Harvard Case - Chery Automobile: Vying for a Piece of the American Pie (A)
"Chery Automobile: Vying for a Piece of the American Pie (A)" Harvard business case study is written by John Branch. It deals with the challenges in the field of International Business. The case study is 16 page(s) long and it was first published on : Aug 28, 2014
At Fern Fort University, we recommend that Chery Automobile pursue a phased entry strategy into the American market, focusing on a niche segment with a strong emphasis on branding, strategic partnerships, and a robust marketing campaign. This approach will leverage Chery's strengths in manufacturing and innovation while mitigating risks associated with entering a highly competitive market.
2. Background
Chery Automobile, China's largest independent automaker, is seeking to expand into the American market, a highly competitive landscape dominated by established players. The case study highlights Chery's ambition to establish a presence in the US, leveraging its competitive advantages in cost-effective manufacturing and innovative product development. However, Chery faces significant challenges, including brand recognition, consumer perception, and the need to navigate complex trade and regulatory policies.
The main protagonists in this case are:
- Chery Automobile: The Chinese automaker seeking to enter the American market.
- American consumers: The target audience for Chery's products.
- Established American automakers: The major competitors Chery will face in the US market.
- US government: The regulatory body influencing trade and investment policies.
3. Analysis of the Case Study
To analyze Chery's situation, we can apply the Porter Five Forces framework:
- Threat of New Entrants: The US automotive market is relatively mature, with high barriers to entry due to established brands, economies of scale, and stringent regulations. However, Chery's low-cost manufacturing advantage could potentially offset some of these barriers.
- Bargaining Power of Buyers: American consumers have a wide range of choices in the automotive market, giving them significant bargaining power. Chery will need to offer competitive pricing and compelling features to attract buyers.
- Bargaining Power of Suppliers: The automotive industry has a complex supply chain with numerous suppliers. Chery's ability to negotiate favorable terms with suppliers will be crucial for its success.
- Threat of Substitute Products: The automotive industry faces competition from alternative modes of transportation, such as public transport, ride-sharing services, and electric vehicles. Chery will need to differentiate its products and offer compelling value propositions to remain competitive.
- Competitive Rivalry: The US automotive market is highly competitive, with established players like General Motors, Ford, and Toyota vying for market share. Chery will need to develop a strong competitive strategy to differentiate itself and gain traction.
4. Recommendations
Chery should adopt a phased entry strategy into the American market, focusing on the following:
Phase 1: Niche Market Focus & Strategic Partnerships:
- Target a niche segment: Instead of competing directly with established players, Chery should focus on a specific niche segment, such as compact SUVs or electric vehicles, where it can leverage its competitive advantages.
- Establish strategic partnerships: Collaborate with American companies, potentially in areas like marketing, distribution, or technology, to gain access to expertise and resources.
- Build brand awareness: Develop a targeted marketing campaign to build brand recognition and establish a positive perception among American consumers.
Phase 2: Gradual Expansion & Product Differentiation:
- Expand product offerings: Gradually introduce a wider range of models, catering to different customer segments and price points.
- Focus on product differentiation: Emphasize unique features, design elements, and technological innovations to distinguish Chery vehicles from competitors.
- Develop a strong dealer network: Establish a robust distribution network with reliable dealerships across key markets.
Phase 3: Full-Scale Entry & Market Leadership:
- Invest in local manufacturing: Consider establishing a manufacturing facility in the US to further reduce costs, enhance local sourcing, and improve consumer perception.
- Expand marketing efforts: Invest in a comprehensive marketing campaign to reach a wider audience and build brand loyalty.
- Develop a strong customer service strategy: Prioritize customer satisfaction by offering exceptional service and support.
5. Basis of Recommendations
These recommendations consider the following factors:
- Core competencies and consistency with mission: Chery's strengths in manufacturing and innovation align with its mission to provide affordable and reliable vehicles. Focusing on niche segments and strategic partnerships will leverage these strengths while mitigating risks.
- External customers and internal clients: Targeting a niche segment allows Chery to tailor its products and marketing efforts to specific customer needs. Strategic partnerships will provide access to valuable insights and resources.
- Competitors: By focusing on a niche segment and differentiating its products, Chery can avoid direct competition with established players. Strategic partnerships will provide access to industry knowledge and best practices.
- Attractiveness ' quantitative measures: While specific financial metrics are not provided in the case study, a phased entry strategy allows Chery to manage risk and invest capital strategically.
6. Conclusion
Chery's entry into the American market presents both opportunities and challenges. By adopting a phased entry strategy, focusing on a niche segment, and leveraging strategic partnerships, Chery can mitigate risks and establish a foothold in this competitive market. A strong emphasis on branding, product differentiation, and customer service will be crucial for long-term success.
7. Discussion
Other alternatives not selected include:
- Direct entry: Launching a full-scale entry into the American market without a phased approach. This carries significant risks due to the high level of competition and the need for substantial investment.
- Joint venture: Forming a joint venture with an American automaker. This could provide access to market knowledge and resources, but it also raises concerns about potential conflicts of interest and control.
Key assumptions of our recommendation:
- Consumer acceptance: American consumers will be receptive to Chery's products and brand.
- Favorable trade policies: Trade barriers and regulations will not significantly hinder Chery's entry into the US market.
- Successful partnerships: Chery will be able to establish and maintain mutually beneficial partnerships with American companies.
8. Next Steps
To implement our recommendations, Chery should:
- Conduct thorough market research: Identify the most promising niche segment and analyze consumer preferences, competitive landscape, and regulatory environment.
- Develop a detailed business plan: Outline specific strategies for market entry, product development, marketing, and distribution.
- Seek potential partners: Identify and approach American companies that could provide valuable expertise and resources.
- Build a strong brand identity: Develop a compelling brand story and marketing campaign to resonate with American consumers.
- Establish a dedicated team: Assemble a team with expertise in international business, marketing, and automotive industry regulations.
By taking these steps, Chery can increase its chances of success in the American market and secure a piece of the 'American pie.'
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Case Description
The Chery Automobile case focuses on the Chinese company, which, in 2007, was the fourth largest automotive company in China. Chery was growing at enormous speed, and was already exporting to over 50 countries, primarily in the Middle East and Eastern Europe. Chery was determined to enter the coveted U.S. and Western European markets, and in 2007 it struck a strategic alliance with the struggling U.S.-based Chrysler Company. The case explores the barriers that Chery was facing trying to enter these markets and asks students to evaluate if the strategic alliance was the best strategy for it to eventually establish itself independently in the mature and discerning U.S. and European markets.
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