International Business Strategy: Chery Automobile Company

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Table of Contents

Executive Summary
Introduction
Why Organizations decide to internationalize
Chery Automobile motivation for internationalization
Chery Automobile entry strategy
Corporate Strategy
Functional analysis of Chery Automobile
Conclusion
Reference List

Executive Summary

Internationalization has increased across the world as a result of globalization. Different theories of internationalization exist, but with much Western bias. This in turn makes their application to developing economies problematic. The need to international and the subsequent internationalization mode that each company adopts depends on numerous factors.

Chery Automobile Company is a China-based Company that internationalizes in order to expand its market. Throughout the analysis, Chery’s internationalization strategies are linked to the need for the company to acquire technology, obtain managerial know-how, and acquire new markets.

Through cooperation and strategic alliances, Chery has been able to achieve a lot, and today, the company is one of the leading automobile companies across the world.

At the same time, it is established that firms from developing economies prefer strategic alliances as a way of being uncertain of foreign environment, intend to reduce costs and risks, and strategy to learn and adapt while progressively expanding and accessing foreign market.

Overall, it is established that the strategy each firm adopts depends on multivariate factors, both present in internal and external environments of the organization.

Introduction

Globalization continues to transform the world, both in developed and developing societies. The success of globalization remains reflected in increased modern communication, growth of political democracy, transportation, and improved infrastructure, whereby, these aspects have opened markets in different countries for international trade and finance.

Today, many organizations are breaking down geographical barriers to set up operations in different parts of world and as a result, transnational operations characterize modern world. Organizations decide to internationalize their operations due to different reasons, but in most cases, the objective is to realize growth and sustainability of the organization (Susman, 2007).

Chery Automobile Ltd, a China-based private company, has adopted internationalization strategies with an aim to access European market. Therefore, this assessment research will use this as a case study to investigate the motivations behind Chery’s internationalization strategies, and the company’s corporate strategy that stimulate internationalization activities.

Why Organizations decide to internationalize

Internationalization activities are prevalent in today’s world, and theories that explain this tend to be ‘western-biased’, although their usage in developing societies cannot be ignored (Athreye and Kapur, 2009). Johnson & Turner (2003) identify four major categories of factors that motivate firms to move to foreign countries, which are resource seeking, market seeking, efficiency seeking, and strategic base seeking.

Griffin & Pustay (2005) further split these factors into supply and demand factors, sometimes finding it impossible to exclude political factors (Wen, 2007). Supply factors include saturation of the domestic market, desire to spread risks, public policy constraints, economic conditions, and even increased taxes.

On the other hand, demand factors constitute unexploited markets, pre-emption of rivals, access to new management, and promising technological power in foreign markets (Wen, 2007, p.19).

At the same, the works done by Dunning et al. (1981) provide formidable grounds as to why organizations would want to move to foreign markets, and through the author’s eclectic paradigm theory, three sets of factors – ownership factors, location factors, and internationalization factors (OLI) – provide reasons as to why organizations internationalize (Knights and Willmott, 2006, p.454).

Chery Automobile motivation for internationalization

Developing economies possess economic, political, social, and legal aspects that are dissimilar to those of developed economies. China is one of the emerging economies that possess strengths for its local firms to internationalize and opportunities for foreign firms to exploit its vast market.

Athreye and Kapur (2009) observe that developing economies’ firms tend to move to foreign markets in order to acquire strategic assets such as technology, brands, and also access raw materials and distribution networks. Child & Rodrigues (2008) argue that majority of “Chinese firms have internationalized not so much to exploit competitive advantages, but to address the competitive disadvantages incurred by operating in exclusively domestic markets” (cited in Athreye & Kapur, 2009).

Nevertheless, Mathew (2006) develops ‘linkage, leverage, and learning model’, which explains why many firms from developing nations move to foreign markets (cited in Watkins & Ehst, 2008, p.103).

According to the model, the desire to move to foreign markets arise from the need of latecomer firms to use global linkages to leverage on their existing cost advantage and at same time, be able to learn about new sources of competitive advantage (Easterby-Smith & Lyles, 2011 ). As a result, many firms that internationalize from developing nations largely aim to secure stable supply, avoid coordination problems, and reduce transaction costs (Athreye & Kapur, 2009).

Chery Automobile Company’s case for internationalization can be associated with the above reasons, together with the following other reasons. For example, World Investment Report (2006) ascertain that majority of Chinese firms moving to foreign markets do so with the aim of gaining access or proximity of overseas markets (Athreye & Kapur, 2009).

This is linked to desire to improve access to foreign markets that seem promising, even though many protectionist barriers may exist. Furthermore, firms are motivated by desire to seek technology available in foreign markets, which may be vital to growth and competitiveness of the firms. On overall, firms from developing economies internationalize specifically, in the words of Bartlett & Ghoshal (2000), to seize numerous opportunities available in foreign markets (cited in Dick & Merrett, 2007).

What is evident is that majority of firms from developing economies lack unique ownership advantages based on superior technology or even competitive products, and in an attempt to address these shortcomings, such firms decide to go international in order to take advantage in the new context (Sauvant, 2008; Devinney, Pedersen & Tihanyi, 2010).

Chery Automobile entry strategy

Internationalization to foreign markets takes different forms depending on both internal and external aspects that an organization may face. However, for a long time now, the major forms or entry strategies firms have used to access foreign markets include cooperation and joint ventures, Greenfield, and mergers and acquisitions (Wen, 2007).

Each of these entry modes possess advantages and disadvantages, which normally require organizations to evaluate particular entry mode that is appropriate, given the organization’s capability, political suitability, and related economic and social aspects. Chery Automobile Ltd started as a private company in China and had to face problems of inadequate capital, lack of government funding, inferior technology, and no resourceful manpower.

As a result, the company lacked competitive advantages that most firms possess when they start. Adopting the paramount Chinese culture of accessing foreign markets, Chery adopted cooperation and strategic alliance modes of internationalization.

Zhang & Filippov (N.d) observes that, China cooperate with other countries on the basis that China has a huge market that excite foreigners, whereas China normally moves to other markets especially in developed nations in order to access the markets, obtain technology, and benefit from managerial know-how in those countries.

Cooperation and later strategic alliances that Chery Automobile favored can be linked to Chery’s start-up and young nature. The essence here is that Chery lacked huge government support in terms of funding, which could enable it adopt acquisition mode of internationalization.

Therefore, strategic alliance was regarded by the company to be more affordable and risks involved were way below as compared to acquisitions.

At the same time, Chery belongs to companies that can be regarded to be on way of ‘catching up’, and these companies are always boggled by feelings of uncertainty, tend to minimize risks, and prefer to learn first before becoming fully engaged, and therefore strategic alliance become preferred choice (Zhang & Filippov, N.d).

Upon being established, Chery Automobile had to navigate its formation setbacks and the fierce China’s market that big firms dominated, and one way to do this was to cooperate with foreign firms that possessed superior technology. Indeed, Chery entered into collaborative strategic alliances with a number of firms in Europe that subsequently enabled the company to acquire necessary functional technology, and access European market with ease. In addition, the company increased its marketing skills and technological capability.

Further, strategic alliances provided the company with chance to reduce its risks and confidently improved quality of its products. As a result, Chery Automobile’s strategic alliance moves aim at learning vital aspects of the foreign market and of the cooperating partners, with an eye also on reducing costs and risks through sharing present in strategic alliances (Zhang & Filippov, N.d).

The pay-off of this mode of internationalization has enabled Chery to establish itself as one of the largest automobile in European market and China, as well as in the larger Asian region.

Corporate Strategy

Corporate strategy that Chery Automobiles has adopted revolves around increasing presence in foreign markets, especially where potential opportunities exist for growth (Chery International, 2008). The company’s corporate business principles have been framed on the need to increase foreign export and service of foreign market, what has become popularly known as ‘going out’ (Chery International, 2008).

This should not mean that the company ignores the local market, since the overall corporate strategy of the company can be captured in the guiding and influential company’s corporate philosophy the company has adopted. The company believes that, “no stability without domestic market, no strength without overseas market, and promoting the domestic market with overseas market and flexible mode” (Chery International, 2008).

The viability of Chery’s corporate strategy can be seen to be attached to the company’s increasing adoption and utilization of superior technology, continuous innovation and development, and adoption of management methods and philosophies that are market competitive (Chery International, 2008).

The link of the company’s corporate strategy can be evidenced in the internationalization strategies and benefits the company continues to pursue and derive. For example, Chery is adopting superior technologies from strategic partners and subsequently combining it with low production costs found in China’s market to continue the production of low-cost automobiles that foreign markets embrace more easily.

Furthermore, cooperation and strategic alliances provide the company with opportunity to serve different foreign markets, learn progressively, understand foreign market rules, and establish extensive and productive networks for marketing, logistics, and technology acquisition.

Therefore, corporate strategy that Chery Automobile has acquired with regard to internationalization can be described to premise on the need for creation of innovation culture, coupled with continuous learning, improvement, adaptation, and conquer (Chery International, 2008).

Functional analysis of Chery Automobile

Internationalization motives and strategies that guide Chery Automobile Company have been explained above. Nevertheless, it should be known that all the above internationalization strategies are premised on the larger goal of the organization to acquire, increase, and expand its market share.

As a result, marketing motives direct its cooperation and strategic alliance activities. How is this so? First, it must be known that performance of Chery in China’s market during the start-up phase was boggled by lack of competitive advantage due to lack of capital, technology, human resource, and all what it takes to succeed in China’s environment. Faced with all these issues, Chery’s market share was limited, unstable and perfectly uncertain, a situation that called for drastic actions.

The company perceived technology to be necessary and since acquisition was insurmountable deal, cooperation and strategic alliances with well-developed firms that have superior technologies became inevitable. The aim of Chery was to learn, and learn progressively while adopting technology that could revolutionalize its market share, both at home and abroad.

When strategic alliances became beneficial, Chery increased its cooperation activities with European nations and as a result, the company has remained one of the market leaders in terms of innovation, sales, market concentration, and market control (Chery International, 2008).

Conclusion

Internationalization is a concept that, despite having western countries’ origin, has caught up with developing nations. Today, developing economies boost having enormous presence in foreign market. As expressed in the assessment, developing economies’ internationalization strategies are adopted with the aim of accessing and exploiting new foreign markets, acquiring superior technology, and obtaining managerial know-how.

Compared to firms from developed nations that prefer acquisitions and wholly owned subsidiaries, firms from developing economies tend to initiate cooperation first that results into having greater understanding of foreign market, then progressively learn the foreign market rules and dynamism, before adopting strategic alliances.

In all these steps, developing country’s firms do work to reduce risks, become more confident in the foreign market, acquire technology and necessary knowledge, and then establish presence in the foreign market. Therefore, explaining internationalization motives and strategies employed by firms from developing economies cannot entirely rely on theories developed in developed nations.

Reference List

Chery International. 2008. Overview: Chery Automobile Company Ltd. Web.

Devinney, T., Pedersen, T. & Tihanyi, L., 2010. The past, present and future of international business & management. NY: Emerald Group Publishing.

Dick, H. & Merrett, D., 2007. The internationalization strategies of small-country firms: the Australian experience of globalization. MA: Edward Elgar Publishing.

Easterby-Smith, M. & Lyles, M.A., 2011. Handbook of organizational learning & knowledge management. MA: John Wiley and Sons.

Johnson, D. & Turner, C., 2003. International business: themes and issues in the modern global economy. NY: Routledge.

Knights, D. & Willmott, H., 2006. Introducing organizational behavior and management. OH: Cengage Learning EMEA.

Sauvant, K.P., 2008. The rise of transnational corporations from emerging markets: threat or opportunity? MA: Edward Elgar Publishing.

Susman, G. I., 2007. Small and medium-sized enterprises and the global economy. MA: Edward Elgar Publishing.

Watkins, A. J. & Ehst, M., 2008. Science, technology, and innovation: capacity building for sustainable growth and poverty reduction. Washington DC: World Bank Publications.

Wen, X. F., 2007. The investigation of Volkswagen’s entry strategy in China’s car market, MA Management Dissertation. Web.

Zhang, Y. & Filippov, S., N.d. Internationalization strategy of Chinese Companies in Europe. Delft University of Technology. Web.

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