BALCET, WANG, ZHANG - New trends and strategies of Chinese carmakers: the case of Geely

The seminar given by Prof. Balcet (Uni Turin), Wang (EMLyon), and Zhang (Rollins College) represented an engaging and comprehensive introduction to the authors’ forthcoming book Geely Drives Out: The Rise of the New Chinese Automaker in the Global Landscape (World Scientific, 2021). By illustrating the fascinating case of the rising auto company, placing it in the wider context of the development of the Chinese automotive industry, and analysing the challenges linked to its global integration, the presentation definitely encouraged all of us to getting hold of the volume and discovering more.

 

Geely’s story is peculiar not only for its rapid expansion and diversification, which allowed the company to establish itself as one of the most competitive transnational holdings operating in the global auto market today, but also for its own trajectory as a private-owned enterprise within the Chinese scenario. Its success seems to have been brilliantly driven by the audacious entrepreneurial spirit of its founder, Li Shufu, whose personal path is also depicted in the book. Described as a ‘grassroots entrepreneur’, endowed with a proactive, innovative, risk-taking attitude, Mr Shufu rapidly managed to shift his assets from cameras, to refrigerators, to motorcycles and eventually to cars. His talent is said to involve a combination of technical skills, media-savvy competence and the capacity to ‘navigate China’s political waters’ in favour of his own achievements. Indeed, the story of the company is tightly bound to the impressive rise of its leader. Whilst the book follows Geely’s case as it unfolded before the COVID-19 crisis, the pandemic could actually represent an opportunity for the company to grow even further, given the accelerated electrification that has recently marked the industry and Geely’s competitive advantage in the field.

 

To put the case into a broader context, the presentation included a detailed overview of the development of the Chinese auto industry, in historical perspective. It went through its main phases (1950-70/ 1979-2000/ 2001-2020/ 2020 onwards), from its infant industry stage during the cold war period, through its first opening and the establishment of the first JVs with foreign companies (VW, GM and Japanese carmakers), up to its progressive penetration of global markets and the acquisition of a world-renowned leadership in both production and sales. Currently, the Chinese auto industry is characterised by a strong ambition to become a world leader in the manufacture of smart cars. As part of its globalisation strategy, the authors highlight how China was able to progress in terms of Design and Engineering thanks to its learning-by-doing, and the assimilation and the re-combination of foreign knowledge. For what concerns institutional settings and corporate ownership, the aim to globally integrate the growing auto industry was also accompanied by a progressive diversifications of ventures and institutional actors, seeing more private enterprises and international firms siding with the established SOEs. Today, the diversification of players operating on the auto market can be seen as having led to a substantial fragmentation, with up to 90 different carmakers operating in the country (see presentation). These are spread around six main industrial clusters, where tier 2 and 3 developed alongside OEMs and large tier 1 component suppliers. A relatively balanced supply chain development was favoured by local content policies and cluster-building initiatives.

 

Coming back to the Geely case, the presentation – and the book – illustrate its successful trajectory providing us with a wealth of information, facts and details. Starting from the company’s foundation in 1986, the authors tell us of its progressive product diversification and business expansion (from motorcycles, to low-end car production, up to more sophisticated models) and of how this was achieved through smart reverse engineering. Within ten years of constant expansion (2009-2019), an important step was Geely’s acquisition of the Swedish Volvo in 2010. This marked a real transformation of the company, and a proper take-off on international markets. Today, Geely can be considered as an actual multinational holding, with its world-wide presence and multiple footholds, including 4 engine plants, 2 transmission plants, 5 component plants, 4 university institutions and a research institute. Over time, the progressive acquisition of foreign brands (recently including Proton and Lotus, among others) and partners has been accompanied by a widening mission and brand development – the idea to upgrade from the production of “affordable cars for ordinary people”, to “refined cars for everyone,” while making “the safest, most environment friendly and most energy-efficient vehicles.”  Indeed, the last statement is a clear testimony to the company’s ambition to become a leader in the growing electrification of the global auto industry.

 

The emergence of Geely as a multinational actor, in the authors’ analysis, was mainly informed by two key drivers – 1) the combined aim to access new markets in developing countries and new technologies in most advanced economies; 2) the constant attempt to bring new technologies and know-how ‘back home’, in order to scale up towards higher end products and higher value added, more profitable segments. Overall, Geely pursued a long-term asset-seeking strategy, following two main directions: on the one hand, the objective to technologically catch-up (to be achieved through reverse engineering and foreign acquisition, rather than via JVs); on the other, the ambition to gain a multinational scope (including a significant export orientation, the aim to establish foreign assembly plants and M&A plans). As part of the latter, the initial participation in London Taxi (2006) and the following acquisition of Volvo (2010) represented key steps towards global integration. More recently, the acquisition of the British electric start-up company Emerald Automotive (2014) was indicative of Geely’s intention to gain a dominant position within the process of electrification of the global auto industry.

 

Part of Geely’s long term asset-seeking strategy, the acquisition of Volvo in 2010 was a crucial turn in the company’s multinational trajectory. Following long negotiations (2002-2010), the two companies were initially kept separate and autonomous (“Volvo is Volvo, Geely is Geely”), to then embark upon a process of technological convergence and integration (post 2013). Balcet, Wang and Zhang describe the case in detail, providing rich information on the initial difficulties which accompanied the merging operations  (spanning from cross-cultural differences to the distrust received by civil society, trade unions and policy-makers, sceptical of the social impact that the process might have, especially in terms of employment patterns), up to the actual expansion that derived from them, with an overall growth in terms of production, technological assets, financial base and employment. In this regard, they underline the gradualist and pragmatic approach that Geely always maintained, and that allowed the company to thrive to the point of becoming the global holding it is today. Eventually, they report, the merging operations proved to benefit both players, with Geely increasing its international profile and acquiring foreign assets and technology, and Volvo restoring profitability after a protracted decline. The partnership also led to the establishment of two innovation and R&D Centres, one in China (Jiading, 2011) and one in Sweden (CEVT, Gothebörg, 2013), with the aim to ultimately create a joint platform.

The China Euro Vehicle Technology (CEVT) has been actively working as a proper innovation centre, [1] conducting research and design on engines, powertrain, transmissions on the one hand, and on connectivity, new mobility solutions and autonomous vehicles on the other. It is at CEVT that Geely and Volvo are exploring new venues on the path to electrification and establishing the aimed technological convergence. They have recently developed a Compact Modular Architecture (CMA) platform, too.

 

Looking at the future, Geely seems to be targeting new markets and brands, aiming for further global expansion. It is in this light that we must see the recent acquisition of stakes in the Daimler group, and the company’s interest in the premium ride-hailing and smart car segments. Likewise, the continuing relationship with London Taxi and the latest investment in the Asian Proton and Lotus, are part of the same strategic trajectory. In addition, Geely is clearly exploring new mobility solutions, including four different services (low-speed EVs, economic EVs, mid-range cars, premium cars), incremental (connection between high-speed train and ride-hailing services, plus the launch of low-orbit satellites for the service of high-precision positioning) and radical (ultra-sonic train and two flying cars) innovations. Indeed, this is part of a clear move from ‘asset-seeking’ to a proper ‘strategic asset-creation’ strategy, which you will find widely illustrated in the book.

 

From a GERPISA perspective, the work presented here sparked an interesting and wide-ranging discussion, which will certainly continue over the next few years. Questions were raised around the Chinese industrial development model, more broadly, on the overall competitiveness of the Chinese automotive industry, and on the Geely case more specifically. These covered, among others:

 

·       The role of private companies within China’s industrial development

·       The Chinese industrial development model: relationship between OEMs and suppliers, sourcing and supplier development strategies;

·       Geely’s upgrading model, from affordable to refined cars: which were the main drivers?

·       Labour relations and employment models at Geely

·       Employment patterns in Sweden and China following the acquisition of Volvo

·       Geely’s model of entrepreneurship, governance and financial management

·       Geely's new Battery as a Service program that swaps out batteries for EVs? 

·       The way the acquisition of Volvo was financed: main financial sources and funding model

·       The possibility that Geely will share the developed CMA platform

·       The relationship between Geely, as a private company, and the Government – what level of support?

·       Type and investment level re. new mobility services

·       The way R&D cooperation enabled technological transfers and upgrading

·       Profile and competitiveness of Geely’s engineers (compared to BYD, for example).

 

The seminar was recorded and is available online: http://gerpisa.org/node/6172

 

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