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China with the largest population holds an integral position in world’s economy. It holds the position of the second largest economy based on GDP and Purchasing Power Parity with U.S.A on the top. China is the major exporter and second biggest importer of commodities that marks its trade surplus, which was about $35 billion in May of 2014. This factor gives China an edge over its trade rival, America that is a service-based industry. China is a socialist economy, which means that manufacturing and logistics of every industry is owned by the state.
Being a socialist government has its own pros and cons. The most considerable advantage is that there is economic stability in the country. Organizations are less affected by fluctuations of business related activities, as the matter of availability of raw materials, provision of competent human resource and other factors of production is the responsibility of the state. The state tries to ensure that social equality persists in the state and in order to achieve that, the government imposes certain rules and regulations with the intention to consistently provide resources to the population. The disadvantages of this system are that the organizations have to follow a standardized work that is set by the government. The government bodies control how much to produce and what to produce; this limits any sort of innovation on the part of organization to try something new with the purpose to enhance its market in anyway.
China with the largest population holds an integral position in world’s economy. It holds the position of the second largest economy based on GDP and Purchasing Power Parity with U.S.A on the top. China is the major exporter and second biggest importer of commodities that marks its trade surplus, which was about $35 billion in May of 2014. This factor gives China an edge over its trade rival, America that is a service-based industry. China is a socialist economy, which means that manufacturing and logistics of every industry is owned by the state.
Being a socialist government has its own pros and cons. The most considerable advantage is that there is economic stability in the country. Organizations are less affected by fluctuations of business related activities, as the matter of availability of raw materials, provision of competent human resource and other factors of production is the responsibility of the state. The state tries to ensure that social equality persists in the state and in order to achieve that, the government imposes certain rules and regulations with the intention to consistently provide resources to the population. The disadvantages of this system are that the organizations have to follow a standardized work that is set by the government. The government bodies control how much to produce and what to produce; this limits any sort of innovation on the part of organization to try something new with the purpose to enhance its market in anyway.
China with the largest population holds an integral position in world’s economy. It holds the position of the second largest economy based on GDP and Purchasing Power Parity with U.S.A on the top. China is the major exporter and second biggest importer of commodities that marks its trade surplus, which was about $35 billion in May of 2014. This factor gives China an edge over its trade rival, America that is a service-based industry. China is a socialist economy, which means that manufacturing and logistics of every industry is owned by the state.
Being a socialist government has its own pros and cons. The most considerable advantage is that there is economic stability in the country. Organizations are less affected by fluctuations of business related activities, as the matter of availability of raw materials, provision of competent human resource and other factors of production is the responsibility of the state. The state tries to ensure that social equality persists in the state and in order to achieve that, the government imposes certain rules and regulations with the intention to consistently provide resources to the population. The disadvantages of this system are that the organizations have to follow a standardized work that is set by the government. The government bodies control how much to produce and what to produce; this limits any sort of innovation on the part of organization to try something new with the purpose to enhance its market in anyway.
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[Year] Name [Course Name] [Pick the date] GM In China Chinas Economic Overview China with the largest population holds an integral position in worlds economy. It holds the position of the second largest economy based on GDP and Purchasing Power Parity with U.S.A on the top. China is the major exporter and second biggest importer of commodities that marks its trade surplus, which was about $35 billion in May of 2014. This factor gives China an edge over its trade rival, America that is a service-based industry. China is a socialist economy, which means that manufacturing and logistics of every industry is owned by the state. Being a socialist government has its own pros and cons. The most considerable advantage is that there is economic stability in the country. Organizations are less affected by fluctuations of business related activities, as the matter of availability of raw materials, provision of competent human resource and other factors of production is the responsibility of the state. The state tries to ensure that social equality persists in the state and in order to achieve that, the government imposes certain rules and regulations with the intention to consistently provide resources to the population. The disadvantages of this system are that the organizations have to follow a standardized work that is set by the government. The government bodies control how much to produce and what to produce; this limits any sort of innovation on the part of organization to try something new with the purpose to enhance its market in anyway. China has successfully used this form of economic system to its advantage and although socialist economic system provide a lot of restrictions, which a privately owned company may not be accustomed to but still China attracts many multinationals that generates exuberant amount of foreign direct investment. The reason why China is such an attractive market for MNC is due to its great population and cherry on top is the purchasing power parity (PPP) of that population is very high. It is also reported that China may surpass America as being the number one economy of the world by 2014. This assumption is based on the recent calculation of PPP, which is likely to cross that of America. Industry Analysis One of Chinas main industries is the automotive industry. China holds the position of being the largest unit producer of automobiles in the world since 2008, beating entire European Union and Japan as well. China is the biggest populated place in the world, which has exceedingly high demand for all kinds of automotives. Majority of units produced by the Chinese manufacturers are utilized to meet demand of China but still exports reached 814,300 units in 2011. Chinas local companies hold 44.3% of the automobile production. Some local manufacturers are Dongfeng Motor, FAW Group, SAIC Motor and Rowe etc. The rest of the production share is owned by joint ventures with foreign companies like Volkswagen, Honda, Nissan and General Motors etc. With such a high demand and supply all of the stakeholders of the automobile industry benefits. Due to this foreign investors are motivated to enter Chinese market, this helped Chinese automobile industry to evolve with respect to technology and design etc. This increasing demand worldwide resulted in high exports. With such a huge numbers of automobiles in China and the industry growing rapidly, government is worried about the fuel consumption and in turn the pollution caused by this industry. Government is fixated on making clean, fuel-efficient and environment friendly vehicles that is why Chinese government is focusing on promoting alternate fuel vehicles and electric vehicles. General Motors General Motors (GM) is home to worlds most renowned car brands like Buick, Cadillac and Chevrolet etc. GM is a multinational company with its headquarter residing in Detroit, Michigan. It is present in 37 countries and it also has a number of joint ventures like Shanghai- GM and SAIC-GM Wuling in China and Ghandhara Industries in Pakistan etc. General Motors had a hard financial time in the automobile industry of the world, which includes the claim of bankruptcy in 2009. It revamped its status of leading manufacturer in 2010 by earning $4.7 billion and in 2011 GM had a market share of 11.9 % in automotive industry worldwide. It faced a crippling issue in 2014 in America when an ignition problem in its small cars resulted in 13 deaths. Department of Transportation imposed a $35 million fine on GM for delaying the recall of cars. GM recalled 800,000 of its small cars in May 2014. This issue resulted GMs profits to fell to around $108 million in the initial three months of 2014. Problem statement How to formulate strategies when facing issues like copying of overseas vehicles designs and fake branding of components? In addition, inflation was on a rising path; further the government was uncertain about monetary, fiscal and investment policies.
Challenges and Economic Analysis (China) In the beginning GM has created many ventures in china. Since the beginning GM has been creating tremendous profits in china but at the end of year 2004 they were found threatened with several issues. To keep the control of the driving seat the Chinese government has planned to bound the foreign investment to 50% with the government enterprise to have the control in their own heights. As the part of their macroeconomic policies the government of china has imposed a ban on the automobile financing to overcome the restraining inflation. Further more government might allow the foreign exchange rate grow significantly which would as a result decrease the competition in China vehicle industry. Due to tremendous inflationary pressures government has imposed the credit limitation to restrain vehicle purchases. Chinas fast economic growth has supported the point of view that in future more and more Chinese would purchase the car. As per the exhibit 3, Due to un-equal income allocation as a result of which top 20% of the Chinas population would soon be able to buy vehicles. Since the Chinas economy is getting better day by day so the risk associated with its economy and industries are very low. Chinas economic liberty score is 52.5, assembling its economy or financial system the 137th freest in the year 2014 Index. Its general score is 0.6 point superior to last year, with unassuming development in investment autonomy, business independence, and monetary liberty outweighing decline in liberty from dishonesty or corruption, labor liberty, and the administration of government spending. China is now ranked at 29th out of 42 countries across the Asia Pacific area, and its on a whole score remain on a lower side than the worldwide averages. Porter Five Forces Model The porter five forces model examines the market conditions with respect to the ease of doing business. It examines the extent to which different market forces are capable of driving demand and controlling profit terms for the companies in the market. It also determines the extent to which external forces may affect the performance of companies in the respective market.
Threat of new entrants is low The overall threat of new possible participants in the automobile industry of China is low. This is because in order to enter this market, a company needs significant initial capital for investment in technology and certain necessary facilities like processing, assembling, warehousing, transportation and meeting quality standards. New entrants will face difficulties in installing plants since they need a huge amount of capital. Bargaining power of buyers is high The economy and the financial system of the country is departing towards betterment day by day. The lifestyle of people of China is also improving. This means that they are becoming economically stable. However, the population of China is well over a billion, which means that there are different market segments with different preferences. Most of the Chinese look for better prices before making a purchase. Due to greater competition from the local companies, which provide cars at lower prices and with a great deal of variety, the bargaining power of buyers is high. Bargaining power of suppliers is medium The bargaining power of suppliers is medium. The reason for the medium buying power is that these suppliers and companies both actually go for strategic alliances. Since the supplier is an important aspect to attain overall success, so a company always tries its level best not to lose that supplier so that the quality standards can be consistent. Similarly, a supplier always tries its level best that its strategic alliance with a certain company should be aligned and run smoothly without any hurdle because when a supplier looses a contract so he will for sure face some serious lose in market reputation. Degree of competitive rivalry is high The competitive rivalry in the automobile industry is high. The Chinese automobile market consists of large domestic competitors. These competitors compete head to head in the national as well as international markets. The main competing aspects are price, variety and quality differentiation. In China, cost of labor is low and the government supports the automobile industry so the competitive rivalry is high. Threat of substitution is high The threat of substitution is high because there are so many other alternatives to the vehicles. People may consider traveling through the local trains and other passenger vehicles instead of cars and buses in order to save fuel and other maintenance cost. In China these local train system has a vast network, which is advantageous for the people and can be considered as an effective substitute. Excellent mass transit system provided by government of China makes the threat of substitute high for the automobile industry. PEST Analysis Political In China, automobile companies play an important role in the efficiency and growth of the Chinas economy. It is now one of the largest unit sellers of automotives in the world, the reason for the sustainable growth of the automotive industry and automobile companies consistently nurturing in Chinas economy is the constant attention from the Chinese government. It is a known fact that the Chinese government favors local manufacturers to the extent that foreign companies find it difficult to compete in Chinas market. Nevertheless, foreign automobile companies are dying to enter China due to its large population and higher demand of vehicles, as per capita income has increased and is rapidly growing. The socialist government of China does not favor foreign investors thus; the new policy released recently further restricts foreign investment in this sector. Economical Automobile companies have outperformed the sector in terms of the overall turnover growth. This was evident as aggregate demand increased in China and abroad for cars manufactured in China as Chinese cars are noted for good quality in good price. The demand for vehicles in China has been derived from the increase in purchasing power parity of Chinas economy. This is stated in the light of the reality or a fact that there are more than 6000 automobile companies that exist in the Chinese market and this number is growing rapidly. Socio-cultural The Chinese culture is an important aspect of the market. It is important to understand the culture in order to provide relevant products for the target market segments. Chinese society is normally illustrated as the multifaceted creation of three classifications of thought, which includes Taoism, Confucianism and Buddhism. The local Chinese people are now in favor of purchasing the midsized cars, which is relatively less costly. Technological The technological infrastructure in China was underdeveloped. The automobile industry needs to be highly developed specifically when it comes to technological infrastructure. China does not have an excellent technological infrastructure to support the aggressive global automobile industry. At this time United States of America and another giant Japan are leading in this regard. To overcome the issue Chinese government has planned to attract the foreign investors but by having control in their own hands. entire world. SWOT Analysis In order to make a judgment regarding the future of General Motors in China and to determine which path will be most sensible about fulfilling its needs and to achieve its strategic objectives; it is important that the strengths, weaknesses, opportunities and threats of the company should be properly analyzed. Moreover, in order to determine where the company should look to capitalize in the market and where do the threats lie for the company; it is even more significant to appreciate all the perspectives from different angles that the Chinese market possess. Strengths Global existence Aligned vision Strong existence in China Range of brand names Large market share Financial stability
These strong factors allow the company to maintain a high brand image in the customers mind. It also helped the company in creating goodwill in the market earlier on at the time of entry. It reacts well to the local market preferences and creates market specific range according to the preference of the local Chinese people. Their global existence and aligned vision helps them to achieve their strategic goals here in China as well. World famous automobile brand names are associated with the General Motors, which play a vital role in achieving strength in China. GM has the biggest market share in China, which results in strong financial stability and allows them to pay out extra on research and development to overcome upcoming competitions. Weaknesses Poor Organizational Structure China in WTO, result in Weakness of strategy for GM. Out dated technology Expecting decrease in profit. Huge reliance on US markets
Across the globe, including America General Motors have been facing the poor organizational structure issue, since there is a requirement of proper communication platform between employees from the top to bottom; which has not been successfully provided by the company to its employees. China in WTO, result in Weakness of strategy for General Motors in a way that this will allow new players to enter into the market that will be an addition to the previous hurdles and this will weaken the strategy of the company, specifically in China. As compared to US and Japan, the Chinese market is lacking in technology, which threw the General Motors in China at the back. Opportunities Opportunities in promising marketplaces Increasing demand for electric/hybrid vehicles Increase in buying power Change in living standards Global import and export opportunities. They can make an excellent use of opportunities associated with this industry and country as well. General Motors trusted brand image will help them to grab and work upon these opportunities in an optimistic manner. Increasing demand for electric/hybrid vehicles can be the biggest opportunity for General Motors because this technology is new so customers will try their level best to purchase it from the trusted brand name. Across the globe, buying power of customers is increasing so this can be an opportunity for General Motors to produce more and more units and try their level best to be price conscious Threats Changing consumer need for new category, model and style Intense competition Fuel prices Weakness in Global Automobile Industry (commercial Vehicles) Raw material and Supply cost.
There is a growing presence of competitors across the globe and in China as well. This means that the organization in this automobile manufacturing industry will be more aggressive in their marketing and distribution strategies with the intention to give a try to increase their market share through reduced pricing and differentiation. Fuel prices are increasing in rapidly across the globe, which can be a major threat for automobile industry because the customer may switch to the mass transit systems. The suppliers have increased the raw material prices that have now become a threat to the automobile industry because this will force them either to increase the price or to reduce the quality of the vehicle.
Strategic Position and Action Evaluation Matrix (SPACE) Financial Strength (FS) Environmental Stability (ES) Return on Investment + 6 Technological Changes -2 Leverage +4 Rate of Inflation -3 Liquidity +3 Demand Variability -1 Working capital +6 Price of competitive products -4 Cash Flow +5 Barriers to entry -2 Ease of Exit +4 Competitive pressure -3
An aggressive profile propose leadership strategy; the business is in a situation to put in more capital and can bring in new market offerings, market development and product development, which can be genuine options here. GM in China is a well-established company from all aspects. They can invest more money and can go for both market development and product development. The score at the space matrix is ES+ FS = 2.33 and CA+IS = 2.5 which at the graph reflects an aggressive profile. In an aggressive profile, a company is in stable position to look forward for more aggressiveness in terms of product development, market development and required diversification.
Balanced Scorecard The balanced scorecard is an organizational tool that is widely used in industry, business, non-profit organizations and by governments globally to bring into line all industry and business activities as per formulated in the final strategy, overall mission and vision of the company. It also helps an organization to progress and develop external along with internal infrastructure and keep a check on business performance against strategic goals.
The balanced scorecard consists of four components. These four components include the financial, internal, learning and customer perspectives.
Financial Perspectives GM China has incorporated with six different business groups. They have been spending millions of dollar as investment in terms of strategic alliances with different business groups. The company has contributed over 2 billion dollars in China. As per the statistical data, GM China was earning remarkably elevated profits by the year 2004. The statistical data shows that GM China and its Chinese partners put together combined net earnings of around $875 million or in another way, they actually earned around $2,267 on per unit sale as compared to last year sale, which was relatively low from the current year. Last year GM North America earned around $811 million on sales of nearly 5.6 million vehicles and earned $146 profit on per unit sale. This reflects that GM China is around 15 times more profitable as compared to GM North America. Internal Perspective GM China has been producing high quality vehicles. Their performance reflects that they are internally sound and continuous product innovation leads them to success. Due to excellent performance in terms of financial perspective, their shareholders look satisfied but as per the case in upcoming years, they may face some issues that will create some hurdles in achieving strategic goals and desired mission. As per the survey, the new government policies may create a serious hurdle for the companies including GM China in implementing their further expansion plans. Therefore, to overcome such issues they must further align their internal standpoint.
Learning and growth perspective Since automobile in China on domestic level is facing some issues of lacking in technological aspects, production potential and somehow managerial capabilities. To overcome the issues, government has come up with a strategy for allowing 50% of a foreign partner into business so that government or local partner can have the control as well. GM China is threatened by the arrival of new foreign competitors who may be more advanced in technological perspectives; therefore, to overcome the issue they must focus on their learning perspective and come up with more training sessions specifically for their R&D department, which will help them to differentiate their vehicles from their competitors. Customer Perspective In customer perspective, the focus is on increasing customer satisfaction and making customer loyalty strong as much as possible. GM in China is doing a tremendous job but due to expected competition in terms of technology, they may face some issues. As per the statistical data of 2004, customers are shifting towards the less expensive models in a huge quantity so now GM must work on this issue of producing less expensive vehicles for customer. Financial and Economical Assessment 1999-2014 In 1980s China started rising economically and showed some great performance year by year. As per the provided statistical data, from the year 1999 onwards the economical and financial position of China is satisfying. Analysis can be better performed through the analysis under different head.
Gross Domestic Product The GDP growth of China ranges between 8-9. The Average GDP growth rate of China is 7.98% between the year 1999 2003. GDP growth added as per year wise (1999-03)= 7.1+8+7.5+8+9.3 = 39.9 = 39.9/5 = 7.98
Current Situation Chinas economy and financial system cultivated at a very slow speed in last 18 months in the very opening quarter of the year; elevate doubts that the government or administration will fail to spot its 2014 growth objectives. GDP formally known as gross domestic product amplified by 7.4% in contrast with the similar era a year prior, which followed 7.7% expansion in the last quarter of 2013. Chinese cream of the crop is targeting an increase in GDP of 7.5% this year. It was a very slow pace of expansion in the world's succeeding biggest economy or the financial system since the second last quarter of 2012, as per the National Bureau of Statistics data (NBSD), but it was quicker than the 7.2% enhancement forecasted by some economic experts. The dawdling growth rate will elevate assumptions of new stimulus from Beijing, as per Mr. Michael Hewson, who is the chief market forecaster at extend gambling firm, CMC Markets. "It is the quite tepid nature of some of the statistics that will encourage assumption about additional act from Chinese establishment as they look to meet up their 2014, 7.5% growth objective. The truth is, these figures won't slash it and, given the lack of capacity Chinese establishment have in admiration of additional stimulus measures because of shadow banking considerations, the problem is that the 7.5% gross domestic product objective may get repeat inferior in the upcoming months."
Recommendations The General Motors will be coming across numerous issues as mentioned in this analysis. They have been surrounded by several issues, which may occur in near future. The changing economic situation and overall industry situation, which is expected to occur in the future, may hurt the companys strategic approach and policies. As mentioned in the case General Motors is doing a good job currently. First of all, they need to redesign their new strategy in the light of economic fluctuations and governments agreement with world trade organization in a very professional and workable manner. This recommendation is viable for the company in the long run, as it will allow the company to build on its resources and capabilities on professional approach. Moreover, General Motors must focus on the technical competitive advantage of the company because the competition is expected to increase soon and the demand for electric as well as hybrid cars is rising across the world, so it is certain that customers will ask for these cars. They must technically align themselves in a way that they must set all their plants before time, which will incur high initial costs; however, the long-term benefits outweigh initial costs for the company. In order to remain competitive in the market, it is important for the company to establish such added capabilities so that it will be able to provide competitive advantage and pricing in a highly competitive market. Moreover, the company will be able to maintain its quality vehicles production at lower operational costs as it is among the massive pioneers. They can also acquire some small manufacturers to grab more market share and technical expertise. They must design a new R&D department to produce excellent electric or hybrid cars in a cheap price as much as possible because people of China are looking for midsized cars, which makes it obvious that they are not that much expensive. They must analyze the world trade organizations agreement with the Government of China to predict sales and growth for both the industry and the company itself. Action Plan Objective Action/Activity Target dates Status GM must develop the Action plan against the expected issues, which may occur soon. Generate Immediate plan based on highlighted report. Start From Year 2004 Needs to be done GM must overcome fake branding and copying issues. Create a department that will look at these issues regarding the copying of designs and must take the legal action (if required). Develop draft by 12/31/04 and get it approved. Needs to be done Define need and wants and grab the new expected opportunities ( Conduct Research From Customer Perspective) 1.Identify research team members and ask them to design research plan. 2.Review research analysis within past five years and upcoming 5 years. Start Immediately Needs to be done Create a team to look after the expected financial and economical fluctuations. Perform trend analysis, generate the expected outcomes regarding future fluctuations, and predict future possibilities in the light of current government policy. Develop draft by 6/30/05 and Provide suggestions.
Needs to be done Appendices Porter Five Forces Model
Degree of Rivalry is High -The competitive rivalry in the automobile industry is high. The Chinese automobile industry consists of large domestic competitors. The main competing aspects are price, variety and quality differentiation. Threat of New Entrants is Low - The threat of new entrants in the automobile industry of china is low. - In order to enter this market, a company needs significant initial capital for investment in technology and certain necessary facilities like processing, assmebling plants and transportation. Bargaining Power of Buyers is high -The economy of the country is going towards betterment day by day. - The lifestyle of people of china is also improving. This means that they are becoming economically stable. - Most of the Chinese look for better prices and quality both before making a purchase , specially when it comes to automobile industry Threat of Substitute Products is High
The threat of substitution is high because there are so many other alternatives to the vehicles. - People may consider travelling through the mass transit system instead of personal cars. Bargaining Power of Suppliers is Medium - The suppliers have medium bargaining power. The reason for the medium buying power is that these suppliers and companies both actually go for strategic alliances, therefore if supplier losses contract so he may suffer a serious loss. Pest Analysis
SWOT Analysis
Politcal situation Suitable in China. Insutry supportive enviornment. Political Econimoically Established Country Huge Potential in market Economical Diversiifes believes. Culture given importance and midsized cars prefered. Social Lacking in Technology as compared to US and Japan. Technological Threats Opportunities Weaknesses Strengths
*Established global brand image *Diversified range of products *Strong financial position *Market leader in China *Poor Organizational Structure *China in WTO, result in Weakness of strategy for GM. *Out dated technology *Expecting decrease in profit. *Huge reliance on US markets
*Changing consumer demand for new model types and styles *Intense competition *Fuel prices *Weakness in Global Automobile Industry (commercial Vehicles) *Raw and Supply material cost
*Opportunities in promising marketplaces *Increasing demand for electric/hybrid vehicles *Increase in buying power *Change in living standards *Global import and export opportunities. Balance Score Card Prespective
Financial Perspectives Esxtremly healthy Profits Per unit profit is $2,267 Overall financial position is Established Internal Perspective Performance reflects that they are internally sound and continuous product innovation leads them to success and stake holder are satisfied.
Learning and Growth Perspective GM China threatened by the arrival of new foreign competitors who might be more ahead in technological perspectives and more need to spend on R&D.
Customer Perspective Customers are shifting towards the less expensive models. Cutomers want solution for expensive fuel issues.
Strategic Position and Action Evaluation Matrix (SPACE) Y axis X axis Financial Strength (FS Return on Investment Leverage Liquidity Working capital Cash Flow Ease of Exit Risk involved in business Industry Strength ( IS) Growth Potential Profit potential Financial stability Technological Know-how Capital intensity Ease of entry Productivity, capacity utilization Environmental Stability (ES) Technological Changes Rate of Inflation Demand Variability Price range of competitive products Barriers to entry Competitive pressure Price elasticity of demand Competitive Advantage (CA) Market Share Product Quality Product life cycle Customer loyalty Competitions capacity utilization Technological know-how Control over suppliers and distributors