Geely speeds up overseas expansion

Geely Automobile, now China's third largest passenger vehicle exporter, plans to further its overseas expansion and increase the production capacity through building assembly plants in Brazil, India and Iran, according to Zhang Lin, Geely's Vice President for exports.

The automaker is exploiting international markets and speeding up its overseas expansion by running factories and launching products in other countries, said Zhang, The company aims to export some 80,000 units this year as it sold 40,062 vehicles to overseas markets in the first half, up 199 percent over year-ago.

According to Zhang, Russia, Iraq, Saudi Arabia and Ukraine are Geely's four largest overseas markets. The automaker has operated completely-knock-down (CKD) plants in Russia and Indonesia and plans to launch vehicles created by its CKD plant in Egypt by 2013. Another CKD plant with a capacity of 20,000 units in Ukraine is under preparation and new vehicles are expected to come off the production line by the end of this year. The company has also run semi-knock-down (SKD) plants in Ukraine, Sri Lanka and Ethiopia.

Talking about the expansion plan, Zhang said that they are considering investing more to the Russian factory in order to boost production.  Meanwhile, the company has high expectations for substantial potential of emerging markets like Brazil, India and Iran and perhaps will build factories in these countries.

Zhang said Brazil is a strategic market to Geely, which is negotiating a Brazilian plant now.  Models for Brazil will be offered by its Ukrainian plant, which also sells to Argentina. Brazil is quite a complex market as the government raised the Imposto De Produtos Industrializados (IPI), namely the import duty, last year and now is at the moment adjusting its auto industry policies. Geely is investigating the market with focus on the new plant's location, overall cost, logistics and supply support as the new policies will be introduced in September.

Today China's domestic auto market is experiencing a slow-down period as many global automakers flock to this market, making the competition fierce than ever. That's why overseas expansion becomes necessary for homegrown automakers, which now look to increase of exports to create scale effect, reduce cost and recoup the sum invested. In addition, emerging markets have reached a capacity of 20 million units, providing more growth space for Geely. If an automaker wants to succeed, it must set its target as a global company so as to avoid relying on a sole market.

Zhang also analyzed the competitive advantage of Ford and GM in the market. According to him, Geely plans to start local production there. However, it seems that the automaker cannot enjoy a comparative advantage since it can have a duty-free privilege when purchasing and manufacturing spare parts there. An advantage is that it can develop a model at comparatively low R&D cost since its products for the Brazilian market belong to technology export. Also, size of this investment is an important factor under Geely's consideration.

The company has outlines a cost control scheme based on consuming features of the Brazilian market. It aims at the largest segments of A00-class and A0-class models and plans to provide manual transmissions without air conditioning.

However, low cost is not a fixed path for overseas expansion. Price advantage is a preliminary requirement for a newcomer to obtain a foothold in a market, but long-term development can be achieved through increasing the competitiveness of products and building a brand image. For example, Geely released the Emgrand EC7 in Ukraine with higher pricing than in other markets in 2011 since it had achieved certain brand awareness in the market after seven-year development there and local buyers had recognized its product quality which was enhanced according to the standards of Korean models.

The company plans to update the King Kong and the CK (Freedomship) compact models to extend their lifecycle as there is still demand overseas for Geely's first two export products. Now the Emgrand EC7 has also entered overseas markets, followed by the Panda and Gleagle is in progress to release new models. The company will give a greater focus on SUV models carrying automatic transmissions produced by DSI, the Australian transmission manufacturer it acquired in 2009. The SUV models for export will enter overseas markets in the mid of 2013.

Zhang also reviewed the impact of the acquisition of Volvo on Geely. He said the acquisition made Geely known to more in the international markets as many people believed a company capable of buying Volvo was a strong one, thus building up the confidence of dealerships and buyers in Geely's products.

According to Zhang, the automaker will continue to focus on emerging markets for exports and may not enter European markets in four or five years. As a matter of fact, some of Geely's products have been certified by EU markets and met the local customer demand. It had a try at entering the British market and once aimed at the Italian market, but it has not completed product planning for these markets, so it will not rush into them before getting a deeper understanding.