Strategic management report help: Case analysis on Geely
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. At the end, some decisive points have been drawn out as a part of the conclusion for the report.
The organization being chosen for the case analysis is ‘Geely’ a Chinese automotive manufacturing company headquartered in China. One of the cases provided with respect to this small to medium level organization is ‘low-cost strategy through product architecture: lessons from China. This case talks about the breakthrough strategy of Geely of quasi-open modular product architecture and to win the automobile market by practicing the low-cost strategy (Wang & Kimble, 2010). The company basically uses the three gear strategy in which first gear is user understanding, second is concept visualization and final and third gear is strategic business design. Geely has shown the dramatic progress throughout the years and has won in local as well as worldwide market with such breakthrough strategy’s applications (Geely Holding group, 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 direction and scope of an enterprise over the long-term: 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).
Furthermore, before evaluating the strategy that has been adopted by the organization, it is required to outline the company’s performance based on company’s business system. In this context, key components of the business system have been discussed in order to assess its strategic performance.
(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. In this context, they analyzed and surveyed the customers and got to know that most of them are price sensitive and also concern for the product’s appearance. 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 a year on year enlargement of 11.6 percent and also amplified their exports by 79.8 percent. This overall growth of the company presented a data of 230, 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 a carmaker and the first privately possessed car manufacture in China. It moved on growing further and then it became the ninth largest carmaker in China within less than 10 years. In sum, it has developed its manufacturing capacity to 500, 000 units and also established its five new manufacturing locations. By noticing this growth and Geely’s performance, its breakthrough strategy has been come out in light. Following this, Geely worked on its product’s architecture and adopted a strategy of quasi-open architecture module (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. When a product is offered to the customer, it needs not necessarily to be different from others but should be up to the expectations of customers and better. Geely has served the best quality in affordable price which makes its product different from others.
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. Talking about value chain in Geely, it experienced at least two stages in the development of their product architecture. In first stage, the changes were based on simple simulation. Later, in the second stage, the competencies of mixing-and-matching elements were developed (Acdivoca, 2011). After that, the tools are accumulated until they are taken for production’s use and then are moved around the organization. At the time of operations, goods are manufactured and brought together. Then, to meet the customer’s expectations, Geely uses its knowledge obtained from direct customer contact before and after the sale. Further, by selling to the customers and communicating with them continuously, it observed the sales trend and learnt about the unmet needs of customers (Kotler & Armstrong, 2003).
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 415, 843 unit of vehicles in 2010, which was 27% 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. It has entailed the formation of innovative inter-firm relationships supporting its current strategy. It has a good number of components outsourced, for that it works very closely with its suppliers to offer the customers with the best results. It has the capability to lower the price and simultaneously maintaining the quality as well to meet the local requirements (Barney, 1991).
Findings from External/internal analysis:
To know the real and potential value of the firm, it is essential to assess the external and internal factors involved. For that, it is obvious to get an idea about the organization’s industry framework so that external analysis can be made out of that.
Since, Geely is a Chinese carmaker firm; it is obvious to assess the China’s automobile sector. China has become the world’s largest automobile producer and market in 2009 with presenting the annual sales of nearly 14 million vehicles (Chinahourly.com, 2009). Moreover, in the first nine months of 2010, the overall production of Chinese market crossed 13 million units up 36.1% from a year ago (National Bureau of statistics of China, 2010).
Additionally, there are currently more than 100 whole-vehicle manufacturers and approximately 8,000 automotive part manufacturers in China located mainly in Southern, eastern and northeastern and central 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 2.41% market share, while other firms are going well with their annual sales and market share. Likewise, automobile firms such SAIC, FAW, Dongfeng and Chana (incl. Hafei) having market share of 19.83%, 14.25%, 13.91% and 13.70% respectively (Geely automobile holdings limited, 2010). By concerning the industries’ context, Geely continue its breakthrough strategy to stand with the market.
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. It is considered that a few of the new entrants will come up with new and innovative capacity of production and rest will look forward for the best resources and the high position in the market.
- Bargaining power of buyers: Buyers’ bargaining power determines the reason for switching to alternatives when other alternatives are available and therefore it depends upon the availability of the substitutes in the market. Here, 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. In that case, buyer creates a strong bargaining power which automatically declines the level of domestic cars such as Geely (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. For that to maintain the level of quality, it has also integrated the suppliers of bog companies such as Volkswagen, Nissan, Toyota and general motors. So, in this context, suppliers have an average power of bargaining with Geely.
- Threat of substitutes: Automobile industry is attractive to the customers; it serves a great range of cars and other vehicles. The price of a product, quality in accordance with price, attractive outlook, and high-quality features are some of the aspects which generate the threat of a substitute. In case of Geely, 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. So, this is concerned as one of the major threats for Geely automobiles whether it is offering its car at lower prices or not.
- Industry competitors: There is a global competition in automobile industry. Competition increases with price, introduction of product, quality and service. By offering the good and distinctive quality features in their products, 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).
(Source: Flixya, 2010)
While making an analysis of environmental environment, it is viable to understand the difference between resources and capabilities together with their competency to recognize strategic capabilities. Strategy is considered with matching a firm’s resources and capabilities to the opportunities that take place in the external environment. Growing prominence on the role of resources and capabilities as the basis for strategy is the outcome of two factors. First, as firms’ industry environments have become more uneven, so internal resources and capabilities rather than external market focal point has been sought as a securer base for devised strategy. Second, it has become ever more noticeable that competitive advantage rather than industry attractiveness is the key source of superior profitability (Wang Hong Ru, 2010). Therefore, the following area analyzes are practiced to look at all internal factors affecting the firm:
- Resources: Profitability, Sales, product quality brand associations, existing overall brand, employee capability, research & development
- Capabilities: Goal: To recognize internal strategic strengths, weaknesses, problems, constraints and uncertainties (Prahalad & Hamel, 1990)
As per the discussion made above with respect to the overall sales of Geely, it can be said that it has enough capacity to deal with the customer’s actual need. Moreover, firm’s highly efficient research & development capacity make sure the safety first. It has set it first as its key technological strategy. In addition, Geely vision earned the first C-NCAP 4-star rating among China’s homegrown brand in 2008. Apart from this, firm has also approached the system of Geely total safety management (GTSM) which combines the active and passive safety technology and integrating R&D, manufacturing and marketing on the other hand (Global Times, 2012).
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. Besides, in second China new car’s assessment program (C-NCAP) test held in July 2012, Geely’s first SUV Gleagle GX7 received 5+stars with 50.3 scores and then declared a shining star as a homegrown auto manufacturer (Global Times, 2012).
By viewing its overall performance and high hit in the market due to its clearly set target and proven safety research & development, it can be made a point that it has the enough capacity to continue its competitive advantage.
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”. As the company’s main focus is on customer satisfaction, Geely aims to strengthen its brand image, develops its technical capacity and grows the staff competence with the help of this new launched project. With this project and strategy it has shifted from ensuring services passively to offering services actively (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 Geely had little credibility as a car manufacturer and was constrained to resort to some rather imaginative and unconventional practices. Third issue and challenge for Geely is to win the market share of China and its local customer’s needs, as it represents less market share in comparison to other carmaker firms in China. 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).
Besides, a comparison can be made to assess the extent of its alignment between its internal capabilities and its changing industry and market.
It represents that the Chinese automotive industry remains very disjointed. In addition, Geely is enough capable to serve the middle class market easily and also satisfy the customers as well. But Chinese officials fear that unexamined growth of China’s auto industry encouraged by local authorities could stop the excess capacity of Geely and others. Next, China’s week R&D, domestic innovation and intend capabilities are also key issues and challenges to its international competitiveness. Afterward, developing domestic innovation capabilities such vehicle design, engineering and hybrid electric and pure electric engines can be the other related issues which are the usual China’s automobile industry (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. Chinese automotive constituent manufacturers are able to manufacture the products when they are proposed with design and specifications, though Geely lack design, engineering and R&D capabilities required as per the Chinese industry’s emerging trends. Next, the big gap is in terms of international demand of the cars and automotive components, where the firm has to work much in order to attract and capture the market (Nunes & Kjellen, 2010).
Evaluation and recommendations of the options:
- Internationalization process and global expansion strategy: After emerging this process into practices, Chinese automakers’ Geely firm will have the plan of exporting to Europe and other international and mature markets. Therefore, their cars will meet demanding international safety, environmental and recycling standards and so also able to sustain and enjoy the competitive advantages (Ding & Pavlovich, 2009).
- Real option valuation process: It integrates the financial assets valuation approach into the assessment of investments in capital budgeting analysis. It is a powerful tool as it confines the project’s nature and uncertainty comprehensively, enabling for a good valuation of managerial flexibility. It will help out Geely to know the uncertainties and its capabilities of internal resources so that it could deal with the domestic innovation competencies (Zhao, 2009).
- Real options growth matrix: The real-options growth (ROG) matrix is a very effective device to deal with the classic trade-off between short-term profitability and long-term growth prospects. This matrix combines and extends different features of the Boston Consulting Group (BCG) matrix and the option space. For value creation, both the value of the firm’s current investments and the present value of future growth opportunities have to be considered. This will make the future growth certain in capturing the local as well as international market (Zhao, 2009).
- Corporate strategy for Geely: Wheelen & Hunger state that corporate strategy is mainly about a company’s overall direction of common attitude towards escalation as well as its management of business and product lines. Through a chain of coordinating tools, a company could transfer skills and capabilities increased in one business unit to another. In this way, it tries to obtain synergy among various product lines and business units. (Wheelen & Hunger, 2006)
Geely can utilize a variety of modes of entry into global market, with international expansion opportunities being consummated in three ways: one is exporting with contractual agreement such as licensing and franchising, the second one is to establish new entirely owned subsidiaries, the final mode is foreign direct investment that comprises alliances, joint venture or acquisitions (Foreign investment and economic cooperation statistics, 2009).
Moreover, a business level of strategy can also be recommended to Geely in order to apply strategic devices.
Business level strategy:
It determines the position of an organization in the market that is related to the competitors’ position. Through this, it is suggested that an organization should concentrate and focus on the customer’s key needs and preferences so that they could achieve the results accordingly.
- 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. Next, it also has to be confirmed that are these resources up to the criteria set by the organization to meet the desired results.
- 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. It is best suggested to an organization to improve a few areas that can held a pace for competitive advantage.
- Product offering: Finally, after manufacturing and developing the value chain system, product is brought into the market. Business and organizations have the perspective that is they offering what their customers actually want. Therefore, 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.
According to this business level strategy, Geely can make best out of its technologies, resources, assets (Tangible and intangible), value chain of operation and manufacturing process and can maximize the revenue part of the business by better product offering (Gallagher, 2004).
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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