1 Enseignants, Chercheurs, Experts sur l Asie et le Pacifique Scholars, Professors and Experts on Asia and the Pacific GEELY : UNE TRAJECTOIRE DE RATTRAPAGE ET D INTERNATIONALISATION DANS L INDUSTRIE AUTOMOBILE CHINOISE GEELY: A TRAJECTORY OF CATCHING UP AND MULTINATIONAL GROWTH Giovanni Balcet, Xavier Richet,William- Hua Wang University of Torino / CNRS / Euromed Business School Thématique B : Nouveaux paradigmes de la mondialisation Theme B: New Globalisation paradigms Atelier B 09 : Globalisation des modèles productifs et innovation dans les pays émergents Workshop B 09: The globalization of production models and innovation in emerging economies 4 ème Congrès du Réseau Asie & Pacifique 4 th Congress of the Asia & Pacific Network sept. 2011, Paris, France École nationale supérieure d'architecture de Paris-Belleville Centre de conférences du Ministère des Affaires étrangères et européennes Protection des documents / Document use rights 2011 Giovanni Balcet, Xavier Richet,William- Hua Wang Les utilisateurs du site s'engagent à respecter les règles de propriété intellectuelle des divers contenus proposés sur le site (loi n du 1er juillet 1992, JO du 3 juillet). En particulier, tous les textes, sons, cartes ou images du 4 ème Congrès, sont soumis aux lois du droit d auteur. Leur utilisation, autorisée pour un usage non commercial, requiert cependant la mention des sources complètes et celle des nom et prénom de l'auteur. The users of the website are allowed to download and copy the materials of textual and multimedia information (sound, image, text, etc.) in the Web site, in particular documents of the 4 th Congress, for their own personal, non-commercial use, or for classroom use, subject to the condition that any use should be accompanied by an acknowledgement of the source, citing the uniform resource locator (URL) of the page, name & first name of the authors (Title of the material, author, URL). Responsabilité des auteurs / Responsability of the authors Les idées et opinions exprimées dans les documents engagent la seule responsabilité de leurs auteurs. Any opinions expressed are those of the authors and do.not involve the responsibility of the Congress' Organization Committee.
2 Geely: a trajectory of catching up and multinational growth Giovanni Balcet, Xavier Richet,William- Hua Wang
3 Agenda Introduction Framework China automotive industry outlook Geely s catching up Geely s multinational growth Conclusion and perspective
4 Chinese Companies going Global As other Chinese State and non State Companies, Geely has decided to «go global» in two different ways: Access to new markets or to production factors (developing economies), to technologies (developed economies). In the first case by entering carefully in developing economies markets ; in the other in acquiring well established luxury brand Rapatriate the product or/and the technology at home in order to enter on product segments at the higher end where profit margins are more substantials and market growth more predictable but without necessary exploiting the other segments, the know how and the technology developed by Volvo on other markets Domestic market matters.
5 Role of the State and Risks Associated to Going Global - The case illustrates two important points : The ambiguous relationships between a «private» company and the State see the contibution of two provincial goverments in supporting the deal with the acquisition of Volvo) The weakness (and high risk) of the chinese financial system with the high burden on the company to be able to generate the cash needed to finance its domestic investments How to continue fo finance the development of this higher segment if the growth of low segments declines.
6 Introduction Research objective: analyse the orignal double trajectory of technological catching up and multinational growth Analyse this phenomenon by using the «asset seeking» analytical frame
7 A theoretical framework International Business approaches (Dunnining, Cantwell, Narula ), Main drivers for acquisitions abroad: Resource-seeking (access to natural resource and commodities) Market-seeking (access to foreign markets) Asset-seeking (access to knowledge, technology, organization, brands) Specific theories of Emerging Country multinationals (Matthews, Moon& Roehl, Luo&Tung): Asset-seeking motivation and comparative disadvantage as key explanations Acceleration of multinationla growth
8 China automotive industry outlook 1st autmobile market since M vehicles (all types) 9.8M passenger cars Dual structure, low speed vehicles not included in the statistic Source: Roland Berger, 2010.
9 Geely s positionning-1 9th carmaker in China Market share: 5.25% For Compact car: 24% Source: 9
10 BYD BAIC (Beijing Auto) - FOTON Chery Auto Brilliance SAIC (Shanghai Auto) Rover GAIG (Guangzhou auto) Chang an Great Wall Geely Volvo Daimler Hyundai Socma (Argentine) BMW General Motors Volkswagen Fiat / Iveco Salinas Group (Mexico) Toyota Isuzu Nissan Honda PSA Mazda Ford Suzuki Geely s positionning-2 Not the JV strategy FAW Dongfeng
11 Geely s Development
12 Geely in thousand units of sales 8 assembling plants 4 engine plants 2 transmission plants 5 component plants 4 universities 1 research institute
13 Geely in 2015: 2 million sales 5 technology platform, 15 product platform, 40 models
14 Geely s technological catching up Step 1: 1998 Reverse engineering Step 2: 2002 Product architecture innovation (Wang 2008) Step 3: 2006 Through acquisition foreign companies
15 Geely s multinational growth Step 1: 2002, Exportation 2003, 500; 2004, 5K; 2007, 22K; 2009, 19K, 2010, 20K 29 developing countries Step 2: 2009, Transplant for assembling Ukrane, Russia, Indonesia (SKD, CKD) Step 3: 2006, Acquistion of foreign companies
16 Asset seeking acquisions of foreign companies 2006, Manganese Bronze Holding, London Taxi, Share of MBH 19,97%, biggest shareholder Establish JV, with 51% share (Geely 0175HK, 51%, Huapu 1%, MBH 48%). 2009, Drive-Train Systems International (DSI), Australia, Automatic transmission system, leadership of AT system in China The world 2 nd largest AT producer Full acquisition 2010: Volvo (Sweden)
17 Geely s acquisiton of Volvo -1 Drivers: Long term strategic vision since 2002 Active search for asset seeking acquisition (technology, brand) for continuous growth New opportunities offered by financial crisis Process of negotiation: 2002 start the search process 2005 mobolize international partner: 200 lawers, consultants, banks, ect close the deal
18 Geely s acquisiton of Volvo -2 Financial structure Total 00% (1.8 B$) Geely holding group: ~40% Local Chinese governments: 25% International financial market: ~20% China construction bank: 11% Source: interview in Geely
19 Geely s acquisiton of Volvo -3 Governance At the group level: Li Shufu as the president Boad of 8 person, 2 from China (including Li) Currently: Volvo keeps autonomy At the group level: Volvo in China: Create new Volvo organisation lead by Freeman Shen, Senior VP and Chinaman of Volvo cars China operation Between Volvo and Geely: build the mechanism of exchange: Volvo-Geely dialog and cooperation committe, top manager, 2 times/year Sales Target in 2015: 200 thousand units or 20% of the premium car segment Source: interview in Geely, interview with Li Shufu.
20 Geely s acquisiton of Volvo -4 Announced Operation: Administrative center: Shanghai Production Chengdu, Daqing R&D Shanghai Corporate university? On the way Production Production HQ in China R&D
21 Geely s acquisiton of Volvo -5 Supply chain Existing supply chain: Ford-Chang an JV project of Volvo. To which extent the existing suppliers of Ford-Volvo-Chang an will be integrated in the new supply chain? Construction of new supply chain system: «in China, the supply chain will be the biggest challenge» - Paul Gustavsson, Senior Vice President, President s Business Office, Volvo Group Source: Phone interview, 7 june, 2011, Paris. Local content: 40% in 2011, increase to 70-80% beyond 2015.
22 Geely s acquisiton of Volvo -6 R&D Step 1: car modification for Chinese market in Gotebörg Step II: creation of Chinese R&D center for the local adaptation Analysis: Always concentrate the R&D in Gotebörg There is no globalised R&D in Volvo. No platform convergence between Volvo and Geely announced till now. Source: Phone interview, 7 june, 2011, Paris.
23 Conclusion Long term vision of growth strategy via asset seeking foreign acquistions (instead of JV) Dualistic internationalisation From one hand: Market seeking (Exportation, Transplant in foreign developing markets) From the other hand: Asset seeking (acquisition of Volvo for China market) Role of Chinese governments (central and local gov). Local gov substitute to risk adverse financial institutions
24 Perspective Issue of integration of two very different corporations (culture, product range, branding image, technology) High competition on Chinese luxury segment Geely s financing capacity to support the continuous grwoth of Volvo
25 Q & A