CHERY CARS MARKET ENTRY OPTIONS

 

 

 

 

 

CHERY CARS MARKET ENTRY OPTIONS

 

Executive Summary

This paper analyses the market entry options for Chery Cars Company in several steps. The first step involves a brief reflection on the company history and profile. The second part deals with the analysis of key strengths and weaknesses. The paper further examines the vital factors that make companies expand their operation internationally and the methods available for making such entries. This discourse concludes by making recommendations on the viable options of market entry for Chery Cars Company.

 Introduction

This paper will examine the market entry options for the Chery Cars Company. In achieving this, the paper will examine the company overview, the key drives that necessitate globalization, the key patterns of international market entry, and compatibility of Chery’s strategies with its success as the leading Chinese automobile exporter.

Company Overview

Chery china Cars Company started on January 1997, but the actual construction started two months later with the first car coming out the production line in 1999. At around 2011, Chery had rolled out about three million cars out its production line. Presently, Chery produces about a million cars and engines (Chery Intrenational 2014). Moreover, it is capable of producing about half- million transmission systems. Chery’s main products cover minivans, passengers, and commercial vehicles. Presently, Chery produces over twenty models to the markets with several dozens soon rolled out. Chery has its products always following a trend, which is through a combination of research, preparation, and production. The system supports Chery’s production strategy and keeps up is strategy.

Taking the key objectives such as safety, energy saving, and eco friendliness, Chery has won some of the most prestigious awards and certifications. These awards include ISO9001 and German Rheinland certifications (Chery Intrenational 2014). Following the key policy of zero defects, Chery products are winning customers from all over the world. This broad worldwide acceptance has seen Chery sell over half-million units both locally and in foreign markets. Chery has been the largest Chinese car exporter for almost nine years consecutively. Having won the gold medal for the top company selling passengers cars for nearly eleven years, the company poses a huge chunk of the Chinese automobile market.

Chery embraces innovation as its chief development strategy, source of drive, and unrivalled growth. Since its inception, Chery has always invested in independent innovation through research, planning, design, and testing centers. Through this arrangement, Chery independently keeps innovative designs, further studies and research, and cooperates with research institutes and universities. Presently, Chery owns a brilliant team of scientist delivering key technologies and competitive innovations that drives their sells and customer satisfaction. With innovative technology and customer friendly design, Chery targets the huge global markets in addition to the domestic one (Chery Intrenational 2014). In pursuit of this strategy, Chery was the first Chinese company to export automobile technologies to foreign countries. Currently, the company exports its automobiles to nearly eighty countries with numerous factories built as well.

Chery’s Key Weaknesses and Strengths

Chery as an automobile company has several weaknesses and strengths. Being an international brand with relatively low priced products that perform well, Chery commands better image internationally (Faen & Kodono 2012, p.22). Furthermore, Chery enjoys competent staff, sufficient capital, and reasonable access to credit for better international expansion. However, there are also notable weaknesses. Firstly, Chery dedicates many funds to innovation, international expansion, rather than offering better after sale service, claiming more shares in the local market, and building the overall company image (Kotler, Keller & Lu 2009, p.56). Lastly, China, the country where Chery originates has very weak intellectual property laws.

 

 

Key Drives to Globalization

There are several reasons that motivate firms to invest internationally. The trend of international investment has been on the rise despite the instances of failures of these international ventures. This paper will examine the key motivations that drive firms to undertake international efforts. The first key feature that makes firms to venture internationally is the desire to increase its market share (David & Garry 2010 p.160). A saturated existing market can easily drive a firm to seek an international front in an attempt to create new sales. Such saturated markets offer limited chances of growth while the new international markets offer the new potentialities if well exploited. In this regard, china’s Chery automobile provides an excellent example. The domestic market, china, saturated temporarily, and though the US is competitive, it offers the new opportunity for growth compared to the domestic market. Chery is capable of offering its new and cheap cars in this competitive market and, eventually realize some new growth.

The second key factor is the economy of scale. Sometimes the firm’s production capability may exceed the consumption of the existing market. Thus to utilize its production capacity to the full, the firm will have to venture into new markets (Kotler, Keller & Lu 2009). Most Japanese companies realized a serious decline in their domestic markets in the early 1970s. These companies, ventured into the US markets to enable them utilize their production capabilities to the maximum (David & Garry 2010 p.162). With extensive innovation, domestic and international acceptance, Chery Company finds it efficient to make international ventures in order to utilize its production efforts to the maximum.

The third factor relates to the rate of return on the companies capital. Most companies choose to enter into new markets because there are greater potentials for profitability than in other existing markets. However, perfect and mature markets such as US, do not offer profits that are above normal and thus limited chances for potential growth. As firms expand to global level, the number of markets not occupied increases, and thus desire for greater profits equally increases (David & Garry 2010 p. 165). Chery, having realized this phenomenon, balances tactfully its ventures in mature markets in the developed world and the ones in the underdeveloped world.

The fourth factor is the strength of the existing intellectual property laws. Most firms venture abroad in order to protect their products from possible imitators and thus protect their properties in those foreign markets. Such markets have weak intellectual property protection laws. Examples of such markets include Russia and India (David & Garry 2010 p. 167). Such imitated materials may be of poor quality and therefore harm the firm’s reputation abroad.

The last factor that most firms consider is the favorability of the location. Firms majorly seek foreign locations to avoid non-tariff trade barriers. In some countries, there are extreme product testing that discourages firms from selling in such markets (De Wit & Ron 2010). Moreover, other countries impose limits on the quantity of imports in an attempt to protect their local firms from the stiff competition offered by the rival foreign firms.

Forms of Market Entry

Firms can use several options in globalizing their operations. These methods include exports, alliances, mergers and acquisitions, and Greenfield ventures.

Export

The most common and immediate way is for a firm to export goods to a foreign market. This form of transaction occurs when a firm or an individual in the foreign market receives the shipment of goods from the global firm and then sells them in their home market. Most firms choose this method since it requires minimum resources. However, most global firms do not rely on the request from the customers in their targeted markets, but establish their own representatives in those countries (David & Garry 2010 p. 170). This arrangement permits the exportation of huge quantities of merchandise without having to put pressure on the customer’s limited capital. In 2011, Chery sold nearly 160,000 units of automobiles to the international markets. In the same year, the total sales for both local and overseas reached almost 643,000 units (Chery Intrenational 2014). By the year 2012, the total exports from Chery had reached 700,000 units of automobiles.

Alliances

Other than exports, most firms also form alliances with other firms in the targeted markets. Such alliances distribute risks as well as control proportionately between the local firm and the globalizing firm. There are two forms of alliances (David & Garry 2010). The first form is the informal case where an international firm agrees with the local firm without properly signed documents. The agreements only entail the mutual benefits each firm is entitled to in the informal deal. Chery is slowly changing from the independent forms to cooperated forms of international ventures. Presently Chery cooperates with companies such as Jaguar, American Quantum, and Bosch among other notable world automobile layers. Additionally, Chery also cooperates with several suppliers in order to establish a reputable international system and industrial distribution chain. These suppliers increase the desired strengths, and competency of the existing brands (Chery Intrenational 2014). These suppliers include Bayer, Magna, and Valeo among others.

The second form of alliance is the licensing method. Under this form of agreement, the globalizing firm licenses or formally agrees to the local firm in the targeted market to manufacture or sell its products in the domestic market (David & Garry 2010 p.173). Under these circumstances, the globalizing firm has less or little control over the various aspects of manufacture or sale of its products by the license. This licensing method plays a key role in case of a technology under contention such the one between Sony and JVC. Though Sony did not license its technology, JVC moved aggressively to license its technology to several other firms across the world. Thus, JVC earned more revenue from the same technology than Sony.

The third aspect of alliances is the joint ventures. Under this arrangement, several firms agree to come together to form a new entity with clear objectives (David & Garry 2010 p. 173). This kind of agreement is formal and there are provisions that allow the dissatisfied party to leave the joint venture upon realization that their interest are no longer being served. Moreover, the value of equity from each constituent firm varies and so are expected returns. However, joint ventures can have an infinite lifespan. In March 2012, Chery entered a joint venture with Jaguar Land Rover (Chery International 2014). This kind of joint venture saw the onset of production of Jaguar and Land Rover cars in China and Chery cars in the US (BBC NEWS 2012). This arrangement benefited the two companies mutually.

Mergers and Acquisitions

This aspect of market entry involves the firms merging or completely acquiring others. Whereas mergers involves two or more firms in which only one firm survives, acquisitions involves complete absorption of another firm to be a subsidiary or a division of the acquiring firm (Just Auto  2013). These arrangements allow the new entity to enter the market directly and immediately or sometimes, in the case of acquisitions, alter the existing structures to suit the interest of the acquiring firm (David & Garry 2010 p.178). Around 2008, Chery merged with JAC in order to capture the dwindling Asian market. JAC has along history of manufacturing vans and cars while Chery had a short but a successful history of making excellent cars at very reasonable prices. In cases of acquisitions, in 2009, the Chinese government gave Chery the go ahead to buy Volvo from Ford due to its dismal performance (Motor Authority 2014).

Greenfield Venture

In this type of venture, a firm completely builds its own subsidiary. This type of venture is capital intensive and the most difficult of all. However, for transitional economies this is the best type of venture (David & Garry 2010 p.179). The entering firm may find government disposable assets with already established brand names. In addition to exporting cars to over eighty countries, Chery has established seven key factories in countries such as Indonesia, Egypt, and Iran among others.

Conclusions

Chery appears to applying a multidimensional approach to internationalization. This approach exemplifies itself through utilization of all the possible market entry strategies such as mergers, acquisitions, export, and alliances (Chery International.com 2014). Perhaps this is in line with the key objectives of securing market shares in the developing countries prior to developing or exhaustion of regional arrangements, cooperation, joint venture, and Greenfield establishments all with the sole objective of controlling markets both locally and abroad.

 

 

Recommendations for Chery Cars Market Entry Options

Chery has several strengths that are important for market entry through export mode such as huge domestic sales, cheap prices, and innovative technology. However, poor reputation since the cars does not meet international crash test standards, and poor knowledge of market trends limits the utilization of the export entry mode (Barbara, Li, Roxana, Lin, & Chen 2008 p.). The second entry mode involves the licensing. Since Chery originates from China, one of the countries with poor intellectual properties laws, no US companies will find Chery’s licenses attractive to buy and thus entering through this mode, which is equally restricted. The third aspect revolves around the foreign direct investments. Chery produces cheap cars largely because of the cheap labor on china (Charles & Gareth 2009). However, in most advanced economies such as the US, the wages in the automobile industry are so high. This scenario will increase the cost of production and the price of the cars exposing Chery to competition from the local firms. Such an entry mode is only suitable for developing countries.

The fourth aspect lies on the joint ventures. Apparently, the only viable joint venture is that involving a firm from a developed nation that will complement for Chery’s weaknesses.

 Bibliography

Barbara, H, Li, W, Roxana, S, Lin, X, & Chen, X 2008, Chery Automobile: a resource based view analysis of Chery’s possibility of entering US market. Roskilde University, Roskilde.

BBC NEWS, March 21, 2012, Jaguar Land rover agrees joint venture with Chery in China, viewed 9 February 2014, <http://www.bbc.co.uk/news/business-17456755>.

Charles, H & Gareth, J 2009, Strategic management theory: an integrated approach, Cengage Learning, New York.

Chery Intrenational, 2014, Overview: Development Strategy, viewed 9 February 2014, <http://www.cheryinternational.com/company/strategy.html>.

Chery international, 2014, Overview: Chery worldwide, international, viewed 9 February 2014, <http://www.cheryinternational.com/company/Chery-International.html>.

Chery International.com, 2014, Chery’s 10th anniversary, viewed 9 February 2014, <http://www.cheryinternational.com/tenyears/news.php?id=65>.

David, A & Garry, B 2010, International management: strategy and culture in the emerging world, Cengage Learning, New York.

De Wit, B & Ron, M 2010, Strategy: process, content, context: an international perspective, Cengage Learning, New York.

Faen, C, & Kodono, Y 2012, Competitive Strategy Analysis of the Chery Automobile Corporation Limited, OIU Journal of International Studies, Vol. 26, No. 1, 2012, viewed 9 February 2014 via theseus database.

Just Auto, 2013, Chery automobile company: mergers and acquisitions, partnerships and alliances and investment report, viewed 9 February 2014, <http://www.just-auto.com/market-research/chery-automobile-co-ltd-mergers-acquisitions-ma-partnerships-alliances-and-investment-report_id173711.aspx>.

Kotler, P, Keller, K & Lu, T 2009, Marketing management in China, China’s Peoples University Press, Beijing.

Motor Authority, 2014, Report: Chinese government gives Chery Auto approval for Volvo acquisition, viewed 9 February 2014, <http://www.motorauthority.com/news/1031183_report-chinese-government-gives-chery-auto-approval-for-volvo-acquisition>.

 

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