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China Automotive Industry: Market Entry Strategy for McLaren Automotive Guido Milner – Student 22 Tiemba 2011 Project P 11 : M P 4 -1 2 C From 1985 to 2008 (PV only) 1958 From 1900 to 1950s Car production was shared between United States and Europe only 1958 Dong Feng Hongqi “East Wind” From 1985, start of China’s production of domestic cars From 1985 to 2008 (PV only) 1994 1st Automotive Policy (Regulation: Consolidation/Protectionism/market creation) 2002 production increase by + 36% 2003 production increase by + 37% From 1985 to 2008 (PV only) 2001 WTO and Forecast of 2003 From 1985 to 2008 (PV only) 2004 2d Automotive policy (Strategic Direction: restructure/WTO requirements/market drive/Environment) Actual substantially above forecasts China becomes N1 market in the world by end of 2009 CHINA LUXURY Market: “ If I do not know the brand, I will not buy it…all my friends are like me” “ If nobody knows the brand here (domestic market), I would never buy it even if it is famous abroad” “ If the price is High, the quality Should be very Good and Company Prestigious..” Luxury cars represent 34.2% of the cars market Rich Chinese are buying. EXOTIC CARS / HIGH SPORTS LUXURY Definition “Our problem is not doubling sales, our problem is getting enough cars from the Factory” Richard Lee Chairman of Ferrari China. Limited Production (less than 1% of the Total workd owners mkt) Scarcity Personalization Market sales data, very difficult to find and highly confidential (handbuilt & custom) (less than 8000 units Per year) Exotic in Context Availability (Delicery time) (out of the ordinary Design & concept) Price Tag (min 250KUS$) MP4-12C: Market & Competition Porsche 911 Turbo Ferrari F430 Main title McLaren MP4-12C Aston Martin DB9 Lamborghini Gallardo Audi R10 Performance (Image, volume, speed, rarity, appreciation) MP4-12C: Competitive positioning • P12 + 13.6% Source: JATO, McLaren analysis • P11 • Enzo • SLR 722 + 60.9% • Carrera GT • SLR • Murcielago • 599 • 911 Turbo • P13 • Audi R8 • 911 4S • AM V8 • F430 • Gallardo Core Competences: Engineering excellence, Use of processes & Tech from F1 Rapid decision making processes, carbon fiber technology Price China Market Analysis: Porter five forces An Attractive segment Of the Automotive Industry! Bargaining Power of Suppliers • • • • Highly fragmented Plethora of substitutes Low switching costs Fragmented suppliers customers => Low force . Limited number of players . High differentiation . High market growth . Barriers of exit Bargaining Power of Customers • Low leverage to negotiate lower prices • Low price sensitiveness • Product is of strategic importance • Production costs high but not known => Relative low force Competitive Rivalry Threat of Substitute Products • Low substitution for lower segments • High increase of potential buyers • Close customer relationship is high • Relatively low switching costs => Still low force Threat of New Entrants • No economies of scale required • Brand loyalty a barrier to entry • Scarcity of qualified professionals • Chinese legislation and government actions => Relative High force CAGE Framework: High distance Culture • High cultural differences • China Elite consumer behavior • Different business practices • Guanxi • Degree of sophistication Geography • Differences between 1st tier and 2d/3d tier cities • Size of the country • Transportation challenges • Beijing or Shanghai or Guangzhou? Administration • High government involvement • Counterfeiting challenges • Corruption challenges • Priority to SOEs • Doing Buisiness in China Economy • Currency exchange challenges • Distribution channels issues • Growth rates • Market evolution High Bridging the Gaps •Cultural Gap / Doing Business in China - Intl experience / Flexibility will be highly necessary / limits of Rep office High •Counterfeiting&corruption levels + future threat of Substitutes - F1 high tech and processes + Carbon fiber technology High / Medium Medium / Low Low • Lack of service excellence and qualified workforce - Commitment to winning values and passion •China Elite sophistication + Market growth expectations - Rapid decision making + low cost Rep Office entry mode + competitive pos •Brand loyalty - Strong brand equity + service excellence standards + brand culture Recommendations Develop a deep understanding of Chinese behavior Of consumers and Elite sophistication Create an efficient and passionate distribution Network to deliver the value proposition Deliver a superior Brand experience : Driving Centers /Clubs / Simulators Maintain a lean cost structure and keep maintenance Costs as low as possible Successful Consider customizing products to local taste Market and invest inTakeoff Green + EV technology even further My MP4-12C