these key strategic issues challenged by Geely:

Business level strategy:

• Resource base: It is a competitive advantage for any firm in relation to the utilization of the resources. For this, first it is required to identify an organization’s core resources which are more involved in the entire process and activities. Similarly, the company should have an amount of good stocks to be used in manufacturing of products.
• Activity system: This includes and talks about the value chain system of an organization. According to the business level strategy, Geely should focus on its value chain. For that it needs to take both primary and secondary activities into account. Primary activities consist of inbound logistics, operations, and outbound logistics, marketing & sales and lastly service. Next secondary activities relate to procurement, human resource management, technology development and infrastructure of the firm.
• Product offering: They need to build a strong product offering strategy in order to remain the best and to offer in accordance to the customers. Following this, Geely should plan the strategy so that they can consider the price according to the quality they offer which will also maximize the overall profit of the firm (Gallagher, 2004).

 Conclusion:

In this report, Geely, a Chinese carmaker firm has been taken for the discussion. The entire study revolves around the assessment of company’s internal resources and its capabilities to sustain the competitive advantages. A general view of Geely’s case has been discussed to demonstrate its low-price strategy formation gripping the market. Geely’s annual report of 2010 revealed its current strategy of adopting quasi-open architecture module and low-price strategy. On the other hand, it also represented company’s performance based on the strategy. By analyzing the internal and external analysis of the firm’s environment some of the relevant options have been recommended to address the key strategic issues of the company mainly dealing with internationalization and development of domestic design innovation.

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