CASE STUDY ANALYSIS BUSINESS STRATEGY AND ENTERPRISE MODELING
Does GM’s Future Lie in China?
By : Annisa Kharina (29115699) Karina Permata Sari (29115447)
Master of Business Administration Program School of Business and Management Institut Teknologi Bandung
TABLE OF CONTENTS
Chapter 1: Case Synopsis........................................................................................................3 Chapter 2: Issue Identification................................................................................................4 Chapter 3: Related Theories...................................................................................................5 3.1 Differentiation Strategy.................................................................................................5 3.2 Corporate Diversification..............................................................................................5 3.3 Leveraging Core Competence for Corporate Diversification....................................5 Chapter 4: Case Analysis and Solution Chapter 5: Conclusion and Recommendation Chapter 6: Lesson Learned REFERENCES LIST OF FIGURE Figure 1. The Core Competence-Market Matrix
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Chapter 1: Case Synopsis
Does GM’s Future Lie in China? With the size of the U.S automotive market, the “old” GM concentrated mainly on its domestic market. GM once held more than 50 percent market share in the United States and was the leader in global car sales (by units) between 1931 and 2007, before filling for bankruptcy in 2009. The future for the “new” GM may lie overseas, however; most notably in China. Some 70 percent of GM’s revenues are now from outside the United States. GM sold more than 3.6 million vehicles in China, 37 percent of total GM cars sold. The Chinese market is becoming more and more important to GM’s performance, accounting already for almost 30 percent of total GM revenues of some $155 billion (in 2014). China offers tremendous growth opportunities for the automobile industry. Since China joined the World Trade Organization (WTO) in 2001, its domestic auto market has been growing rapidly and has now overtaken the United States as the largest in the world. Although the growth of the Chinese auto market has slowed in recent years because of the economy’s downturn, GM CEO Mary Barra remains convinced that China offers significant long-terms growth opportunities. In 1997, GM formed a joint venture with Shanghai Automotive Industrial Corp. (SAIC), one of the “big four” Chinese carmakers. GM’s China operation has been costcompetitive from day one. Even though the company operates about the same number of assembly plants in China as in the United States, but the company sell more vehicle in China than in United States, even with half number of employees that U.S branch had. The SAICGM joint venture sold almost 2 million Wuling vehicles in China in 2014. The Wuling Sunshine may help GM further penertrate the Chinese market. GM’s low-cost strategy with this vehicle has been so successful that the firm is planning to expand the Wuling product line and offer the vehicle globally. Taken together, China and other emerging economies in Asia, Latin, America, and the Middle East are becoming more and more critical to GM’s future performance as its strives to become a lean and low-cost manufacturer of profitable small cars. Yet, given the slowndown in the Chinese economy combined with devaluation of the Chinese currency (the yuan), the competitive intensity in the world’s largest automobile market is becoming more intense. In contrast, low gas prices in the United States have fueled high demand for sport utility vehicles (SUVs) and trucks, where GM and Ford hold strong positions. 3
Chapter 2: Issue Identification 1. What explains the resurgence of the ”new” GM in the United States? Do you think GM can sustain its competitive advantage in the United States? Why or why not? Buttress your arguments. 2. How important are non-U.S sales to GM? What implications does this have for GM’s global and business strategy? Think about the integration-response framework to inform global strategy and different strategic positions to inform business strategy. 3. In 2014, GM held almost 15 percent market share in China, while Ford held only 3 percent. Why was GM so successful in China, while some of its rivals, including Ford, struggle to gain a stronger position in the world’s largest automobile market? 4. What are the challenges GM is currently facing in the Chinese automobile market? How should GM’s CEO address them? Be specific.
Chapter 3: Related Theories 3.1. Integration Strategy
Chapter 4: Case Analysis and Solution 1. The Resurgence of the “New” GM and its Competitive Advantage in U.S Market The change from “old” GM into the “new” GM is due to their dismal domestic performance in United States. GM once held more than 50 percent of the U.S auto market and was undisputed leader in global car sales between 1931 and 2008. But due to the bankruptcy in 2009, it is necessary for GM to look for other opportunity aside from domestic market. This lead to the transition of their target market from domestic market in United States (“old” GM) into outside United States which most notably in China (“new” GM). Now some 70 percent of GM’s revenues are from outside United States. The Chinese market also becoming more and more important to GM’s performance, which gives 30 percent of total GM revenues of some $155 billion (in 2014). This “new” GM gives clarity in GM’s overall performance as they now see opportunity outside the domestic market and make the most of it. In our opinion, it depends on GM itself in order to sustain its competitive advantage in United States. And do not forget that external environment in United States could affect U.S automotive industry which means this 4
could affect overall GM’s performance too. At that time in United States, during automotive industry crisis which happened in 2008-2010, GM were in weak financial condition, and this happened not only for GM but their competitors too which are Ford and Chrysler. With the beginning of an economic recession, this leads to financial crisis and those three automakers looking the federal government for help. GM absolutely cannot sustain their competitive advantage, as they were losing billions and running out of cash. That is why the “old” GM ended and begin the “new” GM outside United States. But, this does not mean GM will not ever sustain their competitive advantage in United States again. With the high demand for sport utility vehicles (SUV) and trucks due to low gas prices in United States, GM can use this opportunity to sustain their competitive advantage in United States. Despite the company’s bankruptcy and reorganization in 2009, GM remained the largest automotive manufacturer in the United States, where it holds over 17.3% market share. This strong position in the U.S might provide the company an additional competitive edge against their competitors like Ford, Toyota, and Chrysler. In order to sustain its competitive advantage in United States, GM should consider pursuing integration strategy, which focus in offering high value of differentiated SUV, trucks, or autonomous car at low cost. With the increasing demand of pickup trucks and SUVs, GM could strengthen their competitive advantage in the growing market for these vehicles to increase company’s profitability. These strategy could help GM’s overall performance in United States if GM nailed in both differentiation and cost-leadership strategy. 2. The Importance of non-U.S sales to GM and its Global Strategy 3. The Reason behind GM’s success in China 4. The Challenges GM currently faced in Chinese Automobile Market and How to Assess it as an CEO of GM.
Chapter 5: Conclusion and Recommendation
Conclusion
Recommendation
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Chapter 6: Lesson Learned REFERENCES Frank Rothaermel, 2014. Strategic Management: Concepts. 2nd Edition. New York: McGrawHill Education http://www.forbes.com/sites/danbigman/2013/10/30/how-general-motors-was-really-savedthe-untold-true-story-of-the-most-important-bankruptcy-in-u-shistory/#134da3275acc (Accessed at January 31st, 2016 at 01.00 P.M) General Motors (2016). Annual Report 2015. Available at: https://www.gm.com/content/dam/gm/en_us/english/Group4/ (Accessed at January 31st, 2016 at 01.50 P.M)
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