Business Strategy Analysis of Geely Firm

Strategy Analysis of Geely Firm Table of Contents 1. 0Executive Summary2 2. 0Introduction2 3. 0Internal environmental analysis4 4. 0External Environment Analysis5 4. 1Political factors5 4. 2Economic factors6 4. 3Social factors6 4. 4Technological factors6 4. 5Environmental factors7 4. 6Legal factors7 5. 0Competitive environment analysis7 5. 1The threat of the entry of new competitors8 5. 2The threat of substitute products or services8 5. 3The bargaining power of customers8 5. 4The bargaining power of suppliers9 5. 5The intensity of competitive rivalry9 6. Key strategic competencies identification10 6. 1SWOT Analysis10 6. 2Key strategic resources identification11 7. 0Evaluation to the strategic options11 7. 1Strategy choice11 7. 2Evaluation to Geely’s strategy12 8. 0Conclusions13 References:13 1. 0Executive Summary The main purpose of this report is to analyze the business strategy analysis of Geely Firm. This report comprises the external environment analysis of this firm as well as the threats and opportunities it faces, and based on which to find out the proper strategic options for this firm by the exhaustive analysis and evaluation.

Geely Firm is an excellent auto manufacturer of China and also among the country’s top 500 firms. In the past ten years, Geely has grown fastest in all of the companies in the Chinese automotive industry. As an outstanding auto manufacturer, Geely has its unique organization culture as well as the business strategy, which deserves to be researched. According to some classical analysis, such as PESTEL analysis, 5-Forces analysis and SWOT analysis, this report finds out the status of its external business environment it faces and then based on which to evaluate its business strategy.

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The report tries to find out the appropriate strategy that the firm should to follow. 2. 0Introduction Geely was established in 1986 and started the auto manufacturing in 1997, now it has become one of the China’s top ten auto manufacturers, which is fully independent auto firm from research, design to production, distribution and servicing. In 2005, Geely Automobile Holdings Limited was listed on the Hong Kong Stock Exchange, which brings this company a large number of benefits. Now it has more than 8000 employees and six car assembly and power-train manufacturing plants in Linhai, Ningbo, Taizhou, Shanghai, Luqiao and Lanzhou in China.

On March 28 2010, Geely group successfully accomplished the acquisition of Volvo. As Ackoff said, any individual systems are purposive (Kirby & Rosenhead, 2005), so does Geely group. Hence the current mission of Geely should be evaluated from the social, cultural, and psychological mechanisms. From the social point, Geely always keeps its core value as “using our wisdom, integrity and hard work to build harmonious society”. From the above statement, it can be seen that Geely attaches importance to its social responsibility and works hard in the development of society (Geely, 2011).

It takes Entrepreneurship, Diversity and Adaptability as its corporate culture. It encourages the employees to communicate, harmonize and cooperate. Besides, it also focuses on lifting the innovation ability of the employees. From the psychological point of view, the company tries to create a relaxed and amused atmosphere for all the employees. It tries to make the consumers enjoy the driving, the distributors enjoy the distribution and the suppliers enjoy the cooperation. The overall mission of Geely is to produce good cars for the ordinary people which they can afford and let Chinese cars come into the worldwide marketing.

Geely Group’s annual business conference was held in Hangzhou Headquarters on December 28 2010. On this conference, the president of Geely Group, Jian Yang, proposed the “two changes, two adjustments” as the development strategic objectives of 2011, i. e. , changing the “international strategy” to “globalization strategy”, deepening “Geely technology” and striving for transition to “Geely quality”; adjusting the “fast growth” to “steady development” and the “product line management” to the “brand line management” (Gasgoo, 2011).

From above statements of the current mission and key strategic issues of 2011 of Geely group, it can be found that this company has paid more and more attention to the business strategy, and tried to make clear mission definitions and draw a proper strategy for itself. The senior managers of Geely have focused on the quality when confirming the development strategy. 3. 0Internal environmental analysis This section the internal environmental analysis will be made in the sight of the finance.

Table 1 Balance sheet of Geely (2010-2006) (GEELY AUTOMOBILE HOLDINGS LIMITED, 2011) Unit: million Balance sheet of Geely liabilities 2010. 122009. 122008. 122007. 122006. 12 Minority equity1055. 80720. 91584. 62203. 2319. 84 Gross liabilities15225. 9211705. 675368. 49373. 28797. 08 Long-term liabilities3412. 632797. 8895. 02296. 90685. 36 Current liabilities11813. 298907. 795273. 4776. 38111. 72 Contingent liabilities and assume0. 00878. 67703. 5072. 570. 93 Stockholders` funds8021. 886375. 614197. 862343. 841033. 97 Assets Fixed assets7164. 455499. 84341. 0230. 9612. 33 Total assets24303. 6018802. 1910150. 972920. 351850. 89 Other current assets10304. 667080. 753734. 4873. 36134. 40 Goods in stock986. 60640. 50486. 6613. 929. 95 Cash holdings and bank balance4393. 084498. 16889. 41761. 6821. 05 Current assets15684. 3312219. 415110. 55848. 96165. 40 Other assets1454. 821075. 90657. 160. 000. 00 From the tables above, it can be found that the Geely Group’s overall profitability is growing in these years, although it is not a large proportion of growth, it is believed that the growth speed will become faster when Geely introduces the new cars to the market. . 0External Environment Analysis It is believed that no enterprise can exist in isolation, because the survival and development of an enterprise are always affected or restricted by changes in the external environment. Hence, external environment analysis should be made before confirming and evaluating the business strategy of the enterprise. The external environment analysis will be made in this section by using the PESTEL method (Peng, & Nunes, 2007; RapidBI, 2011) to identify and explain the factors from external environments around Geely. . 1Political factors Along with the country’s macro-control to automotive industry in China, some new laws and regulations are issued in last years. National Development and Reform Commission of China issued a notice to the automotive industry, which caused a stir in this industry. A series of new regulations made the car industry go though a totally transformation and until today some influence still works which can be summarized as follows: ? Becoming a member of WTO brings the challenges as well as the opportunities to Chinese auto market. “Auto industry development policy” infuses a positive strength to the automotive industry. ?The Car tax reformation brings some good news to this industry and promotes the automobile consumption. 4. 2Economic factors From the economic point of view, the competition is much fiercer than before. Besides, foreign brands are still occupying the majority of market and domestic competition is also getting fiercer and fiercer. Geely, Chery, BYD, and Changan, which divvy up the domestic market, are the top four leaders in the China. So Geely has to bear the great pressure from the fierce competition.

When Geely decide to drop the market of low-end cars and come into the market of premium cars, it means that Geely has to face the worldwide competition with all of other auto manufacturers. While what should be noticed is that the overseas automotive industry develops more mature and their technology is more advanced than Chinese manufacturers, especially in engine technology. 4. 3Social factors From the social point of view, the China’s automobile industry has of an ambitious development prospects and car market is far from saturated.

The demand for cars will continue growth in the next few years and people will be more concerned about the security problem. Besides, Chinese young people focus more on the fashion life and driving a wonderful car may meet their mental needs in a certain degree, so it is also good news for Geely. 4. 4Technological factors Basic production technology: The basic production process of Geely has been geared to international standards. Research and design technology: The EPS power steering system, CVV-4G18 engine, BMBS tire safety control system and the research of new energy vehicles bring the Technical advantages to Geely.

Technology trends: Low carbon technologies and environmental technologies will undoubtedly influences the development of the automotive industry. 4. 5Environmental factors In recent years, people put more and more attention on the environmental problem and sustainable development. Hence Geely should make its best on the development of low energy consumption technology. At the same time, it is under the high pressure from the environmental protection requirements. 4. 6Legal factors “Regulations about defective auto product recalling” and the policy about “three guarantees (repair, replacement, refund) of autos” protect the customer interests.

That makes the Geely focus on the quality promotion. Besides, Chinese Ministry of Environmental Protection recently says, at present most of the Chinese light vehicles carry out China ? emission standard, while in 2011 the government will launch China ? emission standard in nationwide. 5. 0Competitive environment analysis Competitive environment analysis is essential when an organization makes the marketing stratagem. This section will adopt Porter’s 5-Forces analysis (Porter, 2008; Porter, 1979) to discuss the competitive environment that Geely faces and nail down the basic competitive situation of Chinese automotive industry. . 1The threat of the entry of new competitors Joining the WTO means that Chinese market has to be open to the whole world competitors. Besides, in-depth implementation of the reform and opening-up policy makes the foreign brands has occupied a part of the market. Furthermore, automotive industry originates from and develops in western developed countries, so the Chinese people more likely to favor foreign brands. So the threat of the entry of new competitors should be taken into consideration for the barriers to entry this industry is not too high for other international competitors. . 2The threat of substitute products or services The substitute products mainly include motorcycles, trains, subways and airplanes. But it can be found that such substitute products can not completely substitute for the automobiles. Those substitute products have special uses and functions and they have their own certain customers, so there is relatively little threat for the automobiles being substituted. 5. 3The bargaining power of customers For the automobiles are not the necessities for life and there exists some substitute products, so the consumers predominate a large initiative.

As to car market, there is serious oversupply for the customers. Besides, all the manufacturers are trying their best to take up the market and pursue the economies of scale, so cutting cost it the most effective measure and no doubt to be the tend. Generally speaking, a car’s price is higher than some other consumables, so customers usually make many comparisons between different brands. Moreover, the switching cost is not high for the customers for the choices are too many for them. So it can be found that the customers have stronger bargaining power to Geely. . 4The bargaining power of suppliers To analyze to the bargaining power of suppliers, it can start from two aspects: one is the good factors for the manufacturers and another one is the bad factors for them. Good factors: Firstly, Compare to the auto parts manufacturers, there are fewer auto manufacturers. That means as a manufacturer, such as Geely, it has many choices to elect its suppliers. Secondly, auto manufacturers usually have a larger production scale than their suppliers. Thirdly, Geely have a strong ability to integrate backward.

Besides, they have a stronger brand effect than their suppliers. The last and also the most important is that in general, one manufacturer including Geely, has a large purchase quantity to a supplier and maybe it is the major customer to the supplier. Bad factors: Firstly, the research of new production in Geely needs the cooperation with the suppliers. Next, the qualities of the parts determine the quality of whole car, especially does the core parts of the car. 5. 5The intensity of competitive rivalry As mentioned above the competition is fierce in the last few years.

Considering the current situation, China’s auto market has become the strategic market of Volkswagen, General Motors, Honda, Hyundai, which have significant impacts in China, The current situation, even Hyundai Motor Company has taken China market as the an important part of its global strategy. Besides, Geely has to face the competition with the other powerful manufacturers, such as GM, DaimlerChrysler from American, BWM, Fiat and Volkswagen from Europe, Honda, Nissan, Toyota etc. from Japan and some others all over the world. It makes the Geely has to work hard to show the prominent features of its own to seize hold of the market. . 0Key strategic competencies identification The section will identify the key strategic resources and competencies of Geely, and try to find out its core strategic resources. The SWOT analysis is adopted to analyze the Geely’s internal resources and capabilities as well as its external opportunities and threats. Table 2 presents the SWOT analysis matrix and briefly explanations to each factor. Table 2 SWOT Analysis Matrix Strengths Stable automotive quality; Meticulous service; Good capability/price ratio; Nationwide distributors, service networks and storesWeakness Weak in technology and lack of R & D personnel;

Limits in scale and research ability; Technology marginalized and lack of core technology Opportunities Broad market; Support of nation and people; Threats Fierce competition with abroad manufacturers; Difficulties caused by macro-control in financing 6. 1SWOT Analysis Strengths: The stable automotive quality and the meticulous service bring much attention of customers. Besides, the relatively lower prices of Geely cars are predominance to Geely. Weakness: Comparing to the west auto manufacturers, Geely starts its auto industry much later, which leads that it is weak in technology as well as the R & D ability.

As to Geely, it is the most weakness now. Opportunities: The market is broad for Geely, for the rapid economic development, and higher living standards in China expand demands of cars. Besides, felling into the trough weakens the threat from the Chrysler and GM. Furthermore, Chinese people may have psychological tendency to the national companies, which is another good new for Geely. Threats: The broad market in China attracts the oversea competitors, which will make the competition much fiercer. Furthermore, the national macro-control may cause the financing difficulties to Geely and effect its development. . 2Key strategic resources identification From the SWOT analysis above, it can be found that the core strategic resource of Geely is its good capability/price ratio, for the price is one of the most factors which are considered by the customers when they choose the cars. Besides, the psychological tendency to the national industry of the Chinese people is another most important advantage of Geely. It is a long history of the people to support the national industry and maybe bring a lot of benefits to Geely. 7. 0Evaluation to the strategic options

Based on the SWOT analysis in the above section, this section will discuss the strategic options of Geely as well as the evaluations to them. Then some evaluations are made to the strategic options adopted by Geely now, which have been expatiated in Section Introduction. 7. 1Strategy choice According to the SWOT analysis of Geely, some corresponding strategic options can be got here. S-O Strategy: Strengthen the main characteristics and advantages. Meanwhile develop the researches and new technologies. Adopt the mobile and flexible sales model to explore the market. At the same time, take the brand strategy to large the influence of Geely.

S-T Strategy: Focus on its strengths to make a success in one or several productions. Make the differentiation strategy for service and choose the right market and customers. W-O Strategy: Attract talents and introduce the advanced technology, explore the new market and implement the diversification strategy. Develop the organization structure of Geely to reinforce its financing ability. W-T Strategy: Adjust its organization structure and find some new financing approaches. From above statements and the surroundings of Geely, it can be found that the S-O strategy is most proper for it.

Strengthening the main characteristics and advantages is helpful in the stability of its strategy. Besides, researching the new technology can make Geely stands in the forefront of its peers. The mobile and flexible sales model can promote the corporate image of Geely and is good for it to explore the potential market and expand its competitive advantage. Hence, S-O strategy is more suitable for Geely now. 7. 2Evaluation to Geely’s strategy Since May 2007, when the whole industry cheered the market “spring” comes, Geely did not stop its steps and clearly put forward the strategic transformation.

From the strategy “Produce a good car at an affordable price” to “Produce a good car which is safest, most energy efficient and environmental. ” Then in 2011, it makes the second strategic transformation, i. e. , “two changes, two adjustments. ” From its developments in the past few years and above data analysis, it can be seen that Geely’s strategic transformation and its control after transformation are very good, particularly on making great efforts in technological researching and constantly improving its security and energy-saving technologies.

Furthermore, the investment on R & D increases from 800 million yuan in 2007 to 1. 8 billion in 2009 and 1. 9 billion in 2010 (Sun, 2011). Meanwhile, it continues to expand the production scale and there are ten production bases at home. On March 15 2009, there is a survey about “My most trusted brands”. According to this survey (Media Center of Geely, 2011), Guangzhou Honda Automobile won 25% of votes, Beijing Hyundai 14. 6%, FAW Toyota 13. 5%, Shanghai Volkswagen 12. 7% and Geely 10. 2%, which are the top in auto industry.

It can prove that the strategic transformation of Geely has gained a certain degree of success. 8. 0Conclusions Although the external environment has undergone great changes, the SWOT analysis shows that changes of the external environment bring more opportunities than threats. So Geely Group should seize these opportunities to make a rapid development, and the matching strategy should be fast and stable development strategy, which is its strategy actually. Hence, the strategy of Geely now is successful and fit for its development. References: Dcosta, A. (2010).

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Kirby, M. , & Rosenhead, J. (2005). IFORS’Operational Research Hall of Fame. International Transactions in Operational Research,12, 129–134. Media Center of Geely (2011). Retrieved April 29, 2011, from http://www. geely. com/News/Global/MediaCentre/PressReleases/. Peng, G. , and Nunes, J. (2007). Using PEST analysis as a tool for refining and focusing contexts for information systems research, In Proceedings of the 6th European Conference on Research Methodology for Business and Management Studies (pp. 229-237). Porter, M. E. (2008). The five competitive forces that shape strategy.

Harvard Business Review, January: 86-104. Porter, M. E. (1979). How Competitive Forces Shape Strategy. Harvard Business School Press, March/April. RapidBI (2011). PEST/ PESTLE Analysis Tool -History and Templates. Retrieved April 29, 2011, from http://rapidbi. com/created/the-pestle-analysis-tool/. Sun, J. ,(2011). Geely earned 300 million investment in security research and development to achieve 80% of five-star car. In China News. http://www. cnkeyword. info/geely-earned-300-million-investment-in-security-research-and-development-to-achieve-80-of-five-star-car/.

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