1. Attaining Sustainable
Competitive Advantage
Adrian Carrión — Guarang Kalsaria — Lia Leibgold — Diego Ocampo — Patrice Senior

2. • Chinese Auto Market
• Chinese Auto Industry
• Company Overview
• Recommendations
• Questions
Agenda

3. ◦ Growth has shifted from heavy vehicles to passenger vehicles
◦ which accounted for more than 65% of production in 2008
◦ Some contributing factors include:
◦ Cheap and ample manufacturing capacity
◦ Falling car prices - down by nearly 6% from 2006
◦ Urban residents per capita income increased by 12.2% to $1,942/yr
◦ Infrastructure
◦ China doubled its network of high-speed roads between 2006-2008 to 37,282
miles (United States = 46,603 miles).
◦ 2008 Car ownership rates = High Demand in China
◦ Global average - 120 per 1000 people
◦ China - 22 cars per 1000 people
◦ US - 600 per 1000 people
China has surpassed Korea,
France, Germany, and the
United States, trailing only
Japan in terms of [2008]
production volume
Chinese
Auto Market

4. — Largely dominated by international companies, constrained
only by China’s 50/50 rule (FDI-JV).
◦ Reverse Engineering
◦ Intellectual Property
Table
1.
Motor
V ehicle
Sales
i n
China
and
Market
Share
— @ 117 Auto Mfrs of
Selected
Manufacturers,
◦ Domestic 2/3 state owned 2007-­‐2008
000s % 000s %
GM 1,032 11.7% 1,074 11.3%
— State Council, 3/09: VW 918 10.4% 964 10.1%
Automotive Readjustment TOYOTA 460 5.2% 538 5.6%
and Revitalization Plan HONDA 422 4.8% 470 4.9%
◦ Mergers Encouraged HYUNDAI-­‐KIA 355 4.0% 437 4.6%
CHERY 387 4.4% 356 3.7%
— Acquisition NISSAN 272 3.1% 346 3.6%
◦ Rover-SAIC FAW 294 3.3% 302 3.2%
◦ Volvo-Geely GEELY 220 2.5% 237 2.5%
◦ Hummer-Sichuan Tengzhong MAZDA 222 2.5% 209 2.2%
◦ Various parts mfrs TOTAL 8,819 100% 9,541 100%
Source:
Ward’s
Auto
InfoBank.
Chinese Auto Industry

5. — China’s leading independent auto manufacturer
◦ Founded in 1997
◦ Started as an engine manufacturer
◦ Chery’s annual production capacity is expected to rise from its current level
of 650k to more than 1 million vehicles by early 2012
— Models include: A3, A1, A5, V5, Tiggo, Cowin, QQ3, QQ6, QQme.
◦ First entry was a chassis licensed from VW (Seat Toledo)
◦ Today they manufacture over 10 original models
— 09 vehicle sales reached 500k and 2010 projected sales are 900k
◦ It took 7 years to produce 1 million vehicles, but only took 2 ½ years to
double that output
— Has operations in Asia, the Middle East, Africa, North America,
South America, and Australia
— Accounts for 50% of China’s car exports
Company Overview

6. — “We must learn lessons from international automakers and make
high-quality cars while providing good service.
- Yin Tongyao, Chairman
— Poor Quality
◦ Issues of poor quality inhibit exports to developed countries (i.e. U.S.,
Europe)
◦ Chery/Chrysler
◦ http://www.youtube.com/watch?v=5kQGAK550LE
— Recent Improvements
◦ The Chery A3 recently received a 5-star crash rating from the CNCAP
◦ Chery QQ3 and QQ6 received top honors from J.D. Power Asia-Pacific
◦ http://www.youtube.com/watch?v=FnXT1agrus4
— Recommendations Moving Forward
◦ Ongoing development and implementation of a standard quality
management system is essential
◦ Differentiation à Quality and Safety
Quality Control

7. — “Green” Technology
◦ Chinese government putting pressure on
companies to develop “green” technology
◦ Government subsidies to spur demand
— Cost Leadership
◦ Chery excels at manufacturing small, gas-
efficient vehicles at low cost
◦ Cost leadership strategy reduces:
– Threat of new entrants
– Threat of substitutes
– Threat of rivalry
Innovation: New Energy Technology

8. — Current Expansion
◦ 1st Chinese Auto Manufacturer to open a
foreign facility, $370M plan in Iran, 2003.
- Russia, 2005
- Malaysia, 2006
◦ Political Ties
- Long term business relationships with Syria,
Iran, and Cuba.
International Expansion

9. — Opportunity for Further Expansion
◦ Emerging Markets (Latin America and Middle East)
– Example: Brazil
— Recommendation
◦ Build brand awareness and reputation through
emerging markets.
◦ Continue to produce economy vehicles
International Expansion

10. — If Chery can maintain its financial resources,
flexibility and its financial control, it can gain
competitive advantage and possibly sustained
competitive advantage
◦ Obtain cheaper cost of funds than its competitors.
◦ Maintain relationships with local government
◦ Advantage over foreign firms from obtaining local
capital
Financial Capital Resources

11. Questions?