Case analysis: Chinese language Automotive Industry and Chery Automobiles
With the immediate development of Chinese language economy in last thirty years, motor vehicle industry in china has achieved great improvements.
Brief Background of the industry and Chery Automotives
- China's Automobile Industry
- Chery Automobiles
Analysis on Automotive Industry in China
In this part, Porter's (1980) Five Pushes Theory will be used as the major method to analyses china's motor vehicle industry. , which includes hazards of new entrants, risk of substitutes products and services, bargaining power of buyers, bargaining power of suppliers, and rivalry among the existing firms. Porter argued that these five makes jointly take the degree of competition prevailing in a particular industry and companies also develop their strategies in the light of the strength of these causes.
- Threats of new entrants---- semi-strong
- Threats of substitutes products and services----weak
- Bargaining electricity of buyers----strong
- Bargaining ability of suppliers----weak
- Rivalry among the prevailing firms----strong
There usually are seven obstacles for new entrants to entry, including economies of level, capital requirements of entry, cost advantages indie of size, legislation or authorities action as well as others(Reading material on WebCT: week five). The existing companies' economies of level are a large hurdle to new entrants. For example, some existing companies in the industry use the same development system, which they spent a significant amount of fund to build, to create similar types of autos. Through this way, they can save cost and increase their outcome at the same time. Then, the administrative centre requirement of admittance is another big problem. Equally Qiu (2005) advised that motor vehicle manufacture is a capital-intensive business requiring great levels of money invested in machines, plant, building systems, research and development (R&D), widening market and so forth. These are not a one-off repayment, but long-term, suffered investments, which might not be recovered in five or a decade. Also, the Chinese state industry insurance policy requires that a company should have two billion yuan in least in order to make purchases (Qiu, 2005). All of the factors talked about above make it difficult for new entrants to the market, because they not just need to get enough money, but also should plan long time debt and difficulty to extend market and obtain customers.
However, with the rapid development of market, people's demand for private cars is increasing quickly, especially for cheap car. And federal released new insurance policy that allowing non-stated funds to be committed to traveler car market in 2004. Aside from the two factors above, China's accession to the WTO and few existing companies produce low-end cars which sold at low price also become motivations for new entrants to enter into the market. Based on the China Car Industry Yearbook (Recent Yr), there were thirteen impartial carmakers as yet, including Chery, Geely, BYD, and more.
There are three common ways regarded as the substitutes of private autos in china, that is, bicycles, motorcycles, and open public transport.
Strategy of Chery Cars (1200)[maybe merging other specific strategy-pricing, therefore forth]
Using porter's general strategy to analyses how chery gain the competitive advantages.
- Cost leadership
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