Harvard Case - Chery Automobile Company: Evolution of the Chinese Automotive Industry
"Chery Automobile Company: Evolution of the Chinese Automotive Industry" Harvard business case study is written by Ali Farhoomand, Marcus Scheutz, Richard Farmer. It deals with the challenges in the field of Strategy. The case study is 27 page(s) long and it was first published on : Nov 15, 2007
At Fern Fort University, we recommend Chery Automobile Company adopt a multifaceted strategy to solidify its position as a leading player in the global automotive market. This strategy will focus on leveraging its existing strengths in emerging markets, driving innovation through technology and analytics, and expanding its global presence through strategic alliances and acquisitions. This approach will enable Chery to achieve sustainable growth, enhance brand recognition, and establish a competitive advantage in the evolving automotive landscape.
2. Background
Chery Automobile Company, founded in 1997, is a Chinese automotive manufacturer that has rapidly grown to become a major player in the domestic market. The company initially focused on producing affordable, reliable vehicles for the Chinese consumer, leveraging its understanding of the local market and its ability to adapt to changing consumer preferences. However, Chery faces increasing competition from both domestic and international players, and its ambition to become a global brand requires a more sophisticated strategy.
The case study highlights Chery's journey from a local player to a global contender, outlining its successes and challenges in navigating the dynamic Chinese automotive industry. The main protagonists of the case are the company's leadership, who are tasked with navigating the complexities of globalization, technological advancements, and fierce competition.
3. Analysis of the Case Study
To understand Chery's current position and future potential, we can analyze the company using a variety of frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High, due to the increasing ease of entry into the Chinese market and the availability of technology and manufacturing capabilities.
- Bargaining Power of Buyers: Moderate, as consumers have a wide range of options available, but Chery can differentiate itself through its understanding of the local market and its focus on affordability.
- Bargaining Power of Suppliers: Moderate, as Chery relies on a diverse supply chain, but its scale provides some leverage in negotiations.
- Threat of Substitute Products: High, due to the rapid development of electric vehicles and alternative transportation solutions.
- Competitive Rivalry: High, with numerous domestic and international players vying for market share.
b) SWOT Analysis:
Strengths:
- Strong brand recognition in China
- Cost-efficient manufacturing capabilities
- Understanding of the local market
- Growing global presence
- Focus on innovation and technology
Weaknesses:
- Limited brand recognition outside China
- Dependence on emerging markets
- Lack of premium product offerings
- Potential for quality concerns
Opportunities:
- Growing global demand for automobiles
- Increasing adoption of electric vehicles
- Expansion into new markets
- Strategic partnerships and acquisitions
Threats:
- Intense competition from established players
- Fluctuations in global economic conditions
- Potential for regulatory changes
- Rapid technological advancements
c) Value Chain Analysis:
Chery's value chain can be analyzed by examining its core activities:
- Inbound Logistics: Sourcing components and materials from a diverse supply chain.
- Operations: Efficient manufacturing processes, leveraging economies of scale.
- Outbound Logistics: Distribution network to reach customers across China and internationally.
- Marketing and Sales: Building brand awareness and generating customer demand.
- Customer Service: Providing after-sales support and addressing customer needs.
d) Business Model Innovation:
Chery has successfully adapted its business model to meet the evolving needs of the Chinese market. It has focused on offering affordable vehicles with a strong focus on value for money. This approach has been successful in capturing a significant share of the market. However, to achieve global success, Chery needs to further innovate its business model. This can be achieved by:
- Developing premium product offerings: Cater to a wider range of customer segments by introducing higher-end vehicles with advanced features and technology.
- Expanding into new market segments: Explore opportunities in the electric vehicle market, autonomous driving technology, and connected car services.
- Leveraging digital platforms: Utilize online channels for marketing, sales, and customer service to enhance customer engagement and reach.
4. Recommendations
Chery should implement the following recommendations to achieve its strategic goals:
a) Global Expansion Strategy:
- Strategic Alliances: Partner with established international automotive manufacturers to leverage their expertise in technology, manufacturing, and distribution networks.
- Mergers and Acquisitions: Acquire companies with strong brand recognition and market presence in key regions to accelerate its global expansion.
- Market Penetration: Focus on expanding its presence in emerging markets with high growth potential, leveraging its cost-efficiency and understanding of these markets.
- Market Development: Explore new market segments, such as the electric vehicle market, and adapt its product offerings to meet the specific needs of these segments.
b) Innovation and Technology:
- Technology and Analytics: Invest in research and development to develop advanced technologies, such as electric vehicle platforms, autonomous driving systems, and connected car technologies.
- AI and Machine Learning: Utilize AI and machine learning to optimize manufacturing processes, enhance product development, and personalize customer experiences.
- Digital Transformation: Embrace digital technologies to streamline operations, improve customer service, and enhance marketing efforts.
c) Brand Management:
- Product Differentiation: Develop a distinct brand identity and product portfolio that differentiates Chery from its competitors.
- Marketing Strategy: Implement a global marketing strategy that builds brand awareness and generates customer demand in key markets.
- Social Media: Leverage social media platforms to engage with customers, build brand loyalty, and create a strong online presence.
d) Corporate Social Responsibility:
- Environmental Sustainability: Implement initiatives to reduce its environmental footprint and promote sustainable practices throughout its operations.
- Corporate Governance: Adhere to high ethical standards and promote transparency in its operations.
- Community Engagement: Engage with local communities and support social causes to build positive relationships and enhance its brand image.
5. Basis of Recommendations
These recommendations are based on the following factors:
- Core competencies and consistency with mission: Chery's core competencies lie in its cost-efficient manufacturing capabilities, understanding of the Chinese market, and focus on innovation. These strengths are aligned with its mission to become a leading global automotive manufacturer.
- External customers and internal clients: The recommendations address the needs of both external customers, by offering a wider range of products and services, and internal clients, by providing a more supportive and innovative work environment.
- Competitors: The recommendations aim to differentiate Chery from its competitors by focusing on innovation, technology, and brand building.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): While specific financial projections are beyond the scope of this case study, the recommendations are expected to generate positive returns on investment by increasing market share, improving brand value, and enhancing operational efficiency.
- Assumptions: These recommendations are based on the assumption that Chery can successfully implement its strategic plan, adapt to changing market conditions, and secure the necessary resources to support its growth initiatives.
6. Conclusion
By adopting a multifaceted strategy that combines global expansion, innovation, and brand building, Chery can solidify its position as a leading player in the global automotive market. This strategy will enable the company to leverage its strengths, address its weaknesses, capitalize on emerging opportunities, and mitigate potential threats. By embracing innovation, technology, and a commitment to sustainability, Chery can create a sustainable competitive advantage and achieve its long-term goals.
7. Discussion
Other alternatives not selected include:
- Focusing solely on the Chinese market: This option would limit Chery's growth potential and expose it to the risks of a single-market strategy.
- Acquiring a large, established international brand: This option would be costly and risky, and Chery may not have the resources or expertise to manage such a large acquisition.
Key risks and assumptions associated with the recommendations include:
- Competition: The automotive industry is highly competitive, and Chery may face challenges from established players with greater resources and brand recognition.
- Technological advancements: The rapid pace of technological change could render Chery's investments in innovation obsolete.
- Economic conditions: Global economic fluctuations could impact consumer demand and Chery's financial performance.
8. Next Steps
To implement these recommendations, Chery should:
- Develop a detailed strategic plan: Outline specific goals, timelines, and resource requirements for each initiative.
- Establish a dedicated team: Assemble a team of experienced professionals to lead the implementation of the strategy.
- Secure funding: Secure the necessary financial resources to support the strategic initiatives.
- Monitor progress and make adjustments: Regularly monitor the progress of the strategy and make adjustments as needed to ensure its effectiveness.
By taking these steps, Chery can position itself for continued success in the dynamic and competitive global automotive industry.
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Case Description
In 1908 Henry Ford revolutionized the car industry by drastically cutting production costs using assembly lines. A century later, on the other side of the world, an unknown Chinese car manufacturer, Chery, was partaking in an ostensibly similar revolution: producing inexpensive cars, priced around US$5,000, for the masses of the Chinese middle class. To achieve its objective, Chery originally adopted a cost strategy based on imitation. In December 2004 GM Daewoo filed suit against Chery for design piracy. The success of the QQ model and the possibility of greater future success nonetheless led Chery's management to dream of evolving Chery into a more mature auto-maker. In December 2006, two years after GM launched its lawsuit, Chery was the top candidate on Chrysler's list to produce a small car for sale in the United States. The question remained whether Chery could transform itself from a local manufacturer to a truly global player in the crowded and largely unprofitable car industry
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