China automobile entry in India and Egypt

Introduction

Trade between countries and the emergence of foreign investment has been increasing rapidly promising excellent economic relations amongst modern and fast-growing countries. In the past decade, China automotive market has seen a rise in its market supply with the development leading to the globalization of automobile sector and penetration into the global markets (Li, 2010). According to Shaker (2010), the motivation behind penetrating the new market is to get an opportunity for accessing industrialized markets with superior technology and gain the knowledge necessary for proper resource management.

Chery company is an entrant in the Chinese market and has become a leader in producing domestic- branded vehicles (Marukawa, 2009). Despite being a new entrant, Chery Company has grown immensely, has managed to export cars, and has contributed substantially in the Chinese exports surpassing imports. This paper analyses Chery automobile company ability to launch a new market in India and Egypt and uses Porter’s Diamond Model to support the analysis.

Analysis of Egypt and India automotive industry

India

India’s automotive industry is positioned well regarding its demographics and its economy to ensure growth and to service both local and international opportunities. Its working age population has grown significantly and is likely to stimulate the market for private vehicles. There are expectations that India may create alliances because of its need to get better technology, production facilities and in search for services and networks for distribution (KPMG, 2016). Since China is well developed technologically and has better capabilities, Chery Company should take the initiative to penetrate this country to take advantages of the available opportunities

Egypt automotive industry

The motor vehicle industry in Egypt is one of the highly growing in Africa and the Middle East. The auto sector in Egypt is increasing because of the rise in car loans (Yehya, 2013). Notably, there is high demand for automobiles in Egypt and hence additional investment is required in this vital sector (Yehya, 2013). This shows that the Egypt has opportunities in its automotive industry and China can take advantage of the opportunity to invest in the country.

Global strategies for Chery’s entry to India and Egypt markets

Establishing strategic business units

According to Sibiya (2015), developing strategic business units in transnational markets is a global business strategy that a firm can use in its expansion endeavors. Chery should embark on creating strategic business units in India and Egypt. It should bear in mind that this is a different business environment that requires careful and proper management.

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Creating joint ventures with India and Egypt automobile industries

In its early years of development, Chery used joint venture approach successfully as the Chinese government had strict regulations to prevent new markets from penetrating its car industry (Ivey, 2015). Since the company did not have a license to produce vehicles, it created a joint venture with Shanghai Automotive Industry Corporation that had a permit,  to get the government permission to sell its vehicles countrywide ( Ivey, 2015). Chery should use the same strategy to enable it to penetrate the Indian markets and to further its current penetration in Egypt.

Technological advancement

To catch up with its competitors in Egypt and India, Chery Company should adopt the strategy of targeting homegrown novelty to ensure its technological development. In this plan, the company should invest much in its research and development team to continue appealing highly experienced and specialized engineers in the automotive sector. The new team can play a vital role in creating new models that can increase sales in these countries significantly.  To increase its technological development and innovation, Chery should recruit reputable and well renowned foreign automobile firms to perform its research and development projects collaboratively. To penetrate the Indian market, Chery should also aim at establishing an agreement with Indian automotive parts manufacturers to help it build a factory in India.

Analysis using Porter’s diamond model

Porter’s diamond model provides a useful means of analyzing global competitiveness. According to this model, Chery can use the characteristics of its home country China, to assess its international success. This model noted that the country of origin environment could influence the success of the company in other markets. Porter based this design on six elements namely factor element, demand condition, interrelated  and supporting firms, corporate strategy structure and rivalry, chance and government (Porter. 2011)

Factor conditions

China is well endowed with factors of production like human resources such as toolmakers, engineers who are well skilled and the cost of labor is cheap. Besides, it has abundant and quality physical resources such as natural resources. Besides, the country has academic resources such as universities both private and government owned. Finally, it has high-quality infrastructure such as transport system, communication, and health care systems. Collectively these factors gives can help Chery establish its position in the new markets and have the ability to defend itself against competitive forces that exist in these two countries

Firm’s strategy structure and rivalry

Chery automobile company is a state-owned corporation meaning that the local government owns more than half of its shares. Chery company is well organized and has managed to establish two automotive manufacturing plants and a transmission plant in Wuhu. The company has also set up foreign assembling plants in countries such as Egypt, Uruguay, Iran, Ukraine, Russia and Indonesia. The nature of the rivalry market in China is intense giving Chery pressure and triggering it to be innovative to maintain and improve its competitiveness. The competitors range from Beijing Automotive, SAIC, BYD, Guangzhou Automobile and Dongfeng Motor. Besides, in India Chery is likely to face rivalry from the already existing companies like Tata Motors. However, since the company has managed to survive the intense competition in its home country, it is likely to survive and succeed in the global market

Government and chance

The Chinese government has offered the automotive industry a strategic importance, and it ensures the sector has proper control and regulation (Jaume et.al, 2014). The Chinese government has contributed significantly to Chery competitiveness both locally and globally. The government promotes exports, and it has helped in shaping the demand factors in the local market. Besides, since Chery was one of the first entrants in the Chinese automotive industry, it has a chance that puts it in the advantage edge because it has cemented its position in the country. This puts Chery in a better international competitive position as compared to other enterprises in the country.