Wednesday, April 16, 2014
Mirror: Geely creates new development mode
Globaltimes.cn | March 22, 2013 17:06
By Globaltimes.cn
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Back in 2007, Zhejiang Geely Holding Group set a target to reach two-million annual sales by 2015. Six years elapsed and the goal has not been altered; though it has entirely different meaning now.

Yang Xueliang, Geely's Chief Public Relations Officer (PRO), told the reporter that the two-million sales target was set at the time when Geely was facing its strategic transition. When it began to enter the auto market, Geely held its strongpoint by low cost and price, helping the company occupy the market rapidly. "At that time, Charade cost 80,000 - 90,000 yuan, and Santana was priced 170,000 -180,000 yuan. Chairman Li Shufu held that the auto price was prohibitively high then, it went against how the economy works," said Yang.

Therefore, Geely sold its cars at prices lower than that of other brands, and its sales volume has been rising, up from a few thousands in 1998 to 20,000 units in 2000, and 200,000 units in 2006.

The second half of 2006 witnessed a dramatic change in China's auto market. Consumers like cars with lower prices, and they favor those presenting good performance in every aspect. Consequently, Geely began its strategic transition on technology and brand, hoping to grab market share by technology, quality, brand, service and business morals instead of low prices. "In order to deliver worthy product, we stopped producing old products and pulled down the old production line, which brought tremendous economic loss to us," said Yang.

The two-million sales target was set based on the market growth rate at that time. "We aim to fully implement globalization, so we plan to sell one million units in domestic market and the other half in overseas market," Yang revealed.

In the following years, the auto markets at home and abroad changed greatly.  "As a result, Geely made a new plan," said Yang.

According to the new plan, the target of two-million global sales by 2015 remains, but vehicles of Volvo brand are also included. "Then we will sell 1.4 million vehicles of Geely brand and 0.6 million units are Volvo."

To realize the goal, Geely will make various efforts. The company will strengthen its research and development capability, make overseas merger and acquisition, and build overseas plants so as to bring synergy effects into full play.

Marketing channel adjustment and market region increase

Earlier Geely has completed a marketing mode transformation from "vertical" to "horizontal", which transformed the vertical management of three sub-brands divisions (the Emgrand, the Gleagle and the Englon) to the three regional divisions: the South, the Central and the North Region. This year, Geely adjusted its marketing mode again.

Last June, Liu Jinliang, the Vice President of Geely, told the reporter that after the adjustment, each regional division will be in charge of the three sub-brands' marketing under its control.

Prior to this adjustment, the three sub-brands divisions (the Emgrand, the Gleagle and the Englon) managed their own market nationwide, which is named vertical management. After the establishment of South, Central and North Region division, the management mode was made horizontal.

According to the report, the adjustment aims to share resources to the utmost and optimize marketing channel, and to accurately understand the features and needs of the market. "Previously, regional sales managers for every province were appointed to take charge of the three sub-brands. However, they were unable to probe into the third and fourth-tier markets."

After the adjustment, every sales manager is responsible for about 10 provinces, taking charge of all three brands in the region. The number of sales managers is reduced by two thirds, and other employees can probe into the second or third-tier markets. Besides, a marketing department has been set up in regional division so as to make actual interaction between manufacturer and consumer possible.
 
"From this year on, we thought three regional divisions were not enough, and we made it five." Yang said, "We will not divide markets by bearings, but divided it into five divisions. We also set up a large-client department parallel to the five divisions so as to increase the sales volume of official car and the number of institutional clients."

The large-client department used to be subordinate to Geely's sales company. Since it becomes the sixth sales department, large-client department will focus on the government and institution purchasing business which covers the key areas. In addition, this department could provide support for dealers when they want to cooperate with the local government.

Clearer features of sub-brands

In January 2013, the total sales volume of Emgrand, Gleagle and Englon reached 63,532 units, 67 percent increase on a year-on-year basis, in which, the three sub-brands' sales volume was 20,318, 20,732 and 22,482 units respectively.

Although the three brands share almost the same sales volume, insiders believe that Gleagle and Englon don't enjoy a promising future as Emgrand does, and they lack a clear position in branding.

When Geely drew up its strategic transformation plan in 2007, it made a platform strategy for R&D system which embraced five technology platforms, 15 product platforms and 40 products. According to the original plan, each year, the automaker will deliver five to six kinds of products to the market to fulfill the two-million sale target.

Such amount of new products cannot be sold in one dealer shop. Hence, the manufacturer decided to divide them into three sub-brands.
 
"We hired research firm to conduct market surveys on consumers, and then divided brands based on consumer group," Yang said. Gleagle is designed for vigorous and ambitious youngsters. Emgrand is designed for the middle class with practical, steady and enterprising turn of mind. Englon is designed for family use.

Because Emgrand is initially designed for high-end market and sold at a high price, it raises its standard in choosing dealers and suppliers. Therefore, Emgrand stands at the landmark position.

According to the report, the marketing pattern of Emgrand gives Geely a crucial glimpse to improve its dealer network as a whole, for instance, play area for kids and direct-viewing maintenance are available in its stores.

"One brand's successful experience shall be shared with other brands, which will exert great influence on upgrading Geely's overall marketing level. However, the brand and product evolve gradually, rather than being clear at one stroke. "

Statistics shows that currently, the sales volume of Geely's self-owned products tagged above 80,000 yuan accounts for one quarter of Geely's total volume.

In order to further promote the sales volume and images of middle and high-end models, Li reveals that Geely is making a brand new business plan, which includes brand and product strategy that will be made based on different countries and markets. After the releasing of the new plan, Geely will rearrange the three brands.
                                     
Exploit the specialized taxi market

Having completed the acquisition of Manganese Bronze Holdings (MBH), the maker of the iconic London black cabs, Geely begins to step into the field of making specialized taxi, preparing to enter the taxi market both at home and abroad.

This February, the acquisition has been carried out through Geely UK Limited, a subsidiary of Zhejiang Geely Holding Group, and includes a plant, equipment, real property, and all the intangible assets including intellectual property rights, trademarks and the goodwill of the business. It also includes MBH's 48 percent stake in the joint venture manufacturing company in Shanghai set up by Geely and MBH and MBH's stock of unsold vehicles.

Li Donghui, President of the Geely UK Limited, said that Geely would develop new models to follow the original existing London cabs and examine the potential for entering the private hire market.

China is still the main manufacturing base of London cabs, and the Coventry plant in England will become an assembling plant producing right-hand driving cars which will be sold in countries with right-hand traffic such as England and Australia. Meanwhile, the joint venture manufacturing company in Shanghai set up by Geely and MBH will continue to produce left-hand driving cars.

More than a simple financial investment, the London cab program is a strategic investment for Geely. "We hope to open the domestic market and further enter the overseas market besides London, gradually increase the proportion of sales volume in overseas market," Yang told the reporter.

Considering the current market conditions, as well as the needs of taxi drivers and passengers, Geely will upgrade the traditional London cabs.

Geely will keep the traditional London cab's classic design and its advantages such as the spacious interior space and the barrier-free get on and off. At the same time, the carmaker will continue to increase its investment to develop new models with lightweight design and more efficient engines and transmission boxes, hoping to strengthen its core competitiveness in the taxi market.

In addition to launching the brand-new traditional models with gasoline engines, under the Group's new energy program system, Geely will develop new energy taxi models such as pure electric and hybrid power taxis. 

According to Yang, Geely is now making a business plan for the new taxis. "Geely's priority is to re-establish the manufacturing, sales and service of new and current vehicles on broadly the same basis as existed before the business went into administration and to make profit," Yang said. Till now, London Taxi Company has more than 30 sales and service outlets in Europe.

Promote overseas development through various ways

Last year, Geely's overseas sales reached a record high with 100,300 cars being exported, a year-on-year growth of more than 160 percent.

"It is predicted that Geely will export as many as 150,000 cars this year with an increase of 50 percent, and we hope the sales volume in the overseas market will account for 30 to 40 percent of the total volume by 2016." Yang told the reporter, "Geely will take various development patterns to exploit the overseas market." 

According to the statistics, Geely's export volume reached 40,000 units in 2009, and dropped to 20,000 units in 2010 due to the global financial crisis. Therefore, the company began its transformation from trade-oriented pattern to localized development pattern. 

In October, 2012, Geely's Emgrand EC7 was launched in Cairo, the capital of Egypt. Before that, Geely Holding Group and GB Auto held an opening ceremony of a new assembly plant in Cairo, declaring the assembly line set up by the two companies goes into operation.

According to the agreement signed in 2011, Geely will assemble its products by way of complete knock down (CKD) in Egypt. It is designed that GB Auto's assembly plant in Egypt has a capacity for 30,000 units per year at the first stage. Relying on the GB Auto, Geely has already established 18 Emgrand brand shops in Egypt.

"Geely only provides advanced technologies, new models, components and engineering staffs for GB Auto, while GB Auto is responsible for the whole operation process including assembling, pre-sales and after-sales services and brand promotion. This development pattern can help Geely's products enter into the local market quickly because GB Auto has already had its own distribution channels, components system and close relations with the local government," Yang told the reporter. 

In addition, GB Auto is more familiar with the local situation, which is another reason for Geely to take such a development pattern in Egypt. We all know that the quality and cultural habit of workers vary from one country to another, for example, in Islamic nations; workers on the auto assembling lines have to pray at regular time.

This year, Geely plans to export cars assembled in Uruguay to Brazil.

In 2011, Geely signed a cooperative agreement with Brazil's Gandini Group. However, Brazil government increased the customs duty rate of the industrial products which were produced outside the South American Common Market (MERCOSUR) and Mexico by 30 percent, making Geely temporarily stop selling its cars in Brazil.

Fortunately, Geely was approved to set up an assembly plant in Uruguay, a member of South American Free Trade Zone, before Brazil government increased its customs duty rate. Therefore, Geely can assemble cars in Uruguay and sell them to Brazil, so that the company successfully avoids the high taxes.

Different from relying on its cooperative partners in Brazil and Egypt, Geely tries a new development pattern in Russia with the establishment of Geely-Motors, a subsidiary of the Zhejiang Geely Holding Group set up in Russia.

Geely-Motors is a sales company independently run by Geely, so Geely will employ a Russian general manager, taking charge of sales in Russia. 
 
"This Russian general manager is a professional manager employed by Geely, who is in charge of the establishment of local sales agencies and car importing and exporting services," said Yang.

Yang introduced that when the sales volume in an overseas market reached a certain amount, Geely would consider establishing its sales company in that country like Geely-Motors in Russia.

"When a plant, enabled with all the workmanships such as stamping and welding, is set up at abroad, Geely needs to establish an investment company there. This mainly depends on the capacity of the local market, sales status and partner's profitability." 

All these bold initiatives impress us that Geely is devoting more attention to marketing, after-sales service and brand awareness rather than sales alone. 

Besides the local 4S shops, Geely also sets up regional logistics distribution center to improve its after-sales service. Meanwhile, the company also establishes a training base at home, so that those overseas agencies can train their salesmen in China.

"We will accelerate the pace to build overseas plants. We hope that the overseas sales can amount to 40 percent of the total volumes in five years, and most of the products sold overseas can be produced in the local plant," Yang added.

Volvo ticks in the framework

Geely Holding Group has established a strategy advisory committee, in order to make the Group's strategic direction, guiding its business development. Under the leadership of the committee, Volvo is gradually playing a role in the framework, boosting the development of the Geely Group.

The members of the strategy advisory committee are mainly the executives of Geely and Volvo, including Carl-Peter Forster, chief advisor to Geely Holding Group.

Early in 2010, a "Volvo-Geely Dialogue and Cooperation Committee (DCC)" has been set up by Geely and Volvo, helping the two companies exchange ideas and information relating to the manufacturing and supply of auto products, development of new products and related technologies, marketing promotion and other areas. Li Shufu, the founder and Chairman of Geely Holding Group, was appointed chairman of the committee.

The establishment of the two commissions shows that the cooperation between Geely and Volvo is deepening increasingly.

At the end of 2012, Volvo transferred its GMC (intermediate models) upgrading platform, interior air quality control system and the GX7's innovative safety technology to Geely. On February 21, 2013, Geely Holding Group announced to establish a European Research and Development Center in Gothenburg, Sweden.

This European R&D Center is engaged in developing a new generation modular architecture and core components for C-segment cars.

"What kind of platform and product will be produced under this new modular architecture needs to be decided by Geely's and Volvo's own R&D systems." Yang said, "Corresponding approximately to the compact cars, Volvo's C-segment car is a competitive model in Europe together with Audi A3 and BMW 1 Series. Meanwhile, the car's wheelbase can be extended in a certain range, so its size can reach middle level."

Currently, Geely and Volvo are actively promoting the joint development of energy-saving and green engines with small-displacement, including the 1.0-liter turbocharged engine.

Geely will go further in its independent research and development. In addition to the 1.0T engine, the carmaker will also develop the 1.3T, 1.5T and 1.8T engines as well as the fuel stratified injection (FSI) technology. As for the transmissions, Geely is now developing the 6-speed manual transmission, 6-speed and 7-speed double clutch transmissions.


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