project 2 s3223466 cao lianshuai

8/9/2019 Project 2 s3223466 Cao Lianshuai

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Chapter 1

Introduct

History

The establishing of First Auto Works (FAW) in the Changchun in 1953 was

represented the beginning of Chinese domestic automotive industry started to

launch in 1950s. In 1956, the first Chinese-made vehicle was produced by

FAW. (Femandez & Liu, S 2007)

Later on, in 1971, the total output of Chinas automotive industry was beyond

100,000 units after a decade of development. However, the total annual

output still under 150,000 units in 7 years which meant the growth remained

slow. In the 1970s although the total number of motor vehicle manufacturingfacilities increased to over 50, most of them were small and with low

production. (Gallagher, K 2006)

In 1980s, China also accelerated its cooperation with automotive industries in

other countries, importing technology and establishing joint ventures due to

the highly centralized control of automotive production was replaced by the

marketed-oriented approach under the circumstance of economic reform.

(Harwit, 1995)

Due to the further adjustment of the strategy of Chinese automotive industry,

the development of passenger car industry was recognized as the first priority

during the 1990s. Meanwhile, the number of personal owned vehicles began

to go up because of the ended of control on private purchase for passenger

car. Therefore, government had to enhance the development of automotive

production as the first priority to satisfy the rapid increasing demand. Later

on, due to the joint venture companies occurred, plenty of modern product

design and factories was imported to China by the foreign automakers and

the quality of vehicle produced in China was increased Unprecedented.

Therefore, the Chinese performance regulations were forced by the more

advanced technologies.

By the end of 1999, there were 2,391 automotive enterprises in china. It

contained 136 motorcycle assemblers, 118 Original Equipment Manufacturers

(OEMs) OEMs (Original Equipment Manufacturers), 546 automotive

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remanufacturers, 51 engine manufactures, and 1,540 automotive components

and parts companies. There were totally 1.8 million people were employed by

Chinese automotive sector and 169,000 of them were engineers and

technicians. During 1999, the total assets of automotive sector was RMB

508.7 billion which was $41.1 billion and the total output was RMB 341.1

billion which was $ 41.1 billion. (Zhang, 2004)

1 Current situation of Chinese auto industry

China has been recognized as the worlds largest growth market for

automobile by all over the world. It was mainly displayed in the dramatically

increasing rate for the automobile demand and it seemed like no ceiling for

this increase. This growth also stimulated demand for relative sectors like

automotive parts, services after sale, and products after-care. At current, the

relatively advanced technology which compared with previously enabled

China to produce the full line of automotive products and establish the large

automotive enterprises. The leading edges contained China First Automobile

Group Corp. (FAW), Dongfeng Motor Corp. (DMC) and Shanghai Automotive

Industry (Group) Corp. (SAIC) played a significant role in the Chinese auto

industry.

The total number of Chinese automotive enterprises had been achieved 6,322

compared with 2,391 by the end of 1999 which means three times in the

speed of development within the seven years. The total output value of the

automotive sector had been achieved $ 143 billion in the first three quarters of

2006. Moreover, thanks to the highly growth of annual income, nearly 50

percent of motor vehicles which included cars and trucks had been purchased

by individuals in China. (Domansky, 2006)

Recently, Chinese automobile industry is experiencing the tough time on

account of the countrys macroeconomic adjustment and global financial

crisis. Shang and Zhou (2008) indicated that the imported vehicles cheaper in

Chinese market tended to cheaper because of the depreciation of US dollar.

In addition, auto consumption would be a more expensive option on account

of the rising global oil prices and Chinas fuel tax and it would dampen a batch

of potential automotive buys. (Shangguan, 2008)

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2 Research problems

The Chinese automobile industry has developed dramatically and became

one of the largest national automobile industries within the last 10 years. As a

result of the high number of domestic car brands (more than 40 differentbrands) there is strong competition on the Chinese domestic market. Although

the trends of growing is the positive to Chinese auto industry we can not

ignore that the Chinese auto industry is actually on the stage of immature and

lots of aspects should be optimized. For instance, Chinas production capacity

is very high but the utilization rate is low. The situation of high supply and low

demand causes prices to plummet. Therefore for models that are not selling

well, the investment and depreciation is such a huge cost element that it is

hard to justify keeping the production in the market. All of these circumstances

reflect the weakness points of Chinese auto industry. However, for a

developing country like China this is the only way which must be passed to

the success. In this paper, Toyota production system (TPS) would be the

guidance of theory and combine with specific circumstance of auto industry in

China to find out whether the Toyota production system could optimize

manufacturing process and improve the efficiency and eliminate the waste.

3 Aims and objectivesBase on the current status of Chinese vehicle manufacturing industry, the

quality improvement seems like the main issue to deal with. Moreover, a high

level of quality makes the Chinese vehicle more competitive and takes more

market share in the world vehicle industry.

This paper aims to examine the current situation of Chinese auto industry in

terms of internal and external aspects. An independent automotive producer

which is Chery would be the case to study. Base on the guidance of Toyotamanufacturing system analyze and identify the advantages and disadvantage

would expect to achieve. Moreover, the recommendation of improvement for

Chinese auto industry and future vision would expect to given as well.

This paper would focus on the following objectives:1. Describe and analysis the automotive industry in China

2. Introduce the Chery Auto company and the position in the Chinese

automotive market

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3. Base on the literature review, build up the framework of knowledge about

the lean thinking and Toyota production system

4. Utilize the characteristic analysis to understand the status of Chery and

the main issues involved

5. Some recommendation would expect to be given for improving the

performance of Chery Auto company

6. A future vision for the Chinese automotive industry would expect to draw at

the end of research

4 Research questionsIn order to achieve the research objective some research questions would be

prepared to find the answers in order to establish the framework of theresearch and the answers would be contributed to solve the research

problems. Sort of research questions are listed as follow:

1. What is the current situation of the Chinese automotive industry

2. What is the main gap between Chinese and leading auto producers in the

world and what kind of advantages of Chinese automotive producer obtain

3. In what extent that Chinese automotive producers references the

advanced production system like Toyota Production System and how do

they put the theory into the practice of Chinese automotive industry

4. What are the main problems does Chery has during the manufacturing

process

5. What the main strategy for Chery Auto Company to improve the product

quality and reduce the unnecessary waste.

6. Does Toyota Production System can be utilized to optimize the situation of

Chinese automotive industry

5 Research Methodology

5.1 Data collection method

In order to analysis the circumstance of Chery more comprehensively,

interview with Cherys managers is essential to achieve this goal. The

managers who charge for the marketing and manufacturing would be the

target to interview since those two managers are sophisticated in there are

and understand the circumstance of marketing and manufacturing process of

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Chery very well. Interview would be conducted by the form of face to face and

would least approximately one hour in consideration of their limited time. The

detail of interview would recorded by the digital recorder and the data would

translate from Chinese to English in order to analysis.

Moreover, searching relative information would also be achieved by utilizing

the internet and regarding journal articles.

6 Data analysis methods

The data which collected from the interview would be analyzed by using the

method of characteristic analysis. L.C. Thomas, David B. Edelman, and

Jonathan N. Crook (2002) indicated that the purpose the characteristic

analysis would take each attribute of analysis object and obtain the

comprehensive understanding after analysis. (Thomas, Edelman & Crook

2002)

This method would enable the researcher thoroughly understand the

company which being interviewed.

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Chapter 2

Literature review

2.1 Toyota production systemAlso know as lean production, the Toyota production system (TPS) is an

integrated approach to achieving the efficiencies of mass production with

small production volumes. Developed by Toyota Motor Corporation in the

1950s, TPS is based on the elimination of waste throughout the process of

design and manufacturing, and relies heavily on just-in-time (JIT) production,

the building of quality and productivity into production processes, and the

continuous and incremental improvement of quality (kaizen). This approach toquality management is credited with Toyotas remarkable global success in

the automotive industry during the second half of the twentieth century.

(Shingo & Dillon 1989)

TPS was developed by Taiichi Ono, who was Toyota Motor Corporations chief

production engineer in the Post-Second World War period. This alternative to

mass production was born of necessity immediately following the war, Toyota

faced considerable capital constraints. Unlike the large Western automobile

manufacturers, Toyotas production volumes were small, a few thousand

vehicles per year, compared with 7,000 per day at Ford Motor Companys

River Rouge plant in Detroit. (Moore 2002)

Toyota had neither the financial backing nor the scale of production to

implement the western mass production approaches. Ono recognized the

need to develop flexible production processes that were not dependent on

huge production volumes of individual vehicle models to be economical. TPS

involves great flexibility in terms of both production equipment and workers.

The system focuses on designing processes that create cost reductions

through the elimination of waste. This extends far beyond the machines on

the factory floor, and includes the management of employees, inventory

control, and supply chain management. Both suppliers and customers are

expected to cooperate in the common quest for ever-better quality and

productivity very much in line with the teachings of Deming, TPS is an

integrated system that has three key aspects; jidoka( self-work change), JIT

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(kanban), and standardized work with kaizen. (Bird 2001)

1.

Jidoka refers to self-regulation of the entire process, either automatically or

through human intervention. Preferably machines are designed to detect

problem (such as malfunctions, quality problems, or delays) and to stop the

production line when problems are encountered. When such mechanical

solutions are unavailable, workers have the authority and the responsibility to

stop the production line immediately rather than waiting for supervisory or

managerial authorization. Jidoka permits the clear identification of trouble

spots and prevents poor quality output from being sent to the customer

(internal or external), while reducing the need for inspectors. With jidoka,

quality is constantly being built into production process. (Baudin 2007)

2.

Consistent application of JIT principles throughout the system permits each

customer order to be processed with speed and efficiency not necessarily in

large batches of similar models. Because parts are delivered as needed all

through the system, inventory is reduced, which means that quality problems

are obvious quickly and less floor space is required to store work in process.

3.

In addition, JIT facilitates the customization of finished product, providing

increased customer satisfaction. (Smith 1977)

The purpose behind standardized work and continuous, incremental

improvement of quality is to permit the organization to respond quickly to

changing demand patterns, while eliminating waste throughout the system.

Adhering to rigidly defined standard operating procedures results in less

variation in outcomes, making process outcomes and quality more

predictable. This facilitates the arrangement of production activities into a

single, continuous flow, which involves careful balancing of production

scheduling. Given their direct knowledge regarding the production processes,

employees are empowered to assist in making the processes progress more

smoothly and quickly. (Dennis & Shook 2007)

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2.2 The essence of lean thinking

Womack and Jones (2003) describe lean thinking as the antidote to muda.

Muda is the Japanese word for waste and specifically any human activity that

absorbs resources but creates no value. The essence of lean thinking is the

elimination of muda wherever it exits- within the individual firm but also along

the whole supply chain (Jones & Womack 2003)

2.3 Definition of waste

Waste, or muda, as it is known in the Toyota production system, is defined as

any activity that absorbs resources such as cost or time but adds no value.

Waste can be classified in a couple of different ways. Eliminating wastes is a

basic principle of the lean manufacturing system. To systematically eliminate

waste, detailed concepts must be taught to every member of the organization.

Whether analyzing worker operations, production, or production processes

themselves, two fundamental types of waste must be considered: obvious

waste (Type I) and hidden (Type II). (ReVelle 2002)

Type I: Obvious waste is something that is easily recognizable and can be

eliminated immediately with little or no cost. For example, an operators time

spent cleaning up parts may be absolutely necessary unless arrangements

can be made for parts to arrive ready to use.

Type II: Hidden waste refers to aspects of lean manufacturing that appear to

be absolutely necessary under the current methods of operation, technology,

or policy constraints but could be eliminated if improved methods were

adopted. For example, using X-ray to inspect welds may be needed until

welding technology improves.

Either type of waste can further be classified into seven different categories. It

is the key to recognize and understand these, because equipped with this

knowledge; one could simply walk through the shop floor and find many ways

to eliminate waste immediately.

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2.4 Definition of seven wastes

1. Waste of overproduction;

This waste happens when companies produce finished products or work-in-

process (WIP) for which they do not have customer orders, or they produce

parts faster than required by the downstream process. Companies

overproduce for a variety of reasons. Large-lot production, long machine

setups, and making up for poor quality are some of them. Part of the root

cause of this waste may be the logic of Just in case somebody needs it, an

uneven production schedule, dear of worker idle time, or a misuse of

automation, so that parts are produced unnecessarily to justify a large capital

investment. (Webber & Wallance 2006)

Waste of inventory

Inventory is an accumulation of finished products, WIP, and raw materials at

all stages of the production process. Express inventory is usually a symptom

of many other underlying problems such as defects, production imbalances,

long setups, equipment downtime, and late or defective deliveries from

suppliers. There are major costs associated with excess inventory. (Goldsby &

Martichenko 2005)

First, it hides process problem so people are not motivated to make

improvements.

Second, when processes make excess inventory, these items must be

moved and stored, using up conveyors and forklifts and the time of the

people who run them. This transport adds costs but provides no added

value.

Third, companies pay to carry this extra inventory in terms of floor space,

people to keep track of stores, and other resources such as computer

systems and support personnel.

Fourth, inventory increase lead time and response time to the customer.

Fifth, inventory can lead to handing damage due to excessive transport.

Sixth, items can deteriorate over time and become obsolete due to

changes in technology or customer demand.

Finally, inventory is wasteful in produce it; as long as that inventory staysin the plant or warehouse, the company is not repaid for its investment in

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these resources. As a matter of fact, that is why inventory is carried on the

books as an asset.

Inventory waste affects every production process that depends on a previous

process for parts and materials. The impact of inventory is shown in following

Figure. When a plat has many products and processes, each handling items

in large lots, the cumulative waste and foregone cost savings can be

enormous- it has been estimated at 20 to 40% of a companys revenue. To

eliminate this waste, companies use the pull system to produce those items

in the right amount and at the right time to satisfy customer need. It must be

noted that inventory typically exists for a variety of reasons, and those

underlying causes must be addressed before an attempt is made to reduce

inventory.

Figure1. Impact of inventory

Source: (Webber & Wallance 2006)

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2. Waste of correction

Correcting or repairing a defect in materials or parts adds unnecessary costs

because additional equipment, labor, and material will be needed. Other costs

may be a delay in delivering orders to the customer or having to maintain

excess inventory to make up for quality problems. Severe quality problems

can create lower customer confidence and lead to the loss of future business.

Some of the causes of this waste may be weak process control, poor product

design, deficient equipment maintenance, inadequate measurement systems,

or ineffective worker training. The relationship between this waste and JIT is

not always easily understood. Frequently companies undertake major quality

or lean initiatives as if they are separate efforts. A lean manufacturing system

such as JIT assumes high-quality outputs at all process levels. As a matter of

fact, attempting to implement JIT without improving quality could be

detrimental. (Brue & Howes 2005)

Waste of movement

Any material, people, or information movement that does not directly support

adding value for the customer is a waste. Poor shop layout, poor workplace

organization and housekeeping, wrong work-order information, wrong- located

material, or excessive inspections can lead to this type of waste. (Wilson,

2009)

Waste of motion

Any motion of people or machines that does not add value to the product or

service is a waste. This can lead to operator fatigue or wear on machines and

could sometimes lead to injury. Poor process design, and ineffective human-

machine interface, bad workplace design, or inadequate planning generally

causes this waste. (Scholtes, Joiner &, Streibel 2003)

3. Waste of waiting

This is probably one of the most pervasive areas of waste, especially in the

factory floor process, and it happens when people, equipment, or material

wait for each other or for information. This can happen as a result of poor

quality in upstream operation, a poor or uneven schedule, unreliable

suppliers, or poor equipment reliability. Poor communication is also a frequent

contributor to this waste.A related waste is worker frustration or loss of productivity. Lean

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manufacturing assumes that most people come to work to be productive and

add value. (Kerzner 2006)

7. Waste of overprocessing

Processing efforts or steps that add no value to the product or service from

the customers perspective can lead to this waste. Factors involved can

include redundant approvals, poorly defined customer requirements, and

redundant steps to make up for lack of process quality. Typing a note on good

paper when a quick hand note on scrap paper will do is an example of this.

Inspecting a part surface when the surface will later be machined off is

another example. (Graban 2008)

2.5 Pull-system strategy

The general guideline for the pull-system strategy is to produce only the

necessary items, in the necessary quantity, at the necessary time.

In a pull system, the customer process withdraws the items it needs from the

supplier process and the supplier process produces to replenish only what

has been with draw. Pull systems operate with a minimum of buffers and other

safety valves, while ensuring product quality and providing manufacturing

flexibility. A well-functioning pull system guides workers on how to identify and

eliminate waste, but this strategy must work together with several other lean

manufacturing strategies for the overall system to work. For example

production of parts in small quantities is a key technique for a pull system, but

it also supports the lean strategy of build quality into the process. (Schmitz

2008)

The goal of the pull-system strategy is to provide the flexibility to rapidly

respond to customer demands and eliminate the waste that occurs when

upstream processes produce ahead of the needs of the downstream

customers. This pull strategy must be extended to all production processes

that are linked together within the corporation and eventually to the entire

value chain. Since the entire system must still bear the cost of inventory

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accumulation, this prevents inventory location shifts from production factories

to supplier warehouses. More importantly, lean manufacturing does not

consider inventory reduction as the primary benefit of the pull-system strategy.

Higher quality, increased flexibility, and more efficient space utilization are key

benefits. (Revelle 2002)

Whereas implementation techniques are specific practices and procedures

developed over the years by companies such as Toyota with guidance from

pioneers such as Henry Ford. Techniques used to implement pull-system

strategy will be shown as follow:

2.5.1 KANBAN

In a pull system, the coordination of production and the movement of parts

and components between processes are critical to avoid either excess or

shortages. To achieve this, a system called Kanban usually be utilized many

companies. The meaning of this word is cards or signal in Japanese. These

visual signals are used to control production in the pull system. Kanban

provides the authorization to deliver or produce parts for a process. Pull

system operate by requiring downstream processes (assembly) to withdraw

parts form upstream processes (component production or suppliers) only

when needed, thus signaling upstream processes to produce only what is

necessary (to replace withdrawn parts). (Revelle 2002)

A typical Kanban system uses three main types of Kanban cards:

Move Kanban authorizes a process to get parts from the previous process.

Production Kanban authorizes the previous process to produce more parts.

Supplier Kanban authorizes an outside supplier to deliver more parts.

Examples of different forms of Kanban are shown in following Figure. They all

serve the purpose of communicating requirements between upstream and

downstream processes.

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Figure2. What is Kanban?

Source: (Revelle 2002)

2.5.2 LEVEL SCHEDULE (HEIJUNKA)

Leveling of schedules, or heijunka as it is known in Japanese, refers to

leveling production by both volume and variety. That means if manufacturing

is planning to make 8 widget As followed by batch of 4 widget Bs today, and

tomorrow is planning to build batches of 12 As and 6 Bs, then what they really

should do is to make 2As followed by a B all day long each day rather than

doing 18 As today and 12Bs tomorrow. This is one of the counterintuitive

aspects of lean. This leveling of the schedule accomplishes a steady demand

of resources, shortens the lead time of individual product variations, and helps

level work requirements throughout the supply chain. Without this technique,

pull-system implementation would be extremely difficult, if not impossible.

Once the production volume is firmed up, some variation in production mix

can be achieved through Kanban. A leveled schedule defines the limits of mix

and volume flexibility, and it can be used by suppliers to estimate their own

resource requirements. This permits the lean manufacturing company and its

suppliers to avoid carrying exvess materials, machinery, or manpower to meetpeaks in demand. Limiting variations in production mix and volume from week

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to week is the key in a pull system. This type of mixed leveling (Heijunka) is

carried out with respect to product variations based on models, options, and

other features, which can be accommodated at the final assembly level. The

combination of level schedule and the Kanban system results in tremendous

flexibility on a daily or even hourly basis to vary volume, production sequence,

lot size, and mix within well-defined bounds. (Nicholas & Soni 2006)

2.5.3 TAKT TIME

A key technique to implementing a pull schedule is calculation called takt time.

Takt time is the rate at which each product needs to be completed to meet

customer demand. It is the beat or pulse at which each item leaves the

process. Takt time determines standardized work and load-balancing

requirements and drives many kaizen activities for various upstream

operations. (Baudin 2002)

Takt Time = Available Daily Work Time/Daily Customer Requirements

Example: Available Daily Work Time = 480 Minutes 60 Minutes (Breaks) =

420 Minutes

Daily Customer Requirement = 840 Units

Takt Time = 420/1000=0.5 Minutes

It implies that a product must be produced every 30 seconds. This will set the

pace of whole production line. If several products are being produced in the

assembly process, then takt time must be calculated for each type and then a

repeating smooth pattern of each product type must be scheduled. This

process is known as mixed model sequencing. Cycle time is the amount of

time required for a single unit to be processed. Cycle time must be equal to or

less than the takt time to meet daily customer requirements.

2.5.4 QUICK CHANGEOVER TECHNIQUE

The ability to perform quick changeovers from one part or model to another is

critical to implementing a pull system in a situation where numerous parts and

products are being manufactured. The reason is that rapid changeovers

provide the manufacturing capability to produce in small lot sizes as signaled

by kanban cards and yet maintain high machine and worker utilization. Quickchangeover techniques focus on finding the causes for the equipment to be

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stopped for a changeover and systematically removing those reasons through

teamwork, simplification, standardization, detailed documentation, and

continuous improvement of the changeover process. Typically, changeovers

are the responsibility of the team operating the equipment; however, other

skilled trades and support-engineering personnel must be available when

needed. A well-trained quick changeover team must be able to perform

multiple functions in changeovers without regard to lines of demarcation. This

requires substantial training as well as specific labor contract provisions, if

applicable, on work rules and job classification. (Arai & Sekine 2006)

One hurdle to quick changeover implementation faced by companies on the

lean manufacturing may be that the change necessary to implement quick

changeover is not obvious until a pull strategy is in place. Implementation is

hard to justify on the basis of direct labor savings alone, although it can free

up substantial production capacity. The real benefits of the quick changeover

technique tend to appear in areas such as direct labor, reductions in inventory,

and improved quality and flexibility. Moreover, the benefits of quick

changeovers can often be achieved with little or no capital investment.

(Richard, Mclntosh & Mileham 2001)

2.5.5 SMALL-LOT PRODUCITON

A basic concept of the pull system is that the ideal lot size of parts and

components is equal to one. The reasoning is that if parts are fabricated and

flow together into final assembly and if only one end product at a time is

produced, then only one set of parts and subassembly is needed. This result

in minimum inventory and one piece flow and provides maximum flexibility to

satisfy customers. However, striving toward this ideal must be balanced with

practical considerations of setup and handing costs. Small-lot production also

helps the lean manufacturing quality strategy, because problems surface

faster and must be dealt with immediately because inventory buffers are not

available. . (Urable & Child 1998) ,

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Chapter 3

Overview of Chinese auto industry

3.1 Chinese automotive industry

The automobile business started to face a large gap in terms of technology

and managerial with world standards when many Chinese business followed

the economic adjustment and opened the door to the world in 1978.The

transferring for technology and knowledge in terms of joint ventures between

global enterprises and initial Chinese firms had been traded market access by

the Chinese government

The Chinese automotive industry is treated as the most complex and dynamic

in the world on account of the amazing growth rate of production. In 2000

which is the year prior to WTO access, the automotive production was 2.1

million vehicles in China. After only eight years which was in 2007, production

had been achieved 8.9 million vehicles which were four times as the one in

2000 and it was treated as the feat in Chinese automotive history. In 2007,

China automotive contributed to approximately 42 percent of all growth in

global auto production since the Chinese automotive production grew by 22

percent over 2006, while the production automotive production grew by 5

percent during that year. However, Chinese automotive industry also suffered

by the deepening global recession in 2008 which was displayed in the growth

rate of 20 percent dropped down to approximately zero. At the end of 2008,

Chinese automotive enterprises were seeking governments help in dealing

with dropping demand. In addition, the increasing serious problem regardingthe urban air pollution was contributed by the rapid growth of automotive

production in China. (Hitt , Ireland & Hoskisson, 2008)

3.2 Why Chinese market is appealing

Foreign automakers are attracted to China on account of the high annual

economic growth which was almost 10 percent was the main reason why

foreign automakers infatuated the Chinese automotive market since thecentral planning policy was Abolished by the central government in 1978. The

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growth rate of the passenger car market has also been striking and was

predicted to achieve 7.4 million units in the end of 2010 which representing an

average annual growth of 17 percent to 21 percent. (table) (Pigott 2002)

Table1. Circumstance of automobile production in China

Source: China Automotive Industry Yearbook 2010

China is currently recognized as the forth largest car market and there is also

a lot of space for China automotive industry to expand for the next five to ten

years. The sales of cars was registered approximately four millions in Chinese

market in 2008 which still amount to a growth of nearly 10 percent.

However, some of Chinese automobile makers have not realized what they

have been dreaming about China. The previously circumstance which one

enterprise dominated the whole Chinese automobile industry was gone

forever. Recently, Chinese automotive industry is a highly competitive industry

utilizing advanced technologies and expanding in new locations. The intense

competition in the Chinese automobile industry has forced some automotive

enterprise habitually over-produce and continually cut prices until small or no

profits remain. The intense competition also influenced the foreign

automakers dramatically. Lots of automotive multinational corporations

(MNCs) entered China aimed at exploiting market, made losses because of

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pricing war, and even some enterprises withdrew the auto market at last.

The following table shows the joint venture established by the automobile

MNCs and the Chinese big three automotive producers.

Company Location Shareholders Main Products

FAW-VolkswagenAutomobile Co., Ltd.

ChangchunCity.

FAW, Volkswagen Audi, Jetta

Tianjin Toyota Motor Co., Ltd Wuhan City FAW-Shali,Toyota Vios.

Dongfeng Peugeot CitroenAutomobile Company Ltd.

Wuhan City DFM, PSA France Fukang, Picasso

Shanghai General Motors Corp.,Ltd

Shanghai City SAIC, GM Buick, Sail SRV

Shanghai Volkswagen AutomotiveCo., Ltd.

Shanghai City. SAIC,Volkswagen Polo, Passat

Table2. Joint Ventures Established by the Automobile MNCs and the ChineseBig ThreeSource: China Automotive Industry Yearbook 2007

3.3 Industry structure

The structure of Chinese automotive industry contributed to the development

dramatically. In order to ensure the quality of vehicle is reliable manufactured

by Chinese auto makers, imported advanced knowledge is the essential way

to way to develop the Chinese automotive industry since the technology was

backward. Moreover, development of knowledge and technology by Chinese

auto manufactures as costly in terms of both time and money. There are some

approaches to achieve this goal. Firstly, it could be achieved via acquisitions

and mergers of enterprises outside of domestic, who has mastered the

advanced knowledge and technological skills. In addition, joint ventures

between Chinese and foreign enterprise was also the alternatively way to

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achieve it. However, the joint ventures should be established base on the trust

between the Chinese automakers and foreign enterprises since the core

competitiveness seems like sensitive for every company. Due to a positive

trend of development took place in terms of acquisitions, mergers, and joint

ventures, the government made effort to eliminate the market intervention and

set the relative policy aimed at encouraging these activities. In addition, the

intense market competition also forced companies to be consolidated and the

industry structure was completely different with the previous one. (Lee &

Anderson 2006)

3.4 Definition of independent Chinese automobile manufacturers

(ICAMs)

If the auto manufacturers developed its own domestic brand and all the core

competency contains the technologies needed for Research and

Development (R&D) and manufacturing process were not obtained through

joint venture with foreign companies, it should be recognized as independent

Chinese automotive manufacturer (ICAMs). For example, Geely Automobile

and Chery Automobile should be served as representative of independent

Chinese automotive manufacturers which is ICAMs.

By contrast, the automaker should be served as Non-independent Chinese

Automakers if they just simply referenced the existing models of their foreign

joint venture partners as their owns and put them into the market. For

instance, Beijing Motors, Guangzhou Motors were supported in terms of

brands, relative technologies and product models by their foreign partners.

There are more than 20 enterprises can be revered as ICAMs base on the

definition above. There are two kinds of limitations that ICAMs have to meet.

Most of ICAMs had to transfer their attention to the trucks and SUVs market

since the strict new entry restriction for the passenger vehicle market. In

addition, ICAMs to be served as novice has plenty of weakness in terms of

design, innovation capabilities, advanced engines and system integrations.

(Brandt &, Rawski 2008) ,

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. Figure3. The Sales of Passenger Car by ICAMsSource: Automotive Information 2002-2009, China Automotive Technology &Research Center (CATARC)

The figure 3 above demonstrates that only few of ICAMs have achieved

satisfied scale if the minimum level is supposed as 50,000 units per year.

Furthermore, some of ICAMs annuals sales could be a threat to those of

Sino-foreign (Chinese and foreign) Joint Venture Companies. In another word,

independent in most of cases for ICAMs means, isolated in technology.

Being recognized as the companies on the way to mature, ICAMs had

insufficient resources to be utilized for designing the new models and skills in

manufacturing. Therefore, the gap between ICAMs and Sino-foreign joint

venture enterprises is obvious in terms of qualified technology, facilities,

capital and human resources.

3.5 The Burgeoning Independent Chinese Auto Companies

There are mainly three approaches which enable the new investors join the

party of Chinese automotive industry, which was regarded as the most

profitable industry in China.

1) Due to the circumstance of overcapacity has existed in Chinas motorcycle

industry for a few years, the motorcycle makers like Geely, in Zhejiang

province started to expand to the automotive market to seek the new

opportunities and ways out. The expansion of automotive market provided

the motorcycle companies with new opportunities and ways out. Theexperience of motorcycles manufacturing allowed them to obtain the

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advantage to make transition.

2) New auto companies supported in terms of fund by capitals by other

industries cause those companies have accumulated efficient fund to face

the increasing competition in Chins mature consumer and household

electronics market. With the purpose to explore higher profit margin in

Chinese auto industry a few electronic companies invested and

restructured some weak and small entire automotive and parts companies.

Unfortunately, most of those companies failed to achieve the goal.

3) From production parts into automobile manufacturing like Chery in Anhui

province of China. Those companies normally take advantage of their

experience and better understanding for the auto industry to obtain the

competitive position in the automotive market. On account of the higher

value added of entire automobile than auto parts the initial auto parts

makers normally enter the market in terms of acquisition and restructure to

pursue the profit. (Rogers 2009)

4) The relatively good environment of development for Chinese young auto

manufacturers was provided by the booming domestic auto market and

rapid growth of Chinas economy. They actually been the strong contender

which the large local automakers and foreign company should not be

ignored. and the skyrocketing domestic auto market provided those young

companies with a good surviving environment. So far, many of them have

thrived among the large local automakers, and their foreign partners. To

some extent, the emergence of those young independent Chinese auto

companies in term of performance and operation models represented the

great change in the global automobile industry. Therefore, the independent

Chinese automobile manufacturers also called young tigers by the foreign

media on account of being tiny, intrepid but ambitious. (Baker 2007)

The young tigers are quite unique and took a different way from the joint

ventures and big state-owned companies.

Firstly, they all have their own brands and develop their own product

technologies independently by different ways. They normally developed the

models under own control in form of joint development, R&D outsourcing andreverse engineering and also invested engineers who from the old-style

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stated-owned companies to join their team. For instance, Chery developed

their initial products from reverse engineering in order achieve the cost

saving. After a period of time, their accumulated capital enabled them to

outsource the sophisticated foreign company to make the new product

development. Brilliance Auto, which is the partner of BMW in China, would be

another good example. They actually outsourced and collaborated with

European Design Company to develop their independent division.

Secondly, the price of vehicles which manufactured by them are relatively

cheaper and focus on the lower class of market to meet Chinese consumers

purchasing ability. However, the young tigers like Chery also launched the

higher class of vehicle such as the Oriental Son which is comparable with

Accord of Honda but just its half price. Therefore, the relative low class is

their target market and people who have price-sensitive is the target

consumer for those young tigers. (James 2004)

Recently, more and more global automotive makers started to pay

increasingly attention to those young tigers. The young tigers are obtain

more and more attention in the global auto industry. In particular, the

operation modes of these Chinese young tigers in terms of economy of

scale, technical capability accumulation and brand power tend to influence the

long-term pattern of global automotive industry. They are actually playing a

significant role in optimizing the Chinese auto environment and accelerate the

maturing process of Chinese auto industry.

In the following Chapter, Chery is chosen to be the case for detailed analysis

since it is the representative of independent Chinese auto manufacturers and

full of the characteristics of the Chinese young tigers.

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Chapter 4

Case study: Chery Automobile Company

4.1 Introduction

Chery Motor Co. was established in 1997 in the Wuhu province, which is

undeveloped in China, and it contributed to the local economy dramatically.

In 2001, the first export car to Syria was manufactured by Chery and it was

the first company, which export vehicles from mainland of China. The

company also made efforts to enhance quality of production quality and

develop technology by established a research center. Penty of Japanese

automotive consultants were hired by Chery aimed at assisting Chery in

implementing the lean process and six sigma standard. These efforts enabledChery to be granted ISO/TS 16949:2002 production quality certification,

which is the strictest international production quality certification in 2005.

(Kynge 2007)

In order to improve the exterior design of vehicle, Chery associated with

Bertone and Pininfarina of Italy which are the design consultants to Ferrari

and Lamborghini. Moreover, Chery also collaborated with AVL of Austria to

develop eighteen of brand new engine models which utilized for integration

into new models of vehicles.

The sales and exports of Chery increased rapidly on account of the tax breaks

and booming domestic demand. In 2006, Chery was recognized as the third

largest domestic automotive enterprise contributed by the dramatically

increasing sales figures which were 305,000 units. Moreover, foreign exports

was reached approximately 50,000 units which represented a 178% increase

from the previous year. (Zeng & Williamson 2007)

Cherey also invested in plenty of domestic and oversea production facilities in

order to meet the increasing sales. In 2003, the first Chinese automotive

facility opened in oversea was Chery and it began to launch a series models

in Iran. Between 2005 and 2006, two automotive plants established in Russia

and Malaysia.

However, the road to the foreign automotive market was not flat and it mainly

displayed in the product quality. The vehicles manufactured by Chery have not

obtained the satisfied recognition by the oversea customer in terms of the

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strict requirement on safety and emission standard. The positive thing is,

although a lot of aspects need to be optimized the emergence of Chery has

been drew the attention by the oversea customers. Currently, Chery still

concentrated their export in the markets like Middle East, Latin America.

4.2 Characteristics Analysis

L.C. Thomas, David B. Edelman, and Jonathan N. Crook (2002) indicated that

the purpose the characteristic analysis would take each attribute of analysis

object and obtain the comprehensive understanding after analysis. (Thomas,

Edelman & Crook 2002)

For the Chery, characteristic analysis is expected to be utilized aim at

obtaining the better understanding the circumstance of Chery and finding the

distinction with the other competitors of Chery.

4.2.1 Resources

The resources of Chery can be breaks down into two aspect which are

tangible and intangible.

Tangible

Chery located its headquarter and the main manufacture in Wuhu city, Anhui

province of China. Wuhu is a relatively new developed medium size city in

comparison with Beijing and Shanghai. Moreover, the relatively distant from

the central of China did not create some advantages for Chery. The qualified

and highly educated professionals are hardly to be attracted by the location

but it enabled Chery to employee the low cost labors. (Zhang 2005)

Intangible

The organizational culture of Chery would be the significant intangible

resources. Since the culture is one of the essential part of organization and it

tend to influence employees productivity and motivation.

The highly motivated and strong willed employees not only the assembly line

workers but also the president is the key characteristics of Chery. Under the

goal of producing Chinese domestic vehicles and leading the Chineseindependent automotive industry, the employees full of morale. Another goal

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of Chery is making effort to be the Toyota in the 1950s and Hyundai in the

1970s. This can be also displayed in the slogan of Chery which is Making

Chinese Cars and this is the key reason why those sophisticated engineers

and professionals from FAW, Dongfeng, even oversea automotive enterprise

to join Chery.

On the other hand, Chery had analyze the approach for expanding the new

market cautiously in spit of the ambitious goal owned by Chery. Their first

step is to export small amount of vehicles to the market with the purpose of

trialing the demand. The following step would be establishing assembly plant

and exporting the parts from domestic to the local factory when the sufficient

demand was obtained. The long-term strategy enables Chery to expand their

brand into more developed market in the neighboring regions and it also

demonstrates the organizational culture which is learning by doing. (Hadden

& Robinson 2005)

Previously, the Chinese auto makers had no enough ability to produce the

originally developed vehicle models. The only way for them to manufacture

the vehicle was utilized the models from their partners of joint venture. SAIC

Motor, which is the top 500 in the world and the largest passenger car

manufacturer in China, but there are no self-developed cars manufactured by

it.

In addition, purchasing the core product technologies was the common

method to be utilized by Chinese manufacturing companies without

independent R&D capabilities. For instance, Feng Yun which was the first

passenger car manufactured by Chery was actually a kind of variant of Jetta

III obtained from a Spain auto enterprises. However, Chery launched three

brand new models which are QQ, Oriental Son and Qi Yun and those

models were independently developed claimed by Chery. (www.

Auto.people.com.cn)

There are many disadvantages in form of joint venture. It is true that Chinese

state-owned enterprise used to depend on the skills from the joint venture

partners, and failed to make effort to research and develop independently.

Dongfeng Auto would be the good example to demonstrate this circumstance.Dongfeng Auto lost the managerial control for new product development after

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established joint ventures with Nissan. Moreover, it gradually gave up

independent R&D and especially the engineers in the technical center had

nothing to do since full of the product line was transferred from foreign

partners. In 2001, Chery took this opportunity and invest those engineers to

join the Cherys R&D team. They are the fresh blood for the company since

they had been working together for quite a long time and some of them had

been trained by Citroen in France.

Chery established an innovative relationship with those engineers from

Dongfeng. In order to eliminate those peoples worries regarding if Chery

would created them as Dongfeng did, a new specialized automotive design

and development company named Jia Jing which means the beautiful scene

in Chinese was founded in term of 2/3 share of financial support provided by

Chery and 1/3 share of talent capital provided by engineers. (Wang & Kimble

2010),

The initial development and market penetration was successfully supported

by Jia Jing in terms of the model design. However, there are four phrases

that describe the long-term plan for improving its independent product R&D

capability. The four phases are listed as below:

Phase1: Cooperating with Jia Jing Company to developed 5 models;

Phase2: Jointly developing new products with foreign specialized automotive

and engine design companies, and training engineers of its own through the

cooperation programs;

Phase3: Designing a few low-end models independently in Cherys R&D

center and achieving the capability for a complete new car development

process gradually;

Phase4: Establishing mature R&D capabilities for a full line of passenger

vehicle products which from the low end to the high end, from sedan to SUV

and MPV.

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Figure.4 The strategy of Chery for developing technical capabilities

Source: Annual report of Chery, 2008

Currently, Chery had actually approached at the Phase 2 of its strategy of

technical capability. This can be displayed in kinds of activities which have

been done by Chery such as collaborated with some Japanese design

company to develop brand new vehicles aimed at the U.S. and European auto

markets. In addition, Chery associated with AVL which is the world famous

Austrian engine design enterprise to develop 18 latest engine models aimed

at equipping its full line of passenger cars in the future. Moreover, the size of

those engine models were from 0.8 liter to 4.2 liters and all of them achieved

the Euro IV emission standard. The strategy of referencing skills from different

sources of technology enabled Chery to obtain its bargain power and reduce

the cost for design outsourcing.

It is necessary to point out that the R&D task was not completely outsourcing

to foreign firms by Chery. In fact, the engineers of Chery actually work jointly

with foreign firms and being guided through the training program. It was

served as the efficient approach to improve Cherys own capabilities for new

product development. (piotroski & Tel 2010)

From utilizing all possible resources of technical forces, Chery has released a

few products of which it has independent intellectual property, as shown in the

graph below.

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Figure5. The product line development and life cycle of Chery Automobile

Company.


4.2.2 Production Management

To increase production efficiency, lower costs, and improve product quality,

Chery has put many efforts to apply advanced manufacturing management

methods into its production lines.As a new company, it is easier for Chery to incorporate Learn, Six Sigma and

other advanced production management principles than other old state-owned

Chinese automotive firms, like FAW and Dongfeng. Chery implemented the

quality control systems and standards such as ISO9001 and ISO/TSI16949,

from its establishment.

Chery hired an experienced expert from Germany to help manage its general

assembly plant. He once worked in German Volkswagen for 39 years and

FAW Volkswagen for 3 years. In total there are more than 20 foreign experts

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working in the different factories of Chery Automobile Company.

Chery received its ISO/9001 certification in 2001 and its ISO/TSI16949

certification in September of 2002. Then it became the first Chinese

automotive manufacturer with ISO/TSI16949, which is the most advanced and

strictest quality control system in the global automobile industry. Moreover, in

order to improve its production system management, the SAP/ERP system by

IBM was put into use in Chery from 2002. (Baker 2007)

4.2.3 Product Characteristics

Chery started to enter the automotive market of China in 2000, which was

recognized as a bad time since most of international auto manufacturers

expand their joint ventures in China. The competition in Chinese auto market

tended to extent during 2000. However, Chery developed significantly and

performed very well in the following years. It is undoubted that the unique

advantages of Cherys product contributed to its rapid development and it can

be demonstrated in terms of price and product design.

1) Price

The relatively reasonable price is the key factor that lead Cherys product to

be welcomed by consumers especially for those who got price-sensitive and

decided to purchase the first car.

The low production cost would be the main reason to cause the relatively

reasonable price. The following factors have contributed to low costs:

1. Product imitation

At the initial period, the low cost in developing a new product was based on

the imitating existing models from foreign firms. The costs would be

dramatically high if Chery purchased the car models of foreign firms with

royalties paid or develop very component of product in the beginning.

Low margin

The low margins also contributed to the reasonable price. A long time ago, the

Chinese experienced high profits since the monopoly of some joint venture

under the policy of national automotive protection. With the entranced into

WTO by China, an increasing number of joint ventures were established.

However, due to the long time monopoly of several joint venture under theprotection of the national automotive industry policy Chinese auto industry

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obtained high profits. After Chinas entrance into WTO, more and more joint

ventures were set up. The profit margin tended to decreased gradually on

account of the intense competition.

Design for Chinese Consumers

The design of vehicle based on the localized requirement enabled Chery to be

the mainstream auto maker in China. The deeper original design made the

style of vehicle totally different with previous models. It is not hard to find out

by the uniform style of the body design. Actually chery is currently

concentrating on establishing its symbolic design styling like what Toyota and

Hyundai have been achieved. (Bell 2009)

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Chapter 5

Analysis and Findings

Data Analysis

In the following content, the data was all come from the interview with themanager of marketing and manufacturing of Chery and summarized after theinterview.

5.1 Challenges

From the macro view of environment of Chinese automotive industry, the

production capacity is huge unfortunately the utilization rate is relatively

unsatisfied. The circumstance, which high production capacity but low

demand definitely draw the price down. Therefore, for the case of Chery, the

models that did not receive a satisfied result of selling are the tough

challenges in front of Chery since the investment and depreciation are

producing huge cost elements. Moreover, it is also a big challenge that

whether Chery should keep those kinds of models in the market cause theystill meet the requirement of some specific group of consumers

5.2 UncertaintyWe can not doubt that the whole trend of Chinese automotive industry was

overheating in 2004. Central government released series of measures

aimed at cooling down the overheating industry. It mainly restricted the non-

performing loans and controlled the consumers credit for car purchasing

strictly. It was undoubted that the growth of market was dramatically

influenced by the act of government. During that time Cherys market share

started to shrink and loss was definitely made by the decreasing sales.

Although the uncertainty of external environment existed, Chery made effort

to improve the utilization rate of their installed capacity during that time. The

circumstance probably seemed gloomy but they firmly believed that the end of

booming of Chinese automotive market has not come yet. They were kept

improving the quality and design of the product, maintaining the reasonableprice and enhancing the export to the neighboring countries in order to offset

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the loss of the domestic market.

5.3 Psychological Concerns

Foreign auto manufacturers normally realized that the cheap price is the first

priority to pursue by Chinese customers and they do not really care about

what brand it is. It probably true for the relatively lower class of customer

segments cause they are more price-sensitive and brand would not be

considered primarily. However, for the higher class of segments, brand would

be the priority to consider by customers, they would care about the brand

images like Audi, BMW or Mercedes. The psychology of Chinese consumers

is quite distinct with the other regions. The consumer in Germany would prefer

a car with simple, comfortable, reliable and reasonable price to be their first

car. Therefore, base on the special consumer psychology of China, Chery

arrange their product line from top to the bottom to satisfy the various

consumers requirement. For instance, Chery released the lower class vehicle

named QQ which has basic configuration and quite reasonable price.However, the challenge is true that the profit margins for the lower class of

vehicle are very low but Chery still need to participate otherwise the other

competitors would take their market share

5.4 Lean production in the Plants.From the whole perspective of auto manufacturing industries, the principles of

Fordist mass production influenced the Chinese auto makers significantly andit mainly displayed in assembly line production, intense work pace and heavy

workload. Moreover, practices of the lean production, which was well known

as Toyota Production System (TPS) were also completely or partially utilized

by Chinese automotive assembly enterprises. It mainly displayed in just-in-

time (JIT), Quality circles, workers participant program and teamwork sprit.

In the intense competition market, utilizing the of lean production would

enable Chinese auto firms to improve product quality, eliminate the waste,

control the cost and increase the flexibility to obtain the competitive

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advantages in the domestic market even in the oversea.

5.5 TPS in Chery

Toyota Production System (TPS) has been introduced by plenty of Chinese

auto enterprises since 1982. The process of practicing Toyota Production

System was very tough on account of different enterprise structures and

styles between China and Japan. However, Chery insistent making effort to

put this advanced system practice of its realistic circumstance.

With the desire of improving the Toyota Production System applications in

Cherys factories, Chery invested a famous Japanese specialist in production

management from Mitsubishi Japan in 2002. This expert contributed a lot in

training the staff of Chery by utilizing the famous field management in the

automotive industry. Moreover, he also leaded a independent experiment

team aimed at implementing TPS ideas in assembly line of Chery. For

instance, Cherys Oriental Son which released in 2003 was the first project

applied by the TPS in the factory. The implementation of TPS can be

displayed in the following aspects.

5.6 Working hours

By implementing the lean production system, working hours at Cherys

factories are relatively long and compulsory normally occurred. There are

normally two shifts of eight or nine hours each operated on the production

lines and the worker who charge for maintaining and repairing the machine

were expected to work three shifts of eight hours each aimed at ensuring the

keep running of the machine. During the peak period, numbers of plants have

to run two shifts of twelve hours each day of a week.

In fact, the relatively long running time and hard working intensity indeed bring

lots of pressure and influence their physical aspects. It is true that worker

force is extremely crucial for Chery since it has directly relationship with the

productivity and product quality. However, Chery found it extremely hard to

make some change for the circumstance since the intense competition among

the Chinese automotive industry. Huge tension came from kind of military-

style regimentation which similar with Toyotas is the most common topic

Complained by first-line workers.

5.7 Working condition

Working conditions are generally satisfied at the automotive assembly plants

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of Chery. It can be mainly displayed in the clean workshop, brand new

production line and highly automated machine. The flexible installment

equipment enables the workers to choose the most comfortable postures of

working such as the adjustable mobile stations makes workers sit comfortably

to assemble the chassis of the vehicle.

5.8 CPS of CheryCPS represented the Chery Production System which was developed base on

the theory and model of Toyota Production System. It also implied that the

Cherys original culture which is leaning by doing. Chery actually made effort

to optimize their production system based on the CPS, however the lacks of

Toyotas clockwork efficiency and just in time management leaded Chery

failed to implement it efficiently. It would displayed in the time of

manufacturing since Cherys leading time of producing a car was

approximately 120 seconds but those leading edge plants in North American

just need half of that time to assemble. Therefore, the tough task of how to

efficiently implement the clockwork and just in time management would be the

first priority considered by Chery

Working conditions are generally good at the automobile assembly plants.

Workshops are clean and production lines are new and highly automated.

Flexible installment devices are used to help workers choose comfortable

work postures. For example, workers can assemble the chassis as they sit

comfortably on adjustable mobile stations.

5.9 LaborChery actually referenced the dealing with the labor unrest and labor force.

Chery established a kind of multilayered subcontracting system which

enabled them to ensure employment to a core labor fore and experienced

flexibility from lower rungs of the supply network and low-cost inputs. The

distinction was created between permanent and temporary workers in

terms of the former guaranteed employment lifetime. This kind of approach

leaded Chery to enhance the productivity of labor and avoid the layoffs.

5.1.0 TAKT TIME

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In order to measure the time of manufacturing, Chery utilized takt time which

is the significant technique to implementing the pull schedule. Takt time

indicates the rate at which each vehicle should be assembled to satisfy the

demand of customers.

Kate Time = Available Daily Work Time/Customer Requirements

For Chery:

Available Daily Work Time = 480 minutes 60 Minutes (Breaks time) = 420

Minutes

Daily Customer Requirement = 210 Units

Takt Time = 420/210 = 2 Minutes = 120 seconds

From the calculation above they can find that the lead time that Chery

manufacturing a vehicle is 120 seconds which is relatively long. The lack of

implementation of just in time management is the mainly reason.

To sum up, the advanced production systems like lean production have been

partially utilized by Chery but a lot of aspects should be optimized such as

lack of Toyotas clockwork efficiency and just in time management. However, it

should not be doubted that Chery is on the way to higher class of automotive

makers.

5.1.1 Cherys differentiate with competitorsThe significant difference between Chery and those Sino-foreign (China-

foreign) joint ventures is the autonomous brand which allows enterprises to

develop and introduce their new models. Moreover, lack of autonomous

brand also implies that Non-independent Auto manufacturers unable to

obtain the opportunity to foster inner-competitiveness of their own since most

of them just authorized in assembling process. They probably enjoyed the

current circumstance which just concentrated on assembling of foreign

models from imported parts but unfortunately they are far away from

launching their own brands. Therefore, exploring the support from central

government in terms of favorable policy is probably the sole approach that

they have to face the more and more intense competition in Chinese

automotive market. This is why Chery has sufficient stake to compete with

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those Non-independent Auto manufacturers. The figure below indicates that

the result achieved from year 2003 to 2008. It is obvious to find out that the

trend of Cherys development is increasing stable.

Table3. Sales of Top 10 Passenger Vehicle Manufacturing in Chinese Market,2003-2008 (in 1000 Units)


5.1.2 Technological capability development

There are a few of reasons enabled Chery develop their technological

capability dramatically.

Organizational Autonomy

Chery has the authority to develop the independent and self-reliance models

of vehicle compared with the other state-owned automotive enterprise which

rely on joint ventures. It also created a lot of space to focus on optimizing the

skills and improving technological capabilities.

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Talent Force

Highly talented engineering forces are the key point to determine the success

or failure or Chery. Without the technological supported from the talent

resources Chery can not obtain the current result in Chinese automotive

industry.

Reverse Engineering

Reverse engineering also another influenced approached utilized by Chery to

develop products in the initial years. Chery actually started them way of

developing own products by imitating Jatta and Daewoo Matiz. However, from

the long-term perspective of development, Chery accumulated their

experience and technological capability from imitating and it also the essential

element to build up their brand images.

Design Outsourcing

The suppliers are playing more and more significant role in the automotive

industry since the deepening specifications of demand. In order to obtain

competitive advantages more and more auto enterprises tend to seek support

from specialized part and technology providers in term of outsourcing. Chery

also outsourced their design tasks to sophisticated design company and it

allowed Chery to draw it attention on integrating and improving production

efficiency.

5.2 Findings

5.2.1 Underdeveloped sales and serviceFrom the whole perspective of original equipment manufacturers (OEMs) of

them did not perform well as Chery did. The current circumstance is highly

unsatisfied by domestic customers in terms of sales and services. The main

reasons contain shortage of support by sufficient technological skill and

deficient dealers and workshops. Consumers normally complained the lack of

support and consultation from the dealers and extremely poor service

provided by the service centers. Moreover, the distance of dealers andservices are relatively long from most of customers. Based on the current

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circumstance seeking the more reliable dealers and improving the service

level would be the efficient way to attract the potential customers and obtain

the confidence for the brands and should be cautiously considered by most of

original equipment manufacturers.

5.2.2 Low brand awarenessAlthough domestic automotive brands improved rapidly, the Chinese

customers were still dramatically impressed by the foreign brands. It implies

hat the domestic brand awareness is quite low by Chinese customers. The

customers product loyalty for domestic brand was relatively low as well. For

instance, there are only 25 percent of the customers would like to choose

Chery if they plan to purchase their next car. This is quite low product loyaltycompared with approximately 80 percent in western countries. This is not only

the tough question for one single enterprise but also the whole Chinese

automotive industry. They have to make effort to eliminate negative images of

product by customers and dedicate in enhancing the product value and

improving the product quality to meet the customers requirement since the

brand images is the essential element that influence the customers product

loyalty.

5.2. 3 Enhancing productivity i

The relatively low productivity of original equipment manufacturers (OEMs)

would directly pull the cost to the higher level. Moreover, the unqualified

plants, high cost of raw materials and unsatisfied components and parts all

lead the productivity inefficient. In addition, lacking of advanced production

and management system would limit them to manufacture efficiently. Someleading edge original equipment manufactures like Chery had introduced the

scientific production system like TPS but it was not completed utilized by most

of the original equipment manufactures. Therefore, productivity improvement

could be achieved by reference the advanced production system more

comprehensively.

5.2.4 Intellectual property protection

Most of Chinese independent auto manufacturer normally lack the sense of

intellectual property protection. Sine the ignoring of importance of international

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trademarks and patents such imitation activities taken by Chinese

independent auto manufacturers would be normally treated as intellectual

piracy. It is not hard to find out the significance of intellectual property

protection in the case of Geely. Toyota sued Geely Merries because the logo

of Geely Merries was extremely similar with the one of Toyota. Finally, Toyota

lost a lawsuit against the Geely Merries for copying the Toyota brand logo.

Although Toyota failed to lawsuit, this issue should be a lesson for every

single Chinese independent auto manufacture that intellectual property is

critical in terms of brand logo and patent.

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Chapter 6

Conclusion

The first Chinese-made vehicle launched by First Auto Works (FAW) started

the history of Chinese automotive manufacturing. With the development of

several decades it has been recognized the worlds largest growth market in

the world. Although experiencing the tough time in terms of the financial crisis,

there are still lots of potential space for expanding. It is undoubted that the

quality of vehicle produced by China still relatively unsatisfied. Some

advanced system like Toyota Manufacturing system would be the choice for

them to improve the product quality.

Toyota Production System is well known as lean production is an integrated

approach to obtaining the efficiencies of mass production with small

production volumes. By implementing lean production, wastes would be

expected to eliminate in terms of overproduction, inventory correlation and

waiting. Pull-system strategy is the essential element for lean production. It

can be achieved supported by KanBan, Level Schedule, quick changover

technique and small-lot production.

Chery is the representative of Chinese independent manufacturers. It can be

displayed in the technical capability, extensive resource, and independent

developing authorities. The reasonable price and relatively reliable quality is

the reasons welcomed by Chinese domestic customers.

Currently, Chery had partially implemented the lean production system which

already made some change for the manufacturing process. How to implement

the lean production system more comprehensively and associated with the

realistic circumstance of the company should be the questions to be

considered by Chery.

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Chapter 7

Recommendation

Establish the sustainable Business Model in the Value Chain

Chinese automobile companies are quite unique and different in their

business model and vertical integration, as well as in product portfolio, public

relations and impacts. It is significant to identify the business model,

environmental impact and social performance of Chinese automobile

company as well s its involvement and influence over suppliers and business

model by Chinese automobile companies:

Research & Development Life Cycle Assessment (LCA), ergonomic, health

and safety issues, involvement of suppliers selection of materials.

Suppliers Production Management System should be optimized including

clean production and lean production.

Logistics Transportation/distribution system for materials and products,

employees commuting & business travel and follow-up of impact.

Marketing and Sales Communication of environmental and safety issues.

Service and Maintenance Services provided to customers, related to vehicle

and mobility, including the approach to customer relationship management

such as safety and eco-driving training, recall process and complaint

management.

End-of-life of Product Taking back systems to be utilized for reuse,

recycling, recovery, and proper disposal of vehicles (components, parts).

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Chapter 8Future of Chinese automotive industry

Future market

There are mainly three potential opportunities enable the Chinese

independent auto manufacturers to expand in the future auto market.

Firstly, the stable growth of Chinese economy would create lots of chances for

Chinese independent auto manufactures. With the increasingly growth ofGDP per capita of China, the capacity of Chinese still tremendous and the

sales of vehicle tend to increase. The steady growth of GDP per capita of

China also implies that the consumer would have sufficient power in terms of

income to purchase the vehicle. Although the future market is brilliant, the

good results would be achieved base on the improvement both for the

technological skills and the service involved. Dedicating in the developing

core competency, enhancing the technology for manufacturing and improving

the productivity would ensure the quality of product and obtain the competitive

advantages among the competitors. Moreover, providing the reliable and

satisfied services would increase the customers product loyalty.

Secondly, the development of infrastructure in China also tends to influence

the performance of Chinese independent auto manufacturers. With the

development of Chinese urbanization, the infrastructure tends to optimized in

terms of high way between the urban and rural and the multiple overpasses. It

all increases the possibility of utilizing the vehicle than ever. The increasing

number of gas station and parking space also contribute to the expansion for

the Chinese independent auto manufacturers.

In addition, plenty of serious problem in terms of air pollution have been

raised because of increasing number of vehicle. Moreover, the increasing

demand for oil leads to the oil supply intension. Therefore, producing the

efficient and economic vehicle like hybrid would create more sales and profits

in the future.

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