Analysis and Evaluation of the Development Strategy of China s Family Cars Industrial Independent Brands

Transcription

1 Analysis and Evaluation of the Development Strategy of China s Family Cars Industrial Independent Brands WANG Xinsheng 1, FAN Xiaohui 2 1. Department of Management, Shandong Jiaotong University, Jinan, P.R. China, School of Mathematics and Quantitative Economics, Dongbei University of Finance and Economics, Dalian, P.R.China, Hzq-1230@163.com Abstract: As the economy's rapid and stable development, China's domestic car industry has become a bright spot of the national industrial development. Meanwhile, How to achieve Self-development and self-creation of China's automobile independent brands has also become the focus of attention. China s own sedan brand begins to take shape, which is rapidly developing and expanding by double speed, and corresponding development strategies and industrial objectives have also been formulated for all brands. According to the development trend of the world's automobile industry and development status of China's automobile, the development strategy of China's automobile independent brands is analyzed and evaluated in this paper, so as to be able to find a really suitable road for the development of China's independent brand sedan. Keywords: family car, independent brand, development strategy, analysis and evaluation 1 Introduction With the characteristics of high scientific and technological content, high added value, intensive capital, and strong correlation, so the automobile industry can rapidly get regional development and other industries moving, and also promote the economy obviously. Data shows that if the car industry gain 1 yuan increment in value, that will give the upstream and downstream industries respectively by 0.65 yuan and 2.32 yuan appreciation; If the automotive industry provides one job, will give the upstream and downstream industries to create employment opportunities for people. After more than 50 years development, Chinese automobile manufacturers have become one of the pillar industries in national economy. With the rapid development of the economy and the increase of per capita incomes, domestic car industry has maintained rapid growth momentum. Especially since 2000, it has maintained double-digit growth. In the situation of rapid development of China's automobile industry, the independent brand cars gradually ascend to the history stage. In the past 10-old years, the independent brands have gone through stages of from nothing to something, from the weak to the strong phase. Along with increase of residents' income, car has entered the homes of the ordinary people. And family cars have become a reality of life issue. How to occupy more market share among the numerous joint-venture brands in family car market, and obtain the self-identity of consumers, for China's own brands is a noteworthy topic. Whether development strategies of the independent brands can adapt to this new change in consumption demand, survive and develop in the international competition, this has become the biggest concern. 2. Development of China Self-owned Brand Automobile Historical data show that in 2008 China produced million vehicles, 7.4% higher than that of the same period last year, million more than that of the United States, ranking second in the world, following Japan whose output of cars is the world's highest peak three years in row. However, the nationwide car sales in the first ten months had already exceeded 10 million, broken the historical data once again. And these data show that China has the potential to become biggest market in the world. It is estimated that China will become the largest car manufacturer and a major exporters of cars. In this environment, independent brands of China will grow up at a very rapid rate. 49

2 Table 1 shows auto sales in China in recent years. The following table 2 is SWOT analysis of independent brands in china. years Table 1 shows auto sales in China in recent years all vehicles sales growth rate Car sales (ten thousands) (ten thousands) growth rate % % % % % % % % % % % % % % % % % % internal environment Table 2 SWOT analysis of independent brands in china potential internal advantages (S) potential external disadvantages (W) external environment 1.good market prospects 2.strong overall abilities in manufacturing industry 3.cost advantages potentialexternal opportunities(o) 1.support by government 2.new internationa specialization 3.seek new developing opportun-ities 1.backward in technique 2.brands gap 3.loss of talents potential external challenges(t) 1. intense competition 2.boycott from developed country 3. Type of Development Models in the Global Auto Industry The world auto industry's overall development model can be summarized into the following three categories: net imports of consumer-oriented model of development, industries dependent development model,and industries model-led development model. 3.1 Net imports of consumer-oriented model of development Net imports of consumer-oriented model of development mainly refers to that some small countries can only meet the domestic market demand by importing cars from other auto-producing countries for technical or other conditions limitation. 3.2 Industries dependent development model Industries dependent development model is one country must bring in some advanced technology, equipment, management, or funds from big countries to develop its own auto industry, because of relatively backward auto industries. Generally speaking, independent companies usually runs in joint 50

3 operations or leaded by foreign investment. Then major policy decisions are taken by foreign investment or joint decision-making. And then risks and profits are shared. At present, China is still in such a development phase. 3.3 Industries-led development model Industries-led development model means self-development, self-construction, self-production and self-marketing. Although there are foreign equity participation, but does not affect the dominant position of independent car companies. So it also belongs to an industry-led model. 4. Chinese Own-brand Cars Development Patterns 4. 1 Development patterns of independent brand car enterprises Independent brands road to the crossroads now. In the heart of hundreds of thousands of people engaging in the Chinese automobile industry, self development abilities and the establishment of independent brands has been their dreams for fifty years. Recently, some in industry summarized that during the development of car industry in China, there have been three brand cultivation modes, namely three group mode, "Chery HaFei" model and "Shanghai GM" modes. Chery, Geely, BYD, and Hafei are nationally recognized brands at present. In the automobile industry chain, from design, development, intellectual property rights to the final independent brands generated, these are all completed on their own strength. These have been universally acknowledged independent brand enterprises. At the same time, it also express Chinese people has great expectations for future of independent brand enterprises. 4.2 Different growth patterns of the three domestic independent brand car firms FAW group was the first to graft the model of Majesta to the independent brand Hongqi car which has had 40 years history. In April 2007, Shanghai automotive group announced the newly established subsidiary company running for independent brands---(saic MOTOR). On June 30, 2007, the first independent brand passenger cars of Dongfeng automobile company, "Fengshen S30" officially released. This means that the domestic three large auto groups, FAW, SAIC and Dongfeng all have their own independent brand cars. 5. Comparison and Evaluation of Development Strategies of Major Domestic Independent Brand Enterprises 5.1 Similarity analyze of development strategies of the independent brand enterprises After 10 years of development, China's independent brand automobile has achieved great progress. Some new independent brands has come into being, represented by Chery, Geely and BYD, including three large car companies, FAW", "DongFeng", "Shanghai GM". Relying on government supports and the correct development strategies, these new brands are growing up to the mainstream brands in the market, which are recognized by consumers. The injection of these new elements into the market, start tidal waves of reform and development. Naturally their development also begins affect development strategies of Chinese international brands. Owing to the history and growth of environmental reasons, China's own-brand automobile industries have many similar experiences in the process of growing up. (1) Price war strategy: under the influence of accession to the WTO, from January 12, 2002, the car enterprises led by TianQi group initiate a new movement to reduce the price. Until now, the price still plays a vital role in dominating the car market in china. Price war strategy adopted by independent brands was also decided by domestic actual phase of development. But when the car consumers value the car brands and technologies, the price advantages of independent brands are no longer competitive advantages in the market. (2) Iinternationalization strategy: in recent years, there's been a sensible rise in light vehicle exports in 51

4 China, and the impetus of growth has become faster and faster, mainly low-priced products of Pickups, cars and suv. And the independent brands enterprises have great contribution to the increase in exports. Chinese enterprises promote the development of domestic market, but also accelerate the progress of internationalization. Chinese cars have some advantages compared with the same grade products of foreign enterprises. And this also explains the cause of rapid increase in car exports. The following graphic shows exports of cars from 2007 to Figure 1 monthly exports of cars and the growth chart from 2007 to 2008 However, it can be seen that a large proportion of exports are low-grade products at present. Not high profits are made by selling labor and raw materials at low price. For the long-term survival and development, it is necessary for independent brands to take the initiative to make goods and service international, and development growth point of sales and profits. Only through international production, can auto companies have capabilities of cost control and innovation, and strengthen international competitiveness continuously. (3) Brand and high-end strategy: today, many industries are talking about brands, car companies are no exception. In relation to international large automobile group, brands are short board for Chinese auto companies. Though the low price brings new markets for independent brands, at the same time exerts an influence on brands. So low price and low quality also become bywords for brands, "low price, low quality" almost become the pronoun of independent brands. It is a gratification to know that China's own brand corporations begin to realize the importance of brands, and keep creating their new enterprise image. As Chery launched its own high-end car brands - SEOLIN, BYD S8 being on the market, GLEAGLE of Geely is called Small Rolls-Royce because of the similarity of appearance and demeanor. And the old brand HongQi launched the first independent high-end cars in China - red flag flourishing. It will be a long time to achieve the transformation from "brand power" to "brand power", and it still needs Chinese automobile and consumers to make joint efforts. 5.2 Analysis and evaluation of family cars development strategy in domestic three major independent brands For the last two years, the rise of independent brands has began to capture people s attention. Geely Ziyoujian becomes pillars of the profitability of listed companies, Chery A5 developing into the biggest export company, and BYD working at products with great care has teared a tear in middle end cars. Now Chery, Geely and BYD have become pioneers of independent brands in China, so their development strategy and operating have exercised great influences on the young Chinese market The two-lane development strategy of Chery: Chery has created a new miracle of Chinese and international automotive industries in the last ten years. So far, Chery has formed the common development pattern of four major brands, the Chery car brand, the middle to high end brand of Gary Neville and Lin, and mini-cars. Chery's four brand has covered three fields from low to high-end brands, and the four brands running neck and neck will inevitably 52

5 promote the development of Chery industry International development strategy of Geely: "Making good cars affording by the common people," is consistent idea which has already supported Chery to make cars for ten years. On 2009 July 28, Geely officially released the GLEAGLE brand. Then the enterprises has become an auto group with three accessorial brands, GLEAGLE, EMGRAND, and SHANGHAI ENGLON. Qualitative change of Greely will open a new dimension of Chinese independent brands. But the idea has converted from "making good cars affording by the common people", into the safest, the most environmental and the most energy-efficient cars", in order to let the Greely cars capture the word market. As one representative of private enterprise, Greely has always treated the international market as a very important link of marketing campaigns. The Greely chairman also claims 2/3 of production of Greely cars will be sold to overseas markets, and this also shows determination and attitudes of international strategy of Greely The long-term development strategy of BYD: currently the BYD has become the third well-known independent brand, following Chery and Greely. Simple as the model and structure of the BYD cars is, only relying on F3 and F6, two models of cars, the BYD company has fought a way out in family car market in China. After success of the existing models, they launched F0 series mini cars and hard roof roadster F8 which is the first independent brand in china. Plusing launch of SUV and MPV models in future, the corporation has shown a clear line of product to consumers. It is likely that new energy EMU will become one of the important developing direction of the car industry. And the BYD mastering the unique battery technology will become the pilot of new energy vehicles in China, even the most shining star in auto field of Chinese independent brands in future 6. Conclusion In recent years, the rapid development of Chinese independent brands brought a great surprise and hope for Chinese people. Except the traditional three big domestic automobile groups, The emergence and growth of entirely independent brands,such as Chery, Geely and BYD let independent brand s competitive situation rise to a new level,but facing aggressive competitive posture from powerful multinational corporations, The pressure of China's own car brands to enhance the scale of acceleration is increasing. In the cases of lacking of core technology and overall strength, Chinese independent brands cars need to develop an effective development strategy, it is very important to understand and use the favorable conditions of independent development sedan, to choice the right product strategy, to pay attention to use advanced technology and product development methods and to attach great importance to product quality. Author in brief: WANG Xinsheng (1967-), male, associate professor, Department of Management, Shandong Jiaotong University, Jinan, China, Contact information: hzq-1230@163.com, cell phone: Acknowledgements: The paper is supported by one of Shandong province s soft science fund projects (2009RKB226) References [1]. Gao Xudong, Gao Weiqing. Strategies for Local Chinese Firms to Become Original Brand Car Makers[J]. Science Technology and Industrial, 2004,(10): 1~6(in Chinese). [2]. Cusumano, M. A. The Japanese Automobile Industry: Technology and Management at Nissan and 53

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