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ACADEMY OF ASIAN BUSINESS REVIEW ISSN: 2384-3454

Geely Automobile Holdings:

This case study aims to explore the meteoric rise of Geely Automobile

Holdings, a privately-owned automotive manufacturing company and the largest

privately held company in China when measured by the volume of sales.

This analysis will be undertaken in three successive parts. To begin, the period

from inception to date will be summarised and characterised into the three key

milestones, seen as definitive to Geely’s current standing. Second, the

underpinnings of Geely are investigated. This part of the analysis will look both

internally and contextually at factors that are both distinctive to the company and

the broader cultural background. Finally, Geely’s present positioning and outlook

will be analysed from both a micro and a macroeconomic perspective. This will

be complemented by a discussion about the challenges Geely faces today and

in both the short and long-term, as well as potential solutions. The conclusion will

aim to consolidate the knowledge obtained from dissecting Geely’s success

story.

Geely’s commitment to research and development has contributed to the

narrowing of the technological gap it has experienced with Western counterparts.

They also overcame Chinese brand prejudice in garnering their large global

consumer base. Understanding the underpinnings of how Geely has navigated

through and surmounted these challenges can prove a valuable guide for

emerging Asian manufacturing enterprises with both technological and brand

image issues but a desire to globalise.

Keywords: Asian, Automotive, Brand Strategy, Corporate Culture, Engineering,

and Manufacturing

106 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

Since 2009, China has claimed and maintained the title of the largest

automobile producer in the world, surpassing the US, Japan and Germany, once

behemoth players of the industry (Statista, 2018). When considering the state of the

Chinese automotive industry around the early 1990s where foreign brands

dominated both global and domestic markets, it was unimaginable to enter this

market without foreign resources or government ownership. Geely, however, dared

to enter this unwelcoming terrain where large western companies had been

operating in for decades.

Geely, which translates to “lucky”, is a multinational car manufacturing company

based in Hangzhou China. In fact, it is the first Chinese privately-held automotive

company. After receiving governmental approval for automotive production, Geely

went from strength to strength as is highlighted by its continuously increasing

revenues and profits (See Figures 1 and 2). Its foothold in the automotive industry

was reinforced by horizontally and vertically diversifying its processes and

offerings through its numerous acquisitions (See Figure 3). The most notable of

which being whole ownership of Swedish giant Volvo, and more recently a 9.7%

stake in Daimler Benz. Geely now boasts 7 brands within its family and exports its

cars to 27 countries located in Africa, Asia, Australia, South / Middle America and

Europe.

Figure 1

Revenues of Geely in million RMB from 2006 to 2017

Source: Geely Annual Reports 2006-2017

Geely Automobile Holdings 107

Figure 2

Net profits of Geely in million RMB from 2006 to 2017

Source: Geely Annual Reports 2006-2017

Figure 3

Geely Company Structure

Source: Geely Annual Reports

108 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

This case seeks to elucidate the underpinnings of Geely’s rags to riches like

trajectory and identify the lessons to be learnt from its success. Understanding how

Geely has navigated through and surmounted the challenges it has faced can prove

a valuable guide for emerging Asian manufacturing enterprises with both

technological and brand image issues but a desire to globalise. Internal culture for

fostering innovation and talent, its customer-centric strategy and its flexibility in

adapting to a constantly changing market are but some of the drivers of its success.

As an initial phase of analysis, the period from inception to date will be

summarised and characterised into the three key milestones, seen as definitive to

Geely’s current standing. This will be followed by a depiction of both internal and

contextual factors that are both distinctive to the company and the broader cultural

background. The analysis will culminate with Geely’s present positioning and its

outlook will be analysed from both a micro and a macroeconomic perspective. This

will be complemented by a discussion about the challenges Geely faces today and

in both the short and long-term, as well as potential solutions. The conclusion will

aim to consolidate the knowledge obtained from dissecting Geely’s success story.

The analysis overarchingly attempts to provide insight into the capabilities of an

Asian brand in staking a claim in its respective global industry market. Initially, we

will look at the context in which Geely operates.

Global and Domestic Industry Backdrop

Geely’s success has not occurred in a vacuum and as such, it is important to

depict the state of affairs of the macro environment in terms of the broader global

automotive industry in which Geely competes. The development of the global and

domestic passenger car market is of high interest when analysing Geely itself.

China underwent a number of reforms from early 1980 as it implemented its

open-door policy. This change in approach was typified by China joining the WTO

in 2001. This policy relaxation coupled with expansionary fiscal policy promoted

the impressive growth which resulted in China becoming the leading global player

in terms of production and sales volume (Marukawa, 2011). Throughout the period

2009 – 2016, the Chinese market accounted for between 22 % and 30 % of the

global market (See Figure 5). Its significance within the last 10 years is also

visible in the broader global market. It grew from ~52 million produced units

(2008) to ~73 million (2017) within the last 10 years, the only exception to this

relatively constant growth rule is synchronised with the financial crisis (See Figure

4). Since, Geely has implemented a global strategy and could benefit from this

positive trend found in the automotive industry. Before looking ahead, however,

Geely Automobile Holdings 109

Geely’s historic journey to become the powerhouse it is today is outlined in the

next section.

Figure 4

Production of passenger cars worldwide from 1998 to 2017 (in 1,000 units)

Source: OICA in Statista

Figure 5

China's share in global vehicle production from 2008 to 2016

Source: OICA in Statista

110 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

Trajectory to Victory

This section seeks to depict three historical occurrences which were focal to

Geely’s development into the successful auto giant it is today. Figure 6 further

outlines these milestones with additional events which contributed or are part of

these achievements.

Figure 6

Timeline of Geely’s Milestones

The Tipping Point

The Chinese automotive industry in the 1990s was largely dominated by joint

ventures (JV) between foreign car makers and domestic, mainly state-owned,

companies. The reason for this was that the Chinese productive capacity was

relatively underdeveloped and lagging behind its Western counterparts (Marukawa,

2011). The gap has been widely attributed to the ‘closed door policy’ run for

decades by previous Premiers (Yao and Wang, 2014). The product of these

partnerships, however, did not cater to the masses given the hefty price tags

rendered much of the stock unaffordable to the average Chinese consumer (Yao

and Wang, 2014). Geely entered the market as a privately-owned automobile

company with the aim of solving this problem - they would make a “people’s car”.

In 1998, despite their honourable vision, Geely’s first production attempt was

deemed to be of unsatisfactory quality and was subsequently halted. It has been

suggested that the structure was broken from the top down - the lack of experience

within the automotive industry amongst the board members. To remedy this

deficiency in skill and technology, Geely focused on three main areas. The first

was the copying of existing popular models. Geely’s Mr. Li, the founder and now

Geely Automobile Holdings 111

chairman, made no effort to hide their reverse-engineering approach to automobile

production, with Geely’s first product notoriously based on the “Xiali”. The second

was the employment of well-qualified engineers. In an effort to break into the

market, Geely hired the former president of Daewoo Motor Research lab and a

former Daimler Chrysler engineering executive (Fairclough, 2007). The third and

final focus was the outsourcing of key components (Marukawa, 2011). Geely

bought various parts from German engineering companies such as fuel-injection

systems and interior elements to be used in domestic brands (Fairclough, 2006).

Achieving these three targets was fundamental to the accomplishment of the

initial phase of Li’s strategy. His vision was simple: to swiftly capture the markets

of China's west and the rural areas before considering the urban demographic. This

two-step process was of particular importance as targeting the urban areas relied on

successfully gaining approval from the masses and the rural areas offered that

opportunity. These regions had potential; their economies were moving toward

enterprise and Li took advantage of this growth (SinoCast China Transportation

Watch, 2005).

A Change in Direction

A company’s profit-making ability is dependent on its positioning within an

industry. The source of such abnormal profitability in the long-run is a sustainable

competitive advantage. The two main types of competitive advantage are: low-cost

and differentiation (Porter, 1985). The early direction of Geely’s strategy was

largely focused on penetrating its various markets through competing on price.

Though, the ultimate global vision Li Shufu had for Geely remained on the cards.

To make this dream a reality, however, several obstacles which mired the way had

to be surmounted. Particularly, their global competitiveness was hindered by

underdeveloped technology which prevented it from reaching quality and

reliability standards expected from Western markets (Fairclough, 2006) and more

broadly, brand perception. The latter issue principally alludes to the negative

country of origin effect associated with Chinese manufactured products which

supposedly convey poor-quality perceptions. As the chief creative officer of Nissan

articulated with regards to influential factors of passenger car purchases: “brand

and other value-added factors weigh heavily in a buyer's purchasing decision"

(Blanchard, 2005). Thus, despite advances in technological capabilities through

mostly organic evolution over the period of their lifetime, one thing was clear:

Geely was in serious need of branding (Tan, 2006).

In 2007, Li explicitly articulated his desire to change Geely’s strategy from

competing on a price basis to fostering a differentiation competitive advantage.

112 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

Being the ninth-largest automobile manufacturer at the time (Marukawa, 2011)

provided Geely with a decent grounding to undertake this change in direction. The

increasingly favoured means for Chinese firms to build competitive advantage was

outward foreign direct investment, particularly in the form of mergers and

acquisitions (Chaisse and Gugler, 2011). Geely undertook an aggressive

international acquisition plan from 2006 which culminated in 2010 with the

purchase of Volvo (Chen et al., 2015). These above-mentioned purchases

undoubtedly served Geely from a technological and general product quality

standpoint. However, a big brand like Volvo, particularly, served a larger purpose.

Geely, a comparatively small-time player in the market growth stage of its life

cycle, was able to purchase the Swedish giant, seemingly at market maturity, for a

fraction of the cost its actual seller, Ford, had payed less than a decade prior ($1.5

billion and $6.5 billion respectively) given the backdrop of an unstable western

economy following the financial crisis (Gifford et al., 2015). The renowned

Swedish brand was anticipated to prove a strategic asset, through positive brand

association which would ultimately improve brand perception. This acquisition

substantiated the newfound “quality first” direction Geely had embarked upon.

How better to convey quality than to buy the “safest car manufacturer in the world”

(Yao and Wang, 2014).

This was particularly important to overcome the negative quality perception and

effective stigma associated with Chinese manufactured products.

In spite of the doubt this uncommon form of merger garnered, Volvo returned to

profitability under the Geely umbrella and Geely in return benefited from the

positive brand association and the “full and mature system of advanced product

development processes and global customer management”, which are prerequisites

for their goal of internationalisation (Yao and Wang, 2014).

Additionally, in tandem with this ‘acquisition spree’, Geely embarked on

developing a “New Geely through Brand Building” starting in 2008. The idea was

to promote a multi-brand strategy “aiming to improve the Group’s overall brand

images and to enable tailored-made services and brand positioning for different

product lines within the Group.” (Geely Automobile Holdings Limited, 2009).

Geely, therefore, underwent concurrent and complementing plans within these five

years to ensure its shift from cost leadership to differentiation was met with success.

Beating the Costs – “One Geely” Strategy

The differentiated strategy undertaken by Geely was effective in its idea of

targeting the various consumer groups within the industry. However, problems

related to cost and coherence of branding arose. Firstly, the company needed to

Geely Automobile Holdings 113

manage over 900 dealers to distribute the 3-brand strategy and this number

increased until peaking in 2013 with a total of 1068 dealers (Geely Auto Group,

2014). Moreover, the company hardly achieved the economy of scales in terms of

its marketing spend. Their messaging was not effectively communicated to the

consumers and were instead confused with the position of each brand and brand

recall for certain models was very low (Yan, 2014).

In response, Geely announced its new brand strategy to consolidate the 3 brands,

Emgrand, Gleagle and Englon under one badge within the Geely brand. Geely’s

expectations for the consolidation were to optimise its dealer and distribution

network, improve marketing activities and communication to the consumers, and

streamline the products portfolio to avoid several products in the same customer

segment (Yan, 2014).

Under this “One Geely” strategy, the company could centralise its resources and

consequently obtain and leverage economies of scale.

Following the shift to this branding strategy, the number of dealers in China

decreased from more than 1000 dealers to just over 800 dealers in 2014, and under

700 dealers by the end of 2015. The strategy proved successful as following the

slump in 2014, Geely’s net profit doubled twice from 2015 to 2016 and 2016 to

2017 (Statista, 2018; see figure 1 and 2). Shifting the focus away from Geely’s

business strategies, we will delve into those not so obvious factors which

contributed to the aforementioned cornerstones, namely the company’s underlying

culture and government support.

Secret to Success

This section aims to pinpoint the contributory factors of Geely’s current leading

positioning. These include internal characteristics: company values, which are at

the heart of the company’s functioning, the customer-centric approach, Geely’s

flexibility, and external features namely the virtuous market and government

support.

Geely Culture – Nurturing Innovation and Talent

In contrast to the individualism promoted by Western, particularly past Neo-

liberal, cultures, Chinese companies are inclined toward an approach rooted in

family values (Hout and Michael, 2014). More broadly, the values promoted are

akin to those seen in village communities (Marquis et al., 2017). It is no different at

114 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

Geely, where employees very much buy into the ‘community’. Geely abides by the

‘RenBen’ management style. This method acknowledges the focal role of the

individual in the undertaking of any process, and conversely that the design of the

processes should be mindful of those who undertake them (von Bismarck and

Zheng, 2016). This belief-system generally encourages long-term wealth for the

whole community. Geely’s commitment to community is exemplified by the

benefits provided to their employees: their workforce has the opportunity to live

either for free on-site or to purchase a house nearby the plant at a preferential rate

(Tan, 2006). As is seen throughout Chinese philosophy from antiquity, particularly

Confucianism, the ideology influencing the majority of modern Chinese thought, it

is a principle of many of those holding a position of power to show benevolence

for their subordinates. It is believed that under this structure both harmony and

control can be maintained.

To ensure a continuous supply of talent Geely has invested in numerous

universities. This is a smart strategic move for Geely, the influence they have in the

moulding of value-sets and skill-sets in students, at arguably the most malleable

period of their development, allows for an easy transition into working and

company life. This obviously saves the company copious amounts in training-

upon-hire costs. The universities mainly offer courses in engineering, business

management and automotive marketing, and range from undergraduate to PhD

diplomas. (Geely Global, 2018). It is not so obtuse to think that this move causes

a low rate of employee turnover. Geely also reaches out to grass-roots, not-

institutionally-educated talent, in the form of charity and competitions. Geely

launched the “Future Talent Fund” to aid students wanting to train as engineers

(Fetscherin and Beuttenmuller, 2012). They also sponsored many competitions,

these often with the dual objective of engaging talent with both the brand and the

major contemporaneous problems being worked on within the industry. The most

recent competition focused on the design and development of electric vehicles

(Geely, 2018). These activities, as well as heavy investments in research and

development (R&D) year on year (Geely Automobile Holdings, mentioned in all

annual reports 2006-2017) embodied by their global R&D centres - home to over

10,000 engineers (Global Geely, 2018) - demonstrates Geely’s dedication to

innovation and nurturing talent. China is known for its low-risk, long-run

strategies; by investing in education and the general well-being of its employees,

Geely ensures consistency and long-term commitment and is, therefore, a great

example of this approach.

Geely Automobile Holdings 115

Shufu Li – the “Henry Ford of China”

One cannot have a complete image of a company’s culture without first

considering the individual at the helm. Leaders are responsible for leading

corporate governance by guiding cultural direction and upholding corporate culture.

Not only is Geely’s Li Shufu the chairman, but he is also the founder. First

generation companies are prone to developing very distinctive and principled

cultures, usually since the founder is at the helm and their energy is infectious

(Schein, 1995).

An investigation into Li’s profile will then shed some light on the culture within

Geely. Li came from a modest background and is a man with both entrepreneurial

spirit and great vision. Interestingly, this is a background shared by a significant

proportion of entrepreneurs in China. One’s core principles are often deep-rooted

in experiences from infancy and adolescence; Li’s experiences led him to a belief

in meritocracy. His assiduousness has fuelled his many entrepreneurial ventures.

Geely came about after a succession of opportunities presented themselves to Li,

which he did not hesitate to seize. After expanding from refrigerator parts to

motorcycles, Li familiarised himself with car manufacturing technologies by taking

up an active interest: dissecting cars and building pilot manufacturing lines (von

Bismarck and Zheng, 2016). That he took such an active interest in the minutiae of

the product speaks volumes about the character of Li.

Mr Li is in many ways the face of the company; his name concurrently

mentioned with any news related to Geely. Such brand association brings a great

responsibility to Li Shufu. To date, he has but upheld a positive image through his

philanthropic actions and generally as a result of Geely’s success which people

inextricably attribute to his actions.

Eventual Government Support

One would expect that if the Chinese government was purporting to uphold

protectionist policies, Geely would in some way benefit from such a type of

attention. However, this was certainly not the case in its early days. As Geely is

privately held, it was not treated with the same care and respect as its state-owned

counterparts (Yao and Wang, 2014), exemplified by state banks refusing to lend it

capital (Bloomberg, 2002). Mr. Li had to apply on multiple occasions to receive an

automobile production licence before finally obtaining it in 2001, three years after

the first car rolled off the production line. However, as is usually the case when a

company evolves and gears up for expansion, support came. The local government

of Taizhou and the Zeihjiang offered land from which Geely could conduct its

116 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

operations (Gong and Ma, 2011). Geely’s success eventually culminated in the

Government wishing for it to act as a poster-child for the Chinese industry

(Fetscherin and Beuttenmuller, 2012). This, in turn, provided favourable funding

opportunities for Geely. More broadly, as part of the government’s automotive

industry restructuring and rejuvenation programme (Yao and Wang, 2014), large-

scale M&A’s were to be promoted to enhance the international competitiveness of

domestic companies. A contemporaneous reduction in FDI restrictions facilitated

“accelerated technological exchange and globally integrated production and

marketing networks” (Chaisse and Gugler, 2011). The Volvo acquisition can be

seen as benefiting from this change in regulation. More recently, the flurry of

majority stake acquisitions in Proton, Lotus, Saxo Bank and Terrafugia in the midst

of tightening restrictions on outbound investment has suggested the governments

increasingly preferential treatment of Geely (Anderlini, 2018). This highlights the

current supportive nature of the government’s affiliation with Geely. Over Geely’s

lifetime, the latter can effectively be described as having evolved from neglectful

in the beginnings of Geely, to an advantageous one now.

A noteworthy point is that Geely was able to benefit from government support

without being subjected to its ownership. That is to say, private companies possess

more freedom which provides “stronger self-awareness, risk awareness and sense

of competition” whilst those companies managed in co-operation with the state

often lack either innovative or enterprising behaviour. Thus, Geely was ultimately

able to have its cake and eat it too - so to speak.

The Flourishing Market

A noteworthy consideration is the state of the markets Geely was involved in,

which in part fuelled its sales. Although present in more than simply China, the

markets in question will refer to the domestic market in particular and the global

market.

According to Statista (2018, see Figure 7), the Chinese market for passenger cars

and commercial cars has shown a rapid growth throughout the period of 2008 to

2017 from 6.76 million units to 24.72 million. One can note that the domestic

market demand was resilient during the financial crisis. With such continual

increase in demand, it is hard not to do well.

Geely Automobile Holdings 117

Figure 7

Number of passenger cars sold in China from 2008 to February 2018,

by model (in 1,000 units)

Source: Statista

In terms of the broader global market, as stated in the industry backdrop section

of the analysis, it has continually increased. Although it does not boast the same

growth as China such favourable conditions would promote higher sales figures

given Geely’s global presence.

Riding the Waves of Change

Coupling the various aforementioned forms of success, one can see a common

thread: Geely’s ability to leverage timely opportunities. Geely was able to benefit

from relaxed and favourable policies, a booming low-end car market and, later,

demand for higher-quality follow-up products largely as a result of its adaptability.

Noticeably, this is a characteristic that flows from its founder through to the

company as a whole.

For companies in China dealing with a tumultuous and uncertain environment,

as well as “massive urbanization and huge rural markets, fierce competition and

endemic corruption”, are everyday concerns (Hout and Michael, 2014). As

suggested in Lawrence and Lorsch (1967), a firm’s management system is

responsive to the economies in which it develops. Tumultuous markets foster the

need for loosely structured management systems that are able to assimilate

information quickly. As such, Geely’s ability to adapt to an ever-changing and

growing domestic environment is owed at least in part to the Chinese management

structures outlined in Hout and Michael (2014).

118 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

Another contributing factor to Geely’s adaptability is its approach to active

engagement in fostering partnerships. Given the highly competitive nature of the

global automotive industry and the direction of increasing consolidation within the

Chinese market, survival is dictated by enhanced cooperation (Lynton, 2013). Li

corroborated this view when likening the neglect of this reality as “sticking your

head in the sand” (Szczesny, 2018). Having identified and outlined the historical

context which has brought Geely to the forefront of the industry, we will progress

and establish Geely’s current position in the market and the challenges it faces.

Current Standing and Challenges

Geely is now stronger than ever, boasting an average net profit margin over the

last three years of 9.6% (sector average is 6.2%) and an earnings-to-price yield 2.9

times the yield of a triple-A bond. Such financials justify the number of accolades

earned in recent years. For instance, being ranked among Asia’s Fab 50 by Forbes

and the 1000 largest manufacturers by revenue by IndustryWeek highlight external

recognition of Geely’s position (Buysellsignals Research 2018). Despite Geely

experiencing a high point in its existence, one must consider the potential

challenges which it now faces to sustain its success. Figure 8 provides an overview

of these.

Figure 8

Overview of Challengers

Geely Automobile Holdings 119

The Dark Side of Being Local

Throughout the course of history, customers in China have bought from Chinese

manufacturers on a cost basis more so than quality. In most cases, customers are

likely to buy a car from a domestic brand either because they feel loyal to their

country or they are forced by the level of income to look for more affordable cars

(China’s automotive market - Accenture, 2013). When comparing quality and

consumer trust for the same year and same type of car between Japanese and

Chinese made, those made by Chinese earn less trust from the customers in terms

of long-term durability, reflected in their higher depreciation rate. For example, in

the second-hand market, a six-year-old mid-size sedan made by Geely has a price

50-60% lower than the same type of car made by Toyota (Guazi.com, 2018). That

being said, Chinese automotive brands seem to be catching up to their foreign

competitors in quality, according to a survey by JD Power. Such an evolution can

be quantified by a fall in faults per 100 vehicles from 834 in 2000, to 112 (99 being

the mainstream benchmark) in 2017. (Clover, 2017)

Ever-Changing Customer Preferences

The lead time of the research and development of a car can be relatively long. It

takes 3-5 years on average to develop a completely new car (Turpen, 2018). As

customers’ preferences and needs have changed over time, the share of the

automotive market that SUV and MPV models represent has been continually

increasing. The sales of SUV accounted for around 40 percent of the total

passenger car market in China in 2017. This number increased from just above 10

percent in 2010 (Statista, 2018; see Figure 7). The same time period saw a sharp

decline in the demand for sedans and this trend has been predicted to continue for

at least 5 years into the future. Geely’s current line-up consists of 4 models of

sedans, 3 models of small to mid-size Crossovers or SUVs. Strategically, Geely has

to decide whether it is worth pursuing the sedan business or to focus on more

lucrative model types.

The world is continuously adopting new technologies such as smartphones and

connected devices. Cars, often the second-most valuable asset owned by an

individual, are no exception to technological disruption. As can be seen from the

hype and success of companies like Tesla and the success of the post-sale market in

recent years, customers are seemingly shifting their purchase decision away from

solely performance metrics and onto technological amenities (Baan et al., 2013). In

China, 85 percent of consumers look for in-vehicle technologies when they made

their purchase decisions and 75 percent of them acknowledge they would spend

more for a vehicle with the right telematics services (Accenture, 2013). The

120 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

services most important to consumers interests are navigation support, emergency

rescue, internet connectivity and real-time traffic data.

Currently, the in-car technologies such as telematics services are supplied from

Lynk & Co, another brand held by the Geely Holding group.

Competitive Disadvantage from Government Policies

In recent times the government has been implementing protectionist policies that

favour local automobile manufacturers by implementing a 25% tariff on imported

cars. However, the government will reduce the tariffs for imported cars to 15% in

the second half of 2018. This change will result in more intense price competition

in the Chinese market, (Anjani Trivedi, 2018) a change that, with all else held

constant, would bite into the profits of the domestic automakers. The competition is

expected to further intensify given China’s plans to remove the foreign investment

limit on the industry by 2022. The latter would allow auto companies to enter the

Chinese market through other than the existing JV model (Goldman Sachs Equity

Research, 2018).

Another source of political pressure is gas alternative vehicles. The Chinese

government, like those of most other developed countries, is aggressively pushing

new energy vehicles (NEVs) by providing subsidies for car manufacturers which

use electrical power. In 2018 the government pushed this idea even further, they

increased the minimum efficiency standards that new cars must meet in order to

qualify for their full support. In this new policy, vehicles with a driving range

below 150km in one battery charge will not receive subsidies, whereas vehicles

with 300 km of driving range will get the current electric vehicle subsidies, and

ranges over 400 km have higher subsidies.

Trade Barrier on the Western Market

Li has had his eyes set on entering US market as early as his desire to expand

internationally. Unfortunately, Geely’s supply chain has yet to meet US standards

and certain emissions requirements thus postponing a launch to a potentially

trickier time-period. President Trump has stated his desire to increase tariffs on

Chinese goods and a rise from the current 2.5% on imported cars is to be expected.

This could render the Chinese cars less competitive. A loophole does exist but

requires significant time and investment: building a US based-and-regulated plant.

Geely Automobile Holdings 121

Future Outlook and Recommendations

A natural progression to highlighting challenges is to provide complementary

recommendations. This section will use the aforementioned obstacles as a basis to

provide both existing measures being taken by Geely to tackle these and general

suggestions where steps are not yet being taken. Figure 9 provides an overview of

these recommendations.

Figure 9

Overview of Recommendations

The Domestic Potential

At the end of 2017, the population of China reached 1.4 billion. Amongst such a

vast population only 163.3 million, just 12%, own a private car (National Bureau of

Statistics of China, 2018). Chinese people have been, and still are, progressively

climbing up towards the middle-class and it has been predicted that the market will

grow for at least another 5 years. In fact, the market is predicted to be growing by

at least 6% per year until 2022 (McKinsey 2017). Geely as the local automaker

would need a plan to retain and grow its position within the domestic market to

benefit optimally from this scenario. This situation is to the benefit of Geely since

the long-run growth in China looks uncertain and where potential entrants seeing

122 ACADEMY OF ASIAN BUSINESS REVIEW, DECEMBER 2018

this may opt not to invest in infrastructure, Geely has the infrastructure ready-at-

hand to capture the short-term profits.

Furthermore, the company may be able to benefit from launching more

Crossover or SUV models as the market for these is expanding rapidly. This is the

result of the encouragement from the Chinese government for people to move away

from the one-child policy, with a focus now on population growth. With families

considering the prospect of a larger family, people are more likely in the near

future to trade in their old sedans for SUVs for the larger space and capability

(Boykoff, 2015).

Electrifying the Market

One of Geely’s latest growth strategies has been to take purchase of a 9.7% stake

in the foreign firm, Daimler, a German auto giant. The intention behind this

venture, according to Li Shufu, is to join forces to compete against companies in

the electric and self-driving car spaces, citing Tesla’s Musk as the main concern

(Chazan, 2018). However, this is not their only threat as there is other competition

in this space closer to home. Around 500 companies (Kljaic, 2018) including

China’s leading electric vehicle (EV) manufacturer: BYD Co Ltd. operate within

the country (Nason et al., 2016). In contrast, Geely’s current line-up consists of just

one EV, the Emgrand EV 300, with just over 300 km range per full charge (Dixon,

2018) but plans for hybrid versions of its major products to be launched on the

market by the end of the year are in the works (Deutsche Bank Market Research,

2018). Such actions inform us that Geely is embracing itself for this electric

revolution, aiming to add a leader in green energy vehicles to its already-long list

of acknowledgements.

Coupling this information in future direction with the government’s recent

decision to decrease preferential subsidies, however, highlights a potential issue.

Geely should focus on perfecting the product for it to beat restrictive subsidy

thresholds rather than rush product to market. Thus, Mr Li’s 2020 plan to have

90% of Geely’s fleet be electric (Clover, 2018) should be a flexible target.

Targeting the Youth

Lynk & Co, the Sino-Swedish automotive brand that is a part of Geely’s arsenal

of brands (See Figure 3), was founded in 2016 to focus on the production of clean-

energy cars run by cutting-edge technology (Savov, 2016). Their unique

technological focus as compared to other brands under the Geely umbrella is the

move to target younger customers. The company made promises that every model

would come with both a touchscreen control system and telematics system installed.

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It was purported that this move would not only elevate the image but also the

quality of the Geely brand.

Moreover, the transition of Geely away from solely being an automaker into

more of a technology company is, as mentioned also above, a move that would

classify the company into the NEV tranche of automakers and qualify it for

government subsidies. The car made by Lynk & Co would leverage this benefit to

maintain current price levels and increase the margin per unit sold.

The Western Market - Still on the Radar

Europe is currently the market on the expansion agenda of Geely Holding Group.

A partnership that was established in 2010 with Volvo, allows Geely to use

Volvo’s local facilities to assemble its cars. Geely would start to market its

upmarket compact-size SUV car under Lynk & Co brand to sell in Europe in the

near future (Anjani Trivedi, 2018).

Lynk & Co represents an opportunity for Geely in the western market, the

products that are on the development and production lines are seemingly befitting

of the market created by millennials entering the workforce in those markets. The

potential buyers could be ensured of the product’s quality as the development of its

first model SUV platform has been supported by the Volvo’s 40 series (Vlad Savoy,

2016).