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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
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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
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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
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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.
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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
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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
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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).
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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
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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
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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.
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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)
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