105 Geely Automobile Holdings: From ‘Zero’ to Chinese Automotive Industry ‘Hero’1 Sarah Laouiti, Markus Andreas Sodar, Methus Detchusananart, & Linn Bieske2 This case study aims to explore the meteoric rise of Geely Automobile Holdings, a privately-owned automotive manufacturing company and the largest privately held company in China when measured by the volume of sales. This analysis will be undertaken in three successive parts. To begin, the period from inception to date will be summarised and characterised into the three key milestones, seen as definitive to Geely’s current standing. Second, the underpinnings of Geely are investigated. This part of the analysis will look both internally and contextually at factors that are both distinctive to the company and the broader cultural background. Finally, Geely’s present positioning and outlook will be analysed from both a micro and a macroeconomic perspective. This will be complemented by a discussion about the challenges Geely faces today and in both the short and long-term, as well as potential solutions. The conclusion will aim to consolidate the knowledge obtained from dissecting Geely’s success story. Geely’s commitment to research and development has contributed to the narrowing of the technological gap it has experienced with Western counterparts. They also overcame Chinese brand prejudice in garnering their large global consumer base. Understanding the underpinnings of how Geely has navigated through and surmounted these challenges can prove a valuable guide for emerging Asian manufacturing enterprises with both technological and brand image issues but a desire to globalise. Keywords: Asian, Automotive, Brand Strategy, Corporate Culture, Engineering, and Manufacturing 1 This case was selected as an award-winning case from the Top 10 best cases based on World Asian Business Case Competition (WACC) 2018. 2 Sarah Laouiti is a MSc Business Analytics, Imperial College Business School (email: sarah.laouiti17@imperial.ac.uk) Markus Andreas Sodar is a MSc Advanced Aeronautical Engineering, Imperial College London (email: markus.sodar17@imperial.ac.uk) Methus Detchusananart is a MSc Business Analytics, Imperial College Business School (email: methus.detchusananart17@imperial.ac.uk) Linn Bieske is a MSc Business Analytics, Imperial College Business School (email: linn.bieske17@imperial.ac.uk) ACADEMY OF ASIAN BUSINESS REVIEW Vol. 4, No. 2. DECEMBER 2018 ISSN: 2384-3454 / 18 / $10.00 ⓒ Academy of Asian Business 2018 106 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Since 2009, China has claimed and maintained the title of the largest automobile producer in the world, surpassing the US, Japan and Germany, once behemoth players of the industry (Statista, 2018). When considering the state of the Chinese automotive industry around the early 1990s where foreign brands dominated both global and domestic markets, it was unimaginable to enter this market without foreign resources or government ownership. Geely, however, dared to enter this unwelcoming terrain where large western companies had been operating in for decades. Geely, which translates to “lucky”, is a multinational car manufacturing company based in Hangzhou China. In fact, it is the first Chinese privately-held automotive company. After receiving governmental approval for automotive production, Geely went from strength to strength as is highlighted by its continuously increasing revenues and profits (See Figures 1 and 2). Its foothold in the automotive industry was reinforced by horizontally and vertically diversifying its processes and offerings through its numerous acquisitions (See Figure 3). The most notable of which being whole ownership of Swedish giant Volvo, and more recently a 9.7% stake in Daimler Benz. Geely now boasts 7 brands within its family and exports its cars to 27 countries located in Africa, Asia, Australia, South / Middle America and Europe. Figure 1 Revenues of Geely in million RMB from 2006 to 2017 Source: Geely Annual Reports 2006-2017 Geely Automobile Holdings Figure 2 Net profits of Geely in million RMB from 2006 to 2017 Source: Geely Annual Reports 2006-2017 Figure 3 Geely Company Structure Source: Geely Annual Reports 107 108 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 This case seeks to elucidate the underpinnings of Geely’s rags to riches like trajectory and identify the lessons to be learnt from its success. Understanding how Geely has navigated through and surmounted the challenges it has faced can prove a valuable guide for emerging Asian manufacturing enterprises with both technological and brand image issues but a desire to globalise. Internal culture for fostering innovation and talent, its customer-centric strategy and its flexibility in adapting to a constantly changing market are but some of the drivers of its success. As an initial phase of analysis, the period from inception to date will be summarised and characterised into the three key milestones, seen as definitive to Geely’s current standing. This will be followed by a depiction of both internal and contextual factors that are both distinctive to the company and the broader cultural background. The analysis will culminate with Geely’s present positioning and its outlook will be analysed from both a micro and a macroeconomic perspective. This will be complemented by a discussion about the challenges Geely faces today and in both the short and long-term, as well as potential solutions. The conclusion will aim to consolidate the knowledge obtained from dissecting Geely’s success story. The analysis overarchingly attempts to provide insight into the capabilities of an Asian brand in staking a claim in its respective global industry market. Initially, we will look at the context in which Geely operates. Global and Domestic Industry Backdrop Geely’s success has not occurred in a vacuum and as such, it is important to depict the state of affairs of the macro environment in terms of the broader global automotive industry in which Geely competes. The development of the global and domestic passenger car market is of high interest when analysing Geely itself. China underwent a number of reforms from early 1980 as it implemented its open-door policy. This change in approach was typified by China joining the WTO in 2001. This policy relaxation coupled with expansionary fiscal policy promoted the impressive growth which resulted in China becoming the leading global player in terms of production and sales volume (Marukawa, 2011). Throughout the period 2009 – 2016, the Chinese market accounted for between 22 % and 30 % of the global market (See Figure 5). Its significance within the last 10 years is also visible in the broader global market. It grew from ~52 million produced units (2008) to ~73 million (2017) within the last 10 years, the only exception to this relatively constant growth rule is synchronised with the financial crisis (See Figure 4). Since, Geely has implemented a global strategy and could benefit from this positive trend found in the automotive industry. Before looking ahead, however, Geely Automobile Holdings Geely’s historic journey to become the powerhouse it is today is outlined in the next section. Figure 4 Production of passenger cars worldwide from 1998 to 2017 (in 1,000 units) Source: OICA in Statista Figure 5 China's share in global vehicle production from 2008 to 2016 Source: OICA in Statista 109 110 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Trajectory to Victory This section seeks to depict three historical occurrences which were focal to Geely’s development into the successful auto giant it is today. Figure 6 further outlines these milestones with additional events which contributed or are part of these achievements. Figure 6 Timeline of Geely’s Milestones The Tipping Point The Chinese automotive industry in the 1990s was largely dominated by joint ventures (JV) between foreign car makers and domestic, mainly state-owned, companies. The reason for this was that the Chinese productive capacity was relatively underdeveloped and lagging behind its Western counterparts (Marukawa, 2011). The gap has been widely attributed to the ‘closed door policy’ run for decades by previous Premiers (Yao and Wang, 2014). The product of these partnerships, however, did not cater to the masses given the hefty price tags rendered much of the stock unaffordable to the average Chinese consumer (Yao and Wang, 2014). Geely entered the market as a privately-owned automobile company with the aim of solving this problem - they would make a “people’s car”. In 1998, despite their honourable vision, Geely’s first production attempt was deemed to be of unsatisfactory quality and was subsequently halted. It has been suggested that the structure was broken from the top down - the lack of experience within the automotive industry amongst the board members. To remedy this deficiency in skill and technology, Geely focused on three main areas. The first was the copying of existing popular models. Geely’s Mr. Li, the founder and now Geely Automobile Holdings chairman, made no effort to hide their reverse-engineering approach to automobile production, with Geely’s first product notoriously based on the “Xiali”. The second was the employment of well-qualified engineers. In an effort to break into the market, Geely hired the former president of Daewoo Motor Research lab and a former Daimler Chrysler engineering executive (Fairclough, 2007). The third and final focus was the outsourcing of key components (Marukawa, 2011). Geely bought various parts from German engineering companies such as fuel-injection systems and interior elements to be used in domestic brands (Fairclough, 2006). Achieving these three targets was fundamental to the accomplishment of the initial phase of Li’s strategy. His vision was simple: to swiftly capture the markets of China's west and the rural areas before considering the urban demographic. This two-step process was of particular importance as targeting the urban areas relied on successfully gaining approval from the masses and the rural areas offered that opportunity. These regions had potential; their economies were moving toward enterprise and Li took advantage of this growth (SinoCast China Transportation Watch, 2005). A Change in Direction A company’s profit-making ability is dependent on its positioning within an industry. The source of such abnormal profitability in the long-run is a sustainable competitive advantage. The two main types of competitive advantage are: low-cost and differentiation (Porter, 1985). The early direction of Geely’s strategy was largely focused on penetrating its various markets through competing on price. Though, the ultimate global vision Li Shufu had for Geely remained on the cards. To make this dream a reality, however, several obstacles which mired the way had to be surmounted. Particularly, their global competitiveness was hindered by underdeveloped technology which prevented it from reaching quality and reliability standards expected from Western markets (Fairclough, 2006) and more broadly, brand perception. The latter issue principally alludes to the negative country of origin effect associated with Chinese manufactured products which supposedly convey poor-quality perceptions. As the chief creative officer of Nissan articulated with regards to influential factors of passenger car purchases: “brand and other value-added factors weigh heavily in a buyer's purchasing decision" (Blanchard, 2005). Thus, despite advances in technological capabilities through mostly organic evolution over the period of their lifetime, one thing was clear: Geely was in serious need of branding (Tan, 2006). In 2007, Li explicitly articulated his desire to change Geely’s strategy from competing on a price basis to fostering a differentiation competitive advantage. 111 112 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Being the ninth-largest automobile manufacturer at the time (Marukawa, 2011) provided Geely with a decent grounding to undertake this change in direction. The increasingly favoured means for Chinese firms to build competitive advantage was outward foreign direct investment, particularly in the form of mergers and acquisitions (Chaisse and Gugler, 2011). Geely undertook an aggressive international acquisition plan from 2006 which culminated in 2010 with the purchase of Volvo (Chen et al., 2015). These above-mentioned purchases undoubtedly served Geely from a technological and general product quality standpoint. However, a big brand like Volvo, particularly, served a larger purpose. Geely, a comparatively small-time player in the market growth stage of its life cycle, was able to purchase the Swedish giant, seemingly at market maturity, for a fraction of the cost its actual seller, Ford, had payed less than a decade prior ($1.5 billion and $6.5 billion respectively) given the backdrop of an unstable western economy following the financial crisis (Gifford et al., 2015). The renowned Swedish brand was anticipated to prove a strategic asset, through positive brand association which would ultimately improve brand perception. This acquisition substantiated the newfound “quality first” direction Geely had embarked upon. How better to convey quality than to buy the “safest car manufacturer in the world” (Yao and Wang, 2014). This was particularly important to overcome the negative quality perception and effective stigma associated with Chinese manufactured products. In spite of the doubt this uncommon form of merger garnered, Volvo returned to profitability under the Geely umbrella and Geely in return benefited from the positive brand association and the “full and mature system of advanced product development processes and global customer management”, which are prerequisites for their goal of internationalisation (Yao and Wang, 2014). Additionally, in tandem with this ‘acquisition spree’, Geely embarked on developing a “New Geely through Brand Building” starting in 2008. The idea was to promote a multi-brand strategy “aiming to improve the Group’s overall brand images and to enable tailored-made services and brand positioning for different product lines within the Group.” (Geely Automobile Holdings Limited, 2009). Geely, therefore, underwent concurrent and complementing plans within these five years to ensure its shift from cost leadership to differentiation was met with success. Beating the Costs – “One Geely” Strategy The differentiated strategy undertaken by Geely was effective in its idea of targeting the various consumer groups within the industry. However, problems related to cost and coherence of branding arose. Firstly, the company needed to Geely Automobile Holdings manage over 900 dealers to distribute the 3-brand strategy and this number increased until peaking in 2013 with a total of 1068 dealers (Geely Auto Group, 2014). Moreover, the company hardly achieved the economy of scales in terms of its marketing spend. Their messaging was not effectively communicated to the consumers and were instead confused with the position of each brand and brand recall for certain models was very low (Yan, 2014). In response, Geely announced its new brand strategy to consolidate the 3 brands, Emgrand, Gleagle and Englon under one badge within the Geely brand. Geely’s expectations for the consolidation were to optimise its dealer and distribution network, improve marketing activities and communication to the consumers, and streamline the products portfolio to avoid several products in the same customer segment (Yan, 2014). Under this “One Geely” strategy, the company could centralise its resources and consequently obtain and leverage economies of scale. Following the shift to this branding strategy, the number of dealers in China decreased from more than 1000 dealers to just over 800 dealers in 2014, and under 700 dealers by the end of 2015. The strategy proved successful as following the slump in 2014, Geely’s net profit doubled twice from 2015 to 2016 and 2016 to 2017 (Statista, 2018; see figure 1 and 2). Shifting the focus away from Geely’s business strategies, we will delve into those not so obvious factors which contributed to the aforementioned cornerstones, namely the company’s underlying culture and government support. Secret to Success This section aims to pinpoint the contributory factors of Geely’s current leading positioning. These include internal characteristics: company values, which are at the heart of the company’s functioning, the customer-centric approach, Geely’s flexibility, and external features namely the virtuous market and government support. Geely Culture – Nurturing Innovation and Talent In contrast to the individualism promoted by Western, particularly past Neoliberal, cultures, Chinese companies are inclined toward an approach rooted in family values (Hout and Michael, 2014). More broadly, the values promoted are akin to those seen in village communities (Marquis et al., 2017). It is no different at 113 114 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Geely, where employees very much buy into the ‘community’. Geely abides by the ‘RenBen’ management style. This method acknowledges the focal role of the individual in the undertaking of any process, and conversely that the design of the processes should be mindful of those who undertake them (von Bismarck and Zheng, 2016). This belief-system generally encourages long-term wealth for the whole community. Geely’s commitment to community is exemplified by the benefits provided to their employees: their workforce has the opportunity to live either for free on-site or to purchase a house nearby the plant at a preferential rate (Tan, 2006). As is seen throughout Chinese philosophy from antiquity, particularly Confucianism, the ideology influencing the majority of modern Chinese thought, it is a principle of many of those holding a position of power to show benevolence for their subordinates. It is believed that under this structure both harmony and control can be maintained. To ensure a continuous supply of talent Geely has invested in numerous universities. This is a smart strategic move for Geely, the influence they have in the moulding of value-sets and skill-sets in students, at arguably the most malleable period of their development, allows for an easy transition into working and company life. This obviously saves the company copious amounts in trainingupon-hire costs. The universities mainly offer courses in engineering, business management and automotive marketing, and range from undergraduate to PhD diplomas. (Geely Global, 2018). It is not so obtuse to think that this move causes a low rate of employee turnover. Geely also reaches out to grass-roots, notinstitutionally-educated talent, in the form of charity and competitions. Geely launched the “Future Talent Fund” to aid students wanting to train as engineers (Fetscherin and Beuttenmuller, 2012). They also sponsored many competitions, these often with the dual objective of engaging talent with both the brand and the major contemporaneous problems being worked on within the industry. The most recent competition focused on the design and development of electric vehicles (Geely, 2018). These activities, as well as heavy investments in research and development (R&D) year on year (Geely Automobile Holdings, mentioned in all annual reports 2006-2017) embodied by their global R&D centres - home to over 10,000 engineers (Global Geely, 2018) - demonstrates Geely’s dedication to innovation and nurturing talent. China is known for its low-risk, long-run strategies; by investing in education and the general well-being of its employees, Geely ensures consistency and long-term commitment and is, therefore, a great example of this approach. Geely Automobile Holdings Shufu Li – the “Henry Ford of China” One cannot have a complete image of a company’s culture without first considering the individual at the helm. Leaders are responsible for leading corporate governance by guiding cultural direction and upholding corporate culture. Not only is Geely’s Li Shufu the chairman, but he is also the founder. First generation companies are prone to developing very distinctive and principled cultures, usually since the founder is at the helm and their energy is infectious (Schein, 1995). An investigation into Li’s profile will then shed some light on the culture within Geely. Li came from a modest background and is a man with both entrepreneurial spirit and great vision. Interestingly, this is a background shared by a significant proportion of entrepreneurs in China. One’s core principles are often deep-rooted in experiences from infancy and adolescence; Li’s experiences led him to a belief in meritocracy. His assiduousness has fuelled his many entrepreneurial ventures. Geely came about after a succession of opportunities presented themselves to Li, which he did not hesitate to seize. After expanding from refrigerator parts to motorcycles, Li familiarised himself with car manufacturing technologies by taking up an active interest: dissecting cars and building pilot manufacturing lines (von Bismarck and Zheng, 2016). That he took such an active interest in the minutiae of the product speaks volumes about the character of Li. Mr Li is in many ways the face of the company; his name concurrently mentioned with any news related to Geely. Such brand association brings a great responsibility to Li Shufu. To date, he has but upheld a positive image through his philanthropic actions and generally as a result of Geely’s success which people inextricably attribute to his actions. Eventual Government Support One would expect that if the Chinese government was purporting to uphold protectionist policies, Geely would in some way benefit from such a type of attention. However, this was certainly not the case in its early days. As Geely is privately held, it was not treated with the same care and respect as its state-owned counterparts (Yao and Wang, 2014), exemplified by state banks refusing to lend it capital (Bloomberg, 2002). Mr. Li had to apply on multiple occasions to receive an automobile production licence before finally obtaining it in 2001, three years after the first car rolled off the production line. However, as is usually the case when a company evolves and gears up for expansion, support came. The local government of Taizhou and the Zeihjiang offered land from which Geely could conduct its 115 116 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 operations (Gong and Ma, 2011). Geely’s success eventually culminated in the Government wishing for it to act as a poster-child for the Chinese industry (Fetscherin and Beuttenmuller, 2012). This, in turn, provided favourable funding opportunities for Geely. More broadly, as part of the government’s automotive industry restructuring and rejuvenation programme (Yao and Wang, 2014), largescale M&A’s were to be promoted to enhance the international competitiveness of domestic companies. A contemporaneous reduction in FDI restrictions facilitated “accelerated technological exchange and globally integrated production and marketing networks” (Chaisse and Gugler, 2011). The Volvo acquisition can be seen as benefiting from this change in regulation. More recently, the flurry of majority stake acquisitions in Proton, Lotus, Saxo Bank and Terrafugia in the midst of tightening restrictions on outbound investment has suggested the governments increasingly preferential treatment of Geely (Anderlini, 2018). This highlights the current supportive nature of the government’s affiliation with Geely. Over Geely’s lifetime, the latter can effectively be described as having evolved from neglectful in the beginnings of Geely, to an advantageous one now. A noteworthy point is that Geely was able to benefit from government support without being subjected to its ownership. That is to say, private companies possess more freedom which provides “stronger self-awareness, risk awareness and sense of competition” whilst those companies managed in co-operation with the state often lack either innovative or enterprising behaviour. Thus, Geely was ultimately able to have its cake and eat it too - so to speak. The Flourishing Market A noteworthy consideration is the state of the markets Geely was involved in, which in part fuelled its sales. Although present in more than simply China, the markets in question will refer to the domestic market in particular and the global market. According to Statista (2018, see Figure 7), the Chinese market for passenger cars and commercial cars has shown a rapid growth throughout the period of 2008 to 2017 from 6.76 million units to 24.72 million. One can note that the domestic market demand was resilient during the financial crisis. With such continual increase in demand, it is hard not to do well. Geely Automobile Holdings Figure 7 Number of passenger cars sold in China from 2008 to February 2018, by model (in 1,000 units) Source: Statista In terms of the broader global market, as stated in the industry backdrop section of the analysis, it has continually increased. Although it does not boast the same growth as China such favourable conditions would promote higher sales figures given Geely’s global presence. Riding the Waves of Change Coupling the various aforementioned forms of success, one can see a common thread: Geely’s ability to leverage timely opportunities. Geely was able to benefit from relaxed and favourable policies, a booming low-end car market and, later, demand for higher-quality follow-up products largely as a result of its adaptability. Noticeably, this is a characteristic that flows from its founder through to the company as a whole. For companies in China dealing with a tumultuous and uncertain environment, as well as “massive urbanization and huge rural markets, fierce competition and endemic corruption”, are everyday concerns (Hout and Michael, 2014). As suggested in Lawrence and Lorsch (1967), a firm’s management system is responsive to the economies in which it develops. Tumultuous markets foster the need for loosely structured management systems that are able to assimilate information quickly. As such, Geely’s ability to adapt to an ever-changing and growing domestic environment is owed at least in part to the Chinese management structures outlined in Hout and Michael (2014). 117 118 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Another contributing factor to Geely’s adaptability is its approach to active engagement in fostering partnerships. Given the highly competitive nature of the global automotive industry and the direction of increasing consolidation within the Chinese market, survival is dictated by enhanced cooperation (Lynton, 2013). Li corroborated this view when likening the neglect of this reality as “sticking your head in the sand” (Szczesny, 2018). Having identified and outlined the historical context which has brought Geely to the forefront of the industry, we will progress and establish Geely’s current position in the market and the challenges it faces. Current Standing and Challenges Geely is now stronger than ever, boasting an average net profit margin over the last three years of 9.6% (sector average is 6.2%) and an earnings-to-price yield 2.9 times the yield of a triple-A bond. Such financials justify the number of accolades earned in recent years. For instance, being ranked among Asia’s Fab 50 by Forbes and the 1000 largest manufacturers by revenue by IndustryWeek highlight external recognition of Geely’s position (Buysellsignals Research 2018). Despite Geely experiencing a high point in its existence, one must consider the potential challenges which it now faces to sustain its success. Figure 8 provides an overview of these. Figure 8 Overview of Challengers Geely Automobile Holdings The Dark Side of Being Local Throughout the course of history, customers in China have bought from Chinese manufacturers on a cost basis more so than quality. In most cases, customers are likely to buy a car from a domestic brand either because they feel loyal to their country or they are forced by the level of income to look for more affordable cars (China’s automotive market - Accenture, 2013). When comparing quality and consumer trust for the same year and same type of car between Japanese and Chinese made, those made by Chinese earn less trust from the customers in terms of long-term durability, reflected in their higher depreciation rate. For example, in the second-hand market, a six-year-old mid-size sedan made by Geely has a price 50-60% lower than the same type of car made by Toyota (Guazi.com, 2018). That being said, Chinese automotive brands seem to be catching up to their foreign competitors in quality, according to a survey by JD Power. Such an evolution can be quantified by a fall in faults per 100 vehicles from 834 in 2000, to 112 (99 being the mainstream benchmark) in 2017. (Clover, 2017) Ever-Changing Customer Preferences The lead time of the research and development of a car can be relatively long. It takes 3-5 years on average to develop a completely new car (Turpen, 2018). As customers’ preferences and needs have changed over time, the share of the automotive market that SUV and MPV models represent has been continually increasing. The sales of SUV accounted for around 40 percent of the total passenger car market in China in 2017. This number increased from just above 10 percent in 2010 (Statista, 2018; see Figure 7). The same time period saw a sharp decline in the demand for sedans and this trend has been predicted to continue for at least 5 years into the future. Geely’s current line-up consists of 4 models of sedans, 3 models of small to mid-size Crossovers or SUVs. Strategically, Geely has to decide whether it is worth pursuing the sedan business or to focus on more lucrative model types. The world is continuously adopting new technologies such as smartphones and connected devices. Cars, often the second-most valuable asset owned by an individual, are no exception to technological disruption. As can be seen from the hype and success of companies like Tesla and the success of the post-sale market in recent years, customers are seemingly shifting their purchase decision away from solely performance metrics and onto technological amenities (Baan et al., 2013). In China, 85 percent of consumers look for in-vehicle technologies when they made their purchase decisions and 75 percent of them acknowledge they would spend more for a vehicle with the right telematics services (Accenture, 2013). The 119 120 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 services most important to consumers interests are navigation support, emergency rescue, internet connectivity and real-time traffic data. Currently, the in-car technologies such as telematics services are supplied from Lynk & Co, another brand held by the Geely Holding group. Competitive Disadvantage from Government Policies In recent times the government has been implementing protectionist policies that favour local automobile manufacturers by implementing a 25% tariff on imported cars. However, the government will reduce the tariffs for imported cars to 15% in the second half of 2018. This change will result in more intense price competition in the Chinese market, (Anjani Trivedi, 2018) a change that, with all else held constant, would bite into the profits of the domestic automakers. The competition is expected to further intensify given China’s plans to remove the foreign investment limit on the industry by 2022. The latter would allow auto companies to enter the Chinese market through other than the existing JV model (Goldman Sachs Equity Research, 2018). Another source of political pressure is gas alternative vehicles. The Chinese government, like those of most other developed countries, is aggressively pushing new energy vehicles (NEVs) by providing subsidies for car manufacturers which use electrical power. In 2018 the government pushed this idea even further, they increased the minimum efficiency standards that new cars must meet in order to qualify for their full support. In this new policy, vehicles with a driving range below 150km in one battery charge will not receive subsidies, whereas vehicles with 300 km of driving range will get the current electric vehicle subsidies, and ranges over 400 km have higher subsidies. Trade Barrier on the Western Market Li has had his eyes set on entering US market as early as his desire to expand internationally. Unfortunately, Geely’s supply chain has yet to meet US standards and certain emissions requirements thus postponing a launch to a potentially trickier time-period. President Trump has stated his desire to increase tariffs on Chinese goods and a rise from the current 2.5% on imported cars is to be expected. This could render the Chinese cars less competitive. A loophole does exist but requires significant time and investment: building a US based-and-regulated plant. Geely Automobile Holdings Future Outlook and Recommendations A natural progression to highlighting challenges is to provide complementary recommendations. This section will use the aforementioned obstacles as a basis to provide both existing measures being taken by Geely to tackle these and general suggestions where steps are not yet being taken. Figure 9 provides an overview of these recommendations. Figure 9 Overview of Recommendations The Domestic Potential At the end of 2017, the population of China reached 1.4 billion. Amongst such a vast population only 163.3 million, just 12%, own a private car (National Bureau of Statistics of China, 2018). Chinese people have been, and still are, progressively climbing up towards the middle-class and it has been predicted that the market will grow for at least another 5 years. In fact, the market is predicted to be growing by at least 6% per year until 2022 (McKinsey 2017). Geely as the local automaker would need a plan to retain and grow its position within the domestic market to benefit optimally from this scenario. This situation is to the benefit of Geely since the long-run growth in China looks uncertain and where potential entrants seeing 121 122 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 this may opt not to invest in infrastructure, Geely has the infrastructure ready-athand to capture the short-term profits. Furthermore, the company may be able to benefit from launching more Crossover or SUV models as the market for these is expanding rapidly. This is the result of the encouragement from the Chinese government for people to move away from the one-child policy, with a focus now on population growth. With families considering the prospect of a larger family, people are more likely in the near future to trade in their old sedans for SUVs for the larger space and capability (Boykoff, 2015). Electrifying the Market One of Geely’s latest growth strategies has been to take purchase of a 9.7% stake in the foreign firm, Daimler, a German auto giant. The intention behind this venture, according to Li Shufu, is to join forces to compete against companies in the electric and self-driving car spaces, citing Tesla’s Musk as the main concern (Chazan, 2018). However, this is not their only threat as there is other competition in this space closer to home. Around 500 companies (Kljaic, 2018) including China’s leading electric vehicle (EV) manufacturer: BYD Co Ltd. operate within the country (Nason et al., 2016). In contrast, Geely’s current line-up consists of just one EV, the Emgrand EV 300, with just over 300 km range per full charge (Dixon, 2018) but plans for hybrid versions of its major products to be launched on the market by the end of the year are in the works (Deutsche Bank Market Research, 2018). Such actions inform us that Geely is embracing itself for this electric revolution, aiming to add a leader in green energy vehicles to its already-long list of acknowledgements. Coupling this information in future direction with the government’s recent decision to decrease preferential subsidies, however, highlights a potential issue. Geely should focus on perfecting the product for it to beat restrictive subsidy thresholds rather than rush product to market. Thus, Mr Li’s 2020 plan to have 90% of Geely’s fleet be electric (Clover, 2018) should be a flexible target. Targeting the Youth Lynk & Co, the Sino-Swedish automotive brand that is a part of Geely’s arsenal of brands (See Figure 3), was founded in 2016 to focus on the production of cleanenergy cars run by cutting-edge technology (Savov, 2016). Their unique technological focus as compared to other brands under the Geely umbrella is the move to target younger customers. The company made promises that every model would come with both a touchscreen control system and telematics system installed. Geely Automobile Holdings It was purported that this move would not only elevate the image but also the quality of the Geely brand. Moreover, the transition of Geely away from solely being an automaker into more of a technology company is, as mentioned also above, a move that would classify the company into the NEV tranche of automakers and qualify it for government subsidies. The car made by Lynk & Co would leverage this benefit to maintain current price levels and increase the margin per unit sold. The Western Market - Still on the Radar Europe is currently the market on the expansion agenda of Geely Holding Group. A partnership that was established in 2010 with Volvo, allows Geely to use Volvo’s local facilities to assemble its cars. Geely would start to market its upmarket compact-size SUV car under Lynk & Co brand to sell in Europe in the near future (Anjani Trivedi, 2018). Lynk & Co represents an opportunity for Geely in the western market, the products that are on the development and production lines are seemingly befitting of the market created by millennials entering the workforce in those markets. The potential buyers could be ensured of the product’s quality as the development of its first model SUV platform has been supported by the Volvo’s 40 series (Vlad Savoy, 2016). New Partnership, New Potential Apart from the acquisition and partnership with the western automaker companies, Geely could benefit from the agreement with the companies from technology industry with in-car technology, as explained earlier, becoming one of the largest segments of the automotive purchase experience. The agreement with Ericsson to jointly develop Geely’s connected car technology is the first step toward the provision of a more secure and intelligent platform installed in their cars (Ericsson, 2016). Moreover, a recent deal with Qualcomm, the industry-leading semiconductor company, will enable a more advanced Infotainment system in Geely’s cars (Qualcomm, 2017). Partnerships with these world-class technology companies, give Geely access to top-quality infrastructure and intellectual property which they intend to leverage in their autonomous driving project. 123 124 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Conclusion To conclude this report, the two most important insights gained from the investigation into Geely will be discussed. These insights act as valuable lessons that other companies can learn from. The first such insight is the sense of commitment observed amongst employees. As already discussed, in China there is a strong sense of community and a set of values that are akin to those found within feudal village communities. The philosophy dominating Chinese thought is very much defined by the virtues of benevolence and contentment. Widespread Confucianism encourages the principle of benevolence primarily as a means to maintain power but admittedly is done in good faith. The government, with their commitment to the provision of necessary goods to all, has an effect on the community that brings about a reliance, which in turn brings about a culture of submission. Such a culture is honoured in China for it is thought that nothing is more powerful than the submissive entity: water tempers fire; female tempers male. If we then scale these overarching principles down from the state level to the firm level, it can be understood how the culture at Geely, boasting low staff turnover and high employee satisfaction has been nurtured. Geely, like the government, provides its workforce with only that which is deemed absolutely necessary; the employees, like the majority of the Chinese population, engulf themselves within the society perpetrated by the company, accepting the necessary goods in exchange for a lifetime of service. This structure runs throughout the company at all levels of the hierarchy and operations cycle and when abstracted enough, becomes a village of villages. It is run like a state. Although this culture and the resulting employer-employee relationship is not exclusively found at Geely, it has been shown to be especially evident here and hence represents one of the key factors that has allowed the company to flourish. As a result, this case study has highlighted that said culture constitutes a solid foundation for success and is, therefore, a characteristic that is especially relevant to emerging companies. The other key determinant of Geely’s success is the flexibility it exerts. The pain Geely subjected itself to at its beginning by choosing to remain a private company led to an infrastructure free from the constraints of the state bureaucracy. Regardless of the change in perception of private companies in China, Geely stuck to its principles and designed a company structure that facilitates continued learning and fast entry into new markets. It has been shown that these values are rooted in the character of the founder, Li Shufu. His natural charisma inspires his Geely Automobile Holdings employees to follow a similar lifestyle and ethics. With a leader so committed to the cause and a workforce willing to submit to his vision and work hard to achieve it, the entire workforce is trusting and harmonious. When this is the case, people are happy to do whatever it takes to help the cause, including retraining. The support offered by the community allows for the creation of new arms of the company that delve into new technologies and new markets, allowing Geely to grow and remain relevant in a fast-moving economy. Geely’s impressive management structure has created an environment which truly emphasises the latter syllable in the word ‘workforce’. Said values and the flexibility of Geely’s structure were shown to be particularly important for the company to identify points of optimisation and swiftly implement the necessary changes. The effectiveness of which was illustrated when the number of umbrella brands and car dealerships was reduced to simplify its product line-up and in turn resulted in an increase in revenue and improved brand recognition. Along with Geely’s clever acquisition strategy, made possible in the first place by the company’s awareness and adaptability, this further shaped the trustworthiness of the brand. Consequently, this combination of attributes comprises another important lesson on how to overcome the stigma associated with Chinese products and pave the way to success. In conclusion, understanding how Chinese culture, as well as the personality of the owner, shape the direction of a private company, is to understand and thus learn from the company at a basic level. It is when attention is placed on fostering communities of dedicated talents, from the tone of the founder to the talent building programmes and infrastructures, as well as the assimilation of flexibility in the company’s structure and processes, in an attempt to adapt to the wider environment, that an enterprise can prosper in this tumultuous and globalised world. (Received October 31, 2018; Revised December 19, 2018; Accepted December 20, 2018) 125 126 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 References Accenture (2013) 'China's automotive market', [Online]. Available at: https://www.accenture.com/t00010101T000000__w__/frfr/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Local/frfr/PDF_4/Accenture-Chinas-Automotive-Market-Cosumer-Digital-MarketingInsights.pdf [Accessed: 26 May 2018] Anderlini, J. (2018). Chinese tycoons have to play the connections game. [online] FT. Available at: https://www.ft.com/content/2e9c859c-31b6-11e8-b5bf23cb17fd1498 [Accessed 30 May 2018] von Bismarck G., Zheng Y. (2016) Geely: A Case Study on the Trend Following Volvo-Owner. In: Segers R. (eds) Multinational Management. Springer, Cham Blanchard, B. (2005) China’s car makers ready to take on world? [Factivia] Reuters Bloomberg. (2018). The Little Car Company That Can?. [online] Available at: https://www.bloomberg.com/news/articles/2002-06-16/the-little-car-companythat-can [Accessed 30 May 2018] Boykoff, P. (2015) 'What slowdown? Chinese buyers are still crazy for SUVs', [Online]. Available at: http://money.cnn.com/2015/11/04/news/economy/chinasuv-auto-sales/index.html [Accessed: 30 May 2018] Buysellsignals Research (2018) Twenty-eight-bagger Geely Automobile Holdings surges 91% [Thomson Reuteurs Eikon] Statista (2018) Number of passenger cars sold in China from 2008 to March 2018, by model (in 1,000 units)*. Available from https://www.statista.com/statistics/281169/china-passenger-car-sales-by-model/ [Accessed 26 May 2018] Chaisse, J. and Gugler, P. (2011). Expansion of trade and FDI in Asia. London: Routledge. Chazan, G. (2018). Backlash grows over Chinese deals for Germany’s corporate jewels. [online] FT. Available at: https://www.ft.com/content/391637d2-215a11e8-a895-1ba1f72c2c11 [Accessed 29 May 2018] Geely Automobile Holdings Chen, Y, Wang, X, and Young, M 2015, 'Geely Automotive's Acquisition of Volvo', Asian Case Research Journal, 19, 1, pp. 183-202, Business Source Ultimate, EBSCOhost [Accessed 5 April 2018] Clover, C. (2018). Chinese carmaker Geely enjoys soaring net profits. [online] FT. Available at: https://www.ft.com/content/9cfd3024-2ceb-11e8-9b4bbc4b9f08f381 [Accessed 30 May 2018] Clover, C. (2017). Chinese carmakers close quality gap on global rivals. [online] FT. Available at: https://www.ft.com/content/9e5bb9f2-a412-11e7-9e4f7f5e6a7c98a2 [Accessed 30 May 2018] Deutsche Bank Market Research (2018) Access Asia Conference Highlights [Thomson Reuteurs Eikon] Dixon, T. (2018). Chinese Electric Vehicle Subsidy Changes In 2018 — The Details | CleanTechnica. [online] CleanTechnica. Available at: https://cleantechnica.com/2018/01/06/chinese-electric-vehicle-subsidy-changes2018-details/ [Accessed 30 May 2018] Ericsson (2016) 'Ericsson and Geely announce connected cars cooperation', [Online]. Available at: https://www.ericsson.com/en/pressreleases/2016/2/ericsson-and-geely-announce-connected-carscooperation?categoryFilter=press-releases_1270673222_c [Accessed: 30 May 2018] Fairclough, G. (2006) China revs up auto goals -- Industry upheaval fuels opportunities; Mr. Li looks to West [Factivia] The Wall Street Journal Fetscherin M., Beuttenmuller P. (2012) Geely’s Internationalization and Volvo’s Acquisition. In: Alon I., Fetscherin M., Gugler P. (eds) Chinese International Investments. Palgrave Macmillan, London Geely. (2018). Geely Education. [online] Available at: http://www.geely.com/introduce/education/index.html [Accessed 30 May 2018] Geely Auto Group (2014) Geely Auto Unveils New Brand Strategy Ahead of Beijing Auto Show 2014, Available at: http://global.geely.com/2014/04/18/geely-auto-unveils-new-brand-strategyahead-of-beijing-auto-show-2014/ [Accessed: 31 May 2018] 127 128 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Geely Automobile Holdings Limited (2009) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2010) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2011) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2012) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2013) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2014) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2015) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2016) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Automobile Holdings Limited (2017) Annual Report 2009 [Online] Available at: http://www.geelyauto.com.hk/en/financial_statements.html [Accessed: 30 May 2018] Geely Global. (2018). Our Vision. [online] http://global.geely.com/our-vision/ [Accessed: 30 May 2018]. Available at: Gifford, E., Holgersson, M., Mckelvey, M., Bagchi-Sen, S. (2015). Tapping into Western Technologies by Chinese Multinational Enterprises: Geely purchase of Geely Automobile Holdings Volvo Cars and Huawei hiring of Ericsson employees in Sweden. [Online] Available at: https://www.researchgate.net/publication/275207254_Tapping_into_Western_Te chnologies_by_Chinese_Multinational_Enterprises_Geely_purchase_of_Volvo_ Cars_and_Huawei_hiring_of_Ericsson_employees_in_Sweden?enrichId=rgreq704a829448051bcac5aa997b7be0b2ccXXX&enrichSource=Y292ZXJQYWdlOzI3NTIwNzI1NDtBUzozNzc1NjUwM zk2MTE5MDVAMTQ2NzAyOTkyODc0MA%3D%3D&el=1_x_3&_esc=publi cationCoverPdf [Accessed: 30 May 2018] Goldman Sachs Equity Research (2018) China Automobiles - Increasing pricing pressure, policy risk, NEV compliance cost; Geely off CL, Brilliance down to Neutral Gong, T. and Ma, S. (2011). Preventing corruption in Asia. London: Routledge Hout, T. and Michael, D. (2014) A Chinese Approach to Management [online] Harvard Business Review Available at: https://hbr.org/2014/09/a-chineseapproach-to-management [Accessed: 30 May 2018] Kljaic, V. (2018). Turns Out China Has An Astounding 487 Electric Car Makers. [online] Inside EVs. Available at: https://insideevs.com/turns-out-china-has-anastounding-487-electric-car-makers/ [Accessed: 17 Dec. 2018] Lawrence, P. R., and Lorsch J. W. (1967) Organization and Environment. Boston, MA: Harvard Business School, Division of Research. (Reissued as a Harvard Business School Classic, Harvard Business School Press, 1986.) Lynton, N. (2013) Managing the Chinese Way [online] McKinsey Quarterly. Available at https://www.mckinsey.com/featured-insights/asiapacific/managing-the-chinese-way [Accessed: 30 May 2018] Marquis, C., Li, Q. and Qiao, K. (2017). The Chinese Collectivist Model of Charity. Stanford Social Innovation Review, [online] pp.40-47. Available at: https://ecommons.cornell.edu/bitstream/handle/1813/49923/The%20Chinese%2 0Collectivist%20Model%20of%20Charity.pdf?sequence=2 [Accessed 30 May 2018] Marukawa T. (2011) Technology Acquisition by Indigenous Firms: The Case of the Chinese and Indian Automobile Industries. In: Ohara M., Vijayabaskar M., 129 130 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018 Lin H. (eds) Industrial Dynamics in China and India. IDE-JETRO Series. Palgrave Macmillan, London Nason, E., Chan, B., Tin, C. and Yu, T. (2016). BYD: Building Your Dreams of a Pure Electric World. Academy of Asian Business Review, 2(2), pp.87-109. National Bureau of Statistics of China. n.d. Privately owned vehicles in China from 2004 to 2016 (in millions). Statista. Accessed May 30, 2018. Available from https://www.statista.com/statistics/278475/privately-owned-vehicles-in-china/. OICA (Organisation Internationale des Constructeurs d'Automobiles). (2017) Production of passenger cars worldwide from 1998 to 2017 (in 1,000 units). Statista. Available from https://www.statista.com/statistics/268739/productionof-passenger-cars-worldwide/. [Accessed 26 May 2018] OICA (Organisation Internationale des Constructeurs d'Automobiles). (2016) China's share in global vehicle production from 2008 to 2016. Statista. Available from https://www.statista.com/statistics/233942/chinas-share-of-globalproduction-capacity-of-the-automobile-industry/ [Accessed 26 May 2018] Porter, M. E. (1985) The Competitive Advantage: Creating and Sustaining Superior Performance. Ch. 1, pp 11-15. NY: Free Press. Qualcomm (2017) 'Qualcomm Automotive Platforms Selected to Power Next Generation Infotainment for Fast-Growing Chinese Carmaker Geely', [Online]. Available at: https://www.qualcomm.com/news/releases/2017/06/28/qualcommautomotive-platforms-selected-power-next-generation-infotainment [Accessed: 30 May 2018] Savov, V.(2016) Lynk & Co is a new car brand that was 'born digital’, [Online]. Available at: https://www.theverge.com/2016/10/19/13328674/lynk-and-cogeely-connected-car-volvo-launch-official [Accessed: 30 May 2018] Szczesny, J. (2018). Geely's Li Shufu Says Partnerships Key to Auto Success [online] The Detroit Bureau. Available at: http://www.thedetroitbureau.com/2018/04/geelys-li-shufu-says-partnershipskey-to-auto-success/ [Accessed 30 May 2018] Schein, Edgar. (1995). The Role of the Founder in Creating Organizational Culture. Family Business Review. 8. 10.1111/j.1741-6248.1995.00221.x. Geely Automobile Holdings SinoCast China Transportation Watch (2005) Automakers Busy Expanding Production Capacity [Factivia] Tan, C. (2006) Geely, China’s Rising Star [Factivia] The Straits Times Trivedi, A. (2018) 'Dark Side of China’s Car Tariff Cuts', [Online]. Available at: https://www.bloomberg.com/view/articles/2018-05-23/china-s-tariff-cutsdarken-carmaker-profit-hopes [Accessed: 26 May 2018] Turpen, A. (2012) ‘How car design works, start to finish', [Online]. Available at: https://www.torquenews.com/1080/how-car-design-works-start-finish [Accessed: 30 May 2018] Baan W., Gao P., Wang A., Zipser D. (2013) 'Savvy and sophisticated: Meet China’s evolving car buyers'. [Online]. Available at: https://www.mckinsey.com/industries/automotive-and-assembly/ourinsights/savvy-and-sophisticated-meet-chinas-evolving-car-buyers [Accessed: 30 May 2018] Yao S., Wang P. (2014) OFDI and Technology-seeking Strategy: A Case Study of Geely’s Acquisition of Volvo. In: China’s Outward Foreign Direct Investments and Impact on the World Economy. The Nottingham China Policy Institute Series. Palgrave Macmillan, London Yan, J. (2014) All the Geelys on Autocade, Available at: http://jackyan.com/blog/2014/12/all-the-geelys-on-autocade/ [Accessed: 31 May 2018] 131 132 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018