Non-Linear Growth: The rise of Geely 9819952727, 9789819952724

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Non-Linear Growth The rise of Geely Xiaobo Wu · Jian Du · Sihan Li

Non-Linear Growth

Xiaobo Wu · Jian Du · Sihan Li

Non-Linear Growth The rise of Geely

Xiaobo Wu School of Management Zhejiang University Hangzhou, China

Jian Du School of Management Zhejiang University Hangzhou, China

Sihan Li School of Management Zhejiang University Hangzhou, China

ISBN 978-981-99-5272-4 ISBN 978-981-99-5273-1 (eBook) https://doi.org/10.1007/978-981-99-5273-1 Jointly published with China Renmin University Press ISBN of the Co-Publisher’s edition: 9787521732993 © China Renmin University Press 2023, corrected publication 2024 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Paper in this product is recyclable.

Preface I

Since the foundation of the People’s Republic of China in 1949, China’s spectacular and peaceful development has been accompanied with rapidly rising private enterprises, especially after its reform. The tremendous innovations are a testament to the entrepreneurial drive of the Chinese people. Specifically, a significant number of outstanding private enterprises have started from scratch and realized the transformation from a “nobody” into “somebody.” As a typical example of Chinese private firms, the Geely Auto Group started from being a greenhorn entrant to becoming a wise innovator in the global market. When people tell their stories of entrepreneurs’ business acumen, wisdom, brilliant ideas, or luck, there are always cool-minded observers, analysts, or scholars attempting to “see through the surface” and delve into the underlying mechanisms. For instance, there is the legendary story of Li Shufu, who took a hand-made camera, learned to become a photographer, and opened a photography studio. Over time, he went from fabricating refrigerators and motorcycles to earning the nickname of the “Car Madman,” since he ventured into manufacturing the Geely Meiri Model Series, fostering the “minnow-swallowing-whale” takeover of Volvo Cars, manufacturing the Lynk & Co and Zeekr 001 smart connectivity cars, and becoming the largest shareholder of MercedesBenz, among other impressive business moves. When people marveled at

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his “boldness,” “business acumen,” “madness,” and “luck,” true scholars saw beyond the phenomenon with a “third eye,” plotting the non-linear growth of a typical Chinese enterprise from “catch-up” to “beyond catchup.” It was also a process in which Chinese manufacturing efficiently carried out “secondary innovation” based on imported technology, used the “latecomer advantage” to go further, and facilitated a paradigm shift through creative learning and “unlearning” in an open competitive environment. Additionally, it became the quintessential success story for Chinese enterprises to bond the Chinese culture with the Western culture, leap forward in creating a unique competitiveness, and strive to promote independent innovation as one of the world’s leading enterprises. In order to add more value, Geely’s non-linear growth has enabled us to differentiate some management theories from the orthodox management theories and approaches derived from Western developed countries. For example, the successful practice of Geely’s acquisition of Volvo Cars has broken through the “one-party-wins” mindset according to the resource-based and competence-based views in traditional management. It has also revolutionized the “one-party-says” governance approach in the traditional M&A management theory and methodology, embarking on an innovative integration of Chinese and Western cultures. Studying an enterprise, such as Geely, is not only meaningful for narrating the story of a successful enterprise, but also for revealing new patterns and inspiring more enterprises to take fewer steps (or even avoid detours) to achieve healthier development. This bespeaks the power of science and rationality. We can also see that these Chinese enterprises in the world’s historical arena perform a similar pattern in their development trajectory. Additionally, their highly time-compressed growth process can serve as the best social laboratory for the academic community to study the development patterns and management effectiveness of enterprises, hence clarifying new management theories and methods. As for the Geely Auto Group, it is one of the most representative and best-performing practitioners of Chinese management theory. Specifically, its extraordinary development is not a one-way, systematic process, nor is it an overnight sensation driven by luck. Instead, it is interspersed with many unexpected “chemical reactions” and strong “non-linear” characteristics, which can be summarized as follows. First, the new theories and methods of complementarity-based “cocreation, joint contribution, shared benefits, and win-win” have opened the door for the sustainable development of human society. They can

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also guide more Eastern and Western enterprises to realize a community based on a higher level. In addition, through field studies, we found that high-quality Chinese business managers often tap into Chinese traditional culture during their adaptation to environmental changes. Meanwhile, by studying and respecting the scientific spirit, they make up for some defects in traditional culture, which is one of the main reasons for their success. For example, they apply “gray” and “synergy” ideas in management, and use heterogeneous resources and culture as core resources. Regarding Geely’s non-linear growth model, it has been a repercussion to the original resources- and capabilities-based M&A management and corporate governance theory. Unlike the classic social Darwinism of “survival of the fittest” or “law of the jungle,” Geely abandoned the former oneparty, one-way, corporate-equity-based governance often exemplified by the dominating companies in Western countries. Instead, it proposed an alternative relationship model of mutual respect, multi-directional interaction, and complementary Eastern-Western cultural integration. The power from such examples not only rippled through the automobile industry, but it also had long-lasting impacts on corporate M&A deals around the globe. Second, a vital role has been given to entrepreneurs standing at the “intersection of science and art.” In regard to science, Chairman Li Shufu maximized his creative entrepreneurship and inviting personal charisma. Additionally, his respect and pursuit of Volvo made him determined to seize this once-in-a-lifetime opportunity. Overall, the high strategic alignment between Geely and Volvo was the key to success, while its “singularity” can never be fathomed by conventional logic based on economic and management returns. Third, it is important to realize non-linear growth to both quickly establish balance in learning and actively break the balance. Through a series of institutional arrangements and cultural nurturing, the Geely Auto Group helped all of its employees become more inclusive and capable of fast learning. In the process of quickly establishing balance and proactively breaking the balance (by means of iteration and perfection), Geely formed a brand-new corporate culture and learning mechanism. Since venturing into the automobile industry as a “nobody,” Geely has been advocating learning from industrial leading benchmarks. However, unlike many companies, Geely has maintained a strong sense of independence from the beginning by conducting “all-out” studying. In other words, it has mainly performed open learning, but never “shackled itself” to

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foreign advanced technologies and management methods, including their brand influences and cultural traditions. Instead, Geely oriented itself toward the principles of “learning widely from others’ strong points,” while practicing “discretionary borrowism” in order to have the learning serve its own needs. In the process of globalization, while handling the M&A cases of Volvo Cars, Proton, and Lotus, Geely committed itself to the doctrines of equality, respect, and mutual learning. When challenged with significant cultural differences, Geely “sailed through the journey” from doubt to understanding, to recognition, and to collaboration/cocreation. Moreover, with a higher perspective of global co-governance, it managed complex situations, secured synergy, and materialized into an industry leader. This seemingly smooth evolutionary process was full of non-linear uncertainty and creativity. This book is based on a two-year-long study and comprehensive review of extensive archives and publicly disclosed information. In this process, the research team interviewed dozens of senior- and middle-executives as well as frontline employees of Geely, performed significant data mining, and held many expert panel discussions. Additionally, by examining all of the detailed narratives, we identified the key factors and characteristics of Geely’s development and management system, and revealed the scientific principles and laws behind its success. It is worth noting that the drafting of this book has been enthusiastically supported by dozens of senior executives, middle management, and frontline employees of the Geely Auto Group. They have also provided considerable first-hand information for our research from different perspectives. Based on the more than 40 indepth interviews and various informal interviews (totaling hundreds of hours recording), we have produced approximately three million words of research materials, from which the research team obtained a multidimensional and intuitive understanding of Geely as a whole. More importantly, the research team itself experienced the collision between theory and practice in this process, being rewarded with the sublimation of the existing understanding. In the summer of 2019, we had an open and in-depth conversation with Li Shufu at Geely Tower in Hangzhou City. Since then, through the communications with additional executives (including foreign executives) and employees, we have been deeply impressed by the sincerity, confidence, enthusiasm, and sense of ownership of the Geely people. First,

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special thanks go to the following individuals from the Geely Holding Group: Sun Hong, Vice-Chairman; Li Donghui, CEO; An Conghui, President; and Senior Vice Presidents Zhang Aiqun, Wei Mei, Feng Qingfeng, and Yang Xueliang. Second, special thanks go to the following executives from the Geely Auto Group: Cheng Jiayue, CEO; Senior Vice Presidents Li Xiangcai, Wang Ruiping, Cui Zaifu, Liu Xiangyang, Lou Yuanfa, and Kang Guowang; Liu Jinliang, Chairman of Youxing Technology Co., Ltd.; Ling Shiquan, Vice President of the Geely New Energy Commercial Vehicle Group. Third, there was the selfless help from the department heads, including Yin Tenghui, Jin Yaping, Xu Naiping, Yu Jianshan, Chen Aiguo, Liu Tiejiang, Li Chuanhai, as well as the support and cooperation of the middle-level management and frontline employees from the President’s Office, Archives, and Brand Communication Center. Due to their assistance, this book has gained significant first-hand information and vivid case examples, all of which have formed the factual basis of this work. At the same time, special acknowledgment goes to Zhang Aiqun, Senior Vice President of the Geely Holding Group, as well as the team at the Brand Communication Center, including (but not limited to) Song Zhaohuan, Luo Huangfeng, Pan Leiyu, Li Wei, Li Xia, and Gao Yiping for their considerable communication and coordination in the research of this book. The drafting of this book was jointly performed by many young scholars on the research team. These scholars included: Associate Professor Wu Dong; Assistant Professor Lei Linan; Ph.D. students Xu Ning, Zheng Qiuxia, Fu Yanan, Teng Yuanyang, and Lu Keying; Postdoc Fellow Zhang Wujie; and master’s student Li Jiawei. I am grateful for their devotion and wish them the best in their academic pursuits. Additionally, the publication of this book has been highly valued by the leaders and editorial teams of the CITIC Press Group, especially Corporate Chairman Wang Bin. My gratitude goes to all of them! This book also provides new perspectives and materials for scholars engaged in business management research and for business practitioners on the road of rapid growth. In order to make it more reader friendly, we have compiled a “Reader’s Guide” (see below). Finally, science knows no borders, whereas entrepreneurs have their motherlands. At Geely, we see the passion and heroism of the “tide-rider” who stood at the forefront of the significant rejuvenation of the Chinese nation, the open-minded and innovative management team with a global

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vision and social responsibility, and the confident “striving spirit” deeprooted in the mind of every employee. The drafting of this book is also a learning journey in which we greatly benefited from the research as well as the various discussions and revisions. Through this study of world-class enterprise management theories, it is hoped that our model for the rebirth of Chinese enterprises will become a valuable contribution to the healthy development of enterprises around the world.

Reader’s Guide Based on the retrospective of Geely’s extraordinary journey, this book explores and clarifies its non-linear growth pattern. Specifically, there are the elements of coincidence behind its precarious “cliff-walking” business decisions, among which “inevitability” is the pattern that this book aims to explore. Overall, this book consists of five parts. Part I shows how Geely, with “no talent, no capital, and no technology,” decided to go into the technology-, talent-, and capital-intensive automobile industry in its early years, and how it blazed the trail from scratch. Part II systematically discusses how Geely, as a latecomer in the automobile industry, successfully fought its way in the world automobile market through its transformation and innovation in organizational structure, technology, talent, quality, and culture. Part III observes Geely’s non-linear growth process from a global perspective, by comprehensively reviewing the development process of its overseas M&A deals and global expansion, and analyzing how it successfully went global. Part IV discusses the logic behind Geely’s strategic layout from the lifecycle-spanning perspective, and further explores the decisive force behind China’s automobile industry. Finally, Part V reveals Geely’s pattern of continuous growth and posits an original management theory, i.e., the “C Theory,” based on the context of development of China. The contents of each chapter generally include three parts: (1) presenting the related questions; (2) discussing the experiences; and (3) providing theoretical explanations. The introduction of each chapter first stimulates readers’ curiosity about Geely’s management behavior and strategy through a typical case. Then, we analyze the information collected from the investigation and interviews, and grasp the core

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elements in order to uncover the pattern of Geely’s growth. Finally, from the perspective of academic research, the underlying logic and causality behind this pattern is analyzed and theoretically interpreted. Moreover, this book consists of 14 chapters, in which the specific contents are as follows. By reviewing Geely’s difficult industrial entry, Chapter 1 refines the core entrepreneurial spirit of the binary equilibrium of “rationality” and “risk-taking” from its seemingly risky moves. Armed with such innovation-driven entrepreneurship, Geely was able to effectively grasp the opportunity window. Meanwhile, strategic rationality defuses the risks from uncertainty, making the seemingly impossible car-making business possible. Chapter 2 mainly explains how Geely “got the ball rolling” with limited resources and insufficient strength. Specifically, as a latecomer in the automobile industry, Geely frugally and efficiently acquired and utilized external resources, establishing organizational routines of capacity substitution and transformation in the development process. All of these aspects helped Geely adhere to the following proverb: “One is the child of the divine law. After one comes two, after two comes three, and after three comes all things.” Chapter 3 examines Geely’s technological advancement before the publication of the Ningbo Declaration, and from the development of the vehicle-system and core module technology, respectively, it discusses how it was able to achieve a breakthrough in its technological capability. Specifically, the evolution process of Geely’s technological capability presents typical characteristics of “secondary innovation,” i.e., from imitation innovation to creative imitation, and then to incremental innovation. The organizational learning model is also based on the process of “secondary innovation,” which specifically includes learning by doing, hiring, and cooperating, respectively. At the same time, Geely’s complementary asset utilization ability is evolving amidst the non-linear growth of “secondary innovation.” Moreover, it considers the following three aspects: (1) through process innovation, the localization of imported technology can be mastered; (2) through product innovation, the potential and synergy of imported technology can be tapped; and (3) through the integration of more novel technologies, the innovation ability can be qualitatively improved.

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Chapter 4 mainly answers the question: What prompted Geely, once denounced as being “low quality,” to establish a customer-driven competitive quality management system from scratch, and gradually achieve the goals of “acceptable quality,” “excellent quality,” and “leading quality,” respectively? We found that the top-down quality awareness of management, the bottom-up initiative of all of the employees, and the quality interest community formed with external partners were the fundamental drivers for Geely’s quality change. Chapter 5 focuses on how the technological innovation capability of Geely’s R&D management system was transformed from quantitative change to qualitative change. The evolution of Geely’s R&D system is the epitome mirroring its entire transition from “catch-up” to “beyond catch-up.” In other words, it was the unlearning that promoted the dynamic evolution of this system and helped Geely adapt to the changing external environment. Additionally, Geely has effectively captured, rapidly allocated, and efficiently coordinated the global resources in its transformation, gradually casting out its original innovation ability on its journey through “uncharted waters.” Chapter 6 explores the “breaking and establishing” of field management. In this regard, the term “field” refers to the place that directly creates profits and the birthplace of industrial data. Enduring persistence and the pursuit of innovation and improvement empowered Geely to gradually flourish in the highly competitive, technology-intensive, and volatile automobile manufacturing industry. Geely has since been breaking through the established system and restoring balance by gradually forming its unique field management system. Chapter 7 mainly shows how Geely was able to build a global talent echelon with more characteristics aligned to the needs of organizational development. It also examines how Geely has been committed to building a win-win, shared, symbiotic, and inclusive sustainable development ecosystem to support its continuous transformation from a traditional automobile manufacturing enterprise into a global innovative one. In this regard, an open and inclusive talent policy has become one of the key reasons for enterprises to build a “talent forest ecosystem” and achieve sustainable business success. Chapter 8 mainly explains the logic behind Geely’s “meta-motivation” in its unique management mode and corporate culture, which supports

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enterprises to embrace resilient growth while averting the “bureaucracy” trap. “Gray thinking” (also known as “paradoxical integration”) has also enabled Geely to dialectically examine the potential link between contradictory elements in each organizational stage, form a dynamic unity of opposites through integration and coordination, realize compromise with unyielding principles, and promote the enterprise to formulate a reasonable and innovative business strategy and management mode. Chapter 9 answers the following two questions: (1) As a latecomer congenitally deficient in advanced technologies and management experience, how did Geely achieve the M&A deal with Volvo Cars?; and (2) After the takeover of Volvo Cars, how did Geely manage to achieve synergy in the face of doubts from the public? To some extent, Geely’s takeover of Volvo Cars can offer other Chinese enterprises vital information. In terms of the post-acquisition integration process, there are two stages to achieving mutual benefits: smooth transition and synergy for collective progress. Chapter 10 discusses how Geely realized the global layout of the value chain based on its development of more than two decades. Specifically, it shows how Geely has significantly elevated its internationalization level and evolved into a global enterprise. The core advocacy in Chapter 11 is that compliance is becoming a token of soft power and is playing an important role in the process of uplifting the sustainable competitive advantage of enterprises. Geely’s compliance is a vision much as it is a system and culture, all of which are complementary to one another. This chapter also shows how Geely initiated its “far-sighted” compliance campaign, which served as the “accelerator” for its steady development and the “passport” for going global. Chapter 12 mainly introduces Geely’s cultivation of brand-new business competitive advantages by facilitating the deep integration of manufacturing and service applications throughout the industrial chain. Through our research, we discovered that there was a two-way interaction between technological and business model innovation when Geely was transforming its manufacturing to become more service-oriented, which was the driving force behind the transformation from the value chain to value network. Chapter 13 explains Geely’s “DNA of change” exhibited throughout its development. Specifically, the “sense of crisis + self-breakthrough” was the fundamental factor that enabled Geely to adapt to the constantly

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changing environment. In the face of the tremendous challenges brought by the Fourth Industrial Revolution to the automobile industry, Geely recognized the window of opportunity in multiple dimensions, thus averting the “catch-up trap.” At the same time, it maintained its strategic focus on the highly volatile environment and firmly seized the opportunity to move from “lane-changing” to “overtaking.” In regard to the aforementioned “C Theory,” this book can be helpful for other latecomer enterprises to realize their own non-linear “catchup” processes. Interestingly, the letter “C” in this theory not only refers to China, but it also represents additional meanings such as “complementary,” “catch-up,” “change,” “creating,” and “compromising.” We also believe that it is the historical mission of this generation of Chinese scholars to build a management theory system from Chinese practices. Finally, based on the 13 rules extracted from Geely’s successful enterprise management practice, this book focuses on the following six viewpoints: (1) “risk-taking and rationality” entrepreneurship; (2) “frugal and highly efficient” innovation behaviors; (3) “quick and inclusive” learning; (4) a strategically focused paradigm shift; (5) a flexible and dynamic organizational model; and (6) a “dynamic yet static” ambidextrous system (see Fig. 1).

Part I From 0 to 1 (Following the Footsteps)

Part II From 1 to N (Advance Side By Side)

Data Empowerment

Starting Faith and Passion Trial Production of Motorcycle Workshop "Underestimate" the Difficulty of Building a Car Joint Operation to Resist Risks

Rational Spirit

Promote

Opportunity Window

Shortage of Talents

Open Source and Cut Expediture IPO in Hong Kong

Shortage of technology Bypass to Carmanufacturing Forward-looking Vision

Shortage of Money

Upgrade

Grasp the Uncertainty

Strategic Determination

Support

Climb

Start

Lift

Innovating in Learning

Innovating in Cooperation

Imitate Innovation

Creative Imitation

Improved Innovation

Learning by Doing

Secondary Innovation

Compliance as A Culture

Value network Supply Chain Network Manufacturing Network R&D Network

Transition from Global Value Chain to Value Network

Network Collaboration

Community of Interests

A Sense of Future Mission

Value Chain

Compliance as a System Bottom Line Thinking

Support

Promote

Compliance as A Vision

Lead and Empowerment

The Power of Faith

If Beauty Represents Itself with Diversity and Integrity Step by Step

Enlighten

Every Form of Beauty Has Its Uniqueness Governance Mechanism Complementary Resources Learning Opportunities

Two Centennial Reflections on Cross-border M&A

Asymmetric Complementarity

Institutional Opportunity Window

Demand Opportunity Window

Strategic Opportunity

Paradigm Change

Technology Opportunity Window

After Three Come All Things

Interacting

Part III Globalization (Beyond)

Hugging

Talent Deve lopment Talent Recr uitment Talent Retaining

Personnel Leader Enterprise Objectives Cultural Construction Structural Design Distribution of Benefits

Dynamic Balance

Technology Innovation

Management Control

Call from Nationalistic Mission Strive to Obtain Car-manufacturing Resources Modular-based Car-making Philosophy Institutionalized and Complementary Thinking

Ambidexterity of Entrepreneurship

Progress in Technical Worksite Managing Continuous R&D Improvement by All ManaManag- Capability Employees iteration of gement ement System Construction Process System

Disrupt & Build

Quality Upgrade

Creative Reorganization

Upgrade

Win-win for Suppliers Dealer Allignment

Manufacturing

Executive Commitment Employee Delegation

Decode User

Network Empowerment

Design Quality

Quality Management

Risk-taking Spirit

Organizational Empowerment

Absorb InternTalent ational Talents Mana gement Cultivate Endogenous Talents

Open and Inclusive

Business Model Innovation

Manufacturing as Service The differentiation route of "Internet+"

Closed Organizational System

Value Network

Inter-organizational Open System

Part IV Crossing Cycle (Pacemaker)

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November 2023

Xiaobo Wu Zhejiang University Hangzhou, China Jian Du Zhejiang University Hangzhou, China Sihan Li Zhejiang University Hangzhou, China

The original version of this book has been revised: The copyright page and the figure captions in Chapter 14 have been updated. A correction to this book can be found https://doi.org/10.1007/978-981-99-5273-1_15

Preface II

Recently, as I was driving the Zeekr 001 (capable of 0 to 100 km in just 3.8 seconds) at Geely R&D Hangzhou Bay branch’s test grounds, it reminded me of a significant moment in my life. It was approximately 19 years ago, when I was appointed management consultant to the CEO of the Geely Auto Group, and invited to the test drive the Geely Meiri Model Series at their Beilun Factory in Ningbo. I was amazed to see such heavy work performed on the production line, which was crammed into a large in-ground pit. Although a long time has passed, these memories seem like I was just there yesterday. I cannot help but feel touched and proud of witnessing such a journey! When this manuscript was being completed, I came across “My Rendezvous With Cars” (a short essay that I authored more than three years ago), gasping at what has occurred since that time. I then decided to make some minor adaptations to this essay and make it the preface of this book.

Volvo Cars: The Starting Point of “My Rendezvous with Cars” In June 1997, I was a visiting scholar at the Institute for Manufacturing (IfM), University of Cambridge, and received the opportunity to attend the annual conference of the International Association for Management of Technology (IAMOT) in Gothenburg, Sweden. During my visit, I toured xvii

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the Volvo Car Factory, where I was deeply impressed by its “quality first, safety first” management philosophy and the innovative management system. Since then, I have firmly believed that cars will become a necessity in the lives of the Chinese people and that the automotive industry will become a pillar of the Chinese economy. In 1998, I made my first visit to Japan and immediately visited Toyota City, the capital of the country’s automobile industry. When touring the Toyota Motor plant, I was amazed with the Kanban management, the Toyota Production System (TPS), and the Mixed-model production line. From 2000 to 2001, when I was a Fulbright senior visiting scholar at the Massachusetts Institute of Technology (MIT) Sloan School of Management, I was able to meet the MIT Task Force of Mobility Research that famously authored The Machine that Changed the World. At my own expense, I visited Detroit (the then “Automobile Capital of the World”) twice, and toured the headquarters of General Motors, Ford, and Chrysler, as well as several component factories. When lamenting the withering of Detroit, I was deeply amazed by the new energy vehicle prototype being developed and the “Partnership for a New Generation of Vehicles” approved by the United States Congress, indicating the dawn of a new paradigm for the automotive industry. In 2002, at the invitation of Xu Gang (the incumbent CEO of the Geely Auto Group), I was appointed as his management consultant. Although it was imperceptible, it was truly an inexorable arrangement! Although my insights into the automobile industry were still quite limited, my years of attachment to cars and this industry were genuinely rewarded. In the summer of 2002, before the landing of typhoons, I made my first visit to the joint office of Li Shufu and Xu Gang at the Geely Beilun Factory in Ningbo. After a brief introduction, I toured the plant and saw many people busy performing all types of work, seemingly with a gung-ho spirit and high morale. However, in terms of the equipment and management of the production line, there was a stark difference when compared with those of the Big Three car manufacturers: There was so much noise from the grinding, painting, and related labor work. Back then, I joked, “No one will buy your cars after seeing such an assembly site!” Yet, during the lunch, after excitedly forecasting the popularity of cars in China and the rosy prospect of the automobile industry, all three of us were instilled with confidence. We were also strong believers in the quick learning attitude and hardworking spirit of the Chinese people as

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well as the large potential demand of the Chinese market. We also believed that Geely will surely become a major player in the global automobile industry and even catch-up with the lead pack! I even formulated my oath at that time: “If Geely becomes the world’s leading car manufacturer, then I will definitely buy a car made by Geely!” In 2003, Takahiro Fujimoto (the father of the TPS and a renowned professor from the University of Tokyo) discovered that I was appointed as the management consultant to the CEO of the Geely Auto Group. He then made a special trip to Hangzhou to meet me and tour Geely’s factories. After visiting the Linhai factory, he invited me to dinner, during which I inquired about his factory visit. He shook his head and said, “There is such a huge gap.” Specifically, he believed that major improvements in the Chinese automobile industry would not be made in a short term. At that time, it was one of the darkest moments for the Geely Auto Group, since it was suffering from a shortage of capital, talent, and technological know-how. All it had was the courage and vision of Li Shufu, the so-called “Car Madman.” Meanwhile, my newly appointed consulting role was not easy because it required “learning by doing” almost in all domains. At that time, some government leaders and many peer scholars from Zhejiang province concurred that the Geely Auto Group was congenitally inadequate in all endowments and they did not believe that it could be capable of manufacturing decent cars. Some principal government leaders even nudged me to help Geely find a “foreign crutch” in order to gain more support (e.g., a joint venture with existing well-known foreign automobile companies was a popular tactic). I told them, “The cruel reality is that these ‘foreign crutches’ are often the de facto ‘foreign batons.’ Geely’s advocacy of remaining as an independent local brand in an open environment deserves support and admiration!” Under such poor conditions, the entrepreneurs of Geely (a Chinese local private company) exemplified its perseverance and tenacity. Therefore, it was eventually supported by many industrial specialists and people with lofty aspirations, knowledge, plans, and dreams. Thanks to their hard work, the Geely Auto Group rapidly developed, fostering its triumphant rise in the face of doubt and ridicule. Years later, Zhang Aiqun (Senior Vice President of the Geely Auto Group) recalled when I presented a lecture on brand management to Geely executives. Looking back, we were full of youthful spirit. Yet, deep

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down in our hearts, we were fearless as “newborn calves that are unafraid of tigers.” Interestingly, at that time, how could I have foreseen that my rendezvous with cars that originated from Volvo Cars would eventually lead to Geely’s acquisition of Volvo Cars!

The Non-Linear Growth from the Tide-Rider to the Tide-Maker In 2012, I invited Professor Takahiro Fujimoto to give a keynote speech at the 7th International Symposium on Global Manufacturing and China, a conference jointly hosted by Zhejiang University and Cambridge University. He also asked me to arrange another visit of the Geely Auto Group. After the visit, he reached an evaluation that dramatically differed from that a decade earlier. Specifically, he was amazed and even shocked at the progress, particularly in the know-how management, by such a latecomer to Chinese private enterprises! Who would have expected that the Geely Auto Group could go from being a car industry “nobody” to a world-leader in only two decades? First, from advocating “cars affordable by ordinary people” to “good cars affordable by ordinary people,” Geely went through different product series, ranging from the Geely Meiri and Geely Haoqing Model Series to the leading intelligent-connected cars such as Lynk & Co., Zeekr 001, etc. Second, it went from a state of having no R&D facility to the worldclass Hangzhou Bay R&D base. Third, it went from the acquisition of the London Taxi Company in Great Britain and the DSI transmission company in Australia to the all-around acquisition of Volvo Cars and Buses, Malaysia Proton, Lotus, and Terrafugia. In addition, Geely became the largest shareholder of Daimler Automobile. Overall, the Geely Auto Group includes world-class automobile R&D, design, manufacturing, and innovation capabilities as well as “intelligent mobility services,” thus securing the transformation from “catch-up” to “beyond catch-up.” In 2017, I visited the Geely Auto Group with several experts and saw the newly launched Lynk & Co., a car series jointly branded by Geely Auto Group and Volvo Cars. I could not help but admire what an innovative “Car of Intelligent Connectivity” was offering with such high quality and an affordable price! At the beginning of 2018, I became one of the first Lynk &Co car owners, thus fulfilling my promise made in 2002: “If

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Geely becomes the world’s leading car manufacturer, then I will definitely buy a car made by Geely!” Some people indicate that Geely is still weak in disruptive innovations. Is this true? If purely seen from its car series, then it might be true. However, would Geely’s 20-year car-production journey be possible if not for its trailblazing manner? Can it only be achieved by squandering capital and performing free-will acquisitions? Beneath the surface, there are a myriad of innovations in learning, including: from its mindset to corporate culture; from its process establishment to process change; from its individual behavior norms to organizational routines; from its transformation of being encased-minded to open-minded; from its learning in secondary innovations to “unlearning”; and from its two-wheel drive technological innovations to a paradigm shift that embraces the new scientific and technological revolution. All of these subtle yet fundamental changes allow us to realize that Geely’s growth is indeed a type of non-linear growth!

Feelings from Witnessing the Surging Development of the Chinese Economy The two-decade-long love for cars is also the epitome of the shared feelings of millions of Chinese people. This is slightly different than my love for cars, since it includes some emotional attachments and coincidental luck. Convinced by the rise of a private enterprise at the micro level and the advancement of the entire national automobile industry at the macro level, we gasped at the torturous and long-lasting journey of China’s economic development as well as admired the never-yielding pursuit and hard work of the entrepreneurs, managers, engineers, workers, and others along the journey! With the continuous improvement of China’s public infrastructure, many former “backward and middle-of-nowhere” locations have been transformed into beautiful countrysides. Meanwhile, an increasing number of people can afford to drive the domestically produced yet premium quality cars in their leisure time, while admiring the beautiful views of the rivers and mountains in such a great nation. What a thrilling experience!

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I am glad that I abdicated the idea of being just a bystander “pedant.” Instead, I conducted boots-on-the-ground fieldwork deep in the enterprise and did my best to bond theory with practice. For this, I feel proud and honored. In the past, when I attended various international academic conferences, I often heard foreign experts accusing Chinese enterprises of being merely “copycats,” instead of real innovators. Currently, Chinese enterprises, represented by Geely, have proved themselves with solid evidence. The privilege of connecting with the development paths of Chinese enterprises has also enabled me and my research team to form our own theoretical system: the “C Theory,” i.e., the research findings emerging from the practice of Chinese enterprises. Meanwhile, many Chinese enterprises have ventured from secondary innovation to original innovation, ultimately seizing the opportunity to perform a paradigm shift from “catch-up” to “beyond catch-up.” This is the way for developing countries to remove their path dependence, sail through the “middle-income trap,” and realize the non-linear growth toward a better life! With over four-decade-long reforms of China and the rise of its manufacturing industry, Chinese enterprises are currently confronted with a dramatically changed external environment, yet rich in opportunities and challenges. In other words, the economy includes a fundamentally changed growth mode, leaving the traditional extensive development mode no longer sustainable. The upgrade of consumption has not only brought about profound changes in the market environment, but its new round of scientific and technological revolution has also brought historical opportunities for the development of new industries, business models, and paradigms. Additionally, the changing global economic structure and the uplifting of China’s position in the world economy have enabled Chinese enterprises to enter a new stage of global development. In order to offer more practical guidance to enterprises, the mission of scholars should be to conduct responsible research. The case study of the Geely Auto Group and the successful road map of Chinese enterprises going from “catch-up” to “beyond catch-up” can help reveal and refine universal management rules. Hence, this carries important theoretical and practical significance. Moreover, an increasing number of studies are finding that in the management practice of Chinese enterprises, the scenario plays an important role as antecedents, be it the scenarios of the network environment, the tiered market, the diverse technological hierarchy, or institutional transformation. Additionally, some

PREFACE II

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Chinese scenarios are in contrast to the theories of Western scenarios and cannot be effectively addressed and interpreted by existing Western management theories. This not only reflects the uniqueness and importance of Chinese enterprise management theory, but it also means that the innovations in Chinese enterprise management have greater and far-reaching world significance. Moreover, we believe that the scientific research on Chinese enterprise management will form new, globally accepted academic findings, and then positively influence the progress of the world. Under the backdrop of this era of significant changes, Chinese enterprises have caught up from behind, somewhat like “Cinderella transforming into a princess.” Such a journey, be it from “mechanically replicating others’ experiences” to “navigating uncharted waters,” surely has its underlying logic. It also offers a great opportunity for the Chinese academic community to carry out scientific research on management studies. In other words, we should delve deeper into the facts, pursue the underlying truth, explore the infinite border, and reveal, interpret, and disseminate the truth via science-based attitudes and methods. Finally, 2021 has been the 35th anniversary of the Geely Holding Group. Over the past 35 years, Geely has incrementally realized the transformation from an automobile manufacturer into a company of intelligent electric mobility technology. Due to these inspiring visions and my rendezvous with cars, I am very happy to lead our team, examine Geely’s growth trajectory, and systematically define the non-linear growth characteristics and patterns of Chinese private enterprises. It is my ambition that the publication of this book will contribute to the formation of the “C Theory,” a theory based on Chinese management practices. Meanwhile, I hope to receive helpful feedback from both academic and management practice circles in order to enrich and deepen this theory. November 2023

Xiaobo Wu Zhejiang University Hangzhou, China

Preamble

C Theory: The Truth in the Post-Truth Era Does an era create heroes or do heroes create the era? People, especially the scholars cannot help raising such questions in the era of a market economy full of entrepreneurial heroes. Chinese people have finally fulfilled their dream of industrialization in the past 160 years, becoming the world’s largest manufacturing country again. Did the first, second, third, or fourth (also known as the technological revolution) industrial revolution inspire these entrepreneurs or did the entrepreneurs give birth to these industrial revolutions? The term “post-truth era” became very popular recently. It is defined as follows: assertions, speculations, and feelings are popular in the posttruth era, and facts are packaged subjectively to intensify and polarize a certain viewpoint; the more extreme the position is, the more distinct the enemy, the easier the catering and manipulation of public opinion. So that’s it! The outbreak of every industrial revolution and the rise of every great power are accompanied by the popularity of great economic theories and management theories that affect the world, from the Wealth of Nations by Adam Smith in the United Kingdom, General and Industrial Management by Henri Fayol in France, the Protestant Ethic and the Spirit of Capitalism by Max Weber in Germany, to the Principles of Scientific Management by Taylor, the Theory of Economic Development by Joseph Alois Schumpeter, Follett on Management by Mary Parker Follett, and xxv

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Theory Z by William Ouchi in the US, and then to Toyota Production System by Fujimoto Takahiro in Japan, and Imitation to Innovation by Kim Linsu in South Korea. There are always some reasons—unique and universal management innovations for the rise of every economic giant. C Theory will also come into being soon based on Chinese corporate management practices with the great rejuvenation of the Chinese nation. What does the rapid economic development in China mean now? What are the economic and management theories that are based on China’s practices and can influence the world when the modernization with Chinese characteristics appears on the world stage? How to form such a theory in the hustle and bustle of the post-truth era? It is fundamental for the Management to reveal the law of value creation. While introducing Western theories into China and verifying their significance and value with the progress of Chinese companies, Chinese management scholars really have to think carefully about the significance and value of their own management research in the Chinese context and engage in further study of the great practices of Chinese companies in order to become real management scholars. In order to study the Chinese companies that have completely put aside the historical burdens, successfully use Western modern management theories and methods, and take advantage of contemporary scientific and technological revolutions to achieve great success in the Chinese millennium cultural context, we have to understand the science behind it. There are two other terms also popular recently, namely “civil science” and “official science.” What is the relationship between these two? Some people believe that “official science” is mainly supported by the government while “civil science” is the spontaneous and free exploration in the society. They are just like the famous decent heroes and the greenwood heroes in the novels. In the current management research, “official science” seems to be the Western learning led by colleges and universities, while “civil science” is mainly the traditional culture research or the studies of Chinese ancient civilization conducted by traditional Chinese researchers. In fact, as far as science is concerned, there is no difference in “ranks” or between “officials and citizens.” Science is an objective law, which cannot be represented fully by either “official science” or “civil science.”

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As a social science, management exists because of the organizations. It is rooted in the corporate competition market where the maximum utility is pursued under limited resources. It studies the competition rules, winning behaviors and strategies, tactics and spirit of the players in the competition market, all of which are affected by the internal and external contexts of the organizations. Most of the time people are accustomed to summarizing the law from the phenomenon, which is called “empirical science.” However, they can also perceive something more abstract behind the phenomenon. When people explore these laws by means of “experimental science” and then apply them to practices, the established architecture, rules and paradigm can universally benefit humans. In the so-called “Management Theory Jungle,” we are delighted to discover that new terms and concepts are successively springing up in Chinese Management. Nevertheless, we still have to reflect whether some assumptions or premises or the most basic scientific principles are ignored in these new terms and concepts, whether the new terms and concepts with the most publicity and the largest audience are correct, and whether those who quote the greatest companies have convincing theories or paradigms. It seems that we are going back to the post-truth era once again… Successful entrepreneurs are often placed on a pedestal and treated as gods; however, at times, even they may encounter failure. Excessive attention is directed toward them, and people try to imitate whatever superstar business leaders say and do, owing to their clever witticisms and great accomplishments. People trick themselves into believing that by imitating such business leaders they too can become the cock of the walk. Unfortunately, this imitation often amounts to a little more than a copy of a copy. Successful entrepreneurs are seemingly shrouded in an air of mystique and glamour and can turn an off-handed bit of obvious common knowledge into a “holy grail,” as long as it comes from the mouths of the “great.” Quotes of famous individuals are often bandied about and repeated as mantras. However, in the blink of an eye they can often trip and fall over their own quips of obvious “wisdom.” Therein, lies the difference between management and the science of management. Management is about results, and the science of management is primarily about objective laws. The development of human civilization is based on the fact that the knowledge of objective laws is the engine that drives the society forward.

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However, does a successful outcome prove that processes work? Who should we learn from, the winner or the loser? In his masterpiece, Anna Karenina, Tolstoy said, “Happy families are all alike; every unhappy family is unhappy in its own way.” However, in business, “the reasons for failure are often similar; but the paths to success are like night and day.” The scientific approach adopted by scholars who study management focuses first and foremost on understanding the relationship between management science and management in practice. The two are closely related but also distinct, and the relationship between them is not simply a matter of “experiential” versus “empirical” or “normative.” In reality, it is more common that “valid” conclusions directly drawn from the experiences of individual companies coexist with conclusions that are disconnected from China’s realities due to the use of “scientific” statistical and deductive methods relying on Western theoretical paradigms. As researchers, we often claim to embody reason, and critical reasoning presupposes the ability to accept criticism; hence, we should study and learn from the theories and experiences of our predecessors. Simultaneously, we should dive deeper into the operations of Chinese firms, with the axiom, “hypothesize boldly but prove carefully” as our guide. With global horizons and a scientific approach, we must study the scientific laws of enterprise management to reveal the essence of management hidden behind the ever-changing behaviors of business enterprises.

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The following diagram, consisting of the four dimensions of theory, knowledge and skills, wisdom, and practice, came straight from the mind of the ancient Greek sage Aristotle.

Source: Amann, W. (2017). Phronesis 2.0 and its impact on an executive’s learning. The presentation was given during the research workshop on April 6, 2017, at the University of Twente. The meaning of the word “phronesis” used here is practice-based wisdom, translated as “practical science” or “practical wisdom,” and is one of the key elements of management studies. We can ensure the rationale presented in our research by reviewing and exploring the relationship between practice and theory using this framework. Let us return to the genesis of management research. What exactly is its origin? And what is the scientific significance of management research? We suggest that management research is rooted in uncovering the principles and laws of organizational value creation and linking them with valuesharing mechanisms to form a virtuous circle of sustainable development. As a group of scholars actively engaged in the study of the management practices of China’s top companies, we are committed to abstracting the practical experiences of frontline managers of companies like Huawei and further refining them through scientific, critical, and constructive thinking. This mammoth effort has culminated in the release of the C Theory series that encapsulates the findings and conclusions of more than

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30 years of research on management science via a new think-tank, the Ruihua Institute of Innovation Management. The series is divided into two parts: Theory and Practice. The Theory series, as the name implies, focuses on scholarly theory derived from practices adopted by Chinese companies and entrepreneurs, for instance, change theory, the catch-up effect and beyond theory, chaos theory and paradigm shifts, compromise and grey management, and co-creation, co-construction, sharing, and win-win. Through the collaboration between scholars and former executives, the Practice series provides a systematic scientific analysis of real-world examples that summarize practical and rational management cases and best practices from various perspectives, thereby providing help and inspiration for managers in their daily work practices. We have been steadfast in our efforts and moving ever closer toward our goal. We sincerely hope that greater and greater numbers of scholars and managers will reflect on China’s practical experiences and apply what they learn wisely as they further develop world-class management theories, methods, and tools through systematic research in a unified contribution to the balanced development of global corporations and society alike!

Contents

Part I From 0 to 1: Out of Chaos 1

The Rationality Behind Risk Taking “Heroes Decide the Course of History” Ambidexterity of Entrepreneurship Rational Risk Taking in Non-linear Growth

3 4 15 24

2

“From Three There Comes Everything” Talents and Recruitment Open up the Source and Regulate the Flow Compromising: “From Three There Comes Everything”

29 30 42 49

3

Progression Through Secondary Innovation Replicas? A Difficult Collaps “Secondary Innovation” of Non-linear Growth

51 54 63 67

Part II From 1 to N: Pursuing Order 4

Redefining Quality Understanding “Perceived Quality” Top-Down Quality Benchmarking Management Association The Masters of Quality Control A Community of Shared Quality Non-linear Growth–“Decoding Users”

73 77 84 86 89 92 100 xxxi

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“Unlearning” in Research and Development From Quantitative to Qualitative: A Leap Forward in Technical Capabilities From Disorder to Order: Iteration of R&D Management Non-linear Growth: “Creative Destruction”

105

6

“The Cycle of Transformation” in Site Management Bottom-up Innovation: No Problem is the Big Problem Top-Down: The Geely Production System (GPS) The Cycle of Transformation in Non-linear Growth

135 137 145 154

7

A Forest Where Talent Blossoms Introduction of the Big Camphor Tree Cultivating “Saplings” A Talent Development System with Heart Organizational Empowerment The Openness and Inclusiveness of Non-linear Growth

157 160 169 172 186 192

8

The Code of Vitality to a Resilient Organization The Resilience of the Executive Team The “Meta-Motivation” of an Organization The Dynamic Equilibrium of Non-linear Growth

195 198 208 232

5

108 120 131

Part III Leap of Faith: Globalization 9

Great Wisdom in Cross-Border M&As Reverse Cross-Border M&A Uniqueness Beauty of Every Form and Harmony Wisdom About Synergy Asymmetrically Complementary Non-linear Growth

239 242 248 254 259

10

Global Collaborative Network From Local Value Chain to Global Value Chain Evolution of Global Value Network “Synergy Network” Behind Non-linear Growth

261 263 269 277

11

Compliance for High-Speed Development Compliance is Bottom-Line Compliance as an Institutional System Compliance as a Culture The Bottom-Line Thinking of Nonlinear Growth

279 281 286 293 296

CONTENTS

Part IV

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Traversing Cycles: Embracing Uncertainty

12

From Manufacturing to Service Redefining Automobile Manufacturing Power Empowerment in Development Revitalize the Installed Market and Boost the Incremental The “Value Network” of Nonlinear Growth

301 303 314 320 321

13

Embrace Uncertainty The Opportunity Window to Catch-Up and Go Beyond Strategic Determination Under Uncertainty The Paradigm Shift of Nonlinear Growth

323 324 334 337

Part V Enlightenment of Non-Linear Growth 14

Catch-Up and Going Beyond of Made in China Behind the Rapid Growth of Made in China Rethinking on “Classic Management” Beyond the “Latecomer Advantage” Catch-Up and Beyond Catch-Up Across Cycles C Theory Appendix I: Survey Records Appendix II: Organizational Structure Changes of Geely Appendix III: Evolution of Geely Holding Management Structure

Correction to: Non-Linear Growth Index

343 344 345 347 352 354 356 358 360 C1 365

List of Figures

Fig. 1.1 Fig. 1.2 Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. Fig. Fig. Fig. Fig. Fig. Fig.

4.4 4.5 4.6 4.7 4.8 4.9 4.10

Fig. Fig. Fig. Fig. Fig.

4.11 4.12 4.13 5.1 5.2

Fig. 5.3 Fig. 5.4 Fig. 5.5

Geely Auto sales volume, 1999–2010 (unit: vehicles) Automobile brands jointly produced in China (as of December 2001) J.D. Power’s new car index study survey trend chart Geely’s Incidents Per Thousand Vehicles (12MIS) for 2011–2019 Geely’s Auto (including Lynk & Co.) sales and corresponding price distribution for 2013—2018 Transformation phases of geely’s quality strategy Geely’s 3824 quality improvement method Geely’s four major industrial process benchmarks Geely’s pyramid of quality culture Independent production quality assurance system Quality management systems structure Substantive issues of products and their importance to geely Geely’s “1+1+1” community of shared common interests “3A” supplier dynamic appraisement system Key factors of geely’s high-quality development Geely Auto (Group)’s R&D situation from 2008 to 2018 Operation revenue of geely auto (Group) and Geely Holding Group from 2003 to 2018 Geely’s three major R&D organizational changes Organization of project team Cross-functional System of NPDS-related departments

4 11 75 75 76 78 81 87 88 91 93 94 96 98 102 107 107 121 127 130

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LIST OF FIGURES

5.6 5.7 6.1 6.2 6.3 6.4

Fig. 7.1 Fig. 7.2 Fig. 7.3 Fig. 7.4 Fig. 7.5 Fig. Fig. Fig. Fig. Fig.

7.6 7.7 7.8 8.1 8.2

Fig. 8.3 Fig. 8.4 Fig. 8.5

Fig. Fig. Fig. Fig. Fig. Fig. Fig. Fig.

8.6 8.7 8.8 10.1 10.2 11.1 11.2 12.1

Fig. 12.2

Four stages of NPDS NPDS milestones and key deliverables Geely Auto’s domestic market share, 2016–2018 Problem-solving ticket management process A sample problem-solving ticket Geely’s staff innovation collaboration management diamond model Number of graduates from Geely educational institutes 2014–2019 Goose series internal talent development Performance Management Evaluation Mechanism Combining CPV and 2521 Employee career life-cycle support program Geely’s three-pillar model of human resource management N-pillar Model of Human Resource Management Geely employee training 2010–2019 SEE model After-tax profit of Geely auto between 1999 and 2018 Operating income and three expenses of Geely auto 2006–2018 Governance structure of Geely holding after its restructuring in 2004 “Regular triangle” of traditional bureaucracy and “inverted triangle” of self-management entity The organizational structure of a manufacturing base in Geely (taking the business entity with production posts as an example) Operating entity model The “4 + N” product line entity of shared interests The Geely operating entity business model Sales of Geely Automobile from 1999 to 2019 (unit: car) Four stages of Geely supply chain management Geely’s compliance organizational structure Connotation of compliance Scale and utilization rate of online car-hailing from June 2018 to June 2021 (Source CNNIC China Internet Development Survey) Year of launch of domestic online taxi-hailing platforms

132 133 137 143 145 155 176 177 180 185 187 190 192 193 196 197 201 217

221 225 227 232 262 270 292 296

303 309

LIST OF FIGURES

Fig. 12.3

Fig. 12.4 Fig. 13.1 Fig. 13.2 Fig. 13.3 Fig. 14.1 Fig. Fig. Fig. Fig. Fig. Fig. Fig. Fig. Fig. Fig. Fig. Fig.

14.2 14.3 14.4 14.5 14.6 14.7 14.8 14.9 14.10 14.11 14.12 14.13

Comparison between demand and supply side of network car/special car market in 2020. (Travel times using car-hailing service Demand covered by car-hailing service self-operated fleet) Diagram of industrial boundary change The opportunity window in the transition period of the technology paradigm Intelligent technology strategy: intelligent interconnection and intelligent driving Composition of strategic determination U-A innovation dynamic model and secondary innovation dynamic model Dynamic process of secondary innovation Conceptual Model of Nonlinear Growth in C Theory Organizational chart of Geely holding in 2003 Organizational chart of Geely Holding in 2004 Organizational chart of Geely Holding in 2009 Organizational chart of Geely Holding in 2013 Management structure diagram of Geely holding in 2017 Management structure diagram of Geely holding in 2015 Management structure diagram of Geely holding in 2017 Management structure diagram of Geely holding in 2019 Management structure diagram of Geely holding in 2020 Management structure diagram of Geely holding in 2021

xxxvii

312 319 327 328 339 348 350 356 359 360 361 361 362 362 363 363 363 364

List of Tables

Table 2.1 Table 6.1 Table 6.2 Table 7.1 Table 8.1 Table 8.2 Table 9.1 Table 9.2 Table 10.1 Table 11.1 Table 12.1 Table 12.2 Table 12.3 Table 12.4

Geely’s educational planning and development Classification system of innovation proposals Geely Production System versus Toyota Production System Overview of Geely Education Programs Business performance evaluation grades of each product line/subsidiary of the Group The application of dynamic balance in Geely’s management Geely’s rankings on the fortune global 500 list (unit: million dollars) Sales volumes and growth rates of Geely Auto from 2008 to 2017 R&D expenditure of Geely Over the years (2010–2018) Basic information on Geely Holding Group’s compliance training Car ownership per thousand people in major countries around the world (2019) Automobile manufacturers investing in car-hailing brands Comparison of the business models of Didi Taxi, UCAR, and Cao Cao Taxi The city deployment strategy of Cao Cao Taxi

32 141 154 173 231 234 240 241 275 294 305 307 311 313

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PART I

From 0 to 1: Out of Chaos

This part focuses on the transformation development process of Geely from the beginning of 1997 to the publication of the Ningbo Declaration in 2007. Readers will be able to appreciate the 0 to 1 “grassroots entrepreneurship” of Geely Auto, exploring the key attributes of its nonlinear growth in the stage of “chaos.” By grooming the key events in the early infant stage of Geely Auto, with the evidence of real cases, Chapter 1 distills the entrepreneurial spirit core of the duality equilibrium of “rationality” and “risk taking.” Chapter 2 reviews how Geely broke the dilemma and realized the substitution, transformation, and reconstruction of its competence under the challenges of scarcity in talents, technology, and resources. Chapter 3 focuses on Geely’s historical new product development process. Geely makes full use of “latecomer advantages” such as low cost and takes “secondary innovation” as the strategy to gradually realize technological breakthrough and form sustainable competitiveness.

CHAPTER 1

The Rationality Behind Risk Taking

In 1999, when Mr. Zeng Peiyan, then director of China’s State Development Planning Commission, visited Geely Group, Mr. Li Shufu, with his big dream of car manufacturing, earnestly exclaimed, “Please allow private entrepreneurs to have some dreams about manufacturing cars. Even if it is doomed to fail, please give me a chance to have a try!” Geely Auto, a superstar rising in the global automobile market, is swiftly lighting up the night sky of “Made in China.” The data show that in 2020, Geely Auto sold 1,320,217 vehicles, ranking first in sales of Chinese-brand passenger cars for four consecutive years. At the same time, in the “Automobiles 100 2020” list published by British brand-evaluation agency Brand Finance, Geely Auto has been the Chinese automobile brand with the highest brand value for three consecutive years. By analyzing Geely’s sales data over the years (Fig. 1.1), we found that in the early stage (1999–2001), Geely’s market expedition went through an arduous phase of exploration and ramping up. At the critical junction beyond cold start (2002), the accumulation of valuable technology in the early stage, to a great extent, directly determined the sustainable development of Geely in the middle and late stages. Such non-linear growth trajectory not only reveals the typical development pattern of Chinese private enterprises since the reform and opening up but also inspires people to peruse the underlying causes.

© China Renmin University Press 2023 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1_1

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500 000

416 168

400 000 219 512

2009

2007

2006

2005

2004

2003

2002

2000

1 505 10 661 1999

0

221 823

203 695 149 969 97 460 74 335 21 78946 672 2001

200 000

2008

300 000 100 000

329 104

2010

4

Fig. 1.1 Geely Auto sales volume, 1999–2010 (unit: vehicles)1

Considering the complicated influencing factors of China’s automobile market, including the policies, funds, talents, etc., how Geely Auto could overcome the difficulties, realize the business start from 0 to 1, and quickly transform the weak comparative advantage into sustainable core competitiveness are the issues that interest many entrepreneurs and scholars nowadays. Aiming at refining the ambidexterity core of Li Shufu’s entrepreneurship, this chapter walks through the key events in the starting stage of Geely, further elaborating the strategic role of such entrepreneurship in Geely’s stage of chaos. It also probes into the rationality behind the seemingly risky moves and the solid foundation thereby laid for the construction of Geely’s organization, system, and culture. The discussion of those problems not only has high academic and theoretical value in the strategic management of enterprises but also intrinsically relates to the economic context of the Chinese market. This offers experience and enlightenment for the new generation of private entrepreneurs, especially those who are still in the stage of chaos with non-linear growth and are looking for the right direction.

“Heroes Decide the Course of History” Innovation and entrepreneurship are as purposeful tasks that can be organized — are in need of being organized — and as systematic work. It treats innovation and entrepreneurship as part of the executive’s job. The essence of entrepreneurship is to act. That’s why entrepreneurship is also about the

1 Data source: 1986–2011 Geely Group Development Report.

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THE RATIONALITY BEHIND RISK TAKING

5

spirit of innovation and action..... Entrepreneurial strategies consist of talks on how to bring an innovation to market successfully. —Innovation and Entrepreneurship, Peter Drucker

There are two main reasons why Li Shufu joined the manufacturing industry and entered the automobile industry: (1) the yearning and love for automobiles in his childhood, the very “starting faith”; and (2) the mission to change China’s rigid and backward automobile manufacturing and make cars affordable to ordinary people. From 1986 to 2001, when Geely was new to the industry and had not yet formed its sound modern enterprise system, Li Shufu used his entrepreneurial spirit as the core element of Geely’s strategy, gradually guiding the extensive governance structure and business model onto the right track. The Starting Dream Starting from the manufacturing industry, Li Shufu rode along with the tide of China’s reform and opening up and was one of the youngest tide riders in the new era. The Manufacturing Talent of a Young Photographer Li Shufu’s strong love for manufacturing sprouted when he was young. In 1982, with the RMB120 investment from his father, 19-year-old Li Shufu bought a Seagull camera and started his bicycle-mounted mobile photography stall on the streets. This piggyback business delicately attended by Li Shufu earned him more than RMB 1,000 after half a year’s accumulation. After that, he was planning to open a real photo studio of his own. Opening a photo shop is not difficult. All you need is to buy some sets of professional photography hardware such as film developers and printers and light reflectors, all of which were quite costly, far beyond the price of a few thousand back then. To buy inexpensive photographic equipment, Li Shufu made a trip to Shanghai. However, he visited all photographic equipment shops he could find and was disappointed to realize that professional photographic equipment was imported and could fetch up to a few thousand apiece, far exceeding his budget. Then an idea burst into his mind: Because he could not afford to buy photographic hardware, why not make some? As a Chinese saying goes, “Ample food

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and clothing by working with our own hands.” So Li Shufu began to reverse-engineer and fabricate alternatives to photographic hardware. As Li Shufu recalled, “As for the camera, to tell the truth, all I bought was that Seagull camera, but it was really not enough to run a photography studio. Before long, I had to assemble hand-made cameras, and it was actually quite a straightforward assembling process. To start with, I bought a lens, then a ‘hand bellows’ and a film roller. I made the gears by myself. Put them into one piece. It can serve as a makeshift camera at the cost of only a few hundred yuan, way cheaper than a camera that can easily fetch up to thousands of yuan in the market.” Besides self-fabricating cameras, Li Shufu also cooperated with local blacksmiths to reverse-engineer the 1000-valued specialty light reflectors and illuminating devices that sold for thousands in photographic shops. He and the blacksmiths patched up the gadgets by specification cartoons and hooked them up with light bulbs. The total cost of such a device was only dozens of yuan. Although the hand-made equipment was certainly not quite as appealing in appearance as professional equipment, its functions were not inferior at all. Considering that customers might be put off by the humble equipment assemblage, Li Shufu curtained the camera with a black cloth and took pictures for the customers. Customers were satisfied with his photographic effects. There were only few cars in Taizhou in the early 1980s, and many young people wanted to take photos with cars in the background. Li Shufu intuitively noticed such a subtle preference and soon set up a painted car cartoon in his photo studio as a photograph background image. As a result, his photography business was exceptionally booming. Li Shufu, a gifted manufacturer paranoid with “self-inflicting troubles,” turned his photo studio into a successful business and hence earned the “first bucket of gold” in his life. From Manufacturing Refrigerator to Home Decoration Business On November 6, 1986, when the refrigerator was still viewed as one of “three durable household pieces” in Chinese households, Li Shufu founded the Huangyan City Refrigeration Component Factory and started with manufacturing refrigerator components. After the successful development of the refrigerator evaporator, Li Shufu decided to manufacture the refrigerator independently. In August 1988, the factory was renamed the Huangyan Arctic Flower Refrigerator Factory. Li Shufu

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sailed out on his expedition voyage and successfully turned Arctic Flower into a well-known Chinese domestic brand. A few years later, the Chinese national government ushered in macro-control of the refrigerator market via designating manufacturing sites. Arctic Flower was not on the approval list. Amid the options of safe retreat and risky transformation of the factory, Li Shufu resolutely chose the latter. In 1990s, the home decoration industry emerged as a trendy business in China, but a huge supply gap in the domestic high-grade decoration materials market existed. On April 4, 1990, after the change of market baton, Huangyan North Pole Flower Refrigerator Factory was renamed Huangyan Geely Decorative Materials Factory. After the transformation, the factory ventured into manufacturing magnesium–aluminum curved decoration panels. Under the great management of Li Shufu, the factory successfully developed the first magnesium–aluminum curved panel in China and put it into mass production. In 1992, the sales revenue from the Mg–Al curved panel reached more than RMB 70 million and scored a record high of RMB 150 million in the subsequent year. Li Shufu’s preceding entrepreneurial experience and sharp market acumen rewarded him with huge returns in the refrigerator and decoration business. Track Jump from Motorcycles Li Shufu has had a special “crush” on sports cars since he was a child. He enjoys the feeling of being unrestrained and heroic in speeding through the empty road. Being in the forefront of manufacturing, he had a germination of the idea of car-making. Back then, in China, the street was still filled with humming motorcycles. Li Shufu’s shrewd business acumen helped him find that even though China had many motorcycle factories then, most of the models launched in the market were copycats of foreign models and could not meet the needs of domestic users for safe and convenient travel. To give a shot to such an idea, in April 1994, Li Shufu decided to go into the motorcycle manufacturing business. The powerful movement of China’s reform sent a torrent of foreign production technologies into the country, stimulating people to have greater demands for transportation means when they embrace higher living standards. Capturing the development dividends from the booming motorcycle market in China, it took less than half a year for Li Shufu’s Zhejiang Huatian Motorcycle General Factory to manufacture China’s first scooter motorcycle, a novel type that is light, easy, and safe to

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operate. As soon as the products were launched, the Huatian motorcycle became the best seller in the market. Restrained by the limited production capacity, Huatian motorcycles ushered in an unprecedented rush to buy motorcycles. Many people got up at three o’clock in the morning to queue for buying Huatian motorcycles, and long queues of Geely provincial representatives waited for invoicing. According to the profit estimate at that time, sales of motorcycle parts alone could already secure a breakeven point for the company, showcasing the impressive market scale and profit margin. Of course, Geely Motorcycle’s success resulted not only from the fortunate market dividends which made it possible to become the leader in the highly competitive motorcycle market. More fundamentally, the success of Geely Motorcycle would not have been possible if it had not been powered by Li Shufu’s business wisdom. According to Yang Jian, vice chairman of Geely Holding Group, in the era when many manufacturers regarded sales of products as the ultimate goal, Geely had already stressed the importance of after-sales links to brand building and had preemptively structured its after-sales service system. First, the After Sale Service Center of Huatian Moto Company was derived from the parental company and founded as an independent after-sales service company, materializing the transformation and upgrading of the organizational structure. On that basis, the service process, management system, and various specifications after-sales were gradually improved and unified. Second, 21 after-sales service vehicles were put into operation to provide spare parts and maintenance service in all provinces of the country. Third, Geely Huatian Moto set up spare parts centers and after-sales service stations in most counties and cities across China. In Taizhou, the base camp, it could even support arrival in service sites within 20 minutes. The investments in after-sales service, daily operation, and enormous brand promotion were top-ranking in China at that time. As a result, Geely Huatian Moto was awarded the title of National Advanced Unit of After-sales Service. By 1995, the output value of the Huatian motorcycle industry has reached RMB 630 million. Honed with the accumulated experience from manufacturing refrigerators to decoration materials, this young lad gifted in manufacturing not only enhanced his foundation for deep-diving into the manufacturing industry but also strengthened his commitment to manufacturing cars.

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The success of the trial in the motorcycle industry evidenced the management wisdom of Li Shufu and showed him the market opportunities from China’s reform and opening up. Coincidentally, most of the founders of world-famous automobile enterprises have gone through trajectories of manufacturing transformations. The elders in the Honda family were engaged in bicycle repairing. Well indoctrinated in such family, Honda S¯ oichir¯o can elaborate the structural principle of bicycles like the back of his hand. His business legends started from making bicycles. Finally, in 1946, he founded the long-lasting Honda. Toyota, the world’s number-one automobile manufacturer, was founded by Toyoda Sakichi, an apprentice to his carpenter father since childhood. After achieving huge success in manufacturing automatic textile machines, he converted the company to manufacturing automobiles. In the narration of the biographical work Henry Ford, Ford is an American boy who grew up on a farm. Being particularly keen on machinery since childhood, Ford had done repair on machines, watches, ships, and other work before he finally turned to automobile development and founded Ford Motor Company. It can be seen that the founders of these great automobile enterprises all have similar characteristics: their curiosity in machinery manufacturing dated back to childhood and enabled them to firmly enter a new field that no one had dared to set foot in, and their insight into the changes in people’s travel modes and demands has become fundamentally advanced their entrepreneurship. In manufacturing practice, Li Shufu planted the seeds of making cars in his heart. With the improvement of people’s living standards, Li Shufu sees that people’s demand for safety and comfort will become higher and higher, and motorcycles which simply have little safety assurance to the passenger will inevitably be replaced by cars. For that reason, he firmly believes that China’s automobile market will rise rapidly in the near future. In May 1996, Geely Group Co., Ltd., was established, and Li Shufu officially began to compose his own chapter of automobile legends. Unusual Start Li Shufu’s strong commitment to the automobile originated partly from his ingenuous passion for cars in his childhood and partly from his worries about the historical pattern of the domestic automobile industry.

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Compared with Western countries, China’s automobile industry is a late starter by more than 50 years. Under the support of Soviet aid projects initiated from 1949, China’s automobile industry achieved a breakthrough from scratch. In the era of planned economy, the government planned to drive the industrial development through state-owned enterprises so as to wean China’s stunted automobile production capacity as soon as possible and straighten up the chaotic manufacturing landscape. At the Beidaihe Conference in 1987, the State Council endorsed the historical resolution to develop China’s indigenous car industry and determined the overall pattern of “Big 3 + Small 3,” namely, a total of six qualified SOEs for car manufacturing. “Big 3” refers to the three large-scale car-production bases, including FAW, Second Automobile, and SAIC. “Small 3” refers to the designated three small car-manufacturing factories, including Beijing Jeep, Tianjin Xiali, and Guangzhou Peugeot. Based on the guiding principle of “market for technology,” the expansion of joint venture car companies has gradually opened up a new situation for China’s auto market. By the end of 1998, China had more than 400 foreign joint venture automobile enterprises, including more than 50 automobile manufacturers of various types, mainly focusing on car production; more than 240 assembly and parts enterprises; and 40 other service and consulting enterprises.2 According to the statistics, except for Tianjin Automobile Company, all the core production enterprises of the Chinese car industry are joint ventures (see Fig. 1.2). Because of supply-side restrictions caused by “Big 3 + Small 3,” the distribution of products in the domestic automobile market is not healthy. According to 2001 data, the selling price of cars manufactured by China’s domestic joint venture with big production and sales volume was 54%– 157% higher than equivalent cars in the international market. Generally, the higher the class of cars, the greater the price gap between domestic and foreign countries. Even excluding the influence of tax rate, the price of domestic cars is 25% to 108% higher than in the international market.3 The layout of the “Big 3 + Small 3” automobile manufacturing landscape did not deter Li Shufu in pursuing car manufacturing. On the 2 Cheng Guangyu. Analysis on Development Characteristics and Innovation Organization of China’s Automobile Industry [J]. Taiyuan Science and Technology, 2009 (November): 16–18 + 5. 3 Zhao Ying. The Development Trend and Countermeasures of China’s Automobile Industry [J]. China’s Industrial Economics, 2003 (04): 18–24.

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Fig. 1.2 Automobile brands jointly produced in China (as of December 2001)4

contrary, it aroused his reflection and fighting will. Li Shufu said in an interview that “Big 3 + Small 3” has brought great harm to consumers and the whole Chinese economy. As a means of transportation, cars are sold at high prices because of industry monopoly and rigid competition. Both private and institutional car owners had to pay a dear price in buying cars. If that model continues, the competitiveness of China’s economy will be completely compromised. Li Shufu still was deeply impressed by a second-hand Toyota van he bought at that time: “It simply could not fare through the drive from Taizhou to Hangzhou, yet the price is expensive, and the repair cost was even higher.” At that time, car smuggling was rampant along the borders of China. Authorities tried, often in vain, to crack down on car smuggling many times. Li Shufu firmly believed that this phenomenon ultimately was caused by the lucrative high price yet poor quality of China’s locally made cars, which left consumers no option but to take risks when they couldn’t buy good cars in China. The root cause of this bizarre situation lies in the unreasonable policies and industrial layout of China’s automobile industry. Looking around the world, as early as the end of the nineteenth century to the 1930s, global automobile giants such as Mercedes-Benz, Ford, and General Motors were founded one after another, and automobile production gradually entered the standardized process. In the twenty-first century, production efficiency has been greatly improved, and 4 Guo Kesha. The Impact to China’s Automobile Industry After China’s Entry into WTO and the Countermeasures [J]. China’s Industrial Economics, 2001 (10): 22–32.

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relatively mature technical systems such as transmission, four-wheel drive, independent suspension technology, and hydraulic shock absorbers have been developed.5 To Li Shufu, automobile manufacturing is already a mature industry and holds a not too high technological entry barrier, rendering it possible for Geely to do it on its own. Finally, Li Shufu decided to end the rigid landscape and make a difference to Chinese car manufacturing. Emerging technologies on the other side of the ocean have passed the test of the local market, showing vigorous vitality. Li Shufu was convinced that the manufacturing of automobiles will surely take root and prosper in China’s huge market, which reflects his unique foresight. In the near future, this belief will become a powerful pillar of his adventurous spirit. Before Li Shufu started his adventure of car manufacturing, he had to manage to overcome a few seemingly insurmountable difficulties. The first difficulty was the funding. From 1994, the government of China set an entry threshold of RMB 1.5 billion funding capacity for the automobile industry. Although there has been a certain accumulation of funds, the huge funding gap still gave Li Shufu a hard time. In addition, because of the national “Big 3 + Small 3” carp production layout, Geely, as a private enterprise, was inherently disadvantaged in policy assistance. Breakthrough in Haoqing On August 8, 1998, the first Geely Automobile “Haoqing” was completed and rolled off the assembly line in Linhai City, Zhejiang Province. To put Haoqing cars into production, Chairman Li Shufu successively recruited a group of talented people and built a manufacturing line in Linhai. Because of the limited personnel resources and funds at that time, the production line of Linhai Base was very simple: the workshop logistics system was built by itself, and much equipment was second-hand. Much equipment such as fueling gear and glue applicators was developed by engineers and technicians. To save costs, most of the molds were furnished by a factory in Hebei, and some simple molds even used local die-casting resin. On such a production line, Geely produced the first market-launched model Haoqing 1.0. 5 Hao Yunhong. Analysis of International Competitiveness of China’s Automobile Industry [J]. Journal of Business Economics, 2003 (03): 4–9.

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In 1999, Geely produced more than 1,600 Haoqing cars and miraculously sold them out. Haoqing was the first mass-produced and marketlaunched model of Geely Group. In 2000, the sales volume of Haoqing Automobile surged into 10,000 units. Since then, the sales volume of Geely Automobile has reached a new record high. For Geely’s technical capability, the biggest contribution of Haoqing development was laying the foundation for the growth of Geely’s component technical capability. In this process, Geely’s engineers continuously made a series of changes to the parts and gradually established their own parts-supporting system on the chassis and the vehicle whole assembly. However, because of the limited conditions at that time, the Haoqing body design still resorted to the most traditional method of drawing board plus pencil, with not even the whole deck of complete drawings. It was not until Geely established the Automobile Research Institute that the Haoqing and Meiri series were modeled and standardized digitally. The specification of the outer covering pieces of Haoqing cars were harmonized. The launch of Haoqing sparked the great journey of Geely’s car manufacturing. The Birth of Meiri On May 17, 2000, Geely’s first Meiri car rolled off the assembly line in Ningbo base. The Meiri four-cylinder electronic fuel-injection environmentally friendly car costs only RMB 65,800, setting the record of the lowest price in China. The significance of the advent of the Meiri car lies not only in the addition of a new car model but also in the change of Geely’s original technical path, along with the rapid progress in production means and equipment level. On entering automobile manufacturing, Geely was very weak in production means and equipment foundation. Later, a group of industry experts was introduced, which changed the original technical path and made Geely gradually embark on the development path of normalization. On August 8, 1999, groundbreaking was held at Geely Ningbo Base. Under the guidance of industry experts and in accordance with the requirements of modern factory buildings and production lines, Geely spent nine months of arduous construction work and completed the workload equivalent of three to five years of work in overseas projects. On May 17, 2000, the first Geely Meiri car rolled off the assembly line.

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In modern large-scale industrial production, automated equipment and production line are not only the guarantee of output but also an effective way to improve product quality. All those benefits, however, have to be carried on expensive equipment. Given the limited funding capacity, Geely had to leave some space in design for the future phased-in transformation of the production line. This posed great challenges to Geely’s engineer designing team. The Ningbo base was planned with a capacity of 100,000 units, of which 50,000 to 60,000 units were for Phase 1, with an investment of only RMB 300 million to RMB 400 million. Although Geely was small in scale, it has a wide product portfolio, meaning it needs to produce a variety of products on the same production line. Therefore, full automation might not necessarily be the best choice. Following this train of thought, Geely’s Ningbo base was built with self-designed transportation equipment for parts transportation, and manual handling was partly reserved. In the welding line, the key welding process deployed the pricey Swedish ABB welding robot, whereas other processes still used the point welding machine with automatic transmission. Quality improvements were done through improving the skill level of welding personnel. An increased use of domestic equipment brought down the total capital expenditure size yet never lowered the requirements in key processing. In the design and procurement plan of the production line, Geely was fully prepared for further optimization and automation of the production line. The offline of Meiri and the completion of the Ningbo base marked a new step in Geely’s development, but Geely was still facing a precarious situation, particularly how to secure “birth permit” for its automobile manufacturing. When it started, the scope of production that Geely was approved for was not a complete car catalog. In the beginning, Geely was only approved manufacturing Category 6 coach. Therefore, Haoqing from the Linhai factory, along with the newly manufactured Meiri, were de facto outside Geely’s approved business scope. That’s why the “birth certificate” has become a major constraint for Geely’s development. Business Well Justified On October 31, 2001, the China State Economic and Trade Commission announced the public notice of Vehicle Manufacturing Enterprises and Products (the sixth batch), with Geely JL6360 included in the list. It means that Geely received state government approval to develop new

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products according to market requirements and user needs for JL6360. On December 26, 2001, the State Economic and Trade Commission announced the seventh batch of Vehicle Manufacturing Enterprises and Products, which included Haoqing and Meiri cars (HQ6360, MR6370, MR7130) of Geely Automobile Co., Ltd. The inclusion of Geely MR7130 in the announcement signified that Geely has made a real leap from producing hatchback light passenger cars to sedan cars, registering itself as the first private enterprise in China to obtain the car-manufacturing qualification.

Ambidexterity of Entrepreneurship Joseph Schumpeter, the “founder of Innovation Theory,” thinks an entrepreneur is a natural innovator and entrepreneurship is sourced mainly from innovation. Practice shows that entrepreneurship that often nurtured in the soil of private enterprises has served as the main engine throughout all stages of enterprise’s development and has been converted into the innovative spirit of enterprises at varying degrees. Chinese private enterprises grow up in fierce market competition, and their entrepreneurial spirit often has the ambidextrous characteristics of rationality and adventure. This embodies the characteristics of complementarity and inclusiveness in many dimensions, including corporate image, strategic orientation, capacity building, cultural colony, and empowering enterprises to achieve sustained and efficient breakthroughs. At the early stage of Geely’s development, under the leadership of Li Shufu, the ambidexterity of this rational adventure was particularly prominent. Adventure into the Unknown On December 11, 2001, shortly after Geely obtained the birth certificate for automobile manufacturing, China formally joined the World Trade Organization. That not only marks the further opening of China’s economy and the deepening of its opening to the outside world but also indicates that the turbulent automobile industry was about to enter the reshuffling period. At that time node of the era with substantial unknowns, entrepreneurs were exploring the new industrial game rules brought in by China’s opening up and trying to digest the new economic logic amid the changed times. In December 2001, Li Shufu was invited as an interview

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guest in Dialogue, a television program on China’s CCTV. The program host started by citing the fable of Who Moved My Cheese as an example, indicating that Li Shufu was aiming at a big piece of cheese in China’s potential automobile market. All the entrepreneurs attending the program onsite thought that when compared with the state-owned and foreignfunded enterprises, Geely still greatly lagged behind in financial strength and technology accumulation. To them, Geely’s leap from motorcycle to automobile industry was too risky, and the car-making dream of such a private enterprise seemed a little “crazy.” Li Shufu, however, not a bit swayed by words, also replied with the same fable: “Those who think I’m crazy actually fail to really understand this fable story.” Indeed, the book Who Moved My Cheese tells the story of two little mice who, facing the situation of losing cheese, actively embrace change through a keen sense of smell and a bold attempt, ultimately discovering more and better cheese. When China joined the WTO at the turn of the century, the old pattern of “Big 3 + Small 3” was bound to change. Li Shufu is willing to be the champion of such change. He was quoted as saying: The average yearly income of an American can be enough to buy two cars. For Chinese people, he has to save for 10 years to find it affordable to buy just one car. Geely is committed to democratize the price of Chinese cars. We have already sniffed out the aroma and foreseen that there is a pile of ‘cheese’ waiting for us.

Entrepreneurs who attending the TV program onsite tactfully expressed the hope that Li Shufu could be more realistic in seeing the facts. It was a consensus among them that China’s hesitation in granting private enterprise “birth permit” for automobile manufacturing served to protect Geely and helped it to dodge bullets when venturing into capital-intensive business. However, Li Shufu has maintained his strategic stamina all the way through and has adamantly moved toward his ideal step by step. His “diehard boldness” not only earned him the nickname of “Car Madman” but also readied Geely in its inevitable transformation from 0 to 1.

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Rationality Behind Madness Only the paranoid can survive. As long as it involves business management, I believe that long live paranoia. —Andy Grove, former CEO of Intel

The most frequently quoted “Madman’s Talk” of Li Shufu’s is no doubt the statement that “A car is just two sofas mounted on four wheels plus.” The seemingly foolish expression carries the rationale backed by the ambidexterity of risk taking entrepreneurship. The word entrepreneur in English comes from the French entreprendre, which means “a person who dares to take all risks and responsibilities and start and lead a business.” It can be said that entrepreneurs have the spiritual attributes of adventurers from their roots. On the other hand, Weber, the proponent of bureaucratic organization theory, believes that the biggest feature of human society’s transition from tradition to modernity is not the change of production mode or social integration but the gradual rationalization of human society at the ideological level. This rationalization found positive ethical recognition for entrepreneurs’ behavior and finally gave birth to the professional ethics of modern entrepreneurs.6 ,7 Therefore, adventure and rationality, two seemingly conflicting dimensions, act on the value system of modern entrepreneurship in a symbiotic manner. Li Shufu’s entrepreneurial spirit is full of adventurous color and rational brilliance. This complementary ambidexterity mechanism supports Geely in maintaining rapid development with a highly strategic foresight, overcoming many challenges from the valley of death and reaching a height that other car companies have not yet reached, among which “four wheels, two sofas” is the best example. In the very beginning, throughout the Geely company, no one knew much about car manufacturing and where to go to learn about it. Naturally, people felt much agitated at the unknown. Li Shufu’s causal way of reducing complex tasks to modular and structured thinking boosted people’s confidence in 6 Yang Jiang, Dai Lin. Chinese Entrepreneurship and the Rationalization of Entrepreneurial Behavior [J]. Journal of Management World, 2000 (5): 116–121. 7 Ma Guixia. Rationality and Rationalization Process—An Interpretation of Max Weber’s “Rationalization” [J]. Journal of Anhui University of Science and Technology (Social Science), 2004 (04): 1–4.

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production via Geely’s top-down organizational structure and stimulated more localized innovations via the higher internal motivation and work enthusiasm. That kind of strategic thinking requires entrepreneurs to be prepared for storms even in doldrums and to drive the organization’s continuous learning, which is manifested in seemingly radical “crazy” characteristics of behavior. For Li Shufu, the coincidence of two examples of good news, Geely’s business birth permit and China’s entry into WTO, can also be viewed as a historical necessity under the reinforcing factors of his personal leadership, forward-looking vision, and epic backdrop. As a private enterprise in the early days, Geely broke the besieged domestic automobile market. The key lies in the fact that Li Shufu, who seems to be “reckless,” has always been backed with scrupulous business calculation and deliberate strategic planning. Break the Maginot Line; Paranoia in Obtaining the “Birth Permit” After Geely built its factory in 1997, because of the industrial policy of “Big 3 + Small 3,” the company was not granted the permit for automobile manufacturing. Immediately in the years of continuous striving for the birth permit, Li Shufu, to avoid burning cash for nothing, blazed the trail in leveraging all available resources and casting out the production mode unique to the private automobile factory. While traveling around to lobby for Geely’s manufacturing permit, Li Shufu accidentally came across a state-owned minibus manufacturing factory in Deyang, Sichuan province. The company was on the brink of bankruptcy. Because the automobile market was not yet standardized at that time, there was only a blurred border between bus manufacturing and car manufacturing. Li Shufu immediately came up with the idea of piggybacking the permit of this state-owned bus factory so as to venture into the car market. Geely finally acquired the SOE bus manufacturer at RMB 14 million. By investing via its valued product categories, business permit, and some equipment, the counterpart and Geely jointly established Sichuan Geely Boeing Automobile Manufacturing Co., Ltd. In dealing with the issue of production permit, Geely Sword broke the Maginot Line and successfully transformed the automobile factory into a hatchback car manufacturer focused on producing minibuses and vans with its existing production equipment and technologies. Such a step, seemingly as risky as it is lucrative, was another embodiment of Li Shufu’s entrepreneurship of

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rational adventure. The production catalog of minibus successfully pushed the first generation products such as Haoqing and Meiri to the market at low prices. After forming a stable capital flow and market base, it created favorable conditions for further technology iteration and product innovation. By contrast, the “birth permit” for Geely’s sedan car went through a longer pains-taking process. As early as back in 1996, from the moment when Li Shufu decided to board onto the car-manufacturing journey, Geely had been trying to submit its business application to the relevant authorities, only got rejected because of Geely being a private company. Under that setback, Geely had to grope in the dark the automobile manufacturing in the name of “automobile research” while continuing applying for “birth permit” from government and solicit support from all stakeholders. On August 8, 1998, with Geely’s first car off the assembly line, Geely was still not recognized by relevant authorities. Fortunately, it was firmly supported by Ms. Ye Rongbao, the incumbent vice governor of Zhejiang Province. When China was about to officially join the WTO, Mr. Zeng Peiyan, then director of the State Planning Commission, headed a delegation to Geely for investigation. When asked to debrief the business to Zeng Peiyan, Li Shufu expressed his strong desire for being an indigenous car-maker. Nodding with appreciation to such ambition, Zeng Peiyan made his stance by saying, “I don’t object to Geely’s venturing into the car business.” That was a turning point for Geely’s pursuit of becoming an officially approved car manufacturer. In 2001, Geely finally received official approval from the state government and became the leading player among the first batch of private automobile manufacturing enterprises in China. As for the definition of entrepreneur, there is no uniform agreement in the academic community. Schumpeter tried to interpret it from the perspective of innovation, stressing entrepreneurs’ innovative spirit and ability. He thinks entrepreneurs, as the “Advocates and executors” of innovation activities, are destined to carry out the mission of funneling innovations into their roles.8

8 Kuang Jinyun, Cheng Qizhi. Entrepreneurship and Sustainable Development of Enterprises [J]. Inquiry into Economic Issues, 2010 (10): 80–85.

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Peter Drucker pointed out in the mid-1990s that the world economy had changed from “management-oriented” to “entrepreneurshiporiented,” making innovation and entrepreneurship more crucial to economic and social development.9 According to Israel M. Kirzner’s point of view, entrepreneurship exists when entrepreneurs, driven by innovation, not only bear the risks caused by market uncertainty but also seize market opportunities to gain profits.10 Scholars have different research angles and different definitions of entrepreneurship. Nevertheless, whether Drucker thinks of adventure, trust, responsibility, and innovation or Grégory Diz thinks of continuous innovation and adaptive adjustment, in essence, they all agree that entrepreneurship is the continuous pursuit of sustainable development by enterprises. The means of pursuit can be innovation, strategic adjustment, and organizational change, and the purpose of pursuit is the promotion of economic and social benefits. Entrepreneurship reflects a strategic orientation or cultural connotation of enterprise management, which is influenced by external resources, personal ability, market competition, social environment, and other factors. Under different enterprise scales and ownership structures, wide variations of entrepreneurship exist.11 Throughout the development of Chinese private enterprises under the market economy since China’s reform and opening up, the starting point of most industrial clusters is at the bottom of the whole industrial value chain. This is characterized by high dependence on labor, low scientific and technological content, and lack of innovation. In giving full play to entrepreneurship, allocating resources more reasonably, and increasing the input of innovation elements, the complementary mechanism of ambidexterity plays a key role. Armed with his ambidextrous strategic thinking and innovative strategic deployment, Li Shufu accomplished his heroic undertaking of “getting to goals in a roundabout way.” Innovation-powered 9 Drucker, P. F. People and Performance: The Best of Peter Drucker on Management

[M]. Routledge, 1995. 10 Tang Zhen, Liao Quanwen. Entrepreneurship and Strategic Management [J]. Economic Herald, 2007, Ï: 72–73. 11 Li Fa. Analysis of the Intrinsic Market Rationality and Enterprise Rationality of Entrepreneurship—An Investigation of The Motive Force of Innovative Spirit [J]. China Collective Economy, 2012 (34): 50–53.

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entrepreneurship enables Li Shufu to grasp the opportunity window accurately. At the same time, strategic rationality eliminates the risks brought by uncertainty.12 Six years of arduous lobbying not only earned Geely’s precious birth permit but also shored up its confidence in independent research and development under the support of leaders at all levels and the favorable policy environment. With unremitting efforts, Geely finally secured a seat in China’s new automobile manufacturing pattern of “3 + 6.” “Boss Project,” a Pioneering Management System As an important business strategy in the early stage of Geely’s development, “Boss Project” was an important carrier of Li Shufu’s entrepreneurial spirit of rational risk taking. At the beginning of Geely’s car manufacturing, Li Shufu did not have the money to build a factory to expand production. Challenged by the funding scarcity and powered by his entrepreneurship, Li Shufu started the innovative practice of the business model for Chinese enterprises in the period of “barbaric growth.” At that time, he creatively thought of a concept of “cooperative-based business operation.” By reaching out to all relatives, friends, bosses, and celebrities in the local place, everyone contributed some share of money, chipping in and making things work. At year’s end, private investors received dividends according to their capital contribution amount and corporate business performance. However, solemn oaths are no match for harsh reality. This kind of “boss project” can produce a great snowball effect when the enterprise is profitable. Yet once there are any fluctuations in the business environment, it is easy to cause the withdrawing of shareholding and investment. Some investors’ investment behavior, often aimed at maximizing short-term returns, became offbeat in product quality standards, scientific management, and equality-based cooperation mindset. This leads to problems such as poor product quality, clan-based corporate governance, and so on. Shortsighted and parochial management decisionmaking also seriously sidetracked Geely from its long-term strategic goals 12 Wu Xiaobo, Fu Yanan, Wu Dong, Lei Linan. How Do Latecomer Enterprises Go from Catch-Up to Beyond Catch-Up—A Longitudinal Comparative Analysis of Two Cases Based on the Perspective of Opportunity Window [J]. Journal of Management World, 2019, 35(02): 151–167 + 200.

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and gradually became a major obstacle to Geely’s development and growth. To realize the flexible management of funds and talents, Li Shufu has vested the “Boss Project,” an ambidextrous mechanism of complementary restriction. Not only would fund holders be invited to join Geely and set up subsidiaries or branch factories in partnership with Geely, so that those who have “funds” can become “Geely’s bosses,” but also those who have special “talents” will be invited to join Geely as managers and “Geely’s bosses” even when they are not contributing fund. In that way, Li Shufu’s “Boss Project” found fund investors and competent management talents into the Geely Group. They held one another in check and pushed each side to the best limits to maximize overall corporate benefits. Naturally, Geely’s business scope also became diversified from motorcycle manufacturing and rapidly expanded to automobile, decorative materials, education, and other industries. Among the newly built branches and subsidiaries, some are wholly invested by Geely, and others are stock held or merely invested by Geely. In that way, a large and highly productive economic consortium ingesting different business models has emerged. The core of “Boss Project” lies in the fact that the “boss” is not only a franchisee who invests in building factories but also a partner who works hard. The concept of “self-management, self-financing” links the immediate interests of the bosses to the performance of the factory, and every business unit has developed a strong organizational cohesion, which has played a very significant role in ramping up the automobile production. To continuously optimize the “Boss Project,” Li Shufu further emphasized the standardized “four izations ” of management: specialization, youngerization, decision-making rationalization, and management democratization. If the “bosses” who already have joined in the company failed to meet the requirements of the “four izations,” they will be adjusted. Managerial, financial, and quality-supervision personnel would be designated specifically to rectify issues and harmonize management standards throughout all branches and subsidiaries of Geely Group. Li Shufu explained later, “It’s not really projects for the boss, but projects by the boss, I did not merely invite the bosses to come and invest in my car manufacturing. Rather, I should name it ‘boss-making project.’ What is ‘boss-making project?’ It is to make each investor become the boss of each business area. He should be truly responsible for this business, have business awareness and be responsible for the results. Practice has proven that it has yielded great results.” Again, with his rational

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entrepreneurial spirit, Li Shufu steadily completed Geely’s early stage of capacity building, injecting strong organizational vitality into Geely when it was starting and facing financial and technical difficulties. Ambidexterity and Chinese Culture At the end of the 1980s, with the proposal of enterprise resource view, the academic community’s understanding of competitive advantage of enterprises was deepened, and the concept of organizational ambidexterity was derived from it. Organizational ambidexterity originated from the “ambidextrous organization” put forward by Duncan (1976). It was adopted quickly by scholars in organizational learning, strategic alliance, technological innovation, and cross-border knowledge integration. Organizational ambidexterity is considered a very important source of competitive advantage for enterprises. At the same time, the related research has been enriched and deepened continuously, gradually rising as a new research paradigm.13 Ambidexterity essentially refers to the enterprise’s ability to give balanced consideration to two seemingly conflicting strategic activities. After James March (1991) first put forward the concepts of exploration and exploitation, scholars found that two competitive strategic activities in enterprises can be characterized by this pair of concepts. Among them, exploration is the pursuit of new knowledge, whereas exploitation is the refinement and extension of existing abilities and paradigms. Using this ambidexterity research paradigm, this chapter aims to explore the complementary and inclusive characteristics of entrepreneurship in conducting innovation activities under the condition of coexistence of risk and rationality. It is thereby purported to provide an inspiring view for private entrepreneurs’ business practices. In short, organizational ambidexterity is more like the philosophy of “yin and yang equilibrium” in Chinese traditional culture. Only by ensuring that the two extremes can coordinate and coexist in the whole operation process without losing balance can we maintain the dynamic stability of the whole system and enable the organization to develop for

13 Wu Xiaobo, Yu Lu, Lei Linan. Beyond Catch-Up: The Innovation Strategy in the Period of Paradigm Shift [J]. Journal of Industrial Engineering and Engineering Management (IEEM), 2020, 34(01): 1–8.

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a long time.14 The ambidexterity advocated by Western organizational learning theory is divided mainly into two innovative ways: exploration and exploitation. Exploratory innovation refers to “technological innovation activities to enter the new product market,” whereas exploitation innovation refers to “technological innovation activities to improve the market of the existing products.”15 Li Shufu’s entrepreneurial spirit combines the essence of the schools of Eastern philosophy and Western philosophy. His adventurous spirit drives Geely in its initial stage to absorb and learn advanced knowledge and technology, and his rational mind enables the organizations to excavate, extend, and localize the knowledge. The joint action of the adventurous spirit and rational mind helped Geely to sustain its competitive advantage and healthy development. Under the mature condition of the existing automobile technology system, Geely has resorted to the incremental innovation of localized improvement and has ventured into the target market it had never before entered. As a result, Geely seized valuable market opportunities and achieved high success. It is a valuable experience worthy of reference by latecomer enterprises.

Rational Risk Taking in Non-linear Growth Willingness to take risks is one of the five pillars to entrepreneurship. It is an important embodiment of its essence. The reason why entrepreneurs can often jump off the pages lies in their willingness to bear uncertainty and risks. Entrepreneurs’ risk taking spirit urges enterprises to dare to seize the opportunity window, achieve breakthroughs through positive changes, and drive the innovation in business models. At the same time, the risk taking spirit also helps enterprises to respond to competition changes and market demands in a positive way, thus having a beneficial effect on market performance.16 From denying the mediocre and creating

14 Wu Xiaobo, Yu Lu, Lei Linan. Beyond Catch-Up: The Innovation Strategy in the Paradigm Shift Period [J]. Journal of Industrial Engineering and Engineering Management (IEEM), 2020, 34(01): 1–8. 15 Xu Qingrui, Wu Zhiyan, Chen Litian. Analysis of Evolution Path and Driving Factors of Independent Innovation Capability of Enterprises in Transition Economy—A Longitudinal Case Study of Haier Group From 1984 to 2013 [J]. Journal of Management World, 2013, 000(004): 121–134. 16 Li Wei, Ding Chao. Entrepreneurship, Business Model Innovation and Business Performance [J]. Forum on Science and Technology in China, 2016 (07): 124–129.

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business from scratch to “fighting to the last stance” in founding Geely, Li Shufu’s strong character of chasing dreams and never giving up left a deep mark on his risk taking spirit. Through reviewing and digesting Li Shufu’s speech, we can see that behind the “madness” of behavior, it reflects great deeds guided by thoughts and strategies. Besides the core element of adventure, practice, knowledge, innovation, and responsibility are the other four indispensable dimensions of entrepreneurship. Judging from Geely’s early development track, every step of Li Shufu’s seemingly reckless risky move was in his forethought. Li Shufu’s yearning and passion for machinery and automobiles from his youth made him willing to take risks. Looking back at his entrepreneurial process, from the early accumulation of the manufacturing industry and motorcycle industry to the transition to automobiles later, every step was analyzed rationally. Rationality is reflected not only in farsighted strategy stamina but also in the subtle facets of Li Shufu’s entrepreneurial spirit. In Dialogue, a Chinese national television program, entrepreneurs even bluntly refuted Li Shufu’s ideal of manufacturing Chinese cars. They argued that once China joined into WTO, the tariff on imported cars would drop by 30%, and people could thereby afford to buy cars. In addition, manufacturing cars is not like making carriage because car manufacturing is a complex system and is extremely intensive in production technology and capital investment. Large-scale production and technological innovation need long-term accumulation. Without core competitiveness, it is impossible for automobile manufacturers to survive in the Chinese market. Li Shufu responded to those challenges with much imperturbation. He had conducted an in-depth study on China’s newly promulgated national policies. The tariff reduction by 30% is to the CIF price, and the real-deal price reduction was not large. Moreover, there was a three-year buffer period before the tax reduction finally kicks in. Such a buffer period was the golden period for Geely to make much difference, to grow itself enough to gain a foothold in the domestic market. Taking the motorcycle industry as an example, Geely successfully developed the first scooter motorcycle in China in a backdrop in which the foreign industrial chain was very mature and there was no domestic production experience. To Li Shufu, car manufacturing is at most another expedition that he could successfully conquer. In addition, the understanding of rational aspect in entrepreneurship cannot be separated from the social background of the time. Since

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the mid-1990s, the continuously advancing market economy has steered the rational development of Chinese society.17 Weber’s interpretation of rationality includes three levels: quantifiable (predict output from input), well-organized behavior (process that can be followed), and reflection (finding new ways to improve processes). An important reason why Li Shufu decided to venture into the automobile industry is that in the face of the old pattern of the automobile industry, he not only has the reckless boldness to seize the market and challenge the existing market players but also has the continuous internal drive of strategic implementation, overtaking in corners and reflection on business models, all of which finally was integrated into Geely’s cultural system of “Culture of Dream-makers,” “Culture of Benchmark,” “Culture of Compliance,” and “Problem-oriented Culture.” In the collision between management theory and Geely practice, the discussion about the relationship between rationality and risk went deeper. Against the background of relatively extensive automobile production system, Li Shufu found that this production paradigm, which had been matured in overseas markets, was searching for a huge market. In the eyes of others, this is undoubtedly an adventurous bet against all odds. Yet to Li Shufu, the automobile market offered a valuable window of opportunity. That is the source of his strategy stamina and the endorsement of his risk taking. The reasons why Li Shufu could see through the mist of what seemed “irrational” to most people were: First, the maturity of the automobile industry has been proved by practice, and there was no need to bear the additional costs of exploration. Second, the keen business acumen tempered in long-term battling in manufacturing industry convinced Li Shufu that convenient and safe cars would surely be the mega-trend in China. Despite the scarcity in technology and talents, it was only a matter of time for Geely to succeed if it could ride on the tide of the times, follow the law of economic development, and sustain its strategy stamina and execution. In that vein, it is safe to conclude that “the rationality behind adventure” can better reveal the essential characteristics of Li Shufu’s entrepreneurship.

17 Zuo Xiaode, Zhang Jincai, Chen Zhenwei, A Comparison Between the Driving Force of Chinese Enterprise Management Innovation and Western Enterprises [J]. Journal of Management World, 2015 (01): 182–183.

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Li Shufu’s entrepreneurial spirit exemplifies the deep integration and dichotomous unity of rationality and adventure. Although Li Shufu did not build up a sound strategic position in the early stage of his business start, he was challenged by many problems that popped up, including poor product quality, jagged capital chain and supply chain, etc. However, he rationally used mature technology to open up potential markets, compensate the weakness in quality management and supply chain, and play out the strategy stamina under uncertainty. His foresight and sharp business acumen enabled him to think outside the box to grasp the market trend and predict the industry trend. His unremitting pursuit of details and persistent ideals and beliefs also disassembled the great ideal of car manufacturing into phased goals, breaking down the seemingly insurmountable difficulties into staged pieces, quickly penetrating the market with flexible business mind and innovative thinking, continuously accumulating energy potential, and laying a good foundation for further growth. From the development track of Geely’s non-linear growth, Li Shufu unified seemingly conflicting risk taking and rationality and weaned off the black-or-white perspective in linear thinking. At the initial stage of non-linear system development, it often has the characteristics of chaos, that is, the uncertainty, non-repeatability, and unpredictability of the overall behavior pattern of the system. Geely, as a private enterprise, was particularly prone to be precariously chaotic in the initial stage without full-blown organization, system, and culture. Ambidextrous entrepreneurship can lead innovation in the chaotic stage; play a key role; promote the construction and improvement of organization, system, and culture; and lay a solid foundation for Geely’s long-term development. This also proves that opportunities are always reserved for those who are prepared. “Dare to take risks and challenges” has been the life creed of Li Shufu along the whole journey. The sense of hardship is an important anchor to help him weather storms in business development. That kind of strategy stamina and farsighted exploration allows the dual role of reason and risk to break the conventional mode of linear development in the initial stage of private enterprises’ establishment and outlines Geely’s nonlinear growth. As a result, Geely is voyaging to the distant journey with the sail of rationality and risk taking traits.

CHAPTER 2

“From Three There Comes Everything”

“Are we going to build something like that one before us?” An Conghui asked Li Shufu, pointing at a Liuzhou Wuling’s double-service truck that stopped right in front of them because of a traffic jam when they were on their way for business in a Benz on a summer day in 1996. “No. we are not. We’re going to build great cars like Benz,” answered Li Shufu. However, for reference, he initially bought several sports, sedan, and saloon cars from famous brands such as Benz, BMW, and Toyota. Shortly after, he produced the Geely No. 1. The Geely No. 1 is a sedan with a Fiberglass Reinforced Plastic (FRP) body, which is shaped like a Benz sitting on a Hongqi’s chassis. However, the Geely No. 1 model had some defects. Its steering wheel would not return, and its doors started sinking. The stability of the FRP body fell short of expectation. However, most devastatingly, because of a production license problem, Geely soon received a notice from an authority to stop production. The abortion of Geely No. 1 was truth-revealing to Li Shufu. Without enough manpower, money, and technology, he had to put his ambition of making great cars on hold. There is no shortcut for making great cars. In 1997, when Li made his courageous announcement of investing RMB 500 million into the automobile industry, he was welcomed only by doubt and ridicule. The automobile industry is a capital, technology, and talent-intensive industry. Geely may have had no trouble with spending that much money at that time but in the auto industry, 500 million is just

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a drop in the bucket. Geely did not have the necessary talents, capital, technologies, equipment, and even the “birth permit.” In other words, Geely initially had nothing but a passion for car-making. When recalling the past, Li said, “When Geely said we wanted to build cars, there were few media and banks having faith in us. The auto industry received us with an unwelcoming face. Some auto-part suppliers even wouldn’t sell us their products.” It is common knowledge that an enterprise is a complex of various resources. Moreover, its differentiated competitiveness lies in its heterogeneous resources. Without manpower, money, or technology, at the early stage of its car-making endeavor, Geely had no resource advantage. How could Geely then achieve the breakthrough from 0 to 1, cultivate and obtain special resources, and make competitive advantages grow in itself? This chapter intends to trace the whole process of how Geely began with nothing, developed superior resources of its own, and quickly established an external network by its quick learning at the early stage of its development. This would be done in a bid to reproduce the path of “Tao begets one. From one there come two. From two there come three. And from three there comes everything” along with a path which every enterprise follows, providing latecomers with valuable experiences about how to quickly catch-up even with few resources.

Talents and Recruitment In Li’s view, the effectiveness of Geely’s strategies depends on the effectiveness of its talent policy innovation. It faces the challenge of finding, training, using, and developing talents. In fact, the problem of finding, training, using, and developing talents is a great challenge not only to Geely, but also to the Chinese auto industry. Guided by a triple-line human resource guarantee measure, i.e., “Gather, Retain, and Develop,” Geely gradually got out of the “talent shortage” that affected the early development of its car-making endeavor. Later, these talents played a critical role in developing a competitive edge in Geely, ensuring Geely, a latecomer, got ahead of others, safeguarding Geely’s position in the fierce market competition, and enabling Geely to break the cocoon and become a butterfly.

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Concurrent Car-Making and Talent-Developing Geely is a baby in the 21st century auto industry. It was born in a home that is by no means well off, having no desirable background or condition to rely on, having trouble with a birth permit, and being constantly belittled. How could we manage to grow up healthily in such an unfavorable environment? We must know ourselves well enough, bury ourselves in work, stay humble and eager to learn, always do our best to advance, and bend all our efforts in one direction under one guideline to complete one mission. —Li Shufu

In 1998, Geely made nearly 100 Geely Haoqings. However, it had to subsequently destroy the whole batch for quality issues that were revealed during testing. The quality defects included water leakage, uneven paste coat on car doors, and various other problems caused by inferior manufacturing processes and workmanship on the car body production line. At that time, no Geely frontline auto worker had received a higher education in corresponded specialty, and Geely had no other way to hire workers but through public employment pipelines. The disposal of the first batch made it very clear to Geely that their manufacturing level depends on their workers’ competence. Geely was also in urgent need of excellent blue-collar workers who were capable of “mastering processes and skills by learning, reading, and watching,” in addition to promoting regularized and standardized enterprise operation at a higher level. The problems in Geely Haoqing’s R&D and production procedures could be attributed to one thing: insufficient talent reserve in all auto related fields in Geely. Seeing the importance of talent, Li Shufu recruited over 60 university graduates from several universities by building up cooperative relations with them through joint R&D programs and student scholarship programs. But to those graduates, the positions and circumstances in Geely were less desirable than the lucrative compensation and ease of work that Iron Rice Bowls (guaranteed lifetime employment) could offer. Naturally, Geely soon found them in acclimation trouble. Finally, Geely made up its mind to set up its own schools. The idea was that the school would serve as a cultural habitat and a sustainable eco-environment where its talents would grow and develop. The school was also to serve as a starting point for training excellent talents for the Chinese automobile industry to meet its future development needs.

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Soon, the Zhejiang Economics and Management College was founded in 1997. Subsequently, in 1999, the Beijing Geely University was established. Thus, the “Concurrent Car-making and Talent-developing” model laid a very good foundation for Geely’s future development (Table 2.1). In Li Shufu’s opinion, education is the foundation of a nation’s development and one of the most important competitive edges that a nation should possess. Developing education in China would develop the core competence of the Chinese economy and the Chinese society. Thus, to develop a competitive edge, the Chinese auto industry must first prepare a top-class automotive workforce. Since 1997, before really setting foot in the auto industry, Geely had already started making preparations for establishing automotive vocational schools. In over 20 years, Geely set up a total of ten educational institutes, ranging from a vocational high school to a graduate school. It is worth noting that, till this day, the Geely education system has trained 150,000 talents for the society and that, every year, nearly 10,000 Geely graduates go to the society and serve Table 2.1 Geely’s educational planning and development Time

Milestone events

December 24, 1997 June 8, 2000 December 12, 2001 April 6, 2004

The Zhejiang Economics and Management College was founded

April 2005 December 17, 2005 May 8, 2006 July 2, 2006

April 14, 2007

The Beijing Geely University (Geely University of China) was erected It is a full-time private general higher vocational college The Zhejiang Geely Technician College was set up With the approval of Taizhou City Bureau of Education, the Zhejiang Geely Secondary Technical School and Zhejiang Geely Technical School were merged into a new institute, the Zhejiang Geely Automotive Industry College The Sanya College of Hainan University was set up with the RMB 200 million endowment from Geely Geely Future Talent Foundation, a student grant program, was launched for Chinese students The Zhejiang Automotive Vocational and Technical College was set up Colorful Geely Education Funding and Needy Student Identification Action Opening Ceremony were held in the Great Hall of the People in Beijing The Zhejiang Automotive Engineering Institute was inaugurated It is the first private graduate school in China, established with joint efforts of Geely and the China Society of Automotive Engineering

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on different jobs. At the opening ceremony of Beijing Geely University of China, Li Shufu stressed that “To Geely, dedication to the cause of education is both a responsibility and an ambition. It’s not just a demonstration of our belief in the cause, but also an adaptation to ensure talent supply for Geely automobile ambition.” For its advanced educational visions, effective educational practices, and excellent educational results, the Geely University of China has now been recognized as an example of private education in China, a glorious flag on its private higher education front, and an important driving force of its higher education reform. In 2005, concerned about education development in Hainan Province that has long suffered from educational resource shortage, Li Shufu donated a large sum of money to set up Sanya College, the earliest and largest private higher education institution in Sanya City, and, now, one of the fastest-growing and the most competitive private comprehensive universities in China. In 2012, Geely set up the Hunan Geely Automobile College, a China Society of Automotive Engineering training base, and a full-time general higher vocational college specialized in training skilled workers for the Chinese automobile industry. Just as Li said, the establishment of a sustainable and respectable university cannot happen in one day nor can it be done by one man. It is more like a long-distance relay race, requiring the efforts of many people. In the 2010 Chinese People’s Political Consultative Conference (CPPCC) Session, Li, a CPPCC member, presented the Proposal on the Coordinated Development of Chinese Industrial Transformation and Upgrading and Education Reform. For several years, Li held the idea that it is important for universities to develop talents for research purposes. But it is just as important to train talents for practical purposes. The two are not contradictory, but rather mutually reinforcing. Today, the training of top-class technicians and skilled workers has become a key issue in the Chinese automobile industry. The innovation ability competition has now become a multi-dimensional and comprehensive competition of competence among technicians and skilled workers. It must be noted that many major innovations and discoveries originated from or were inspired by the practices at manufacturing frontlines. Beginning from the earliest days, Geely started investing in education, according to the development direction of the automobile industry, and the Smart Car, in line with the Industry, University, and Research Synergy (IUR Synergy) strategy. In 2016, the Sanya College

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established a new school: the School of Information and Intelligent Engineering, offering “Artificial Intelligence + Big Data” as key subjects. In July 2018, the Sanya College invested over 100 million RMBs to build the first super-computer center in Hainan Province (the 25th in China). Now measured by computing power, it is the fifth most powerful university super-computing center in China. In recent years, the Sanya College has successfully set up 16 China National Social Science Fund (NSSF) projects, making it third NSSF project owner of all universities in Hainan Province and the first of the 426 private undergraduate colleges in China. Measured by scientific research capacity alone, it is now the sixth of all the 426 private undergraduate colleges in China. In April 2019, Zhejiang Automotive Vocational and Technical College inaugurated the first industrial-robot-oriented vocational training base in Linhai City, Zhejiang Province. Geely continues to gradually bring its education and talent training systems up to new levels. Great Talents Are Only Attracted to Aspiration and Sincerity Geely began setting foot in the automobile manufacturing industry in 1997. But it soon found itself in an awkward position as it had little money, technology, or talent to sustain its existence in this capital, technology, and talent-intensive industry. The talent shortage problem is an example. When it was first established, the Geely Auto Group found only three employees who had some sort of automobile technology training after reviewing the files of over 2,000 employees in the Group. These three young men were all from an automobile refitting factory in Hunan Province. Their closest job experience to auto making was simply carremodeling. It became clear to the Geely HR Department that the greatest challenge it faced was to timely supply all auto-making departments with urgently needed talents and help Geely Auto break through the bottleneck, restricting it from developing its auto manufacturing capacity. Li Shufu repeatedly stressed that “Human Resources is the primary resource. The sustainable development of the Chinese automobile industry requires a secured continuous supply of talents” and “an automobile is a talent-intensive product. So, we need to turn China’s population advantage into talent advantage … to a level that could sustain the development of Geely Auto. This is one of our key strategies.” To these ends, Geely Auto set up an HR management mechanism following the

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“Relatively stable, Dynamic balance, and Survival of the fittest” guideline and established the principle of “Bend all our efforts in one direction under one guideline to complete one mission” as the foundation of its HR development strategies. Rising in the industry with almost no technological reserve, Geely has a strong hunger for talents. But in the early days, it often found itself judged unfavorably in the HR market because of its “private” ownership. The attitude of a “Real dragon settles in no puddle” was the greatest difficulty Geely encountered in the early stages of its development. Not only did top talents in the industry ignore its calls, even the newly recruited graduates preferred to leave. Considering these, Li made himself the greatest “headhunter” of Geely and tried every possible way to approach the wise and the intelligent. Personal Visits and Sincere Invitation Li Shufu spared no efforts in paying home visits, having talks, and sending invitations when recruiting talents. Moved by his sincerity, many top tech-savvies finally decided to join Geely, including Mr. Xu Binkuan, a transmission expert, Mr. Yu Ting, an engine expert, and Mr. Zhao Fuquan, a famous overseas automobile expert who had returned to China. All the several hundred experts and specialists now working in Geely received personal invitations from Li Shufu. Frankness and Shared Dream The principal guideline that Geely sticks to when recruiting talents is to “Look for people who are willing to dedicate themselves to ensure that the Chinese auto industry thrives.” It turned out that the glamour of Geely’s mission (i.e., “Make great cars that everyone can afford,” and “Geely vehicles, everywhere in the world”), attracted the greatest talents. When Mr. Shen Fengxie, the former Vice President of the International Division of DAEWOO Motors, was asked why he chose to join Geely, he said, “I found that Geely’s top management had great ambition and dreams.” Also, when Mr. Li Xiangcai, now the Senior Vice President of Geely Auto Group, decided to accept Geely’s invitation, Mr. An Conghui, the then Vice President of Geely Auto told him, “Thank you for your kindness. But I can’t promise much now. First, Geely couldn’t offer you higher pay. Second, I couldn’t let you take the job of General Manager.

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To secure our dream, I must be the General Manager. But I can promise you the job of Vice General Manager.” Mr. An’s words struck a chord. Upholding similar values, Mr. Li Xiangcai rose to his feet and said, “Vice GM it is! I want to make it happen with you.” Full Empowerment and Full Trust When “enabling talents,” Geely sticks to the strategy of “Full Empowerment and Full Trust.” All technical experts who joined Geely, e.g., Mr. Xu Binkuan, the transmission expert, Mr. Yang Jianzhong, an engine expert, Mr. Hua Fulin, a chassis expert, and Mr. Zhao Fuquan, the returned overseas Chinese auto expert, used Geely as a stage to display their full talents. Geely’s talent-recruiting strategy started producing immediate results. Soon, attracted to Geely’s ideals and values, experts and specialists from different technical backgrounds swarmed into Geely. The days when Geely struggled with talent shortage were gone. Since 1999, at Geely’s invitation, a large number of managerial, technical, and engineering experts in the three big state-owned auto enterprises and large transnational automakers have come to Geely and played important roles in its decision-making, technical management, and production and manufacturing departments at all levels. Due to their hard work, Geely was able to build an R&D platform meeting the latest international standards, which in turn attracted even more talents to Geely. A positive circle started. By 2006, Geely had already formed a strong and large expert team, the most important element that helped it catch-up in the Chinese auto industry. With the “Bend all our efforts in one direction under one guideline to complete one mission” talent development strategy, Geely has successfully gathered together not only a large group of young graduates chasing after aspirations and dreams but also many senior experts and consultants that are self-motivated by a strong sense of responsibility and mission awareness. These experts and consultants gathered not for the best possible compensation policies or working conditions, but for the call of duty, i.e., to revitalize the Chinese national auto industry. They helped Geely hammer out its first car brand. How to retain talents after recruiting them. Geely’s Four Factors.

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Retaining Talents Within a Great Environment The Geely workforce grew rapidly in over a decade, increasing from over 1,000 in 1997 to over 17,000 in 2010. Particularly, its R&D employees grew from less than 400 in 2006 to over 1,600 in 2010, with over 300 of them being masters, doctors, and returned overseas Chinese experts who worked for big automakers in the USA, Japan, Germany, and other developed countries. Such a fast expansion of the workforce can be attributed to one thing: Geely. The talents saw the sturdy growth of a promising enterprise brand and the quick expansion of a career platform where they could fly freely to the limit of their ability and explore the frontiers of their development. Retaining Talents with Respect and Gratitude Sticking to the belief that “human resource is the primary resource,” Geely always sees talents, having aspirations, expertise, and business insights as its most valuable asset. It always acknowledges that they are the motivating force behind all independent innovations it has achieved. Geely believes that sincerity, respect, and gratitude are the only right ways to connect with them. As far as the staff in senior management are concerned, Geely has the greatest respect for their experiences and personalities, ensures everyone has the freedom to speak his/her mind, and carefully guards against the situation of “one person alone has the say.” For mid-level and backbone staff, Geely offers generous compensation policies and cares for their well-being to ensure that they have a good work-life balance. Retaining People with a Good Mechanism Designed to Help Employees Grow with the Enterprise Everyone in Geely can find career development paths that suit their needs. Since 2004, Geely has gradually set up a well-structured job system and a clear career development pipeline system for employees. In March 2005, by issuing the Geely Holding Job Categories and Post Setting Guidebook, Geely divided all employees into six categories of 268 post models and prepared a job description for each post, clearly defining the details of the job. In addition to that, four career development pipelines were designed

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to make sure every employee has the opportunity to achieve career development freely along different post series and career pipelines according to performance, capacity, and personal interest. In short, all employees, recruited through external employment systems or internal staff development programs, will have the equal opportunity of promotion and development comparable with their job performance. Retaining People with Compensation Packages That Are Good Enough to Relieve Employees of Family Worries Good employee incentive measures are essential to the success of retaining talents. Even in the early days of establishment, despite its limited funds, Geely tried every possible means to improve staff income and relieve them of family worries. Presently, the Geely HR department has already worked out a variety of incentive plans to meet different needs. For instance, for those who excel at starting up new businesses, it designed a series of equity compensation schemes. For technical talents, Geely decided it is best to respect their expertise by helping them make the most of their abilities, and freeing them from unnecessary interference. For professional managers, Geely decided to offer them full empowerment, share option schemes, and a very good platform for them to deliver their best performance. Most importantly, Geely invested significant effort and resources to help employees with their family problems, such as children’s education, family members’ employment, housing, and so on, so that they could be free from distractions, enjoy a more secure life, and tap into their full potential. Geely even opened kindergartens for employees. Moreover, Geely had production base residential communities that were furnished with every necessary amenity, e.g., dining halls, playgrounds, facilities for cultural and recreational activities, etc., for their employees. Geely also regularly sponsored key local middle and primary schools, so that its employees could have access to the best possible education for their children in the local area. When employees have to work on public holidays due to tight production schedules, Geely would invite their family members to come to the production base and pay for their transportation to ensure that no one would miss a family reunion. To Geely employees, a “Happier life with Geely” is a belief not passed on by word of mouth but by word of heart. From the earliest Zhejiang Economics and Management College to today’s Zhejiang Automotive Engineering Institute that provides students

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with comprehensive and systematic education, Geely’s forward-looking investment in vocational education had not only ensured that it has enough high-quality human resources to guarantee its long-term development, but it also made Geely a leader in achieving synergetic development of enterprises, universities, and research institutes in the industry. It can be said that Geely has chosen an educational model that is more suitable for enterprises than the general higher education model. Innovative Teaching Patterns for Practical Talents Geely deeply understands the importance of “Talent is the most decisive power.” Ever since the first day it entered the auto industry, it has begun implementing large and forward-looking talent development plans. One of the firmest actions it took in this direction was to set up vocational schools of its own to train auto specialists who uphold high moral principles, have well-founded expertise, have business insights, prefer hands-on work, and fear no hardship. Sticking to the same guideline, (i.e., “provide adequate theoretical learning, emphasize practices, encourage innovations, and implement personality-first education”) and the same objective, (i.e., “measure up to the standards of top Chinese universities and join the league of top Chinese universities,”) all Geely schools have left a miraculous page in the history of private higher education development in China. However, the continuous development of an enterprise will inevitably put a higher requirement on human resources. So, Geely started to build a higher education school that can train higherlevel talents. In 2007, the Zhejiang Automotive Engineering Institute, the first graduate school in China that focuses on training masters and doctors of vehicle engineering disciplines, was set up. Made up of an engineering college, a management college, and a marketing college, it is designed to train senior and mid-level management, technical staff, and marketing staff from Geely. Consolidate First-Class Teaching Resources from the World Committed to the principle that “education is to better prepare a person for the society,” Geely invited, with very generous offers, many famous teachers from around the world to train talents who can and will apply what they have learned for practical purposes. For example, it recruited an ex-president of a top Chinese university and an academician of Chinese

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Academy of Sciences and Chinese Academy of Engineering as the president and honorary president of the Geely University of China. It also built a strong faculty of 1,000 people by employing over 500 professors, associate professors, and senior engineers from Peking University, Tsinghua University, Renmin University of China, and world-renowned scholars from western countries and regions. On the other hand, the Zhejiang Automotive Engineering Institute also built a faculty made up of professors from famous domestic and international automotive schools, top frontline experts and heads of research from auto-industrial, business, or financial circles, as well as scholars from colleges, universities or R&D institutions in the USA, Europe, Japan, and South Korea. They include 70 distinguished professors, 51 experts, and 48 doctoral supervisors. Considered as one of the key educational resources, the Geely senior management also plays an important role in postgraduate teaching in the Institute. This “all-star line-up” of teachers representing different professions and trades from around the world is the most direct and practical guarantee of Geely’s talent development plan. Meet Urgent Needs First and Focus on Training Talents for Applying Purposes Committed to providing employment-oriented education, all Geely schools closely follow the HR needs of enterprises and the society, and responsively adjust curricula for students. For example, to ensure production frontlines have enough well-trained technical talents, the Zhejiang Automotive Vocational and Technical College offers students with 13 application majors, including Automobile Manufacturing and Assembly Technology, Automobile Inspection and Maintenance Technology, Automotive Electronic Technology, Numerical Control Technology, Mode Design and Manufacturing, Mechanical Manufacturing and Automation, and Detection Technology and Application, to name a few. To develop world-class technical specialists, Geely University of China joined hands with a German vocational education provider and introduced a matured German technical training system in China. To guarantee the supply of high-level technical and managerial talents, the Zhejiang Automotive Engineering Institute adopted a “Double Mentor” mechanism (special guest mentor for theoretical training and Geely internal mentor for practical training) for postgraduates in its engineering, management, and marketing colleges. It is noteworthy that all the postgraduate research

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topics are selected from the practical difficulties Geely encountered in its enterprise operation and technical innovation practice. Furthermore, graduation permits are given according to the level at which a chosen topic is resolved, to minimize the risk of “research losing contact with reality” that is commonly seen in traditional postgraduate education. In short, Geely’s education model can be summed into the following: it is practice-oriented; it focuses on talent development; it considers talent development as a vital enterprise development strategy; it covers topicspecific education planning; it undertakes a practice-centered education process; it develops pragmatic courses; and it develops leaders for every link on the auto-industrial chain at all levels. Persist in Making Teaching Innovation and Implementing 311 Mode Everyone in the Geely education community, i.e., from the Geely University of China to Zhejiang Automotive Vocational, Technical College or Sanya College of Hainan University, is persistent in promoting the 311 Project. The 311 Project is a talent education model with Geely’s characteristics: the number “3” represents three basic vocational courses, the first “1” represents the Vocational Ethics Course, designed to develop good personality in students, and the second “1” represents one post or vocation for which a specialized course system is designed. The 311 Project is characterized by a clearly defined education purpose, i.e., vertically promoting all-round development among students according to actual job needs and society needs. On the other hand, all Geely locations in the world, e.g., production bases, Geely Automobile Research Institute, sales agencies, the Geely HQs, power-train division, etc., can offer Geely students superior externship conditions. Channeling the Industry, University, and Research Synergy, they make up a great Geely talent development pipeline that points out clear directions of study for students from the first day they arrive on campus. In fact, with the education sector channeling brainpower into the industry, and, the industry channeling practical resources into the education sector, Geely has already accomplished a perfect synergy of industry, education, and research, which in turn has given rise to an impressive atmosphere in which everyone is eager to learn from each other. Till this day, Geely’s education system has trained thousands of practical talents for the Chinese auto industry. Geely’s graduates are so popular in auto markets that their employment rate is now over 95%. In some majors, the students are booked by

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employers even before their graduation. By the end of 2010, over 60% of key technical and business posts at Geely’s operation frontline were filled by the graduates from Geely vocational education schools. Over 40% of the 1,600 research staff serving in Geely Automobile Research Institutes were Geely “home-made.” All the 127 masters and doctorate students learning in Zhejiang Automotive Engineering Institute were the managers and/or operators of Geely operation chains. They were responsible for key tasks such as overall planning, strategic decision-making, product designing, and marketing. Possessing both integrity and ability, they have achieved many scientific and technical breakthroughs and are seen as the value-creators of the Geely Group. Last not least, nearly 500 Geely distributors, suppliers, and general managers had received Geely’s training. Geely’s long dedication to education and talent, originally a part of its strategic planning, now an essential part of its corporate culture, has not only transformed Geely people’s view on talent and work but has also clarified Geely’s long-term development direction.

Open up the Source and Regulate the Flow Geely found that its greatest challenge before entering the auto industry was the shortage of resources. As a newcomer in the auto market, Geely faced numerous difficulties because of the shortage of money, resources, and technologies. Under huge pressure, Geely quickly pinned down its position in the market and decided to initiate fast learning and local innovation programs according its guideline: “achieve institutional change by way of managerial innovation.” Moreover, before setting up a complete R&D system, Geely broke into the market with an “undercutting” strategy and made managerial innovation a matter of strategic importance by installing various management procedures. Consequently, a new product line management procedure and a “3 + 3 Rolling Order Management Mode” were initiated. Soon, they effectively began improving product quality, service quality, and economic returns and later guided Geely to high-quality development. Make great achievement with very limited resources. Achieve the great with little money or even no money. —Li Shufu

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Implement Product Line Management Mechanism to Bring the R&D Closer to Customers How do we retain what customers want and remove what they don’t want? How do we cut down cost and price? These were the questions Geely had to consider when implementing an undercutting strategy. For traditional manufacturers, the business continues as a single operation with the different functions (e.g., R&D, procurement, manufacturing, and marketing) loosely engaging with each other. Such loose engagement causes problems. For example, the R&D department often gives the sales department a product that costs too much, or appeals to no customer, or is hard to sell. Geely came up with a unique but effective solution to this problem. It brought the R&D closer to customers with a Product Line Operation Center. In Geely, the Product Line Center is not a cost control center but a profit-making center. Generally, this mechanism strings the product R&D, procurement, and marketing functions together with a Product Operator. The Product Operator participates in the pricing and sales policy development procedures in which procurement cost and profit are the key indicators of the Operator’s performance evaluation. Playing the role of a locomotive, the Product Operator must consolidate the whole process of production, supply, and marketing and is held accountable for all the key performance indicators. In other words, the Product Operator is more like a business leader that motivates every functional module, mobilizes all resources, and aligns everything with business needs, which, if done well, could help prevent buck-passing and finger-pointing. The sales department is asked to participate in the product modeling and conceptual design stage to understand the opinion of the team so that a desirable model and style could be defined early in product development stage. This is because the sales team usually has a more experienced view of the market and, to an extent, a clearer view of the real needs of customers. By bringing in the sales team’s perspective in the early stage of product development, an auto maker would have a better understanding of what its customers want. In addition, the mechanism helps clarify each participant’s contribution, which leads to a more objective performance review and a more justified distribution of income. In 2011, shifting to new operating principles, i.e., Two Changes and Two Adjustments, Geely gradually accomplished the transfer from “Product Line Management Mechanism” to “Brand Line Management

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Mechanism,” although it is widely recognized that the Product Line Management Mechanism played a key role in promoting Geely’s development. Adopt 3 + 3 Rolling Order Management Mode to Set up Internal Market Encouraged by the booming domestic market, the Chinese auto industry quickly improved its production and supply capacity. This, however, soon turned the domestic auto market from a seller’s market to a buyer’s market. Considering this, Geely realized that better production management and inventory management would become the key factors affecting its performance in product and market competition. In the early days when Geely struggled with building self-owned technical superiority, it had already started to free itself by remaining sober enough to understand its development needs, i.e., the passivity of production, slow reaction to the market, heavy inventory, over-stretched money, etc. Having considered these, Geely established the innovative “3 + 3 Rolling Order Management Mode” by reforming its internal procedures and setting up internal markets. The “3 + 3 Rolling Order Management Mode” is designed to help Geely finish all procedures related to a customer order within six days, by interweaving the functions of both the sales and production departments through an internal market mechanism. In other words, the processing and implementing of rolling orders remain independent responsibilities of the two departments. However, they can now supervise and review each other’s performance through the new internal market mechanism. Specifically speaking, it runs as follows: 1. The sales company is responsible for collecting and processing daily information, including sales orders from car dealers, payment progress, and the inventory of warehouses on all production bases. Then, based on the data collected, it shall timely put up and send to each production company, a production order covering the next six days, in which, the order of the first three days is unalterable, and the order of the second three days is a forecast order, which can be altered but only within a 30% range. 2. The vehicle assembly company is responsible for the reasonable allocation of production resources, and on-time delivery of finished

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products to the sales company according to the model, specification, and quantity specified on the order. 3. Together, the two constitute the upstream and downstream of the same operational chain. Alone, each serves as the customer and auditor of the other in the same order handling process. If the sales company should suffer a loss because of a bad Order Fill Rate, it could claim compensation from the production company. Vice versa, the Order Equilibrium Rate is a very important key performance indicator with which the production company evaluates the performance of the sales company. Through managerial innovation, Geely achieved a closer connection between the sales and production departments. By continuously improving the operational procedures of the two core line departments, Geely achieved a faster response to market change, a lower inventory cost, and higher overall competitiveness. Develop “3-Chain Synergy Mode” and Set up a More Reasonable Decision-Making Process In 2004, Geely experienced a period of fast expansion, which, however, revealed several problems in its business operations and company management. It became necessary to take immediate action to reform its management procedures as it already felt constrained by those weaknesses. In July 2004, a procedure reform leading group was set up in Geely, with Li Shufu himself acting as the group leader, and, Mrs. Zhang Aiqun, who had years of experience in the auto industry, appointed as the Director of the Procedure Reform Office. Soon, an internal questionnaire survey was completed. Based on the findings of the survey, the Procedure Reform Office identified 69 problems in five areas. The Office found that all the problems (which focused on three areas: ill-defined strategic objectives, underdeveloped organizational building, and unstable workforce), could be attributed to two main reasons: haphazard decision-making and “absence of a sound decision-making procedure.” Based on an in-depth survey and analysis, Geely made years of efforts to reform its management system. For example, the old President Responsibility System under the Leadership of Board of Directors was changed to Operation Management Committee Responsibility System under BOD Leadership. Additionally, Geely established five new management systems

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(i.e., Objective System, Incentive System, Appraisal System, Arbitration System, and Price System) to support the market-rules-based internal operation. A new appointment mechanism was implemented to staff Geely’s leading posts and level-1 subsidiaries according to the “clearly defined procedure, organization, responsibilities, staff size, posts, and responsible persons” guideline. Also, based on the Geely Procedure Reform Scheme and Geely Internal Market Scheme, Geely advanced the implementation of the “Everyone Is Operator” plan and enforced the related division of work. In 2006, after summarizing the valuable experiences of previous work and finishing the improvement of specific measures and practices, Geely set out for a deeper revolution of its operation system by starting to promote a “3-chain Synergy” in an all-out way. The “3-Chain Synergy” is an action designed for Geely to improve its overall competitiveness by tapping into the synergy of three core value chains: Marketing Chain, R&D Chain, and Supply Chain. Geely R&D Chain In 2006, Li Shufu invited Mr. Zhao Fuquan, a Chinese auto expert who returned from overseas, to become the Geely Auto Group Vice President and trusted him with the mission of building an integrated technical system for Geely. The first action Mr. Zhao took was to combine the previously scattered technical teams into one technical team and resettled them in the Geely Automobile Research Institute. Soon after that, Geely’s innovation capacity began to soar. Before the integration, the Geely Automobile Research Institute was able to handle the R&D projects of only two models within a year. After the integration, it can run 57 projects simultaneously and complete the R&D work for 18 models in a year. Geely Supply Chain The old Geely procurement system was a decentralized and each subsidiary handled its procurement alone. After the integration, the decentralized procurement model was replaced with a centralized one that enables Geely to improve the unity of its supplier network to a higher level. Again, by improving the commonality and standardization

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of supplies, Geely could increase the sharing of suppliers and form a selfowned brand alliance with suppliers that allows all parties to share designs and innovation results. Geely Marketing Chain In 2006, Geely began implementing a brand-based marketing strategy throughout its marketing system. The experience taught Geely that it was not enough to appoint one dealer for a sales region. But when one sales region has two dealers, it would suffer a loss of profitability and a short supply of after-sales service arising from the competition between the two dealers. Considering this, after three years’ hard work, Geely rebuilt its brand structure by launching three new sub-brands: GLEAGLE, EMGRAND, and ENGLON. It also equipped each of them with an independent sales and after-sales service network. With the implementation of the new strategy, one sales region could accommodate three dealers marketing different sub-brands without compromising profitability. Based on above successes, Geely began promoting informationpowered management throughout the Group. So, it has installed a modern Enterprise Resource Planning (ERP) system and accomplished the integration of its procurement, manufacturing, and marketing networks. It is noteworthy that external customers can also place orders on the ERP system. After years of hard work, Geely finally had a truly remarkable achievement: the real Industry-Education-Research Integration. Publicly Listed on Hong Kong Exchange Just like many other private enterprises in Zhejiang Province, the Geely Group was born with the birthmark of Family Business. The brothers who fought for Geely by Li Shufu’s side in the earliest days of its establishment were all co-founders of the company. However, as the enterprise grew bigger and stronger, the inherited weaknesses of family businesses also started rising to the surface. Since 2000, it had become more urgent than ever for the Geely Group to transform itself from a family business into a modern joint-stock business. After two years preparation, (e.g., ownership restructuring) Geely succeeded in shifting to a professional manager system.

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The success of the transformation from a family business into a modern joint-stock enterprise is marked by the fact that professional managers and specialists have begun taking over the key managerial posts. Step by step, staff in Geely’s financial department, leader offices, HR departments, and brand and corporate image communication department were all replaced by “new guys” having good educational background. The firm actions Geely took in reforming itself paved the way for the big-scale talent recruitment that began later. Since 2002, Geely has engaged a lot of professionals and experts from the automobile, academic, legal, and finance circles as its president, chief executive officer, vice presidents, and other senior officers, including Mr. Xu Gang, Ms. Bai Yang, Mr. Nan Yang, Mr. Zhan Wanjin, Mr. Xu Xingrao, Mr. Dong Xianliao, etc. After joining Geely, these elites, with their expertise, soon changed Geely’s look and helped Geely complete the transformation from a family business to a modern joint-stock enterprise in a short period. The success also paved the way for Geely later to enter capital markets. On May 10, 2005, Geely went public in HKEX, Hong Kong SAR, successfully, marking the important moment that Geely grew into a global player. Geely has been trying to establish itself in the global market since 2000. On the one hand, it initiated a lot of technical cooperation projects with world auto giants, including DAEWOO (South Korea), Ruek (Germany), and Auto Program Group (Italy). It also took proactive actions to develop international markets. By 2004, Geely had already begun exporting products to over 30 countries and regions. To shorten the road to global markets, since April 2003, Geely partnered with Hong Kong Gream Group, in preparation for the public listing of Geely Auto on the Hong Kong capital market. In May 2005, after completing the equity acquisition with all the three other shareholders of Proper Glory, Geely became the sole shareholder of Proper Glory and the owner of 60.68% equity of Geely Auto. Geely finally succeeded in making itself a publicly listed company in the Hong Kong capital market. Entering global markets put Geely, an inland private enterprise, in a very favorable position to achieve greater development and maturity. Firstly, it enabled Geely to take another step toward the goal of globalization, i.e., transforming its operational model and managerial system to ones that are universally adopted by global companies as early as possible. Secondly, it allowed Geely to improve its management to another level. Thirdly, Geely found a better financing platform.

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Compromising: “From Three There Comes Everything” The unique resources an enterprise owns are a foundation upon which it develops its capabilities and builds its competitive advantages.1 Geely, a company who had gone through poor circumstances in its early development stages, offered a great example of how a latecomer, who has to struggle with the shortage of resources and innovation ability, could “start-up from nothing,” develop and obtain external resources, and improve its capabilities in an economic but effective way. Geely’s experience threw light on how latecomers could build their capacity replacement, conversion, and restructure mechanisms,2 develop a flexible technical innovation capacity, and finally achieve the technological catch-up.3 Geely had particularly keen insight into its external environment. This is the kind of ability that helps an enterprise sense and foresee external changes, understand the external environment, make the right judgments, and adapt to the changing environment. Also, it is the starting point for an enterprise to develop its secondary innovation ability. Such environmental insight originates from the cognitive structure depending on which enterprise’s senior management perceives the dynamic world. As decision-makers, they must be able to search through the changes in the external environment in a creative way, reconstruct it from a strategic point of view, and based on that, reallocate their and the enterprises’ attention and resources, and work out plans that are good enough to cope with external opportunities or threats. The “undercutting strategy” that Geely took in its earliest days in the auto market and the subsequent transfer to a quality-oriented operation that Geely accomplished after 2003 are two good examples of enterprise insights. It is worth mentioning that when dealing with the “birth permit” problem, Geely

1 Barney, J. Firm Resources and Sustained Competitive Advantage. Journal of Manage-

ment, 1991, 17(1): 99–120. 2 Teece, D. J., Pisano, G., Shuen, A. Dynamic Capabilities and Strategic Management. Strategic Management Journal, 1997, 18(7): 509–533. 3 Mathews, J. A. Competitive Advantages of the Latecomer Firm: A Resource-Based Account of Industrial Catch-Up Strategies. Asia Pacific Journal of Management, 2002, 19(4): 467–488.

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took a roundabout method, i.e., get one first, even if it is just a permit of producing hatchback cars. When it comes to not-to-be-traded internal resources (e.g., talents), the enterprises need to increase and activate existing resources, search and obtain external resources, integrate internal and external resources, and finally achieve an active synergy. Geely took many actions to meet human resource needs in the early stages of its development, including building schools for itself and the Chairman of the Board himself playing the role of “head-hunter” and personally inviting talents to join the company. Later, it set up and improved its human resource development system to ensure a continuous supply of talents for its future development. To develop its technical capacity, Geely chose to set up an initial R&D capacity by way of external cooperation first and then gradually build up its R&D capacity. After obtaining external resources, Geely did not stop at just integrating external resources but attached great importance to further development of resources after the integration. According to Tao Te Ching, “Tao Begets one. From one there come two. From two there come three. And from three there comes everything.” In Geely’s development history, “Tao begets one” is reflected in its constant chasing after talents. “From one there come two” is reflected in its efforts to improve its technical capacity by gathering more talents. “From two there come three” is reflected by the opportunity of public listing that Geely got when it finally had enough talent and technical strength to bring itself to a new level, and “from three there comes everything” is reflected by the continuous innovation that Geely tries to maintain by integrating internal and external resources and technical capacities and finding the dynamic balance where “Yin and Yang agitate each other and give birth to a new harmony.” The unique competitive advantages and development path that Geely created by way of compromising in its growth process offered a strong solution for latecomer enterprises that also need to overcome resource disadvantages and develop effective economic competitive advantages.

CHAPTER 3

Progression Through Secondary Innovation

On June 8, 2003, the hearing of the “First Case on China’s Automobile Intellectual Rights” was held in Beijing, Toyota Motor Corporation was filing a lawsuit against Zhejiang Geely Automobile Co., Ltd., which had only been established for six years, accusing it of trademark infringement and unfair competition in the advertising language of the Geely Meiri economy car. The case brought these two companies to the forefront of public opinion. After nearly one year of court proceedings, Geely finally received the verdict they had long been waiting for: Toyota lost the case and paid RMB 80,000 in compensation to Geely. This court case in addition to assisting Geely conduct a fabulous brand promotion campaign, it also helped it recognize the importance of mastering its core technology. The typical example of Geely’s experience of catching-up and beyond being a late-developing enterprise strikingly illustrated the pioneering process of “Secondary Innovation” which Chinese enterprises use to start from scratch. From the perspective of modern world economic development, there have been three major typical instances of late-developing economies catching-up to early developing economies: the first instance was when the United States caught up to and surpassed Great Britain, and then became the center for science in the world in 1920; the second instance was when Japan caught up with the United States; and the third instance

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was when the Four Asian Tigers caught up with western European countries. Presently, emerging economies like China’s rapid development are yet another instance of catching-up.1 The process of innovation and development of gas-fueled vehicles is following the same pathway, first the United States learned from Europe, then Japan learned from the United States, Korea learned from Japan, and China learned from Japan, Korea, etc. Compared with the automobile enterprises of developed countries, Chinese enterprises have many latecomer disadvantages which can be summarized in three areas: market, competition, and the late-developing enterprises themselves.2 Firstly, automobile enterprises of developed countries have already established a fine reputation for themselves in the automobile industry and have a rather high consumer loyalty. As a result, switching costs of consumers between brands creates a disadvantage for late-developing enterprises. Secondly, automobile enterprises of developed countries who have seized the limited opportunities in the market have received a rather high industry bargaining power as “incumbent firms.” With their input of resources and investments in factory equipment, etc., they are able to take preemptive opportunities and prevent late-developing enterprises from entering. Finally, automobile enterprises of developed countries have had more time than late-developing automobile enterprises to experience the value-added process of producing and selling products. Leading automobile enterprises have accumulated valuable experience in production and sales through the developing process, and the advantages of the early developers become even stronger under the protection system of patents. Late-developing automobile enterprises are still in the early stages of the learning curve and cannot benefit from it. The latecomer disadvantage which Chinese automobile enterprises are facing is increasingly evident, and the gap between their technological innovation capacity and that of foreign leading enterprises continues to grow. It was in this context that China put forward the “exchange market for technology” policy, which meant opening up the domestic market 1 Zhang Xukun. The Catch-up Dynamics and Path Selection of Economic Growth in Later Developed Countries—A Review of Professor Huang Xianhai’s “Frog Jump Economic Growth” [J]. Zhejiang Social Sciences, 2007 (03): 212–214. 2 Cho, D. S., Kim, D. J., Rhee, D. K. Latecomer Strategies: Evidence from the Semiconductor Industry in Japan and Korea. Organization Science, 1998, 9(4): 489–505.

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through foreign direct investment and guiding the technology transfer of foreign-funded enterprises, then Chinese automobile enterprises form their independent research and development ability after introducing, processing, and absorbing foreign advanced technology. Even though there is still uncertainty whether or not the technology hoped for was gotten through ventures with multinational automobile enterprises, the rapid development of China’s automobile industry in the wave of opening up to the world is an indisputable fact. Being an enterprise that suffered under the latecomer disadvantage at the beginning, Geely also realized a zero to one breakthrough in its technological ability through “secondary innovation.”3 It took just seven years from time it got started for Geely’s automobile sales volume to soar to the same level of the top ten automobile companies in the domestic market, covering the development history that took some automobile enterprises a dozen years to complete, creating family economy cars with guaranteed quality and the lowest prices in China. Geely has stirred up China’s automobile market like a moving catfish stimulates other sardines, adding a new economic component to the country’s car-manufacturing industry as a private company. However, the home-grown car brands like Geely, Chery, and others had a difficult time achieving car-production qualifications for some time since they were not part of state-owned enterprise group, resulting in a series of problems such as personnel, capital, technology acquisition, etc. Despite all of this, Geely still overcame major challenges, making its way into high echelon of China’s automobile’s industry, and with a leading technical ability in the industry firmly established itself first place among China’s own car brands. Due to the significant reference value Geely’s technological catchup process has for later-developing enterprises, the question of how Geely achieved its technological capability breakthrough while lacking initial resources begs a systematic answer. This chapter will focus on the Geely’s Ningbo Declaration and unlock how Geely realized a technological zero

3 Secondary innovation refers to the innovation pattern of latecomer enterprises in developing countries transitioning from process innovation to product innovation. It is an important innovation strategy guiding Chinese latecomer enterprises to achieve from catching up to surpassing, mainly including four sub processes: imitation innovation, creative imitation, improved innovation, and post secondary innovation. See Xu, Q., Wu, X. A Model of ‘Secondary Innovation’ Process. Technology Management: The New International Language. IEEE, 1991, 617–620.

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to one breakthrough by analyzing the two aspects of complete vehicle development technology and core module technology.

Replicas? The annual car production in China in 1978 was 149 thousand motor vehicles, while that of strong automobile countries during the same year was above 3 million vehicles, among which the U.S. and Japan had a production output of above 10 million. During that same year, the president of General Motors, Thomas Murphy, led a delegation to visit China. While talking with Second Automobile Works (now called Dongfeng Motor Corporation) about the project of introducing automobile technology, he mentioned a concept which Chinese people at the time where not yet familiar with—“Joint Venture.” With the policy support of the “exchange market for technology,” the Chinese automobile industry started to set up factories following the new joint venture model. In January 1984, the first joint venture enterprise in the automobile industry—Beijing Jeep Corporation was established. After that, joint ventures like China-Germany joint ventures of Shanghai SAIC Volkswagen and FAW-Volkswagen, and Sino-American joint ventures like SAIC General Motors Co., Ltd. continued to spring up in succession. But at that time, the Chinese side of joint ventures were only limited to stateowned automobile companies, completely excluding private automobiles enterprises from the industry. In this backdrop of such rigid policies in China’s automobile industry, Li Shufu’s decision to still enter the automobile industry caused much surprise and question from many sides. Despite the fact that there was no room in the market for competition of private enterprises, Li Shufu had vision for the future and saw a great business opportunity in China’s automobile industry. Firstly, the potential market size of China’s automobile industry was huge. Geely entered the automobile industry in 1997, and during that year China’s car-production output was rising 24% year on year. During the 1990s, the transformation of the automobile consumption structure from institutional spending to individual consumption showed that sedan cars had already become affordable to ordinary people, and the market scale expanded rapidly. China’s automobile production output in 2009 surpassed 10 million, becoming the number-one country of automobile productions in the world. Secondly, the market segment of China’s automobile industry demands could not be satisfied. Since the

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middle and high-end market of China’s domestic automobile industry was occupied by joint venture enterprises and foreign car enterprises, and since incumbents disdained to satisfy the entrepreneurial community’s demand for cheap and practical transportation, this presented Geely who “builds good cars that everyone can afford” an opportunity to enter the market. But even though the exterior environment presented Geely with opportunities, Geely’s new development path of doing secondary innovation was filled with many challenges. Early Geely cars were considered by most people to be “replicas” of Xiali because their exterior, market position, and engines were similar to cars manufactured by Xiali. Today, since Geely has already become a rare domestic and well-known private automobile independent brand, people may be more interested to know-how “Xiali replicas” moved beyond the imitation mode and set out on the pathway of independent innovation. Building “Geely Number One” by A Process of “Tearing Up” Making a car was simple, you just need is an engine, four wheels and two sofas. There is really nothing to it. All you need to do is understand it. —Li Shufu

“Geely Number One” was the first automobile Geely made. During its startup period, it can be said that as far as automobile technology was concerned, Geely started from scratch. Internally Geely adopted the new innovation model of reverse engineering imitation, while on the outside it adopted the learning by hiring model. Under the strategic guidance of “Mercedes-Benz + Hongqi,” Li Shufu as the “senior engineer” selected three “engineers” from Geely motorcycle factory who had previously worked in the Hunan Automobile Manufacturing Factory and began to learn about technology mainly by imitative innovation. According to one of Geely’s sheet metal engineers Tao Jianghua, the production process of designing Geely’s first car model involved several solemn and moving aspects. For the car exterior, since they did not have any blueprint or professional engineers, Li Shufu personally lead his team of workers on “expedition trips” in the streets. If they saw an imported car with a modern looking model or attractive shape, they would stop to study it, taking notes of the dimensions and angle of its design. Later after returning to the factory, they would attempt to create a model

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of what they had seen. In terms of complex structures like chassis and power systems, Li Shufu invested more than RMB 1 million to purchase several sedan cars made by Mercedes-Benz, BMW, and Hongqi, and asked workers to disassemble and study all the parts. Then after understanding the working mechanism and system collocation of the parts, constantly improve the drawing model in reverse. During this process of reverse engineering, Geely’s sheet metal engineers expanded their understanding of car productions and design, and finally created Geely’s first car—Geely Number One. The exterior design of the Geely Number One was very similar to the Mercedes-Benz E-Class, having the typical quad-headlight design decorated with a rectangular air intake grille. In order to avoid intellectual property disputes and reduce car-production costs, the steel plate of the front cover of the body was modified to use FRP composite materials. The engine, suspension beams, and tires were direct copies of Hongqi. Some of the chassis parts were purchased from Hongqi, while other chassis parts were pounded out by hand by the metal workers. Non-core components came from parts suppliers who used to provide parts for Geely when it was making motorbikes. Geely invested in many parts and component manufacturers to dispel their concerns about the uncertain development prospects of a private auto factory. Manual surveying and mapping with a ruler and making rough drawings on a drawing board were utilized. First there was a car and then there was a mold and a thick layer of lacquer putty, but there was no consistent standard.… These characteristics gave Geely the title of “the earliest tape measure department in China.” Li Shufu referred to Geely Number One as “China’s Mercedes-Benz.” When Geely Number One came out, it really received quite a lot of attention due to its distinctive fiberglass reinforced plastic exterior. However, the good times did not last for long. Because fiberglass reinforced plastic materials were not hard enough, several dents appeared in the roof and body, and some car doors bent out of shape. This directly exposed a huge safety danger of the Geely Number One. As a result, Li Shufu conducted a product defect summary meeting at what was supposed to be a symposium on the successful trial production of Geely Number One. In addition to the fiberglass reinforced plastic material that was used to make the car body, product defects were also found in parts and power system. Since all the components were taken from other existing models, the power system assembled by disassembling the parts could not meet the quality standards for long-term use.

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For example, it was not easy to control and clutch connections malfunctioned while making turns. Despite all of these challenges, the imitation innovation of reverse engineering allowed Geely to see results and greatly boosted workers’ confidence in manufacturing local brand cars. “The Old Three”: Type I Secondary Innovation We adhered to the belief that China’s reform and opening-up is unstoppable. So at that time, we proposed to “look for a direction, strengthen a belief, accumulate a force, refine a spirit, and complete a mission.” —Li Shufu

The research and development of Geely’s “the old three” is a typical “Type I secondary innovation” development process. Type I secondary innovation means that technology has already reached a specific stage in its life cycle of being introduced, the frequency of process innovation and product innovation is decreasing, and the dominant design has become mature, and this is often referred to as mature technology. The focus of the technological competition has shifted to product and process improvements. The introduction of mature technologies is usually complete and formal. Geely Number One was never really introduced to the public because it failed to meet car standards. But despite that fact, Li Shufu, the “car maniac,” did not give up. Geely later designed two more models, “Anchi” and a car model with the internal code of 6401. Engineers began to establish an idea of a parts system and began learning how to imitate the chassis system.4 The creation of Geely’s fourth car, Geely Haoqing HQ6360 hatchback showed that Geely had mastered the research and development of the entire vehicle system and started to establish its own supporting system. Afterward the brands of Haoqing, Meiri, and Uliou came to be called the “the old three” of Geely. Its products were positioned as low-priced, durable, and beautiful, and were Geely’s most market-impact low-displacement economical cars.

4 Mei Yonghong, Feng Kaidong. Geely Car Manufacturing Phenomenon: A Research Report on Geely’s Independent Innovation [J]. Chinese Soft Science, January 10, 2005.

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Geely’s “Haoqing HQ6360” used a new model of Xiali at that time as its benchmark product. It constructed a new car based on a Xiali prototype which it purchased and deconstructed. This car copied Xiali’s original interior and chassis, while the front face resembled a Mercedes-Benz. The hard-to-replicate core components, such as the engine and transmission were purchased in batches, and the body was improved. Among them, the front and back of the car, the left and right rear circumference, and the left and right rear doors have all undergone major changes, and the height of the car has also been changed. In order to cut costs, part of Geely’s molds even used partial die-casting of resin. The development of non-core components was still based on reverse engineering. Geely disassembled the purchased car into individual parts, then carried out manual surveying and mapping, and then drew drawings. The completed drawings were then handed over to domestic suppliers to make parts. In order to assess whether the developed parts were usable, the workers compared drawings and repeatedly debugging and making adjustments throughout the loading process. Various problems exposed by this were resolved in turn. The supply system of outsourcing non-core parts and components had the characteristics of a “father-son matching.” The two parties in the transaction were mostly relatives, fellow villagers, friends, or classmates, which ensured that Geely could continuously and steadily obtain lowcost or zero-cost products under the model of collaborative innovation with suppliers. On August 8, 1998, the first Geely “Haoqing” rolled off the assembly line in Linhai City, Zhejiang Province. However, the more than 100 cars produced all met the same destiny later that year of being recalled and destroyed. The Haoqing car body was hand-made with sheet metal, and since there was no uniform standard for sludge, lacquer putty, or spray paint, it resulted in the production of a car body that had a rough surface and varied thickness. This greatly reduced its appearance. In addition, the new car failed many tests such as rain and car collision safety, giving rise to the saying among many workshops that “Geely cars have to be pushed uphill and use umbrellas when it rains.” This reflected the quality problems of Geely’s power system and sealing performance. Without saying a word, Li Shufu recalled the more than 100 cars that failed the safety tests and said to all his workers, “Geely must provide good cars that common people can afford, and not be a manufacturer of substandard cars. If the Geely brand wants to succeed, this hammer must fall on this car today!” Having said that, he raised his hand and smashed one of the Haoqing cars

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that had just rolled off the production line. Then a road roller on the side slowly moved forward crushing over 100 Haoqing cars in a few seconds. After this, Geely turned its attention to perfecting the quality of its luxury cars and established the technical process of “tracing the example before writing the letter; learning to walk before running; starting from the low-end and parts before moving to the high-end.” They proposed the three part goal of making a vehicle that had a “sales price of RMB 50,000, fuel consumption of five liters, and car size that could seat five people.” In November 1999, the Haoqing was officially released onto the market. This new boy on the block of domestic cars which greatly resembled the Tianjin Xiali, in the Chinese automobile market where the average price of cars was more than RMB 100,000, relied on the low-cost latecomer advantage to pull the price down to below RMB 40,000. The launching of Haoqing realized sales of more than 1,600 vehicles during that year. In 2000, sales jumped to 10,008 vehicles. This cost-effective sedan was now affordable to ordinary people. With such success, Geely wasted no time in starting to develop the Meiri model series, an eco-friendly car equipped with a 4-cylinder electronic fuel infection (EFI) system. The design of the Meiri was based on the Haoqing design, with improvements made to the engine, dashboard, and wheels. The exterior design was a standard hatchback Fukang. The 8A 4-cylinder EFI engine was directly purchased from Toyota. On May 17, 2000, Geely’s first Meiri fastback-sedan rolled off the assembly line. It went on the market in January 2001 with a selling price of only RMB 65,800, and was honored as the most economical family car. During that year, Geely sold 24,000 vehicles. Right after the Meiri went on the market, Geely began working on developing the Uliou series of sedan family cars. Uliou’s benchmarking products are Xiali and Sail. Based on the Meiri design, the axle base was elongated, wheelbase was widened, and a safety anti-lock braking system (ABS), sunroof, crystal headlights, electric doors and windows, central control door locks, a car CD player, and other equipment were added, and it was outfitted with a Toyota 8A engine. On March 20, 2002, Uliou went on the market with a listing price of only RMB 76,900, far lower than the average price of RMB 100,000 for cars of the same grade. It was at this point that Geely officially entered the mid-size car market. In 2002, Geely’s annual volume of car sales was 47,800. Haoqing introduced the Xiali chassis into the production process and made improvements based on it. When compared with Haoqing, there

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was little change in the chassis technology of Meiri and Uliou. The main difference was in the modification of the body design. In addition to this, Geely, who was still learning by hiring, since 1998, successively hired Tianqi’s technical department director and nearly a hundred technicians from the same department, chief engineer of FAW Changchun Automobile Research Institute, the director of the FAW Design Ninth Design Institute, and some other retired engineers of the Ninth Academy, each of whom have infused new vitality into Geely’s technological innovation. “Three New Models”: Type II Secondary Innovation The Liberty Ship represents Geely’s entry into a high-level, large-scale and modern era of automobile manufacturing. —Li Shufu

In 2003, the automobile industry, especially the car industry market, ushered in a sharp decline after the kick off. Geely management clearly recognized that the market space for low-end cars was constantly approaching the ceiling, and the “low-price strategy” was already not be able to meet the market demands in the long term. Geely quickly made a strategic adjustment decision, seized the opportunity, and began to transform toward a “quality strategy,” and that’s when the “three new models” came into being. The “three new models” refer to the Liberty Ship, LG-1, and Vision series products. They focused on the technical and performance advantages of the car’s performance, handling dynamics, comfortableness, fuel economy, eco-friendliness, and low noise, and transitioned from the original low costs and prices to high value-added. During the production process of the “three new models,” Geely gradually mastered basic technical principles and began to conduct independent R&D of products according to domestic market demands; externally, it expanded from the original learning by hiring model to other learning modes that included international company cooperative learning, research institute cooperative learning, domestic research institute cooperative learning, and so on. The secondary innovation of the Liberty Ship was mainly seen in the car body. The “old three” molds were mainly developed domestically by using methods of “patchwork” and “beating.” Lacquer putty had to be applied to each car that was built and the size of each car body was

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different. Since the problem with lacquer putty was a systemic problem that involved molds, inspection tools, design, and quality management, the “two-millimeter engineering” was proposed during the development of the Liberty Ships’s car body, that is, the difference between two car bodies should not exceed two millimeters. The purpose of this was to solve the problem of car body scraping putty. As it was difficult for Geely to meet the “two millimeter engineering” requirements based on its own design ability, Geely learned through international cooperation. It learned about exterior styling by cooperating with the Italian Automobile Group Corporation and the German Luc Corporation, and learned about making molds, inspection tools, and car body designs by cooperating with four Korean companies. For the first time, they used automated production lines and robots. During this process, Geely formed its own R&D capabilities for process innovation, mastered techniques of the interchangeability of metal plates and sheet metal lacquering, etc., and achieved a standard consistency. Geely also learned by hiring and brought onto their team Hua Fulin, deputy chief engineer of FAW Automobile Research Institute who was good at doing chassis R&D. Zhao Fuquan and Shen Bongxie also joined Geely during this period. Shen Bongxie’s first job after joining Geely was to lead the development of the “Liberty Ship.” Non-core components were reshuffled, a number of low-level suppliers were eliminated, while ties with suppliers who had high-quality supplies were strengthened. It also began to standardize the management of suppliers, requiring that they pass TS16949 or S9000 standard certification. Geely also inspected suppliers’ production workshops, and proposed equipment upgrade requirements to the supplier to improve product quality. At the same time, it also began to cooperate with wellknown domestic suppliers. Collaborative innovation between component suppliers and Geely was also increasing, and most components were developed together with the entire vehicle. The Liberty Ship was Geely’s first car model to have independent intellectual property rights, and it was also Geely’s first positive development project made in full accordance with internationally accepted development processes and development models. This marked the fact that Geely had broken away from its dependence with imitative innovation. The Liberty Ship was launched in 2005, and became Geely’s first model to achieve sales of more than 10,000 cars during the first month. Being Geely’s epoch-making product, the Liberty Ship changed Geely’s understanding of car manufacturing to realize that quality is not manufactured, but designed.

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Prior to launching the Liberty Ship, Geely implemented the principle of “produce one generation, develop one generation, and store one generation” in order to further enrich the product line. As a result, it almost launched the LG-1 and Vision projects at the same time. LG-1 was positioned in the A0 market, and Vision was positioned in the Aclass market. In the third-party evaluation of the collision safety test at the time, the Liberty Ship was rated as benign, which was not a satisfactory result. But turning grief into strength, Geely started to make improvements on every side, and with controlled costs developed the first four-star product of China’s own brand—the Vision. Vision took Toyota Corolla as its benchmark and made innovations to the car body on the basis of imitation. The A-class sedan Vision was a mid-range sedan that took Geely three years to build for the mid-range market. On May 18, 2007, a grand global launching ceremony was held for Geely’s first business-class family sedan, Vision, at Geely’s Ningbo base. In 2004, Geely began developing LG-1 based on globally advanced chassis. LG-1 is a model which was jointly developed by Geely, a Bejing automobile designer CH-Auto Co., Ltd. and a Taiwanese mold maker ASSET Industrial Co., Ltd., incorporating world-famous styling elements. On August 29, 2006, a national press conference was held for the launching of the A0-class sedan LG-1 in Beijing. Aiming at the highend economy car market, this marked Geely’s first entry into the market space competing with joint venture brands. The development of the “three new models” is a typical Type II secondary innovation development process. Type II secondary innovation is the transitional stage of technology life cycle that technology is in while it is being introduced, during which time the leading design is still forming. This commonly referred to as emerging technology. There is much room to grow, and the requirements are quite demanding for the R&D and production capabilities of latecomers. The introduction of emerging technologies is usually not complete and informal. The production process of the “Three New Models” introduced new emerging technologies from Japanese and Korean car companies, improved its metal sheet technology and modaling design, and gradually formed a complete R&D system. The R&D process of the “three new models” was mainly based on cooperation with international companies and learning by hiring, supplemented by cooperation with research institutions. In 2005, Geely reached

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a cooperation agreement with an industrial support organization in Hong Kong named Hong Kong Productivity Council (HKPC), to develop a new type of car. At the same time, they simultaneously launched related parts development projects. Geely also actively cooperated with other research institutes, such as the Ninth Academy of Changchun Machinery Department, Wuhan University of Technology, and Jiangsu University of Technology.

A Difficult Collaps The Awakening of R&D The TOYOTA 8A engine, which was put into production in China in June 1998, was an engine that had the largest production capacity of Tianjin Toyota Motor Co., Ltd., reaching an output of 150,000 units that year. As a joint venture, its subsidiary corporation Tianjin FAW Toyota Motor Co., Ltd. continued to use this highly cost-effective engine in its Xiali models. However, Xiali’s sales volume did not match the engine production capacity, and the inventory backlog of 8A engines became a major problem for Tianjin Toyota Motor Co., Ltd. At the time, it just happened that Li Shufu was looking for high-quality engine supplies for the company’s mass-produced luxury cars. Under such a perfect supply– demand relationship, the two parties signed a large order. Tianjin Toyota Motor Engine Co., Ltd. would provide Geely with a continuous supply of engines at a unit price of RMB 17,500, and promised that if Geely’s sales continued to grow, the price of the engine would also be reduced. For low-end models in the automobile market of that era, a question people had to ask before purchasing a car was “What is the engine brand?” With Toyota’s brand endorsement, Geely put out the slogan “Toyota Power, Price Sensitive” to promote the price-performance advantages of the luxury models to the greatest extent. Unfortunately, the good times did not last long. With Geely’s sales doubling, Tianjin Toyota not only said nothing about price cuts, it also raised the unit price of engines by RMB 5,000. At this time, Geely’s spirit of independent innovation slowly awakened and it began to realize that core technologies can determine the right to speak in the industry. An automobile factory that relies too much

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on purchasing without R&D and independent innovation is no different from a parts assembly factory. Making Innovation Breakthroughs in Core Parts To make a car you must make an engine. —Li Shufu

Geely developed a three-cylinder engine in cooperation with a domestic private company before the development of the Haoqing. In 1999, the establishment of Geely Engine Co., Ltd. signified that Geely was officially embarking on the road of independent R&D of engines. Geely’s first self-developed engine was based on the Toyota 8A. During the engine development process, they must master the lightweight and integrate technologies of the three main areas of aluminum cylinder blocks, plastic intake manifold, and VVT (variable valve timing). Geely found a domestic private enterprise that supported Toyota, and they invited some Japanese experts to teach them. In the end, they developed a plastic intake manifold mold. To solve the aluminum cylinder block problem, Geely switched from a private enterprise that developed its own molds to a joint venture, and finally to fulling importing it—the process took quite a long time. To resolve the VVT problem, Geely turned to the suppliers of MercedesBenz and BMW, but due to their high prices, it finally turned to Japanese companies. The EFI system was developed in cooperation with Shanghai United Automotive Electronics Systems Co., Ltd., while other components were mainly developed independently. At the time, Yu Ting, who had joined Geely back in 1994 to work in the research and development of micro internal combustion engines, led the project team to develop the MR479Q engine. Compared with engines directly imported from abroad, Geely’s engines have been improved to meet the needs of the domestic market. For example, it has conducted field tests under domestic high temperatures, intense cold weather, plateau areas, etc. Geely engineers successfully developed the MR479Q engine within only half a year. In 2002, the MR479Q engine rolled off the assembly line in Ningbo. This engine not only reached the level of Toyota 8A in terms

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of core parameters such as maximum power and torque, but also has localized iterative improvements in the method of ignition, and has a more excellent fuel-saving performance. The MR479Q engine is equipped on the Liberty Ship model, inheriting the MR series engine’s features of both power and fuel economy. From this point on, Geely completely parted ways with Tianjin Toyota Motor Engine Co., Ltd., having no need to rely on it any more. However, after the Liberty Ship went on the market, a problem in the wheel eccentric wear emerged. Due to Geely’s own inadequate vehicle engineering technology reserves, it had to seek the support of external experts like Hua Fulin, former deputy chief engineer of FAW Automobile Research Institute and chassis technology expert. Geely employees affectionately called him “Mr. Hua.” Hua Fulin actively participated in solving the technical problem of the Liberty Ship. Through research, it was discovered that the tire eccentric wear was caused by the design of the rear axle suspension system. Thanks to his own accumulated automobile development theories and chassis R&D technology, he was able to solve this problem in a short time. After that, Geely developed different engines one after another with a 1.0 to 1.8 engine displacement. At the beginning, there were only 12 project team members and two experienced engineers who led seven or eight university students to carry out R&D work. In 2003, Geely hired Yang Jianzhong, former deputy chief engineer of the FAW Automobile Research Institute and an engine design expert, and launched the R&D of CVVT engines with an investment of RMB 200 million. During the process, Geely encountered technical blockades by foreign companies. For example, the import of high-precision processing equipment for the engine cavity was restricted by a Japanese automobile manufacturer. Geely actively sought external support and cooperation, introducing advanced manufacturing equipment and electronic control components from domestic and foreign companies: imported electronic control system components from United Automotive Electronics Co., Ltd., introduced variable valve timing machines and Gehring honing machines from Germany, the gun reamer automatic line from Japan, introduced the integral gun reamers from Mapal, the top bit tool cutlery supplier in the world. Geely has also actively had dialogues with worldrenowned companies such as FEV, HILITE, INA, DELPHI, MIKUNI. For example, Geely and FEV Company co-designed the VVT hydraulic

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system, and Germany Bosch provided Geely with electronic control platform software, and the list goes on. Engine performance calibration was carried out at Shanghai United Automotive Electronics Company. In May 2004, a trial production of the first prototype of the CVVT engine was successfully conducted. On August 8, 2006, China’s first CVVT engine, JL4G18, independently developed by Geely, was officially put into production at Geely’s Ningbo base. On May 18, 2007, with the CCTV commercial “Geely Vision CVVT Engine, World Advanced, and China Leading,” the Vision series equipped with JL4G18 engines was launched. Geely’s CVVT engine was China’s first application using the world’s leading technology of continuously variable valve timing technology. This engine has good performance in reducing the overlap of intake and exhaust, improving fuel utilization, reducing fuel consumption, and increasing power. At the same time, it was also the first domestic allaluminum engine and the first time for a domestic company to use professional engineering plastic intake manifolds., this engine passed the provincial scientific and technological achievements appraisal in Hangzhaou hosted by authoritative engine experts in China, including academicians of the Chinese Academy of Engineering. Its technical performance has been designated as “Having a world advanced level and leading position in the country,” and this is the highest and most authoritative assessment of similar engines in China. We certainly will not purchase foreign equipment, but we will certainly not use general parts like sensors made in China. —Xu Binkuan

In 2002, Zhejiang Geely Transmission Co., Ltd. was established. In October 2002, Geely hired Xu Binkuan, chief engineer of Tianjin Gear Factory, to start an independent R&D project on automatic transmissions. Before joining Geely, Xu Binkuan served as the leader of the national automatic transmission electronic and electrical research group and presided over the production project of the imported automatic transmissions. But the transmissions which were manufactured were later aborted because it was thought that they had no future. Although the previous R&D project failed, Xu Binkuan had mastered skills for developing internationally advanced transmissions.

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During the R&D process on automatic transmissions, while its core technology, related equipment, and parts were still under the strict control of foreign companies, Geely independently designed a system and core professional equipment, and independently developed a testing device to collect the parameter data of the automatic transmission oil circuit system and purchases or customized related equipment from domestic manufacturers. To resolve its lack of industrial matching ability, the automatic transmission project team and supporting manufacturers learned together, and almost literally hand in hand cultivated the production capacity of supporting manufacturers, such as the production of long carbon-containing oil seal parts. The Z series hydraulically controlled automatic transmission can be matched with 1.0L, 1.3L, 1.5L cars, and has the advantages of being small in size, has wide speed regulation, good versatility, sturdiness and reliability, and a low price. In April 2005, Geely invested more than RMB 80 million into developing China’s first Z series of a hydraulically controlled automatic transmission with completely independent intellectual property rights. During October of the same year, Geely also realized a mass production on the market, bringing to a conclusion its chapter of depending on the transmission supply of the Fiat. In 2006, Geely’s selfdeveloped automatic transmission passed the appraisal of the scientific and technological progress of China’s automobile industry. This transmission was installed on the new model “Liberty Ship.” This marked the zero breakthrough in China’s automatic transmission development, and at the same time drove the industrial development of precision machining, non-metallic materials, oil products, and testing equipment.

“Secondary Innovation” of Non-linear Growth This chapter has taken an in-depth look at how Geely Auto (Group) cultivated its own technological innovation ability despite lacking resources during its early stages of development, and achieved a non-linear growth. Geely’s development history is a typical case of latecomer companies successfully catching-up. During the early days of its development it was characterized by lacking initial resources and having the strategic goal of catching-up. When faced with both technological and market disadvantages, Geely made full use of low-cost and other latecomer advantages, adopted the “secondary innovation” strategy, overcame various difficulties, and gradually gained a dominant position in the automotive industry.

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During this stage, Geely’s non-linear growth was mainly reflected in the non-linear improvement of core technology and module technology, non-linear improvement of organizational learning capabilities, and the non-linear utilization of complementary assets in order to see improvements. Let us summarize now specific principles exhibited in Geely’s development: Firstly, automobile manufacturing technology can be divided into two parts: entire vehicle development technology and core module technology. The non-linear improvement process of Geely’s technical capabilities included the three stages of capability to substitute, capability to convert, and capability to reconfigure. Geely has shown typical characteristics of “secondary innovation” during the evolutionary process of technological abilities, that is, it followed a non-linear evolutionary process from Type I secondary innovation to Type II secondary innovation. Geely’s entire vehicle development technology during the early stage was obtained by disassembling the outsourcing Mercedes-Benz and Hongqi vehicles, carefully studying the various parts and then reassembling them. The acquisition of core module technology also involved the dismantling of foreign-related products and mastering the basic technical principles through reverse engineering. After learning how to imitate and innovate, Geely continued to improve and upgrade the interior and exterior trim and exterior design of the entire vehicle, as well as the development of core modules. Finally, it achieved a non-linear upgrade of its capabilities. Secondly, Geely’s organizational learning model is based on the evolution of the “secondary innovation” process, which can be divided into internal learning and external learning, specifically including learning in practice, learning by hiring, and learning in cooperation. Organizational learning ability is continuously improved on the basis of the non-linear evolution of the above organizational learning model. According to the interactive model of “secondary innovation” and organizational learning, Geely’s organizational learning ability of non-linear improvement process can be summarized as follows: during the early stage of development, Geely mainly adopted the internal learning method of learning in practice. The experience accumulated in beating metal plates was applied to the production design of subsequent models. During the second innovation stage of Type I, the organizational learning model was transformed into an internal and external parallel model, combining learning in practice and learning by hiring. With the help of “external brains,” Geely

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introduced a group of leading talents into the automotive field. Most of them were inspired by Li Shufu’s entrepreneurial spirit and vision of building cars for the common person in society and taking Chinese cars into the world. During the Type II second innovation stage, the organizational learning model was transformed into a combination of practical learning, learning by hiring, and cooperative learning. Geely has cooperated with internationally renowned companies, research institutions, and scientific research institutes to achieve an increase in its stock of system knowledge and modular knowledge. Finally, during the process of sharing the same fate with parts suppliers, Geely’s ability to utilize complementary assets significantly improved, and gradually built a “community with a common destiny” with suppliers. The evolution process of Geely’s ability to utilize complementary assets in the process of non-linear growth can be described with the theory of “secondary innovation” and complementary assets. Geely adopted the “father-son matching” method to obtain stable and low-cost parts supply during the secondary innovation stage of Type I. With an increase in automobile sales and improvement of technical capabilities, Geely’s requirements on the quality and price of suppliers continued to grow, and it established a complete and systematic supplier system by adopting collaborative innovation during the Type II secondary innovation stage. It not only put forward higher quality requirements on suppliers, it also developed some parts and components jointly with suppliers. This kind of supply chain based on complementary assets helped both parties to improve their technical capabilities and ensure the quality of parts and components, and also laid a solid foundation for Geely’s non-linear growth.

PART II

From 1 to N: Pursuing Order

In this part, we will take a look at the path and characteristics of Geely’s 1 to N non-linear growth from the aspects of quality management, research and development system, field management, talent management, organization, and culture. Chapter 4 mainly delves into how Geely promoted quality awareness among its management from top to bottom, motivated its employees from bottom up to take initiative in shouldering responsibilities, set up a comradery with external partnerships, did in-depth work of “decoding users,” and constantly improved its quality. Chapter 5 focuses on the process Geely’s R&D management system took to become organized, and how its innovative technical ability went from “quantity” to “quality,” achieving an iteration transformation from creative reorganization. Chapter 6 looks at Geely’s fascinating and longstanding “problem culture” and investigates its application in field management. It also focuses on the establishment and application process of the “destruction and construction” concept in the Geely production system (GPS). Chapter 7 introduces Geely’s method of cultivating a “Talent Forest” through “openness and acceptance,” energizing the non-linear growth of the enterprise. Chapter 8 reveals just how Geely mastered the important “dynamic equilibrium” and built its unique “meta-dynamic” management model and cultural phenomenon, giving the company ample vitality and strong resilience.

CHAPTER 4

Redefining Quality

In 2006, Geely was preparing to develop the medium-to-high-end model Emgrand, a decision which clearly required a strong resolution for controlling quality. As a result, careful observations revealed some changes that quietly occurred at the Ningbo (Emgrand) base. At 5:00 a.m. on the last Monday of each month, Geely began to convene a meeting regarding quality education with responsible suppliers regarding the number of malfunctions that occurred at the production site and claims of the top ten parts in the market. The general manager of the base at the time, An Conghui, to ensure that the meeting was effective in strengthening the quality management system, improving the production level of mold designs, and fully implementing product quality management of parts, would hand an iron hammer to the director of the Quality Control Department Cui Zaifu to smash in pieces the unqualified parts. From that time on, lifting up the “quality hammer” to smash cars and production lines gradually became a special feature of Geely’s quality management. Quality ensures the survival and development of a company, while improving the quality of products and services raises their competitiveness and is the solid foundation for an enterprise’s sustainable development.1 1 Adam, E. E., Corbett, L. M., Flores, B. E., Harrison, N. J., Lee, T. S., & Rho, Boo Ho, et al. An international study of quality improvement approach and firm performance. International Journal of Operations & Production Management, 1997, 17(9): 842–873.

© China Renmin University Press 2023 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1_4

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For this reason, quality management is a fundamental management activity that is indispensable for every enterprise.2 The continuous development of enterprises’ quality management, on the one hand, is driven by competition with other enterprises which produce similar products, and on the other hand, it is a response to the constantly increasing demands of customers.3 The core mission of quality management is to ensure that an enterprise gains advantage over competition by providing quality products through achieving “a set of inherent features that satisfies demands.”4 As early as 1999, Geely began to build its quality management system according to the Quality System Standard of the IS09001:1994 Edition. Later it introduced the international technology system standard TS16949, on which Geely established its special “quality network” appraisal model. In September of 2017, the MIS09001:2015 was updated and certified, and constant modifications were made based on this forming the Total Quality System (TQS). In 2021, Geely Automobile Holdings Limited, relying on its dream of “creating core abilities of its own” quality management model, won the 4th China Quality Award Nomination Award. After 21 years of development, Geely established a globalized quality management system which formed a quality operation model consisting of the four modules “quality R&D, quality procurement, quality production, and quality sales.” This gradually made Geely’s name synonymous with high-quality automobiles. According to J.D. Power’s China New Vehicle Initial Quality Study (IQS), the bellwether of the automotive industry, the quality gap between Geely Automobiles and their industry benchmark cars has been narrowing year by year (see Fig. 4.1), the incidents per thousand vehicles (12MIS) has dropped significantly (see Fig. 4.2), and quality has greatly improved. In the 2019 IQS evaluation, Geely’s number of problems encountered per 100 vehicles (PPH) dropped by 12 from 2018, ranking it 5 places higher in the overall ranking than it was in 2018. Among them, Geely Borui’s score ranked number one in the medium-sized high-end economy car 2 Long Yong, Li Junfeng. Empirical Research n Foreign Quality Management nd Its

Reference o Chinese Enterprises. Industrial Technology. Journal of Industrial Technological Economies, (2002), (06): 72–75. 3 Weckenmann, A., Akkasoglu, G., & Werner, T. Quality management—history and trends. The TQM Journal, 2015, 27(3): 281–293. 10.1108/tqm-11- 2013–0125. 4 ISO 9000 (2005), “* Quality management systems—fundamentals and vocabulary”, ISO International Organization for Standardization, Geneva.

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segment, and Geely Vision ranked among the top three in the mediumsized basic car segment. In addition, the customer satisfaction survey report released by J.D. Power showed that since 2008, Geely’s customer satisfaction has increased by nearly 60%.

5 Incidents Per Thousand Vehicles (12 Months in Service, MIS) = maintenance on vehicles produced and sold during the previous 12 months / number of vehicles produced and sold during the previous 12 months *1000‰. 6 Data Resource: Geely Holding Corporate Social Responsibility Report.

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0.1% 100% 10.3% 90% 80% 70% 60% 71.8% 50% 40% 30% 20% 10% 14.0% 0% 2013

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Fig. 4.3 Geely’s Auto (including Lynk & Co.) sales and corresponding price distribution for 2013—20187

In 2018, the annual sales of Geely Auto (including Lynk & Co.) exceeded 1.5 million. From the perspective of the sales price distribution, mid-to-high-end models with prices ranging from RMB 100,000 to 250,000 accounted for 1/3 of the total sales. Compared with the distribution ratio of 2013, it achieved a growth of nearly 2.5 times. But the 14% sales volume of low-end models in 2013 almost disappeared in the sales distribution in 2018 (see Fig. 4.3). To a large extent, Geely’s changing of its “low-grade and low-quality” brand image and successfully moving from the low-end market into the mid-to-high-end market, benefited from its pursuit of high-quality development. What was it that enabled Geely, a company which previously suffered ridicule for “low quality,” to gradually achieve “acceptable quality,” “excellent quality,” and even “leading quality” after more than two decades of rapid development? This chapter aims to reveal the process of how Geely’s “user-centeredness” raised the concept of physical quality to perceived quality. On the one hand, from the angle of internal quality management, we will introduce how Geely’s management team conventionalized and institutionalized quality measures from top to bottom, so that quality awareness has become part of the common values of every employee, and how grassroots employees actively take responsibility from

7 Data Resource: Geely Holding.

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the bottom up, unleash their enthusiasm and creativity, and participate in quality management activities. On the other hand, from the angle of open systems, we will analyze how Geely and external partners form a community with a shared future to jointly promote quality construction.

Understanding “Perceived Quality” Since users’ feelings are top priority, each of Geely’s employees must think about users. Each goal, task, and starting point they have should revolve around how to create a superb user experience. How can this be achieved? A lot of basic work needs to be done. —Li Shufu

In the increasingly competitive modern market, whoever wins the customer wins the market. Because companies’ existence depends on their customers, they have to understand the current and future needs of customers, meet customer needs, and strive to exceed customer expectations. Geely’s adoption of a “low-price strategy” during the early stage of its business, breaking the monopoly of joint venture brands, and benefiting common people from its price with its “customer centeredness” won it customers. But low prices do not mean low quality. At that time, Geely had already formulated short-medium-and long-term acceptable quality targets. During the following more than two decades, Geely carried out three important quality strategic transformations based on its insights into increasingly complex and diversified user needs, (see Fig. 4.4), progressing from breaking through physical quality to focusing on perceived quality. This helped Geely products complete the transition from merely satisfying user’s expectations to helping them realize them, and then exceed those expectations. “3824” Quality Improvement Method Since China’s entry into the WTO, environmental pollution has become increasingly serious with the rapid development of China’s economy. Along with this, raw material prices have soared, and price wars among automobile companies have become very prevalent. This trend has put a lot of pressure on Geely, which initially took over the market with its low prices. Although products such as Haoqing were still selling well at

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Fig. 4.4 Transformation phases of geely’s quality strategy

the time, Li Shufu discovered that Geely was gradually falling into the endless circle of “low price and low quality,” and without decisive reforms, businesses of the company would be unsustainable. In 2007, Geely ushered in an important turning point in its quality improvement. In order to completely free itself of the label “low-grade and low-quality,” Geely began what Li Shufu called the most radical self-innovation from “slave to general” in the history of Chinese automobiles. The Ningbo Manifesto which he personally marked as Geely’s strategic transformation, repositioned Geely’s core competitiveness from cost advantages to technological and quality advantages. Geely’s corporate mission from that point on was no longer to “make good cars that ordinary people can afford,” but rather “make the safest, most environmentally friendly, and most energy efficient cars, developing toward medium-to-high-end automobile models.” During the same period, Geely set up the customer first quality policy of “Taking responsibility for the brand at all times and always satisfying customers"—every employee, every process, every operation, and every management link must always consider the interests of customers, so that customers can be assured, satisfied and happy, and become Geely’s loyal users and friends. Quality has always been a priority of Geely since it entered the automotive industry, but it needed to advance its system solutions through strategic transformation. Over the following two years, Geely continued to improve its degree of production automation by establishing a complete manufacturing process quality management system and

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using a large number of international advanced equipment in key procedure changes and new base construction, including Switzerland’s ABB Robotics, high-precision stamping equipment, fully automatic spraying equipment, and an automatic chassis transmission line, etc. On this basis, Geely also invested nearly RMB 100 million to purchase quality testing instruments and equipment for the entire vehicle or parts such as engines, transmissions, braking systems, and driving systems to better control production quality. After Geely expanded its scope of application, its product quality assurance movement began to include the entire process and not just the production process. In 2007, Geely proposed establishing a market-driven rapid improvement mechanism with a market approach of “focusing on users” and the “2050”8 objective, to carry out in-depth changes and process reengineering of the quality management system. With Geely’s relatively weak foundation as a privately owned company, compared with state-owned enterprises, this goal presented Geely with great challenges. Because traditional quality management methods were insufficient to help Geely adjust to the high complexity of automobile manufacturing, Geely creatively implemented its unique “3824 Quality Improvement Method.“The “3824” method integrated the essence of traditional quality management theories, refines the core concepts of Juran’s trilogy, PDCA, 8D, Six Sigma, project management, and other management methods, and combines the current situation of Geely with the need for process optimization to identify problems, analyze them, and solve them one by one. It reveals the nature of problems and the law of variables from shallow to deep and was a more detailed and suitable method for improving quality in Geely. This method consists of 3 stages, 8 steps, and 24 nodes (see Fig. 4.5). The 3 stages are planning, improvement, and control, which provide ideas for how to solve problems for quality improvement. The 8 steps are the corresponding work processes, and the 24 nodes provide specific methods at the operational level. The “3824” method focuses on users and issues as the entry point. Through systematic analysis of the weak links and loopholes in management, targeted improvement measures are taken, and the results are consolidated, so that the improvement effects can be implemented. This method provides valuable experience for the development of new products, enabling Geely to 8 This refers to the 50% annual decline of user complaints and 20% decline of loss caused by quality.

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continuously improve the new product development process as well as enhance the maturity of its quality system. Geely’s 3824 method is based on user feedback and facts, emphasizing the spirit of physical anatomy and fault reproduction, rather than relying solely on the subjective judgment and experience of employees. Many processes used in the 3824 method emphasize that all improvement standards should be based on user satisfaction. Employees need to communicate face-to-face with and collect real feedback from users. During the process of making improvements, the physical object which caused the malfunction must be obtained and a simulation of the malfunction should be conducted on it. If the malfunction does not recur, a field study should be conducted on the user’s environment to find the real cause of the problem. Finally, the reason should be experimentally verified and then reset the problem to zero to prevent it from recurring. This process not only works well in ensuring that Geely can prevent risks, but also ensures that the situation is brought under control. With the training and implementation of the 3824 method, the number of Geely’s quality improvement projects has continued to rise. In 2013, the physical quality of Geely Auto was close to the level of joint venture brands. Geely has continued to improve its 3824 method in specific practice, enabling it to be selected as one of the 50 “Quality Benchmarking” enterprises nationwide by the Ministry of Industry and Information Technology of the P.R.C. in 2012. Unlocking the Code to Clients’ Perception According to the “2019 China Automobile Consumer Insights Report”9 jointly released by the China Automobile Dealers Association and the automobile information platform “Dongchedi.com,” one of the mainstream trends of the automobile industry is that there is an ever-increasing younger generation of users. Among them, the “post-90s” age group who has gradually become the backbone of society, is the main force behind China’s auto consumption. In 2014, the post-90s users accounted for 17% of the auto consumption market. In 2016, it increased to 25%, and by the first half of 2019, the data reached 42.4%. Compared with 9 China Automobile Dealers Association, Know the Car Emperor. 2019 China Automobile Consumer Insight Report [ER/OL], (2019–12-09) [2020–07-02] https://www. sohu.eom/a/359388075_372777.

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Fig. 4.5 Geely’s 3824 quality improvement method

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other age groups, the post-90s group pays more attention to the quality of life and generally pursues individual freedom and enjoying life. In addition, the post-90s age group, also known as “digital natives,” has their own characteristics in consumption concepts, interests, hobbies, and brand recognition due to the intensive information bombardment they encounter in their daily lives. Geely has also gradually realized that with the deepening of users’ understanding of cars, cars are now no longer merely a means of transportation, and the communication and connection between people and cars have become closer. People’s new criteria of judging cars is whether the sound of wind noise is comfortable, seats are soft enough, or the feeling of turning the steering wheel is just right. By making user-friendly its core value, Geely has established and improved a product development system based on the ways users think, including a forward-looking technology strategy, new product development system (NPDS), joint development (Volvo/Daimler), iNTEC—humanized intelligent driving technology, etc., integrating global product development programs and gradually upgrading in accordance with technological progress and changes in customer needs. On the basis of eliminating “hard” physical malfunctions (i.e., solving the malfunction of a certain car headlight), Geely strives to solve the problem of sensory experience, providing users vehicles that are comfortable to drive, sound nice, and are comfortable to sit in, and help users feel the sense of refinement, comfort, and technology while driving Geely automobiles. In the past, the automotive industry including Geely used the AUDIT method to do internal reviews. This was a new type of reverse quality inspection method. To put it simply, internal engineers would be asked to act as the user and examine a new automobile from the user’s standpoint. However, with the ever-increasing number of user complaints and car repair rates, Geely realized that the traditional AUDIT special review method was, after all, an “imported product” designed based on Europeans’ understanding of cars, and could not effectively improve the quality of local products or change domestic users’ inherent views on the quality of Geely cars. Geely previously used internal engineers to assess the quality, but now it looks at it from the user’s perspective, that is, taking the users’ complaints or maintenance rate as the evaluation guide, and establish a quality evaluation standard based on users’ perspectives. To this day, the slogan “User’s complaints are the best gift” is hanging in a prominent location in Geely’s automobile manufacturing base. In 2019,

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based on user thinking, Geely released the first set of original quality evaluation standards, the Geely GCPA-101 standard, which covered all aspects of research and development, procurement, manufacturing, and sales. This standard requires every evaluator to look at the situation from the user’s point of view, identify the real needs and complaints of users in their product evaluations, new car evaluations, and durability evaluations, and design the products made in China on a stricter scale to achieve zero quality defects. In addition, Geely has also established a product satisfaction survey system for end users, continuously collects user feedback through multiple channels, and actively develops experiential activities to allow users to experience the product in an all-round way and provide evaluation feedback. It then summarizes user needs and applies them to the development of new products and the quality improvement of existing products to avoid potential quality problems. By building a perceived quality evaluation system, optimizing the quality control process, it completes the quality review of various new and remodeled vehicles and new powertrain projects, using the preventive mechanism to provide early warnings of quality risk projects, as well as early detection and correction. As a result of carrying out quality control in strengthening the initial quality inspection and quickly responding to market problems, Geely effectively promotes the stability and continuous quality improvement of new projects, and thus “exceeds customer expectations and creates customer enjoyment.“ Geely has also incorporated the “8-second rule” and the “200-meter rule” into the automotive marketing process. To ensure that each car leaves a good first impression on the user, Geely helps users experience the car’s model, material, texture, styling, and workmanship within 8 seconds. It also allows users to take a 200-meter test drive to get a sensory experience that includes “seeing, listening, touching, and smelling.“ This enables users to get an overall impression of the quality and features of the automobile for themselves. After the user is satisfied with both aspects, a transaction is basically confirmed.

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Top-Down Quality The commitment of top management has proven to be one of the main determining factors of successfully implementing quality management.10 From the promotion of management positions and the level of meetings to the construction of corporate culture, Geely gives high priority to “quality” and implements quality management by providing sufficient resources to achieve its commitment of quality.11 From “Making Affordable Cars that People Can Buy” to “Making Good Cars that People Can Afford,” and now to “Making Premium Cars for Everyone,” Geely’s senior managers have always adhered to a well defined high-quality development concept. It has established a unified purpose, direction, and working environment within the enterprise to enable employees to participate fully, achieve corporate goals more effectively, and strengthen the quality awareness of the entire group from top to bottom. “Quality Leaders Project” At the operating level, Geely promotes the “Quality Leaders Project” and comprehensively improves product quality and operating quality through the regular monthly meetings on quality held by the president and the Group Management Committee meetings, thus enabling Geely to gradually achieve a refined and standardized quality management. The “Quality Leadership Project” abides by a level-by-level responsibility system that consists of the president, vice presidents, general managers, deputy general managers and department managers, directors, and other leaders. Through president quality meetings, quality releases, and other forms, it reports the status of quality operations, proposes, discusses, and solves quality problems, and supervises, inspects, and encourages relevant processes. Among the leadership, the CEO is directly responsible for quality, the vice presidents directly manage the relevant quality business, and the general managers of each subdivision are fully responsible for quality. Quality is an issue that group leaders

10 Ebrahimpour, M. An examination of quality management in Japan: Implications for management in the United States. Journal of Operations Management, 1985, 5(4): 419–431. 11 Powell, T.C. Total quality management as competitive advantage: A review and empirical study. Strategic Management Journal, 1995, 16: 15–37.

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must pay attention to and think through deeply. For every leading cadre in the group who wants to be promoted to any higher level, an important prerequisite they must have is previous work experience in quality management. As Geely’s emphasis on quality continued to increase, the president’s quality meeting has been upgraded to the “No. 1 Meeting” of the group. The President Quality Meeting is one of Geely’s regular monthly meetings, to which the president and vice presidents of the Group, as well as the general managers of each manufacturing base and unit and the deputy general managers in charge of quality, are required to participate in the meeting person. The team leaders and above can participate in the synchronized video conference, in order to better understand the actual work development of each business unit of the group. The first half of the meeting mainly focuses on material reviews. Ten days before the meeting is scheduled to take place, the Geely Group will organize a professional team to conduct a centralized review of two selected Geely cars and the benchmark models. Through comparing the cars with the benchmark models, the two Geely vehicles will be evaluated as a whole, and then a summary of the corresponding advantages and disadvantages will be made (mainly focusing on the defects that need to be improved) and written down on a board that is placed next to the evaluated model. On the day of the meeting, participants are invited to visit the site to understand the evaluation results and improvement directions. Finally, some typical problems are analyzed and explained. During the second half of the meeting, a summary of overall sales and quality operations of the entire Group is made and discussed. The service company will focus on problems by summarizing the recent product market performance and related public opinion monitoring, feedback from customer’s word of mouth, and point out key problems that are presently facing car quality. The Group Quality Center gives an overall introduction of the Group’s quality operations for the month and announces the results of special audits and quality rankings of certain bases or project groups. According to the problems and difficulties of each business module, special topics are selected and focus discussion is conducted to improve the plans. On the one hand, the actual user experience is used as an external diagnosis, and quality improvements are carried out from the outside in. On the other hand, through internal quality self-diagnosis of the enterprise, problems are found early, and quality is optimized from the inside out.

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Benchmarking Management Association In 2012, based on the summary of problems and achievements obtained in past development, the Group president An Conghui put forward the business idea and management goal of “benchmarking management and quality management,” putting quality at the height of management, and making it the determining factor for the company’s success or failure. After acquiring Volvo Cars and buying shares in Daimler, Geely fully launched its business benchmarking. Geely’s overall goal is to become “the most competitive enterprise in the world,” and be like Toyota, Volkswagen, and Hyundai. This does not mean that its benchmarking is a copy of any certain corporate model. On the contrary, Geely is good at benchmarking, gaining insights into the strengths of each company, and targeting its benchmarking to a certain item. Specifically, in terms of vehicle research and development, Geely regards Volvo Cars as its benchmark and optimizes Geely’s new product development system (NPDS). By NPDS and resources integration, Geely conducts scientific management of the development process to meet user needs and achieve user satisfaction in product development. In terms of platformization and generalization, Geely benchmarked German car companies and jointly developed CMA basic module architecture with Volvo to create Geely Xingyue, Lynk & Co, and Volvo XC40, and cooperated with Daimler to create Mercedes-Benz Smart and Geely new energy models. At the same time, through active participation in industry exchanges, Geely has conducted cross-level benchmarking with GM, Volkswagen, Honda, Toyota, and other brand products, always maintaining a crisis awareness. It always keeps its strategic determination of following the general trend while getting ahead in some areas to enhance its competitiveness in products of the same level. In addition to conducting external benchmarking, Geely also looks for problems and benchmarking targets for internal issues from the entire system to specific positions. Especially in terms of the optimization of manufacturing system benchmarking, Geely has established four major entire vehicle process benchmarking management associations to build an exchange platform for benchmarking management of various process systems in vehicle manufacturing in terms of quality and other aspects. In accordance with the requirements of the Group’s Quality Management Department, Geely’s bases dismantle and analyze relevant benchmarking vehicles. The Quality Management Department then conducts a shared

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Common Problems: the Group takes responsibility for project rectification

General Problems Each base rectifies

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Fig. 4.6 Geely’s four major industrial process benchmarks

platform management and control of the benchmarking analysis results of each base and gives limited access to related bases and research institutes within the group. Geely organizes its branch factories to conduct benchmarking independently, promote the advanced experience and excellent improvement results of advanced units within the group, and then develop a guidebook. Geely conducts process monitoring management (see Fig. 4.6) by forming a closed loop of the “benchmarking of the four major industrial processes➔manufacturing problems listed supervisory➔standardization➔quality network system improvement.“ Quality Culture Generally speaking, the quality of a product is determined by a visible capital strength and technical power, or the operator’s corporate strategy. But while these factors are important, more important is employees’ invisible awareness and the collective influence of their awareness on forming corporate atmosphere and culture.

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Being responsible for the brand at all times and always satisfying customers Right and Ten Wrong Quality Values of Articles Quality

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Fig. 4.7 Geely’s pyramid of quality culture

Li Shufu believes that corporate culture includes the construction of a standardized system, strict management, and the common practice of all employees. In 2018, the Geely Group Quality Management Committee conducted a survey on all the employees, then combined the results with the company’s quality culture and historical experience to form Geely’s “Ten Quality Articles”12 from the “Ten Aspects to Persist and Ten Aspects to Eliminate” as the code of conduct regarding quality for all employees. At the same time, Geely unified its direction of quality development by adopting the quality policy of “being responsible for the brand at all times and always satisfying customers”; it adopted the “Ten Quality Articles,” “Right and Wrong Values of Quality,” and “Six Requirements of Action” as the quality method to form the Quality Management System. Geely fully implemented a quality culture (see Fig. 4.7) by adopting such quality techniques as “zero defect operation entity,” “3824 method,” and “quality informatization.”

12 Geely’S 10 Quality Articles: To maintain the quality bottom line and prevent low quality. To ensure the authenticity of data and prevent falsification. To adhere to customer consciousness and prevent departmentalism. To insist on avoiding silo mindset. To adhere to quick response to prevent delays. To insist on doing the right thing once to avoid repetition. To insist on repeated verification to prevent mass outflow. To adhere to quality standard benchmarking and avoid divorcing from reality. To adhere to one-vote veto and avoid compromise and concessions. To adhere to crisis awareness to prevent overconfidence.

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In order to ensure that the quality culture construction was systematic, long-term, and effective, Geely formed a quality culture construction management system. At the beginning of each year, it identifies, plans, and arranges key directions and measures for quality culture construction for the whole year. It carries out quality culture seminars and publicity and implementation during an “Improvement via 100-day Campaign,” and then inventory is taken of the construction results at the end of the year and incentives are given.

The Masters of Quality Control Products are created by people, and the quality and attitude of employees profoundly affect product quality. Employees at all levels are the foundation of an enterprise. Only when they fully participate and utilize their talents can they benefit the enterprise. In order to control quality from the root and improve the efficiency of quality management, Geely reasonably implements the responsibility of quality decision-making to frontline employees by authorizing them to conduct self-examinations and promptly stop product production if a problem occurs during the production process. In addition, Geely provides necessary resources and technical support, increases employee training to improve employees’ ability in quality management, and establishes a formal evaluation and reward system to track and motivate employees to participate. In this way, Geely helps all of its employees at every level realize its quality management. An Independent Production Quality Guaranteed System In the past, product quality inspections had to be carried out after employees had completed their assembly work. Employees involved in manufacturing only followed the steps of assembling the parts they received and were not aware of potential quality problems in the process. As a result, this made it difficult to effectively guarantee the quality of the finished product; workers could only wait until the entire vehicle came off the assembly line before they discovered a defective part through inspection and repaired it. This eventually caused low production efficiency and huge waste. In order to solve this problem, Geely proposed and implemented an independent production quality assurance system to clarify the specific

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node where a problem occurs, and each relevant workstation is responsible for quality assurance. This system followed the guiding ideology of “Quality starts with me, and I ensure my own quality,” which strengthens employees’ quality awareness. At the same time, through the “quality real-name system” and other positive incentive models (i.e., the process is graded and a real-name system board is established), employees on each production line are required to manage problems in the production process (i.e. inspections must be carried out during the assembly or manufacturing process to ensure the quality of everyones’ work content, rather than relying on subsequent inspections to find problems). A monitor specialist is responsible for quality control of the error-prone problem points; during the production process, a quality inspection station is set up to strengthen the role of the inspector, and to prevent as much as possible the unqualified station from affecting other stations. Have employees record the content they are responsible for so that when problems are found in the following links, the responsible party can be found through related records, and the selection and motivation of “zero defect employees” can be carried out. This system helps employees create a personal awareness of quality issues and understand that everyone is responsible, stimulating their in them a sense of responsibility to control the details of product quality in an all-round way and improve production quality as much as possible (Fig. 4.8). The independent production quality assurance system is based on the “Three No principles” of “No accepting, no manufacturing, and no passing,” analyzes key management items, compiles independent inspection tables for process quality, implements independent inspections and post-management, and the problems that easily occur in the process and to users are implemented in specific workstations to create “zero defects” in the quality process. Zero Defects Quality Operation Entity In order to transform isolated projects into a continuous operation entity, from passive management to independent innovation, from ex post compensation to ex ante prevention and control, Geely has been implementing the “Zero Defects Quality Operation Entity” program since 2009. Under the premise of not breaking the existing organizational structure, it equally disperses the quality responsibility to each level. The vehicle quality target is initially divided into the five modules of

Quality Information Analysis

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Fig. 4.8 Independent production quality assurance system

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air conditioning, chassis, electronics, automotive body accessories, and powertrain. The quality objectives of each module are then connected to each component. For each module and each component, one person will be given overall responsibility for total quality and then a person will be given specific responsibility for each link of technology, procurement, manufacturing, services, and improvement management. The personnel of each module form a virtual organization, in other words a quality operation entity. This system structure has gradually improved over time (see Fig. 4.9). Taking the chassis as an example, the quality management system includes a technician responsible for the chassis, a quality management personnel at the chassis supplier, a personnel responsible for production technology, and a personnel in charge of market services. This structure organizes the previously relatively scattered personnel into a team, helps break the barriers of communication, and shortens the path to solve problems. It helps employees no longer shirk from their responsibilities and work together toward the common goal. It assists in achieving independent management, continuous management, and preventative management, so that the technical level, component quality, manufacturing quality, and service quality are all effectively promoted.

A Community of Shared Quality Maintaining a win–win relationship between enterprises and stakeholders can improve the ability of multiple organizations to create value. Judging from substantive issues released by Geely over the years, regardless of how much they were related to Geely or had great importance to stakeholders, products have always been the core factor, and quality and safety performance are the most important substantive issues (see Fig. 4.10). In fact, in order to realize the beautiful vision of “Taking Geely to the world,” Geely not only worked hard internally, it also paid attention to establishing longterm partnerships with external stakeholders such as suppliers and dealers, to provide management support to jointly build a value network system which has an international competitiveness and influence. “1+1+1” Global Purchasing The quality of parts defines the overall quality of a product. If a problem occurs in any part, it may affect the whole body. Geely believes that good

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Fig. 4.9 Quality management systems structure

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Importance to Stakeholders

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Fig. 4.10 Substantive issues of products and their importance13 to geely

product quality comes from top-notch parts, and the product quality of suppliers has played a vital role in the development of Geely. In order to improve the perceived quality of products and break through the biggest “soft underbelly” of the development of China’s auto industry, Geely has also adopted corresponding measures to control the quality of its purchasing system. Regardless of whether it is an international supplier or a local supplier, Geely requires it to continuously improve its response speed during the design, research, and development stages, and promises to continuously improve the quality of parts and components. “1+1+1” Cooperation Model Many of Geely’s suppliers shared happiness and woe during the early days of developing their business, but a large portion of them are now facing the crisis of being left behind by the times. Geely has difficulty giving up these loyal partners, while at the same time, it also has to bring in advanced suppliers to ensure the quality of core parts and improve product competitiveness from the source. It wants to purchase parts with

13 Data Resource: Geely Holding (Group) Corporate Social Responsibility Report 2017.

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high quality, but at the lowest price possible. This dilemma has generated much fierce internal dispute in Geely. On the one hand, Geely insists on bringing in international first-class suppliers with supporting experience from well-known auto companies in accordance with the demands of product development and quality improvement, and opens quick access procedures to Class A suppliers that provide similar products to world-renowned auto manufacturers; for Class B suppliers that provide similar products for mainstream passenger cars in the frontline camp of independent brands, Geely organizes quality and technical review teams to conduct onsite access audits; for suppliers evaluated as Class C, Geely will not accept key parts, functional parts, or exterior parts, and general parts will undergo onsite audits according to the actual arrangements. Geely will not cooperate with Class D suppliers who have no experience in supporting passenger vehicles or similar products. On the other hand, Geely provides training for suppliers who are willing to continue developing with Geely. For suppliers whose indicators like product quality, prices, delivery, and services have not met the standard for a long time, restrictions on new products and second-track development rights will be implemented. Suppliers with a weak quality control ability, high costs, sorting that lacks variety, and small supply range will be eliminated. This cooperation model that promotes both competition and mutual learning among suppliers has become a supplier system with Geely characteristics. This model is called the “1+1+1” cooperation model. With the advantages of Geely’s domestic market and the support of local policies, it utilizes the cost and speed advantages of local auto parts companies together with the technology and quality superiority of the world’s top suppliers. By forming a community of shared common interests through the bond of capital and law, it combines Geely’s complete vehicle research and development capabilities, the cost control capabilities of excellent suppliers in the Geely system, with the technology and quality assurance capabilities of international component giants, forming new competitiveness. Companies such as Faurecia from France, Taichi from Japan, Xinchang from Taiwan, China, and Yanfeng Visteon and Yanfeng Johnson from Shanghai have all achieved win–win results with Geely through the “1+1+1” model (see Fig. 4.11). While exerting high demands on suppliers, Geely pays close attention to their needs as well. In order to resolve the contradiction between

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Fig. 4.11 Geely’s “1+1+1” community of shared common interests

high-quality requirements and low cost and achieve a win–win situation for Geely and its suppliers, Geely does its best to promote product generalization, standardization, and modularization. Geely establishes a multi-track mechanism in the procurement process and adopts a multisupplier supporting method to fully guarantee production stability and reduce supply risks. At the same time, it has also established a quota competition mechanism that compares quality and price, so that suppliers with good quality products and low prices can get more multiple quotas. Geely has also established a supplier performance monitoring and control system to realize the dynamic optimization of the supplier team and build a high-level supporting platform. In addition, Geely established its Automobile Suppliers Association to build channels of communication between Geely and its suppliers, to enhance the sharing of suppliers and form strategic alliances with suppliers for independent brands to share designs and innovation results. As a result, this can also promote the construction of Geely’s supplier system and improve Geely’s supply chain management.

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“Pyramid” of Dynamic Management In order to better adapt to the development demands of the “New manufacturing era” and improve suppliers’ abilities in product development, production guarantees and quality management and control, Geely established Supplier Quality Engineer (SQE) Center in 2017. Through a three pronged method of “introducing, eliminating, and cultivating,” it took another step in integrating global resources with a more open and accepting spirit, standardizing the mechanism for admitting, evaluating, and eliminating suppliers, to guarantee the quality of suppliers and optimize Geely’s supplier chain system. Compared with the previous period, Geely has adopted a stricter and more refined supplier admittance and evaluation system. It reviews suppliers from the three dimensions of R&D, manufacturing, and quality assurance capabilities, and implements a “pyramid-style” dynamic management and optimization. For one component, the same product from different suppliers is reviewed separately in different scenarios to obtain different review results. In terms of the admittance mechanism, only suppliers whose review results are “3B” or above are accepted. Among them, the suppliers whose assessment results are “3A” will be used as industry quality benchmarks, while the “3C” suppliers need to be improved and passed through subsequent assessments before being accepted. According to the annual assessment, excellent suppliers are introduced every year, and 20 poor suppliers are eliminated (see Fig. 4.12). By the end of 2019, Geely Auto had established a globally competitive supply chain system with more than 200 local and international suppliers. In accordance with the review results, Geely gives more resource support to the strategic suppliers at the top of the pyramid (“3A” level), including privileges such as more quota allocation and new project development priority. At the same time, Geely eliminates companies with low coordination, quality problems, or who are declining, or have integrity and compliance issues. In addition, Geely also provides comprehensive technical and management support to suppliers, promotes two-way communication and knowledge sharing, continuously improves production efficiency, to promote win–win cooperation. In May 2017, Geely established the Quality Management College of Corporate University, and implemented the “Supply Chain Talent V Plan” for those suppliers who lack capabilities

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Fig. 4.12 “3A” supplier dynamic appraisement system14

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but have room and willingness for improvement. With its high-quality class model of “training, actual combat, and sharing,” it promotes twoway communication and knowledge sharing for cultivating internal and external talents, and conducts supplier training through a combination of open classes and practical exercises to ensure that suppliers fully understand Geely’s “Supplier Quality Manual,” the way of signing quality agreements, and quick responses and solutions to resolve quality issues. In 2019, Geely carried out 28 large-scale supplier training sessions and provided onsite assistance to 51 suppliers, saving RMB 89.56 million in costs by upgrading the technology. Service “Strategy Frequency” Geely conducts its business focusing on the quality policy of “making customers satisfied.“ Service quality is an extremely important link to ensuring user satisfaction, and the core of service quality is improving after-sales service management and after-sales technology. The rapid development of Geely’s business is not only attributable to the construction of the company’s internal quality culture and the cultivation of employee capabilities, but also the provision of talent training services to upstream and downstream partners in the industry chain (including suppliers and distributors). The training Geely gives to dealers’ first-line marketing talents especially plays a vital role in Geely’s “upward” progress.

14 Data Resource: Geely Holding.

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Equal Standard of Services for 1 or 1000 Stores Compared with the rapid expansion of distributors, Geely pays more attention to distributor service quality management. By establishing the service awareness that “distributors are our users and consumers are distributors’ users,” Geely provides distributors with a kind of consultant services, which includes providing professional guidance for hardware designs, standard control, material ordering, etc., enabling distributors to better serve Geely users. In order to allow more than 6 million base users to enjoy high-quality services that match 3.0 premium cars, Geely continues to deepen the construction of the 3.0 marketing system and improve the hardware facilities and service levels of distributors. By establishing the “After-sales Services Demonstration Stations,” Geely sets benchmarks and provides excellent after-sales service management methods and experience, so as to provide distributors with practical hands-on guidance in their actual work, help them continue to expand the scope of the demonstration station, and maintain the orderliness of onsite management and do what they say they do. They are also encouraged to persist in realizing user satisfaction, and strive to create a perceptible, executable, and verifiable experience scene. In order to strengthen cooperation with distributors, Geely also regularly holds regular group market share quality meetings. Geely’s senior leaders and heads of manufacturing bases communicate face-to-face with distributors and users in order to understand distributors’ demands and listen to users’ voices. “Strategic alignment” with distributors and sharing “the same resonance frequency” with users, means having the same strategy as the partners and sharing the same feelings with consumers. Improving Distributors’ Abilities The development of independent brands not only cannot stop at the level of technology research and development, there also must be an innovative marketing model that matches it. The ability of distributors has a large affect on the quality of services that companies can provide. In order to further enhance the distributors’ business capability and its own brand image, Geely established a clear and efficient market technical support process that is initiated by distributors and quickly followed by the coordination of after-sales technology and a quality system. Using the

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quality departments of each manufacturing base serving as communication channels, and in accordance with the principle of localization, the manufacturing base provides technical training to distributors in the area. In addition to this, to better empower the distributors, corresponding training programs were also set up in response to the different needs of distributors to strengthen basic sales skills and improve workers’ service awareness and understanding of product life cycle, including key job certification programs, sales consultants’ professional quality programs, and product sales improvement programs. In addition, Geely has broken away from the conventional centralized teaching methods, and promotes skill development and training through organizing various dealer competitions, a prime example being the national sales elite competition. While continuously improving the professional skills and professionalism of distributors’ affinity, professionalism, self-confidence, and sincerity, it also stimulates the enthusiasm and motivation of sales staff and promotes the development of sales talents with strong professional skills and sincere service attitudes. As a result, this provides Geely Auto with high-quality sales talents as it continues to develop, enabling Geely’s marketing and service quality to match 3.0 boutique cars. Every national sales elite competition helps Geely improve its strategy and level of competition based on its development status at that time. In order to provide customers with a better car purchasing experience and enhance their sense of participation, in 2019, Geely Auto cooperated with its dealers in carrying out 311 promotional brand activities which included test drive experience officers and points competitions, etc. Taking Lynk & Co. as an example, by advocating the concept of “More Than A Car,” it transformed the traditional dealership into a brand exclusive social platform “Co-Customer Land” that integrates sharing and social interaction. Through more than 580 very interactive activities, such as global travel officials and car music festivals, it has strengthened users’ perception and acknowledgment of Lynk & Co.

Non-linear Growth–“Decoding Users” User-centeredness is the first priority in Geely’s development, manufacturing of products and providing services. At different stages of quality development, Geely has kept its focus on users’ experience, gained insights into their needs, and continuously promoted the cognitive transformation from physical quality improvement to the upgrading of

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perceived quality. Geely’s successful practice shows that quality management is not only a problem that leaders or quality departments need to keep in mind, but it penetrates the daily work of every employee, in other words, making the “quality concept” a value and judgment standard that Geely employees abide so that they take responsibility in improving management quality, product quality, and service quality. Specifically, Geely’s management promotion of the concept of “high-quality development” is embedded in all aspects of corporate operations. By clarifying the behavioral norms of all employees in terms of quality, Geely promotes the formation of quality awareness from the top down, and all employees take the initiative from the bottom up to take responsibility in promoting the construction of the quality management system. Forming a complete circular process of the distribution and building up of management fully mobilizes the enthusiasm and creativity of all staff, as well as directly and effectively improves the team leader’s ability, giving full play to the management function and role of the team and the smallest unit module. This effectively helps implement various quality management activities and achieve goals (see Fig. 4.13). What needs to be made clear here is that top management is the driving force for the implementation of quality management. The top management who are committed to quality must convey the idea that quality is a higher priority than costs or progress.15 In addition, the effective management of product quality and the quality of internal processes cannot be separated from the understanding of external factors such as competition. Managers need to wisely integrate benchmarking awareness into business management, be good at learning, and use the knowledge gained from benchmarking to improve their own products and processes. More importantly, all employees of the company must get on board to form a joint force before quality management can be successful. Companies must establish a formal system to supervise and motivate employees, otherwise there will be a decline in management participation and work quality. Geely’s quality practice has proven that in most cases by appropriating transferring the responsibility for quality decisionmaking to employees, empowering them to conduct self-examinations of work results and providing them with necessary resources and technical

15 Stalk, G., Evans, P., & Schulman, L. E. Competing on capabilities: The new rules of corporate strategy. Harvard Business Review, 1992, 70(2): 57–69.

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support at the same time, their sense of responsibility and enthusiasm is simulated.16 Automobiles are industrial products with complex structures, and each component is closely related to the quality of the entire vehicle. Therefore, for entire vehicle manufacturers, in addition to forming a good top-down enabling mechanism within the enterprise, it is also important to maintain a benign interactive relationship with external stakeholders. By being quality-oriented, Geely has built a comprehensive supplier evaluation system, improved the dynamic assessment and exit mechanism, and established long-term partnerships with reliable, capable, and willing suppliers to carry out quality improvement work. In cooperation with distributors, Geely not only pays attention to the cities their networks

16 Chevalier, F. From quality circles to total quality. International Journal of Quality and Reliability Management, 1991, 8(4): 9–24.

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cover, but based on their needs, Geely continuously improves each distributor’s hardware facilities and service levels, and expands the construction of the marketing system in order to produce high-quality services that match its high-quality products.

CHAPTER 5

“Unlearning” in Research and Development

In the past decade, Geely invested about RMB 100 billion in research and development (R&D) to build four modular car-manufacturing platforms covering multiple bandwidths. They acquired several famous automakers and suppliers, including DSI, Volvo, Lotus, and Proton. Geely also released technical strategic programs such as the “Blue Geely Action” and “20,200 Strategy.” It also established five global R&D centers and five major design centers and built a new product development system (NPDS). These actions marked Geely’s metamorphosis process from catching-up to going beyond. As the global automotive industry keeps developing, enterprises are facing many uncertain factors such as the fast-growing global economy, diversified customer needs, and rapidly changing cutting-edge technologies. Thus, enterprises are inevitably expanding their battlefields from the local market to the global market, and R&D and innovation have become necessary means for companies to adapt to the dynamic environment, achieve sustainable development, maintain competitive advantages, and obtain substantial profits. Geely has attracted abundant attention due to its rapid rise in recent years, behind which lies a force that cannot be ignored: its R&D system that undertakes the important task of innovation. The metamorphosis of Geely’s R&D system is also the epitome of its growth from attempting to catch-up to surpassing its competition.

© China Renmin University Press 2023 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1_5

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Generally, Geely’s car-manufacturing journey has not been completely smooth. Its R&D system experienced an economically poor and culturally blank period with half-formed ideas at the beginning. It experienced huge difficulties and had to make courageous decisions. Nevertheless, Geely experienced great success during the first strategic transformation period and realized the integration of resources and breakthroughs in R&D innovation following international mergers and acquisitions. Geely officially began car manufacturing in 1997, and grew from the “reverse engineering” era when panel beaters served as designers, to the “positive engineering” era of independent innovation. Geely formed a global R&D network and “original innovative” technical capabilities in “uncharted waters.” In terms of organizational management, Geely implemented a matrix system and strong project system for its R&D system, and then jointly established an NPDS with Volvo for the whole business chain, which transformed the company’s business strategy into the creation of competitive products. Today, Geely has reversed the former role of its R&D system in the global division and gradually built an active global network. It has five major engineering R&D centers in the world, over 1,000 domestic sales outlets, over 400 overseas sales, and service sites, over 20,000 R&D technicians and designers, and over 120,000 employees in over 40 countries and regions. Geely Holding Group invested about RMB 100 billion in R&D from 2008 to 2018, including RMB 21 billion in 2018, accounting for 6.4%1 of the total sales revenue, which is comparable to that of large international automobile groups. Geely’s emphasis on R&D enables it to maintain steady growth against micro-growth or even non-growth trends in the entire industry (see Fig. 5.1). Notably, the metamorphosis process of Geely’s R&D system has been a dynamic process of gradual escalation. In a narrow sense, the R&D management system is the department that manages the R&D department or technical department and its activities. It focuses on product development and the testing process (Fig. 5.2). Geely constantly adjusts its organizational structure to adapt to the strategic focus change from applied technology to basic technology R&D. During the transition of the R&D management system from disorder 1 Li Shufu: “The hope of China’s automobile industry lies in Zhejiang; Geely has invested nearly RMB 100 billion in research and development in the past ten years” https://mp.weixin.qq.com/s/rOF6Lsrc9smfexD9rrtm8w.

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to order, Geely’s technological innovation capabilities transformed from quantitative changes to qualitative changes. 2 Data source: Annual Reports of Geely Automobile Holdings Limited 2008–2018. 3 Data source: Annual Reports of Geely Automobile Holdings Limited and Geely

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This chapter discusses Geely’s technology innovation capabilities and R&D organizational management. It focuses on answering certain pertinent questions: How did Geely’s technical capabilities change from weakness to strong? How did Geely’s R&D management model attain the efficient management of the complicated R&D process? And why was the R&D system iterated severally? Experience and conclusions are extracted from the metamorphosis of Geely’s R&D system, which will hopefully provide domestic and foreign enterprises with the practical experience of China’s first-class manufacturing enterprises concerning their reform and management of R&D systems.

From Quantitative to Qualitative: A Leap Forward in Technical Capabilities In academic and business circles, the focus is usually on how latecomer enterprises can take advantage of their latecomer status to catch-up. American economic historian Alexander Gerschenkron, the first economist to research post-modernization, revealed from a theoretical perspective “the possibility of a latecomer country catching-up with or even going beyond a first-comer country in the process of industrialization.” Throughout the development of the automobile industry, the origins of technology and leading brands in the industry all appeared in developed countries and regions such as Europe, America, Japan, and South Korea. However, Geely, as a “latecomer” and pioneer of China’s independent automotive brands, has gradually achieved technological equality with and even surpassed such advanced companies. When Li Shufu first started his carmanufacturing business, he said, “Geely wants to build a good car like a Mercedes-Benz.” However, limited by technical capabilities, Geely realized that product innovation could only be achieved by persisting in the “building of fundamental and internal strength” and continuously improving its technical capabilities.

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In Addition, the Process of Catching-Up in Technological Capabilities is Highly Situational4 Compared with enterprises in South Korea, Japan, Singapore, and other developed countries, Chinese manufacturing companies such as Geely faced a completely different development situation. The well-known South Korean scholar Kim Linsu once observed the process of catchingup in the technological capabilities of 31 South Korean electronics enterprises, and proposed a linear catching-up path for latecomer enterprises, namely “assembly—absorption—improvement.” The catching-up of Chinese manufacturing enterprises took place under the “four-inone” era of the transformation of ownership structures, diversification of technological systems, multi-level market spaces, and emerging global networks, which was a non-linear transition process with “introduction— digestion—absorption” proceeding in parallel with innovation. First “Tracing,” then “Writing” In 1997, Geely invested RMB 500 million to establish its automobile manufacturing business. The company did not have the technical expertise for automotive R&D during its initial days. Therefore, it took the path of imitating and learning during the initial period, just as a pupil first learns to trace the characters before becoming capable of writing. By imitating mature products and processes following the approach of “learning by doing” and improving the proficiency of its workers, Geely gradually improved its production efficiency and economic benefits, reduced its production costs, increased its market share, and lowered its dependence on external technologies. Li Shufu, who started manufacturing cars in batches, took the technical route of “tracing first, then writing; first learning to walk, then running; starting from the low-end before moving to the high-end.” In 1998, Geely’s first car, the Haoqing, was manufactured on the production line in Linhai, Zhejiang. Since then, Geely has been able to quickly break into the automobile market with a low-price strategy despite the existence of well-established and popular models like the Santana priced at more than RMB 200,000 and the Charade at more than RMB 4 Linsu Kim. Stages of development of industrial technology in a developing country: A model [J]. Research Policy, 1993, 22(2).

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100,000, and the Alto at approximately RMB 70,000–80,000. Moreover, it introduced the “3rd Five-Year” plan for car manufacturing to avoid direct competition with larger automobile enterprises. Since the Haoqing had obvious price advantages compared with other cars in the market, Geely set a sales volume of thousands of cars one year later. Although China’s automobile sales market was relatively slack paced at the time, Geely priced its cars at RMB 35,000–80,000, targeting a large number of individual vendors and entrepreneurs as its customers at the initial stage of the business, thereby filling the market gap in this range. With its low-price strategy, Geely successfully opened up the Chinese market and disrupted the price and market monopoly of the three major car joint ventures in one fell swoop. Consequently, cars, once considered luxury goods, became consumer goods that ordinary people could afford. Thus, Geely was able to sail successfully into the top ten in China’s car industry. As mentioned in Chapter 3, Geely successfully achieved a technological breakthrough from 0 to 1 following the strategy of “secondary innovation.” In particular, the Charade was Geely’s first learning object in the car-manufacturing business. The Charade held its top position in the sales volume of economical cars for more than 10 years by following the car-manufacturing concept of “economical, unworried, and time-saving,” which coincided with Geely’s concept of “making good cars affordable to ordinary people.” As a result, for a long time, the Charade was an object of imitation for Geely. Li Shufu would buy several Charade cars and disassemble and reassemble them one by one to examine the supporting system of internal parts and components, as well as the features of key components, such as the transmission and chassis. During those days, Geely could not secure any R&D personnel, drawings, or professional molds, and the entire assembly process relied largely upon sheet metal workers’ understanding of technology. The first Haoqing 6360 car was manufactured through “reverse engineering” imitation and seemed like a “twin brother” of the Charade. After China’s entry into the World Trade Organization, the nation’s economic development accelerated, and the upgraded demands of ordinary consumers became a new and critical challenge as well as an opportunity. In its car-manufacturing journey, Geely initially gained comprehensive automobile production capacity through “secondary innovation.” Subsequently, the Meiri model was manufactured. Just as the Haoqing, which was similar to the Charade, the Meiri was modeled after

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the hatchback Fukang. By further exploring and understanding the technology, Geely was able to improve its automobile manufacturing capacity, and it took only nine months to construct the plant, develop the mold, assemble, and complete the Meiri. In 2002, consumer demand for notchback cars was at an all-time high. To meet this increasing demand, Geely further expanded its product line and launched the first three-box Uliou, marking a significant improvement in Geely’s flexibility in controlling automobile production technology. The first three products successfully developed by Geely are known as the “Three Old Models.” During this period, Geely’s R&D system was still scattered and weak. In the development process of the “Three Old Models,” Geely was able to enhance its understanding of core technical principles with the reverse engineering method of “disassembly and reassembly.” Meanwhile, a variety of mature products and technologies (production lines, products, and core components) was introduced, and improvements and innovations were made in the products and processes, which helped in effectively accomplishing the original accumulation of technical capabilities. However, soon after it was clear that with the new requirements of upgraded consumption, Geely’s low-price strategy had become an obstacle to its own development and came under doubt. Concurrently, Geely’s profit margin was greatly reduced owing to the increase in price of its core component suppliers. Hence, Geely’s top management quickly realized that “it’s definitely not feasible to do this, and it’s critical to upgrade the technical level (capability).” Ushering in a New Starting Point Through Prompt and Resolute Decisions In 2007, Li Shufu returned from an overseas visit investigating the automobile business. On his return, he resolutely proposed performing strategic transformation and striving to achieve the critical goal of annual production and sales of two million vehicles. This brave proposal triggered a heated discussion within the group. Some thought it was a blind alley, some considered it a disguised “great leap forward,” and others believed that it could never be realized. However, Li Shufu believed that automobile brands with a scale of less than two million vehicles could not escape the fate of being merged into others, as demonstrated by numerous waves of mergers and acquisitions in the global automobile industry. Even an established international brand, such as Volvo, had been acquired by

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Ford. Therefore, to ensure an independent brand, Geely had to reach the scale and hard power of two million vehicles. In terms of product structure, Geely needed an entire range of models, including but not limited to saloon cars, sport utility vehicles (SUVs), and multipurpose vehicles. In addition, it needed to make a breakthrough from the realm of economical cars to that of luxury cars. To achieve this, mastering the core technology and following the R&D path of forward development became Geely’s new car-manufacturing approach. Li Shufu’s vision was not only the vision of Geely cars covering the world but also the ambition and hope of revitalizing China’s automobile industry. The development of the Geely CK laid the foundation for the strategic transformation of the enterprise. An Conghui, General Manager of Geely Ningbo Branch at the time, was entrusted by Li Shufu to solve the problem of putting in the “Three Old Models.” To unravel this systemic problem, An Conghui led a team to visit and study at the leading automobile engine plants at home and abroad. During this process, they were surprised that they, as managers, could not understand the carmanufacturing methods of advanced companies, such as Hyundai, even though Geely had achieved modest success in China at that time. Consequently, An Conghui became determined to develop the Geely CK, the first original model of Geely. As An Conghui later reported to the media, “The development of the Geely CK has brought three inspirations to Geely. First, it changed Geely’s thinking about car making. High quality is realized not only through manufacturing but also through development and design. Second, in car making, high standards and strict requirements should be followed instead of trying to save money. And third, the core technology must be mastered so as not to be constrained by others.” Introduction of External Talents In 2003, Geely hired Shen Fengxie, the former Vice President of Daewoo, as the Vice President and Technical Consultant of Geely to guide the R&D of the Geely CK. Initially, Geely adopted a set of internationally compatible automobile R&D processes, completely eliminating the original development method of manual drawing. The new R&D processes included the establishment of a sound technical management system, the use of computer virtualization design, and the promotion of a parallel development mode. With this qualitative change in technology, Geely shortly established a modern production line and conducted a large-scale

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transformation of the original production workshop, completely eliminating the dilemma faced in the design and manufacturing of the “Three Old Models.” During this period, Geely incessantly improved its technical capability by internalizing its external technologies. Soon, imitating external technologies stopped sufficing and instead it sought to become independent in the use of such technology. Further, it structured and modularized its existing mature technologies to a certain extent, strengthened its relations with stakeholders in the external technical environment, and increased investments in formal and informal information systems, thereby acquiring more versatile and professional technical knowledge and further promoting the accumulation and improvement of its technological innovation capability. Making Breakthroughs in Core Technology and Breaking Up Monopolies of Developed Countries In 2001, still in its initial stages of development, Geely did not procure any independent intellectual property rights in the field of engines and other core elements of power assemblies; rather, it mainly relied upon imports. Toyota’s 8A engine was the first engine it used. At that time, Geely focused on the whole vehicle as planned and purchased the engines and other core components from other manufacturers. However, Toyota violated the contract unexpectedly and unilaterally by raising the price sharply after commencing the formal production, and consequently, Geely lost RMB 5,000 per car. Even after numerous rounds of intense negotiations, Geely failed to persuade the Japanese general manager to fulfill the contract. The sense of being “seized by the throat” greatly affected An Conghui, who visited Tianjin for negotiations on behalf of Geely. Thereafter, he gave a “military order” to develop an engine with independent intellectual property rights. Immediately after returning to Ningbo, he gathered the technicians involved in experimentation and quality checks to conduct intense R&D. Through several years of efforts, Geely, as a private Chinese automobile enterprise, developed China’s first CVVT engine, JL4G18, with independent intellectual property rights and used it in its featured products, such as the Geely CK and the Yuanjing, breaking up the monopoly of developed countries on the core components of automobiles and creating a new milestone in the history of automobile development in China.

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Dynamic Interaction between Product Innovation and Process Innovation Taking the opportunity of the development and production of the first model of forward design, namely the Geely CK, Geely invested more than RMB one billion in the large-scale technical transformation of the four major processes. In particular, molds developed by a world-class mold supplier were used for the Geely CK to ensure an international first-class quality of stamping parts. Advanced technology and equipment, such as first-class inspection tools and ABB welding manipulators, were adopted to improve the consistency and stability of production. In addition, 28 safety measures were taken, such as load-bearing bodies, integral side walls, anti-collision steel beams, and energy absorption devices in the engine compartment. Through the decisive implementation of its quality strategy, Geely effectively consolidated its position among the top ten in the automobile industry, won time and space for its subsequent development, raised its product price, and formed new market competitiveness. The transformation from its low-price strategy to its strategy of “advanced technology, reliable quality, satisfactory services, and overall leadership” effectively promoted the all-round transformation of Geely’s R&D approach. On May 18, 2007, when the company had strength of more than 100 dealers across the country, Li Shufu released the Ningbo Declaration, which was of great significance in the history of Geely’s development. It announced Geely’s entry into the strategic transformation period and the commencement of a comprehensive reform. In the same year, Geely switched its mission from “making good cars affordable to ordinary people” to “making the safest, most environmental friendly, and energy-saving good cars and making Geely cars travel worldwide.” Furthermore, Geely established the development strategy of “overall follow-up, partially surpassing, key breakthroughs, talent recruitment, vertical and horizontal alliance, and latecomers surpassing the former” and relinquished its low-price strategy with a firm determination. As Li Shufu once said in an interview, “Geely will never fight a price war. Instead, it will fight technical, brand, service, and corporate ethics wars. We firmly believe that whoever occupies the moral high ground will seize the initiative of development.” With enhanced technological development, Geely was no longer limited to using mature technologies. Instead, it was now able to focus

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on emerging and cutting-edge laboratory technologies. Geely absorbed external knowledge through various channels and gradually approached the technical level of leading enterprises. Through the development of the Geely CK, major breakthroughs were made in Geely’s manufacturing technology and R&D processes. Meanwhile, Geely began to possess increased autonomy in the design and production of key components. Once launched, its products were favored by the market. The proportion of the Geely CK was still as high as 17%, even though the “Three Old Models” accounted for more than 60% of Geely’s total shipments in 2005. However, the “Three New Models” soon replaced the “Three Old Models” with the successive launch of the Geely Jingang and Yuanjing. Subsequently, the sales volume of the “Three Old Models” was reduced to less than 5% after 2008. Geely’s senior managers were well aware that this was only the new beginning of Geely’s technological capability development and that Geely’s core competitiveness would see it win in the new round of global competition and strive to achieve leading technology in the increasingly competitive global economic environment. Competence Advancement with a Global Perspective As the largest single market in the world, the Chinese automobile market has a scale and development potential that profoundly affects the trend and industry pattern of the global automobile market. However, even with this advantage, Li Shufu was extremely concerned; although Geely had established itself firmly in China, its understanding of automobiles was not deep enough, and there persisted a clear gap in terms of its capabilities in technology, quality, R&D, production, and other aspects compared with world-famous brands and long-established automobile companies. By this time, Geely had transitioned from the process of catching up to following in terms of technical capability and gradually bridged the technological gap with leading enterprises. Now, the challenge for Geely’s senior managers was how to further break through the development ceiling and form original innovative R&D capability oriented toward “uncharted waters.” After carefully analyzing the international situation, they concluded that changing Geely’s strategic role from being a “follower” to that of a “leader” in the industry was an effective way to break through its development bottleneck.

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Seizing the Opportunity of International M&As Several international M&As provided favorable conditions for Geely to learn and grow, and it seized the great development opportunity of global innovative resource flow.5 In March 2010, Geely Holding Group invested USD 1.8 billion to acquire the entire equity of Volvo, making big news in the global automobile industry. “It’s like a poor boy from the countryside pursuing a world-class star,” said Li Shufu. This acquisition was obviously a milestone for China’s automobile industry as it broke the notion of “market for technology” in traditional joint ventures, creatively established a new relationship between Chinese and foreign automobile enterprises, and ushered in a new era for Geely. Through this acquisition, Geely successfully acquired the global ownership and the right to use the Volvo trademark. Moreover, this acquisition ensured Geely had access to Volvo’s 10 sustainable products, product platforms, and development and upgrading strategies, as well as the brand-new scalable platform architecture, which had entered the preparation stage before mass production. Geely retained Volvo’s technicians and obtained its user data, as well as the sales and service system of 2,325 outlets distributed in more than 100 countries, covering 10,963 patents and proprietary intellectual property rights of engines, vehicle platforms, mold safety technology, and electric technology (as shown in Ford’s accounting statements, the intangible assets amounted to USD 1.6 billion). On March 27, 2009, Geely acquired the entire equity of DSI, the second largest transmission manufacturer in Australia, 40 days after the company declared bankruptcy, including intangible assets, such as its R&D center and intellectual property rights, and tangible assets, such as its equipment and plants. In 2012, the London Taxi Company in Britain entered bankruptcy procedures after a history of 100 years, and Geely successfully acquired its entire equity under the mode of zero cash and debt in its bold overseas bargain hunting strategy. These three successful acquisitions helped Geely to instantly acquire advanced global technical knowledge, laying the foundation for the improvement of its technical capabilities.

5 DU Jian, DING Sasa, WU Xiaobo. A Case Study on Geely’s Cross-border M&As based on Secondary Innovation Theory [J]. Science Research Management, 2019, 40(06): 130–1 43.

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Global Collaborative Network of Technologies and Resources As Li Shufu mentioned several times, “We cannot become bigger and stronger when our core technology is controlled by others.” With successive acquisitions, Geely’s own technical capabilities significantly improved with the advancement of its globalization, especially the integration of international resources. Geely’s international M&As were not simple “deprivals” of the M&A objects. Instead, they dealt with the complex situation faced by enterprises from a global perspective by engaging in the process of cultural exchange with mutual respect and recognition. This helped them realize the integration and sublimation of both sides at a higher level through comprehensive cooperation. In 2013, Geely and Volvo formed a closer strategic resource-sharing relationship and established China Europe Vehicle Technology (CEVT) in Gothenburg, Sweden, one of the top five engineering R&D centers of the Geely Auto Group in the world. With more than 2,000 leading automotive engineers from over 20 countries around the world, CEVT was initially inclined toward making every effort to build a modular architecture and related components of a new generation of midsize cars. It gave full play to the advantages and resources of Geely and Volvo and allowed their technicians to cooperate on the establishment of a brandnew basic modular architecture and core components, meeting the future market demands of both parties through sharing R&D funds and achievements. In this context, Geely’s compact modularization architecture (CMA) was established. The successful R&D of CMA brought Geely’s technical capability to a new level, ensuring that it now possessed worldleading platform design capability. Hitherto, Geely has established five global engineering R&D centers in Frankfurt, Germany; Coventry, the UK; Gothenburg, Sweden; and Hangzhou and Ningbo, China. Further, the company established global modeling design centers in Gothenburg, Sweden; Barcelona, Spain; California, the US; Coventry, the UK; and Shanghai, China. The establishment of Geely’s global R&D cooperation system provided valuable practical experience for Chinese enterprises in going global. If Geely’s development of the first CVVT engine with independent intellectual property rights, the JL4G18, addressed the process of “starting from scratch” in the context of developing China’s automobile power core components, then Geely’s multinational power R&D team

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led by WANG Ruiping promoted a new leap forward in power assemblies “from scratch to strength.” With the iterative upgrading of automotive power industry technology, European manufacturers took the lead in launching “TSL + DCT” direct injection supercharged engines known as the “golden power composition.” With these engines, fuel consumption decreased by more than 10%, whereas performance increased by 15% to 20%, which soon provoked great curiosity and enthusiasm for buying in the market. In 2011, WANG Ruiping joined Geely and issued a “military order” for the team to develop a new engine appropriate for Geely 3.0 products within two years. As an international automobile group, Geely immediately established a rapid response R&D team that comprised more than 100 top R&D experts from 17 countries. Simultaneously, a global top supplier collaboration system was established, with 90% of the engine products from suppliers shared with Volvo and 83% of transmission products from the world’s top suppliers. Based on Volvo’s global development standards and processes, product quality was greatly improved. In 2019, Geely developed an engine with a thermal efficiency of 41%. The homogeneous ultra-lean burn single cylinder engine achieved an indicated thermal efficiency of 49.5%, reaching the global leading level. WANG Ruiping once said in an interview, “Technical competitiveness is the most important thing for us as a car enterprise. To control a 0.01 mm gap, research was performed on more than 30 processes one by one, and finally the tolerance was reduced to 1/10 of the original, thus solving the noise problem. So, the central role is not born but achieved through efforts.” “Manufacturing High-Quality Cars for Everyone” The third transformation of Geely was undertaken in response to the high uncertainty of technological development and changes in consumer demands. Technology development is still highly uncertain, given the rapid development of science and technology. Making efforts to follow the footsteps of cutting-edge technology before the emergence of leading design is an important factor for the sustainability and healthy development of enterprises. Mastery of the development trends of the industry and changes in consumer demands became one of the challenges faced by the top management of Geely owing to the iterative upgrading of technology and consumers’ persistent pursuit of high quality.

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In 2014, as user demands and the consumption pattern saw a significant change in an overall manner, China’s automobile market entered a brand-new stage of development, and the generation of the 1990s gradually became the main force of automobile consumption. Accordingly, Geely made active strategic adjustments in response to such changes in the market environment. At that time, Geely was in a difficult phase of development, with numerous brand acquisitions but no bright new products. Therefore, Geely proposed a third strategic transformation and released the brand mission of “making high-quality cars for everyone” to cope with the changes in consumer demands. At this time, the automobile industry was in a phase of technological paradigm shift from traditional fuel vehicles to new energy-powered vehicles. Facing the opportunities brought by the changes in leading designs, Geely actively conducted the strategic layout and technical reserve of new energy. In particular, its new energy strategy was released, and the “Blue Geely Action” plan was put forward in 2015. Subsequently, the four new energy technical paths of “Intelligent Power” were released in 2018. Geely has gathered more than 3,000 “super brains” in the field of new energy technology and engineering R&D from around the world, invested more than RMB 30 billion in new energy R&D, and acquired hundreds of core technologies. By building such infrastructure, Geely also provides 100% independently developed Chinese new energy technology systems and solutions, marking the initial achievement of “partially surpassing.” Duality of R&D Strategy After decades of research on Chinese enterprises, the authors found that enterprises had to face opposing factors, such as “utilization and exploration,” “external and internal,” and “localization and globalization” in the process of technological catch-up. Therefore, it was crucial for enterprises to build a dual management system to realize their strategic objectives. There was no exception for Geely, an independent brand leader in China’s automobile industry. The Geely Automobile Research Institute set up the Cutting-Edge Technology Development Department internally to observe global cutting-edge technology trends and focus on the development of disruptive innovation technologies. To take the initiative in the technological paradigm shift, the institute categorized technologies into three: first, mature technology, which could be

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applied in the next 3–5 years; second, advanced technology with a clear direction, which could be put on the market in the next 5–8 years; and third, laboratory technology with an obvious development trend, which would become mainstream in the next 8–10 years. These three types of technologies were controlled efficiently by establishing a “dual” R&D management model that strove for a balance between “frontier exploration” and “steady progress.” Geely constantly upgraded its core capabilities while continuously accumulating technical capabilities. The two together helped push the enterprise’s leap forward in technological innovation from “secondary innovation” to “original innovation.” Along with efficiently learning about external technologies and knowledge, Geely built a community of interests, integrated external technologies, and constantly improved the depth, breadth, and speed of its technology introduction, thereby steeping into “original innovation.”

From Disorder to Order: Iteration of R&D Management It is vital for enterprises to manage organizational changes well to maintain the competitive advantages of their business systems in the extremely volatile business environment. Looking at Geely’s three major R&D organizational changes (see Fig. 5.3), the authors believe that every change was highly consistent with Geely’s key elements, such as its market positioning, group strategy, and product attributes. In the initial stages of development, when resources, such as talents, technology, and capital, were scarce, Geely’s R&D organizations were like “guerrillas” scattered across different manufacturing bases. With the increased R&D scale, it became necessary for Geely to develop systematic R&D organizations and management methods to solve problems, such as low development efficiency. R&D organization modes, such as the full matrix system and strong project system, emerged at the right time. As Geely gradually became a strong industry leader, it began to actively upgrade its R&D system and consciously learn from its excellent peer, Volvo. To maintain global competitiveness, Geely started to integrate its global resources, build a new product development system for the full service chain, and make the system a bridge for the enterprise to transform its business strategies into competitive products.

2006—2012

Second-generation products Matrix development mode Sales volume: 500,000 vehicles

2013—2017

Third-generation products Development mode of major project groups Sales volume: 1.5 million vehicles

Fig. 5.3 Geely’s three major R&D organizational changes

1997—2005

First-generation products Informal R&D organizations

2018 to present

Future products Full service chain NPDS Sales volume: over 2 million vehicles

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“Guerrillas” Upgraded to “Regular Army” “Making good cars” has always been the intention of Li Shufu since 1997 when he first started manufacturing cars. However, the early twenty-first century saw a significant gap between Chinese automobile enterprises and those of developed countries. These gaps were characterized by underdeveloped technology, processes, and means of new product development, which rendered Chinese automobile enterprises incapable of conducting independent development. This situation seriously affected the development and manufacturing cycle and the quality of new products. Additionally, it hindered the long-term forward development of Chinese enterprises. However, customers’ perception of the cars gradually changed with the rapid development of China’s economy. Concurrently, the lack of a professional R&D organization mode produced a series of challenges, including. Poor Connection Between Product Development and Technology R&D Before 2006, Geely did not have any written R&D plan or technical management system at the enterprise level. It did not have a formal technical management system either. The Geely Group Research Institute was established in 2003; however, it did not play a substantial role in formulating a solid R&D plan. Geely’s R&D forces were scattered across the R&D organizations in various manufacturing bases, making overall coordination difficult. Consequently, the technical and resource preparations of new product development projects were not formally evaluated by the headquarters, leading to potential technical difficulties after projects’ launch. Moreover, the technology development cycle was relatively long and unpredictable, whereas the product development cycle depended on the duration of the technical hurdles to be resolved. To overcome such technical difficulties in the quickest way possible, it was often necessary to outsource R&D or invite a “firefighting hero.” There was a certain gap between technology R&D and product development, resulting in the emergence of several new problems during the actual operation of products. In addition, the high failure rate was one of the reasons for Geely’s decline in customer reputation at this stage.

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Unmatched R&D Talents and Technical Demands At the end of 2006, the Geely Automobile Research Institute in Linhai had approximately only 300 members, which was a far cry from the R&D teams of leading international automobile companies that had a large number of members. Further, the institute was relatively weak compared with the R&D teams of other Chinese self-owned brands. In addition, no complete mathematical models of parts and components or nonuniform standards were available for the products that Geely produced then, including the King Kong, the Yuanjing, and the Geely CK. Thus, Geely’s technology development was affected to a certain extent owing to the limited technical capability of its R&D personnel. Lack of a Standard Process for Product Development In the early stages of product development, no standard procedures were available for product development and decision-making. At that time, the R&D department was still working in an explorative manner. Product development and decision-making depended more on the personal competence of the product manager, and the priority of projects depended on the personal status of their promoters. No scientific decision-making methods were adopted. This resulted in at least two problems: first, the product mix and product lines were not coordinated or planned at the group level; and second, the project decision-making method was not sufficiently scientific, which increased the probability of product development failure. Overall, the shortcomings of the informal R&D organizations were gradually exposed with the expansion of the enterprise and its product development scale. During this time, Li Shufu and other senior managers of Geely became keenly aware of the emerging risks. It was extremely dangerous to further expand the enterprise’s scale without reforming the R&D system, and it became an urgent necessity to establish a formal R&D system. Therefore, Li Shufu and Geely’s top management team started hunting for “talents” who could take on this important task. Soon, ZHAO Fuquan, who was renowned in the automobile industry, entered Li Shufu’s field of vision. Having studied at several world-class universities in Japan, Britain, and the United States, ZHAO Fuquan joined the Chrysler Corporation as a Product Engineer in April 1997 and later served as the Research Director of its technology center. In

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April 2004, after returning to China, he became the Vice President of Brilliance Auto and presided over the development of a number of influential models. After repeated in-depth discussions with Geely’s top management, such as Li Shufu, YANG Jian, and ZHANG Aiqun, ZHAO Fuquan was moved by Li Shufu’s obsession with the automobile industry and his dream of making China’s independent automobile brands go global. Therefore, in October 2006, he officially joined Geely as the Vice President in charge of R&D. ZHAO Fuquan brought about significant changes to Geely’s R&D system in the following main aspects. First, the integration of the scattered R&D teams. The R&D forces of Geely were scattered across the Linhai Research Institute, the Huapu Research Institute, and the company’s various manufacturing bases. No common technical language or drawing notation was formed before the integration. Thus, the parts and components could not be used interchangeably owing to the inconsistency of the drawings. To address this issue, ZHAO Fuquan fully implemented a grand technology system integration strategy with the support of Li Shufu, YANG Jian, and others. Thereafter, merging the Huapu Research Institute and the Ningbo Project Team into the Linhai Research Institute signaled the successful integration of the R&D institutes. Second, the establishment of uniform management and technical standards. ZHAO Fuquan vigorously promoted a comprehensive standardized management. After joining Geely, he arranged for the compilation of various standards and specifications, including detailed regulations on parking areas, smoking rooms, house numbers, and door cards. Regarding business, he organized personnel to conduct drawing rectification and required all drawings of the products being produced, including the King Kong, the Yuanjing, and the Geely CK, to be converted into a unified format and supplemented with all 2D and 3D drawings. In addition, he organized personnel to compile the first edition of the R&D Project Management Measures of the Geely Group, which made detailed provisions in many aspects, such as project initialization, review, approval, and process control. Established with great efforts, these management and technical standards laid a solid foundation for the quality improvement, upgrading, and development of Geely’s subsequent products. Third, the establishment of a full matrix R&D system. Organization and system construction never stopped since the day ZAHO Fuquan joined Geely. He took the lead in establishing the “assembly line” R&D mode under the basic approach of dividing the R&D process into several

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work procedures that were equal or multiplied in time and making the working objects (vehicle R&D) flow through each station for processing (design) in sequence at a specific speed, thereby forming a task flow that allowed everyone in each department to work continuously. Another one of ZHAO Fuquan’s methods was the platformization strategy based on generalization, standardization, modularization, and fewer parts. He shared that he borrowed the platformization ideas of Volkswagen and Toyota, respectively. Based on this strategy, he divided the platform into the technology platform and product platform and introduced the new concept of two-tier platformization. For instance, all core parts and components, such as engines, could be in common use in two vehicles on the same technology platform. The chassis of cars on the same product platform could be used interchangeably under the same wheelbase and track. Generally, the full matrix R&D organization mode enabled Geely to complete more project development at the same time with limited resources. Fourth, the establishment of four talent development channels. Geely was relatively weak in its talent base and scale. Its R&D forces were dominated by graduates and junior college students who were trained in their own schools. Limited by its weak brand influence and the location conditions of Linhai, the company found it difficult to attract highend talents. To arouse the enthusiasm of employees, the Geely Research Institute established four career development channels: the management channel, project channel, technology channel, and skills channel. The management channel involved common administrative posts, whereas the technology channel involved posts in the design institute up to chief engineer, which was designed for employees who were interested in the study of technology. The innovations of the Geely Research Institute were the project channel and skills channel. The former included posts from project manager to project director, whereas the latter comprised posts from junior technician to senior technician. These four talent development channels undeniably played a decisive role in Geely’s team stability. In addition, Geely’s technical assessment system was improved considerably. The whole R&D organization system was substantially well established, becoming an essential part of Geely’s growth into a world-class enterprise and providing a good start for the iterative upgrading of the R&D system in the future. In these ways, Geely’s R&D speed and quality made a qualitative leap forward.

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Strong Project System With the upgrading of vehicle development requirements and the continuous expansion of the product system, the workload and efficiency of the original organization system became a new obstacle, exposing the following problems on the product and the market side: First, the high delay rate. The on-time delivery rate of R&D was seriously inconsistent with expectations owing to various restraints, such as the limited technical expertise and concepts of the R&D personnel. At that time, the increasing demand for SUVs was apparent in the market and the products of other Chinese car enterprises opened up the market quickly, but Geely’s products could not be made available for purchase owing to their quality problems. This resulted in greater product development and brand pressures on Geely. Second, the homogenization of products is derived from platformization and generalization. As the R&D of different projects was in charge of the same centralized unit, it was inevitable for the development system to meet all demands with the minimum resources available, which led to the assimilation of products. Mercedes-Benz, BMW, Volkswagen, and other international brands had high brand recognition, and matrix development greatly improved efficiency. However, Geely was in dire need of “hot” products to establish new competitive advantages in the market. Meanwhile, with the improvement of consumers’ cognition, R&D tasks with high standards, intensity, and requirements posed greater challenges for the R&D system. In 2012, An Conghui proposed that the R&D personnel should possess market awareness and practice the R&D concept of “originating from the market and serving the market.” Additionally, he proposed that they adhere to the idea that “the team of engineers should keep up with the market rather than building cars blindly.” In 2013, FENG Qingfeng became the new head (CTO) of the Geely Research Institute, and “strong project system drive” became the new R&D mode of Geely 3.0 products. The “strong project system” referred to the development of a series of products, with the project team as the core. The project team comprised units, such as R&D, strategy, sales, procurement, finance, manufacturing, quality, mechanical equipment (ME), and others (see Fig. 5.4). In principle, the R&D unit, as the project leader unit, was responsible for the entire product life cycle, particularly product development, verification,

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and production support. Moreover, it undertook technical responsibilities, such as modification, replacement, upgrading, and market feedback, in the product life cycle. The Project Team Leader was at a position equivalent to that of the Vice President of the Research Institute. The project team had the right to mobilize the various internal and external resources of the Group to lead the initialization, development, and completion of projects. It made specific decisions on the development content, methods, and division of labor of projects according to the strategic plan of the Group. Furthermore, the project team was responsible for the final result. The implementation of the strong project system further improved Geely’s overall R&D capability and multi-department collaboration capability, specifically as follows: (1) Strategic planning: Defining products based on market demand and realizing accurate product positioning. (2) Product R&D: Establishing the forward development system of core technologies based on the benchmarking mode. (3) Test and verification: Forming Geely’s test specifications by benchmarking against and learning from leading enterprises. (4) Process planning: Making process route planning in close connection with product demand. (5) Manufacturing base: Introducing the concept of the production team and realizing seamless connection with the product development team in the entire cycle. (6) Sales promotion: Paying attention to experiential marketing and content marketing and establishing a complete marketing system Project team leader Project management team Production team

Legal affairs

Finance

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Quality

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Strategic market

Fig. 5.4 Organization of project team

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of “effect map preparation—dynamic video disclosure—naming by staff—national test drive—pre-sale and marketing of products.” (7) Service guarantee: Setting up VIP experience rooms and establishing the service-oriented guarantee concept. Inter-departmental R&D teams were set up under the strong project system. Before the reform of the strong project system, different departments took charge of and managed various stages of product development, which could result in the repetition of work. For instance, if the Manufacturing Department identified defects in product design while manufacturing products, the R&D Department may be required to redesign them. In this case, they had to go through the intermediate process again. In the reformed system, the serial processes were made parallel, and each department of the project team needed to designate representatives to participate in the entire product development cycle. Thus, the R&D efficiency and quality of products could be guaranteed more effectively. Another significant impact of the strong project system on Geely was the transformation of its internal evaluation system. It established an evaluation system based on market performance of the products. Geely adhered to the concept of “business entity” in its project team management and considered R&D an investment rather than simple expenditure. Accordingly, the performance of project team members was evaluated based on the market benefits of products. Unlike the traditional evaluation system, staff evaluation by the project team was based not only on the performance at a single stage but also on the final market performance of the products developed with their efforts. This meant that everyone was responsible for the final benefits of the products of the project team, which effectively increased the work enthusiasm of employees in different departments. The R&D organization of the strong project system achieved good practical results in Geely. With further upgrading of the volume, the enterprise steered in a new direction. Full Service Chain NPDS Managers at Geely usually believe that the establishment of the New Product Development System (NPDS) is one of the biggest milestones in Geely’s R&D history. The NPDS (see Fig. 5.5), known as “the bridge

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to transform the enterprise’s business strategy into competitive products,” built a framework for new vehicle development based on consumer expectations. The NPDS helped integrate the automobile business within the Group by unifying the Group’s product strategy and sharing market information, product platforms, and production lines, enabling the enterprise to realize its long-term business strategy. The NPDS covered the fields of prospective engineering, architecture development, vehicle development, power assembly development, and new energy development. By describing the process, deliverables, templates, methods, and tools, the NPDS promoted the design and development of safer, more reliable, and more popular products. Moreover, it ensured the delivery of satisfactory products in the shortest time with minimum resources. Establishment of NPDS Occupying a leading position in the world, the Volvo Product Development System (VPDS) is a complete and mature system that has been tested historically. After successfully acquiring Volvo, Geely gradually realized that its own R&D system lacked universality, which made it difficult for the company to have a detailed interaction with other companies in the same industry around the world. For many enterprises facing similar difficulties, imitating the management modes of successful enterprises seems a direct and efficient way. However, in reality, very few companies actually succeed through imitation. As such, CEVT established a bilateral team, giving R&D engineers a dual identity and inputting the ideas and methods of the NPDS to them, while giving reverse input to the NPDS during deliverable output. Thus, a product development system that had Geely’s characteristics and met Geely’s needs gradually formed on the basis of the VPDS. Both similarities and differences exist between the NPDS and VPDS. In particular, they have a common development logic (including the levels of business, function, project, and business process,) and share product structure and development tools. The difference, however, is that the architecture development of the NPDS coincides with the vehicle model, thus shortening the duration of the architectural project. Geely and Volvo differ in their organizational structures and forms of interaction with their manufacturing and purchasing departments. However, their logic and language are consistent, which is highly suitable for different environments and groups.

1.Modeling 2.Engineering concept and detail design 3.Virtual evaluation 4.Trial production of prototype vehicles 5.Verification 6.Validation 7.Authentication 8.Engineering quality

Modeling and engineering Supply chain

Marketing, sales and after-sales service

1.Market strategy 1.Manufacturing 2.Sales process 3.After-sales service 2.Engineering layout 3.Talent demand 4.Product feasibility 5.Manufacturing quality

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Accurate product strategy Manufacturable and competitive appearance Excellent performance Optimal cost Efficient production

1.Supplier selection 1.Business plan and procurement 2.Economic 2.Supply chain quality efficiency of projects and EBIT management 3.Production approval 3.Project finance procedure 4.Cost control 4.Supplier intervention

Finance

Fig. 5.5 Cross-functional System of NPDS-related departments

1.Investment planning 2.Technical planning 3.Power assembly planning 4.Strategic planning 5.Product definition

Planning

1.Digitalization 2.Informatization 3.Industry trends 4.Business sharing 5.Value chain development

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As an advanced product development system in the industry, NPDS follows the following core principles: (1) Doing the right thing at the right time; (2) Synchronous development of all workflows; (3) Continuous improvement in vehicle project application; (4) Always focusing on customer needs; (5) Adopting the forward development mode of identifying and solving problems in advance; (6) Compatibility is better than completeness. The NPDS has a three-level pyramid structure, reflecting a development process that deepens level by level. It includes more than 2,000 processes, methods, and tools; 51 nodes at the functional level; and 18 milestones at the business level. The development process is divided into four stages, each of which provides the necessary output for the next stage (see Fig. 5.6) to ensure delivery of materials at key nodes of the project (see Fig. 5.7). The NPDS is of great significance to Geely. It helped reconstruct the enterprise’s product development system, break through bottlenecks in the development process, and solve the problem of low R&D efficiency. By establishing an inter-departmental team and introducing a set of scientific workflows, Geely greatly reduced its product development costs, shortened its product development cycle, and improved the quality of its product development. The NPDS helped Geely to organically combine technical development with product development and find a reasonable balance between customer demands and R&D efficiency. Further, Geely fully solved the problem of low efficiency in the development process by studying and introducing a set of R&D management methods from western companies. Undoubtedly, Geely would hardly be able to meet future challenges without the NPDS.

Non-linear Growth: “Creative Destruction” This chapter focuses on the technological innovation and R&D system management of Geely. In addition, it analyzes the internal reasons for the improvement of its technical capability and the reasons for and results of the multiple iterations of the R&D system. The standard core

Completion of manufacturing activities before mass production Filing of product documents

Filing of product documents

Fig. 5.6 Four stages of NPDS

Final project status Report completion

Completion of sales preparation

Ensuring geometric compatibility Completion of sourcing process

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System selection

Completion of definition of product mix

Functions of product mix

Completion of quality assurance activities

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Combination of contour and interior models

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Final data review Project strategy Project strategy intentions completion

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Production Mass production Final status approval report preparation

Fig. 5.7 NPDS milestones and key deliverables

competitiveness of an organization is likely to become outdated in an ever-evolving environment. Such core competencies, which are improved upon and developed over several years, may become “core rigidities” and obstacles to organizational competition and success. In such a scenario, “unlearning,” which refers to the intentional practices adopted by organizations to overcome their dependence on outdated knowledge, processes, and practices, becomes an important tactic, especially for the secondary innovation of late-developing enterprises. Organizations must question and change the cognition and practices developed in their previous practice to encourage acquisition of new knowledge or technology more effectively and develop more competitive new products. This will help avoid falling into the “capability trap” and realizing effective catch-up. Generally speaking, the “unlearning” process in Geely’s R&D system was also its own transformation process. Geely achieved non-linear growth in repeated creative reorganizations. Throughout the changes in the R&D system, each of the changes has been highly consistent with Geely’s market position and strategic positioning. During its initial days, Geely built cars using the reverse engineering method and quickly entered the market with a “low-price strategy.” The initial intention of “making good cars” has always been Geely’s R&D direction. Through several rounds of transformation, the enterprise gradually accumulated mature technological innovation capabilities and advanced technology reserves. Finally, it realized the effective

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capture, rapid allocation, and efficient cooperation of global innovation resources, steadily forming the original technical innovation capability required to face “uncharted waters” in the subsequent wave of globalization. With the commercial progress achieved by Geely, the industrial chain changed from a linear flow of “R&D to new products” to a non-linear system of matching technology with market opportunities. For enterprises and countries, their current viability is determined by their accumulation and application of basic technologies, their current core competitiveness is determined by their mastery of core technologies, and their future competitiveness is determined by their capacity to judge, develop, and apply industry-leading technologies. Geely always adheres to the path of “laying the foundation and accumulating internal strength,” and this stable strategy has provided it with a solid foundation. The world’s top teams working for Geely have collaborated to overcome one technical difficulty after another, enabling the company to play the role of a technology leader in an increasing number of fields. The duality of the R&D system allowed Geely to “look forth and back” with “three eyes” and enabled it to handle the complicated technological development situation and avoid being hit by non-linearity in the chaotic period of a technological paradigm shift. It is noteworthy that Geely has dared to face the music and has constantly challenged the existing system and developed a new balance to adapt to the ever-evolving external environment. This, in turn, has provided numerous emerging enterprises with an experience worthy of reference. The core issue of organizational change in R&D has transitioned from organizational structural change to process change. This is particularly embodied in the transformation of the R&D management system from a functional system to a more complex matrix system and finally to a process-oriented system. This fundamentally ensured the simultaneous consideration of both efficiency and flexibility in the process of scale expansion by enterprises, allowing development of products that are satisfactory to users. In the future, Geely plans to further improve the association between R&D and marketing on the basis of the NPDS so that the Marketing Department and R&D Department can work in parallel and user demands can be defined at a deeper level.

CHAPTER 6

“The Cycle of Transformation” in Site Management

Li Shufu once said, “Discovering problems is a good thing, solving problems is a major achievement, avoiding problems is utter absurdity, and the absence of problems is a problem in and of itself.” A series of practices derived from problem-solving culture has become an essential part of Geely’s Lean Manufacturing concept. The production management system of an automotive company is the system that guarantees the core elements of manufacturing, including production efficiency, product quality, and supply chains. Hence the optimization of the production management system is central to achieving sustainable development. As competition intensifies with global integration, corporations are under pressure to respond to rapidly changing markets and demand for customization with lower costs, higher quality, and shorter delivery times. The real issue revolves around how to be competitive in terms of quality, cost, and delivery time to establish a foothold in the market. For automotive manufacturers, better products, higher quality, lower cost, and faster turnaround times are inextricably linked with their production site, which is the key location where profit is generated, the place where industrial data originates, and the locus of problem generation. So it is reasonable to conclude that site management is critical to the survival and growth of a business. Site improvement is the

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intensification of site management, a dynamic process of rational allocation and optimized grouping of the six elements of onsite management (5M1E1 ) using scientific management ideas, techniques, and methods. Geely’s overall site management has a bottom-up underlying logic and a top-down overarching design. Geely stresses all personal involvement in the innovation process and launches various improvements.2 Since 2005, Geely has implemented programs such as Problem-Solving Ticket and Employee Innovation Plan to incentivize the staff to innovate. In 2008, Geely carried out sweeping reform and exhaustive innovation to the existing suggestion system, creating a “three-way” model that integrates employee proposal, employee suggestion, and problem-solving ticket processes. In 2011, Geely launched the G.G.Q-3.5.3 quality innovation project, dedicated to succeeding in its next round of Geely product quality initiatives. In 2015, Geely introduced the Weekly Managers’ Improvement model, in which managers led by example and participated in the improvements. In 2017 Geely proposed the concept of Global Quality Innovation (GQI) under the philosophy of “Benchmarking in management, quality in operations” to boost its quality programs to a world-class level. In 2018, Geely established the GPS Promotion Office, dedicated to further refining the Geely Production System (GPS) and establishing a top-down innovation system. The organizational vitality generated by the employee innovation has been quite economically viable for Geely. In 2018, Geely Auto Group’s subordinated units received more than 666,900 employee proposals, netting CN¥445 million in profits. In return, more than CN¥10 million was paid out in the form of employee rewards. More than 42,500 employee problem-solving tickets were processed during the same period, with a 100% closure rate. Geely’s continuous organizational innovation has led to a robust growth trajectory, a vastly increased domestic market share (see Fig. 6.1), and a prime position in China’s domestic car market. How did Geely create a closed-loop innovation of site management despite lacking the requisite experience? This chapter reveals the dynamic evolution process of Geely’s site management, starting from the dual bottom-up and top-down innovation management logic. In a

1 Man, Machine, Material, Method, Measurement, Environment. 2 Xu Qingrui, Wang Haiwei. Exploring the Theoretical Source of Full Staff Innovation

[J]. Scientific Research, 2006 (3): 466–469.

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Market Share (%)

8.00 6.20% 6.00 4.00

5.06% 3.31%

2.00 0 2016

2017

2018

Fig. 6.1 Geely Auto’s domestic market share, 2016–2018

sense, the relentless pursuit of innovation has enabled Geely to flourish in the ultra-competitive, high-tech, and volatile milieu of modern car manufacturing.

Bottom-up Innovation: No Problem is the Big Problem In recent years, the subject of how to elicit employee proactivity has garnered extensive attention from academia and business alike. The modern theory of employee innovation suggests that all members of staff in an organization, regardless of their positions, have the right and obligation to innovate while on the job, so that innovation becomes an essential part of the job description of every member of the organization, while should ultimately enable the organization to provide more effective services to customers.3 Geely’s management practices show that innovative activities are not monopolized by R&D and technical staff, but rather spread out to all employees. Meaning that, everyone can be an outstanding innovator, from the lower echelons to the top brass. The participation of all employees in innovating is not just an accidental occurrence, but rather a regular activity formed with the support of the innovations from the company’s culture, organizational structure, and workflows. The 3 Xu Qingrui, Wang Haiwei. Exploring the Theoretical Source of Full Staff Innovation [J]. Scientific Research, 2006 (3): 466–469.

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company has to create effective innovation methods and suitable innovation mechanisms to guarantee the totality, continuity, and profitability of employee innovation, thus constituting the innovation flow of the organization. We have observed that Geely has implemented a series of effective site management systems, embedding open innovation within the job description of every employee and creating a trend of bottom-up innovation within the organization. Innovation Planning from Brainstorming to Implementation In May 2007, after the release of the Ningbo Manifesto, Geely announced that it had entered a period of strategic transformation to complete the shift from a low-cost strategy to a high-tech, high-quality, high-efficiency, and internationalization strategy over the next three to five years. Geely has held tight to its new corporate vision: “To bring Geely to the four corners of the world” and this has enabled Geely to move steadily toward that goal in a market full of uncertainties. But Geely’s top management team knows that there is an urgent need to harness employee wisdom, enthusiasm, and engagement in company operations as the springboard for this transformation. The Meta-dynamic Project—A Guiding Ideology To address the question of how to elicit the power of organizational innovation and incentivize employees to become actively engaged in management, Geely has proposed a Meta-dynamic Project, which has since been reputed as “the genesis of Geely’s management philosophy.” Employees are the basic constituents—the cells—that make up a company, and the vitality of the company depends on the dynamism of each cell. To organize employee energy into a unified force, arouse their enthusiasm, develop their initiative, bring out their creativity, and transform their ideas into a dynamic force that drives the company forward. In 2007, Li Shufu implemented the Proto-dynamic Project,4 which has gone on to become a unique management model and cultural phenomenon of Geely. Accordingly, Li Shufu states in the article, “Meta-dynamic”— the Lifeblood of the Firm’s Survival and Development, 4 It was named “Power Source” when it was introduced in 2007, and was renamed “Meta-Dynamic” in 2009.

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Without employee diligence and the company’s unity, it would be impossible to develop a fighting force. So, I believe the employees are the company’s true owner and the nucleus of the fighting force. Regardless of whether it’s staff on the front-line of production, R&D, PR, HR, finance, security, or service, no matter whether it’s the average worker or key staff, the energy of all employees as a collective unit is what breathes life into a company. Compromising the employees’ energy is compromising the firm’s vitality. What is Meta-dynamic? Meta-dynamic is an inherent and sustained spiritual force that inspires all members of an organization to work proactively and creatively to achieve common goals shared by the organization and its staff. Under the guidance of the Meta-dynamic Project, Geely has launched a series of initiatives, for instance, the Employee Innovation Plan, etc., which has not only become a platform for employee innovative learning, but also allows the employees to fast track their careers, fully instilling the drive to participate in management, improve workmanship, boost product quality, and increase production efficiency. Employee Innovation System Geely takes the tremendous role of employee innovation capability and the intra-firm innovation atmosphere very seriously. And that is why the company performs Employee Innovation Plan activities based on the Meta-dynamic Project. A famous quote from Li Shufu circulating within Geely: “Do big things with little money, and sometimes even do things with no money.” With this in mind, Geely has established an Employee Innovation System that delineates the way in which innovation activities are performed, along with boosting work efficiency and product quality, cutting operating costs, and creating better working environment through continuous improvement, all the while developing employees’ abilities with an eye toward their self-actualization. The Employee Innovation Plan is Geely’s incentive set up to guide and encourage employees to create innovative solutions, improvement, inventions, and creations that are conducive to the company’s operation and growth, thereby enhancing corporate competitiveness and promoting company’s sustainable development. As early as 2007, Zhejiang Geely Automobile Co., Ltd, a first-tier manufacturing subsidiary of the Geely Group, pioneered the Employee Innovation Plan campaign through the following:

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1. The introduction of the concept with promotion and training 2. The development of the system and standardization of its management 3. The establishment of the organization with clear responsibilities 4. The clear delineation of objectives and encouragement of internal competition 5. Learning, exchanging, and synthesizing experiences 6. Rewarding the best as an incentive for employees to innovate It is worth mentioning that Geely’s Employee Innovation System was implemented with three core elements at the forefront: firstly, rewards are systematized rather than arbitrary; secondly, employees are required to be self-starters, to initiate and implement improvements on their own; and thirdly, employee-centered full staff participation. In the implementation process, Geely optimizes employee proposal management, improves the management informatization, truly making proposals “From the front lines implemented on the front lines,” thus realizing Geely’s objectives of “Improving quality, reducing costs, fighting waste, and increasing profit.” The Innovation Proposal Process As a powerful instrument of Geely Meta-dynamic Project, the Employee Innovation Plan encourages employees to contribute their best ideas. Geely has a standardized process for managing Innovation Plans to ensure they are fully implementable. In the course of daily routines, if employees find areas for improvement (i.e., problems in the production process or product that can be fixed to make production better, faster, cheaper, or more conveniently), they can explore methods based on their professional expertise, suggest improvement proposals and implementation plans, and after practical verification, record the results in a proposal form and submit it to the company for evaluation and recognition. The company finally selects the proposals that deserve to be disseminated, then standardizes the methods and extends the range of the innovation’s applicability for the betterment of all involved. On the other hand, Geely has a complete set of evaluation criteria for the quality of the proposals, which are divided into nine levels according to the proposal content. And as a result, employees are given from 1 to 120 points which will be used as a reference standard for their assessment, training, and promotions, along with bonuses ranging from

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Table 6.1 Classification system of innovation proposals Level

Score

Points

Assessment method

Premium Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level 8

≥ 76 66 56 46 36 26 21 16

120 80 50 30 20 10 5 2 1

GPS Professional Modules

86 ~ 85 ~ 75 ~ 65 ~ 55 ~ 45 ~ 35 ~ 25 ~ 20

Factory/Department Manager Section Chief Line/Team Leader Line/Team Leader

tens to thousands of Yuan. For the Premium proposal, Geely will give additional commendation such as a naming plaque, etc., to extend the influence of the proposal. The establishment of the management process has made Geely’s employee proposals increasingly professional, regulated, and standardized (Table 6.1). Limitations of the Employee Innovation Proposal System While the Employee Innovation Proposal System brings out the collective wisdom of the staff, certain limitations of the system have emerged. Since the system has been in operation, the overall quality of proposals has been low for a variety of reasons, for instance, the lack of innovation ability. Statistics show that high-quality submissions account for less than 1% of the total number of proposals, so there is room for improvement in that area. In addition, the senior managers’ low level of engagement, management’s reluctance to be at the forefront of spearheading and guiding innovation is one of the limitations of employee innovation proposals. Problem-Solving Tickets—A Sense of Ownership The continuous and effective advancement of the Meta-dynamic Project was aimed at actively preventing problems from occurring, and getting employees courageously and happily involved in company management. To this end, Geely proposed the concept of “Managers serving employees, and departments serving the front line,” and the Problem-Solving Ticket system was implemented to this end.

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An Important Vehicle for the Problem-Solving Culture There are four primary company cultures within Geely, one of which is its problem-solving culture, of which the Problem-Solving Ticket System is an important representation. The Employee Innovation Plan is a system to encourage innovative activities, where employees identify areas for improvement, and design and perform improvement plans from brainstorming to implementation based on their professional expertise acquired through their work experience. In contrast, the Problem-Solving Ticket has no limitation of position or post. Any issues found by employees in the course of their work that they cannot solve on their own can be escalated to the status of a Problem-Solving Ticket. Consequently, related departments and staff who receive the tickets must solve the problem within a specified period. Ultimately, the final solution will be checked and evaluated by the person who identified the problem. This not only achieves the goal of discovering problems quickly, exposing them immediately, and solving them completely, but also extinguishes the unhealthy phenomenon of distrust and prevarication between functional departments and frontline production units, so that harmony could be achieved within the company and the team could collaborate and overcome difficulties together. The Design of Problem-Solving Ticket System Geely’s executives know that only through a deep understanding of their problems can they find a direction for progress and development. As a result, Geely has established a comprehensive problem-solving system complemented by stringent management processes. Employee questions must be addressed within a set time frame. It is Geely’s basic requirement for the Problem-Solving Ticket that the issues pointed out by frontline employees must be completely resolved. An organized management process is a guarantee of an efficient implementation of the system. Geely’s management process of Problem-Solving Tickets consists of seven steps (see Fig. 6.2). Step One, the employee points out a problem with a Problem-Solving Ticket filled out correctly. Step Two, the department administrator collects and records the ticket, identifies which department is responsible for the problem and sends the ticket to the administrator of the department handling the issue. Step Three, the administrator of the pertinent department is obligated

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to record the ticket and notify the accountable individual. Step Four, the responsible individual gets in touch with the problem-ticket originator to solve the problem. Step Five, the employee who filed the ticket checks the solution and confirms the results with his signature. Step Six, the ticket is returned to the administrator of the proposing department to keep records. Step Seven, the problem-ticket is announced publicly. Problem Submitter

Responsible Department/ Person

PST Administrator

Supervisor

Open Fill in the PST following the instuction and place it in the appropriate place on the Problem-Solving Managemenet Board

Collect, summarize, and log PSTs Identify the responsible department

Determine the responsible person

N

Y Send the PST to responsible department administrator

N Confirm the results Y

The responsible department director confirms deadline for problem-solving and responsible person Solve the problem

The responsible department administrator writes up the log and returns the PST to the presenting department administrator

Return the PST to the adminitrator of the responsible department

The presenting department administrator writes up the log and makes the ticket public. Files the thicket after the public announcement. Close

Fig. 6.2 Problem-solving ticket management process

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Geely uses a variety of approaches to further identify and analyze the problem-tickets collected to maximize the solution. From the beginning of the implementation of the Problem-Solving Ticket System, Geely has taken various measures to ensure that the system is implemented. For instance, regular seminars on the problem-solving culture are held, Problem-Solving Tickets are disclosed, the proportion of various types of problems are analyzed, and discussion meetings on Problem-Solving Tickets are regularly conducted. As shown in Fig. 6.2, each of Geely’s sites receives thousands of Problem-Solving Tickets every year. As a result, solving these problems brings in tens or even hundreds of millions in economic benefit. Geely has built up a win–win system of communal innovation by truly yoking the power of its employees’ motivation and closely integrating personal development with firm growth, which not only transforms the thoughts and ideas of the employees into a driving force for sustainable development of the company, but also provides a way to realize the value of the employees. On the one hand, the employees can learn effectively in the process, obtaining honors, rewards, and development opportunities; On the other hand, the company can gain considerable benefits and enhance the core competitiveness at the foundational level. The Extension of the Problem-Solving Culture Initially executed in the frontline manufacturing departments, the Problem-Solving Ticket System has been extended horizontally to all aspects of corporate management over the long term, and has gradually been infused into Geely’s cultural genes. The areas covered by Problem-Solving Ticket are extensive, from the minutia of trash can configuration and production accessory placement, to important matters such as innovation of production processes and securing staff livelihood. The Problem-Solving ticket also builds a communication bridge between supervisors and employees, which brings the two closer, allowing managers to locate real problems lie, and better motivating employees to discover more areas for improvement when they get positive responses, thus forming a virtuous circle (Fig. 6.3). Data shows that the number of Problem-Solving Tickets has been decreasing year on year recently, which is due to employees having more direct channels to escalate their problem-tickets and is no longer

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Organization strategy

Fig. 6.3 A sample problem-solving ticket Company Culture

Organization learning

Management System

Organization structure

constrained to a specific channel thanks to advanced information technology. Furthermore, Geely’s employees have gradually developed the habit of identifying problems from the standpoint of ownership and finishing what they started, a spirit which is now integrated into the company’s DNA.

Top-Down: The Geely Production System (GPS) Geely’s series of initiatives such as Employee Innovation Plan and Problem-Solving Ticket based on the Meta-dynamic Program has dramatically enhanced the organization’s innovation capability, which can be interpreted as a bottom-up line of corporate innovation. Toyota’s Lean Manufacturing is highly influential and recognized in the global manufacturing sector. Its core concept is to maximize customer value, stressing the minimization of non-value-added activities throughout the production process, eradicating waste, cutting costs, improving product quality, shortening product delivery lead time, and satisfying customer demand through consistent advancement. The Toyota Production System and the Toyota way introduced a concept of value that is universally accepted by manufacturing companies worldwide. Over the years, Geely has also gradually developed its own unique management system, the Geely Production System (GPS), which introduces the Chinese experience to global manufacturing companies. The establishment of GPS is a top-down line, and the creation of a new system is bound to break the mold of the old one. It is generally accepted that learning rooted in organizational culture and corporate practices enables good guidance of an organization, but can also hinder further organizational learning and development. Western scholars studied this phenomenon in the 1980s and subsequently introduced the concept of organization unlearning. Geely’s executives quickly identify the need for

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change in response to fluctuations of the market, to overcome organizational inertia and rigidity through the establishment and execution of robust systems and the introduction of external talent, quickly put advanced manufacturing concepts into practice, merge the changes into the system according to Geely’s own characteristics, and make Made by Geely and even Made in China synonymous with top-notch and premium quality. The Crisis Behind the Expansion Generally speaking, the needs and motivations for change may stem from problems, crises, or opportunities,5 which can be broadly divided into two categories: external factors, e.g., fluctuations in the business environment, technological transitions, or policy changes, and internal factors, e.g., changes in company strategy, and problems encountered in business operations. The need for change is typically unpredictable and sporadic, and corporations are usually forced to reform as a result of internal crises. Experiencing the rapid development of China’s economy after the institution of the Open-Door Policy, Geely has gradually secured a strong foothold among independent car brands with a keen market sense and the chutzpah to strive is the king of the world. That said, the automotive industry has become increasingly competitive due to over-saturation and increased consumption in the global market. Geely’s executives have raised serious concerns about further improving the manufacturing standards and production efficiency. Geely’s manufacturing philosophy is constantly being taken up a notch, from “making affordable cars for the people” to “making good cars the people can afford” to “making quality cars for everyone,” and all reflect Geely insistence on manufacturing quality. Still, for a number of reasons there is a sizeable gap between Geely’s manufacturing level and that of the world-class level.

5 Bernard,M,Wolf. The Machine That Changed the World [J]. Journal of International Business Studies, 1991.

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Lack of Lean Concept and Poor Policy Execution In the early stages, Geely had introduced relatively advanced production management concepts such as Three Constants System and 5S.6 However, it was not uncommon that policy implementers neglected them, making them non-functional. Case in point, the Three Constants System means the fixing of items (i.e., for all items, everyone knows what they are), fixing of positions (i.e., all items have a constant location so that everyone knows where they are), fixed quantities (i.e., for all items, everyone knows how much they are). Still, according to incomplete data, at that time, Geely had an annual loss of more than ¥100 million CNY in scrap parts due to inconsistent warehouse management. In addition, the untidy stacking of parts like small piles also had a significant negative impact on productivity. Clearly, this is a considerable obstacle to elevating manufacturing standards. Shortage of Strong Managers In the early stage of its journey, Geely had brought in many management talents in manufacturing from around the world to upgrade its management systems, including production, research and development, quality, supply chain, etc., which could be taken as the formalization and standardization of Geely’s development path. However, Geely’s want of powerful and able managers to carry out a fundamental overhaul of site management is a significant concern haunting Li Shufu’s mind. Inconsistency in Management Standards Geely has several vehicle production plants in China. But in the early days, the plants shared no unified management standards and few technical exchanges, which led to a relatively independent operation of the bases with few channels for sharing experience, technology, and knowledge, and hindered the construction of a modern manufacturing system. At this point, Geely’s senior managers realized that it was imperative to upgrade the standard of the manufacturing system. The first step in enforcing reform was to set objectives and entry points. The entry 6 The 5S concept originated in Japan and consists of five principles: Seiri, Seiton, Seiso, Seiketsu, and Shitsude.

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point could be a pilot area or the whole system. But an incremental approach should be more appropriate in most circumstances, meaning that, starting with a pilot and then expanding to other regions to reduce the risk of failure and cushion resistance to the reform. In this context, the first testing ground chosen by Geely was the sedan Emigrand series. In September 2011, Li Shufu, Yang Jian, An Conghui, alone with other Geely executives, launched the G.G.Q-3.5.3 Reform Project (the first G stands for Geely; the second indicates Global; Q stands for Quality), embarking on the campaign of quality-centered management with the Emigrand series as the vanguard. The 3.5.3 means that within three (3) years, the Emigrand series should achieve a 50 percent (5) reduction in the amount of claims per vehicle and be among the top three (3) cars (including joint venture brands) in terms of IQS satisfaction in China. This reform was carried out in various dimensions, including product quality, production process, IQS quality assurance, and organizational operations, and dedicated to making the Emigrand series a vehicle with world-class manufacturing standards. Results must be seen within three months. I believe that it is a failure if no noticeable results happen within three months of reform. For reform to take effect, it is mainly about creating a climate for change, which is critical for a successful reform. —Ree Sang-Jae.

In April 2011, Ree Sang-Jae, a South Korean with extensive experience in the industry, joined Geely as Vice President of Manufacturing, in charge of accelerating sweeping reforms and upgrading Geely’s manufacturing system. His top priority was to practice the management concepts of Three Constants and 5S when he joined the company. Ree Sang-Jae recalled in an interview later, “Many people at Geely have acquainted themselves with the Three Constants and 5S management concepts initially introduced by the Japanese. Yet in many cases these programs were not implemented at all, which came down to simple ignorance. Meanwhile, others implemented the concepts halfheartedly or intermittently, and their efforts were all for nothing.” Given these circumstances, the first thing Ree Sang-Jae did after coming to power was to “clean up,” which included not only the “cleaning up” of the workshop, but also the “cleaning up” of the personnel whose did not buy in to the system.

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Workshop Cleaning Geely uses strict White Glove Engineering to manage workshop hygiene. What is White Glove Engineering? It means that every day the person in charge of the shift uses white gloves to inspect the equipment and electronics across the factory. Next to each glove, there is an instruction indicating which position requires the most attention. From Ree Sang-Jae’s point of view, “Cleanliness and tidiness is not the ultimate goal, but better product quality through a clean and tidy factory is a goal of Geely’s. Plus, the process can also eliminate waste and increase productivity.” As expected, Geely quickly set up a new production system after three months that was different from the previous one and obtained remarkable results. Nearly six months later, Geely’s productivity per shift had increased from 4,000 to almost 9,000 units, and the G.G.Q-3.5.3 target had been quickly achieved in a year. The Cleaning of the Personnel Geely applied a change-or-be-changed approach. Because Ree Sang-Jae was an aficionado of baseball, he adhered to the strikeout principle7 for his subordinates, i.e., you were out if you missed three opportunities. Under such a high-intensity, high-pressure management model, Geely had swiftly acquired the success of the reform and produced a group of managers capable of facing higher challenges. In this battle of adapting to rapid change, there was no difficulty to see that companies planning to transform old work paradigms into new ones must have the ability to unlearn proactively. The automotive industry was facing unprecedented complexity and a rapidly changing environment in globalization. Geely’s executives deemed that companies that failed to change promptly would quickly be beaten by their competitors who were adept at innovation and adaptability. Research indicated that organization unlearning was a vital part of a company’s business process re-engineering and reform. With the slipping of time and advancing of technology, the skills or knowledge acquired by enterprises would gradually depreciate, or worse, become harmful to their owner. The irregularities in Geely’s original production system fostered inertia in the organization, and the 7 A baseball term refers to an out resulting from a batter’s being charged with three strikes.

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existence of the devalued knowledge significantly narrowed the frame of reference of the company’s knowledge base. Therefore, it was vital to identify and abandon outdated practices, knowledge, and behaviors that were not adapted to suit the company’s development during the advancement and improvement of Geely’s production system. Geely had further cleared the way for learning new knowledge through a thorough cleaning of personnel and workshops. Overall, the two behaviors of learning and unlearning went hand in hand in the development of the organization. They were the unity of opposites with a high degree of interaction, and reconciling the two was vital to the health of the business. Standardization and Continuous Improvement The Toyota Production System (TPS) is a set of production management methods created by Toyota Motor Corporation to eliminate waste and cut costs. Based on the improvement of activities, TPS will shorten the time from production to delivery by eliminating waste in all processes, thus enhancing the company’s competitiveness.8 Elimination of waste is the cornerstone of TPS, and Just-in-time and Automation are its two pillars. The goal of the Toyota Production System is to minimize costs and eliminate waste to remain competitive; and just-in-time and automation are the means to achieve the latter. Inspired by assembly line production and incorporating the essence of industrial engineering, TPS can both increase production speed using assembly lines and lower costs by means of industrial engineering. TPS has forced the entire industry to change its perception of inventory from an asset to a liability. TPS uses stock buffer to replace space buffer of the assembly line, while being able to change molds quickly. The two advantages give a company the ability to address the demands of a small batch of and diverse products. This efficient and lean production method soon became the target of study and imitation by global manufacturing enterprises. Geely’s production management was not devoid of learning from advanced Western methods. However, Geely’s approach was not to learn from dogma, but to innovate effectively based on Geely’s characteristics and existing situations, thus establishing a scientific and rigorous Geely 8 Liker J K. The Toyota Way: 14 Management Principles From The World’s Greatest Manufacturer[M]. 2004.

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Production System (GPS) with its character. In addition, Geely introduced the Seven-Perfections Culture9 of its manufacturing system to merge Geely’s manufacturing culture into the company’s development DNA. The nature of Geely’s production system is to root waste out. The philosophy is based on the values of striving and the calling of eliminating waste, with Standardization and Continuous Improvement as its two pillars. Continuous Improvement includes not only the participation of staff in improvement, but also targeted and systematic improvement. And its basis is Standardization. Moreover, only through the continuous cycle of PDCA10 and SDCA11 can continuous improvement secure its foundation. The Geely production system has similarities to the Toyota production system, but there are also some fundamental differences. To name but a few, the Japanese industrial worker system is more mature, while Geely’s is relatively weak in this area; the critical element of production line balance is the standard person-hour, which is closely related to the skill level of the worker. In this regard, the Toyota model is not fully applicable to Geely. Geely identified this as a crucial part of its production system to be improved, producing the concept of Standardization, the first pivot of Geely’s production system. Standardization The principle of Geely’s Standardization is that “everything has standardization that is respected by everyone” with a comprehensive standardization of management processes and field operations. The Standardization of all repetitive tasks in manufacturing operations is a reflection of Geely’s quest for “making first-rate cars for everyone.” As far as management processes are concerned, Geely has compiled over a hundred standardization documents. Strict implementation and management assessment enable the documents to be realized and play a substantial role in practice. Standardization is a relatively wide-ranging task when it comes to the management of field operations. Geely proposed the Management 9 The Seven-Perfections Culture of Geely’s manufacturing system consists of Beauty of Improvement, Beauty of Innovation, Beauty of Execution, Beauty of Unity, Beauty of Purpose, Beauty of System, and Beauty of Integrity. 10 PDCA stands for Plan-Do-Check-Action. 11 SDCA stands for Standardization-Do-Check-Action.

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by Wandering Around (MBWA),12 and established the Geely Enterprise University’s Automotive Manufacturing Training Institute to provide rolling training to grassroots staff and cadres, effectively putting the requirements of standardized operations into practice. At the same time, Geely was also implementing Standardization across its professional modules. Regarding the four major production processes, Geely established libraries of failure cases, defect samples, costs, and equipment safety across the manufacturing bases, which enabled the dispersed bases to be able to share and collaborate on resources. In the meantime, aggregating the production challenges of each base and bringing together a pool of talent and experts to tackle the difficulties in each of the four major processes has also yielded remarkable achievements. Continuous Improvement Geely continued to make improvements on the grounds of the principle of “staff participation, infinite improvement,” carried out a series of programs, for instance, Major Innovation Improvement, Weekly Improvement of Factory/Department Managers, Employee Improvement, and GQI Problem Bank. Geely’s Employee Innovation Proposal System has greatly inspired employees to learn and innovate, but the climate for improvement at the management level was not strong. Therefore, Geely proposed that the factory/department managers, section chiefs, and line/team leaders should set examples by making weekly field improvements, i.e., the Weekly Improvement of Factory/Department Managers program, to fulfill staff participation in the improvement. The Weekly Improvement of Factory/Department Managers focused on specific, independent improvement cases, while the professional modules focused on a systematic, planned approach to identifying and correcting waste problems, organizing the achievements of all systematic improvements into standards to further promote Standardization. A GQI Problem Bank was set up to collect all kinds of issues from consumers, and then the company would address them one by one and keep optimizing them. 12 The Management by Wandering Around (MBWA) suggests that when an issue occurs, managers need to go to the Scene quickly to identify, investigate, and study the related Objects carefully, and then propose and implement solutions that fit the Fact of the situation.

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Promotion of GPS How can the attainments of reform be linked and shared on a larger scale? Research shows that integrating changes into the company’s management system, promoting changes from pilot areas to other regions, and embedding new working methods and behavior patterns in the company’s system and culture can cement the accomplishments of small-scale trials.13 Geely has gradually established a GPS matrix promotion structure, setting up improvement topics for each professional module to further promote the linkage of production system reforms among the bases and achieve resource sharing and complementary. The horizontal focus of GPS matrix: – Complementary, summaries, and promotion of advanced experiences. – Tackling difficulties and coordinating resources. – Implementation and innovation of advanced processes and management models. – In-depth exploration of the formation of complete Standardization. The vertical focus of GPS matrix: – Achievements of GPS objectives. – The establishment, implementation, and improvement of standardization of manufacturing management system. – Progress on topics of professional modules. Geely set up 11 professional business modules, each of which refined the improvement accomplishments into implementation standards in the form of topics, and ultimately allowed individuals with outstanding performance in the improvement affairs to emerge from the business chain through the platform of the Weekly Improvement of Factory/ Department Managers. The GPS matrix promotion structure established by Geely has united the scattered production bases into an organic whole including everyone from managers to frontline employees to comprehensively cultivate and improve the GPS concept, which also reflected the 13 Gassmaun O. Opening Up the Improvement Process: Towards an Agenda [J]. R &D Management, 2006. 36(3).

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Table 6.2 Geely Production System versus Toyota Production System Classification

Toyota Production System (TPS)

Geely Production System (GPS)

Identity Core idea Two pillars

Industry Leader Eliminate all waste Just-in-time and Automation

Fast learner

Theoretical support

Lean Thinking

Standardisation and Continuous Improvement Four Cultures, 7-Beauty Culture

difference and connection between the Geely and the Toyota production systems (see Table 6.2).

The Cycle of Transformation in Non-linear Growth The successful practice of Geely’s field management shows that the development of an enterprise’s field management system requires both bottom-up full staff innovation and top-down system reform. Constantly breaking the balance and establishing a new one has become a proactive management behavior, reaching new stability in the cycle of the cycle of transformation. The bottom-up innovation activities represented by Employee Innovation Proposal and Problem-Solving Ticket have the ability to stimulate the self-motivated power of employees to actively participate in company management, and activate the spirit of organizational innovation, which facilitates the formation of a mission-oriented organization. In the construction of GPS, Geely has made systematic improvements by optimizing the company’s top-level design to influence the whole organization. The senior managers’ leading by example has also played a positive role in facilitating the process. More importantly, the virtuous circle formed between the two, with the synergy of external resources, can bring the organization into a sustainable state of development. While Geely promotes management systems such as Employee Innovation Proposals and Problem-Solving Ticket, the strategic, organizational, and cultural elements at the Group level show a high degree of consistency, enabling innovation activities to work better. To this end, Geely has

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built a diamond model for collaborative management of staff innovation that includes the core elements of strategy, culture, system, and organization (see Fig. 6.4). Regarding strategy, Geely provides new goals in stages and motivates employees to learn continuously in accordance with the strategy of “Generally following the advanced, obtaining advantages in certain areas, winning in focused points, recruiting talents, cooperating horizontally and vertically in the industry, and ending up in overall leadership in the industry.” As far as culture is concerned, Geely’s production system profoundly practices the Group’s Four Cultures and actively cultivates the Seven-Perfections Culture of the manufacturing system. Geely’s improvement activities effectively combine material and spiritual incentives in terms of the management system. In respect of organization structure, Geely advocates the establishment of cross-department processes and sets up management teams of Employee Innovation Proposal and Problem-Solving Ticket to jointly ensure the smooth implementation of innovation activities. It is easy to figure out that a high degree of the synergy of core elements is an essential guarantee of Geely’s innovation and improvement activities. The reform of Geely’s top-down production system has gone through a long period. It demonstrated that strong leaders’ involvement in the reform could effectively drive the implementation of the change and fulfillment of the goals. In the initial stages of change, Geely’s senior managers proactively perceived the need for change in response to internal and external environment changes. Although facing pressures, such as conflicts between new rules and old habits of employees, Geely secured immediate achievements by adopting the rapid change principle of change-or-be-changed while also incorporating the performance of the execution of the new system into staff assessment to overcome the resistance to change caused by organizational inertia. In

Fig. 6.4 Geely’s staff innovation collaboration management diamond model

Organization strategy Company Culture

Organization learning Organization structure

Management System

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the implementation phase of the reform, Geely’s Weekly Improvement of Factory/Department Managers program took the initiative to set an example and led employees to embrace the change, rooted the aged ideas out, formed new organizational practices, and ultimately integrated the accomplishments of the reform into a new daily management system. Geely’s production system forms a powerful supporting force that strengthens employees’ beliefs and an essential incentive for Continuous Improvement by combining institutionalized reform genes with the company’s core culture.

CHAPTER 7

A Forest Where Talent Blossoms

The 2013 May Fourth Youth Day was an unforgettable festival for Geely’s Lu Yicong. On the very day, Xi Jinping, General Secretary of the Communist Party of China Central Committee, received the winners of the China Youth May Fourth Medal and other outstanding youth representatives, one of whom was Lu Yicong, a talented technician with over 50 innovative achievements on his illustrious resume. As the only seven-star employee of Geely Automobile Road and Bridge Company, he is reputed as the ace vehicle tester who went from an average worker to a celebrated engineer. Geely has legions of exceptional employees within its ranks. In keeping with the “seek-out-like-minded-comrades” mission, Geely has been headhunting top talents the world over who appreciate Geely’s culture to boldly take the company where it has never gone before. Simultaneously, Geely has put a premium on discovering and cultivating outstanding employees that it can promote from within. These people have grown roots in the Geely organization. Some are university students that were developed by the company from wide-eyed graduates taking their first entry level positions to savvy industry leaders adept at navigating the company through the trappings of the market, while others have become distinguished craftsmen, experts in every facet of their trade. After nearly 30 years in the business, Geely has developed a talent forest that, like

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real woodlands where trees grow strong and tall in the nourishing soil, cultivates the strongest and most prodigious talent in the industry. Human resources are prime, and integral to a firm’s long-term success, and the development of the automotive business needs the support of a constant flow of brilliant employees. —Li Shufu

Li Shufu once remarked that the success of a company’s strategy depends on its talent strategy.1 Only by creating its own in-house training and management system can a firm steadily gain developmental momentum.2 If China’s automotive industry wants to forge an avenue to warp-speed development, then this cause can only be sustained by a formidable corps of exceptional talents. As previously stated in this volume, the underdeveloped state of China’s vocational education has led directly to a shortage of highly trained talent in the automotive industry. Therefore, Geely’s executives have had talent development in mind since the very first day the company threw its hat into the automotive ring. Geely has adopted different talent management models to meet its business development needs. Geely’s human resource development has transitioned from scattered to centralized management. In the early days, Geely’s personnel department’s efforts were mainly focused on recruiting, retaining, and training talent. Geely implemented a traditional personnel management model to boost the efficiency of its subsidiaries. The Group’s human resource department viewed the extent of its duties as merely procedural, for example, doing perfunctory recruitment, training, onboarding, and off boarding. Meanwhile, the Personnel department at the subsidiaries stole the spotlight by taking the lead in areas like research and development, manufacturing, and marketing. With the company’s expansion and brand diversification, a talent management model where the subsidiaries worked independently could easily lead to a waste of resources and create roadblocks preventing HQ from ascertaining the

1 Zhejiang Geely Holding Group, Geely Talent Forest Ecological Construction and Management Practice [J]. China Industry and Informatization Technology, 2019 (Z1): 84–91. 2 Harvard Business Review. Li Shufu: Dare to be the no. 1 in the World [ER/ OL] (December 11, 2018) (June 2, 2020). http://www.hbrchina.org/2018-12-11/7009. html.

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status of each subsidiary. In 2007, with the strategic transformation of the company, the Group’s Human Resources Department focused on the objective of, establishing a strategic human resources development system and an in-house talent development system, gradually instituting the Group’s human resource management system, and implementing the system via informatization. Moreover, the firm’s push toward globalization prompted Geely’s human resources management to gradually move away from administrative routine, and shift to a hands-on approach, concentrating efforts and resources on serving high valueadded internal and external customers, and moving toward strategic human resources management. In 2014, Geely unveiled a new brand structure and proposed a Premium Car strategy. To respond swiftly to business demands, Geely established a Three-Pillar model in line with the company’s characteristics, which provided the basis for the N-Pillar Model that was established in 2017. Human resources management began trending toward intelligentization and internal marketization. The actual strategic goal of Geely’s series of human resource reforms was to create a talent ecosystem populated with trees that would blossom after being fertilized and watered by competition. When Geely was just a fledgling startup, it had a staff of a mere 2,000, including 300 employees primarily from companies in the metals and machining industries working at the Geely Automobile Research Institute in Linhai, Taizhou. In 2018, the team skyrocketed to over 80,000 members, including 8,500 employees at the Research Institute and more than 400 technical experts alone. Geely’s training efforts grew their talent like the florae of a forest with an ever more complex and well-dug root system, as its members increased exponentially and its company structure was optimized continuously. Today, Geely has built up an efficient, qualified, energetic, and globally competitive corps of top-notch talent to help the company collaborate in international economic and technological competition on a wider scale, in a broader field, and at a higher level.3 So how did Geely set up a global talent network that agrees with the organization’s signature characteristics and developmental needs while creating a sustainable Talent Ecosystem characterized by communality, sharing, harmony, and inclusiveness to support its transformation from 3 Zhejiang Geely Holding Group, Geely Talent Forest Ecological Construction and Management Practice [J]. China Industry and Informatization Technology, 2019 (Z1): 84–91.

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a traditional car manufacturer to an innovative global corporation? This chapter aims to reveal Geely’s successful experience in building a Talent Ecosystem that supports its business development through a way of utilizing talent that is open and inclusive. From a recruiting perspective, Geely considered all the changes as it moved through the stages of its developmental strategy, while attracting and “transplanting” top innovators from all over the world in an unconventional and pluralistic manner. These innovators have become the pillars that underpin the development of the company’s transformation into a global player. From a talent development perspective, Geely has mentored an elite corps of talent reserves that can quickly adapt to their positions through the integration of industry and education, and has broken the mold in its establishment of a differentiated training system to discover ultra-competitive talent. Geely also provides an international career platform and opportunities for talented individuals of every field to develop freely and be boldly experimental by empowering them to form an inclusive culture, and enabling the unfettered development of talent through the construction of an employee care and training system with trademark Geely character, eventually culminating in the rise of talent forests of varying scales but with common traits like strong vitality and self-sustainment.

Introduction of the Big Camphor Tree Many talented people have dreamed of contributing substantially to China’s automotive industry. Although they have all built up their knowledge and competence in global companies, their career development had hit a glass ceiling for whatever reasons. Geely took them in, nurtured them, believed in them and gave them the forum to realize their dreams. After only a few years at Geely many newcomers left their previous place of employment as a distant memory and became die-hard Geeliers. —Wei Mei

The so-called Big Camphor Tree refers to “paratroopers ”—people with extensive industry experience. Both the local talent that joined the company in its early stages and the international talent that Geely has recruited since its globalization has played an essential role in helping Geely cope with internal and external uncertainties at various stages.

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Nowadays, approximately 1,000 Big Camphor Trees join Geely annually with a notable high success rate. This achievement is inseparable from Geely’s corporate culture that advocates, “using different means to achieve the same result” and “forming both horizontal and vertical alliances” advocated by Li Shufu, a highly inclusive culture focusing on performance, results, and striving, making Geely a truly open business platform. Faces from all over China, from various companies, and nearly every country can now be found in Geely’s teams.4 Finding the Right People for the Job Automotive manufacturing is a talent-intensive industry, and product R&D requires highly qualified individuals well-versed in a wide range of professional fields. It was impossible to do independent research and development relying solely on the company’s existing technical staff. Geely, whose technology was developed from the ground floor up, was hungry for talent. However, Geely’s status as a private company dramatically impacted the value judgment given to the company by the very talent it was seeking. Although the success of Geely’s three earlier models helped it to gain some clout and garner the attention of talented technical staff, from 1999 onwards, more and more professional automotive technicians were onboarded, yet Geely still lacked top talent and leaders, and at the same time university students who were recruited were often difficult to retain. To get out of the predicament, Li Shufu stepped forward and became Geely’s top headhunter. What moved the potential recruits the most was not only Li Shufu’s heartfelt invitation to the most qualified people for the job, but also the calling to revitalize the national automobile industry. The Calling to Revitalize the National Automobile Industry The “car-making sovereignty” mission has attracted many professionals willing to devote themselves to the revitalization of China’s automobile industry, and Hua Fulin, a chassis expert from the former FAW Automobile Research Institute, answered Geely’s call. At that time, most automotive joint ventures sold foreign car models with complete foreign 4 Yu ting. Interpretation of Geely’s “Talent Forest” Program [J]. Manager, 2016 (4): 90–91.

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production processes, making it difficult for Chinese automotive experts to make use of their abilities. In contrast, Geely gave Hua Fulin, who had spent his whole life at FAW trying to build a car in vain, enormous space to funnel his stored-up kinetic energy into the task of designing and building cars. Thus, Hua Fulin was placed in the Vision project development team, responsible for chassis development. Trust Your Employees or Don’t Hire Them From Li Shufu’s point of view, a company is a big family consisting of members from different regions, age brackets, and genders. The idea that “It’s my company, and it’s my way of the highway” would severely retard its own development.5 Compared to many traditional companies with severe restrictions on employee behavior and autocratic management, Geely has a wealth of mechanisms that empower every expert onboarded to make good use of their talent. In all aspects of product development, including but not limited to, the potential car being developed, the design, communication with suppliers, and the like, Geely is willing to let go of the reigns, to give people space to try, allowing employees to experiment in a safe environment that is tolerant of failure. In 2002, Xu Binkuan, the ex-chief engineer of Tianjin Gear Factory, accepted Li Shufu’s invitation to join Geely. To get the transmission expert on board, Li Shufu made no less than ten visits, even founding Zhejiang Geely Transmission Co., an independent platform on transmission R&D and manufacturing, just for him. “Here, everything can be done the way I want it to be done.” The energy that Xu Binkuan had been building up for more than 20 years in developing transmissions finally found a release. According to Xu Binkuan, the risk of failure in automatic transmission development was as high as 60%, which discouraged many domestic car manufacturers. “Despite the ordeal of the whole process, I didn’t get any resistance.” Xu Binkuan said. At Geely, there would be no resistance as long as Li Shufu was on board with it. In the three years of self-imposed travail, Xu Binkuan kept looking for faults and correcting them, burning more than 100 cars and accumulating over 29,000 characteristics data to characterize transmission damage turning points. In 2005,

5 Chairman Geely Li Shufu: Why Don’t I Trust Others Easily [J]. China Private Economy of Science and Technology, 2003 (Z1): 44–47.

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Xu Binkuan finally developed a three-speed hydraulic control automatic transmission.6 When gifted people with passion and dreams are fully empowered, they will treat the company’s tasks as their own business with double the motivation to create value for the company in return for its trust. Of course, Geely will not trust employees blindly but run a series of checks on them. “To not know someone well and still empower them would be highly unlikely,” said Yang Jun, then CTO (Chief Technical Officer) of Mercedes-Benz Smart, about his path at Geely, “You’ve seen my development, from being a module leader to a project team leader to being involved in managing global projects. Geely trains a person by going step by step and observing, assessing your ability dynamically and then giving you a bigger forum if you are qualified for a certain position.” Building a Global Career Development Platform Geely acquired Volvo in 2010. In the grand scheme of Li Shufu’s plan, the Group would go on to become a global car company. At that time, only Volvo’s soon-to-be-completed SPA architecture could meet Geely’s globalization requirements. Therefore, Li Shufu demanded that Geely and Volvo work together to develop a highly flexible architecture for the C-Class that both parties could use to produce and adapt to their respective brand positioning. At the time, the global automotive industry was floundering, and many companies were going bankrupt. With limited resources, it would be a challenge for either Geely or Volvo to develop a new architecture on their own.7 However, the changing patterns of the world’s automotive industry presented an opportunity for Geely. Due to financial issues, GM was forced to abandon its operations in Europe, and more than 1,200 brilliant engineers left the company. Fang Haohan, who later became CEO of CEVT, believed at the time that this would be a great opportunity if Geely could quickly integrate resources and talent to develop a new architecture. As a result, Geely and Volvo jointly formed a new R&D center, CEVT, and a new C-segment architecture, Compact Modular Architecture (CMA), was created. 6 Zhu Qiong. Geely’s Vitality [J]. CEOCIO.COM.CN, 2006 (18): 50–53, 55–59, 8. 7 The official website of Zhejiang Geely Holding Group. December 6, 2019. The

Foundation of Global Enterprise-Creating a Global Architecture. http://zgh.com/mediacenter/story/the-foundation-of-a-globalcorporation-creating-a-global-architecture/.

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Of the exceptional people CEVT recruited from original equipment manufacturers, about 1/3 were from Volvo, 1/3 were senior technical and management experts from other car companies such as GM, Ford, and Renault, and the remaining 1/3 were engineers from China. In contrast to Volvo, a luxury car brand whose employees enjoyed luxurious benefits packages, CEVT offered leaner packages. But this being the case, why were 1/3 of the employees still willing to accept transfer from Volvo to CEVT? “For engineers, it’s the project that matters. The benefits are nice, but they don’t care that much about that, or the people who do care about the benefits don’t come, and the people who do come only care about what they really want to do.” Wei Mei, Vice President of Geely Holdings, explained. Geely has more new projects than Volvo. For engineers working at Volvo, recreating a Volvo brand was impossible. However, CEVT allowed them to let go of the past and do something completely new, starting from scratch, which was super fun and, if successful, would be an outstanding achievement in their careers. Even without the best benefits and working conditions, many ambitious people joined Geely for a broader space to develop. In the third year of CEVT’s establishment, Geely officially launched Lynk&Co on October 20, 2016, a new mid-to-high-end brand built on the CMA modular architecture. The engineers basked in the glory of the car’s tremendous success. An Open Global Talent Pool For the company, going global was only the first step. Mutual integration was really the key. In transnational operations and global development, employees must respect each other and develop together for a common commercial goal that transcends color, race and language. —Li Shufu

Geely’s fully empowered Talent Gathering strategy had an immediate impact, attracting many management, technical, and engineering experts from state-owned and joint venture companies who shared Geely’s philosophy, including the three major Chinese automotive groups, solving the talent shortage crisis that had plagued the company in its early stages. These specialists played significant roles in various areas, including

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decision-making, technical management, and manufacturing. As the pace of internationalization accelerated, Geely’s operations were gradually expanding from the domestic to the global market, and the demand for talent also changed—highly qualified personnel with international experience became a priority. Geely began to look overseas for top-notch people, adopting a global talent strategy. Geely purchased a stake in Manganese Bronze Holdings PLC, acquired Australian automatic transmission company DSI, Swedish Volvo Cars, Malaysia DRB-HICOM’s Proton, and was a shareholder of Lotus Cars and Germany’s Daimler, attracting a large number of high-level international talents in the processes. Geely was well aware that no company could prosper without the soil of its homeland, and leaving that soil meant that the company had lost its roots, and a brand without roots would naturally lose its original value.8 Hence, Geely adopted an international perspective in the global business deployment and established the management mantra of “think global, act local.” Whether it was the acquisition of overseas firms or talent management, Geely placed a top priority on cultural integration to better manage employees from different countries and regions with different cultural backgrounds. Advocating a Global Company Culture of Respect, Adaptability, Inclusiveness, and Integration Geely started with culture, where it broke through communication barriers, and on the basis of deepening global understanding, with full consideration and respect given to the historical positions of different brands and the cultural perceptions of other countries, and from this starting point carried out cross-cultural communication and integration according to local conditions to integrate global talent with various historical and cultural backgrounds.9 An excellent example of this is Volvo. Geely gradually integrated Geely’s corporate culture into Volvo based on respect for its original culture, management team, and staff, establishing a system of mutual trust that reduced the damage to team cohesion caused by emotional conflicts, thus enabling both sides to maximize their 8 Dai Huifang. Respecting the Cultural Traditions of Various Countries and Integrating the Advantages of Geely Culture [J]. Enterprise Civilization, 2010 (8): 33–34. 9 Ecological Construction and Management Practice of Geely Talent Forest. September 18, 2019. http://www.gongkongke.com/posts/qcapqxxk6thn/.

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strengths while injecting strong talent momentum into the development of the company. At the CEVT R&D center in Gothenburg, Sweden, thousands of talented individuals from across the globe, including Geely expatriate staff members, former Volvo employees, and top engineers and designers recruited worldwide, worked together on the projects jointly developed by Geely and Volvo. In strong contrast to the modus operandi of many Chinese firms after an acquisition, where Chinese executives take over and hire foreign talent who operate directly under them, Geely put CEVT under the management of senior managers from Volvo when it was established, and Chinese engineers were involved in the project development with a growth mindset. In the collaboration, Geely had progressively promoted cultural integration to strike a balance between the two parties and slowly introjected Geely into CEVT. This approach, while giving full respect to Volvo employees, helped Geely to gain an insight into Volvo better and faster, all the while facilitating the smooth integration of resources and cultures between the two companies. On the one hand, CEVT provided a platform for the world’s top automotive engineers to unloose their passion for building cars and realize their own personal values. On the other hand, it spurred on the collaboration of many of the foremost experts in automotive innovation, helping Geely to obtain the world’s “Most Powerful Minds” and establish a unique engineering culture. In 2015, the Geely 7DCT transmission project, developed by R&D teams from China, Germany, and Sweden, entered its critical stage. The project required world-class technology and had to meet the extremely demanding Volvo global standards, many of which even exceeded the requirements of mainstream transmissions in Europe and the USA, making it very difficult to manage. Although the team was bolstered by CEVT’s R&D staff, the Chinese and Swedish R&D subgroups often disagreed during the development process, and communication breakdowns were frequent. The lack of understanding and cooperation between the two parties resulted in the project’s slow progress. With failures of endurance tests, red lights in several systems, and another defeat of the adjusted SOP (mass production) joint, seemed to be just on the horizon. At that point, the project team leader, Lin Xiaojie, started troubleshooting, examining the team cultures and work methods. He held a cultural orientation meeting among the Sino-Swiss team to determine

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their respective working methods and the mentalities in an effort to eliminate mutual distrust. Ultimately the Chinese employees won the trust of the Swedish team by establishing a large international project team management mechanism, unifying project management tools, sharing information, sending the best Chinese staff to work in the key modules, for instance, project management, hardware, software, and performance, to show the talent and diligence of the Chinese staff, and to prove that they were team players. Creating a New China-Western Language After the team’s cultural issues were resolved, the two sides gradually became more fully integrated and a synergy began to develop that propelled the project forward. But what was very different was that in addition to bringing in a large wave of international professional and technical talent, Geely invited managers from different countries to handle many of the Group’s coordination tasks, including Peter Horbury, Senior Vice President of Design at Geely Holding Group and former Vice President of Design at Volvo Cars. Still, how could an outsider with little knowledge of Chinese culture manage Geely, a company deeply entrenched in its own local culture? In 2011, Peter Horbury announced his induction into Geely Auto. As a native European designer, it was obvious that fully comprehending Chinese culture and finding Chinese elements that could be incorporated into a design was no easy task. “None of this could have been possible without the help of a great team and, more importantly, without Chairman Li.” Peter Horbury admitted that it was Li’s out-of-the-box ideas that allowed him to quickly adapt to his new environment, because he initially found it difficult to get acclimated. It is widely known that Li Shufu is a wise and visionary strategist, but his fondness for music, especially symphonic music, is less well-known. Symphony has its origins in Europe, but it also contains Chinese musical cues and elements of Chinese culture, making it an art form representing the integration of East and West. Through this art form, Li Shufu helped Peter Horbury learn more about Chinese culture. In addition, Geely also used the “Sinoccidental” symphonic music as a culture carrier to build a bridge for cross-border cultural exchange and emotional communication. In September 2011, the Zhejiang (Geely) Symphony Orchestra, conducted by internationally prominent conductor Tang Muhai, toured

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six European countries, including Germany, the Czech Republic, and Italy, using a new musical language to let the world listen to Geely’s voice. It also made special visits to Volvo’s European production bases in Sweden and Belgium delivering fantastic special performances for Volvo employees with goodwill to enhance the understanding of Chinese culture among the local mainstream societies and Volvo employees. Moreover, the orchestra carefully designed its tour repertoire to include Chinese works as well as Western classics, along with unique material composed to reflect Geely’s culture and spirit. Eastern and Western cultures collided with each other in Peter Horbury’s mind, and the resulting energy release sparked inspiration and innovation. Accompanied by Li Shufu, Peter Horbury delved into the Chinese classics, such as China’s ancient mythologies and the Four Great Classical Novels. The experience of traditional musical instruments such as the Chinese Zither, to gain a deeper understanding and appreciation of the Chinese values, which he took with him to influence other foreign employees in his team, in an effort to help Chinese culture touch the hearts of every employee coming to work in China. “Peter has an assistant who has become almost completely Sinified. The assistant’s second child was born when he joined Geely. And now the child is in school and speaks Chinese better than his father,” joked Zhang Aiqun, Senior Vice President of Geely Group. Three years after his integration into Geely, Peter Horbury led his international team to deliver a great surprise. From the KC concept car to the Emgrand Cross hybrid concept car, Peter presented the public with a brand-new Geely design DNA, with just the right mix of Chinese elements and international aesthetic trends, without the slightest trace of Volvo.10 According to Guy Burgoyne,11 Geely’s Shufu Prize winner and head of Styling Interiors, “Geely provides a lot of help and care to its foreign employees, so that they can devote themselves to their work. Every day at Geely is a day full of energy and challenges.” As one of the top designers in the industry with extensive experience working in multiple countries such as Sweden and Australia, Guy Burgoyne was well aware 10 Ma Cong. Injecting Oriental Charm into Geely-Peter Hoburi, Senior Vice President of Design of Geely Holding Group, Takes You to Find Geely Design DNA [J]. China Automotive Market, 2014 (14): 24–25. 11 Guy Burgoyne, from Australia, joined Geely China Styling Centre in 2013 and is the General Manager of the Shanghai branch.

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of his leadership role in designing products with both world-class quality and Chinese characteristics. In Geely’s inclusive and respectful environment, Guy Burgoyne and his team have ample room to be creative and make the Geely 3.0 car design a breath of fresh air. In the product design of the Geely Atlas, Chinese cultural elements were subtly added to the detailing, with the Hangzhou West Lake arch bridge shape and the highly distinctive water ripple grille shape on the interior components receiving industry-wide acclaim. Furthermore, one of the designs that Guy Burgoyne was most proud of was a set of Chinese zodiac sculptures designed with traditional Chinese zodiac images, one of the features of Geely’s stand at annual Auto China.

Cultivating “Saplings” The development of the global automotive industry is rooted in employee development. Geely’s advancement over the years has also been driven forward by this philosophy. —Li Shufu

In Li Shufu’s view, top domestic or even global talent is like the rare Camphor Tree, one of only a handful in the world. A company’s resources are scarce at the startup stage, and talent is mainly recruited externally, while at the development stage, the structure of the talent acquisition model needs to be adjusted to one combining internal training and external recruitment. However, when a company advances to a certain level, talents will be mainly developed internally; and at the same time, firms have a responsibility to train and supply talents to society. Therefore, to overcome the talent shortage in automotive companies, it is necessary to train talent in-house according to customized and self-developed criteria. In other words, Geely must have its own training channels, growing soil, and cultural communities to form a sustainable ecosystem for talent development. With endogenous talent training mechanisms and unique incentive systems, the Saplings can see Geely’s development potential, gaining expectations for their development.

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Blending Production and Learning, Realizing Educational Dreams I believe the only thing that makes us different from others is our powerful education and training system. Geely education is both a responsibility and a state of mind. It is the devotion and propensity to education, as well as a customized approach to supply talent for the development of Geely’s automobile business. —Li Shufu

Li Shufu recognized that ivory-tower universities could hardly meet the practical demands of firms for qualified personnel. Therefore, he sent a special observation group to the United States on a study tour of worldclass universities, including Harvard University, Massachusetts Institute of Technology, Stanford University, and the like. And at the same time, he scoured the globe, investigating nearly 100 growing firms globally, finding that those established companies have their own colleges, training bases, and technical schools. Although there was no shortage of highly skilled people in Chinese companies, the continuity of human resources was far from adequate. As a result, he made up his mind to run his own school to train automotive professionals who were ethical, knowledgeable, savvy, hands-on, and assiduous to resolve this talent issue. Automotive Plants and Technical Institutes—Doubling the Revenue Stream Beijing Geely University (now Geely University of China) came into being in 1999 with the backing and the guidance of the Third National Conference on Education and the government’s encouragement of social resources to run schools. Geely started its school while building cars. Geely chose an innovative teaching model closer to the company’s actual needs than those in use by universities at large, and insisted on the employment-oriented approach to cultivate practical talent. Geely’s educational model is aimed at training talent based on the needs of society and employers. In addition to offering many practical programs, for example, traditional automotive manufacturing and assembly technology, machinery manufacturing, and automation, the school also relies on the technological advantages of the Geely Group and prioritizes the development of automotive engineering disciplines, focusing on cuttingedge technologies of new energy vehicles and intelligent vehicles to

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strengthen discipline construction. Moreover, Geely University also runs joint courses with overseas educational institutions, introducing cuttingedge foreign skills training systems to educate modern technical talent with international standards. The school often invites senior engineers from Geely and other renowned automotive companies to interact with students. Hiroshi Fujioka, who has worked in lean manufacturing at companies such as Toyota and Mazda and is now a Lean Manufacturing Management expert at Geely Auto’s Xiangtan base, regularly hosts lectures and seminars on Lean Manufacturing and industry progress for students. Since 2011, Geely has provided the school with the company information of job qualifications for more than 300 positions in 20 categories, guiding the school to incorporate Geely Group’s eligibility criteria of posts into its training objectives, for instance, automotive vehicle manufacturing, engine and transmission manufacturing, marketing, human resource management, and supply chain management, further aligning the school’s talent training with the company’s needs. Geely’s units all around the world, like production bases, automotive research institutes, sales companies, powertrain divisions, provide excellent off-campus internships for students of all majors, forming a talent training chain with Geely’s character of the industry-university-research alliance. Students have an explicit professional direction from the very beginning of their admissions to the college. Education provides intellectual resources for industry, and in turn, the industry offers practical support for education. The industry, university, and research at Geely have become one, creating a learning and research atmosphere where everyone is a teacher, and everyone is a student. Although students from Geely University hold a diploma from a private institution, they are hot commodities in the job market. According to incomplete statistics, in the past 21 years since the establishment of Beijing Geely University, more than 2,000 alumni have been promoted to executive positions at large and medium-sized enterprises in China, over 1,000 alumni have started their own businesses, more graduates have become key personnel at various companies affiliated to Geely Holding Group, some have become artisanal technical experts on the production line, while others have taken up management positions above the department level.

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Paving a Smooth Road to Learning According to Li Shufu, “Creating a sustainable and respected university is not something that can be accomplished overnight, let alone by one person. Rather it is accomplished much like a relay race that needs continuous forward movement.” Focusing on education, Li Shufu expanded Geely’s educational territory to Hainan and Hunan provinces, establishing the University of Sanya, the earliest and largest private undergraduate college in Sanya, Hunan Geely Automobile Vocational and Technical College, a full-time general higher vocational college mainly for cultivating highly skilled talent in the automotive field, and Zhejiang Automotive Engineering College, which aims to cultivate master’s and doctoral students. He has been exploring the occupation-oriented talent education model based on national strategies and local economic and social development trends, and has formed a multi-level talent cultivation model of Associate–Bachelor–Postgraduate (See Table 7.1), which is at the forefront of its peers. In 2019 alone, more than 10,000 outstanding talents graduated from Geely’s various universities and colleges, providing robust human resources for the development of Geely’s automotive industry (see Fig. 7.1).

A Talent Development System with Heart Find some diamonds in the rough, put them in the Geely system for polishing, give them some tender loving care, and let them learn and practice real skills. Our ultimate goal is to build an elite force that is ready for action and victory at all times. —Li Shufu

Besides its focus on education, Geely also concentrates its efforts on training and developing endogenous talent. The construction of a talent development system is an essential condition for the growth of highlevel individuals. By opening up promotion channels for talent, building a comprehensive training model, and formulating a whole career lifecycle support plan, Geely provides a vast space for excellent employees to develop while establishing an incentive system that tightly corresponds to the value of employees’ abilities, so that employees can grow rapidly, meeting the needs of the company, and realizing employee value.

Year of foundation

1997

1999

Zhejiang Automotive Vocational and Technical College

Geely University of China

Bachelor

Associate

Highest degree

61,161

11,000

Cumulative number of students trained

Overview of Geely Education Programs

School

Table 7.1

Above 97%

98.50%

Employment rates 2018–2020

(continued)

● Developed a modern apprenticeship system and established of a series of unique and customized learning workshops such as those for the Emgrand and Lynk & Co ● Transformed actual production workshop into a teaching area of the car-manufacturing process that integrates demonstration, practice, and training ● In April 2019, worked with the Linhai Municipal Government to establish the first industrial robotics specialist training base in Linhai ● Advanced education through competition and encouraged students to participate in various disciplinary and professional competitions ● Collaborated and exchanged with universities in Malaysia, Thailand, and Denmark, allowing students to study for degrees in foreign universities ● Organized a variety of campus activities, including inviting renowned experts and scholars to give lectures at Geely Lecture Hall, and having more than 30 different student clubs in arts, sports, and public welfare, etc

Featured Initiatives

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Year of foundation

2005

2007

University of Sanya

Zhejiang Automotive Engineering College

(continued)

School

Table 7.1

Master & Doctor

Bachelor

Highest degree

486

51 933

Cumulative number of students trained

100% (Quota)

Above 95%

Employment rates 2018–2020

● The five major discipline clusters, including Tourism and Culture, Marine and Automotive, Business and Sociology, Big Data and Artificial Intelligence, and Sports and Health, are built around the Belt and Road Initiative and the industrial development needs of the Hainan Free Trade Zone ● In 2019, over 230 academic exchanges were held, including the China-ASEAN Forum on Private Education Development and Cooperation, the Academic Forum on Digital Industry and Discipline Development, the Academic Symposium on Tourism and Performing Arts and Danmin (Boat Dweller) Culture, and the Symposium on Collaborative Development of Industry-University-Research-Use in Medical and Health Care in the Hainan Free Trade Zone ● Joint programs with Zhejiang University, Tongji University, Coventry University, and Ghent University in Belgium were instituted to train high-potential talent with a global perspective ● 215 Distinguished professors from 14 countries and regions, covering 41 universities in China and abroad, including 17 academicians and 121 professors, whose research interests include automotive technology and management practice

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Year of foundation

2009

2012

School

Sanya Institute of Technology

Hunan Geely Automobile Vocational and Technical College

Associate (Higher Education)

Joint Bachelor

Highest degree

5 126

10 225

Cumulative number of students trained

Above 98%

97%

Employment rates 2018–2020

● In June 2019, the college was selected as one of the first pilot institutions for the 1 + X vocational skill level certificate system for automobile operation and maintenance by the Ministry of Education ● In conjunction with Hainan’s key industries, the Health Management Department was established in 2019 with a new nursing program and a new Health Management Practical Training Center containing practical training in basic medicine, basic nursing, emergency nursing, and mother and child care ● In March 2019, the curriculum maps of all the 2018 talent training courses were completed and visualized ● Based on the characteristics of the regional economy, emphasizes the college’s professionalism and advantages, and actively undertakes government training projects ● Many senior engineers from Geely Automobile’s Xiangtan base hold teaching positions and set up a practical training base in the school in accordance with real workshop standards ● Gradually improved the Dual Subject Education model that combines teachers and engineers, teaching and production, classroom and workshop ● Formed the Lei Feng class, responsible for the daily management of the campus as well as public welfare activities and volunteer services

Featured Initiatives

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Graduates

11 000 10 500

10 611

10 000 9 500 9 000 8 500 8 000

9 746 8 609 2014

8 449 2015

8 664

8 627

2016 2017 Year

2018

2019

Fig. 7.1 Number of graduates from Geely educational institutes 2014–201912

The “Wild Goose” in-House Talent Development Program Geely’s human resource management system creatively worked out the Goose Plan suited to the Group’s strategic objectives. This ambitious program was essential in creating unique internal talent for the company. The Goose Plan divides Geely’s endogenous talent into three categories: New graduates who are new to their positions are Geese; after 3–5 years of hardworking, some of the Geese will grow into Swans; after another five years, some exemplary talent and key personnel will stand out and become Golden Geese (Fig. 7.2). Li Jinfeng, currently Deputy General Manager of Geely Power-train Co., Ltd.’s Chunxiao base, is a perfect case study of this growth process. In 1996, Li Jinfeng joined Geely as one of the masses of manufacturing employees. In the era when Geely manufactured motorcycles, he broke the outsourcing log jam of motorcycle engine parts that restricted the company’s growth and laid a solid foundation for the annual production of 300,000 motorcycles. During his tenure at Huapu, he was responsible for the procurement of equipment, saved millions of dollars in the equipment budget through bidding, and was awarded as an Advanced Individual of the company many times. During his tenure at Xiangtan Engine Factory, he led the factory to the titles of Advanced Team or Learning Organization in the powertrain system for six consecutive years, and won the first place in the GPES Landing and Rooted actions, 12 Data include only Beijing Geely College, Hunan Geely Automobile Vocational and Technical College, University of Sanya and Sanya Institute of Technology, and exclude Zhejiang Automobile Vocational and Technical College, Hunan University of Technology and Industry’s Beijin College, and Zhejiang Automobile Engineering College.

One y deve ear to dam lop funental skill s

Three to be years co key m me a embe r

Five ye to join ars the elite

Mindset shift, employee integration, career literacy, work methods, general knowledge, proactivity

Job engagement, personal expertise, professional development, theoretical training, rapid advancement, job rotation

Self motivated, work propeller, tactical execution, mentoring rookies, working on projects, professionalism

Tactical development, high potential skill development, overcoming difficulties, key contributor, innovation breakthroughs, strategic management

ing, train ized actice l a r t Cen -line pr t fron

tation Job ro

ct, Proje Swan velope skill d nt me

Ten y ic ea ateg to bec rs Str ential ome pot t an ico talen n

Fig. 7.2 Goose series internal talent development

Gosling (Intern)

Goose (New Graduate)

Swan (Diamond in the Rough)

Golden Goose (Stalwart)

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illustrating the “community of shared future” relationship between the company and the employees. In 2016, when the higher production task was issued, he led his team to double the production in one and a half months, with monthly production exceeding 33,000 units and an annual output exceeding 200,000 units, establishing a double high production factory (i.e., high output on both a monthly and yearly basis) in the powertrain system. In 2017, the monthly production of his team exceeded 36,000 units, and the cumulative output exceeded one million units; in 2018, he became the recipient of the 17th Shufu Award, Geely’s highest honor. From an ordinary frontline worker to a senior automotive talent with outstanding professional and managerial abilities, from self-development to successfully feeding the company, Li Jinfeng interprets the characteristics of the Wild Goose team, as “ambitious, determined, spontaneous and cooperative, and proactive recruiters.” There are many more Wild Goose stories. In fact, Geely Holdings Group President, An Conghui, as the first wave of new university students recruited into Geely by Li Shufu, was also a Wild Goose at first. By the end of 2019, Geely’s total internal talent accounted for 1/5 of all employees. The internal talent development system lays a sound foundation of human resources for Geely’s sustainable growth. The 2521 Screening Mechanism and the Striver Catch-Up Plan According to a long-term survey of the company’s employee engagement, Wei Mei, the Group’s vice president in charge of Human Resources Management, found that the distribution of employees in Geely’s various departments often followed the “2521 Rule,” meaning, the first 20% is brilliant and exemplary; 50% is qualified and competent; 20% needs improvement and help from the organization; and the last 10% is incompetent in their positions, or worse, cannot even integrate into the company’s system. At the same time, an ongoing examination of employee growth found that the performances of the bottom 10% of employees tended to be chronically low. Suppose someone in a high position was to fall into this 10%, it would be a terrifying thing for the company and affect other employees in the department, causing the department or even the whole business to deviate from its course. Geely’s HR department deliberated on these employee types, categorizing them base in this rule, and thus distinguished the performance

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and contribution of employees according to the Capability-PerformanceValue (CPV) evaluation model giving high incentives to the top 20% of outstanding strivers, regular incentives to the 50% of employees who are competent in their positions with good performance, no incentives to the 20% with average performance, and negative incentives to the last 10% who do not meet the performance standards. Geely established a starrating striver incentive mechanism, where the better and more sustainable the performance of an employee, the higher the incentive. Geely expected to show respect for its high-performance employees by providing promotion opportunities for outstanding strivers, such as giving priority to them in annual raises and housing allowances. A Striver Catch-up Plan is developed for the bottom 10% of employees as a way of energizing them (see Fig. 7.3). The 2521 distribution principle is harsh on employees. However, Geely believes that employees often underperform because the company does not activate them. For Geely, every employee is precious. The company hopes to maximize the potential of its employees through innovative ways to take ownership of their contribution to the company, rather than directly firing the bottom 10% through cold and heavy-handed performance assessment, i.e., the Forced Ranking System. Geely believes that training is the best benefit a company can provide its employees. Therefore, the Striver Catch-up Camp was created at Hunan Geely Automobile Vocational and Technical College. It set up a unique training program to guide employees to catch-up in values, professionalism, teamwork, and management skills to encourage them to discover and actuate their potential. Every month, Geely sends about 10% of its under-performing staff to the training, which includes a 20 km hike and interviews of impoverished families. For many employees, it is a refueling station as well as a testing ground. The closed training allows employees to re-examine their goals of work and life and re-learn Geely’s corporate culture and management norms. Employees who participate in the Striver Catch-up Plan can go back to their original posts or make a lateral move if they pass their competence assessment, and if they don’t, they will be made redundant. Employees who return to their positions tend to change significantly. Through retraining, employees find space and jobs that are more suitable for their development, improve their overall abilities, and help them perform better. This training also intensifies the sense of urgency of existing employees and makes them value their current jobs even more. Many found it hard to believe that they had

Evaluation Model

D

10% Catcher-Uppers

C

50% Strivers

B

C/V Capacity/Values

B 20% Satisfactory Contributors

Daily records, annual assessments (one veto if employee is regularly out of line)

Measures the competencies and conduct in members' task completion at each position(Employees: Seven Leadership Strengths Model; Officials: Three Strengths Model for Officials)

Competency Assessment (conduct targets)

20% Outstanding Strivers

A

Regular assessments (monthly/quarterly)

Measures the outcomes of key tasks for each position (performance indicators or focused tasks extracted from organizational objectives, job responsibilities)

Key Performance Indicators (work objectives)

Assessment model

Value

P: Performance

What the indicator measures

Performance

Indicator Type

Capability

Two Challenges

Fig. 7.3 Performance Management Evaluation Mechanism Combining CPV and 2521

Distribution System

S

P 70% CV 30%

Annual assessment

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lost their motivation and direction over the years, and some even caught up to the top 20%. Their motivation actually originated in the shocks they experienced: Employee A:

Employee B:

Employee C:

First and foremost is gratitude. Many thanks to all the people I’ve met on my growth journey. The second is cooperation. Only cooperation can achieve success. The third is tolerance. Tolerating each other in order to advance together! My minor frustrations are really nothing compared to the Group’s journey, so first on my to-do list when I get back to the office is to definitely catch-up as quickly as I can! I believe if you associate with outstanding people, you will definitely become an outstanding person too! Opportunities are reserved for those who work hard. No one just lucks into anything. Luck comes through diligence. The Universe will not betray true effort and resolve, and time will not neglect anyone who is relentless and gutsy!

Of course, not all employees in the bottom 10% are content with such opportunities. Every year, Geely needs to send nearly 5,000 people to the Striver Catch-up Camp, but in fact, only 2,000 are willing to take Geely up on its generous offer, meaning that roughly half of them will simply quit. Geely believes that only those who are receptive to this opportunity have the potential to be transformed and actuated. In early 2020, the outbreak and continued spread of COVID-19 triggered a global public health crisis, sending shock waves through the world economy. This black swan event was like a big test, not only for the strategic and tactical management of the company, but also for the organization and staff. To prevent the epidemic from amplifying negative emotions such as anxiety and pessimism among employees, Geely moved swiftly and announced a policy change that the performance assessment mechanism for the year would be changed from the original 2521 to 2422, using a new Blue Ocean Plan as a vehicle to seize the opportunity to intensify training to energize employees when their workload was lighter. The so-called Blue Ocean Plan was to set up

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targeted cross-professional, cross-organizational, and cross-departmental training content, through various models, for instance, the combination of training and practice, problem-solving and independent learning, to create high-performing corps with specific characteristics, including proactivity, self-innovation, and the ability to constantly exceed expectations, to provide a guarantee of actuating oneself for the “war of high-performance management.”13 Change Is Life: The Boiling Frog Jumps Out of Its Comfort Zone The high degree of uncertainty in the external environment and the continued deepening of internal system reform have placed higher demands on Geely’s composite talent in critical positions. To ensure that employees are motivated to work and perform well consistently over the long term, Geely has incorporated the Vitality Program, an internal rotation mechanism, into its existing human resource management system. The Vitality Program is based on the concept of “Achievements of Employees are the achievements of the organization.” Through the rotation, employees are encouraged to challenge their comfort zone and find positions that are more suitable for them in their career development, so as to cultivate composite talent with vision and multi-professional experience and promote the strategic development of the organization. With the rotation of talent, more management experience can be brought to different departments, thus enhancing Geely’s overall management efficiency. For employees who lose enthusiasm as a result of working in the same position for a long time, a rotation system can be an excellent solution. This mechanism also effectively avoids the risk of a “mountainstronghold mentality” (i.e., turf protection) within departments and the idea of “privatization of talent” of officials at all levels. Moreover, the rotation system complements the 2422 High-Performance Management Mechanism. Through retraining, employees can find more suitable positions for themselves, improve their overall ability, and perform better. Our company culture is indeed very harsh, a culture of natural selection… but our human resources must take responsibility for this ‘high pressure, 13 Wu Xiaobo Geely Automobile: Organizational Toughness in Great Change [N]. Entrepreneurs Daily, 2020 (38). http://www.entrepreneurdaily.cn/upfile/att/202006191 94253c87aa.pdf.

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high performance, and high income’ culture, so that everyone can feel the heat. Human Resources should be as gentle and powerful as water. —Wei Mei

Gaining Experience and Developing Bonds In their daily routines, Geely’s managers always do their best to treat employees like family, transforming the role of managers into employee servants in the implementation of Meta-power Project. Li Xiangcai, the vice president in charge of manufacturing, has strict requirements for his staff. In addition to implementing the White Glove Engineering, requiring staff to use a mind of Lean Manufacturing to identify problems in their work, he demands workshop officials to be onsite before 7 AM every morning to conduct a detailed inspection of the workshop environment. However, he also treats each employee as his own family and is very attentive to the needs of his people. “He treated his workers like brothers and tried to address the issue of workload after he saw they were exhausted.” Zhang Aiqun recalls, “In the summer, he delivered towels to every workspace in a factory of thousands of workers despite the fact that he was the factory manager.” The Group’s President, An Conghui, is another living example of servant leadership. In 2006, Ningbo Company’s Geely CK sales were booming, and demand exceeded supply, with the factory often working around the clock. An Conghui noticed that some frontline staff often spaced off between 4 and 5 PM and could not concentrate. He understood that they were troubled by concerns that they could not get to the preschools in time to pick up their children. To relieve the concerns about preschool education, Geely opened several Geely preschools in bases such as Hangzhou Bay and Baoji, with a requirement that the schools’ working hours must be aligned with the factories’.14 From then on, no matter how early the employees go to work, the preschools will have teachers to greet the kids, and no matter how late the employees get off, the preschools will have teachers to look after the children, which completely alleviates the employees’ anxiety.

14 Li Shufu’s View of Talents—Building Geely Talent Forest. August 25, 2018. http:// www.sohu.com/a/249982694_99917046.

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In addition to putting themselves in the shoes of employees in their daily work, Geely’s managers have also developed a Whole Career Lifecycle Support Program, covering from the time employees onboard through to their retirement. Prior to getting onboard, Geely improves the experience of job applicants by accommodating interview facilities, creating an interview atmosphere, and educating interviewers; During onboarding, the company promotes a sense of belonging among employees by providing induction guidance, issuing newcomer packages, and carrying out the Dream Launch Project. In the probationary period, various means are taken to integrate the green hands into existing teams swiftly, for instance, providing training for rookies, signing mentorship agreements and introducing a mentorship system, conducting performance coaching, and holding seminars for green recruits; During the on-the-job and developing period, to enhance employees’ sense of achievement at Geely, the firm will provide customized and experiential training services through enterprise universities, supply shared service and management platforms, develop employees’ general, professional, and leadership skills, establish an Occupation Qualification System and star-rating development channel, offer job and international rotation opportunities.15 (See Fig. 7.4). Geely also continues to promote three major systems, i.e., care and incentive, employee mutual aid, and educational assistance, and has designated June 26th each year as Geely Employee Care Day. Targeting specific employee groups, for instance, ethnic minorities, veterans and military dependents, overseas returnees, volunteers, and exemplars, Geely precisely creates a caring experience beyond expectations to help employees work and live merrily. According to statistics, in addition to basic social insurance, Geely invested nearly CN¥ 100 million per year for three consecutive years to purchase commercial insurance for all employees, their spouses, children, and parents, covering death or any accident or disease, critical illnesses, and outpatient and emergency medical care. By the end of 2019, the commercial insurance coverage covered 220,000 employees and their families, with more than 22,000 households receiving assistance; 111 children of Geely employees received educational assistance with a grant amount of CN¥497,000.

15 Ecological Construction and Management Practice of Geely Talent Forest. September 18, 2019. http://www.gongkongke.com/posts/QCapQXxk6tHn/.

Fig. 7.4 Employee career life-cycle support program

Geely Jiayuan Home of staff Lijing Huayuan Huali Jiayuan

Monetary Gift

Fellowship Club

Our Values Our Cultural Garden Our Skills Our Competitiveness Professional Awards

Retirement

Farewell ceremony Commemorative model car

Shufu President's Award Presented to those chosen for ou tstanding ethical conduct befitting of the title of moral role model

Honors and Awards

Risk Protection

Education and Awards

Kindness activities

Residence

Childcare and Schooling

Childbirth

Marriage

Monetary gift Free wedding car

Care and Incentive Fund Homecoming Feast \ Group Employee Mutual Aid Wedding CeremonyCommunity Education Assistance Fund Supplementary and Enterprise Regional Fund Geely's kindergar business insurance for Co-operation Mental Health tens Help with schooling employees and their Services families

Friendship

On-boarding

Ideological and moral education Party organization connection Free medical exam on entry

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Organizational Empowerment With its growing brand and rapidly expanding career platforms, Geely gives all kinds of talented individuals a vast space to spread their wings and develop freely, which is extremely attractive to outstanding people in the automotive industry. During its rapid growth, Geely brought in technical experts and management personnel in various fields, but many came and left quickly. Although Geely was eager to bring in brilliant people, it did not establish a communication mechanism and management platform within the company. Moreover, it did not clearly delineate the chain of command, i.e., who to report to, which team to work in, what kind of relationships employees had with each other resulting in many people being unable to perform well after onboarding. Meanwhile, no regulatory mechanism had been formed for employee welfare, such as the arrangements for family members when employees join Geely, and how to address the concerns of their children’s schooling, which made employees uncomfortable. It all boiled down to not having the right human resource structure to match the talent’s developmental needs. At the same time, it was a common practice in Geely to “create jobs for people” in the early days to improve the operational efficiency of its subsidiaries. Due to a significant amount of time spent on transactional work, such as performance statistics, staff training, at the Group headquarters, matters concerning salaries and recruitment were under the jurisdiction of individual manufacturing sites (subsidiaries). In this setup, during the expansion of the company, Human Resources at headquarters did not feel the pressure of market competition to generate a service consciousness, thus it was unable to comprehend the needs of each business unit in real-time and provide targeted support, much less provide customized solutions according to operational needs. It was no surprise that all subsidiaries were “small but complete.” However, as Geely has grown in size, the pattern of independently staffed positions in each subsidiary made it common for staff to be unevenly occupied: employees were sometimes required to take on a high level of work pressure, but at other times they could be particularly relaxed. This state of affairs led to a desperate need for “mutual support and talent sharing” between the various manufacturing bases and an increasing necessity for overall command and coordination from headquarters.

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Three-Pillar Reform To systematically improve human resource management to meet the demands of internal customers (business units), Geely worked with IBM Management Consulting in 2010 to initiate a Three-Pillar16 human resource management reform, which unified all positions and categorized personnel into position levels,17 streamlining the number of posts from over a thousand to over 400. Human resource management moved from “limited customer service,” “limited strategic planning,” and “to resolve matters” to “focusing on internal customers,” “supporting and executing the right strategy,” and “based on standardized project processes.” The Three-Pillar model (see Fig. 7.5) creatively introduces the concept of three types of roles: Centre of Expertise (COE), Human Resource Business Partner (HRBP), and Shared Service Center (SSC). The Centre of Expertise is responsible for formulating pertinent human resources strategies and policies as well as processing for selection, training, employment, retention, dismissal, and reserve in accordance with the Group’s strategy, business development requirements, and the competitive external talent environment.

CO E

nte Ce

3

r

Three-pillars

nte

Ce

C

SS

ice

ro

f

erv

Ex

dS

pe

are

rti

Sh

se

1

Fig. 7.5 Geely’s three-pillar model of human resource management

HRBP Human Resource Business Partner

2

16 The HR Three-Pillar model was first proposed by IBM based on the theories of HR management guru David Ullrich, combined with its own HR transformation practices. The HR system supported by the Three-Pillar stems from the company’s strategy and serves the company’s business. Its core concept is to enable HR to better create value for the organization through re-engineering organizational capabilities. 17 Geely’s position levels of officials include Levels 5–10 and AB.

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Business partners are responsible for working closely with the business units to provide various HR solutions for their businesses, enhance and develop staff teamwork skills, build a good team atmosphere, and facilitate organizational performance achievement and continuous improvement. For different position levels of business partners, Geely proposed different tiers, for instance, transactional, solution-oriented, and strategic. Business partners below position level 6 mainly start from transactional work, quickly acquaint themselves with the business units, and provide corresponding support. Business partners at position levels 6 and 7 should identify the issues of the business units in a timely manner, and exert influence on the business units through their professional. Business partners at position levels 8 and above need a long-term strategic vision and a keen business sense to ensure that the overall strategic direction is correct and feasible. The Recruitment Centre of the Shared Service Center acts as Geely’s internal headhunter, responsible for channel management, talent pool construction, and recruitment implementation. By establishing a shared talent database, it improves the efficiency of supplying talent to diverse business units and reduces Geely’s reliance on external headhunters. In the first half of 2018 alone, Geely’s cost savings on this were CN¥ 40 million. The Personnel Sharing Centre is responsible for making full use of information and Internet technology to realize employee self-service and establish an efficient and unified shared service platform. As of 2018, Geely set up 23 shared service stations and 33 service outlets, covering more than 70,000 employees in the units such as the Geely Auto Group, commercial vehicles, new businesses, etc. On this basis, Geely achieves intelligent human resource management and internal marketization by introducing a digital management model. Like a third-party HR services group, the Personnel Sharing Centre takes the demands of (internal) customers as its starting point and offers a variety of service products that are popular with employees, for instance, GeeTalk, GeeOffice, and GeeBuy, as well as a unified big data and IT management platform that provides multi-data analysis to support alert and decision-making in HR management.18 18 China Automotive News Network. Yang Xueliang: Geely Human Resources Practice Sharing. 2018 Annual Meeting of the Council and China Automotive Talent Summit Forum. August 28, 2018. http://www.cnautonews.com/20180202/20180704/201808 28qcrc/201808/t20180828_595570.html.

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It is worth mentioning that Geely’s Three-Pillar management model reform coincided with the “mass entrepreneurship, mass innovation” policy. Deeply inspired by entrepreneurial thinking, Geely set up a company for the Shared Service Center and allowed it to have its own business model, advancing the transformation of SSC to SDC.19 In the past, people at the Shared Service Center were limited to tasks such as issuing contracts and handling onboarding and offboarding procedures without much sense of achievement. The entrepreneurial model provides directions for these talents that Shared Service Center will charge to specific business units for every single service. The staff sees the value of the services and grows into an efficient operational team with market competitiveness, inspiring more ideas to serve internal customers. Nowadays, the Shared Service Center not only handles staff entry, exit, and welfare procedures, but is also an essential platform for talent exchange within the company. There is a dedicated service for high-end talent who can enjoy a one-to-one butler service for any problems they may encounter. The Shared Service Center also has a particular workflow for new employees, including an introduction of Geely’s development history and the issuance of new employee information packages, etc. Through these timely and relevant services, novices’ adaptation time is shortened, and they are able to get to work faster. Enterprise University The Three-Pillar model changed Geely’s original functional approach to human resource management, completing the transformation from control-driven to business-driven, and energizes Geely’s human resource management with the support of information systems. With the completion of a series of overseas joint ventures and acquisitions, Geely established the N-Pillar (see Fig. 7.6) on top of the Three-Pillar to better support its global business expansion. In addition to further deepening the responsibilities of the Three-Pillar, the Enterprise University in this model has also become an important pillar of Geely’s talent development, culture dissemination, and brainstorming. 19 In contrast to a Shared Service Center, a Shared Delivered Center (SDC) takes the user’s needs as the starting point. It delivers beyond expectations by digging deeper to meet the user’s needs to the maximum extent possible, rather than just responding to the demands passively.

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In addition to setting up the Geely Academy, Geely also established a number of specialist training colleges, with ten branches or specialist colleges in specialist areas, such as powertrain, information technology, human resources, security, etc. The University provides talent training solutions, assists in business downward and resource integration, and uses the academic advantage to support business development and improve employee capabilities.20 Geely’s University is not limited to classroom-style training, rather it has set up an international communication forum for employees and experts from around the world to elevate their professional skills through brainstorming. In keeping with the original plan of entering the education sector, Geely’s University also expects to delve deeper into the profession and find out the training needs and business pain points within the company. Thus, the University operates mostly on a project basis,

20 China Automotive News Network. Yang Xueliang: Geely Human Resources Practice Sharing. 2018 Annual Meeting of the Council and China Automotive Talent Summit Forum. August 28, 2018. http://www.cnautonews.com/20180202/20180704/201808 28qcrc/201808/t20180828_595570.html.

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tailoring training programs for different levels of talent based on business demands and providing targeted talent development. In 2011, Geely launched the Maritime Program. The program designs Sailing, Voyage, and Pilotage Projects for the low-, middle-, and seniorlevel officials of the Group, respectively, as well as the Micro Sailing and Micro Voyage Projects for the low- and middle-/senior-level officials of subsidiaries. It focuses on the three mandatory courses for managers: direction, method, and order, focuses on improving key competencies and performance, and forms a unified management language across the Group. Furthermore, the Maritime Program provides a platform and opportunities for communication between officials, and promotes an atmosphere of co-creation. In the case of the (Micro) Voyage project, for example, many of the officials are spread across Geely’s subsidiaries or manufacturing bases, each responsible for a different product line and taking on management responsibility in a different department, with little intersections among them. In response to this situation, Geely stages four Voyage Executive Training Courses each year, in which officials from all over the country are organized to conduct cross-departmental studies on the four to five projects targeted at the issues that most plague Geely’s development at each phase, and members of the project team have to solve these problems before they can graduate. These courses are in fact also an assessment of the officials’ capacity by the Human Resources department. By bringing together colleagues who are alien to each other in the form of a project to discuss existing management challenges and try to solve them, Geely not only bridges the gap, but also creates an atmosphere of innovation, and the officials are unified in their minds and senses in the process. Indeed, many people are very willing to take part in this training. “Across the officer management system, Voyage owns a good reputation. Many officials become friends with their classmates in the same course. After the training, he does not have to search online when a problem incurs in work, but make a phone call to a friend who in chance is the corresponding person and many times the problem is solved.” Wei Mei said. In order to make learning more convenient for staff and conform to online education trends, Geely’s University also developed a comprehensive training system, GeeLearning, which integrates online learning, knowledge management, and training management to fully promote staff online learning. The platform has more than ten core features,

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for instance, online courses, examinations and questionnaires, learning maps, training management, knowledge bases, classroom management, and big data management, providing employees with more than 1,200 high-quality online courses covering four major directions: corporation, management, general, and professional. In 2019, Geely conducted more than 20,000 training sessions for its employees, totaling more than 4.85 million hours (see Fig. 7.7).

The Openness and Inclusiveness of Non-linear Growth The development of the global automotive industry is rooted in the development of talent. From “making good cars that people can afford” to “making quality cars for everyone,” Geely’s successful transition from a low-price strategy to a global business has proven the importance of talent development. Through continuous exploration and innovation of construction of human resource management system, Geely adheres to an

21 Total training hours was the total number of hours of training received by all employees, i.e., total training hours = average number of training hours for Class A employees x number of Class A employees + average number of training hours for Class B employees x number of Class B employees + average number of training hours for Class C employees x number of Class C employees + …

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open and inclusive work system, establishes the talent development and management system that better suits its development needs at each stage, and gradually builds up Geely’s Talent Ecosystem, which become one of the key reasons for the company’s sustainable development (see Fig. 7.8). Geely advocates a global corporate culture with the core characteristics of “Respect, Adaptability, Inclusion, and Integration” and a core concept of “seeking-out-like-minded-comrades,” and recruits a large number of top talents from around the world who fully share Geely’s culture, value, and mission. Better management of employees with different cultural backgrounds by encouraging mutual respect and sufficient communication between Chinese and Western employees is an important reason why Geely is able to attract many talented people to join the company and unite these people into one cohesive team. In addition to bringing in talent, Geely puts a great deal of time and resources into developing brilliant internal staff members. In the field of education, Geely, through strategic foresight and planning, has established institutions at different levels of training, from vocational high schools to graduate colleges, providing a strong guarantee of talent for the development of itself and even for the advancement of China’s automotive industry. Within the company, Geely also designs targeted training programs for employees at different levels and has established a University that provides

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customized, experiential training services so that employees make tangible improvements to their business skills. Geely knows its employees and makes the best use of them with an inclusive working environment. Based on the assessment of the abilities of various top employees, Geely helps each member find the right position and provides them with the space for bold experimentation and a springboard to showcase their abilities through full delegation. Moreover, Geely pays particular attention to the sense of belonging of its staff in their developmental process. In order to provide “sunshine and rain” for the healthy growth of talent, Geely has been upgrading its human resources structure in phases according to the strategic needs of the company, and cares for its employees in all aspects through systematic management, so that they can concentrate on their business. On the one side, Geely provides employees with shared service products and management platforms, enhances their sense of achievement and well-being at Geely, and continues to create a development experience for them beyond expectations. On the other side, Geely also establishes a rigorous and competitive evaluation and incentive system based on employee development and sparks their vitality and creativity through incentive measures such as the Striver Catch-up Plan and the Blue Ocean Plan.

CHAPTER 8

The Code of Vitality to a Resilient Organization

The outbreak and continuous spread of the COVID-19 pandemic in early 2020 disrupted the normal operational rhythms of the Geely Holding Group. Geely responded quickly with the necessary adjustments. Geely organized an online launch ceremony on February 24 to officially release its first compact SUV, the Geely ICON, which is also the first SUV in China to be equipped with N95 mask-level air filter protection technology. The black swan event was an ordeal that tested Geely’s strategic and tactical management and tempered the entire organization along with all employees. Geely’s ability to respond flexibly to the impact of the pandemic and take quick decisions through a crisis that affected the whole industry was not a makeshift emergency reaction. Rather, it represented the results of a long-term training of talents and an extraordinary exploration of employee value. Geely has survived and thrived in a niche market besieged by joint venture car companies. It now emerges as a global automobile group that owns ten leading brands, including Geely, Volvo, Lynk & Co, Proton, and Lotus. It is the only private automobile company in China listed in the Fortune Global 500 in 2021. Geely’s annual revenue exceeded RMB 100 billion in 2018. Geely has long maintained a solid and robust growth momentum. Geely sustained a high growth rate even during the global economic crisis of 2008. The Group’s profit growth rate has hovered

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around 80% compared to 2007. Geely’s corporate operating income and profits were dampened in 2014 because of certain strategic modifications and the economic downturn in Russia; however, Geely adjusted quickly and staged a more vigorous growth trend (see Fig. 8.1). In terms of Geely’s three major expenses including rising sales expenses, which were driven primarily by higher vehicle sales. Management expenses were also increasing year over year but maintained a low and steady growth rate (almost a straight line with a low slope). This growth rate was obviously lower than the increased rate of income. Further, Geely’s financial expenses had decreased almost year over year since 2013, evidencing the instrumental role of its internal management mechanism (see Fig. 8.2). Overall, Geely’s enterprise management evolved from management by experience to management by science, and ultimately to management by corporate culture. Geely was small in scale in its infancy, principally adopting management governed by people using the carrot and stick methodology to motivate and regulate employee behaviors. As it grew in scale, Geely realized the disadvantages of clan-style corporate governance and structured a modern enterprise management system through process re-engineering, optimization of decision-making mechanisms, sufficiently motivating its senior management team, and keeping morale upbeat. Geely has sailed through challenges of formalization and standardization because of its continuously improving corporate systems. However, it became difficult to clearly distinguish the responsibilities of departments and employees as the boundaries between functional departments and

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organizational units became increasingly blurred. In the past, the rigid definition of responsibilities often dampened the enthusiasm and creativity of employees. The vitality of an enterprise is determined predominantly by its employees. This holistic notion is equally applicable to executives, backbone employees, as well as frontline general workers. Geely implemented a “meta-power project” to continuously drive enterprises toward development and tap into the collective wisdom and potential of employees, stimulating their creative passion and motivating them to actively participate in enterprise management. Geely deployed an effective system of regulating employee conduct. At the same time, it continuously combed, practiced, and adjusted the cultural system, generating a complete and mature cultural philosophy that all employees supported and with which all employees fully agreed from their hearts. Li Shufu believes that “metapower” denotes the core force of Geely’s survival and development. “Meta” represents the vitality, source of strength, and core element of a living enterprise. It is also the secret of Geely’s sustained vigor. How did Geely build meta-power into a unique management model and cultural phenomenon to support resilient growth and overcome bureaucracy? This chapter will reveal Geely’s dialectical viewpoint of the potential connection of contradictory elements at different stages of the organization through grayscale thinking or the mode of “paradox integration.” A dynamic unity can be shaped, and principled compromises

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can be made by integrating seemingly opposed factors such as vitality and efficiency. Enterprises can thus be encouraged to formulate reasonable and innovative business strategies and management models to demonstrate dynamic energy and strong resilience in facing internal strategic upgrades and external environmental pressures. From the perspective of senior management, Geely achieved a balance between decentralization and centralization by instituting changes in the leadership structure, improving the efficiency of strategy formulation, and introducing flexibility in the implementation of a senior management team. In formulating strategic objectives, Geely adhered to the strategic orientation of cost control, dialectically weighing innovation-related risks and opportunities. From the standpoint of grass-root-level management, Geely achieved a balance between stimulating the enthusiasm and creativity of employees and behavior regulation by building a grayscale culture, enhancing structural design, and ameliorating interest distribution.

The Resilience of the Executive Team Li Shufu is most famously labeled the “Car Madman.” His entrepreneurial spirit is always traceable from Geely’s business moves over the recent years, including the acquisition of Volvo and Britain’s Manganese Bronze Co. Ltd. His ventures showcase both boldness and an abundance of prudence. When many enterprises were still celebrating the clanbased corporate governance system, Geely had begun restructuring its internal management, distancing itself from the clan-based system to the shareholding system, exemplifying a modernized vision. A management committee was established to subvert the traditional rule-by-boss and institute a collective decision-making process to replace decision-making by a singular superior. The way in which the boss was held in check ensured that sufficient discussions were held before any decisions were made. Thus, the adopted decisions were objective and effective; they stimulated creativity in executives. The shift also helped to ensure strategic alignment among executives. Resilient Leadership Structure At first, Geely was co-founded by a few brothers from the same clan and several fellow villagers as its core members. Ownership and management rights have been highly unified since the company began operations

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in 1986. Before engaging in automobile manufacturing, Geely was only a “poorly equipped guerrilla” with a head-count of 20 employees. It supplied its products primarily within Zhejiang province. Geely fully utilized the advantages of being a family firm. In most family-run businesses, the principal managers of the enterprise belong to the same extended family; the employees trust each other and do not need to invest trust in other agents, reducing the costs of organizing supervision within the enterprise. Second, family enterprises display high decision-making efficiency and strong execution. Geely’s evolution from its humble beginnings as a garage workshop scarce in funds and talent resources to becoming the first private Chinese car-making enterprise could be considered miraculous. This transition would not have been possible without the joint efforts and hard work of its brothers and friends. Introducing Modern Management It is often challenging to adjudicate family disputes. Geely was plagued by ill-structured interest distributions resulting from the limitations of its clan-based governance. The mismatched contributions and rewards severely dampened the enthusiasm of employees and sabotaged the team spirit. Cheating, corner-cutting, overlapping leadership, and other such ills paralyzed internal management across the company. Li Shufu had basically founded Geely along with a team of his countrymen, armed with a “gung-ho” spirit. In its infancy, the executives forming Geely’s decisionmaking body had the highest education background of a junior middle school diploma. As Geely kept growing in scale, its team grew into thousands of regular troops who needed to supply automobile products for the entirety of China and even the whole world. Li Shufu was thus confronted with the immense challenge of managing a growing-up Geely. It was clear to Li Shufu that Geely must equip itself with modernized management to escape a death valley. The company would have to hone its internal strengths, perform effective management, and break out of the typology bottleneck of Taizhou enterprises being mostly a family-run workshop in management mode. Geely must dilute the clan operation model and introduce modern management. In 2002, Li Shufu launched reforms in the shareholding system of the company, separating the company’s ownership and management rights and implementing a modern enterprise management system. As a result, Geely transformed from a

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family-run business into a modern shareholding enterprise managed by professional managers. Moderate Delegation In 2004, China’s domestic automobile industry experienced a period of contraction as national macroeconomic policies were tightened. Li Shufu saw a great opportunity and decided to launch inward-looking reforms to Geely’s systems. He made three learning visits to the advanced enterprises such as Haier before performing an explosive business process re-engineering with organizational, management, and cultural changes at its core. The optimization of the governance structure was urgently prioritized at that juncture. The boss is often the x-factor of the corporate system in many private enterprises. The “bossy presence” of leaders who too frequently attend or directly intervene in daily operations considerably weakens the authoritativeness of the instituted system. The habitual domination of leaders and the habitual obedience of subordinates reduce the system to the status of a fig leaf, making it difficult to standardize a company’s internal operations.1 Zhang Aiqun, former senior vice president of the Geely Group, stated2 : There were too many slap-on-the-head decisions in Geely and there was not much scientific decision-making process. If the decision-making is always shifty, the personnel and organizational structure will naturally flip-flop.

In view of governance problems in the Group, such as dictatorial rule and flip-flop decision-making, Li Shufu firmly supported the governance scheme proposed by the process re-engineering team. He formally changed from the presidential responsibility system under the stewardship of a board of directors to a management committee responsibility system under the leadership of the board of directors (see Fig. 8.3). In this manner, he avoided reducing management team decision-making to a mere window-dressing formality. 1 Han Wei, Xi Youmin. Subordinates Changing the World: Local Construction of Leadership Subordinate Interaction Mechanism [J]. Journal of Xi’an Jiaotong University (Social Sciences Edition), 2015 (35): 15. 2 Liu Tao. The Critical Point for Geely. Chinese Entrepreneurs, 2006, 000 (12), 66–69.

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The corporate president also served as the director of the management committee,3 whose members included vice presidents, directors, and other functionaries. The chairman attended the meetings only to hear reports and express opinions. Yet, in principle, the fully delegated management team was authorized to make decisions. The management committee stipulated three clear rules of procedure. First, it implemented a monthly meeting system: the management committee would meet once every month to study the major decision-making issues of the Group and to resolve major management problems. Second, collective decisionmaking obligated personalized accountability. Important decisions taken on certain operations of the company were collectively made by the management committee. Leaders in charge of such assignments were required to execute the effected resolution even if their personal opinions differed. For example, the management committee would collectively discuss and decide the expected sales volume of cars in the current year. Once the decision was taken, the vice president of sales would execute it, and the vice president of sales would himself be responsible for the implementation, whether or not he personally agreed with this decision. He was compelled to resolutely execute the decision as long as it was taken collectively. Third, majority votes prevailed. Democratic centralism was mandated on the basis of sufficient discussion. The chairman would have the final say if the committee found it really difficult to make a decision. The management committee meets once a month to date; it has never missed even a single meeting. Geely has also set up four special committees to make the decisionmaking of the management committee more reasonable and effective. First, a development planning committee conducts research on the development strategy of the Geely Group and proposes feasible plans based on extensive consultations with experts. These plans are discussed and approved by the management committee before being submitted to the board of directors for approval. Second, a contract review committee conducts rigorous and scientific scrutiny before the review of submitted projects to avoid disputes and damages during the fulfillment of the contracts. Third, a quality management committee is charged with feasibility studies before decisions are made on major issues related to the 3 Initially, Li Shufu served as the director of the Business Management Committee. In March 2005, he resigned from his position as director and only attended meetings, with Geely’s Executive Vice President serving as the chairman of the committee.

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quality management of the Group. This committee provides the management committee with a basis for decision-making. Fourth, a safety production committee is responsible for safety, environment protection, and other aspects of security related to work and conducts feasibility studies before decisions are taken. Respect the Rules The system of the responsibilities of the management committee under the leadership of a board of directors enables Geely’s senior management team to appropriately decentralize and take scientific decisions. Li Shufu clearly realized that strong self-discipline must be demonstrated and that Geely must take the lead by observing all mechanisms to really discharge the due role envisioned by the system. “At the management meeting, the chairman has veto power, but he seldom used it. We felt that he has been very cautious in using this veto right.” According to Zhang Aiqun, the senior vice president of the Geely Group, Li Shufu listens carefully to the opinions of the management team and abides strictly by Geely’s corporate governance systems. During the automatic transmission project, for example, Li Shufu expected to launch products installed with Geely’s automatic transmission in May 2005 to enable Geely’s Luqiao factory to become profit-generating as soon as possible. However, the management committee opined after discussions that it would be better to postpone the market launch after all tests and demonstrations were accomplished to assure 100% success. Li Shufu conceded and postponed the launch of the automatic transmission to November 2005. In another example, Li Shufu was personally keen on his proposed Asian Geely Formula Racing project; after discussions, however, the contract review committee objected on the grounds that the business model of this project was murky and could not reasonably assure the recovery of tens of millions in investment. On attaining the committee’s feedback, Li Shufu immediately began to revise the business model to guarantee returns on investment. The proposal was approved only when it was submitted for a second review. At the end of 2020, Li Shufu announced that he would no longer serve as CEO of the Geely Holding Group to advance the construction of a management system and to help the modern enterprise system take root and play a better role in Geely Holding Group and other business holding groups. Li Shufu serves solely as the chairman of the Geely Holding

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Group. Meanwhile, Li Donghui, the incumbent CEO of Geely Holding, became Geely’s legal representative in accordance with international practices and the institutional arrangement of the Geely Holding Group. This move revamped the conventional notion of the traditional management system of Chinese enterprises and catalyzed Geely to construct a modern enterprise management system in a more compliant manner. Geely has earned much respect by boarding on an incessant journey of innovation and sustainable development. Strategic Resilience Geely has experienced three major strategic upgrades from the initial low-price strategy to the current mission of making premium cars for all. In this process, Geely has repositioned its core competitiveness from cost advantage to technology and quality advantage. Nevertheless, Geely has been aimed from the outset to improve cost control and provide consumers with high-quality products and higher cost performance. Strategic Consistency As mentioned in Part 1 of this book, Li Shufu’s venture into car manufacturing originated in a “car dream” that was seeded in his childhood. At that time, China’s automobile industry was dominated by a handful of joint venture brands. Cars manufactured by domestic joint venture brands were priced approximately twice the amount of foreign cars in the same class. Almost no cars priced under RMB 70,000 existed in China. The idea of venturing into car manufacturing was opposed by almost everyone, from the government as an external entity to Li Shufu’s extended family and the board of directors of Geely Motorcycle as internal stakeholders. Yet, Li Shufu never budged on reshaping domestic automobile production patterns. He dreamed of “building cars ordinary people can afford” and offered prices that returned benefits to ordinary consumers. Li Shufu recalls the past in a tone that reveals his never-yielding tenacity: “Once started, there is no way back. Yet it’s the call of the all factors as it is my pursuit of the dream.” Geely was disadvantaged by the paucity of available funding but could not replicate the approach taken by other local enterprises of resorting to “foreign aid” and directly buying into product platforms. Geely started by adopting a cost advantage strategy under Li Shufu’s leadership,

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implementing the maxim of “imitation before innovation.” It reverseengineered and imitated the car models of Mercedes-Benz and Hongqi. Instead, of being a direct copycat, Geely quickly developed the ability to effectively control costs by means of imitation. Geely also purposely localized its suppliers to create a support system and gradually phased in its own low-cost support networks to reduce its dependence on the supplier system of Xiali. Finally, the sequential launches of Haoqing, the Meiri, Japan, and Youliou car series helped Geely establish an absolute price advantage through low cost and imitation from the low-end. Geely thus gradually found a foothold in car manufacturing in China. Subsequently, Geely began independent research and development into core components such as automatic transmission, driven largely by the intention to break the bottleneck of technology and sustain its cost advantage. Geely continuously built up its resources and capabilities that match its strategic positioning of cost control. Guided by this core strategy, Geely attained a lasting competitive advantage that also minimized the opportunity costs caused by strategic swings. Geely could thus stay completely focused on its path, consolidate its advantages, and continuously create value for its customers. Dynamic Strategic Equilibrium Is Rooted in the Accurate Judgment of a Bright Future A consistent strategy can help enterprises build matched resources and capabilities, but enterprises can never deduce the best strategy because strategies must adapt to circumstances that present themselves in dynamically changing competitive environments. Geely’s senior management team, represented by Li Shufu, has repeatedly demonstrated its ability to perceive market trends. Geely’s management team can identify and maximize business opportunities, turning crisis into opportunities, even when the entire industry faces risks. A global financial crisis occurred in 2008, plummeting stock markets, depressing the world economy, driving companies into bankruptcy, and sinking the world into despair. Li Shufu was invited to the Great Hall of the People to attend a forum on coping with the financial crisis. At this meeting, he delivered a speech that is partially quoted as follows: The world’s automobile industry is undergoing a profound change. China is facing a once-in-a-century development opportunity. Talent, technology, capital, and market have made unprecedented benefits to

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China’s economic development. The nature of the global financial crisis is the business opportunity to catalyze the global industrial restructuring. And the historical opportunity for the rise of China’s automobile industry is right in front of us. At that time, Li Shufu’s speech was dismissed as too optimistic. In fact, Li Shufu’s seemingly reckless speech was based on careful consideration of both opportunities and risks. Geely firmly seized the opportunity according to Li Shufu’s blueprint, accomplishing three overseas merger and acquisition deals and realizing a forward-leaping progression guided by a globalization strategy. Among its other forays, the successful acquisition of Volvo Cars by Geely in 2010, a case of a “snake swallowing an elephant,” has become a model for Chinese enterprises to acquire overseas enterprises. In 2014, joint venture cars lowered their prices and entered the leeway market space of indigenous car brands, triggering a staggering 16.24% year-on-year drop in the sales volumes of indigenous car brands. Facing the offensive of joint venture brands, Geely implemented the brand strategy of proposing the brand mission of “premium cars for all.” It eliminated homogeneous products with great courage and determination, poured billions into R&D project investment budgets, and canceled prospective models in the pipeline. At the pinnacle of this reshuffling exercise, Geely only allowed Emgrand cars to be sold. This retraction from multiple brands to a single product was certainly expensive. Geely Automobile’s sales volumes fell sharply by almost 28%, from 550,000 vehicles in the previous year to 410,000 vehicles in 2014. Geely’s business operations were precariously positioned. The Group’s management team withstood tremendous pressures from the market and other enterprises with the full support of Li Shufu and completed the transformation of the brand. Since that time, Geely has successively launched 3.0 upgraded versions of products such as Borui, Boyue, Emgrand GS, GL, and so on, achieving striking performance in sales and accruing a wonderful market reputation. Geely was able to stage a staggering triple leap in sales performance from 510,000 vehicles in 2015 to 766,000 vehicles in 2016 and 1.247 million vehicles in 2017 only because of its triumphant re-branding and return. Geely would not be the success it is today if it was slower and less determined to adopt revolutionary strategic decisions. The COVID-19 pandemic began in early 2020. It rampaged across the whole world, pounding countries across the globe in serial strikes and making it difficult for production to resume, sales to be restored, and

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the supply chain to become eased. The continuing pandemic unleashed a double-whammy on the automobile industry, which had been facing tremendous downward pressures since the end of 2018. Nevertheless, according to An Conghui, the president of Geely Holding: Geely already had that crisis mindset as early as 2018, figuring about how to survive […] Geely is confident in leveraging the changes brought about by this pandemic and do a better job in adjusting and transforming itself. Geely made comprehensive preparations to cope with the change. An Conghui believes that enterprises compete mainly through growth rates in the greenfield markets, but the competition in a brownfield market is more about market shares. Geely adjusted its evaluation index early on, considering market share to be a critical performance indicator, whether for Geely, for its partners, or for distributors. In terms of organizational structure, Geely accomplished a framework adjustment years ago to increase the overlapping of employee functions. Apropos personnel training, Geely also attended increasingly to train inter-disciplinary talents. The sudden pandemic disrupted Geely’s operations, stranded the global dealer conference originally scheduled to be held in Wuhan, stampeded scheduled car launches, and derailed manufacturing. However, Geely managed to adjust quickly and adapt thanks to preemptive preparations. On February 24, Geely conducted the virtual online launch of its first new compact SUV, the Geely ICON, and the first car in China to be equipped with the N95 mask-level air filter protection technology. Geely Auto ranked second in China with 206,000 vehicles in the first quarter of the national sales ranking of passenger car manufacturers. For the first time in history, Geely surpassed SAIC Volkswagen and SAIC-GM in quarterly sales. It is the strategic strength of such poise that helped Geely gradually secures its market position within the fluid global automobile industry. Once Geely has defined the strategic direction of its enterprise development, it adamantly implements plans until the final objective is achieved. However, it does not blindly follow the instituted strategy. Instead, it calls for a dialectical and forward-looking strategic vision of a bright future built on the accurate judgment of Geely’s senior management team.

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The “Meta-Motivation” of an Organization The tectonic changes instituted in Geely’s governance structure provided a healthy, standardized, and fully delegated working environment for professional managers brought in from outside the company. They helped Geely become more objective and transparent in the decisions it took on major issues. They also stimulated the enthusiasm and morale of the senior management team. Armed with a forward-looking view of the industry under the leadership of the senior management team, Geely grasped the opportunity to firmly embrace globalization, constantly strengthening its strategic collaborations with world-renowned automobile companies. Geely concurrently actively promoted the construction of its own brand and successively launched products such as Geely CK, Emgrand, and Borui. Besides building several manufacturing bases in Zhejiang province, Geely extended its reach beyond the Jiangsu and Zhejiang provinces and further expanded its base territories in China to the Eastern, Central, and Western parts of the country. Geely simultaneously bought 19.97% of the shares of Manganese Bronze Co. Ltd. in Britain in 2006 and became its largest shareholder. In 2013, Geely acquired the entire core assets and business of London Taxi Company. Geely’s full acquisition of Volvo Cars in 2012 caused a great sensation in the domestic car-making market. Geely merged with some companies outside the automobile industry. It came as a pleasant surprise when a car company with such humble beginnings that was deemed not bullish in business prospects by the market was unexpectedly enlisted in the Fortune Global 500 in 2012 with an operating income of USD$ 23.3557 billion. However, Geely’s massive construction of new manufacturing bases and exploration of new businesses inevitably led to numerous management problems. As the company continuously enlarged in scale, its management system became increasingly bloated, and the coordination between the headquarters and subsidiaries became increasingly ineffective. Geely became “overweight” and clumsy in facing opportunities that required prompt decision-making, and the symptoms of “big company malaise” gradually began to emerge. Besides, with the expansion of Geely’s scale, it became increasingly difficult to quantify the personal contributions of employees to the company, resulting in non-discretionary interest distributions. Some employees may offer good ideas but do not bother to push them because they may not ultimately be appropriately rewarded for expending the extra time and energy. Sometimes, people

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could confront a huge wall of resistance when they attempt to apply a new idea in a big company. Continuing with the pyramid structure of centralized management typically seen in traditional enterprises would inevitably compromise the vitality and efficiency of Geely’s enterprises and nullify their flexibility. However, a too-loose management structure would probably result in the company being ambushed by many looming issues that could scupper the company’s attempts to achieve its overall targets. In addition, Geely announced its strategic transformation from the low-price strategy to the new strategy of “advanced technology, reliable quality, satisfactory service, and all-around leadership” in 2007. Geely actioned a hard stop to the low-end products, introduced many advanced international production lines and equipment, and invested billions of dollars in the development of R&D systems. Such a move was followed by tremendous pressure for product competition and cost control. How could Geely couple effective cost control without triggering a price war? How could the company improve customer service levels? Such an array of problems badgered Geely and nudged it to rethink its own culture and organizational structure. A Corporate Culture That Is Always Evident Geely’s first strategic transformation involved a process of formalization and scientific management championed by its senior executives. Its second transformation entailed a shift from a low-cost to a technology-oriented strategy resulting from the wisdom, passion, and active participation of its employees in management. In Li Shufu’s eyes, the panacea to uplift indigenous brands is to listen to the voices of employees and convert their thoughts and opinions into a driving force for enterprise development and market competitiveness.4 Problem-Oriented Culture Geely’s meta-power project first resolved the problem of communication channels that troubled employees. In the past, it was difficult for frontline employees to find communication channels to discuss the problems they observed in their daily work with respect to equipment, spare 4 Geely: Embrace he World With Corporate Culture. Guangming Daily (1, 2011). April 4th, 01 edition.

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parts, and sundry other phenomena. The ensuing moody performance states disturbed the steady quality index of products they produced. The technicians often remained in their offices on a day-to-day basis and had no idea of the circumstances of the production lines or markets. They could only sense forthcoming issues if the complaints of employees became jarring. Yet, numerous problems remained unresolved through cross-function consultations. In the long run, the looming problems piled up to an extent detrimental to the development of the enterprise. In 2007, Geely postulated the creative approach of soliciting Employee Innovation Proposals and issuing Problem Solved Coupons that offered employees a communication channel they could use for any issue they faced. Notwithstanding whether a complaint pertained to a logistics issue such as highly priced canteen food or a product quality defect, the relevant person in charge was required to personally explain the cause to the disgruntled employee. On the one hand, such an approach served to collect information from employees, receive feedback, and issue deadlines for problem-solving. On the other hand, it also helped to dissolve communication barriers between managers and employees and brought them emotionally closer. Frontline employees became more motivated to spot other issues if their complaints received constructive responses. At the same time, managers at all levels began taking proactive measures to quickly resolve problems. General Motors, one of the America’s Big Three automobile companies, filed for bankruptcy in June 2009, shocking automobile industries across the world and sounding a wake-up call to peer companies including Geely. Geely’s management team initiated a prolonged discussion on the General Motor case, undergoing a profound introspective examination of Geely’s development status. Despite the good results that had already been obtained from the Employee Innovation Proposals and Problem Solved Coupons, the team found that Geely was still disadvantaged by a weak corporate culture. Li Shufu believed that the current state of an enterprise did not matter as much as whether it could improve and advance every year, which was most crucial to the health of an enterprise. A company that could not even discover its problems would not make any further progress. Hence, organizations must engage in continuous improvement and learn from the experiences of advanced enterprises. Li Shufu thus proposed the idea of a problem-oriented culture, advocating that “finding problems is a good thing, solving problems is a great thing, avoiding problems is a stupid thing, and having no problems

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is a bad thing.” All Geely employees had to attach importance to the big picture to thoroughly implement the problem-oriented culture, safeguard the interests of the Group, and earn the satisfaction of users. Geely personnel actively participated in problem-oriented-culture-themed activities of spotting problems based on the facts, sincerely thanking others for helping identify problems, sensibly helping peer employees identify their problems, and hunting down the root causes of problems. The Problem Solved Coupons and Employee Innovation Proposals were precursors of the problem-oriented culture and were initially proposed by the manufacturing departments. After long-term promotion, the idea influenced other employees deeply and became viral in other departments, becoming a cultural gene for Geely. Geely personnel gradually inculcated a problem-solving attitude and habit. Fan Wu was born in the 1990s and was an employee of the trial production center at the Geely Automobile Research Institute. He is a model of practicing a problemoriented culture. He joined Geely after he graduated from university in 2012 and his first project in Geely involved debugging the Borui. He recalls: Back then, in Golmud, we found abnormal gearbox noise of Borui. The project team went to 4S shop to disassemble the gearbox several times, but did not find any cause for the noise. The test progress was seriously delayed. So, I spent many weekends and even some time off work, badgering engineer colleagues in rounds of discussions and finally pinned down the actual problem, a crack in the inner oil seal at the main shaft of the transmission. Therefore, I contacted the manufacturer to replace the oil seal, and advised the project team to ask the oil seal manufacturer to add on an oil seal inspection procedure to ensure that similar problems will never occur again in the corresponded vehicles. In his view, a vehicle he has personally inspected and debugged bears his name. Any tiny mistake could lead to the catastrophic destruction of human life. Therefore, debugging should always observe the spirit of sticking and striving for perfection instead of stopping at the completion of the assembly. High-quality products can only be created through such a down-to-earth attitude. Liu Tiejiang, the senior director charged with major projects in the offices of Geely’s president, explains: Why are there fewer and fewer “Problem Solved Coupon” issued nowadays? With the development of the Internet, there are many channels to make feedback, so it is no longer limited in means of doing that.

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But the core idea of the “Problem Solved Coupon” remains unchanged. It has become part of Geely’s DNA. The Culture of Benchmarking In one sense, the discovery and solution of problems are initiated by the observation and experience of Geely’s employees. In another sense, problem identification and solution could also originate through the process of establishing benchmarks for leaders. Geely’s idea of benchmarking began as the brainchild of Geely President An Conghui while he was on a study trip to Toyota. During this visit, An Conghui observed the Kaizen practices of Japanese enterprises and noted that they often engaged employees in quality circles to ensure the company’s continuous improvement. Contemplating the urgent need to motivate Geely’s employees, An Conghui actively advocated and implemented the metapower project immediately after his return from the learning trip to Toyota. The logic of benchmarking is to identify a company’s weak spots and select a leading company with special strengths in the identified area as the learning target. In this process, Geely’s employees gradually acquired the mindset of benchmarking, which denotes a dynamic process of learning, digesting, absorbing, and transforming. Instead of blind imitation, benchmarking should be based on objective self-analysis and understanding. According to Jin Yaping, the executive deputy general manager of Geely Chunxiao Company, “It might be found that Company A is a good example. Then we should learn from Company A. We should benchmark, find the gap and figure out how to make corresponded improvement. This is the most critical part.” Jin Yaping also asserts: “In the case of an excellent enterprise, we simply can not resort to replicate whatever things they do. Instead, we should shed much light to our own practical considerations.” Geely has mastered the essentials of benchmarking discrete dimensions after years of practice. Therefore, Geely is minded to “select the best among the best,” whether for production, marketing, R&D, or service. It dynamically targets excellent organizations that evince high performance and high growth and identifies first-class competitors or leaders in other industries to establish relevant benchmarks.

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The Culture of Dream-Makers Improvement is never ending, and creation is infinite. It is not enough for enterprises to facilitate independent innovation by calling out problems in the accomplishment of daily tasks. Li Xiangcai, the vice president of the Geely Group, states: We should cultivate the employees to have the guts and sense of responsibility. They also need to have some madness. If not, they might not get things done to the end. It’s always about making the impossible possible. Everything is possible; it just depends on how motivated you are willing to work hard. Geely advocates the culture of dream-makers to establish a virtuous circle mechanism through which all employees can reach across hierarchies, build an atmosphere of internal competition, mobilize enthusiasm, initiative, and creativity, and make the Group more energetic. Geely offers its employees a platform to foster and encourage outstanding dreammakers. Besides, Geely also sets benchmarks to nurture the spirit of its dream-makers and to strengthen the sense of accomplishment and mission in employees through the construction of an incentive system. Among such incentives is the annual Shufu Award, named after the Chairman of the Board. It is the highest yearly honor conferred to Geely’s most outstanding dream-makers. Spin-off awards such as Star Employee and Star Dream-Maker are also bestowed. Lyu Yicong is a 7-star craftsman according to Geely’s rating system. He embodies the spirit of a dream-maker as envisioned by Geely. In 2001, Lyu Yicong left his hometown as an under-18 teenager to face unknown challenges on his own and to make a living in Taizhou. Not reconciled to life in just being a repairman in a small workshop, Lyu Yicong joined Geely Luqiao Company in 2004 and became an assembly line worker, with only two years of apprenticeship experience from his erstwhile employment at the automobile repair shop. His meager educational background did not accord him any advantages, so he always pursued the path to achieve greater potential. Motivated by craftsmanship, he endeavored and expended extra effort with maximum enthusiasm to learn as much as possible, striving to minimize errors in production. As a result, he acquired the unique skill of accurately diagnosing more than 40 kinds of faults simply by listening to sounds. Lyu Yicong has now received the honor of being accepted as a member of the China Communist Party and is the recipient of numerous honorary titles, including National Technical

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Expert, National Know-how Intensive Model Worker, and the 1st Golden Hammer Award for Outstanding Employee in Zhejiang Province, and Representative of the 19th CPC National Party Congress. He founded the Lyu Yicong Skill Master Studio to resolve the technical problems faced by enterprises. He also trained more than ten skilled vehicle debugging drivers for Geely. His studio was rated a China National-level Skill Master Studio in 2015. The spirit of dream-makers is also visible in Geely’s unique Happy Operation Entity. Geely’s business operations focus mainly on three goal layers: a minimum target set by the management team based on objective circumstances, an average target that is slightly higher than the safety-net target, and a challenge target that is more difficult to achieve. The three different goal levels correspond to discrete reward sums: a “happy entity” that achieves the minimum target can receive the full commitment bonus; this bonus is doubled according to the commitment letter signed at the outset if the average target is reached; the completion of the challenge target attracts a much greater bonus. Employees are thus encouraged to take ownership of the company and become dream-makers, and are motivated to actively participate in management. The Culture of Compliance Geely encourages internal competition to stimulate creativity in its personnel. However, such competition is not vicious or personal; rather, it is healthy and compliance-based. During the company’s early strategic transformation in 2007, Li Shufu clarified that “The price war will breach all moral bottom line and drive people to do bad things. Cars are products with lives at stake and it will be very dangerous to simply chase after the price.”5 Years of overseas business experience helped Li Shufu realize the importance of compliance. He believes that enterprises must comply with regulations if they want to continue their success. Since the end of 2013, Geely has progressively instituted a complete compliance management framework, implemented a compliance system, and issued a code of conduct. The establishment of Geely’s compliance system requires enterprises to abide by local laws and regulations in external activities. It makes 5 World Wide Web, Li Shufu Refuses Price War, Technology Feedback Shows International Strategic Advantages. April 25, 2013. https://auto.huanqiu.com/article/9CaKrn JAf8D.

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employees change their mindset from “being requested to comply” to “requesting to comply” by establishing a culture of compliance that is seeded and fostered within the enterprise (see Chapter 11 of this book for more details on this issue). Happy Operation Entity Many Chinese enterprises are bad learners of the Amoeba operation model simply because they do not understand its guiding philosophy. Often, people begin applying Amoeba by merely offering a few performance assessments. In fact, Amoeba should be viewed as a company tactic; its truth lies in respecting heaven and loving people. It requires companies to respect objective laws and care for employees, suppliers, and people in general. The Amoeba operation model can only truly be implemented once a company achieves the foundational benchmark of care and respect. The same requirements apply to Geely’s Happy Operation Entity. —Zhang Aiqun

Geely’s construction and development of the meta-power project is based on a relatively robust corporate management system and a conducive environment achieved through a democratic, fair, and upright corporate culture. The meta-power project would not make any difference without the above two preconditions. Therefore, the corporate culture must be democratic, fair, and upright, not merely with respect to the top executives but also for managers at all levels of the enterprises. The core idea of meta-power management is managers service employees, departments service the front line, employees assess managers, and first-line workers assess departments. Geely’s management system is structured on the meta-power project. On July 30, 2010, Li Shufu read Kazuo Inamori’s article, “Why Business Needs Philosophy,” in a newspaper on the plane to Gothenburg. That same year, Kazuo Inamori, an utter layman to the aviation industry, took the helm of Japan Airlines (JAL) at the age of 78. He successfully brought the aviation giant back to profit in merely three months. JAL subsequently achieved a miraculous reversal of operating profit rates from −17% to 17% in just two years and went from the brink of bankruptcy to becoming the global profit champion of the aviation industry. Such success can largely be attributed to the people-oriented Amoeba operation model. Kazuo Inamori believes that it is insufficient to merely allow

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a management team to run a company. All employees must participate together in enterprise operations to form a strong synergy that encourages the sustainable development of the enterprise.6 This philosophy forms the essence of the Amoeba operation model. Kazuo Inamori’s point of view coincided with Li Shufu’s long experience of running a business, and he was extremely excited to read about it.7 The Essence of an Operation Entity In 2011, the Ministry of Industry and Information Technology of the People’s Republic of China launched a promotion of the management mode of “management mindset for everyone” for the machinery manufacturing equipment industry. Geely was listed as a pilot unit. In 2014, Geely began to implement the Happy Operation Entity project to showcase its business philosophy of stimulating the vitality of enterprises and living happily. A pilot project was first initiated in the manufacturing divisions. In 2016, Happy Operation Entity was fully rolled-out across the manufacturing, R&D, purchasing, sales, and other business units of Geely. The Happy Operation Entity project divides the organization into small groups. Each group autonomously manages profits and losses, allowing all employees to participate jointly in the company’s operations and harnessing the full Group’s wisdom and efforts to achieve win–win situations between the personal values of employees and the objectives of the team management executives (see Fig. 8.4). In this project, the term “happy” imparts two layers of signification: employees should feel the full warmth and care of belonging to the Geely family, and employees must be able to showcase their talents, create value, and achieve success in business. In plain language, Happy Operation Entity brings the market into the enterprise; thus, every employee in every business unit can help run the numbers, take responsibility, and easily contribute to the daily management of the company. For example, working shifts were made the independent operating entity in a factory. In the past, there were often four people in a working shift. Three people could complete 6 Adler, R.W. & Hiromoto, T. (2012). Amoeba Management: lessons from Japan’s Kyocera. MIT Sloan Management Review, 54: 83–89. 7 http://www.shufuli.com/media_info.php7504. Kazuo Inamori and Geely Dialogue on “Operation Entity”, http://www.shufuli.com/media_info.php7504.

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(a) Managers

Superiors give orders, pass on orders layer by layer, subordinates passively execute

(b) Operation Operation Operation Operation Operation Entity Entity Entity Entity Entity

Leaders serve employees; departments serve the front line

Managers

Fig. 8.4 “Regular triangle” of traditional bureaucracy and “inverted triangle” of self-management entity

the requisite tasks after the continuous improvement proposed by the employees. Subsequently, 50% of the saved salary would be returned to the company, and the remaining 50% would be distributed to the three people working the shift. Each shift was accorded the quota of five pairs of gloves. In the past, employees would want new gloves even if older pairs were only slightly worn off in the fingers. However, the personally accounted operation energized teams to demonstrate their creativity and render new pairs from several slightly broken gloves. Hence, employees saved gloves even as they ensured production safety. As in the previous example, 50% of the money saved from buying new gloves was returned

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to the company, and the other 50% was added to employee incomes. The Human Resources Department also implemented a new recruitment operation model, amalgamating recruiting staff across varied business lines into a joint recruitment team. Human resource team members pledge a sum of money to assure that the fresh-hire can successfully pass the probation period. This policy made the human resource team more careful about finding suitable talent. After being commissioned to operation, a recruitment team of half the original team size completed almost the entire recruitment task for the whole year in just six months. This new recruitment model effectively resulted in a compact yet highly efficient team. Before being staffed into an operation entity, ordinary employees often had no idea of their contributions to the overall daily running of the enterprise, or whether the tasks they performed were profit- or loss-making. The functioning of the operation entity clearly demarcated the rights and responsibilities of every worker and also efficiently indicated whether a team was making or losing money. Employees could simultaneously discover gaps in their operations through comparisons with other operation entities and continuously improve the performance level of their operation entities through refined research and execution. Wei Mei, the vice president of Geely Holding, said at the 2016 China Summit Forum: “It is with such a mechanism that even though Geely did not invest a penny, it has greatly motivated the team.” This example denotes just a minor innovation pertaining to the operation entity, yet it greatly enhanced the management philosophy of employees and helped employees regard their work as a career that could add value to both Geely and themselves. Thus, the Happy Operation Entity and the Amoeba operation model could be said to yield identical outcomes. The Happy Operation Entity functions under the leadership of an Entity Leader. This arrangement enables team members to accurately grasp the management tasks of small units and undertake more effective management. The Entity Leader forms the center of a Happy Operation Entity and functions as the bellwether of the team. The organizational subdivision will be pointless if an Entity Leader serves concurrently as the manager of multiple business entities. Chaos may also ensue in the ranks if an Entity Leader is appointed at free will. Therefore, enterprises must know the competence of the Entity Leader and should keep fostering suitable talent, which can also help enterprises reserve talent with an operational mindset. After launching the management model of

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Happy Operation Entity, Geely established higher requirements for the Entity Leader in dimensions such as business acumen, skill-sets, quality, and financial accounting. The entire team of a Happy Operation Entity receives training and assessment. Entity Leaders must be approved by the Happy Operation Entity project committee. Entity Leaders assume the “responsibility, rights, and interests” of the Happy Operation Entity. Responsibility signifies being accountable for utilized resources (people, money, and things). Rights refer to the entitlement of allocating entity members, assigning rewards and punishments to internal staff members, using approved resources, equipment, and places, and being aware of and participating in work allocations and asset resource distributions. Interests indicate benefits obtained by Entity Leaders in accordance with their operating performance and the terms with which they have agreed. A highly transparent information channel is a prerequisite for the effective execution of organizational change and the appropriate promotion of the Happy Operation Entity project. How did Geely solve this conundrum? The answer encompasses a matrix with four quadrants: “With whom to settle?” “What to settle?” “How to settle?” and “Means of settlement.” With Whom to Settle: The Division of Business Entities The scientific division of business entities is the key precondition for the success of this model. The subdivision of the organizations delivers transparency about the contribution of individual employees and imposes independent accountability for everyone participating in business operations. Wastes or savings can be tracked to every individual employee of the organization, ensuring that employees work even harder. Nevertheless, greater and more detailed information may not necessarily yield better operational results for a division. Five principles must be followed by Happy Operation Entity divisions to find the right direction and avoid detours: Principle Principle Principle Principle Principle

1: 2: 3: 4: 5:

Help serve the overall goals and strategies of enterprises. Ensure maximum subdivision. Undertake independent profits and losses. Independently complete business transactions. Correspond responsibilities with rights.

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For instance, in the division of business entities of manufacturing systems, the workshop branches of Geely manufacturing companies are divided into plats according to their production processes: stamping, welding, painting, and assembly. The jobs in manufacturing companies are divided according to their responsibilities and natures into five categories: production, material circulation, production support, technology, and management. Accounting units are subdivided to the maximum extent following the same basis, and multiple operating entities are thus established. These operation entities primarily constitute the business processes of product management. For example, stamping, welding, painting, and assembly plants in production categories follow discrete processes; the jobs undertaken by each process can help employees calculate their income contributions using the rule of “unit price × quantity.” Moreover, expenses can be further quantified according to the different raw materials and equipment required by each process; hence, each branch factory can be further subdivided according to processes to establish corresponding operating entities (see Fig. 8.5). The businesses of operation entities can be independently quantified in addition to divisions made according to production processes. The requirements of quality, talents, assets, energy, and regions must also be quantified by supporting the diagnosis of quality issues, making eligible candidates serve as Entity Leaders, and owning quantifiable assets and energy consumption. Centralized operation areas are also mandated to make the system easy to manage. What to Settle: Asset Quantification Assets must be quantified once the division of operation entities is accomplished. Thus, the quantification of the varied enterprise assets must be refined, and resources must then be allocated to individual operation entities. This process lays the foundation for the subsequent formulation of internal transaction prices; it also elucidates to the members of the operation entity, especially the Entity Leader, that the business activities of the operation entity are based on the consumption of enterprise assets. Further, all members can clearly know the cost of the assets they have consumed through the monetary quantification. The quantification of assets involves equipment, housing, direct materials, personnel workload, and expenses. It follows the following four principles:

8 A manufacturing base of Geely

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Stamping factory

Stamping

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A stamping operation entity

B stamping operation entity

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Engine room

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preliminary treatment

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Polish

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Minor repair operation entity

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Interior decoration No.1 operation entity Interior decoration No.2 operation entity

Instrument packaging

Instrument packaging operation entity

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Chassis No.1 operation entity

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Power synthetic management body

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Chassis No.2 operation entity

Production support posts Technical posts

Finishing No.2 operation entity

Management posts

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Door operation entity

Material circulation posts

Commissioning

Commissioning operation entity

Fig. 8.5 The organizational structure of a manufacturing base in Geely (taking the business entity with production posts as an example)

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Principle Principle Principle Principle

1: 2: 3: 4:

Full cost quantification. Paid use. Valid assets. Democratic confirmation.

How to Settle: The Determination of Internal Transaction Price The determination of internal transaction price is based on the quantification of assets and also involves the process of categorizing the company’s business objectives. The determination of internal transaction price follows the following five principles: Principle Principle Principle Principle Principle

1: 2: 3: 4: 5:

Consistent goals. Democratic participation. Moderate tightness. Full cost. Close to the market.

Geely has cast relationships between operation entities into three categories: transaction-based, contractual, and service-based. Accounting units are responsible for their profits and losses. A market-oriented business model is implemented between and within operation entities. Transaction-based associations require the physical transfer and exchange of products and are mainly applicable to production and material circulation posts. Contractual relationships occur when an entity is entrusted by the enterprise to execute the design and development of a particular project or exercises the right to achieve certain organizational goals in the form of job responsibility. This type of relationship is predominantly applicable to technical and management posts. Service-based associations describe situations when one party provides services without the occurrence of any physical transfers and charges a service fee as revenue. Such relationships apply to production support positions. The above-described characteristics of the three types of operational entity relationships determine three price types: product settlement, contracted agreement, and service fee. The settlement pricing of Geely’s production operation entities is based on the settlement price of the products. All cost elements that can be influenced or controlled by

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the operation entities, such as material consumption, output, personnel, and expenses, are included in the settlement according to the full cost principle. Means of Settlement: The Flexible Use of Information Systems Apropos the settlement management of operation entities, high efficiency and accuracy are difficult to achieve solely by the manual processing of huge amounts of data. However, asset quantification and various cost collections have already constituted the foundations of business management. Statistical significance can only be demonstrated when numbers are applied. Information-based settlement methods are thus inevitable for the real-time command of accurate business figures and for the comprehensive grasp of the functioning of operation entities. Members of operation entities input all their functional data into the computer settlement system for processing and automatically complete the compilation of their settlement material. These documents include the income statements of operating entities, their profit statements, balance sheets, operating revenue data sheets, etc. Thus, both the operators and the management can apprehend the operation entity status at a glance to adjust the operating plans in a timely manner if necessary. The documents can also become the basis of the evaluation of the operation entity’s efficacy. Settlement Application: Revenue Linked to Performance Employees are most motivated to own and improve their performance when their incomes are linked to the business performance of their operation entities. The independent Operation Entity resulted from Geely’s continuous experimentation and innovation in response to changes in its external environment. Geely has established special project operation entities according to actual needs in addition to the abovementioned jobcategorized operation entities. These special project operation entities help to eliminate problems pertaining to quality, cost, efficiency, and safety from the management process (see Fig. 8.6). These operation entities are categorized by projects and comprise relevant personnel involved in a particular project. The members of these special operation entities belong to different departments (e.g., R&D, manufacturing, sales, etc.).

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The process is akin to the engineering of individual cells and weaving them into a flexible yet powerful living organism, enabling the cells to generate greater synergy. The Beilun Factory 4-Door Quality Control Special Operation Entity may be cited as an example. At the end of 2018, the Beilun Factory set up a 4-Door Quality Control Special Operation Entity to address the quality issues pertaining to back door panel elevation deviations and mismatched back door and side frame. The 4-Door Quality Control Special Operation Entity formulated a corresponding action plan and conducted a thorough root cause analysis for the borehole position deviation of the back door nut plate. Team members brainstormed to generate a fixture rework plan to address a list of issues. These problems included a no position limit on the location pin nut plate upon cylinder clamping, causing failed positioning, and the offsetting of the positioning pin cylinder due to the easy collision between the electrode arm of the welding gun and the pressing block in the welding process. After the action plan was implemented, statistical analyses were conducted on the acceptance rate of the door panel elevation deviation of the off-line whole assembled cars, and the defect rate dropped to zero (0). The organizational atmosphere of support and trust allowed members of the 4-Door Quality Control Special Operation Entity to save operation entity expenses while maintaining excellent product quality. The efficient cooperation saved nearly RMB 600,000 in equipment modification, personnel, auxiliary materials, and other expenses. Business members helped the enterprise save costs and improve product quality; they also simultaneously ameliorated their abilities and increased their contribution value. The establishment of the operation entity increased the availability of resources for the shift supervisor (Entity Leader) and extended strong support to frontline management. It also greatly eased the attention intensity required from the factory management in the oversight of minor day-to-day affairs. Hence, managers could devote more time to more important managerial issues. In 2016, the company’s operation entities generated total operating revenue of RMB 16.13 million, and the company paid back a total of RMB 1.94 million8 to the operation entities. The operating entities reduced the manufacturing cost of products

8 This is the operating data of Beilun Factory from 2015 to 2016.

Horizontal expansion

Special research 3

Jiaji

Test

Special research 4

Core technology 4

Trial production

Special operation entity

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Special research 1

Safety

Binyue

Core technology 3

Material

Core technology 2

General layout

Binrui

Core technology 1

CAE

Borui GE

Project management body

Production Modeling Research and ME Quality Purchase Manufacture development team

Fig. 8.6 Operating entity model

Longitudinal extension

Special research

Core technology

Non-core personnel

Core personnel

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to a certain extent, enhanced the competitiveness of products, and simultaneously offered employees an excellent and unprecedented incentive mechanism so those willing to put in more effort could attain increased returns. Effectiveness is fundamental to corporate management. Innovating management philosophies represent a valid means of improving effectiveness. At the end of 2019, Geely further intensified the construction of the operating body system, establishing 23 “4 + N” product line operation entities (see Fig. 8.7) and 14 big project R&D operation entities. This increase of density optimized the operating mechanisms of the operation bodies, created synergy within each operation entity, and continuously improved the effectiveness of operation entities. Geely finally rose to the level of a benchmark by maintaining close scrutiny of benchmarks in niche markets. A Metrics-Based Incentive System The balanced scorecard method changes the traditional performance evaluation system, which only takes the financial perspective. It adds other future driving factors into the assessment metrics: for instance, the customer perspective, internal processes, and organizational learning and growth. It thus offers a more diversified and comprehensive evaluation system for organizations. Moreover, such an approach attaches great importance to the consistency of organizational strategic objectives9 ,10 . Like most enterprises, Geely also widely uses the balanced scorecard method for its organizational performance evaluation. However, assessment scores are often computed as 99.9, 97.6, 95.4, and so on, and scores for all departments are generally above 90 points. This result occurs primarily because employees have learned the tricks pertaining to the perspectives and rules of the evaluation indicators of the balanced scorecard. They know how to get high scores on items such as customer-related factors, internal processes, and organizational learning and growth. Therefore, it becomes difficult to faithfully reflect the gaps between 9 Kaplan, R. S., Norton, D. P. The Balanced Scorecard—Measures that Drive Performance. Harvard Business Review, January–February 1992, pp. 71–79. 10 Gumbus, Andra, Lussier, Robert N. Entrepreneurs Use a Balanced Scorecard to Translate Strategy into Performance Measures. Journal of Small Business Management, (2006), 44(3).

Head of Marketing

Head of Marketing

Head of Marketing

Marketing Team

Head of Manufacturing Base

Head of Manufacturing Base

Manufacturing Management Team

Chief of Product Line B /Deputy Chief

Chief of Product Line C /Deputy Chief

Business Specific Executive Departments

Supply Chain Team

Head of Procurement

Head of Procurement

Head of Procurement

Management Management in Charge of Management in Charge of the Manufact- in Charge of Manufacturing uring Marke- Supply Chain ting System

Head of Manufacturing Base

Chief of Product Line A /Deputy Chief

Specialized Management Layers

R&D Team

Head of R&D

Head of R&D

Head of R&D

Management in Charge of the Manufacturing R&D System

Fig. 8.7 The “4 + N” product line entity of shared interests

Core Value Creator in Operation Entity Management Value

Finance Team

Head of Finance

Head of Finance

Head of Finance

Finance

SQE Team

Head of SQE

Head of SQE

Head of SQE

SQE

Management/ HR

Head of Head of Management / Manufacturing HR

Head of Head of / Manufacturing Management HR

Head of Head of / Manufacturing Management HR

Manufacturing

Quality Team Manufacturing Management / Team HR Team

Head of Quality

Head of Quality

Head of Quality

Quality

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departments. All departments tend to focus on how to make their grades better-looking instead of discovering their problems. Such an evaluation is thus not conducive to the discovery of departmental difficulties and does not offer enterprises the means of continuous improvement. How could Geely find a way out of this dilemma? High-Goal Incentive Mechanism to Match Value Creation Goal-setting greatly influences the final performance of enterprises. Highgoal management is crucial for the stimulation of the potential of organizations. Geely launched an all-around push to ensure the achievement of the Group’s business objectives, encouraging all units to compete against one another for market share. Units were stimulated to strengthen their market view, maintain a close eye on market changes, directly face challenges, and continuously promote evaluation mechanisms and incentive distribution systems oriented to value creation and performance-indexed benefit distribution contribution. The updated evaluation system was pinned to final results and aimed to objectively and faithfully assess the achievement of the business objectives of every product line and subsidiary company. Balanced scorecard contents such as talent growth are used as auxiliary references. For example, the monthly core performance evaluation indicators in the performance evaluation system of each manufacturing base of product line companies (manufacturing factories) primarily include three core indicators: the completion rate of the current month/accumulated forecast profit, market share, and new product items. Quality functions as a plus-minus point and is pegged to rejection item. Similarly, the control rate of three costs (per unit) and order fulfillment rates also work as plus-minus points. Finally, compliance-related problems and safety accidents are regarded as rejection items. The establishment of reasonable goals is a prerequisite for orderly performance evaluations. Traditionally, senior managers plan and assign specific tasks to departments and employees. In conventional management modes, the numbers are often determined in a top-down fashion for individual manufacturing companies, and teams are wont to complain about impossible targets. Employees tend to naturally resist participation because they are generally barred from acting autonomously. Often, a tug of war ensues, with employees bargaining with the management. It is thus difficult for companies to develop a sense of task ownership in

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their employees. Conversely, goals tend to be conservative if targets are set by the bottom rungs of the organization. Therefore, Geely unified the top-down and bottom-up in its goal-setting procedures. To cite the establishment of market shares, as an example, senior managers comprehensively discuss and contemplate multiple factors. The management team applies the principle of no quarter-on-quarter drop combined with product model adjustments and the time-to-market to reasonably set the quarterly minimum target for the market shares of specific models, including the extant models, new offerings, first-on-a-new-platform, and so on. The challenge coefficient is set according to the growth rate based on this objective analysis. The coefficient of the minimum target is 1, and on this basis, the challenge coefficient increases correspondingly by a certain range. The performance evaluation is set with a doubled coefficient for units daring to challenge high objectives and willing to stage high year-on-year growth. Of course, Geely does not force companies to choose the minimum targets or higher goals with a greater challenge coefficient. Companies can also lower the challenge coefficient according to their own circumstances or establish targets that are more conservative than the minimum targets. Different selected objects mean different salary bases for compensation and benefits distribution. Therefore, all employees can align with their manager’s perspective to realize the growth of their departments and feel personally accountable for their contributions to drive the company’s sales and profits. The algorithm of calculating the performance evaluation score is market share target achievement rate × weight × 100 × challenge coefficient. The lowest score may be only 40 points, whereas the highest score may aggregate 140 points. In this way, the scores accrued by companies can become extremely differentiated. The operating performance grade of each subsidiary can thus be determined through this score ranking and Geely’s “2521” performance rating distribution principle. This performance grade is then released at the monthly routine operation and management meeting so that each company attains an intuitive understanding of its performance vis-à-vis the other companies, discovers the lacunae, and narrows the gaps in time. Some functionaries may complain that the market share of products is a factor highly influenced by the vehicle models assigned to their units. Such a fallacy is equivalent to claiming that the present poor performance is not the result of today’s efforts but the outcome of historical factors. Therefore, companies must

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be proactive and seek innovation and change if they aspire to avoid the predicament of lagging behind others. The Value Transmission Link Embracing “One Failure Leads to Another, So Does Success” Geely has constructed the connections between strategy and performance evaluation. It has formed a performance system with a strong top-down correlation and has better promoted the evaluation and incentive distribution systems oriented to value creation and performance contribution. The final performance level of each subsidiary is determined both by the achievement rate of its business objectives and by the overall business level of the Group as positioned in the Group-level business performance matrix. The salary base of each subsidiary’s incentive distribution is determined in combination with the careful consideration of two factors in the matrix. As Table 8.1 demonstrates, the subsidiaries are divided into four incentive levels when the overall operating level of the Group reaches the S level. The incentive levels are labeled S, A, B+, and B according to the proportion of ≤15%, ≤20%, 40%, and 25%, respectively. If the Group’s overall operating level is rated D, its subsidiaries are divided into five grades to determine the salary base: A, B +, B, C, and D according to the proportions of ≤10%, 30%, 35%, ≥15%, and >≥10%, respectively. In other words, the starting point of the salary base of each subsidiary changes with the overall performance of the Group. At the same time, the performance grades and bonus pool of subordinate departments and employees in subsidiary companies are also linked with the overall performance of subsidiaries. In this manner, interconnected performance evaluation and incentive systems are devised, and performance evaluation is intricately linked across hierarchies and formulated through cascaded objectives and interlocking measurements. As a result, all levels, including the Group, the subsidiaries, subordinate departments, and employees, must aim at the Group strategy to truly achieve high performance and high returns. They must enhance their understanding of the Group strategy and improve their abilities to implement that overarching scheme. The performance evaluation of operation entities follows an approach similar to departments and subsidiaries: guaranteeing the minimum target, ensuring the average target, and striving for the challenge target (see Fig. 8.8). The minimum target denotes the basic mark ordered by

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Table 8.1 Business performance evaluation grades of each product line/ subsidiary of the Group11 集团 各子公司 S A B+ B C

S ≤15% ≤20% 40% 25% ≥0

A ≤10% ≤20% 40% 25% ≥5%

D

B

C

D

≤5% ≤15%

0 ≤15%

0

35% 30% ≥10%

35% 30% ≥10%

≥5%

≥10%

Group Subsidiaries S A

S ≤15% ≤20%

A ≤10% ≤20%

B ≤5% ≤15%

C 0 ≤15%

B+ B C

40% 25% ≥0

40% 25% ≥5%

35% 30% ≥10%

35% 30% ≥10%

≥5%

≥10%

D

≤10% 30% 35% ≥15% ≥10% D 0 ≤10% 30% 35% ≥15% ≥10%

the Group to the operation entity; the average target adds more stringent conditions to the minimum target; the challenge target indicates greater difficulty. The commitment funds of operation entities meeting the minimum target are returned. Operation entities are returned double their commitment funds if they achieve the average target. Operation entities accomplishing the challenge target attain substantially higher returns. The high and low target management exerted a great impact on the final performance of the Group. Geely strictly implements the high-target performance appraisal but also allows reasonable adjustments within a flexible range. This form of performance-to-performance ratcheting arrangement ensures that employees of various departments and business

11 The sum of each column in the table is 100%, and the percentage indicates that the numbers of subsidiaries at this performance level to the total number of subsidiaries in the group.

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Extra income

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Looking for new opportunities to create value

Keep improving the existing business

Minimum target

Average target

Challenge target

Operating entity target

Fig. 8.8 The Geely operating entity business model

entities are encouraged to become unified in their ideas and concerted in their efforts.

The Dynamic Equilibrium of Non-linear Growth Geely’s development evidenced the existence of interactive forces within an efficient organization. The seemingly irreconcilable conflicts or mutually repelling contradictory elements constitute a paradox (e.g., the clash between individual employees and corporate interests).12 In the context of Western countries, paradoxes are often deemed to comprise two or more distinct entities. Therefore, enterprises pay more attention to the confrontation between different forces in the management of paradoxes. Conversely, in the Chinese context, Geely attends more to the dialectical view of contradictory elements and differentiates the essential characteristics and potential connections of two opposing but interconnected forces. Geely adapts to and utilizes the continuous tension between conflicting elements by adopting targeted countermeasures over time to maintain a

12 Cameron, K. S. Effectiveness as Paradox: Consensus and Conflict in Conceptions of Organizational Effectiveness. Management Science, 1986, 32(5), 539–553.

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balance.13 This policy has helped Geely survive and continuously improve itself, enabling sustainable development for the Group.14 In fact, Geely’s management seeks a dynamic balance. A static balance indicates that all components of the system remain unchanged when the organization is in a stable state; the system responds and restores balance when contingency situations lead to an imbalance. In contrast, the concept of dynamic balance emphasizes the continuous movement of opposing forces within the system.15 The organization creatively balances and integrates both sides of the contradiction on the premise of adhering to the principle and direction to form a dynamic unity of opposites.16 Geely encourages its enterprises to formulate rational and innovative business strategies predominantly through the bonding of opposing factors such as leadership structure, enterprise objectives, corporate cultural construction, structural design, and benefits distribution (Table 8.2). Geely values the pursuit of equilibrium between centralization and decentralization with respect to the management of its senior executive team. The Group has managed to improve the rationale of organizational decision-making and increase the flexibility of strategy implementation on the premise of maintaining a consistent strategy for senior management through sufficient delegation. The Group has thus delivered a powerful impetus supporting the transformation and upgrading of enterprises. Grayscale thinking is also used to formulate the strategic objectives of enterprises. Geely adheres to the efficiency-oriented cost control strategy but also actively perceives the dynamic changes of the external environment, adopts a dialectical view toward risks and opportunities, promotes product innovation, and actively enters new markets. Geely differs from conventional companies because it addresses the balance between employee incentives and constraints, encouraging employees to contribute their wisdom and passion and actively participate in management. Geely changed the old paradigm of frontline departments 13 Quinn, R. E. 1988. Mastering the Paradoxes and Competing Demands of High Performance. San Francisco: Jossey-Bass. 14 Nonaka, I., Toyama, R. A Firm as a Dialectical Being: Towards a Dynamic Theory of a Firm. Industrial and Corporate Change, 2002, 11: 995–1009. 15 Smith, W. K., Lewis, M. W. Toward a Theory of Paradox: A Dynamic Equilibrium Model of Organizing. Academy of Management Review, 2011, 36(2): 381–403. 16 Chen, M. J. Transcending Paradox: The Chinese “Middle Way” Perspective. Asia Pacific Journal of Management, 2002, 20(2–3): 133–134.

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Table 8.2 The application of dynamic balance in Geely’s management Dimensions

Dynamic Balance

Leadership Structure

A centralized structure promotes strategic consistency in executives and improves decision-making efficiency, while a decentralized structure improves the flexibility of strategy implementation Cost control stresses high efficiency; companies actively innovate products and explore market opportunities The culture of dream-makers and the problem-oriented culture encourage innovation; the culture of benchmarking and the culture of compliance establish norms The operation entity allows executives to become laissez-faire (constrained by the system) and encourages grassroots employees to become creative The settlement structures of operation entities, along with the value evaluation and incentive distribution system oriented to value creation and performance contribution, unite employees and enterprises into a community of shared interests and achieve the equilibrium of interests

Enterprise Objectives

Corporate Cultural Construction

Structural Design

Benefits Distribution

and employees passively taking orders to resolve the conflicting issues of increased external uncertainty, resource efficiency, and innovation vitality that became evident as Geely scaled up its operations. Geely completely overhauled its cultural system: it encouraged employees to be creative and actively share innovative ideas with a focus on a problem-oriented culture; at the same time, it used the culture of compliance to restrain employee behaviors. In terms of structural design, Geely adopted happiness as a link uniting its employees and developed an innovative organizational structure labeled Happy Operation Entity. This arrangement created a space for employees that allowed them to devise breakthrough and innovative opportunities within their business domains while observing compliance. It gradually inculcated resilience and vitality in employees, enabling them to respond flexibly to environmental changes. While changing the mindset of its employees, Geely has also been actively altering the roles discharged by its leaders, transforming managers to functions involving

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service delivery and the stewardship of enterprise development directions. Geely actively offers employees or business departments a systematic management platform and shared supporting resources. The Group has also established a performance system that is intricately connected from top to bottom to better coordinate conflicts of personal interest between enterprises and employees. In so doing, it better promotes the value evaluation and the incentive distribution mechanisms oriented to value creation and performance contribution and seeks the equilibrium of interests.

PART III

Leap of Faith: Globalization

This part summarizes three key non-linear growth characteristics of Geely’s process of globalization: asymmetric complementarity, network synergy, and bottom-line thinking. Chapter 9 offers a detailed analysis of the cooperation between Geely and Volvo after the completion of the deal. Cross-border M&As are springboard of Chinese enterprises toward rapid development. However, how asymmetric complementarity may be achieved in cross-border M&As remains an important research question. Chapter 10 highlights how Geely can ascend from the local to the global value chain to eventually build a global value network. Industry competition will intensify further in the forthcoming era of motorization, intelligence, networking, and automobile sharing, when collaborative global value networks will become a significant source of competitive advantage for enterprises. Chapter 11 reveals how Geely was influenced by new global competition modes and competition rules to pioneer the construction of a compliance system and permeate the compliance culture across all Group companies. Such groundbreaking actions result from the foresight of entrepreneurs, the efforts of senior managers to stringently implement the compliance system, and essentially, the entire employee team’s recognition of Geely’s compliance culture.

CHAPTER 9

Great Wisdom in Cross-Border M&As

As of 2020, Geely and Volvo have been working together for ten years, and their “marriage” has become a legendary romance. Ten years ago, Geely was much belittled, and its acquisition of Volvo was even described as a “snake swallowing an elephant.” However, the last decade has accorded both Geely and Volvo with the win-win result of rapid development. Geely entered into the international market with Volvo’s cooperation and managed to narrow the gap between the Chinese and global automobile industries. A retrospective flashback is naturally mandated on the occasion of the 10th anniversary of this unlikely marriage to try to grasp the underlying logic that informed Geely’s acquisition of Volvo. How did Geely successfully achieve efficient synergy with Volvo and create a win-win situation for both parties? The linear growth of enterprises is manifested mainly through continuous improvements in functions and structures driven by internal factors to shift from quantitative to qualitative change. Enterprises in developed countries have often historically followed this growth pattern. As economic globalization advances, multinational enterprises from emerging economies enter and gradually become significant members of the world economic arena. If they follow the identical developmental pathways, they cannot draw level or surpass enterprises originating in the developed West in the short term, let alone occupy superior positions as global competitors.

© China Renmin University Press 2023 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1_9

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Table 9.1 Geely’s rankings on the fortune global 500 list (unit: million dollars) Year

Operating Income

Profit

Asset

Ranking

2012 2013 2014 2015 2016 2017 2018 2019 2020

23,355.7 24,550.2 25,767.5 24,986.4 26,303.8 31,429.8 41,171.9 49,665.4 47,885.9

90 52.4 118.1 275.5 286.6 1265.7 1820.3 1969.3 1231.9

16,718.6 18,179.2 20,839.7 20,975.7 24,838.9 29,749.0 42,445.6 48,564.8 56,805.2

475 477 466 477 410 343 267 220 243

网 http://www.fortunechina.com/fortune500/index.htm. Source https://www.fortunechina.com/

In the last few decades, many enterprises from emerging economies have achieved an immense forward-leaping evolution through non-linear growth. Cross-border M&As have become a model way for enterprises to accomplish non-linear ascendancy. Geely’s acquisition of Volvo represents an exemplar for Chinese enterprises intending to achieve non-linear growth. In 2012, Geely was listed on Fortune 500 with an operating income of US$23.3557 billion. It was the first and only private Chinese automobile company to be ranked on Fortune Global 500. This milestone evidenced Geely’s development journey. Since that juncture, Geely has appeared on the Fortune Global 500 list for nine consecutive years, and its ranking has risen from 475 to 243, up by 232 positions (see Table 9.1). The successful acquisition of Volvo certainly propelled Geely’s rapid growth into a Fortune Global 500 company. By standing on the shoulders of giants-the acquisition of Volvo, Geely has made great progress. In terms of sales, the sales volume of Geely Auto was just 204,200 in 2008. Apart from a negative growth event because of brand transformation in 2014, Geely witnessed varying degrees of growth over many years after it acquired Volvo. In particular, Geely’s sales volume exceeded one million in 2017, reaching 1,247,100 vehicles (see Table 9.2). In terms of scale, it took Geely 14 years to grow from a small establishment in 1997 to a 100 billion behemoth in 2011. Geely took a mere five years from 2011 to 2016 to achieve the scale of 200 billion and surged to 300 billion in only two years, from 2016 to 2018. In terms of brand reputation, Geely’s brands such as Borui, Boyue, and

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Table 9.2 Sales volumes and growth rates of Geely Auto from 2008 to 2017

GREAT WISDOM IN CROSS-BORDER M&AS

Year

Sales volume (10,000 vehicles)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

20.42 32.67 41.58 42.16 48.35 54.95 41.79 51.01 76.60 124.71

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Growth rate (%) – 59.99 27.28 1.39 14.68 13.65 −23.95 22.08 49.97 63.02

Emgrand have benefited from Volvo’s influence and attained a positive reputation in the market. The value of their brands is constantly growing. The successful Geely-Volvo association has helped Geely board onto a fast-track forward-leaping evolutionary channel. However, the development path was not always as smooth out as expected. On the whole, the Geely-Volvo collaboration has traversed discrete stages: from resistance to doubt, from doubt to trust, and from trust to actively seeking cooperation. Geely formally signed the agreement to acquire Volvo on March 28, 2010, and the transaction was completed on August 2, 2010. Geely is a popular brand, whereas Volvo is a luxury brand. There exists a wide gap between their technologies, brand images, and management abilities. The post-acquisition transition was undeniably smooth. However, Volvo initially displayed strong resistance to the idea of cooperation. With the establishment of China Euro Vehicle Technology Center in 2013, Geely and Volvo began to make tentative cooperation. Volvo’s rapid development through its collaborative venture with Geely exceeded all expectations. Volvo then realized that Geely had played a vital role as a shareholder, which made them have more trust on Geely. In 2017, Volvo became a shareholder of LYNK & CO. Geely and Volvo jointly founded LYNK & CO Auto and a technology joint venture. In 2019, Volvo proposed the consolidation of its engine business with Geely, which is another landmark event of a strategic merger between the two partners. How could Geely, a latecomer, truly acquire Volvo even though it lagged in advanced technology and management experience? After taking over Volvo, how would Geely manage to achieve synergy confronted with questions from Volvo’s internal and external stakeholders? The answers

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to these questions reveal the magic of Geely’s non-linear growth after acquiring Volvo. This chapter will first review Geely’s initial intentions of the acquisition and illustrate the reason that why Geely can succeed from the both internal and external perspectives. Then, the chapter will offer insights into how Geely and Volvo, both clearly positioned and drastically differentiated brands, managed to achieve independent and synergetic growth after the acquisition. Finally, the chapter will present the wisdom that can be attained from the synergetic cooperation between Geely and Volvo.

Reverse Cross-Border M&A When Li Shufu first proposed to buy Volvo, no one believed the venture would be possible. Yet, Geely successfully acquired Volvo and ultimately made the deal a legendary case study for the automobile industry. The triumph resulted naturally from Li Shufu’s love for Volvo and the synergies he discovered between the Geely and Volvo brands. The acquisition of a small weak, unimportant company by a large and powerful enterprise would be unsurprising. However, people initially tend to be pessimistic when automobile enterprises in developed countries are acquired by their counterparts from emerging economies. There is a huge shock if such a deal becomes a success. Volvo was four times larger in asset value than Geely at the time of the acquisition; at that time, Geely’s slim earnings would not have been able to withstand even a few consecutive instances of loss at Volvo’s level. A Reflection on Two Centennial Development Paths It would take aspiring local Chinese brands decades or even hundreds of years to grow into world-renowned brands desire. The same time frame would apply to Chinese automobile enterprises desiring to accumulate original technology. —Li Shufu

Essentially, enterprises can grow in two major ways: internally or externally. M&As represent an important means of external growth. They help enterprises use their advantages optimally in scale and business scope and

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quickly enter new product markets or geographic markets.1 A gap exists between enterprises in developing and developed countries, especially in the automobile industry, because of historical and economic reasons. Li Shufu visited numerous auto companies overseas and found that auto companies with annual outputs and sales of less than 2 million cars were often more likely to be acquired by larger companies. China’s private automobile enterprises would not be able to avoid the ultimate state of being acquired if they resorted only to internal growth. Conversely, external growth could offer China’s automobile enterprises an expedited track to success. The entire capacity of China’s automobile market approximated just 2–3 million vehicles during Geely’s infant years. Geely focused primarily on developing economy cars, and it would have been impossible for Geely to dominate the Chinese market. Its market capacity could only be augmented by expanding the range of its models in both number and class, encompassing cars classified as A0, A, B, C, and sport utility vehicles (SUVs) and multipurpose vehicles (MPVs). At that juncture, Geely could never imagine developing B-class cars, let alone SUVs and MPVs. In 1997, Geely entered the automobile industry with a low-price strategy and was viewed as the “party pooper” by the entire industry. However, Geely’s low-price strategy can no longer be sustained by 2003. The company’s brand value was challenged, and Geely faced considerable pressure in the domestic market. At the same time, Geely found it difficult to grow overseas because of low brand recognition and reputation. In 2007, Geely proposed the execution of a strategic transformation from “low price” to “advanced technology, reliable quality, satisfactory service and systematically leading.” Geely was compelled to cross the strategic sales volume of 2 million vehicles in order to hold its brand. Independent innovation and cross-border M&As denoted two ways of achieving this goal. It would take decades or even hundreds of years for China’s independent brands to achieve such a goal if they remained solely on independent innovation. Hence, M&As became an obvious choice for Geely’s bid to spur its development. Li Shufu sensed the industrial development pattern of “standing on the shoulders of giants” and decided to narrow the value gap by purchasing world-famous brands. 1 Meyer-Doyle, P., Lee, S., Helfat, C. E. Disentangling the microfoundations of acquisition behavior and performance. Strategic Management Journal, 2019, 40(11): 1733–1756.

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Using such tactics, latecomer enterprises from developing countries can leverage cross-border M&As as springboards to build competitiveness in global markets. In so doing, they can overcome latecomer disadvantages by acquiring strategic assets. The acquisition of Volvo became a launching pad for Geely’s efforts to build its brand and enhance its technical capabilities. The Window of Opportunity for Success In 2006, Geely successfully acquired 19.97% of Britain’s Manganese Bronze Co. Ltd., which is its first attempt for cross-border acquisition. Manganese Bronze Co. Ltd. manufactured and owned the classical black taxis of London and had a history spanning centuries. Geely joined the international arena as an equity investor with this acquisition and received little attention. Some people believed that the deal would be harmless for Geely even if the venture did not succeed. However, Geely’s ownership of Manganese Bronze ultimately became a beneficial foundation for its subsequent successful acquisition of Volvo. Geely had accumulated some inside knowledge about proceeding with cross-border M&As and dealing with non-Chinese business partners. By acquiring Manganese Bronze, Geely developed a deeper understanding of Europe as well as its local laws, regulations, cultural customs, and market demands. Geely also availed of insights into the functioning of labor unions in the development of enterprises, a potentially pivotal herald of the outcomes of cross-border M&As. Labor unions are very powerful in Western enterprises, and productive management–labor union relations are vital for cross-border M&As and post-merger consolidation operations of acquired enterprises. Being relatively more mature, the labor union system in the Western world differs from the methods of operation of labor unions in Chinese enterprises. Such differences become critical when Chinese enterprises operate outside China. Otherwise, enterprises can incur heavy losses if the labor unions are underestimated and under-attended. A typical case concerns the acquisition of the South Korean Ssangyong by the SAIC Motor Corporation Limited (SAIC). The labor union of Ssangyong issued legal complaints and encompassed the SAIC headquarters. Eventually, SAIC lost management rights over Ssangyong. When Geely acquired Volvo, it attached great importance to labor union relations. Volvo is headquartered in Gothenburg in Sweden, operates a factory in Ghent in Belgium, and many important shareholders

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of Volvo are based in the United States. Before the acquisition, Geely had already conducted in-depth research on the labor union system in Sweden, Belgium, and the USA. Geely also performed an in-depth study of the labor union of South Korea to extract lessons from SAIC’s troubled acquisition experience with South Korea’s Ssangyong. Externally, Geely’s acquisition of Manganese Bronze in Europe served as a showcase window for Volvo. Li Shufu expressed great sincerity in handling issues related to labor unions. Fully versed in the importance of Volvo’s labor unions, Li Shufu headed a delegation of the Geely senior management team to Europe and visited Volvo’s labor union and other relevant administrative government departments. Li Shufu was asked at negotiations with Volvo’s union representatives if he could use three words to prove why Geely was advantageous in acquiring Volvo. This question caught Li Shufu by surprise. But he could, without hesitation, voice his deep love for Volvo, saying, “I Love You.” His candid manner immediately sweetened the relationship between Geely and Volvo and became a key turning point in resolving labor union issues. Sweden’s Hardware Labor Union went to London Taxi Company in Britain to query the company’s impression of Li Shufu and probe his stances in dealing with labor unions. The staff of the London Taxi Company offered positive feedback simply because Li Shufu had highly respected their labor union. Sweden’s labor union was thus assured by a third party that Geely was truly committed to the protection of workers’ interests and was relieved from its anxiety about Geely’s acquisition of Volvo. Unconventional Game The “One Ford” strategy of the American giant almost squeezed Volvo into a state of chewed gum to spit out. This potential eventuality offered Geely the most opportune time window to acquire Volvo. Negotiations on the acquisition officially began after two rounds of tender documents were submitted. The negotiations were confronted with the challenge that Geely and Volvo were backed by drastically different business philosophies and distinct comprehension levels vis-à-vis technology, quality, and processes. Geely had no experience in operating a luxury car business. How could it tune to the same wavelength as Ford and even be recognized by Ford? An international negotiating team was crucial to the successful acquisition of Volvo. In fact, Li Shufu began to quietly assemble an acquisition

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negotiation team as early as 2007. The group was then labeled the “V Project team.” The founding members of the team included Geely CFO (CFO) Yin Daqing and board director Zhang Peng. Before joining Geely in 2004, Yin Daqing worked in foreign-funded enterprises such as Unilever and DuPont. He later ventured into the automobile industry and served as the CFO of Brilliance Jinbei Auto. He worked primarily as a fundraiser in the process of acquiring Volvo. Zhang Peng had worked in Spanish New Century Co. Ltd., Shell, and BP Oil, and had participated in Geely’s acquisition of Manganese Bronze. Yuan Xiaolin later joined the acquisition team. He was a diplomat who once worked with Zhang Peng in BP Oil and had participated in many M&A deals. Tong Zhiyuan was primarily responsible for the acquisition-related transactions with Volvo. Having worked at Beijing Benz Automotive for many years, he was experienced in working with joint ventures and independent brands in the luxury car segment. Subsequently, the team also included Shen Hui, the former CEO of Fiat China. Shen Hui, a senior professional manager, was a veteran professional executive in the United States. He was privileged with rich experience in cross-cultural management and international operations. In 2006, Zhao Fuquan joined the Geely and later became the vice president charged with the R&D functions of the Geely. Zhao Fuquan participated in Geely’s acquisition of the Australian DSI. He worked in Japan, Britain, and the United States for many years and became the vice president of Brilliance Jinbei Auto when he returned to China. He was the leading technology negotiator during the acquisition of Volvo. The members of the V Project team each brought unique strengths and were able to work together as a singular unit, enabling Geely to match Ford’s expertise in negotiations. The team provided a significant basis for the success of the negotiation. The ownership of intellectual property rights (IPRs) became a focal issue during the negotiation process. Ford stated that it could sell Volvo but was unwilling to let go of the underlying IPRs. Ford explained that there was a lot of technology integration between Ford and Volvo after a decade of its ownership of Volvo. Ford believed Geely would indirectly access Ford’s technology if it agreed to sell Volvo’s IPRs to Geely, and Ford could never agree with that prospect. However, Li Shufu’s opined that the acquisition would be a disaster for Geely without the IPRs. There is a “similarity” clause in European intellectual property protection. Li Shufu said,

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Aren’t all car tires round in shape? Aren’t all steering wheels round? How different can doorknobs be? If you are warned that any similarity in product would cost you destroying the mold, stopping production, Geely would have been shut down out of business way before manufacturing cars. Therefore, the two parties would have to come to an agreement with regard to the IPRs. The negotiation team could only get two hours of sleep every day. The team members had to handle the Chinese business during the daytime and held conference calls until midnight. If they were on business trips outside China, they managed to attend to negotiation tasks during the daytime and address the needs of the domestic Chinese business at nighttime. Their hard work finally came to successful fruition as an agreement: a 4-year buffer period for technologies exclusively owned by Ford; a 3-year buffer for technology shared by Ford and Volvo; and a 2-year buffer for technologies exclusively owned by Volvo. At that time, Geely was not the sole bidder for Volvo. France’s Peugeot Citroen Group also tendered a bid. Why did Geely succeed? During the negotiation, Li Shufu effectively explained his intention of acquiring Volvo and depicted the future development prospect of Volvo, winning due recognition from Ford. As an international enterprise, Ford not only wanted sizable profits from its sales of Volvo but also expected that Volvo would have better future after the deal. If Volvo could be described as the princess of the Ford Kingdom, Ford actually wanted to arrange a suitable match for Volvo. Li Shufu had been courting Volvo for many years and he had already devised long-term development plans for Volvo. First, unlike Ford’s model, Geely planned to restore Volvo’s autonomy in management. Li Shufu realized deeply that Geely had just started manufacturing cars for 13 years whereas Volvo had been manufacturing cars for 83 years. Therefore, Geely was not qualified to make management decisions for Volvo. Geely and Volvo could only be brothers after the acquisition. At the same time, Li Shufu compared Volvo to a caged tiger. Ford had never worried about the availability of funding. So, they locked Volvo in a cage and fed it with meat required to survive. Unfortunately, Volvo was domesticated into a household pet by Ford. Li Shufu planned to release the tiger from the cage and return it to its natural way of life. At that time, Geely’s main strategy was to stabilize Volvo’s European and American markets and focus on the development of emerging markets, especially the Chinese market. Besides, Li Shufu was also interested in cutting-edge

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technologies such as autonomous driving. His ambitious plans convinced Ford that Volvo could regain its past glory only if it was sold to Li Shufu.

Uniqueness Beauty of Every Form and Harmony Represented Through Diversity and Integrity The successful acquisition of Volvo was a milestone for Geely and for the advancement of the Chinese automobile industry as a whole. However, the completion of the acquisition was just a phased victory for Geely. The real challenge began on March 28, 2010, when the acquisition agreement was signed. The value of an acquisition ameliorates at the post-acquisition integration. To some degree, the extent of the materialization of synergy between two parties depends on the acquiring enterprise’s effective management of the post-acquisition integration process. Multinational enterprises from emerging countries may encounter more difficulties at the post-acquisition integration stage than multinational enterprises from developed countries because of lacking in cutting-edge technology and advanced management experience.2 Li Shufu also realized that financial turmoil accorded Geely the opportunity to acquire Volvo. How should Volvo be managed after the acquisition? This matter pertained to the future evolutionary trajectory of both Geely and Volvo. Breaking the Conventional Governance Structure Geely’s acquisition of Volvo was regarded by the outside world as a “snake swallowing an elephant.” It has to be admitted that there is a huge gap between the two in terms of technology, brand, and management ability. Geely is a popular car brand while Volvo is a luxury car brand. If by standing protocols, Geely will integrate Volvo, replace the senior management team, and change the operation style of the acquired company, which might lead to disastrous consequences. Although Geely’s management and employees are stable after the acquisition with the trade unions and the government also backing the deal, it still needs a process of mutual adaptation. In order to maintain Volvo’s stability and fully unleash its potential, Geely has made innovations in its governance mechanism. 2 Luo, Y., Tung, R. L. A general theory of springboard MNEs. Journal of International Business Studies, 2018, 49(2): 129–152.

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On one hand, Li Shufu posited that “Geely is Geely; Volvo is Volvo.” First, Geely did not send even one senior executive into Volvo’s management. Volvo was founded in 1927 and had a history of more than 80 years. Geely did not enter the automobile industry until 1997. Geely could not command Volvo. If any direct orders were issued from Geely to Volvo, they would never be truly accepted or welcomed. On the contrary, refraining from deputing Geely executives to intervene in the internal management of Volvo helped Geely win the hearts of Volvo employees. Later, Geely creatively established a governance structure comprising shareholder meetings, a board of directors, and top management team. Such a governance structure already existed widely in the Western world. However, Geely’s three-tier management structure design for Volvo was unique. First, Geely did not need to establish shareholder meeting for Volvo because Geely was Volvo’s only shareholder. Also, Volvo did not have a shareholder meeting when it was owned by Ford. Second, Volvo was not a listed company, and there was no mandatory requirement to have a shareholder meeting. Nevertheless, Geely decided to institute a shareholder meeting and head-hunted international directors to advise Volvo’s management practice of shareholder meetings. Most of these directors were CEOs of Fortune 500 companies such as IKEA and Maersk. They would not directly interfere with Volvo’s daily operations and management, but they could offer beneficial guidance to the management team as required, which helped to justify the authoritativeness of the board of directors. The three-tier structure served as an insulation layer, barring direct interference from the Geely headquarters and functional departments with Volvo’s functional departments. This framework softened resistance and obstruction from Volvo’s management, and granted Volvo great autonomy. Li Shufu also proposed to “set free the tiger and let it go back to the mountains.” Acquired by Ford, Volvo was not accorded autonomy. In fact, Ford exercised tighter control. During Ford’s ownership of the European brand, Volvo’s executives were all Americans. In addition, the decision-making power was vested in Detroit, not in Gothenburg. Also, Ford had too many brands under its aegis and could thus only allocate limited resources and attention to Volvo. Ford earmarked only USD 1 billion annually as the R&D budget for Volvo. As Li Shufu brilliantly described Volvo’s conditions of starvation, Volvo was like a “tiger trapped in a cage.” It would not starve to death, but it had already lost its wild nature and original lifestyle. After taking over Volvo, Geely posited the

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idea of “setting free the tiger back to the mountains,” giving it muchneeded freedom and rejuvenating Volvo. The governance mechanism of “setting free the tiger back to the mountains” had two connotations. First, it represents authorization and respect. Second, it encouraged Volvo to advance and rejuvenate. Geely hoped to increase Volvo’s sales by “setting free the tiger back to the mountains,” simultaneously aiming to retain the original DNA and characteristics of the Volvo brand. Respective Advantages Originating from Complementary Resources Like other emerging market enterprises who were latecomers to global markets, Geely lacked advanced technology and management experience.3 However, Geely also offered unique resources that were indispensable to the enterprises it acquired in developed countries. The acquisition of Volvo rewarded Geely with brand effect, advanced technology, and managerial experience. It primarily comprised eight valuable assets. First, Geely gained the global ownership of Volvo Cars and the right to use its trademark, which meant that other enterprises could only use the trademark of Volvo Cars with permission of Geely. Second, Geely acquired a sustainable product platform and upgrade strategies. Third, the SPA platform for mass production became an asset for Geely. A car can be divided into two principal parts. One is modeling, including the styling of seats, instrument panels, interiors, and exteriors, which is more pertinent to the domain of art. The other one is the facet of technology, which is predominantly concentrated on the chassis. Volvo’s new technology was built mainly around the SPA platform, and Volvo could safely share it with Geely. Fourth, Geely gained the production capacity of the Gothenburg factory. Fifth, it developed the capability of producing the transmission and engine. Sixth, Geely benefited from the time-honored Volvo R&D Center, which was comparable to the R&D centers of famous brands such as Audi and Volkswagen. It had top-grade road-testing fields as well as ice and snow test fields and was capable of developing almost all automobile safety technologies of the world, including three-point seat belts of automobiles. Seventh, Geely attained the asset of over 2,000 sales outlets in more than 100 countries. It was fundamentally impossible for Geely to build such a large number of sales outlets on its own if the 3 Peng, M. W. The global strategy of emerging multinationals from China. Global Strategy Journal, 2012, 2(2): 97–107.

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acquisition had not transpired. Volvo’s sales channels abroad were important because they enable Geely to have the capability of accommodating the installment-based consumption habits in overseas markets and being equipped with a mature financial system and credit system that matched such consumption preferences. The eighth asset was intellectual property. Li Shufu knew very well that intellectual property was stringently protected in foreign countries. If rights were not properly purchased, Geely would face disaster. Geely also provided resources to Volvo. First, Geely equipped Volvo with qualified suppliers to help reduce costs. Volvo’s unreasonable cost structure and high purchasing costs denoted significant reasons why Volvo had been losing money. Geely was extremely efficient at procurement, who were equipped with strong negotiation abilities and a complete set of supplier data. Geely helped Volvo screen numerous suppliers in South Korea and Japan who could provide relatively low-cost parts without sacrificing the quality. This assistance became Volvo’s biggest reward from its deal with Geely. Second, Geely vigorously supported Volvo’s entry and growth in emerging markets such as China. Before the acquisition, Volvo had focused primarily on mature European and American markets, largely ignoring emerging markets, especially the Chinese market. Li Shufu said that Volvo car products would have to be adapted to the Chinese market in terms of their styling because the original Scandinavian-styled luxury would not appropriately apply to Chinese marks. Volvo’s simple styling could be viewed by Chinese consumers as weak in the parameters of luxury and fashion. Geely helped Volvo fully capitalize on the advantages of the Chinese market by sharing its profound understanding of its home environment. In 2016, the China Association of Automobile Manufactures visited Sweden, and the Swedish Prime Minister praised Geely as a responsible enterprise. Li Shufu quoted one of Mr. Fei Xiaotong’s famous four-sentence sayings: Every form of beauty has its uniqueness, precious is to appreciate other forms of beauty with openness; if beauty represents itself with diversity and integrity, the world will be blessed with harmony and unity. Geely and Volvo present unique advantages. They can become influential international enterprises if each can appreciate the other and both can work together.

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Unique Learning Mechanism Enterprises in emerging markets can gain competitive advantages in global markets by learning advanced technologies from enterprises they acquire in developed countries.4 The automobile industry underwent extraordinary changes during the financial crisis of 2008. Many automobile enterprises were reorganized or even bankrupted, including Aston Martin and Saab. Yu Liping, the president of the Lochiel Financial Group Greater China, recommended several companies other than Volvo to Li Shufu. However, Li Shufu insisted on acquiring Volvo because he felt that Geely needed a good teacher. In his opinion, Volvo was the most suitable acquisition asset in the world. Volvo commanded a technology source and a business foundation, especially with respect to the safety and the within-vehicle air quality technologies. Geely had not availed of technology inputs from foreign-funded enterprises before acquiring Volvo. At first, Geely innovated mainly through imitation. Later, it began to forward engineer technology products from Free Cruiser, only to discover that this process did not yield adequately advanced development outcomes. In the process of cooperating with Volvo, Geely benefited the most in the aspects of management sharing, quality standards, and the automobile development process. The course of designing and manufacturing automobiles encompasses phased operations. Each stage poses problems that must be resolved pertaining to the type and process of development, the kind of vehicle, the standards to follow, the decision-making and reporting systems, and so on. Geely had evolved a distinctive development process. However, its systems were not with international standards. The Geely development process could thus not be qualified as an internationally leading or comprehensive system. After the acquisition, Geely first learned the internationalized vehicle development process from Volvo. Geely’s learning from Volvo was achieved predominantly through platform sharing and technical exchanges. China Euro Vehicle Technology Center was established in Gothenburg in February 2013. This R&D center was integrated with the strength resources of Geely and Volvo,

4 Thite, M., Wilkinson, A., Budhwar, P., Mathews, J. A. Internationalization of emerging Indian multinationals: Linkage, leverage and learning (LLL) perspective. International Business Review, 2016, 25(1): 435–443.

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aiming to develop the modular architecture and key components of nextgeneration medium-sized cars. The CMA platform represents a landmark achievement of this endeavor. Volvo launched the XC40 product series using the CMA platform, and Geely used it to launch a new SUV called Xingyue. Both parties also jointly launched LYNK & CO. Volvo already owned the SPA platform that had just been introduced into mass production. However, global luxury car preferences changed more toward compact vehicles, especially in Europe. Geely planned to enter the European market with compact models, but the costs would run too high if the SPA platform was reworked only to adapt to the local market. Moreover, Volvo could not obtain enough funds to develop new platforms because of previous losses. Geely decided to partner with Volvo specifically to develop platforms. In that case, Geely invested the funding, while Volvo contributed its talents and technology. Both parties agreed to jointly build and share the resulting platforms. The communication and interaction between the two parties also provided Geely with a channel for learning. The improvement of R&D capabilities largely depends on communication between technical and management talents, especially in the case of proprietary technology and tacit knowledge. On the one hand, Geely planned to send its staff to Volvo for training. On the other hand, Geely would also invite people such as Peter Horbury, the chief designer of Volvo, to work at Geely. Horbury worked with luxury cars for many years and developed numerous high-end models, some of which were adopted by big brands like Aston Martin, Jaguar, Land Rover, and Volvo. He led the delegation, organized more than 500 experts from more than ten countries, spent three years, and developed the Borui model. B-class cars used to be the glass ceiling for Chinese domestic car brands. However, Borui can be called the best among Chinese domestic brands of B-class cars. Thus, Geely had the opportunity to learn from Volvo through both formal and informal means of personnel exchange. The acquisition of 100% of Volvo’s equity provided an important premise for Geely to learn. Without 100% equity, it would be impossible for Geely to cooperate with Volvo to establish a platform for two-way communication (e.g., as a joint venture). More significantly, Geely also always displayed the grounding, open-minded attitude, and conditions of a good student in the process of learning from Volvo. First, Geely exhibited a strong will to learn and determined to work hard and progress with Volvo. They could honestly face reality and admit to their failures to excel.

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Second, the point-to-point cooperation disintegrated Volvo’s stereotyped impressions of Geely. Geely gradually earned recognition from Volvo over time.

Wisdom About Synergy Step by Step Geely’s cooperation with Volvo was not achieved overnight. It was a gradual process. The growth of cooperation between the two sides may be classified into three stages that began with financial synergy, transitioned to technical synergy, and finally advanced toward strategic synergy. The stage of financial cooperation between Geely and Volvo was actually catalyzed by negative news. In July and October 2011, less than a year after Geely’s acquisition of Volvo, some domestic media rumored that Geely had asked its local employees in Taizhou city of Zhejiang Province to borrow hundreds of millions in underground bank loans. There were rumors saying that Geely’s asset-liability ratio was too high and that its growth would be hindered. Li Donghui and Geely’s public relations department issued clarifications to respond to these two slandering media reports. For the first time, Geely took proactive action to deal with negative public opinion. It was very promising for Geely to be enlisted into the Fortune 500 after its acquisition of Volvo. Fortune 500 companies engaged in the car industry often carry high asset-liability ratios. It subsequently transpired that Geely had liabilities as well as excellent assets when it was enlisted into the Fortune 500 for the first time in 2012. The second instance could be described more as a dispute between right and wrong. Geely decidedly took legal measures, demanding that the concerned media reporter should issue an unconditional apology. Volvo’s influence on Geely became increasingly evident after the two abovementioned incidents. Geely had supported the tenet of noninterference in Volvo through the dictum of “Geely is Geely; Volvo is Volvo.” However, it would be impossible to register two separate financial statements for the acquiring and acquired companies. Therefore, Geely and Volvo would have to begin by trying to get financial synergy. Volvo was then faced with the problem of funding sources for subsequent development, investment, and factory building. Volvo had been losing money before being acquired by Geely, and it was difficult for the company to bear the costs of global development. Geely offered a 3 billion Euro

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credit extension, quenching Volvo’s thirst for pumping funds into the development of the SPA platform and solving Volvo’s problem of finding development funding sources. Volvo thus experienced Geely’s support and assistance as a shareholder. Geely and Volvo then began to proceed technical cooperation. Li Shufu proposed to promote technical synergy after realizing financial synergy. Volvo was losing money in its car-manufacturing business. The company also admitted its inability to undertake global development of its next-generation technology platform. Only by achieving the scale effect through cooperation would it be possible to reduce the costs of the enterprise. However, the Volvo authorities did not think any cooperation was possible because of the immense gaps between Geely and Volvo. They would much rather collaborate with Mazda than with Geely. Also, Volvo’s attitude of professional management seemed incompatible with Geely’s position as an equity investor. From Volvo’s point of view, Geely should need only to invest money and care less about intervening in other issues because professional managers were obligated to deliver results to the shareholders. Such a situation was congruent with Geely’s strategic intentions. Geely wanted to be a strategic investor and not just an equity stakeholder. Their ultimate strategic goal was to achieve synergy. Li Shufu and Li Donghui tried to convince the independent directors of Volvo during discussions at a board meeting. However, the directors of Volvo persisted in their objections. They thought it was impossible for Geely and Volvo to collaborate. Geely has accorded Volvo with full trust and authorization, but Volvo did not know enough about Geely. Therefore, Li Shufu invited three independent directors of Volvo to visit Geely. Their trips to Geely laid the foundation for the subsequent technical synergy. Hakan Samuelsson, the incumbent CEO of Volvo Cars, was one of the three independent directors who visited Geely. An Conghui and Li Donghui accompanied him on a tour on the second day of his visit. The Emgrand EC7 was Geely’s best car model at that time. Standing beside an Emgrand sample car, An Conghui explained to Samuelsson the supply conditions of airbags and seats and told him that the Emgrand EC7 also had many world-renowned suppliers. In fact, Geely and Volvo had contracted the same suppliers, which denoted a good foundation for cooperation. In a humorous reply to the visiting guests, Li Donghui said: “Geely is not only backed by the chairman’s street neighbors, but also by world-renowned suppliers.” This exchange deepened Volvo’s understanding of Geely. Then Volvo agreed to initiate technology collaboration

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with Geely. The CMA platform resulted from this technical cooperation. Geely produced LYNK & CO on this platform, while Volvo produced the XC40. Geely and Volvo achieved strategic synergy in the third phase. Announcing the establishment of LYNK & CO as a joint venture company is a milestone event for both sides, which also heralded the achievement of strategic coordination between the two partners. In July 2017, Geely announced the joint venture establishment of LYNK & CO to the media. Hanken Samuelson, An Conghui, and Li Donghui signed contracts on behalf of Volvo Car, Geely Automobile, and the Geely Group, respectively. Volvo holds 30%, Geely Automobile holds 50%, and the Geely Group holds 20% of LYNK & CO. The cooperation between the two parties signified Volvo’s increased recognition of Geely. It also signaled that the strategic synergy between the two parties had advanced to a new level. In February 2021, Geely and Volvo agreed on a consolidation plan: they would consolidate but maintain their existing company structures. Such consolidation and subsequent collaborations would pertain primarily to the forward-looking technologies of electrification, intelligence, networking, and sharing of automobiles. The two companies would also jointly explore cutting-edge technologies such as powertrains, triple power technology, and highly automatic driving to continuously promote technological innovation, enhance competitive advantages, and maximize their overall value. Strength to Believe Volvo was in the red for years under Ford’s ownership. After being acquired by Geely, it turned losses into profits and demonstrated a promising development trend. It cannot be ignored that the trust between Geely and Volvo powered some of the beneficial changes. Geely’s executives once intended to maximize consolidation immediately after acquiring Volvo. However, the chasm between Geely and Volvo was too wide for abrupt consolidation efforts to succeed. Such an endeavor would generate many confrontations: from Volvo’s management team, trade unions, or international sales networks and suppliers. After contemplating how Volvo could be convinced to consolidate fully, Geely decided to earn the trust of the Volvo system by respecting Volvo and keeping its promises, finally materializing the synergy between the two sides.

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The idea of respecting Volvo in development seemed simple, but it was pivotal to Geely earning Volvo’s trust. In acquiring Volvo, Geely did not take the stance of bestowing liberation and salvation. Instead, it treated Volvo with due respect. Li Shufu immediately convened an allhands meeting on March 28, 2010, after the signing of the acquisition agreement. He called for the establishment of a spokesperson system and asked Geely employees not to gossip about Volvo outside the company. This directive served to demonstrate respect to Volvo. At the same time, the bilateral associations between Geely and Volvo were described by Geely as a “brotherhood relationship instead of fatherson relationship.” This definition also demonstrated great respect for Volvo. In addition, Geely also modernized its management systems, breaking the shackles of traditional management protocol and sticking to the dictum of “Volvo people governing Volvo.” Only a few Geely executives were seconded to Volvo, and they all maintained a low-key presence, treading on thin ice to avoid hurting Volvo’s feelings. Li Shufu asserted that there was no magic recipe for the successful synergy that ultimately evolved between Geely and Volvo. It was mainly Geely’s commitment to respect and safeguard Volvo’s autonomy. Keeping its promises represented an effective way for Geely to gain Volvo’s trust. Li Shufu had no experience in managing European enterprises. He turned to the IKEA chairman’s for advice about how to manage European enterprises. The IKEA chairman told him it was actually very easy to manage European enterprises. The basic principle is to keep promise. Geely made four commitments in acquiring Volvo: it would not change Volvo’s headquarters, labor relations, supplier contracts, and sales networks. These promises stabilized Volvo’s morale. Later, Geely promised to offer 10% of its profits as a reward to motivate Volvo employees. At that time, no one believed that Geely would really do so. Volvo functionaries were more inclined to be suspicious about the intention: “How could Geely agree to share operational benefits with us?” However, Geely kept its word when profit accrued. In the opinion of a Geely executive, keeping promises is the most important way to win trust. Geely and Volvo were nurtured in two different countries exhibiting distinctive development histories and cultural backgrounds. It was thus not easy to build trust between them. However, Geely was willing to believe in Volvo and was also determined to have faith in the power of its trust. Eventually, guided by a common goal, Geely and Volvo built mutual trust, kept advancing their post-acquisition consolidation, and

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constantly achieved new breakthroughs and achievements in both product development and market exploration. Empowerment and Lead the Way When enterprises from developed economies acquire enterprises from emerging markets in the “big fish eat small fish” type of M&A deals, the acquirer often has greater power because it controls abundant development funds, owns cutting-edge technology, or holds more sophisticated management expertise. However, even though the acquirer wholly owns the acquired party in the “snake swallowing elephant” type of M&A, the acquired firm does not easily accept management by the acquiring enterprise. It is even worse especially when the acquirer is a Chinese entity. Businesses in China often display a relatively strong hierarchical culture and tend to holistically take over acquired enterprises. However, Geely acted in the opposite manner, granting Volvo greater development autonomy. Geely realized that gaining control was not the ultimate goal of acquiring Volvo. Instead, the acquisition was intended to maximize the value of the Geely Holding Group. Although Geely “set the tiger free to return to the mountains” by fully empowering Volvo, it did not idly stay still. Geely maintained its strategic attention on Volvo through the board of directors and guided Volvo’s strategy orientation as a shareholder, clearly indicating the directions Volvo would take in the future. In fact, Li Shufu has already formulated parallel strategies before acquiring Volvo. Geely planned to recast Volvo’s product positioning as a luxury brand and benchmark it to other premium automobile products. In terms of target markets, Volvo would initially work to stabilize its performance in European and American markets and explore emerging markets, particularly Chinese market. Swedish culture values low-key simplicity. Swedish-born Volvo also inherited such traits. It did not position itself as a luxury car, placing more emphasis on safety and environmental protection. In fact, Volvo could have competed robustly against Audi, Mercedes-Benz, and BMW in most markets. In acquiring Volvo, Ford was not very serious about safeguarding Volvo’s positioning as a luxury brand. This negligence curtailed Volvo’s brand prominence in global markets. Geely regarded Volvo as a very competitive enterprise and as a brand that was totally capable of competing against other luxury brands. Lamenting the brand’s

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sidetracking, Geely was determined to restore Volvo’s preeminence and reinforce its brand value. Exploring the Chinese market is an important strategy for Volvo. Before being acquired by Geely, Volvo sold less than 20,000 vehicles in China. Its business venture in China could not be regarded as successful. Chinese car consumers prefer luxury styles that differ from Sweden’s predilection for low-key simplicity. This cultural difference explains Volvo’s poor performance in the Chinese market. Geely advised Volvo to enter the market space of luxury cars in China to increase its market share and insisted that Volvo should follow the Chinese partner’s recommendations on specific approaches and detailed arrangements. As a local Chinese enterprise, Geely commands a profound understanding of China’s automobile market demands. Volvo garnered greater growth in the Chinese market through Geely’s localized advice. Geely was a mass-market automobile brand, while Volvo was a luxury automobile brand. Geely’s acquisition of Volvo created one team from two differently positioned automobile brands and helped both parties compete more effectively in the global automobile market. Geely’s ultimate goal in acquiring Volvo was to maximize the Group’s value. The acquisition not only improved Geely’s quality and brand awareness, but also enabled Volvo to make a triumphant return.

Asymmetrically Complementary Non-linear Growth How can Chinese automobile enterprises achieve rapid development? The traditional path of automobile enterprise development would require substantive time, accumulation, and filtering efforts. Cross-border M&As can indeed serve as a springboard for Chinese enterprises toward rapid development and represent shortcuts for their globalized progression. However, the mere acquisition of strategic resources from overseas markets is far from an adequate assurance of attaining sustainable competitive advantages. Chinese enterprises seeking global development must investigate how they can achieve mutual benefits through cross-border M&As. The relationship between Geely and Volvo is described as “asymmetrically complementarity.” The disproportion between the two sides was observed primarily in their technology, brand values, and market positioning. Their complementarity was reflected mainly in their postacquisition cooperation in procurement, marketing, and other areas.

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Though facing asymmetry in its partnership with Volvo, Geely prioritized the stable operation of Volvo. The post-acquisition integration management is not an easy task in “snake swallowing elephant” type of M&As because of the technology, branding, and market positioning gaps between the two parties. At this stage, the principal goal of enterprises accomplishing M&As is to maintain the solidity of the acquired asset. The acquiring firm must establish an effective governance mechanism to protect the brand value of the acquired asset and avoid becoming a brand killer. It takes time to create and build brands. Once destroyed, the value is difficult to recover. At the same time, an effective governance system can ease internal confrontations with the acquired enterprise and drive its development. Further, the two parties of an M&A agreement should competently discover and appreciate each other’s advantages despite difference in corporate cultures, histories, and management methods. Enterprises from developed countries are more advanced in technology, branding, and management experience. Enterprises from emerging markets can offer unique advantages, for instance, in their procurement and innovation portfolios. Only when collaboration partners can appreciate such complementary relations can further cooperation be possible. From the perspective of the acquiring firm, a modest learning attitude is pivotal to the actualization of non-linear growth. Geely did not practice the non-discretionary “Copinism.” In other words, it did not merely copy Volvo’s technology. Instead, it regarded Volvo as a teacher and committed to learning from Volvo with the attitude of a student. This stance also made it psychologically easier for Volvo to accept Geely. Complementarity is a premise through which enterprises can achieve synergy, which is the ultimate pursuit of any M&A event. Geely wisely delayed the process of synergy solicitation, according to Volvo’s full trust and indicating its new development direction. The Geely-Volvo collaborative partnership occurred step by step. It denotes a process through which the acquiring company earned the trust of the acquired company through respect and commitment. Geely granted Volvo full autonomy in the process of creating synergy. Volvo also benefited from Geely’s clear directions for its strategic development, which helped Volvo stay on the right course.

CHAPTER 10

Global Collaborative Network

With the development of economic globalization, companies around the globe are going through a process of reshuffling. Chinese companies have also greatly improved their competitiveness. In the past, China’s manufacturing industry was at the bottom end of the global value chain. The issue that most Chinese enterprises now face in the current round of global competition is how they can find high-quality resources to become the most competitive global enterprises. When Chairman Li Shufu first decided to go into the car manufacturing business, he made up his mind to establish a truly globalized automobile enterprise and fully participate in the competitive global automobile industry. —An Conghui.

Geely, a private automobile enterprise, has evolved into a global enterprise. From 2009 to 2013, Geely Auto’s total sales increased from 326,710 vehicles in 2009 to 549,469 vehicles in 2013. The number of exports also increased, from 19,350 in 2009 to 118,871 in 2013. However, within that period there was increased homogenization and fierce internal competition for Geely’s products. Consequently, in 2014, Geely decided to actively transform its brand to create “premium cars.” Affected by the external economic environment, Geely recorded a negative growth in total sales and exports in 2014. However, from 2015 to

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1 600 000 1 400 000 1 200 000 1 000 000 800 000 600 000 400 000 200 000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Domestic Sales

Export Sales

Total Sales

Fig. 10.1 Sales of Geely Automobile from 1999 to 2019 (unit: car)1

2018, Geely experienced explosive growth in the domestic market and in late 2018, its export volume achieved positive growth for the first time after experiencing negative growth for four consecutive years. This shows that Geely still has great development potential in overseas markets (see Fig. 10.1). In 2019, Geely Auto recorded a decline in sales due to the special external environment. On the whole, Geely’s international development has gone through three stages: at the beginning, it entered the international market through exports. Later, it steadily improved through M&A and finally achieved synergy development through equity investment. At the initial stage of internationalization, Geely sold its cars in overseas markets mainly through exports. However, due to the limited brand awareness and sales channels, Geely could only sell its products to the market of less developed economies. To find a way out of this stalemate, Geely started to use M&A as a jumping board to enter the developed markets. At first, it acquired Manganese Bronze in Britain, then took over the Australian DSI, and then acquired Volvo. These moves enabled Geely to gradually accumulate its experience in the international market and steadily improve the internationalization of its brand. In recent years, Geely has successively acquired 49.9% shares of Proton Auto, 51% shares of Lotus Cars, 8.2% shares of Volvo Cars, and 9.69% shares of Daimler with voting rights. 1 The data source comes from Geely Automobile, not from the Group Company.

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Through equity investments, Geely can cooperate horizontally with other automobile companies and achieve synergy development. The successes in both exports and cross-border M&A were attributable to Geely’s higher level of internationalization. In a deeper sense, it also reflects the global layout of the value chain. By acquiring Volvo and deepening its cooperation with Daimler, Geely successfully created the opportunity to cooperate with world-class suppliers. Geely’s global layout makes the whole supply chain system cooperate closely and upgrade rapidly. Subsidiary companies of Geely Holding Group were able to give full play to their respective advantages. For example, on the CMA platform, Geely gained advantages in purchasing and a strong sense of cost control. Therefore, Geely took charge of procurement, so as to improve efficiency and control costs through the synergy in the supply chain. However, the global layout of the value chain enabled Geely to achieve effective synergy in all aspects including procurement, production, R&D, and sales. After about 20 years of development, Geely has significantly improved its level of internationalization. It has transformed itself into a global technology enterprise. This chapter examines how Geely achieved global network synergy. It starts with analyzing Geely’s process of breaking through the local value chain and entering the global value chain. Then, it introduces how Geely realized the internationalization of purchasing, sales, and R&D by building a global value chain with Geely as the core. Finally, this chapter provides a summary of Geely’s synergy development of globalization to provide useful reference experience for other enterprises.

From Local Value Chain to Global Value Chain When Geely had just entered the automobile industry, it was interested in competing in the global automobile industry and becoming a global automobile enterprise. Although Geely had not obtained an automobile production license back then, it did not scale up its business in the Chinese market, and there was still a big gap between Geely and the global automobile enterprises at the time. However, Geely did not only aim to enter the markets of emerging economies but also the markets of developed countries, to make itself truly competitive. Internationalization was a seed deeply sown in the mind of Li Shufu.

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Automobile Value Chain Rooted in Zhejiang, the fertile land of entrepreneurship, Geely has achieved rapid growth. In the national industrial landscape of automobile manufacturing, Zhejiang enterprises have risen up into an important pillar of China’s automobile manufacturing industry. Apart from automobile enterprises like Geely, Hangzhou and Ningbo have gathered a large number of automobile components to provide high-quality parts for national and even global automobile enterprises and they have been widely participating in global automobile production. For example, Wanxiang Group, a representative enterprise of China’s auto parts manufacturing sector, is not only a supplier to Chinese domestic OEMs like FAW, Dongfeng Motor Corporation, SAIC, Guangzhou Automobile, and others but also the business partner of international mainstream automobile companies such as GM, Volkswagen, Ford, and Chrysler. Other well-known Zhejiang auto parts enterprises, such as Joyson Electronics and Ningbo Huaxiang, are committed to the manufacturing of automobile safety systems and automobile interior and exterior accessories. Through the extension of the industrial chain and the value chain, Zhejiang has formed a large-scale automobile industry cluster. “A waterside pavilion gets the moonlight first,” thus Geely can seize the first opportunity in the construction of a local supplier system, and grow together with local parts suppliers by sharing experience and supporting each other. However, the attributes of the automobile industry indicate the global nature of automobile enterprises. Thanks to globalization, China’s automobile industry has achieved rapid development in the past two decades. Globalization enables enterprises to enter diversified markets. They can access high-quality strategic resources, harness scale economies, and reduce costs. At the same time, globalization provides more learning opportunities for enterprises, especially when entering the markets of developed countries. Enterprises can learn advanced management experience and cutting-edge technologies. Since China’s accession into the World Trade Organization in 2001, multinational automobile companies have flooded into the Chinese market. According to China’s industrial policy, foreign automobile enterprises cannot establish wholly owned companies in China. Instead, they have to establish joint ventures with Chinese partners that hold no less than 50% stock of the joint venture.

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Although the development of joint ventures provides a model for independent brands to learn from, it is at the cost of the occupation of China’s automobile market by foreign capital for a long time. In the domestic market, independent brands not only face competition from domestic peer enterprises, but they also face pressure from automobile enterprises from developed countries.2 In 1997, Geely entered the automobile industry with a low-price strategy, making cars that were no longer considered as luxury goods but consumer goods, which ordinary people could afford; this drove the domestic automobile industry into a new paradigm. However, by 2003, Geely’s cars were sold at a stunningly low price, about RMB 30,000, which was close to the cost of production. Consequently, the value of Geely’s brand was questioned and its market share was eroded. Geely ended its low-price strategy in China. Coupled with the fierce competition of domestic independent brands back then, internationalization presented more opportunities for Geely. For more sustainable business growth, Geely had to embark on the journey of internationalization. In 2001, after obtaining a business license for automobile manufacturing, Geely became the first private Chinese enterprise to obtain a car-manufacturing license. Thus, Geely decided to go global. In 2003, Geely entered the international market, and thousands of Geely cars were shipped from Shanghai Port to Syria and Egypt, kicking off Geely’s internationalization journey. It was also the first time that Chinese private car enterprises went abroad as Geely was the first among Chinese private enterprises to export cars to overseas markets. However, due to Geely’s limited brand awareness and product competitiveness, its initial exports were mainly to the markets of underdeveloped countries such as Syria, Egypt, Ukraine, etc. The unstable political situations and large fluctuation of exchange rates in these countries made it difficult for Geely to develop in these markets. Thus, Geely’s ultimate goal was to move to developed markets due to the strong market demands and the relatively stable market environments.

2 Luo, Y., Tung, R. L. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 2007, 38(4): 481–498.

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Rising Position in the Global Value Chain It is not easy to enter the international market, especially in developed countries. Geely found that M&A was an important way to integrate into the global value chain. In 2006, Geely Holding Group purchased 19.97% shares of Manganese Bronze Co. Ltd in Britain, the manufacturer and owner of classic black taxis in London, also an enterprise with a history of over 100 years. With the decline of the British car industry in the 1990s, the products of Manganese Bronze Co. Ltd continuously failed to improve. Weighing over three tons, the black taxis it produced did well in safety performance. However, due to their heavy body and high fuel consumption, it did not make sense to taxi drivers. In February 2013, Zhejiang Geely Holding Group spent £11.04 million pounds acquiring Manganese Bronze Co. Ltd.’s core assets and business, and renamed the company London Taxi Company, becoming the complete owner of the classic London taxi and their affiliated assets. Geely developed TX5, a brand-new model of the London taxi, and used Volvo’s lightweight technology to reduce its weight by 900 kg. In 2015, Geely announced an investment of £300 million pounds to build a brand-new R&D center and factory in Coventry, UK, to develop the next generation of pure electric and low-emission British taxis. During the financial crisis, Geely acquired Australia’s DSI, the second largest automatic transmission company in the world. At that time, there were mainly two automatic transmission companies independent of the whole assembly OEMs, one of which was ZF of Germany and the other was DSI of Australia. DSI has a history of more than 80 years. It used to be a supplier to automobile companies such as Ford of the United States and Ssangyong of South Korea. It has relevant R&D reserves in 8AT and DCT powershift. Hit by the world financial crisis, Ford and Ssangyong’s sales plummeted, leading to decreasing orders to DSI, the break of DSI’s capital chain, and finally, the DSI’s bankruptcy. Geely seized the opportunity and finished all the acquisition proceedings in just one month. When the news came, the domestic industry was amazed: “Why was Geely able to close such a deal, instead of other automobile companies?” Through the acquisition of core component companies, Geely secured a higher position in the global value chain. Geely’s third acquisition was Volvo. On March 28, 2010, a 100% acquisition agreement was formally signed, and the delivery was completed on August 2, 2010. Geely became the first multinational

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company in China’s automobile industry. To further strengthen strategic cooperation and deepen synergy, Geely and Volvo established Ningbo GV Automobile Technology Co., Ltd. (GVAT) in August 2017. This helped to promote the construction of shared technologies and platforms for joint R&D and collective procurement. Collective procurement is an inevitable choice under the background of joint R&D. With GVAT as the carrier, Geely Holdings used more than 2 million vehicles per year to gain an upper hand in negotiating the lowest unit price of spare parts procurement. GVAT fully tapped into the synergy opportunities between Volvo and Geely based on the existing technologies and platforms and promoted the joint R&D of various brands on the same platform. This not only improved the overall technical strength of each brand but also prevented investment in large groups. In the future, Geely Holding’s core technologies and platforms for the next generation will also be incubated through GVAT and licensed to other brands. On June 23, 2017, Geely successfully defeated competitors including Honda, Volkswagen, and Renault, and acquired 49.9% shares of Proton Auto and 51% shares of luxury car Lotus. Proton Auto is a national enterprise and the national pride of Malaysia. In the process of establishing the joint venture, Geely could have acquired 51% equity, but to respect Proton’s status as a national pride of the Malaysian people, Geely did not insist on its shareholding rights. Unlike the acquisition of Volvo, Geely traded for the exportation of Chinese technology through the acquisition of Proton. Previously, the main business model of domestic automobile enterprises was to establish joint ventures with foreign-funded enterprises in China, build factories in China, and develop the domestic market. However, Geely changed this situation and went abroad to establish joint ventures with foreign-funded enterprises and develop overseas markets. Malaysia’s automobile industry struggled with a very weak industrial base that was not only backward in technology, it was also deficient in basic technology, key components, and supply chain. Because Proton had been losing money for more than ten years in a row, the first task after acquiring Proton was to turn the company around. In Proton, all management positions were held by Geely people, including CEO Li Chunrong, CFO Pang Lijun, and CTO Yang Jun. All products were also developed by Geely. If the relationship between Geely and Volvo was more like brother to brother, that between Geely and Proton Auto was more like a complete takeover. Geely started with a major cost reduction in Proton Auto by requesting its suppliers to slash their quotations by

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30% on average. Many suppliers were unhappy with this development and filed complaints to the Malaysian minister. However, the government’s ministers were also unhappy with the lazy and unenterprising suppliers and openly criticized them in newspapers. Secondly, Geely also raised its performance bar for dealers. The 4S store environment of Proton Auto used to be very poor, making it difficult to attract customers. When Geely’s right-hand drive, Borui, was introduced to Malaysia, dealers were required to upgrade their 4S shop. Although some dealers complained to the minister, 95% of the dealers later changed their minds and chose to stay with Proton Auto. Facts have proved that Geely’s unique ability in operations has played a vital role. Over a year after the acquisition, Proton turned losses into profits. Proton was Geely’s gateway into Southeast Asian market, the fourth largest market in the world with a market potential of nearly six million vehicles. Although Proton Auto was facing a limited market market of Malaysia, it was able to reach out to other countries in Southeast Asia. In the past two years, the cooperation between Geely and Daimler has achieved substantial synergy. On September 9, 2019, Geely and Daimler jointly acquired a 20% stake in the European air mobility company Volocopter. In December 2019, Geely’s Cao Cao Taxi and Daimler founded VSATTECH, a joint venture dedicated to developing the high-end “StarRides” in China. On January 8, 2020, Geely Holding and Mercedes-Benz formally established Smart, a global joint venture company, to operate and promote the transformation and upgrading of the brand around the globe. The joint venture between Geely and Daimler on Smart is quite different from the previous joint ventures between Chinese automobile enterprises and their foreign peers. Smart is a global joint venture, not a Sino-foreign joint venture. In the past, joint ventures were usually located in China, and they were able to use brands, but they did not own the brands, and their product sales were often limited to China. Geely could inject its capabilities and advantages in R&D, manufacturing, supply chain, and marketing into the joint venture company, thus promoting the development of Smart cars in the global market. Smart used to have factories in Germany and France. But when their initial contract expired, the factories in the two countries were phased out of production and production was relocated to China. Besides accessing Geely’s technology, Smart is supported by the SEA pure electric platform spearheaded by Geely with the future R&D initiative, which will also be coordinated by Geely. The deep-dive cooperation with Daimler not only enabled Geely to build on

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Daimler’s brand influence, but also provided Geely with a strong guarantee for its global strategic deployment in the fields of high-end mobility, air mobility, and pure electric vehicles. Geely’s global development is a process of realizing coordinated development and climbing up on the value chain by delicately creating a business and space layout. Geely seized the opportunities to strengthen its global layout, which not only promoted the revival and upgrading of Volvo Car as a brand, but also realized the consolidation in corporate culture, talent, and technology among Geely Auto and Volvo Car, London Taxi, Proton Auto, and Lotus Cars.

Evolution of Global Value Network In the process of transformation from traditional multinational enterprises to global enterprises, enterprises are no longer positioning themselves as merely a link in the value chain, they proactively cast and lead the global value chain. Different countries have different automobile cultures. The American automobile culture is mainly about innovation, the automobile is considered as a driver of innovation. America’s automobile industry can always embrace new technologies because America is regarded as a fertile land for innovation and has unique social and cultural advantages. At the same time, social problems also catalyze technological innovation in the automobile industry, an example is the photochemical smog incident in Los Angeles, which made the United States begin to implement clean emission devices and require the automobile industry to be equipped with three-way catalytic converters. Since then, three-way catalytic converters have been widely adopted. Americans’ innovative spirit indeed is worth learning. They protect innovation with institutional setups and tolerate innovation with supporting culture. This is an important reason behind the long-term development of the American automobile industry. The culture of Japan’s automobile industry is mainly about the craftsman spirit. The development level of the automobile industry depends not only on the development of automobile enterprises, but also on the manufacturing level of a country. Japan’s market is not big, yet it has done a great job in developing its automobile industry. One of the main reasons for the strong development of Japan’s automobile industry is Japanese craftsman culture. Japanese people will often treat every detail with respect and do their best in making every part of each car. Furthermore, Japanese enterprises are not purely capital-oriented. They chase only immediate

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short-term interests, which are very important for the capital-intensive automobile industry. The development of global enterprises includes the processes of globalized procurement, production, and R&D, which enable enterprises to fully utilize high-quality global resources. Geely’s globalization has experienced a mindset switch from “going out” based on single product trade to “going in” via deep participation in local industrialization. In terms of globalization strategy, Geely advocates localized production, sales, and R&D, and attaches great importance to the integration of technologies, products, talents, and cultures. Upgrading of Supply Chain Generally, Geely’s supply chain management has gone through four stages: “Cold Weapon,” “Heavy Artillery,” “Precision Missiles,” and “Satellite Positioning” (see Fig. 10.2). This process of change has enabled Geely to adapt to the development needs of different periods, continuously strengthening its internal synergy, enhancing its ability to integrate resources, and enabling the realization of its globalization strategy. In the era of “Cold Weapons,” Geely took the factory manufacturing base as the profit center, employed factory procurement directors, brought in internal competition mechanism, standardized cost management, and tried to strengthen cost control in the stage of manufacturing. In the era of “Heavy Artillery,” platforms (such as CMA and BMA) were assigned with dedicated platform directors. Following the newly mappedout product development process, preemptive efforts were made for cost management, which magnified the synergy with the R&D system and funneled in cost control through platform-based operations. In the era of “Precision-Targeted Missile,” under the background of cross-brands management, Geely carried out organizational changes, set up brand line directors, and defined the product positioning of each brand. It coordinated resources, clearly defined its purchasing strategies, executed

Era of “Cold Weapons”

Era of “Heavy Artillery”

Era of “PrecisionTargeted Missile”

Fig. 10.2 Four stages of Geely supply chain management

Era of “Satellite Positioning”

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cross-brands joint development and collective procurement, and secured the best product cost with brand management. In the era of “Satellite Positioning,” to adapt to the trend of global procurement, Geely set up a global regional director to carry out a global procurement layout. Efforts were also made to improve the management level of global procurement and local procurement to consolidate its global supplier resources. In the process of supply chain transformation, Geely set up the supply chain planning department, rationally planned the supply chain layout, fully guaranteed the production and supply, and achieved a good result of over 30% compounded growth rate of production and sales. At the same time, six horizontal specialty product lines were opened up, including exterior decoration, interior decoration, electronic appliances, chassis, power accessories, and powertrain. Geely carried out in-depth research on platformization and generalization. It also carried out crossbrand joint purchasing to continually reduce supply chain costs, thus ensuring the cost performance of each product, and enabling Geely to continuously improve its management experience and ability in parts procurement. Geely University also conducted “academy-styled” training to guide suppliers to continuously improve quality and reduce costs. Guided by the cross-brands management of the supply chain, Geely cooperated with Volvo, Proton Auto, and Smart in purchasing. This facilitated the integration of the supply chain. In terms of cooperation with Volvo, the two parties, through the GVAT platform, combined Volvo’s technical quality standards and Geely’s cost management advantages, conducted joint purchasing strategy discussion, cross-recommended new suppliers to each other, conducted all-around competition under the CMA framework, and encouraged and guided excellent suppliers to provide cross-platform, differentiated, and large-scale goods. In terms of cooperation with Proton Auto, Geely introduced SUV Boyue into the production system of Proton Auto and launched Proton X70. Besides integrating the legacy supplier system of Proton Auto, it helped Proton Auto achieve continuous optimization of supply chain cost and quality. Geely also recommended Malaysian suppliers for its other projects in Southeast Asia and expanded the scope of cooperation. In terms of synergy with Smart, the global competition mechanism was introduced to usher in synergy in technology, system, marketing, and operations. The supply chain synergy and cost control has always been Geely’s strong point. Before the acquisition of Volvo, most of Geely’s suppliers were from mainland China, Japan, and South Korea. However, after the

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acquisition of Volvo and Proton Auto and the cooperation with Daimler, Geely’s demand for spare parts increased, and the rapid growth of the Chinese market experienced a scale-up effect. An increased number of world-class suppliers began to seek cooperation with Geely. Without the previous series of global M&A, the world-class suppliers would not have been interested in having such close cooperations with Geely. Without the previous series of global M&A, Geely would not have such a big voice. In particular, the acquisition of Volvo achieved a win-win situation in synergizing the value chain, which played an important role in Geely’s global deployment. The layout of globalization accelerated the upgrading of the supply chain system and beefed up the close cooperation. Geely has cooperated with more than 200 international suppliers, 70 of these suppliers were among the top 100 auto parts companies around the world. In the future, through the synergy development of brands including Geely, Lynk&Co, Proton, Lotus, and Smart, the cooperation rate between Geely and the top 100 auto parts companies around the world will increase to 90%. Through partnerships and joint ventures, Geely has joined forces with the leading enterprises in the supply chain, continuously ushering in new products and technologies. It has provided solutions for new energy vehicles through four technical paths: pure electricity, hybrid power, alternative fuels, and hydrogen fuel cells. Thus, Geely has introduced innovation to the supply chain and spearheaded the market trend. Stronger Production and Manufacturing Geely has world-class modern vehicle factories and engine factories in Asia, Europe, and North America. Besides its domestic factories, it also opened up factories in places including the United States, Britain, Sweden, Belgium, Malaysia, Belarus, and India. So far, the best-developed factory is the Belarus factory, which is the first automobile joint venture project between China and Belarus, and the first overseas factory set up by Geely after the implementation of the internationalization strategy. The Belarus factory has created more than 1,700 local jobs, promoted the development of local supporting industries, and laid the foundation for the long-term development of Belarus’ automobile industry. Belarusian President Lukashenko said at the launching ceremony of the factory: “China-Belarus friendship goes back to ancient times, and Chinese friends help us realize the dream of domestic cars. Belarus hopes to promote the

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all-round development of the supporting industrial chain of passenger cars through cooperation with China and Geely Automobile.”3 Boyue (Atlas) is the main model produced by the Belarus factory. In 2019, the 20,000th Geely car was rolled off the assembly line in the Belarus factory. It marked that the output of the Belarus factory has really reached its designed capacity. It also evidenced another progressive step that Geely made in its journey of internationalization. Besides Belarus, the manufacturing activity of Proton Auto X70 in Tanjong Malim Factory in Malaysia was also very successful. After Geely acquired Proton Auto, its priority was to build products. Based on the understanding of the Malaysian market, Geely changed Boyue’s left-hand drive to a right-hand drive and added Malaysian elements to develop a voice interactive system for local customers. In December 2018, the first new car jointly developed by Geely and Proton Auto, the Proton X70, was officially launched in Kuala Lumpur. It was equipped with the Proton version of GKUI developed for Malaysian users. In December 2019, the Proton X70 was officially rolled off the production line at the Tanjong Malim factory in Malaysia. It was the beginning of the localized production of Proton X70 and a milestone in the development journey of the Malaysian automobile industry. By the end of 2019, Proton X70 had delivered 26,331 units, registering itself as the champion of the mid-to-high-end SUV market segment in Malaysia. In addition to establishing factories overseas, the global layout of the supply and value chains and the improvement of the overall level were also the core elements of manufacturing level development. Most automobile enterprises from developed countries (such as Japan, Germany, and the United States) have their own core suppliers. However, Chinese automobile enterprises have not yet established a high-quality supply chain system within the industrial clusters. According to China’s automobile industry policy, the shareholding ratio of Chinese automobile enterprises in joint ventures shall not be less than 50%. On one hand, the implementation of this policy was purported to reduce the impact of the foreign capital market on China’s automobile industry. On the other hand, it was expected that Chinese automobile enterprises will realize the “market for technology” through joint ventures with foreign parties, and enhance the global competitiveness of Chinese automobile enterprises. However,

3 http://auto.people.com.cn/n1/2018/0901/d005-30265361.html.

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in the process of Sino-foreign joint venture, domestic automobile enterprises usually do not have the aligned capability for core technologies and parts development. However, with the increasing improvement of China’s manufacturing industry, the automobile industry gradually opened by categories. After the five-year transition period, the historical restrictions were abolished. This means that Chinese automobile companies could directly compete with their foreign peers in China’s domestic market. This has presented a great challenge for China’s indigenous auto brands. The building of supply chains and the promotion of value chains are the foundation of the development of the automobile industry. To cope with the competition in the future automobile market, Chinese automobile enterprises need to make global layouts in the supply chain, make full use of global resources, enhance their competitiveness, and climb up on the value chain. Layout of R&D Network Geely was willing to invest in R&D. Continuous big R&D investment is the foundation of Geely’s innovation and development, and advanced technology is the key to keeping its products and even enterprises’ competitiveness in the global market (see Table 10.1). The internationalization of R&D is an important strategy for enterprises to enhance their technological capabilities and gain competitive advantages. Besides transferring and utilizing knowledge across national borders, the internationalization of R&D can also create new knowledge and enhance the independent innovation capability of enterprises. By dispersing R&D activities in different geographical locations, enterprises can not only tap into local knowledge and technology but also establish a learning network to explore and utilize global knowledge. Geely currently has five engineering R&D centers and five modeling design centers around the world with more than 20,000 R&D designers. Geely’s five major R&D centers include Geely Automobile (Hangzhou Bay) Research Institute, Geely Hangzhou R&D Center, Geely Automobile Europe R&D Center (CEVT), Geely Coventry UK R&D Center, and Geely Germany R&D Center. Geely Automobile (Hangzhou Bay) Research Institute, located in Ningbo, was established in 2003. It is the home base of Geely Automobile’s R&D and is staffed with about 8,000 R&D personnel. The research institute has established the most advanced R&D technology center, vehicle test center, powertrain test center, and

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Table 10.1 R&D expenditure of Geely Over the years (2010–2018) 年份 Year

研发成本 (千元) R&D expenditure (in RMB1,000)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

97,637 105,847 206,343 276,857 211,553 258,769 211,531 331,241 548,653 850,468 588,100

Source Enterprise Annual Report

vehicle trial center in China, which is mainly responsible for the product development and technological breakthrough of Geely Automobile. It also provides all-round technical support for other automobile brands of Geely Holding Group. Staffed with nearly 1,600 R&D personnel, the Geely Hangzhou R&D Center is focused on research and development of new energy and clean energy commercial vehicles with the main technical routes covering pure electric vehicle, extended range, methanol, and fuel cells. Backed with hundreds of R&D personnel from different fields such as engineering and manufacturing, Geely Coventry’s R&D Center focuses on the latest lightweight and energy-saving technologies. The Geely German R&D Center, located in Frankfurt, began operations in 2019. Its main responsibility is the development of Geely’s new electric vehicle architecture. Geely Automobile European R&D Center (CEVT) is located in Lindegang Science Park in Gothenburg, Sweden. Founded in March 2013, CEVT integrates the main strengths of Geely and Volvo and is mainly used to jointly develop the brand-new basic module architecture and related components of mid-size cars to meet the future market demand of Volvo and Geely. Currently, CEVT has developed the modular architecture of mid-size cars known as CMA architecture, with adjustable tracks and wheelbases, which can be used to produce cars, SUVs, and MPVs. It is compatible with traditional, pure electric, and new energy power. On this platform, the XC40 produced by Volvo has been in short supply

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in the European and American markets after its initial launch into the market. The first car produced by Geely CMA was Lynk&Co. It was officially launched in 2017. Being the brand specially designed for young people, Lynk&Co embodies a stronger sense of technology while showcasing Geely’s mission of pursuing safety, environmental protection, and energy conservation. Since Li Shufu invited Peter Horbury to become the senior vice president of design in 2011, Geely has continuously increased its investment in-vehicle design and gradually built its own design system around the world. Geely’s five design centers are located in Shanghai, China, Gothenburg, Sweden, Coventry, United Kingdom, and Barcelona, Spain. The Shanghai Design Center is the hub of five design centers and is committed to architect Geely’s future design system, construct the latest Geely design language, and expand Geely’s global design philosophy. The Gothenburg Design Center in Sweden is located in Lindgolm Science and Technology Center, Gothenburg. It has gathered many international outstanding design talents. The Coventry Design Center in the UK is Geely’s latest modeling design center. It fully respects the aesthetic tradition of Lotus Cars. By expanding the product matrix and gradually reviving the Lotus Cars brand, its brand-new design philosophy will also radiate to other Geely brands. The California Design Center is located in Greater Los Angeles Area in California. Known as the “North American Automobile Creativity Center.” It is adjacent to the world-famous art center college of design and perfectly integrates into California’s unique multicultural environment, providing the latest and cutting-edge design concepts for other modeling systems of Geely Automobile. The Barcelona Modeling Center in Spain is located in the center of Barcelona, the internationally recognized capital of art and design. Excellent designers from seven countries draw inspiration from the multicultural, artistic, architectural, and urban trends in southern Europe, and provide forward-looking innovative thinking for Geely’s global design team. With the deepening of Geely’s global layout and its great influence, an increasing number of top R&D talents from different fields are willing to work in Geely, and many foreign employees will consider working in China. After the acquisition of Volvo, the global dispatch of R&D talents has become easier. Currently, Geely has hundreds of internationally influential foreign experts and nearly 50,000 foreign employees from more

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than 40 countries. Five R&D centers and five design centers constitute the point-to-area globally deployed R&D system of the Geely Holding Group.

“Synergy Network” Behind Non-linear Growth “No single tree can make a forest, no single thread can make a line.” With the advent of motorization, intelligence, networking, and carsharing, the competition in the automobile industry has also entered a new era, elevating the competition from pure product-based competition to system-based competition. Enterprises must now achieve non-linear growth through network collaboration. The complementary symbiotic force and the upgrading from value chain to value network are two important dimensions of network collaboration. Complementary and Symbiosis Generally speaking, Geely’s complimentary and symbiotic forces are divided into two main categories: a symbiosis of the complementary market and a symbiosis of complementary business. From the market point of view, the cooperation between Geely and Volvo is that two differently positioned automobile brands joined hands in the global automobile market competition. The cooperation between Geely and Proton Auto is that Geely entered the Southeast Asian market dominated by Japanese cars through technical and product output. From the business point of view, in the very beginning, Geely started with only A0-class economy cars and later entered the taxi business by acquiring London Taxis. Through the acquisition of the Australian DSI company, it expanded the business field to the development of core components transmission; it entered the field of luxury sports cars through the acquisition of Lotus Cars; and through the acquisition of American Terrafugia Company and joint coinvesting with Smart in German Volocopter Company, Geely made its mark in the air mobility business. For enterprises from emerging markets to become internationalized and globalized, long-term development in their industries, value R&D, and accumulation are ideal, however, actively seeking complementary and symbiotic partners for common development is a necessity. In its journey of internationalization, Geely surely grasped the magic formula.

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From Value Chain to Value Network Successful enterprises should not only increase their own value but also create new value. By forming a business network with suppliers, customers, business partners, and allies, companies realize value creation through the reconstruction of relationships and roles. In the 1990s, China put forward the “going out” policy. It encouraged many national enterprises to access strategic resources in overseas markets, such as advanced technology and management experience, and thus improved their brand awareness and competitiveness. Therefore, people viewed cross-border M&A as a springboard for emerging enterprises to move upward. Also, the targets of such M&A deals are often high-tech enterprises. Chinese enterprises have gradually entered the markets of underdeveloped areas in recent times. As one of the representatives of the internationalized Chinese enterprises, Geely not only achieved the goal of introducing technology from overseas by acquiring Volvo but also began to export technology and product layout to overseas markets.

CHAPTER 11

Compliance for High-Speed Development

Geely has exhibited continuous high-speed growth over the last two decades. However, Geely is judiciously aware that the faster it develops, the more the company requires bottom-line thinking and enhanced compliance structures. Li Shufu has stated, “Compliance is just like highways and airstrips. If you want to make cars run faster and planes fly higher, you must set relevant rules and hold the helm well.”1 Deep down in our mind, we have long-term plan for Geely, so we must abide by the law. It is a basic precondition to reach our dream. —Li Shufu

China has achieved rapid economic development over the last few decades, riding the tides of globalization. However, the globalization trend has begun to change. On the one hand, the global trade system was sabotaged; the United States attempted to block Chinese high-tech enterprises such as ZTE and Huawei. The COVID-19 pandemic intensified the anti-globalization wave, and jarring noises advocating the reversal of globalization were heard from time to time. On the other hand, the format of globalization has also changed from the flow of goods, capital,

1 Compliance Officer for Escort Enterprises’ ‘Going Global’, Xinhua Daily Telegraph, 2019–12-27. http://www.xinhuanet.com/2019-12/27/c_.1125393930.htm.

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and personnel to the movement of technology, services, and digitalization. The public has become increasingly aware of the importance of sustainable development, whether it concerns the evolutionary tides of globalization or the continuous fermentation of anti-globalization. Compliance is becoming a symbol of the soft power of enterprises. It plays an increasingly important role in the process of strengthening the sustainable competitive advantage of enterprises. Geely has grown from a local venture to a multinational enterprise after more than 30 years of quick development, realizing its transformation into a global enterprise. Geely is confronted with new international rules and methods of competition as it enters global markets more penetratingly. The grasp of the rules of global competition represents a crucial cornerstone if enterprises are to achieve a forward leap in their development; in Geely’s case, it is a prerequisite for long-term growth. In 2016, Geely launched a plan to acquire the American Terrafugia Company and began negotiations with that firm. The parties formally signed the acquisition agreement in November 2017, with due approval from the relevant regulatory agencies, including the Committee on Foreign Investment in the United States (CFIUS). Founded in 2006, the American Terrafugia Company was the entity in the United States to be granted a flying car road driving permit. The company commands several advanced scientific research achievements and cutting-edge technologies. Therefore, Geely’s acquisition of Terrafugia had to be strictly examined by relevant US departments. Geely submitted the acquisition agreement to the US Department of Defense for review. The first reaction of the US Department of Defense was to query whether Geely had a compliance organization and a compliance officer, not why Geely wanted to acquire the American company. Later, the authorities asked Geely’s chief compliance officer to answer questions. Li Shufu had requested the Geely Holding Group to construct a compliance system as early as 2013. The Geely Holding Group’s compliance system was initially established in 2014, along with corresponding organizations and compliance officers. Geely’s chief compliance officer answered the questions of relevant US departments based on the facts and after due discussions with the internal team. Eventually, Geely was granted approval and successfully concluded the Terrafugia acquisition. It is thus clear that compliance paves the way for the overseas development of enterprises; compliance also forms the basis for enterprises to handle political uncertainties. Geely has

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also become a good example for Chinese enterprises building compliance structures. As the pioneer builder of compliance culture for domestic enterprises, Geely predominantly constructed its own compliance framework through the three distinct stages of enlightenment, operation, and promotion. The acquisition of Volvo in 2010 was critical to Geely’s compliance management. Li Shufu’s personal participation in the compliance training in Sweden marked the beginning of Geely’s construction of its compliance culture. At the enlightenment stage, Geely sensed the growing importance of compliance and gradually began the process of instituting a compliance framework. In 2014, Geely held a meeting to publicize and implement the documents pertaining to the compliance system and launch trial operations. At this meeting, Geely officially released the first generation of Geely’s compliance documents, marking that its compliance management had entered the operation stage. In 2018, Geely officially incorporated compliance into its corporate culture system, and the compliance culture became one of Geely’s corporate customs, pronouncing that Geely’s compliance management had joined a faster track. How did Geely integrate compliance management into its corporate culture and thus obtain sustainable competitive advantages? This chapter will first explore why Geely began its compliance management process and the roles discharged by Geely’s entrepreneurs in promoting compliance. The chapter will subsequently elucidate how compliance was implemented within Geely Group as an institutional system and illuminate the functioning of the senior management team in the implementation of the compliance system. Finally, the chapter will examine how Geely built compliance into a corporate culture with distinctive Geely characteristics so that all employees could imbibe the idea of compliance.

Compliance is Bottom-Line In the current climate of economic globalization, any non-compliant behavior can lead to serious problems and damaging consequences. Enterprises must exercise enough caution, always bearing in mind the importance of compliance and the seriousness of adhering to the law. —Li Shufu

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Chinese enterprises have experienced 30 years of extensive growth since China instituted reforms and opened up to the world. Geely was founded in 1986, and the company grew under such a surging course. Today, Geely has become a forerunner and represents the model Chinese enterprise in terms of constructing compliance systems. This achievement would not have been possible without the profound understanding of compliance exhibited by its entrepreneurs and the unremitting pursuit of compliance by the enterprise. Entrepreneurial Precautions Li Shufu enjoys a strong risk taking appetite but only for business ventures, not legal peril. His decade-long engagement in the automobile industry has filtered in him a deeper understanding of the development of enterprises. He views compliance as the premise of the sustainable development of enterprises. It is pivotal to the interdependence and legitimate competition of various global economies. Compliance is also a critical rule if economies and human societies are to secure continuous development and progress. Geely did face some challenges on compliance in its infancy. If Geely had continued on that old track, the company would have failed a long time ago. Li Shufu’s foresight and strategic vision of compliance facilitated Geely’s rapid development. Geely’s acquisition of Volvo was seen as a “snake swallowing an elephant.” It was deemed extremely risky doomed to fail by many. Yet, Geely became even more risk-minded and began constructing its compliance systems thanks to this acquisition agreement. On March 28, 2010, Geely and Ford signed an agreement to acquire 100% equity of Volvo. As everyone cheered the success of the deal, Li Shufu informed Geely employees earnestly that the company was embarking onto a different track and that it would be necessary to operate in compliance with regulations. A spokesperson system would have to be established to avoid the issue of any unauthorized statements that could trigger resentment, suspicion, or confrontation in Volvo employees. Wang Zhile, the director of Beijing New Century Academy on Transnational Corporation, helped to build Geely’s compliance management system. Li Shufu and Wang Zhile met on a public occasion. Li Shufu immediately invited Wang Zhile and his team to help Geely devise a benchmark protocol for Geely’s acquisition of Volvo’s compliance. Professor Wang Zhile is an economist whose studies focus on modern

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world history. He also served in China’s Ministry of Commerce and conducted purposeful investigations on the investment of foreign companies (e.g., American, German, and Japanese enterprises) in China. At that time, Geely and Volvo had not achieved deep-dive collaboration even though their cooperative association had made some progress. Both sides were attempting to explore ways to accomplish a more meaningful cooperation. In July 2011, the media broadcast several exaggerated reports about Geely’s liabilities and disseminated a very one-sided report on Geely. Geely issued a public statement and conducted an open dialogue with reporters. In October 2011, the media once again over-stated Geely’s asset-liability ratio, even spreading rumors to some degree. This time, Geely did not stand down; instead, the company resorted to legal means. This negative event made Geely realize that Volvo exerted a great influence on the company. Geely would “catch a bad cold” if Volvo “sneezed.” However, most of Volvo’s independent directors rejected Geely’s proposal of cooperation, believing that Volvo and Geely could not collaborate or share a platform. Wang Zhile and his team tried to probe into the reason behind Volvo’s reluctance to cooperate with Geely. They found that Volvo was most concerned with Geely’s compliance records. Ford, Volvo, and even the outside media were most worried that Geely could “steal” Volvo’s intellectual property rights (IPRs) and were thus against Geely’s acquisition of Volvo. Ford and Volvo share some parts; thus, even though Ford agreed to the sale, it could not completely sever its connections with Volvo. Meanwhile, the US and the “highlands” of Europe were stringent about commercial compliance. Geely could only dispel Volvo’s doubts and attain trust through compliance. This instance became a wake-up call for Geely to be mindful of compliance issues. After becoming a shareholder of Volvo, Li Shufu participated in Volvo’s board meeting and took the opportunity to attend the first compliance training program in Sweden. In the process, Li Shufu developed a more comprehensive understanding of the external environment and, in due course, grasped the significance of compliance. Thus, Geely began reforms toward compliance management long before many of its national peers became aware of the issue of compliance. As advised by Wang Zhile’s team, Geely established the position of a dedicated compliance officer in 2014 and officially began to implement a compliance management program. The smooth cooperation between Geely and Volvo could be predominantly attributed to the

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adherence of both parties to the principle of compliance. Geely accessed Volvo’s completely independent IPRs through commercial licensing or joint development to accomplish technology sharing. For example, the Compact Modular Architecture (CMA) platform was jointly developed by Geely and Volvo in China Euro Vehicle Technology AB (CEVT). Both parties use this platform through legal and tax compliance, sharing development costs and technology. This relationship between Geely and Volvo became the basis of their joint procurements and development. It also represented a precondition for the introduction of new products and brands such as Lynk & Co to the market. In addition to compliance in cooperating with Volvo, Geely worked to ensure that collaborations between its subsidiaries were also based on compliance. The person charged with the oversight of London Taxi wanted to use Volvo’s lightweight technology and asked Li Shufu if Volvo could provide it to London Taxi for free. Li Shufu said: “Financial matters should be settled clearly even between brothers.” This statement demonstrated the company’s respect for technology. Only when technology comes at a price can it be put to optimum use. Subsequently, London Taxis attained access to the lightweight technology from Volvo via commercial transactions and maximized its utilization. Whether Intellectual Property Rights (IPR) or making profits, Geely has observed the principle of compliance and the relevant acts according to the host country’s legal system and business cultures. This attitude has helped Geely earn recognition and trust from Volvo. Companies must not count on pure luck when collaborating with other enterprises; they must certainly not take advantage of a collaborative partner, play petty tricks, or steal from each other. At a G20 meeting, finance ministers of varied countries are required to score the extent of the marketization of China’s economy. Sweden’s finance minister accorded China a full score. He was impressed by the degree of marketization in China from the country’s experience of Geely’s acquisition of Volvo because Geely had complied with all the promises it made. In fact, it accomplished more than it promised. The Road That Must be Taken Geely’s mission ranges from “building a good car affordable for ordinary people” to “building the safest, most environmentally friendly and most energy-saving good car.” This undertaking demonstrates the company’s

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pursuit of quality. Geely needs compliance, accumulation, and persistent improvement to realize its mission to produce excellent products. The fierce market competition ensures that companies can never sell consumers shoddy or unsafe products, nor can they cheat consumers in the long term. Thus, enterprises must produce high-quality cars built under the premise of compliance. Enterprises must undertake the construction of compliance systems, abide by and respect rules, and ensure their compliance even in phases of rapid development. Volvo’s acquisition symbolized the beginning of Geely’s evolution from a local to a multinational enterprise, on its way to becoming a global entity. Compliance is an issue enterprises can never bypass as they advance to a global avatar. Enterprises must abide by the systems and laws at home and in host countries; further, they must know the business norms and social cultures of the nations and regions they inhabit. Economies across the globe are constantly wrestling with diverse political, trade, and other issues in the scenario of a surging anti-globalization counter-current in recent years, which have witnessed increasingly frequent incidences of friction and conflict. Given this trend, compliance management has come to represent a form of soft power that enhances the competitiveness of global enterprises. Geely’s successful global acquisitions encompass Terrafugia and Malaysian Proton Auto as well as nearly 10% equity of the German Daimler, proving the company’s triumph in constructing a viable compliance mechanism. Compliance has become Geely’s passport for the achievement of internationalization. Geely announced on February 24, 2018, that it had acquired 9.69% of the shares of the German company Daimler with voting rights. Daimler owns the oldest and most high-end automobile brand, Mercedes-Benz, a treasured brand for Germans. German regulators raised objections on learning that a Chinese business had become Daimler’s largest shareholder. The German Federal Financial Supervisory Authority claimed that Geely was too late in the notification and submission of relevant acquisition information, which violated the relevant regulations. Thus, the authorities would launch an investigation into Geely’s case and decide whether to impose a fine. In Germany, the acquiring enterprise must inform the German Federal Financial Supervisory Authority if any largescale acquisition is to be made. According to German regulations, the acquisition of enterprises must be announced within three days. In fact, Geely had made its announcement the next day and had not violated the rules.

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Later, the German authorities demanded that investors must make corresponding disclosures when their shareholding ratios exceed 3%, 5%, and 10%. Previously, Geely had expended US$ 9 billion to acquire 9.69% of Daimler’s shares through the secondary market. The time frame of a mere few months from the company’s revelation of its intent to acquire to the completion of the acquisition caused a sensation in the global automobile market. It was true that Geely did not announce its acquisition of 3% and 5% equity in Daimler. However, the new regulations were promulgated only in May 2018. Geely announced to the world in February 2018 that it would abide by the old German regulations; the new regulations would not be applicable to Geely’s acquisition of Daimler shares. German Chancellor Angela Merkel asked Li Shufu two questions. First, why did Geely buy equity in Daimler? Second, did Geely face any problems in the acquisition of equity in Daimler? Li Shufu’s response to the first question was that the Geely and Daimler collaboration would represent a powerful combination. Both Geely and Daimler commanded unique strengths. Both sides could complement each other and seek common development. His answer to the second query was that all Geely’s practices were compliant. Geely was willing to bear all related responsibilities if any wrong practice was discovered. The sincere answers dispelled German concerns, and Merkel subsequently publicly asserted that preliminary investigations had discovered no legal violations in this investment. The German chancellor emphasized that Germany must be open to its partners if it wanted to stay competitive in the automobile industry. Compliance has helped Geely establish a superior international image; it is also the route Geely must take to transform itself into a global enterprise.

Compliance as an Institutional System Compliance signifies that the management behavior of the company and its employees shall observe, obey, and conform to laws, regulations, international treaties, regulatory requirements, industry standards, business practices, ethics, articles of association, etc. Compliance represents the lifeline for the healthy progression of enterprises and is an important basis for the high-quality advancement of enterprises in the new global paradigm. Geely has gradually established and has continuously improved its internal compliance management systems while observing and fulfilling

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the demands of laws and regulations. Geely released and put into operation the first generation of its compliance documents as early as 2014. In 2018, Geely re-evaluated its internal compliance management mechanism in operation for more than four years for alignment with the Guidelines for Compliance Management System issued by the National Standardization Administration Committee, the Guidelines for Compliance Management of Central Enterprises issued by the State-owned Assets Supervision and Administration Commission, the Implementation Measures for Investigating the Responsibility of Central Enterprises for Illegal Business Investment, and the Guidelines for Compliance Management of Overseas Business of Enterprises issued by the National Development and Reform Commission and other departments. In January 2019, the Geely Holding Group released the Compilation of Compliance Management System of Zhejiang Geely Holding Group Co. Ltd. (2019 Edition), marking the official release of Geely’s second-generation compliance document. Executive Accountability Construction of the compliance system starts from the attention and demonstration of executives. Managers at all levels are not only the main force of compliance construction, but also the key education recipient to ensure effective implementation. Only when managers can set an example, take a clear-cut stance against corruption, and unswervingly promote compliance work, can we really promote the construction of enterprise with compliance. —An Conghui

Compliance systems function like infrastructure for enterprises; they form expressways and runways for development and bear the dreams of enterprises. However, the process of building a compliance system is not easy. In 2020, Li Shufu resigned from the position of the CEO of the Geely Holding Group. His position was filled by Li Donghui, while An Conghui continued to act as the president of the Geely Holding Group. This practice was congruent with China’s laws and aligned to global business norms. It was also aimed at further promoting the construction of a modern enterprise system and improving the corporate governance model in accordance and compliance with the laws. Geely could not have completely established its compliance system in just a few years without

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the strategic determination of its senior management team. On the one hand, they strove to overcome internal resistance in implementing the compliance systems. On the other hand, they endeavored to improve business efficiencies and enterprise competitiveness while attending to compliance construction. Overcoming Resistance to Change Enterprise systems usually evolve gradually; current systems are likely to resemble previous iterations. Therefore, enterprises often encounter problems of path dependence and organizational inertia when they institute changes. People tend to maintain the original behavioral norms and thought patterns. The environment and systems may be amended, but people cannot immediately accept new systems and may even resist the change. Geely also encountered great internal resistance in the process of advancing its construction of compliance systems. Sun Hong joined Geely in 2014 and was appointed Chief Compliance Officer. He graduated with a background in legal education from Jilin University and worked in the judicial department before joining Geely. He discovered after joining Geely that the management protocol for tendering was not the best fit for the Geely Holding Group. Li Shufu authorized him to organize the revision of the management protocol for tendering. The original purpose of the protocol revision was to control costs while guaranteeing product quality. At the same time, it could help vaccinate Geely against corruption. They decided to begin with this point. The new bidding management protocol required all parts and components to be publicly tendered. Invitation-based bidding could also be adopted in rare cases. Any cases that did not invite public bidding would have to be reported for approval from leaders above the president. All transactions above RMB 300,000 had to be tendered; those below RMB 300,000 may not be tendered, but tenders were encouraged. Previously, the bidding was arbitrarily managed, resulting in fluctuating product quality. Sun Hong suddenly became targeted by criticism from all sides because bidding reforms impacted the interests of almost all units in the group. The strongest resistance was voiced by the leaders at all levels, who functioned like kings in their own small dominions. The new bidding management protocol took away their decision-making power,

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and thus faced greatest resistance from them. Such thorny issues were finally addressed through the efforts of all parties to arrive at beneficial solutions. Achieving Both Compliance and Efficiency Geely’s senior executives often assume dual-post responsibilities: they must undertake the responsibilities of operations as well as compliance. The mission of compliance management is aimed at improving the operational efficiency of enterprises while cultivating their sustainable development abilities to ultimately enhance their competitiveness. Compliance management is not intended to reduce the operational efficiencies of enterprises; nevertheless, it must confront the problem of balancing compliance and efficiency in terms of implementation. This issue was mostly discussed in Geely’s compliance meetings. Efficiency and risk are two sides of the same coin. The Geely Holding Group applies compliance management to all aspects of its operations, however big or small. Contracts valued over RMB 300,000 must be reviewed by the compliance office; however, this office carries limited staff team. A contract will fail to be executed if it fails the review process. Business units did not dare to transgress rules because they were afraid of causing compliance violations. An Conghui’s memories of Geely’s compliance journey run deep. The process was initially difficult: how could compliance and efficiency be balanced? All processes and conducts in some departments were compliant, but their final operating efficiencies were inconducive. At the other end, numerous problems would emerge, and compliance violators could jeopardize the entire system if compliance systems were not accomplished. Geely was able to develop deeper insights into this issue and devise better solutions to balance the two opposing missions. Geely believed that compliance and efficiency should support each other and jointly check wrong-doings. The company posited the management mode of a “happy operation entity” within which employees worked to achieve operating results and shared operating benefits. Most importantly, the identification and resolution of problems by employees would also contribute to operating results. Thus, many problems could be discovered and effectively resolved by employees. The methodology of the

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happy operation entity motivated all personnel to improve business efficiencies, incentivizing team members to share responsibilities and ensure compliance. The Implementation of the Compliance System The formulation and implementation of a compliance system denote key functional aspects of compliance management. Geely established a matched organizational structure to ensure the effective implementation of the compliance system while also defining the relevant operational mechanism. Rules and Regulations Geely’s internal compliance system is categorized into four groups: norms, management, operations, and business. Norms denote macrosensed standards pertaining to the rights and obligations of employees. They govern relationships between enterprises and communities and guide the associations between enterprises and business partners (upstream and downstream entities, including suppliers and distributors). Compliance with norms can protect the company’s assets and interests; it also serves as the basis and premise through which enterprises can achieve sustainable production and operations. The category of management signifies Geely’s internal codes, primarily signifying the gift and entertainment management system, the regulations of the one-post-dual-responsibility system for executives, the management protocols for conflicts of interest, and the norms apropos marriage and funeral affairs. The attitude of Geely personnel toward gift-giving is “rejection, returning, and reporting.” The rules of one-post-dualresponsibility mandate accountability from executives vis-à-vis business performance as well as compliance. The key performance indicators (KPIs) for all concerned departments also incorporate the elements of both business performance and compliance. The category of operation symbolizes the compliance-related rules and regulations of the enterprise and principally comprises compliance committee meetings, the liaison meeting system of Geely’s compliance and risk control departments, compliance training programs, compliance performance evaluation methods, compliance risk management methods, the organizational structure and responsibilities concerning compliance

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management, compliance consultations, reporting, reporting and reward management methods, etc. All these operational aspects work together to provide effective institutional support for compliance management. The Geely Group now encompasses more than 600 specially trained employees in compliance-related businesses. Such workers are responsible for specific compliance-related tasks. The category of the business represents specific actions formulated by discrete business departments according to national laws and regulations. Such measures include the management of contracts, bidding processes, quality control, expense regulation, overseas investment standards, etc. These processes form the cornerstones of enterprise compliance. Similar or contradicting rules were issued by many departments in the past. Geely systematized and standardized all the systems after the implementation of compliance management for the easy application of the rules. Organizational Structure The Geely Holding Group instituted a compliance committee, a dedicated Chief Compliance Officer, and a compliance office as far back as 2014. By the beginning of 2017, all subsidiaries had also established compliance management organizations according to the unified requirements of the Group. After several years of exploration, Geely has established a relatively sound compliance-related organizational structure. The compliance committee serves under the board of directors and represents the principal authority for compliance-related tasks. The president of the Geely Holding Group also serves as the director of the compliance committee, and the Chief Compliance Officer serves as the deputy director of the committee. The leaders in charge of finance, human resources, public relations, and discipline inspection are members of the compliance committee. The compliance office denotes the administrative body for all compliance-related work (see Fig. 11.1). Operating Mechanism Geely often held differently themed meetings in its compliance management practice of summarizing and deployment of compliance-related tasks. Such meetings could be classified into five types: regular quarterly meetings of the compliance committee, semi-annual joint meetings

Compliance and Ethics Office

Legal Compliance Department

Compliance Committee

Global Compliance Committee Chief Compliance and Ethics Officer

Geely Science and Technology Group

Legal Compliance Department

Compliance Committee

Legal Compliance Department

Compliance Committee

Mitime Group

Information Security Supervision Office

Compliance Investigation Office

Risk Prevention and Control Office

New Energy Commercial Vehicle Group

Compliance Office

Volvo Car Group

Fig. 11.1 Geely’s compliance organizational structure

Compliance Office

Compliance Committee

Geely Automobile Group

Chief Compliance Officer

Compliance Committee

Zhejiang Geely Holding Group Board of Directors

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of functional departments, situation analysis meetings pertaining to risk prevention and control, typical case briefing meetings, and annual compliance commendation meetings. Geely also conducts discrete types of compliance training programs for employees in different positions to better implement compliance management. Such programs include a midyear compliance training course for senior executives, quarterly training for middle-level and key positions, induction training for new employees, and business training for compliance managers. Daily compliance management is executed in accordance with the Geely Reward Method for Reporting and Consultation, the Case Inquiry Protocol, and the Performance Assessment Protocol. The compliance department interviews relevant business departments and individuals to ensure compliance when winning bids for large projects or if major risk issues are anticipated. The joint efforts of different departments are the basis of compliance management. At Geely, the departments of compliance, discipline inspection, legal affairs, internal audit, human resources, internal control, information security, finance, bidding, environmental protection, and others perform commendable compliance-related tasks within the ambit of their respective responsibilities. At the same time, they cooperate with each other, joining forces to prevent, investigate, and handle difficulties they encounter.

Compliance as a Culture The enterprise culture powers the sustainable development of companies. Different enterprises have distinct corporate cultures. Geely, a big business in both size and revenue, also needed to build its own cultural system and establish its unique development genes. At first, Geely’s culture was problem-oriented and grounded in meta-power projects. Confronted with frequent compliance problems, Geely realized that compliance was the foundation of the healthy and long-term development of its enterprises. In 2018, Geely officially ingested compliance into its corporate culture through additional preparation and enhancements. This juncture marked a higher benchmarking of Geely’s compliance mechanisms. Geely has now managed to cast its own cultural systems: the Culture of DreamMakers, the Problem-Oriented Culture, the Culture of Benchmarking, and the Culture of Compliance.

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Table 11.1 Basic information on Geely Holding Group’s compliance training Year

Scope of compliance promotion

Number of compliance trainees

Participation rate

Training sessions

2014 2015 2016 2017 2018

18,411 23,405 30,113 40,472 61,074

18,063 22,680 29,357 39,570 59,584

98.11% 96.90% 97.49% 97.77% 97.56%

– – 513 752 1862

The Spontaneous Behavior of Employees Geely has, after more than 30 years of development, grown into an enterprise group with many subsidiaries and diverse brands, including Geely Auto Group, Volvo Cars Group, Geely New Energy Commercial Vehicle Group, Geely Technology Group, and Mitime Group. The different Group companies own distinct brands. The Geely Auto Group encompasses Geely Auto, Geometry, Proton Cars, and Lotus Cars. The Volvo Cars Group includes Volvo and Polestar. All Group companies must build a common culture and shared cognition to enhance the cohesion of Geely enterprises. The compliance culture is applicable not just to Geely Auto Group but to every enterprise under the Geely Holding Group. Geely’s principal idea of compliance work demands “proactive compliance by all employees.” It aims to strengthen awareness of compliance in all personnel and makes employees consciously learn, know, and abide by regulations. Employees must strictly abide by norms, contract compliance, process compliance in their daily work, and check rigorously to rule out any violations. Since 2014, Geely has implemented all-staff compliance training (see Table 11.1), laying a solid compliance foundation for the Group’s rapid development. The Permeation of Compliance Atmosphere Within the Whole Organization Compliance grounds the healthy and sustainable development of enterprises. Geely Holding Group’s sense of compliance has progressively enhanced over many years of operations, and its awareness of compliance has continuously improved. Compliance has become the norm within the

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Group. The concept, “compliance by all, compliance for value, compliance from managers, and proactive compliance,” is widely accepted within Geely. The compliance culture has become one of Geely’s four underlying philosophies and has transformed into a formidable force allowing Geely to grow and go global. The construction of compliance systems requires enterprises to create an internal compliance culture and atmosphere; it also makes enterprises pay more attention to the building of an external compliance culture to form healthy business ecology. The Internal Atmosphere of Compliance Culture The primary purpose of creating the atmosphere and culture of compliance within the enterprise is to inculcate in all personnel the habit of consciously abiding by regulations and to formulate the ethos of “compliance by all, compliance everywhere, compliance at all times.” Geely actively implements varied compliance training and publicity activities to create an internal compliance culture and atmosphere. The Group strives continuously to ameliorate the compliance-related awareness of employees and regulates the behavior of personnel through events such as compliance month, compliance knowledge contest, mock court hearing on compliance, and preemptive compliance training via violation case analysis. The Construction of an External Compliance Culture Compliance is an important part of Geely’s business philosophy and social responsibility, and Geely’s positive compliance image is displayed on its official website and social responsibility report. While constantly strengthening its own compliance construction, Geely also strives to influence and drive the compliance construction of upstream and downstream partner enterprises in the industrial chain through its compliance requirements. In so doing, Geely seeks to promote the compliance of the whole value chain, encourage the development of an industry compliance culture, and create a beneficial compliance atmosphere and healthy business ecology. In terms of IPRs, the boundaries between Geely and its partners are clear: some parts are “black box,” developed entirely by partners, offering only the interface to Geely. Some IPRs are “gray box” products, jointly developed by partners and some by Geely. There are also some “white

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box” products that are wholly developed and manufactured by Geely. In outbound collaborations, Geely expects honesty and self-discipline from its partner companies. Geely also adds self-discipline clauses in all contracts, requiring the other party to restrain itself with respect to certain important issues. Geely faced some resistance, for instance, from certain powerful suppliers. However, all parties eventually agreed to abide by relevant laws and regulations, industry norms, and compliance systems at Geely’s firm request.

The Bottom-Line Thinking of Nonlinear Growth Compliance can create value. It is the touchstone of corporate brand image, the accelerator of steady development, and the passport for globalizing companies. The compliance system created by the Geely Holding Group has become an archetype through which Chinese enterprises can learn from Geely’s experience of rapid development and internationalization. Geely’s construction of compliance systems embodies bottom-line thinking in the process of nonlinear growth. Compliance is a vision as much as it is a system and a culture. These three facets are mutually complementary and require enterprises to adhere robustly to bottom-line thinking (Fig. 11.2). Compliance is a vision. Li Shufu has always been a pioneer: from his first forays at operating a photo studio to his first bucket of gold from

Fig. 11.2 Connotation of compliance

Vision

Compliance

System

Culture

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producing parts of refrigerators and freezers to fabricating decoration materials and motorcycles, and finally to becoming the “car madman” as he ventured into the automobile industry. Li Shufu is a role model of the power of human innovation, imagination, and practicality. He went from being the target of mockery to becoming the owner of a successful global automobile company. Li Shufu has grown from being a grassroots entrepreneur to an entrepreneur with a global vision. One of his ambitions is to transform Geely into a respected global enterprise. In the process of acquiring foreign enterprises, Li Shufu has accrued valuable experience in managing enterprises in a law-abiding, equitable, and transparent manner. Geely’s fast-paced development is powering onto a new stage, and compliance is the only appropriate course for Geely to grow into a respected global enterprise. Compliance is a system. The foundations of enterprise compliance are laid by abiding by laws and adhering to various rules and regulations. Law-abiding operations represent the red line that enterprises must not transgress. Compliance with rules and regulations can augment the chances of survival for enterprises. As a built-in system for enterprises, the construction of a compliance mechanism is a process of continuous improvement and a quest for perfection. From the first issuance of the Geely Compliance Document in 2014 to the revision of the Compliance Management System of the Zhejiang Geely Holding Group Co. Ltd. (Version 2019), Geely’s compliance management system has improved constantly to meet the latest requirements of compliance management at home and abroad and to satisfy the practical demands of Geely’s rapid development. Geely’s development and operations in different countries must comply both with their laws and regulations and with their industry norms and business ethics. Compliance is a culture. Besides being shaped by historical accumulations and being built on quality assurance and technical support, the competitiveness of a brand must also be bred in the nutrients of culture. The corporate image is naturally ameliorated when compliance evolves into a culture. Geely has a global presence, and its subsidiaries are widely distributed worldwide. The management of such subsidiaries must be grounded in a shared Geely corporate culture. This distinctive philosophy can be summarized as “determined in pursuit, strengthened in belief, united in force, refined in spirit, and accomplished in the execution of the mission.” With respect to the definition of corporate culture, Li Shufu believes:

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Corporate culture is the values created by all employees of an enterprise after long-term running-in. It is an environment, an atmosphere and a habit, something that can never be purchased nor can it be fall from the sky. Instead, it is formed naturally through the system construction of enterprises, strict management and the common practice of all employees. It is a kind of corporate asset that is invisible and intangible.

Geely always adheres to honesty, trustworthiness, and compliance management and strives to build a high-standard corporate culture that conforms to the principles of business ethics and compliance management.

PART IV

Traversing Cycles: Embracing Uncertainty

This article focuses on how Geely could embrace the uncertainty of the external environment, adopting the management mode of traversing the entire life cycle of technology. In so doing, it could capture different types of opportunity windows, change lanes, and overtake the first movers to actualize the stage labeled “beyond catch up” via lane-changing overtaking. Chapter 12 addresses how traditional manufacturing enterprises like Geely can use the “two-wheel drive” strategy of technological and business model innovation to organically integrate the manufacturingbased product economy and the consumption-based service economy and reify a fresh sequence of incremental development. Chapter 13 highlights how companies can identify the opportunity windows pertaining to market, policy, technology, and other dimensions. It also elucidates how they can escape the “catch-up trap,” sustain robust strategic determination in changing environments, and attain “nonlinear growth” in the new era of technology.

CHAPTER 12

From Manufacturing to Service

“Toyota is no longer an automobile factory.” This statement was big news for the global automobile industry in 2018. Toyota’s president Toyoda Akio announced that the company would transform from a traditional automobile manufacturing company to a mobility company. It would thus no longer compete against traditional automobile manufacturers. Instead, it would rival high-tech companies such as Google, Apple, and Facebook. Automobile giants Ford and Mercedes-Benz have also announced their intent to accelerate their transfiguration into mobility solution providers. What industrial changes transpired to drive the transformation of major global car companies into technology-based mobility companies? A revolutionary change happened in the manufacturing and service industries at the end of the twentieth century: they integrated and evolved.1 Traditional manufacturing enterprises shifted their principal concern from the production of goods to selling services. Further, they came to regard services as a vector for differentiated manufacturing. The new industrial model integrating manufacturing and service represents an innovative economic paradigm. It amalgamates the manufacturing-based product economy and the consumption-based service economy. More

1 Neely, Andy. Society’s Grand Challenges: What Role for Services? [M]. Managing Services, 2012.

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importantly, it signifies the major pathway for the transformation and upgrading of traditional manufacturing and service industries.2 The concept of four new megatrends (electrification, smartization, network connectivity, and shared vehicles) has evolved in the global automobile industry in recent years, causing a metamorphosis of urban transportation systems and mobility. The immense changes in travel ecology cause new forces such as novel car manufacturers and Internet companies to constantly emerge, and the entire mobility industry recognizes a critical opportunity window for transformation and innovation-driven development. Traditional car-making enterprises are also initiating plans to institute changes. Geely, a company that always has an ear to the ground, is naturally exploring the development path of shared transportation. Overall, Geely’s progression into manufacturing services has undergone multiple dynamic evolutionary processes such as the remodeling of its business logic, innovations in its business models, and platform empowerment. Cao Cao Taxi, a mid-to-high-end Internet car brand in which Geely has invested, was officially founded in Ningbo in Zhejiang Province at the end of 2015. This event marked China’s first official independent car brand upgrade from the business of whole car manufacturing to network cars. Cao Cao Taxi has redefined mobility needs with its B2C operation mode of using “company cars as public transportation vehicles and licensing to certified fleets.” Cao Cao Taxi’s mobility philosophy of “healthy, low-carbon, and shared” maximizes the platform’s strengths in data and connectivity, empowering the business and establishing a brandnew competitive advantage for the industry. The number of Cao Cao Taxi users now exceeds 60 million. Such a large customer group has helped Geely achieve a new cycle of benign growth. On the basis of what opportunity did Geely initiate its strategic adjustment of service transformation? What supported the innovative logic that informed Geely’s transformation? What kind of development dilemma did Geely confront? This chapter will discuss the motivators of Geely’s transition from manufacturing to service from the two perspectives of strategic thinking transformation and platform empowerment.

2 Liu Bin, Wei Qian, Lv Yue, et al. Service oriented manufacturing and value chain upgrading [J]. Economic Research, 2016 (51): 162.

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Redefining Automobile Manufacturing Traffic restriction measures, soaring oil prices, and overwhelming vehicle maintenance costs in many Chinese cities have served to discourage consumers from car ownership and car-based mobility in recent years. These obstacles actually triggered the emergence of more diversified mobility modes. Travel modes such as rail transit, shared journeys, and time-sharing rentals found opportunities for rapid development and gradually gained favor with increasing numbers of consumers. Data released by the China Internet Network Information Center (CNNIC) in June 2021 confirmed the existence of 397 million online car-hailing users in China. The online car-hailing market in China touched RMB 298 billion in 2020. The order volume exceeded 4.31 billion in the first half of 2021.3 Fig. 12.1 displays the scale and utilization rates of online car-hailing in China, demonstrating that the market has now become stable. Geely’s in-depth market research found declining car ownership intentions or reduced consumer interest in buying cars. Yet, consumer demands for mobility increase continuously. Therefore, it is crucial to attain accurate and quick insights into market changes and make targeted Unit: 10,000 38 773

48.4%

2018.6

38 947

47.0%

2018.12

40 426 36 230

47.3%

2019.6

40.4%

2019.12

User scale

34 011

36 528

39 651

36.2%

38.9%

39.3%

2020.6

2020.12

2021.6

utilization rate

Fig. 12.1 Scale and utilization rate of online car-hailing from June 2018 to June 2021 (Source CNNIC China Internet Development Survey) 3 https://baijiahao.baidu.com/s?id=1697642407951605640&wfr=spider&for=pc.

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responses in a timely fashion. In 2014, Geely’s senior managers began to discuss how to redefine automobile manufacturing and deploy a greater mobility business to adapt to the market changes. Insight-Based Business Logic Remodeling Geely’s agile response to business changes encountered along its development trajectory has enabled the company to repeatedly seize historical opportunities and achieve extraordinarily rapid growth. Geely has developed deeper insights into the mobility of consumers in the current critical period of the fourth industrial revolution centered on the ABCDE (Artificial intelligence, Blockchain, Cloud computing, big data, Edge computing) and other technologies. Group-Level Strategic Readjustments Scrutiny of World Bank data on car ownership in major countries across the world per 1,000 people reveals that only 173 of 1,000 people in China own cars. Table 12.1 illuminates that this statistic is one-fifth of the figure for the United States and one-third of the car ownership rate of Japan. Therefore, it must be queried whether China’s automobile industry will achieve 4–5 times growth in the future like the developed countries. Geely’s senior managers believe that the bottlenecks posed by China’s road infrastructure, parking lots, population, and other factors will make it difficult for the automobile market demands to repeat the soaring heights of the past. However, the greater socialization needs of the present signify a continuous increase in the travel requirements of people. Why does an automobile manufacturer choose to provide mobility service? Li Shufu revealed the underlying logic: We hope to take Cao Cao Taxi as the starting point, combine with invehicle artificial intelligence, and optimize the intelligent cyberspace, so as to accelerate the reforming and transforming of Geely Holding Group from a traditional automobile manufacturer to a mobile travel service provider and information content provider. Therefore, Li Shufu announced in 2015 that Geely had entered a new round of strategic transformation. In June 2015, Liu Jinliang, then the incumbent vice president of Zhejiang Geely Automobile Group, made a career switch from traditional automobile sales to mobility business, becoming the head of the Cao Cao Taxi project. The naming of Cao

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Table 12.1 Car ownership per thousand people in major countries around the world (2019) Ranking

Country

Car ownership/ 1,000 People

Per capita GDP (USD)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

USA Australia Italy Canada Japan Germany Britain France Malaysia Russia Brazil Mexico Saudi Arabia Turkey Iran South Africa China Indonesia Nigeria India

837 747 695 670 591 589 579 569 433 373 350 297 209 199 178 174 173 87 64 22

62,600 57,300 34,300 46,100 39,300 48,670 42,500 41,500 11,200 11,300 8921 9698 23,200 9311 5258 6340 9201 3894 2028 2016

Cao Taxi carries special meaning because it represented the first battlefield after Geely’s transformation. Liu Jinliang said: Cao Cao, whose name is Meng De, whose nickname is Jili (pronounced as Geely). Cao Jili (Geely), this is a fate with us that spans thousands of years! Furthermore, in ancient times, there was a story of Cao Cao rushing to Ancient Luoyang City for rescue. His anecdotal story boiled down to a proverb that goes “Speak of the Cao Cao and here he comes.” Now, Cao Cao Taxi works to attain a user experience of accessing the online car-hailing service any time anywhere. Geely’s transformation coincided with the transformation of global auto giants. Toyota, Ford, and Mercedes-Benz have recently announced that they will accelerate their transformation into mobility solution providers. A new understanding of the travel industry underlies the great changes in the automobile sector. Liu Jinliang believes: Mobility business is a practice based on the philosophy of sharing economy. It focuses on solving six major wastes in the industry: waste

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of driver resources, waste of vehicle resources, waste of road resources, waste of time resources, waste of fuel resources, and waste of parking resources. At the core of Geely’s transformation is the urge to serve users in more intimate ways, to optimize the state of mobility of consumers, and to maximize the use of resources. Remodeling the Philosophy of Car-Making Changes in mobility modes will naturally modify the car-making reasoning of automobile companies. Traditional car-making logic is aimed at drivers, offering increasingly comfortable driving experiences through continuous technological upgrading. Since the Cao Cao Taxi online carhailing business was launched, Geely’s car-making analysis has evinced fundamental changes. Automobile 4S shops often evidence that some automobile producers choose to reduce the functionality of the front passenger seat to make high-end cars more affordable. However, this approach may not be conducive to travel. The driver seat is often locked in a fixed position when it is adjusted into the right space; however, passengers may need more adjustment options for the front passenger seat given different body shapes and personal preferences. Geely discovered this problem in time and installed an adjustment button on the side of the passenger seat in its subsequent car models to meet the varying needs of drivers and passengers. Clearly, Geely’s car-making philosophy has changed substantially: from “making cars for drivers” to “making cars for travellers.” Geely developed greater expertise in cars by beginning its car-making reasoning with the optimization of the travel experience. In Liu Jinliang’s words: A car-maker not doing mobility business would be blind in making cars. If a car-maker stays out of the mobility market, it will not be able to know what cars they should make and gradually lose this market and may eventually become just an OEM factory. General Motors and Ford in the United States; Mercedes-Benz and BMW in Europe; Toyota and Honda in Japan; all these automobile giants are currently engaged in the mobility business. It has become the general trend for automobile OEMs to enter the travel market. The Volkswagen Group launched Sedric, a robot taxi, and established Moia, a high-end shared short-distance commuter car service platform positioned between

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taxis and buses. ZF Friedrichshafen AG, a top component supplier, has built e.Go, Mover, a city minibus similar to Sedric. A superior understanding of travel can better meet the needs of users and can better apply the user-centered approach to maintain competitive advantage. Toyota invested in Uber, GM invested in the American taxi platform Lyft, and Volkswagen invested in Israel’s Gett at the same time as Geely established Cao Cao Taxi (see Table 12.2). Unlike Geely, these multinational automobile manufacturers were more interested in investing in taxi-hailing software to obtain part of the equity rather than building their own operating platforms. Table 12.2 Automobile manufacturers investing in car-hailing brands Car manufacturer

Brands

Ways of investment

Toyota Volkswagen General Motors General Motors Geely

Uber Gett Lyft Sidecar Cao Cao Taxi

Equity Investment Equity Investment Equity Investment Acquisition Exclusively invested

It is generally believed that automobile manufacturers and car-hailing platforms can never be partners because they are potential competitors and alternates. The current average utilization rate of a car in its life cycle is less than 10%. As the sharing economy intensifies, the purchase of new cars will diminish greatly if cars are used exhaustively around the clock, and a much higher utilization rate is assured. Obviously, such a situation would cause a heavy blow to automobile manufacturers. Always forwardthinking, Geely is aware that it will encounter numerous uncertainties in the future. Hence, it has established a mobility service platform using its own car brand, Cao Cao Taxi. Geely can thus avail of professional advantages as an automobile manufacturer, accurately grasp changing mobility needs, and gradually introduce diversified mobility business models encompassing high-end, business, and budget markets. In this manner, Geely can leverage its cascaded global cooperation networks with Volvo and Daimler to seize increased market shares in the vertical domain. Geely’s auto finance and leasing businesses can simultaneously push robustly to further develop Cao Cao Taxi.

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A New Way of Business Model Innovation Business model innovations constitute an important pathway for the transformation of manufacturing enterprises into services; they also represent significant factors influencing the innovation performance of enterprises.4 Broadly speaking, a business model can be disassembled into the components of “business” and “model” for better understanding. From a more microscopic point of view, the term “mode” denotes interrelated and recurring elements such as the nine modules of the business model canvas. The essence of “business” is a value exchange. From the enterprise perspective, a business symbolizes meeting the needs of customers to exchange and obtain sustained benefits. Therefore, the process of business model innovation may be grasped through three core elements: first, the motivation of business activities; second, how benefits can be obtained; and third, the process of exchange. In other words, a business model can be clearly apprehended by asking three questions. What kind of value is provided to whom? How can sustained returns be obtained? How can high-efficiency and low-cost processes be designed? The Differentiation Routes of “+Internet” and “Internet+” Liu Jinliang asserted frankly that Geely created a preliminary definition of Cao Cao Taxi after entering the field of mobility. First, a new energy vehicle platform would have to be built in consideration of environmental protection factors, using only pure electric vehicles. Second, both vehicles and drivers must comply equally with laws and regulations. Third, a B2C Internet platform should be constructed to venture into the online carhailing market from the supply side. The timeline presented in Fig. 12.2 demonstrates that Geely is a latecomer to the online car-hailing market. How the ecological dilemma faced by a latecomer could be resolved became a core issue for Cao Cao Taxi. The competitive pattern of the online taxi market has shifted from a “chaotic war” to a “two-sided duel.” Eventually, Didi Taxi became the leader of the online taxi industry. The 2016 China Mobile Travel Service Market Research Report released by iResearch evidenced Didi Taxi’s 4 Riad Shams, S. M. Demetris Vrontis, Yaakov Weber, et al. Business Model Innovation: New Frontiers and Perspectives, 2021.

2012

Didi

2010

Yidao Taxi Dida Chuxing

2014

Cao Cao Taxi

Shouqi

UCAR

2015

Fig. 12.2 Year of launch of domestic online taxi-hailing platforms

Year

2017

Mei Tuan Taxi

2016

Uber

Auto Navi

Ctrip

2018

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84.1% occupation of the online taxi market. Didi Taxi, an early representative of the online taxi platform, facilitated the change in user experience from roadside taxi-hailing to taxi-hailing through mobile phones. Didi Taxi inculcated a modern travel mode in the era of mobile Internet, attracted more users through a flood of subsidies, and quickly realized the wide adoption rate of online taxi-hailing mobility. It integrated online and offline modes, building an online-to-offline closed loop that closely connected passengers and drivers. However, Didi Taxi’s mode can still be considered the C2C-style “Internet + ” operation mode because the contracted drivers and customer passengers are both users of the platform. From this point of view, Didi Taxi and Yidao Taxi both represent the light asset C2C business model. Obvious comparative differences may be noted in the operation modes and market choices of Cao Cao Taxi and Didi Taxi. Geely commands strong offline car operation capabilities. Backed by its substantial patronage, Cao Cao Taxi may be deemed a travel service platform constructed by Geely with the help of the Internet to better serve users. Hence, this model should be defined as a B2C-style “+Internet” asset-oriented operation mode. Cao Cao Taxi serves users through company-owned vehicles and professional drivers. It insists on operations via business-owned vehicles and employs professional drivers; it offers standardized training to its personnel, attends to the improvement of passenger satisfaction, and avoids problems such as uneven service levels and non-guaranteed passenger safety. Cao Cao Taxi is ambitious, but success is not easy for a latecomer. Liu Jinliang has also admitted that such a B2C asset-intensive model exerted huge pressure on the platform. Cao Cao Taxi must help its contracted drivers pay five types of insurance as well as contribute to a public accumulation fund. The platform must also professionally train drivers and test them to qualify them for their posts. Geely has always adhered to the mode of new energy vehicles along with the corporatized operation of company-owned vehicles operated by certified drivers. From this perspective, Cao Cao Taxi and UCAR represent the B2C model in the current market (see Table 12.3). Compliance and Safety Introduce New Opportunities Travel safety has always formed a focus of human societies. Vicious incidents endangering passenger safety often become headlines in newspapers

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Table 12.3 Comparison of the business models of Didi Taxi, UCAR, and Cao Cao Taxi Brands

Didi Taxi

UCAR

Cao Cao Taxi

Characteristic

Meet the needs of high, middle, and low-level consumers, and make transportation better C2C Driver’s own vehicle

Meet the needs of medium and high-end commercial vehicles

New energy models providing low-carbon and high-quality travel solutions B2C Vehicles owned by Geely Full-time High-end and mid-end Traditional pricing

Operation model Vehicle source Driver contact Market positioning Vehicle allocation

Part-time High-end, mid-end, low end Traditional + premium pricing

B2C Vehicle rented by the Platform Full-time High-end and mid-end Traditional + premium pricing

nowadays, when conventional mobility is declining and the emerging online car-hailing is becoming mainstream. “Is it safe to use car-hailing services?” Users must carefully weigh answers to this question. Geely’s fundamental strategy to solve the problem is to operate the platform in full compliance with safety regulations and to strengthen its safety supervision. In recent years, Beijing, Shanghai, Guangzhou, Shenzhen, and other Tier 1 cities have successively issued management policies for online hailing taxis. Authorities across China have proposed increasingly specific and standardized management requirements for vehicle wheelbases, displacement, insurance, and other aspects of taxis hailed online. Such controls have caused the number of operating vehicles that satisfy the standards to drop and have greatly affected platforms operating through the C2C mode. Facts prove that Geely has, from the very beginning, chosen the forward-looking standardized B2C mode to enter the field of travel. Geely responded actively to the requirements of the new policy of online taxi-hailing and more proactively accepted the supervision and guidance of policies. Noteworthily, Cao Cao Taxi pioneered an evaluation model of driver quality. Drivers must undergo a comprehensive psychological evaluation before receiving training, and drivers with good emotional management abilities and mental health can participate in the follow-up training. In terms of training content, Cao Cao Taxi introduced

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a driver training certification system used by London Taxi, especially training drivers on etiquette, communication skills, medical first aid, and other such topics. It is not surprising that such advantages resulted in a favorable public reception of Cao Cao Taxi. Data released by China Commercial Industry Research Institute in 2020 reveal that around 300,000 vehicles operate on car-hailing platforms in China. Calculated by the estimated 20 trips per vehicle per day, 6 million trips can be provided; this figure cannot remotely satisfy the estimated mobility need of 22.1 million trips per day (see Fig. 12.3). A large number of unqualified vehicles on C2C online taxi-hailing platforms will be flushed out of the market because of tightening controls and increasingly standardized governing policies. The huge unmet market needs represent a historic development opportunity for Cao Cao Taxi. In 2020, when the COVID-19 epidemic was raging, Cao Cao Taxi was the first to establish emergency support convoys in more than 20 cities across China to meet the needs of all parties for emergency vehicles. During the suspension of the Wuhan public transportation system, Cao Cao Taxi instituted a Wuhan Emergency Prevention and Control Support Ten thousand times/day 2 500

2 210

2 000 1 500 1 000

450

500 0

Travel times using car-hailing service

Demand covered by car-hailing service self-operated fleet

Fig. 12.3 Comparison between demand and supply side of network car/special car market in 2020.5 (Travel times using car-hailing service Demand covered by car-hailing service self-operated fleet)

5 Data source: China Commercial Industry Research Institute.

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Team, which cooperated with relevant round-the-clock vehicle dispatch and provided nearly 10,000 free car rides. Cao Cao Taxi’s highly consistent and rapid response mechanism displays an important supporting role of the B2C model. Institutionalized and standardized management has won Cao Cao Taxi new opportunities. Well-Grounded Market Expansion Pathways Cao Cao Taxi, headquartered in its home base in Ningbo city, began operating from Tier 2 cities to avoid direct confrontation with other firstmover online taxi-hailing platforms in Tier 1 cities. Later, with substantial operating experience it leveraged on the publicity effects in Tier 1 cities to enhance its market awareness. Prepared through operational experience and brand effect, it scaled up its business by replicating the model in Tier 3 cities via city-based licensing (see Table 12.4). Cao Cao Taxi has become the first choice of many Business-end users because of its standardized operations and management. Dong Kainan, general manager of Cao Cao Taxi, said that tens of thousands of government and enterprise customers such as Ali, Vanke, JD.COM, Baidu, and Bank of China chose to contract with Cao Cao Taxi, demonstrating their trust and recognition. At the same time, Cao Cao Taxi gradually evolved into an open platform, adopting the operational mode of “companyowned vehicles + licensed private vehicles.” The mobility demand exhibits different time sections such as morning rush hours, evening rush hours, Table 12.4 The city deployment strategy of Cao Cao Taxi Time

November 2015–2016

Stage of Development

Stage 1: avoiding Stage 2: Tier 2 cities Stage 3: City-based competition and form the main stage; franchising in Tier 2 deployment in Tier 2 begin deployment in and Tier 3 cities coastal cities Tier 1 cities Starting from Ningbo, Deployment in Tier 1 The “platform + the home base of Cao cities begins from city-based licensing” Cao Taxi. Gradual 2017 in Guangzhou, model is piloted in deployment in Tier 2 gradually expanding to Wuxi and is gradually coastal cities in Jiangsu Beijing, Shenzhen, and extended to Yingkou and Zhejiang Shanghai in 2018 and Harbin 40 cities in 2018 and more than 60 cities in 2019

Specific Measures

Target

2017–early 2018

From the end of 2018 to 2019

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and flat hours; thus, company-owned vehicles work to meet the capacity requirements during the flat hours and licensed private vehicles function as an elastic capacity to jointly meet travel demands during the peak hours. The proportion of company-owned vehicles will gradually decrease as the business expands, and the proportion of licensed private vehicles will progressively increase. At the same time, Cao Cao Taxi will also institute higher requirements for licensed private vehicles, allowing non-Geely branded cars to participate in licensed taxi operations but still obligating the fleet or taxi operation company to take direct responsibility and accept standardized training, assessment, and certification. In addition, Cao Cao Taxi also actively explored a win–win model with car dealers and users, fully utilizing the advantages of automobile manufacturers and looking for a new round of growth points. Liu Jinliang realized in the course of doing business that Geely’s dealers covered more than 1,000 cities and that the number of Geely branded car users also touched millions. The active mobilization of car users to join the business plan of shared mobility and further tapping the business potential of local dealers will become the future growth axes of Cao Cao Taxi.

Power Empowerment in Development The Internet has exerted an immense impact on the business community, completely rebuilding the supply chain and demand side. The traditional trading model has undergone tectonic shifts. In traditional economic theory, the factor of transaction cost is crucial in determining the boundaries of enterprises. An enterprise’s resource allocation is deemed necessary and reasonable if the cost of allocating resources across the market exceeds the cost of assigning resources within the enterprise. This determines the essence and limit of the enterprise. Internet platforms have effectively reduced transaction costs, primarily decreasing the information collection and constraint costs. The decline of transaction costs enables large-scale cooperation across enterprise boundaries, allowing the construction of a brand-new platform-based business ecosystem that reacts on the business side and grants enterprises a brand-new competitive advantage. The topic of empowerment has become a shared interest of entrepreneurs and scholars with the further advancement of Internet technologies and platform economy. A glimpse of the entire process

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of establishing brand-new business competitive advantages after enterprise transformation may be accorded by observing the empowerment pathways between the three elements (data, network, and business) that constitute a platform. Data Empowerment Based on Intelligent Technologies Human lifestyles have undergone fundamental changes in the digital age. First, being “online” has gradually become the norm in the daily lives of people. Digitalization is the inevitable result of being online. The online trading associations and social relationships of users will certainly create a cobweb of data relating to information traces. Data assets are gradually becoming the most important business raw materials for enterprises. Cao Cao Taxi has gradually become an important channel for users of Geely’s research. Geely sorts out useful information and data by analyzing user habits and sends them to Geely Auto’s research department. This coupling effect substantially facilitates Geely’s product development. According to Liu Jinliang, As a car-making enterprise, it is necessary to participate in the entire mobility solution and study the data, so as to fully understand the real needs of users and create cars that better meet the user demands. In this sense, Geely made the right choice of entering into the business area of mobility. Second, many discrete resources of the traditional economic system can release potential. The backwardness of information management means in the traditional economic system causes numerous underutilized resources. Digital technology can effectively integrate these resources and create data assets within enterprises. User habits, travel itineraries, and other like information register in the conventional mobility mode as discrete data, and it is difficult to effectively collect and manage such material. Cao Cao Taxi launched the Passenger Travel Consumption Heat Map in collaboration with the Cultural Industry Research Center of Sichuan University, Xihua University School of Transportation and Automobile, Sichuan Academy of Social Sciences, and many other units. This instrument enables the digital profiling of users through information on traffic flow and consumption preferences and facilitates the provision of more flexible personalized services.

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Finally, high-quality services form a solid foundation for smart mobility frameworks. Cao Cao Taxi is committed to providing highquality mobility solutions and adheres to the high standards exemplified by the motto, “no mark-up in peak hours, no hailing rejection for outlier itinerary, guaranteed safety, excellent driver service, environmental protection minded.” Some online taxi-hailing platforms motivate their contracted service providers through premium pricing during peak taxihailing hours or in bad weather at the cost of deteriorating the user experience. Cao Cao Taxi refrains from the adoption of premium pricing and subsidizing strategies. Liu Jinliang explains the rationale for such a move: The premium pricing may be understandable in the lens of the market rules, but it does not conform to Geely’s original intention. Cao Cao Taxi has no large-scale subsidy, and we prefer to burn cash on research and development. Cao Cao Taxi established the Big Data Research Institute in the quest of offering high-quality travel services. To accomplish this endeavor, it explored cutting-edge technologies and established a “mobility brain” for smart mobility. Generally speaking, an inseparable symbiotic relationship exists between technology innovations and business model modernizations. Cao Cao Taxi makes its service systems more intelligent and user-friendly through continuous technical improvement. The Big Data Research Institute has simultaneously prepared the groundwork for future intelligent transportation systems such as autonomous driving through efficient identification and analysis of data. In the future, smart mobility is bound to be based on excellent synchronization between people, cars, roads, and clouds. The car will no longer merely denote a vehicle; rather, it will become a mobile life service terminal. In Li Shufu’s words, “The future development of automobile industry will move from the era of winning by single vehicle to the era of winning by system.” Therefore, Geely has eliminated the data and resource islands in the traditional sense by establishing the Big Data Research Institute and has gradually formed a plug-and-play resource cloud through the institution of a digital middle platform. Value Symbiont Network, Internet Empowerment In this era of the digital economy, organizations are staging the trend of symbiosis that shatters the conventional boundaries between them.

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The business ecosystem (network) has become the basic unit of competition among large enterprises. In such new circumstances, it is particularly important for enterprises to internally establish a complementary multiecology and to nurture symbionts externally.6 Following this trend, Geely uncovered the secrets of establishing a value symbiont network. Geely will further promote the transformation of Cao Cao Taxi into a content provider by establishing a complementary internal ecology. At present, the Cao Cao Taxi platform includes Cao Cao Taxi, Cao Cao Help Desk, Cao Cao Carbon Bank, Low-carbon U Products, Cao Cao Freewill Mobility, Cao Cao Media, and many other businesses. Among them, Cao Cao Taxi and Cao Cao Help Desk are the main taxi-hailing business lines. It is worth mentioning that in congruence with its name, Cao Cao Carbon Bank functions as a traditional bank but its booked “assets” denote carbon dioxide emissions reduced by customers by using Cao Cao Taxi. This initiative was launched by Cao Cao Taxi to advocate the concept of low-carbon mobility and encourage more people to embrace this lifestyle. The carbon emission reductions accumulated by a subscriber can be exchanged for gifts or payment-related rebates on the taxi-hailing platform, motivating more users to practice a low-carbon mobility regime. Geely is committed to the establishment of a value symbiont network outside the enterprise. First, Cao Cao Taxi and StarRides share their travel business and docks with CRGT (a technology company jointly established by Geely Holding, Tencent, and China Railway Investment). In this manner, they realize a seamless connection between urban travel, communication network, and high-speed rail journeys. Second, Geely acquired Terrafugia Company and invested jointly with Daimler in Volocopter, a German flying car company. These complementary acquisitions focus on inter-city low-altitude mobility. Finally, Geely officially launched its satellite project in March 2020 to better build a three-dimensional sky, land, and air mobility ecology. Geely is accelerating its technological transformation: from ground-based travel to low-altitude mobility, from the development of vehicle networking to the vehicle chip to the arrangement of low earth orbit (LEO) satellites. It is continuously forging a three-dimensional mobility ecology through technological empowerment. Using the abovementioned three-step strategy, Geely has 6 Peng Zhengyin. Theoretical Analysis of Network Governance [J]. China Soft Science, 2002, 000 (003): 50–54.

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gradually formulated a clear-cut external alliance and has gradually established a value symbiont network, actualizing high-level value co-creation and promoting Geely’s transfiguration into a globalized and innovative technology company. Noteworthily, Geely also actively cooperates with aggregation platforms such as AutoNavi, Meituan, and High-Speed Rail. The accelerated blurring of industrial boundaries is an interesting phenomenon in the digital. Figure 12.4 demonstrates that competition and cooperation across industries have become the new normal. Cao Cao Taxi statistics report that 20% of its orders emanate from partnering aggregation platforms. This recorded statistic evidences that the means of enterprise creating value in the network era have shifted from the traditional linear industrial value chain to a cross-industry value network. Brand-New Competitive Advantage for Business Service-oriented manufacturing industries have become a common trend across the world in the era of the digital economy. Geely’s senior managers constantly deliberate on the problem of how they can cultivate brandnew competitive advantages through this strategic choice. Since 2015, Geely has continuously exerted its strengths on both the demand and supply sides through the Cao Cao Taxi platform; it has unremittingly offered better travel services to serve changing customer demands and has gradually become the Noah’s Ark Li Shufu referenced apropos the diversification of traditional manufacturers. Capture Long-Tail Demand Chris Anderson, the editor-in-chief of Wired magazine in the United States, postulated the concept of long-tail demand in 2004. This term describes the power-law distribution or scale-free phenomenon of demand: a small number of individuals correspond to higher demand attribute values (usually demand quantity); thus, the vast majority of the total population designates lower demand attribute values. The trend of increasingly diverse users’ demands renders it correspondingly difficult to apply the standardized mass production model of the industrial era to adapt to the present market scenario. The travel data assets acquired by Geely through mobility services will help Geely upgrade its production model from the traditional standardized mass manufacture

Competition

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Fig. 12.4 Diagram of industrial boundary change

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to mass customization. Geely also now actively uses digital technology to empower the product manufacturing process, seeking to build a new automobile manufacturing industry of the digital era that features the core elements of consumer-to-manufacturer (C2M), order-to-delivery (OTD), and globalization (global collaborative production based on cloud services). Acquiring Increasing Competitive Advantages Based on Efficiency and Agility Cao Cao Taxi adopts the B2C model, utilizing various Geely brands of pure electric vehicles, such as Geometry or Emgrand. Thus, Cao Cao Taxi has become a testing field for Geely’s car models, helping enterprises to quickly obtain the dual evaluation of driving and riding in a more economical and reasonable manner. In addition, Cao Cao Taxi has also launched a “mystery customer” recruitment campaign, inviting volunteer users to track and evaluate the service quality of online hailed taxi drivers during their riding trips. Usually, only 4% of users file complaints when they experience a dissatisfactory service; the remaining 96% choose not to speak. Enterprises can quickly and intensively apprehend problems that must be addressed to improve their business by recruiting mystery customers. They can thus gradually establish better user satisfaction management systems to gain additional competitive advantages based on efficiency and agility.

Revitalize the Installed Market and Boost the Incremental After lasting development, conventional car companies often confront the problem of limited growth potential. It is thus critical for them to optimize the installed market business and find incremental business. Geely is China’s first independent domestic automobile brand to venture into the mobility service business. The Cao Cao Taxi platform optimizes the commerce of the installed market; it is also literally a “mobile advertisement” that enables a larger number of travel users to become more aware of Geely Auto. Additionally, travel services also represent the growth point of Geely’s new round of business ventures. The Geely Flying Car Project was successfully tested in Singapore in 2019, making the use of flying cars instead of ships a reality in offering increasingly diversified modes

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of travel. Geely’s all-inclusive service system of sky, land, and air will introduce an increasing space of imagination to humanity. In September 2021, Cao Cao Taxi completed a round B fund-raising of RMB 3.8 billion. Global markets are also simultaneously set to become the focus of explorations by Geely’s mobility services. Geely has launched its overseas market plan. Its new mode of “manufacturing + service” will augment Geely’s risk-handling abilities.

The “Value Network” of Nonlinear Growth As the twentieth century ended, service became the general trend of the transformation of manufacturing enterprises. A major feature of such shifts is to offer additional services on the basis of tangible products and to meet consumer needs through a “manufacturing + service” or “manufacturing to service” mode of operation. Geely’s service process evinces a move from passive to active, from spontaneous to conscious, from local to global. A brand-new business competitive advantage can be attained by organizations by promoting the deep integration of manufacturing segments and service applications in the industrial chain. A two-way interactive and mutually triggering and catalyzing relationship exists between technological innovation and business model modernization as enterprises undertake the process of transforming from the manufacturing to the service industries. Such an interaction strongly promotes the transformation of the value creation system from a value chain to a value network.7 Individual enterprise within a specific industry represents the main entity of value creation in the traditional value chain, and products, manufacturing, and market players are relatively distinct. The traditional value chain would be limited to a one-way, static, and innovative value creation process in confronting the new circumstance of being data-driven in the current background of the digital economy. The current situation would not make it conducive for the value chain to sustain the competitive advantage of enterprises. A cross-industry enterprise network can predominantly embody value creation by splitting, extending, modularizing, and reorganizing the value chain. In this manner, it can gradually form a brand-new value network structured 7 Jian Zhaoquan, Wu Zhuoshen. Research on the Path Selection of Manufacturing Industry Servitization: A Perspective Based on the Smile Curve Theory [J]. Science Science and Technology Management, 2011, 032 (012): 137–143.

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on a global manufacturing network as the new industrial organizational framework, effectively empowering the sustainable growth of enterprises. Besides technology, institutional reform and governance structure innovation are also likely to perform major functions. Currently, almost all technology companies, represented by Google, Apple, and Amazon, have entered or are entering the automobile industry. At the same time, traditional automobile companies such as Mercedes-Benz, BMW, and Audi are also accelerating reforms and innovation. Digital technology will certainly inspire the mobility industry in the future, ushering in unprecedented changes. Internal and external institutional innovations will become critical driving forces for the high-quality development of enterprises. Confronted with a highly turbulent and unbalanced development environment, Geely chose to unite with Daimler to jointly face unpredictable risks, allowing unlimited imagination space for news patterns to emerge in the future.

CHAPTER 13

Embrace Uncertainty

“Will Tesla become an Apple company in the automotive industry?” This question has recently become a talking point in the automobile industry. Li Shufu opined on the so-called industry game-changers: Internet companies will subvert traditional automobile companies, but I think the Internet is not a barbarian, it is more like a confidant. In the past, the automobile industry was relatively closed out and conservative. When faced with the soaring mega trends of science and technology, it was either at a loss or doing lip service. Catalyzed by a revolution driven by new technologies, what attitude should Geely take to meet the challenges of the next cycle of competition? New technologies such as big data, the Internet, and artificial intelligence are gradually transforming the automobile industry, and smart manufacturing will redefine the automobile.

Uncertainty is becoming the new life norm; hence, the inevitable choice for human societies is to proactively embrace uncertainty. The current global economic situation is rife with uncertainties such as the weakening momentum of world economic growth, a rising trend of de-globalization, and an aging population. The theme of handling uncertainty with certainty is now intensely discussed. Geely has been squarely crowned as China’s leading independent domestic automobile brand; nevertheless, traditional OEMs still confront

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massive setbacks from an altering external environment. On June 10, 2020, the international automobile industry witnessed a singular event: Tesla surpassed Toyota in market value, registering itself as the OEM with the highest market value in the world. Tesla’s annual sales volume is less than 500,000 vehicles, whereas the annual sales volume of Toyota amounts to approximately 10 million vehicles. In 2019, Apple acquired the autonomous driving startup Drive.ai. Apple also released its own Carplay smart in-vehicle system at the Geneva Motor Show. Ferrari became the first OEM to use Apple’s in-vehicle system. Dozens of wellknown automobile manufacturers such as Mercedes-Benz, BMW, and Jaguar have also begun collaborations with Apple. Geely’s executives must now resolve this urgent issue: how can Geely seize the opportunity window of the new development spiral launched by the “new four izations” of the automobile industry? Li Shufu once believed that “cars are just two sofas on four wheels.” He was then laughed at as a “car ignorant” but later successfully became the “godfather of the automobile industry” of China by revolutionizing traditional cars. Decades later, Li Shufu now thinks that “The car of the future has a soul, and it will be your life companion, not just a vehicle.” The edifice of the traditional automobile industry has begun to collapse, driven aground by digital technology. How can Geely precisely capture this opportunity window and maintain its strategic determination in a nonlinear development environment? How can it change tracks to benefit from the new opportunity by overtaking its global rivals?

The Opportunity Window to Catch-Up and Go Beyond Carlota Perez and Luc Soete first posited the concept of “opportunity window” to describe the phenomenon of technology equalization by late-developing countries from the perspective of a cross-paradigm.1 Latecomers resort to the alteration of their technological and economic models to approach the levels of first movers. In recent years, some scholars have applied this concept to the industrial domain, honing it from the standpoint of innovation systems and classifying the opportunity

1 Perez, C., Soete, L. Catching Up in Technology: Entry Barriers and Windows of Opportunity, 1988, pp. 458–479.

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window into three types2 : for technology, for demand, and for systems. Geely was flexible as it moved from the stage of following in footsteps to advancing side by side to ultimately become the pacemaker. It aptly sensed the pulse of the times to precisely grasp the opportunity window and realize incremental development that went beyond the catching-up.3 Many economic and technical fields currently display marked features of experiencing a paradigm shift.4 From the perspective of the technical environment, the fourth industrial revolution era has arrived, and it is propelled by ABCDE (artificial intelligence, blockchain, cloud computing big data, and edge computing). It has exercised a massive impact and poses gigantic challenges to the production, distribution, exchange, and consumption models of the automobile industry. From the labor market point of view, the transition from demographic to talent-based dividends denotes a new market attribute along with a rapidly rising middle-class population. From the perspective of the consumer market, the demand changes emanating from the rapid rise of the middle class also represent an important quality of the present period of flux in paradigms. In terms of the institutional environment, China has amended its emphasis from the introduction of technology and the creation of a market for technology to underlining breakthrough and innovative systems of key technologies.5 Apart from the great environmental changes, Geely has, as a latecomer, witnessed major improvements in resources and capabilities from its early stages of catching-up. In its early years, the company lacked the necessary accumulation of resources and capabilities and lagged behind in both technology and markets. Hence, Geely’s strategic choices were quite passive. In the current phase of surpassing the competition, Geely is mature and can adopt different or even new cross-border technologies to resolve specific business needs. The automobile manufacturing industry 2 Kim, L., Lee, H., Kwak, J. Standards as a Driving Force that Influences Emerging Technological Trajectories in the Converging World of the Internet and Things: An Investigation of the M2M/loT Patent Network. Research Policy, 2017, 46(7): 1234–1254. 3 Wu Xiaobo, Yu Lu, Lei Linan. Beyond Chasing Up: Innovation Strategy during the Paradigm Transformation Period [J]. Journal of Management Engineering, 2020, 34 (1): 1–8. 4 Wu Xiaobo, Wu Dong. Technological Innovation and Development of Chinese Enterprises [J]. Scientific Research, 2018, 36 (12): 2141–2143, 2147. 5 Wu Xiaobo, Li Sihan, Xu Ning, Du Jian. From “Learning Standards” to “Cross level Benchmarking”: Geely Automobile’s Road to Surpassing and Chasing Up (STR-0965): China Management Case Sharing Center Case Library, 2019.

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now faces an increasingly clear opportunity window. The 5G wave has promoted the development of autonomous driving and intelligent networking. Clean energy has laid the foundations for green mobility. The new digital lifestyle has instituted immense changes in user needs. All these aspects create a lasting but rewarding opportunity window of changing tracks and overtaking the first movers. Geely has continued to think and innovate in the face of changing technologies and markets and has successfully achieved the latecomer advantage of equalization. The Technology Opportunity Window: Changes in Digitalization and Intelligence In the past, Li Shufu believed that the traditional car was “two sofas on four wheels,” while the future car was “four wheels, one battery (power source of environmental protection) and one computer (intelligent technology).” The automobile manufacturing industry will actively undergo a subversive change in the digitally intelligent era of the Internet of things (IoT) and the large-scale popularization of 5G and AI technologies. A new wave of technology is surging. The automobile industry will reshape its value creation system. Disruptive changes will occur across the board: from parts to production processes, from power systems to designs, from technical architectures to driving experiences, as well as in the organizational and business models. Technology will be applied to the whole chain of the automobile industry. This battle will not happen in the future; it is occurring now, in the present continuous tense. Figure 13.1 offers a holistic overview of the present developments in the automobile industry. It displays the current experience of paradigm shift and highlights the emergence of the opportunity window driven by the transformation of the technology prototype. This period encompasses the potential of dual industrial technology opportunities. It is easier to obtain the mature technology from the old paradigm; conversely, the general technology and organizational rules of the new paradigm accord a new momentum to the mature technology from the old paradigm. Thus, latecomers can avail of opportunities to adopt different strategies and catch-up to the first movers.6

6 Mathews, J. A. Strategy and the Crystal Cycle. California Management Review, 2005, 47(2): 6–32.

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Performance

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Fig. 13.1 The opportunity window in the transition period of the technology paradigm

Exploring the Technical Pathway of the Intelligent Automobile Many Geely executives have claimed in interviews that Li Shufu commands the ability to predict the industry and that he can often herald the development directions of the automobile industry over a decade or even longer. Li Shufu delivered a speech at the 2016 International Symposium on Auto-Driving in which he asserted: In the next 20 years, the change of autonomous driving technology to personal mobility may exceed the added-up contribution from other technological developments in the previous 100 years. An Conghui also concurred, saying, “cars will become the intelligent terminal of the new generation of mobile internet.” Cars are neither purely transportation means nor are they isolated information silos in this age of digital intelligence. Instead, they are intelligent mobile terminals integrating online and offline phenomena. Therefore, Geely began its journey on the road to intelligent development in 2011, deploying resources to the domain of autonomous driving. In May 2017, Geely proactively released a core strategy document to power the development of Geely Auto over the next decade: the Intelligent Technology Strategy (see Fig. 13.2). It also released the “iNTEC User-oriented Smart Driving Technology” brands, marking another great milestone in its development. In brief, Geely can advance

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Fig. 13.2 Intelligent technology strategy: intelligent interconnection and intelligent driving

Inteligent connectivity

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by harnessing the intelligent technology performance of its automobile in five areas: safety, networking, environmental protection, power, and intelligent driving. In this manner, it can completely enable the production of high-end and intelligent automobile products. Hu Zhengnan, the incumbent president of the Geely Automotive Research Institute, said at the 2017 Zheshang Artificial Intelligence Summit: The fourth automobile industry revolution has arrived. The transformation of the automobile industry will focus on intelligent automobile products and intelligent interconnection of the whole automobile industry, and the automobile industry will be closely combined with artificial intelligence and interconnection technology. New technologies such as the Internet, big data, cloud computing, and artificial intelligence will be widely used in the automobile industry, helping us to develop and produce personalized, customized automobile products to offer the ultimate user experience, completely changing our automobile life again. Numerous combination forms exist between automobiles and the Internet. Geely has also actively deployed resources toward the production of intelligent networked automobiles. In 2018, Geely presented the Geely Smart Ecosystem (GKUI) at the first Geely Auto Eco-Partner Conference and launched Boyue, its first model equipped with the GKUI system. GKUI is an open and shared platform created by Geely for car networking. It brings the Internet into cars by means of global deployment, creating a third living area and an intelligent mobile space for users. GKUI has joined forces with a group of the most outstanding Internet forces and related industrial partners since its release in March 2018. It has adopted the smartphone touch interface most familiar to users and is dedicated to the creation of the most open application (App) ecology in

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the industry so it can offer its users the most comfortable and intelligent mobility and lifestyle. The number of GKUI users had reached 2 million by the end of June 2020. Exploring the Modular Architecture of High-Level Platforms Immediately after its acquisition of Volvo, Geely faced the dilemma of being unable to launch a dialogue equaling Volvo’s automobile development capabilities. Geely’s executives realized that they could only absorb the cutting-edge technology and knowledge by rapidly improving their own technical levels to dock into Volvo’s advanced model development platform. The CMA architecture, a brainchild of a three-year-long joint development by Geely and Volvo, was successfully launched in 2016, materializing Geely’s vision of architecture-based research and development. This design straddled models A0 to B and yielded 609 granted patents. The starting models of Lynk & Co and Volvo XC40 were all manufactured using this architecture. CMA achieved advanced global levels, but it was insufficient in facing the competition and challenges of the future. Soon, Geely introduced the strategy of product platformization and stepped progressively into the age of modular carmaking. It has now formulated four basic modular architectures such as B-segment Modular Architecture (BMA), Compact Modular Architecture (CMA), Scalable Product Architecture (SPA), and Sustainable Experience Architecture (SEA) as exclusive architectures for new generation electric vehicles to ensure a generational leading edge over the next decade. Futuristically, a new scientific and technological revolution signifies a comprehensive alteration of technical systems. The automobile will gradually become the best carrier of the core elements of the scientific and technological revolution, and automobile development will gradually enter a new era of software-defined hardware. According to the Morgan Stanley forecast of the automobile industry, “At present, the value of automobile hardware accounts for more than 90%, and it will gradually drop to 40% in the future. The remaining 60% will be dominated by software.” The software-defined automobile has gradually emerged as the strategic consensus of leading organizations in the automobile industry value chain. Therefore, a new electronic architecture will become the strategic command point for the automobile industry of the future. Geely built the SEA through its global R&D system; it took four years and an investment of more than RMB 18 billion. CMA begins with the

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needs of users, transcending the limitations of traditional car-making. It integrates the hardware, system, and ecological layers by leveraging hardware capabilities, system computing power, and ecological synergy. It is thus dedicated to the construction of an infinitely interactive and extended futuristic mobility service system. An Conghui, Geely’s Chief User Experience Officer, stated in an interview: Sustainable Experience Architecture (SEA) will set off the inverted pyramid effect, enabling smart cars be defined by software whereas the significance of architecture is to carry software and breed ecology. The openness and tolerance of the architecture bear and stimulate the imagination and creativity of the software. Just like Android and ARM, SEA will be the beginning of Geely’s new legend, making it possible to realize 100% software-defined cars. In addition, Geely introduced the model of a brand-new ZERO concept car that is slated to be the first SEA-equipped vehicle. Geely always positions the user at the center, whether to develop SEA or envision the ZERO concept car. The company’s systematic practice of focusing on the user stems from its flattening via organizational restructuring and the formulation of the corporate culture of equal partner value creation. SEA has attracted many top ecological partners in the world through its whole-industry-chain cooperation and will soon become a flat-structured developer cluster. The Opportunity Window of Market Demand: Solving the Problem of Mobility The opportunity window of market demand is usually driven by the new demands of local or foreign consumers.7 In other words, the opportunity window of market demand opens when fundamental changes are witnessed in user demands, or a major shift occurs in demand orientations. The current technical challenge is not to achieve technology breakthroughs but to understand technology. This circumstance mandates enterprises to more urgently and keenly gain insights into the fundamental needs of users.

7 Lee, K., Malerba, F. Catch-up Cycles and Changes in Industrial Leadership: Windows of Opportunity and Responses of Firms and Countries in the evolution of Sectoral System. Research Policy, 2017, 46(2): 338–351.

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The fundamental nature of automobiles is to offer mobility solutions. At the same time, it is difficult for automobiles to incorporate an alternative vector. Players must develop a better understanding of consumers to better capture the opportunity window of market demand. The demand for automobile consumption will be polarized in the future.8 Some consumers will need more personalized automobile products. Automobile manufacturers must conduct big data analyses to provide such users or consumers with customized products based on intelligent manufacturing systems. The consumer demand for customization will rise progressively in the future. For other consumers, the demand will remain largely nondifferentiated. Consumers in this part of the potential incremental market will need simple products and will pursue one-click operations along with a quick and convenient user experience. Such consumers will not need to own vehicles; they will only desire their mobility needs to be satisfied via shared cars, communal travel, or other such modes. The intensive integration of design and manufacturing has become the general trend of the automobile industry to meet the aesthetic needs of current consumers. Geely has also performed a lot of forward-looking work in this respect. Today, Geely’s design concept is aligned to the international frontier, taking design, manufacturing, and management as an organic system so that structural design and process creation can be simultaneously executed, ultimately making concurrent engineering possible. The definition of a digital product stipulates data preparation for personalized customization in the wave of intelligent digital manufacturing. The automobile industry needs a digital definition method: a digital twin technology that can carry product design information as well as genuinely reflect real physical product parameters. Digital design uses digital collections, virtual manufacturing, and other technologies to enable excellent matching between virtual automobile designs and actual manufacturing. In so doing, it minimizes the distinctions between a blueprint and the actual finished product. Geely’s Hangzhou Bay 2nd Manufacturing Base with a world-class digital twin factory began operating in 2019. The digital twin factory can simulate reality, virtually verify the whole production process, and ensure the traceability of all job-related data. The application of twinning technology has accelerated Geely’s pace 8 Zhao Fuquan, Liu Zongwei, Hu Jinnan, Ma Qingzhu. Innovation in the automotive industry [M]. Beijing: Mechanical Industry Press, 2020: 358–360.

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in handling the high-end customization of automobiles and has rapidly boosted Geely’s design and manufacturing capabilities. Geely has also effected all-direction explorations of new mobility options for the future, including shared cars. Cao Cao Taxi was first launched in Ningbo in November 2015. By March 2020, Cao Cao Taxi had been introduced in 51 cities across China and had commissioned a total of 48,000 new energy vehicles, scoring over 30 million registered users and more than 1 million daily active users. A high-end travel project labeled StarRides, jointly backed by Geely and Mercedes-Benz, was also simultaneously launched in China. In 2016, Geely invested in the establishment of ECARX and became the earliest mover in China to apply the core technology of the Internet of Vehicles (IoV). Centering on intelligent and networked vehicles, ECARX offers a variety of digital products for vehicles, operation services of the IoV cloud platform, and big data platforms. Geely is changing from a manufacturer of traditional automobiles to a manufacturer of smart automobiles (adding smart components) in a trend appropriately heralded by Professor Michael Porter of Harvard Business School. It is moving toward transfiguring itself as a provider of smart interconnections (automobiles + smart components + Internet components) to progressively link product subsystems within the management domain of automobiles. Such a move will yield an even bigger mobility industry, forming an ecology of holistic intelligent mobility as Geely strides forward to become a manufacturer with greater ecology synergy.9 The Institutional Opportunity Window: Green New Energy The institutional opportunity window usually refers to development prospects that may be availed through changing national policies. It creates huge market capacity and hence offers latecomer enterprises the chance to catch-up.10 At the same time, the system opportunity window also demands timely responses from enterprises. In 2012, the China State Council issued the Development Plan of Energy-Saving and New Energy Vehicle Industry (2012–2020), directing organizations to hasten the development and deployment of energy-saving and new energy vehicles. 9 Michael E. Porter, James E. Heppelmann. How Smart, Connected Products are Transforming Competition [J]. Harvard Business Review, 2014, 11: 64–88. 10 Wei Jiang, Pan Qiuyue, Wang Shixiang. Institutional Market and Technology Chasing [J]. China Industrial Economy, 2016, 9: 93–108.

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In 2014, China’s central government clearly stated that the development of new energy vehicles was the only way for China to grow from a big automobile manufacturing country to a powerful automobile manufacturing country. China’s new energy vehicles have entered a stage of explosive growth driven by strong national policies. Subsequently, Geely officially released the Blue Geely Action strategy in early November 2015. The announcement of this strategy signified that Geely would transform its products and shift from manufacturing traditional cars to new energy vehicles. Before the announcement of Blue Geely Action, Geely viewed new energy as a strategic business with which it had engaged deeply for many years. In terms of alternative fuels, Geely was the first enterprise in China to conduct R&D and launch methanol-powered vehicles. It has accomplished the R&D for five methanol power systems, 16 methanol-powered cars, and one methanol-powered heavy truck and has obtained hundreds of technology patents. Geely invested nearly US$ 45.5 million in the methanol industry chain via Carbon Recycling International (CRI). Geely is expected to further elevate its R&D capabilities in the field of methanolpowered vehicles by leveraging CRI’s internationally leading methanol production technology. Data studies evidence that new energy vehicles now denote a strong driving force for China’s automobile market. New energy vehicles, especially pure electric automobiles, grew year-on-year over 2018 despite the overall decline of automobile sales data in 2019. However, the expansion of a market space does not signify the disappearance of risks. In fact, shrinking fiscal subsidies in 2020 have compelled new energy vehicles to enter a post-subsidy era, and the actual strength of products will become pivotal to their success. Therefore, Geely has advocated diversified new energy technology pathways, including four major technical routes: hybrid, pure electric, alternative fuels, and fuel cells. Geely established Zeekr Technology, a brand-new intelligent pure electric brand under the Geely Group, in March 2021, devising the Zeekr Model in the present era of rapid change. Zeekr has created an alternative way of exploring smart mobility in the electric mobility industry by benchmarking the world’s top auto companies as well as the expectations of users. Geely has now gathered more than 3,000 high-level talents in the global new energy field and has invested more than RMB 30 billion in

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R&D in the new energy sector. It owns more than 300 core patented technologies in the new energy field and has established a new energy technology system that is truly Chinese.

Strategic Determination Under Uncertainty The current international economic and social environment is imbued with uncertainties for enterprises. In such new circumstances of changed or even reversed globalization, enterprises must devise ways to unleash greater creative potential through more efficient organizational modes and benign competition systems. Effective solutions could include the maintenance of strategic strengths in uncertainty, building a community with shared missions and interests, exploring new modes of efficient and agile liquid organizations, and building inclusive international alliances. Efficient and Agile Liquid Structures The present age of immense changes poses difficulties for many enterprises vis-à-vis adapting to ever-changing customer demands and technological progress. Companies also face the threat of new and subversive business models. Traditional automobile manufacturers are massive in scale, unlike the more flexible car manufacturers such as Tesla. Thus, they lag behind in their actions and are slow to respond to customer demands. They often rely on conventional auto finance services to drive sales growth. In such instances, it is particularly necessary for organizations to establish liquid structures that can align with the external environment and adapt to the operating rules of the digital economy. A liquid structure denotes a brand-new method of labor division and cooperation. It represents an organizational form that can arrange and adapt on its own. In digital and intelligent technical conditions, a liquid structure can easily surmount the constraints of enterprise borders and maintain their vitality. In essence, liquid structures replace the inherently bureaucratic organizational composition. Some companies operate in an extremely orderly manner in their daily operations; yet, their structures remain fixed. A liquid structure is advocated because it helps organizations avoid the rigidity of their configurations. For a long time, business managers tended to believe that the enterprise could develop and advance as long as its internal management was competent, reducing the external environment to the position of

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a secondary factor. However, most enterprise profits emanate from the outside. Modern enterprises may encompass or shun borderlines. Many enterprises create value at both the internal and external borderlines. In the past, enterprises competed against each other. Now, the relationship between enterprises should change from being rivals to becoming partners and allies. Organizations must become superior alliance-makers, enhancing cooperation and sharing external intellectual property rights to create more value. Enterprises must inculcate the ability to operate dynamically to remain aligned to the external environment. They must quickly perceive changes evinced by customers and markets and seize varied opportunities through continuous transformation. Thus, organizational structures and resource allocations must become highly flexible and mobile. Companies such as Cisco and Microsoft realized this fact more than a decade ago and began to actively promote organizational change, seek improved flexibility, and adapt to market changes. Geely was gifted from its inception with a keen sense of perception and a powerful DNA for change. The company has already internalized that the market is likely to exhibit daily and drastic changes. In such a turbulent environment, Geely must constantly innovate, respond in a timely manner to the rapidly changing customer demands, sustain superior efficiencies, and continuously enhance its competitiveness. Geely must deal with both domestic and global competitors. Geely has adopted the following four measures to meet such challenges: (1) build a company structure around customer needs; (2) support departments to develop products on a flexible platform; (3) continuously rotate management functionaries; (4) create a corporate culture that greatly values change. The interaction of these measures has forged high flexibility within Geely. Symbiotic, Open, and Inclusive International Alliance The COVID-19 pandemic has inflicted a major impact on the global economy. The supply chain was the worst hit of the numerous industrial crises and complications caused by COVID-19. The production and operations of major manufacturing industries relying on the global supply chain were severely hindered. The automobile industry was not spared. Automobile manufacturers worldwide confront difficulties emanating from the sharp drop in consumer demand and the unsustainable supply

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chain. In such circumstances, the establishment of more inclusive international alliance systems would effectively enhance the resilience of enterprises. Geely and Volvo announced jointly in 2020 that they would implement an in-depth and holistic restructuring that would unleash the capacity of an unlimited imagination to the global automobile industry. Geely’s globalization model takes into account the changing new patterns of globalization and offers great referential value to multinational enterprises in China and even to the world at large. Globalization is a historical trend amply evidenced in the development trajectory of human societies. The world is heading toward a new age of interdependence and mutual encouragement. Economic globalization and counter-globalization have coexisted for a long time. Their interplay is caused by short-term competitive interests, and it has never stopped. As for the cooperation between Geely and Volvo, the two sides initially faced irreconcilable cultural differences and went through a journey that began with doubt, progressed to mutual understanding and recognition, and ultimately arrived at collaboration and co-creation. Geely and Volvo were thus able to acquire a broader global perspective, collaborate to manage enterprises, and finally become joint industry pacemakers. This seemingly smooth evolutionary process was filled with uncertainties along with an abundance of creativity. The complementary natures of Geely and Volvo in the automobile industry and markets have enabled the two entities to stage in-depth communications in platform sharing, business investments, technological innovations, and so on over the last decade. Both companies have gained substantially through their collaborative experiences. The charisma and management artistry of the group leadership team headed by Li Shufu have resulted in exceedingly optimistic public expectations from the Geely Group at its fresh starting juncture. Noteworthily, Geely will face more lasting and challenging work after its reorganization, under the guidance of new management philosophy. First, the two sides will also transform and upgrade their strategic thinking and build a brand-new value creation ecosystem based on the concept of symbiosis. Second, the new distributed organization network will enable a deeper division of labor and a higher level of collaboration. The construction and management of a correspondingly liquid structure will represent an extremely challenging task. Third, the new scientific and technological revolution has blurred the traditional industrial boundaries and has

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introduced a profound paradigm upheaval into the automobile industry. All-inclusive digitalization, smartization, Internet migration, and service conversion will change associations between people, between people and machines, and between machines and machines from the underlying system. The broader development space will thus also generate massive management challenges. The fully integrated Geely and Volvo will enter a brand-new sublimation stage. The profound integration of the two sides will grasp historic opportunities generated by the times. The amalgamated Geely and Volvo will reconstruct the segments of production, distribution, exchange, and consumption, propelled by the impetus of new theories and technologies such as autonomous driving, artificial intelligence, human–computer interaction, cloud computing, cloud services, big data, industrial Internet, and industrial operating systems. It will reconstruct industrial boundaries, promote the service conversion of production, and gestate supplemental and newer technologies, products, industries, and models. “Structure determines function”: the new organizational structure will more effectively encourage the new Geely to seize the great opportunity window opened by the paradigm shift emanating from the fourth industrial revolution. The new Geely will actualize a forward leap in competence from secondary to original innovation. Geely is now standing at the commanding heights of globalization and is poised to begin a new journey.

The Paradigm Shift of Nonlinear Growth Geely’s explorations into innovation stem from its transformation genes and conform to contemporary scientific and technological trends. The transformation of automobile enterprises must be centered on users in the present era of technology-driven changes. Products must be manufactured as one segment of the Internet of Everything. Companies must openly embrace uncertainty with an attitude of co-creation. Enterprises must seize the opportunity window of a paradigm shift, escape the trap of catching-up, and realize nonlinear growth through the new technological paradigm. Internally speaking, Geely has always been endowed with the genes of change: the dictum of “crisis awareness + self-breakthrough” forms the fundamental internal driving force that allows Geely to adapt to the times and impels it to continuously grow and evolve. Geely presents a

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new pattern of air plus ground-based mobility. It has traveled along the track of benchmarking to pace-making, striving to build a smart mobility ecology for the 5G era and endeavoring to become a global leader in intelligent networked cars. Thanks to such initiatives, Geely can step up its pace and deployment of resources anticipating the next opportunity window. The traditional manufacturing methodology of digital-enabled manufacturing is to “produce to use” because the architecture only serves the manufacturing end. The architecture of the current era of users directly serves the user and is embedded with user-defined software. Hence, users function as the most powerful product managers of the current age. Geely’s CEO is also made to serve as the Chief User Experience Officer, experiencing the company’s products by inhabiting the identity and mentality of a user and advising the company about ways in which products could perform better. At the same time, Geely funneled internal organizational reforms and established a dedicated user experience center to apprehend the pain points of users and externally develop user scenarios. It broke its internal systems and reporting mechanisms layer by layer and enabled a non-impeded communication channel all the way to the topmost decision-making level. The previously silo-type organizational module was deconstructed to bolster rapid response and shape an organic enterprise structure. The sensible design, rational R&D and production, and human-oriented channels and services are all woven around the fabric of user experience. Geely truly makes everything for users and offers everything to users. Geely maintains an acute strategic determination in an uncertain environment, sourced primarily from its corporate vision and its entrepreneurial sense of mission. The resources and capabilities of its organizations have also functioned in modulating roles in Geely’s sustained determination (see Fig. 13.3). Entrepreneurs must showcase perseverance in turbulent environments; they must evidence a spirit of persistence in times of adversity, grasp the general trends, formulate and implement strategies using scientific methods, and apply scientific rationality to help their enterprises secure greater and more enduring developments. Geely has formed a brand-new consolidation model and corporate culture in the process of constantly establishing balance and proactively disrupting the equilibrium. Its path to globalization offers experiential knowledge to numerous organizations and greatly enlightens researchers.

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Strategic Determination

Fig. 13.3 Composition of strategic determination

Corporate Vision and Entrepreneurial Mission

Organizational Resources and Capabilities

Uncertain Environment

Possible Strategic Opportunities

The conventional governance and cooperation model is gradually disintegrating because of the dynamic process of enterprise globalization. The new relationship model of mutual respect and multi-directional interactions advocated by Geely is proving increasingly robust. As a role model, Geely will exert a major and far-reaching impact on other enterprises of the new era, including other companies engaged in the automobile industry.

PART V

Enlightenment of Non-Linear Growth

CHAPTER 14

Catch-Up and Going Beyond of Made in China

In recent years, the sustained and rapid growth of China’s economy has written a magical chapter in the history of world economic development. In 1949, China’s economy accounted for less than 5% of the world’s total economy, and its per capita national income was 1/20 of that of the United States (US). In 2019, China has become the second largest economy in the world. With RMB 90 trillion, China now accounts for 16% of the world economy. After a transformation away from the1 farming civilization and the declination in industrial civilization, China’s manufacturing industry finally transcended the “catching up” to the world’s leading economies and is now in a rally “beyond the catch-up”—triumphantly gaining world leadership in ever more areas. The driving force behind China’s rapid economic growth is a large number of outstanding leading enterprises that grew in recent years. In Fortune World’s Top 500 Enterprises List of 2019, the number of Chinese enterprises reached 129, surpassing the US (121 companies) for

1 Source: https://www.shijiejingji.net/rediantupian/20210511/361985.html.

The original version of this chapter has been revised: Figures 14.8, 14.9, 14.11, and 14.12 captions are updated in this chapter. A correction to this book can be found https://doi.org/10.1007/978-981-99-5273-1_15

© China Renmin University Press 2023, corrected publication 2024 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1_14

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the first time in history. Throughout the development process of Chinese enterprises, despite the limited accumulation of resources and capabilities in the early stage, outstanding entrepreneurs have created many industry leaders represented by Geely. Equipped with market acumen and the bold spirit to lead the world, Chinese companies have completed the role transformation from “latecomers” to “pacemakers” and global industry leaders; some of them even ventured into the “uncharted water” in some fields. In the course of struggle from scratch to strength, Chinese enterprises carry out “secondary innovation” on the basis of introduction, giving full play to the “latecomer advantage” in being a developing country. By rational allocation of globally advantageous resources and by forging their own competitiveness in an open environment, Chinese companies are now standing at the forefront of the world thanks to their original and innovative technological capabilities. Faced with the changes of the fourth industrial revolution, the release of talent dividends and the rise of the middle class, Chinese enterprises have further established the innovative strategic thinking of “catch-up and beyond,” which makes them stand on the new heights of globalization and allows them to depart for a new journey.

Behind the Rapid Growth of Made in China To date, there have been three industrial revolutions in human society driven by science and technology progress, each of which has not only greatly changed the production and life style of human beings but also promoted deep reshaping of global trade and exchange patterns. In the 1860s, the first industrial revolution, originating from the UK, brought the extensive application of steam engines and mechanical power. This transformation fundamentally subverted the traditional mode of production and social division of labor and made Great Britain the first industrialized country in the world. Later in the second half of the nineteenth century, the second industrial revolution broke out in Europe: the widespread application of electric power and new inventions such as electric lamps and trams changed the way of production and people’s lives. The US, Germany, and other countries have successively become the world’s technology powers. In the 1950s, the third industrial revolution took place around the world, pushing human civilization to a new level and creating a number of newly industrialized countries such as Japan, South Korea, and Singapore.

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Since the inception of the twenty-first century, one of the major changes in the world pattern is the rapid development of China’s economy. In the window of opportunity that was available by the massive amount of global manufacturing transfer, China proactively took in laborintensive industries, low-tech and high-consumption industries frowned upon by the developed countries in Europe and America, and newly industrialized countries in Asia. The country fully leveraged its comparative advantage of cost structure, resource endowment, and demographic dividend, thus becoming the biggest recipient and beneficiary of world industrial transfer. In other words, China gradually formed a globally competitive industrial system and an efficient production supply chain system. In this process, a large number of Chinese enterprises have made full use of the path of “secondary innovation” and gradually built up the technical capability of “primary innovation” in the open global system. In 2001, China officially joined the World Trade Organization. Riding the wave of globalization, China managed to drive even greater growth of its economy. After a brief downturn of the global financial crisis in 2008, China surpassed the US GDP (gross domestic product) in 2010 and became the largest manufacturing economy in the world. At present, with the slowing down of China’s economic growth, enterprises are also entering a new exhibition period of deep integration of resources and structural re-balancing. Faced with the declining factor of cost advantage, traditional labor-intensive industries are waning in their competitiveness. To overcome this structural disadvantage, Chinese enterprises must implement the “innovation-driven” transformation strategy: They need to extend their production to the high-end value chain, achieve breakthroughs in the “strangling” key technologies, and form the “original innovation” capability when entering the “uncharted water.” By establishing a global sharing network, securing global access, global allocation, and global optimization of innovation resources, and by building brand-new value creation, Chinese enterprises will not only be the pillar of China’s economic development but they will also be the greatest contributor to the world economic growth.

Rethinking on “Classic Management” Management in the modern sense originates from the British Industrial Revolution. As the first person to explain the origin of national wealth, Adam Smith laid the following foundation of management: The source of national wealth is not only based on its resource endowment but also on the performance generated by an efficient division of labor. In that

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sense, the contribution of management is a more scientific and meticulous division of labor to achieve organizational goals, which is qualitatively different from the empirical division of labor in the agricultural civilization. Henri Fayol of France developed 14 rules crowned as the underlying principles of managing enterprises. Max Weber clearly and systematically put forward six traits of an “ideal organization,” an outstanding contribution to the formulation of classical western management theory. In its early days, American management adopted management ideas from Europe, particularly from the UK. Alongside ever larger American enterprises, the theory of organization and management gradually matured in the US. Frederick Winslow Taylor—often seen as the forefather of America’s management theory—made people realize that management is a science based on rules and principles. He adopted scientific principles on process engineering into the management thus promoting the rise of modern and scientific management in the US. Interestingly, when applying the scientific management theory, people found the theoretical defect of treating people as machines. Professor George Elton Mayo’s lighting-up experiment in the Hawthorne works of Western Electric in Cicero, Illinois, revealed the phenomenon of people’s initiative and interaction when exposed to observation, which urged management to pay more attention to social interaction and control of individuals in organizations. Interestingly, the development of management theory is closely related to the development of economy and technology, which is well illustrated by the management practices in Japan and South Korea. Toyota and other companies formed management ideas and methods with Japanese characteristics, such as Total Quality Management, Lean Production, Z Theory, etc., illustrating the major role of Japanese national culture of Craftsmanship. As a result of the policy of “Industry in North, Agriculture in South” implemented in the Japanese colonial era, there was hardly any scientific and technological foundation in South Korea after World War II. As a typical latecomer country, South Korea started off by imitation of the industrial system. South Korean scholars have systematically studied the transition process from imitation to innovation staged by the enterprises and have put forward their own catch-up theory. The representative research outcomes include Imitation to Innovation by Prof. Kim Linsu and Schumpeter’s Analysis of Economic Catch-Up by Prof. Keun Lee. China’s modern management studies began in the Soviet Union after 1949. Back then, the theory mainly focused on finding the most optimal

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management solution in an inherent, stable, and closed system and establishing the balance of top-down hierarchical organizations. This kind of management system operated in the form of planned economy. As for seeking higher work efficiency, it was similar to Taylor’s management science, but gave more attention to the “sense of ownership” among workers. It tried to adopt scientific methodology to improve people’s work efficiency via precise planning. Nevertheless, it ignored the diversity of people’s needs and the dynamics of technological progress, which hinders technological innovation. In other words, early Chinese management theory was devoted to a closed system, and it only served to accelerate “soil moisture enhancement.” After the reform and opening up, China began to comprehensively study the western management theories and introduced the management theories of technological innovation in the early 1980s. It is worth noting that management theory does not always lag behind practice. It originates from the practice yet goes beyond the practice, helping more enterprises and even the whole society to develop, that is, to become faster and healthier.

Beyond the “Latecomer Advantage” The exploitation of “latecomer advantages” by latecomer enterprises in order to catch-up has always been one of the hot topics in academic and business communities. Professor Alexander Gerschenkron, an American economic historian, was the first to consider the modernization of latecomers. He revealed “the possibility of latecomers catching-up with or even surpassing the first-mover countries in the process of industrialization.” In countries with different levels of economic development, technological innovation has different characteristics. Developed countries mostly focus on “one-off innovation,” while developing countries mostly innovate based on introduction of technologies from developed countries. Since the 1970s, in parallel with the development of South Korea, Singapore, and other emerging industrial countries, scholars turned their attention in the study of technological catch-up to emerging Asian economies. The path and strategy of innovation catch-up in fact became a research hot spot in itself. Based on in-depth studies on the Hangzhou Gearbox Factory, the Hangzhou Oxygen Group, and other local companies in Shanghai, Ningbo, and other cities, the author’s research team

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U-A Innovation Dynamic Model

Time Situation in developed countries Process Innovation

Innovation quantity

Innovation quantity

put forward a “secondary innovation dynamic model” (see Fig. 14.1) in 1991, which is different from the famous “U-A Innovation Dynamic Model” in the field of innovation management in the west. It made up for a weakness of previous innovation management studies in being limited to a single technological innovation cycle and outlined the significance of a window of opportunity to latecomers in the transition period among technological paradigms. This model creatively established a theoretical system of secondary innovation management via reference to the reality of developing countries and a focus on perpetuation of the “latecomer advantage.” The process of “secondary innovation” can be roughly divided into three stages: the first stage (Type I secondary innovation) is learning by imitation, that is, introducing technology that does not exist in the home country or region. In this stage, the optimal exploitation of local supply factors leads to technological innovation, and gradual mastering of the adopted technology which improves product quality and reduces production cost. The second stage (Type II secondary innovation) is the improved innovation. In this stage, the process capability acquired by Type I secondary innovation leads to derivative product innovation that makes use of the introduced technology to generate new, derived products that meet the specific needs and demand of the local market. The third stage is “post-secondary innovation,” that is, true sense “secondary innovation.” At this time, the party that originally imitated an innovation has fully mastered the technology and can use it flexibly. On this basis, Secondary Innovation Dynamic Model

Time Situation in developed countries Product Innovation

Fig. 14.1 U-A innovation dynamic model and secondary innovation dynamic model

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the introducing party exercises its own R&D activities yielding significant re-innovation until it develops the capability of original innovation. “Secondary innovation” is a dynamic process in which enterprises continuously hone and iterate their innovation capacity: localization of imported technology is realized through engineering and processing innovation. Through product innovation, imported technology is given innovative applications to tap into potentials, increase the efficiency, and improve innovative ability via incorporation of more novel technologies. Figure 14.2 summarizes the general characteristics and dynamic process of secondary innovation, in which the innovation capability upgrades from the beginning of technology introduction. Judging from many cases since China’s reform and opening up, most Chinese enterprises have improved their innovation ability through “secondary innovation” and eventually reached technological catch-up. According to the patent data, in 1990, among the total number of patents in China, the number of invention patents backed by original innovation accounted for 17% of the total, and the number of utility model patents reflecting secondary innovation accounted for 75% of the total. By 2016, the proportion of invention patents rose to 23%, while that of utility model patents dropped to 52%. From the perspective of innovative products, from the big innovations like rockets and satellites, high-speed railways, large aircraft, and aircraft carriers, to the small innovations like surveillance cameras, search engines, chat software, and online shopping malls, although most of the related technologies were not born in China, through the enterprises’ “secondary innovation,” these products became more competitive on China’s domestic market and even on the international market. The secondary innovation, or the “innovation right from the introduction of a technology,” is the mainstream means of technological catch-up in developing countries. Although it started from an existing technology paradigm, it will generally develop along the established trajectory of product innovation. Yet, it’s often the key to a dynamic improvement of innovation capability. Secondary innovation is thus an evolutionary process of gaining the advantage of latecomers through gradual accumulation. In this process the ability to innovate is enhanced via quantitative and qualitative changes evolving nonlinearly from “innovate in learning” to competition and mutual understanding between old and new, innovated technology. It also is an imbalanced process wherein the original technology balance is disturbed to form a new one.

Research and Development of Development Category Application of New Technology "Non-linear"Expansion

The Secondary Innovation Based on the Type II Introduction

Primary Innovation

Research and Development of Application Category Product Derivation "Linear"Application

The Secondary Innovation Based on the Type I Introduction

Accumulation of Knowledge and Experience

Operational Engineering Technology Process Support System "Linear"Learning

Technology Capability Accumulation of Technology Introducing Party

Fig. 14.2 Dynamic process of secondary innovation

Mature Technology

Emerging Technology

Laboratory Technology

The Life Cycle Stage of Technology Introduced (At The Time of Introduction)

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When Change Becomes the New Normal In the past, change was often regarded as an exception in management activities and thus ignored and excluded from consideration. Nowadays, it has become a new normal obligating the management system and being perceived positively. In building the mathematical model of management system optimization, change was once regarded as an interfering factor. People often tried to avoid its impact. With the shortening of technology life cycles and the acceleration of change, this formerly external, interfering factor has become a non-linear, intrinsic element that is worth to be considered. Digitalization, networking, and more recently the so-called smartization are the core technologies in a new round of industrial revolution and also the breakthrough point and main direction of migration from “Made in China” to “Intelligently Made in China.” The implementation of the “internet+” strategy has made outstanding progress in promoting new industrialization and the integration of industrialization and digitalization in China. The new technological revolution in manufacturing industry represented by nanotechnology, autonomous driving, industrial robots, artificial intelligence, block chain, and 5G communication technology has greatly powered the transformation and upgrade of China’s manufacturing industry and innovation capabilities; China emerged from a big manufacturing country to a great innovation country. By example of artificial intelligence, under the impetus of new theories and technologies (mobile internet, big data, cloud computing, human–computer interaction, deep learning, block chain technologies), artificial intelligence will redefine the economic links between production, distribution, exchange, and consumption. It will also lead to a restructuring of the entire manufacturing industry chain including R&D, design, production, and sales. Eventually, artificial intelligence will become the core driving force in a new round of industrial transformation and give birth to new technologies, new products, new industries, and new models, addressing the manufacturing cost and structural problems caused by the declination of demographic dividend and resource endowment dividend. How to seize the great opportunity window of the fourth industrial revolution, realize the transition from secondary innovation to original innovation, and realize the major innovation upgrade from catching-up to beyond catching-up has become the focus and new starting point of current research on innovation management in China.

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The core idea of traditional western management is to establish a balanced and an efficient system of division of labor and cooperation. Establishment and maintenance of this balance is consequentially understood as the core proposition for enterprises to improve their performance. However, Chinese enterprises represented by Geely have entered the new environment of globalization, networking, and digitalization from the relatively closed environment in the past while change became the norm, breaking the balance is now an active management behavior, and “interfering factors” such as iteration, trial and error, flow, uncertainty, and gray scale are no longer exceptions in the management system and mechanism. Under the new situation of paradigm shift, accordingly, it has been much different in terms of their strategic formulation, product development, organizational change, and organizational learning if compared to the circumstances of the traditional management theories. Therefore, the innovation path of the late-coming enterprises with secondary innovation as the typical form needs a revision in view of this paradigm shift.

Catch-Up and Beyond Catch-Up Across Cycles It has been nearly 30 years now since the proposal of the “dynamic model of secondary innovation” by the author and his research team. It is our pleasant surprise that a large number of Chinese enterprises have completed the transformation from being laggards to fellow-runners, to pacemakers and even global industry leaders. China’s high-tech manufacturing enterprises represented by Geely have even entered the “noncharted water.” They have made full use of the latecomer advantage to catch-up quickly and entered the pacemaker stage. It is of great practical significance to carry out continuous and in-depth R&D to these enterprises: firstly, the successful experience of the secondary innovation of Chinese enterprises can provide valuable reference for many developing countries. Secondly, such experience can further guide more Chinese enterprises to achieve successful technological catch-up. Of course, there are uncertainties in the great opportunity window during the transition of technology paradigms in the ongoing industrial transformation. We still need to keep a clear understanding and formulate effective strategies to successfully master those challenges.

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There are many different paths for enterprises in latecomer countries to realize technological catch-up, such as the follower path, the leapforward path, and the innovator path. But all of these paths fall under the same technological paradigm. When the technological paradigm experiences major shifts, uncertainty emerges from the immaturity of the new paradigm. Although many enterprises in latecomer countries have the opportunity to implement new technological standards and solutions and to embark on a new technological path, there is no determination to success whatsoever. An additional source of uncertainty is incurred by the competition between completely different management systems and business models. Unlike linear technology catch-up, it will be the exploration and innovation in chaos. Based on the understanding of innovation strategy and management practice exercised in Chinese enterprises during their transition from catch-up to beyond catch-up, the author summarized the fourth path of technology catch-up, the “catch-up and beyond.” This is a transition from quantitative change to qualitative change in the evolution of a complex system. Also, the relationship between elements changes from one-way connection to multi-way interaction. The core features of its management system include paradigm change, chaos, gray scale, complementation, and creative learning. Finally, it can go beyond existing technology paradigms and technology tracks in identifying emerging technology tracks and paradigms. Switching to those may lead a new round of industrial technology change. In this way, the coming transformation will be fundamentally different from the management model under the mode of catch-up. In the era of the fourth industrial revolution centered around the ABCDE (artificial intelligence, big data, cloud computing, block chain, edge computing) technologies, there are fundamental changes in the capabilities accumulated by latecomer enterprises in China after their rapid iteration. They can adopt brand-new or even cross-border technologies to meet specific business needs, and hence escape the historical technology paradigm dominated by leaders in a single industry. The development of innovative capabilities in latecomer enterprises is thus not a passive adoption of the technological track mapped by the existing technological paradigm. On the contrary, this kind of cross-border innovation capability will promote the latecomer enterprises to develop technological innovation alongside business model innovation resulting in the development of technologies, products, and processes that are leading in all around ways.

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These enterprises will thus embark an innovation path different from the one that global leaders took in previous innovation cycles. One master example is the development of the HarmonyOS operating system by Huawei in parallel to its HiSilicon chips. The “two-wheel driving” on technological innovation and business model innovation has become a new way for Chinese leading enterprises in their catch-up journey. This shows that latecomer enterprises can enter the forefront of international technological innovation through this path, compete with developed countries in technological paradigms, and have the opportunity to eventually win the technological competition. At present, a large number of leading Chinese enterprises that have followed this path have rapidly risen to international first-class leaders.

C Theory Among the 125 most challenging scientific issues in the world released by the Science magazine in July 2005, the research topic of “Why some countries staged forward development while others backward?” has attracted great attention from academic communities for its novelty and importance. As early as in the 1980s, the author and his research team began a systematic and in-depth study of the catching-up path and innovation model of Chinese enterprises. In 1991, the team put forward a “secondary innovation dynamic model” which was different from the western “U-A innovation dynamic model” and formed a theoretical system for original innovation management. Based on the successful practice of Geely Auto, the research team continued to explore on this basis, and put forward the management C theory which is different from the classic “technology life cycle hypothesis.” Enterprises that have developed along the linear path of “introductiondigestion, absorption-innovation” in the established technological paradigm are vulnerable to the non-linear impact of technological disruption and may fall into the “catch-up trap” of “introduction–backwardness–reintroduction.” From the perspective of cross-technology life cycle, C theory studies the non-linear innovation management system in the opportunity window within the phase of technology paradigm shifts. It can thus play a key role in guiding enterprises through the technology life cycle and realize non-linear growth. Classic western management theory is dedicated to establishing a labor division and cooperation system focusing on a single technology life

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cycle. Unlike this rather narrow temporal focus, according to the C Theory the “catch-up” of enterprises must transcend the technology life cycles accounting for accelerated change of technology paradigms and ever shorter technology life cycles. It is hence necessary to implement “non-continuous management” with the basic principle of “proactively breaking the old balance and quickly establishing a new one.” To our pleasant surprise, Geely Automobile has made full use of its latecomer advantage availed by secondary innovation. Under the guidance of the new thinking of “beyond catch-up,” Geely has raised its innovative capability from secondary to original innovation. It gradually shook off the dependence on the original technical path and migrated from demand-side innovation to supply-side innovation. Geely managed to go global thanks to innovations with greater technological intensity. In an intricate economic and social environment—different from the developed countries of Europe and the Americas and emerging economies such as Japan and South Korea—Chinese enterprises have embarked on a road of catch-up and beyond via modernization. From Geely’s excellent enterprise management practice, we can identify six characteristics: adventurous and rational entrepreneurship, thrifty and efficient innovation behavior, fast and inclusive learning ability, strategic determination in paradigm shift, flexible and dynamic organizational model, and ambidexterity that is both dynamic and static. C Theory is rooted in China’s “four in one” economic and social environment: ownership structure in transition diversified technical systems, multi-level market space, and the emerging trend of internet plus. By stressing on collective wisdom, attaching importance to the complementation of heterogeneous resources and diversified management, ambidextrous organization, as well as inclusive and collaborative enterprise ecological innovation philosophy, China managed to build an innovation system that is balanced in nationality and worldliness. This also means that C Theory will guide more enterprises to achieve sustainable development thus making Chinese contributions to management theory in a global sense (Fig. 14.3).

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Two-wheel Drive Paradigm change Complementarity and Win-win Network Collaboration Bottom Line Thinking

Decode user Make and Break Unlearn What’s Learned Open and Inclusive Gray Scale Management Rational Adventure Creatio Ex Nihilo Secondary Innovation

Pace-maker

Surpass

th

rG

Shoulder by Shoulder

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Fig. 14.3 Conceptual Model of Nonlinear Growth in C Theory

Appendix I: Survey Records Subjects

Time of survey

Site of survey

Topics of survey

Li Shufu Zhang Aiqun

2019/08/23 2019/09/01

Binjiang HQ Binjiang HQ

Zhang Aiqun Sun hong

2019/09/17 2019/09/19

Binjiang HQ Binjiang HQ

Wei mei Dong-Hwi Lee

2019/10/08 2019/10/16

Binjiang HQ Binjiang HQ

Yang Xueliang Xu naiping Mei feng Yin tenghui Chengyue

2019/10/16 2019/11/06 2019/11/17 2019/11/06 2019/11/08

Binjiang HQ Hangzhou Bay Hangzhou Bay Research Institute Binjiang HQ

Chen lei Fang what Yangjun

2019/11/14 2019/11/15 2019/11/15

Binjiang HQ Binjiang HQ Research Institute

Li chuanhai

2019/11/16

Research Institute

Development Strategy Organizational Reform Corporate Culture Compliance Construction HR Internationalization Strategy Project Seminar Quality Strategy Quality Strategy R&D System Organizational Reform R&D System R&D System System, Internationalization R&D System (continued)

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(continued) Subjects

Time of survey

Site of survey

Topics of survey

Tao Jianghua et al Liu Tiejiang

2019/11/16 2019/11/17

Research Institute Chunxiao Factory

Jin Yaping

2019/11/17

Chunxiao Factory

Hua Ding Louyuanfa

2019/11/17 2019/11/18

Research Institute Hangzhou Bay

R&D System Worksite Management Site Management and Development Strategy Digital Ecology Worksite Management

Subjects

Time of survey

Site of survey

Topics of survey

Peng Yanhu Zhou Dayong

2019/12/02 2019/11/18

Telephone Interview Hangzhou Bay

Liao Huihong

2019/11/18

Hangzhou Bay

aiguo chen

2019/12/24

Chunxiao Factory

Li Xiangcai

2019/12/24

Chunxiao Factory

Feng Qingfeng Guanyu Tang Yu Wang Ruiping Cui Zaifu Ling shiquan

2020/01/09 2020/01/09 2020/01/09 2020/01/09 2020/01/09 2020/01/09

Research Institute Research Institute Research Institute Research Institute Hangzhou Bay Hangzhou Bay

Liu Jinliang

2020/01/09

Binjiang HQ

Yushan

2020/05/30

Research Institute

Hu Zhengnan Chen Jie Fu jun An conghui

2020/05/30 2020/06/15 2020/06/18 2020/10/25

Research Institute Telephone Survey Telephone Survey Binjiang HQ

Zhang Aiqun

2021/05/23

Binjiang HQ

OTD order system Vehicle Development (Automobile Safety) Vehicle Development (Automobile Safety) Worksite Management Worksite Management R&D System Supply Chain System Supply Chain System Power Assembly Quality Management Smart Manufacturing Manufacturing Service Technical Management System R&D System Power System Power System Development Strategy Development Strategy (continued)

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(continued) Subjects

Time of survey

Site of survey

Topics of survey

Liu Xiangyang

2021/06/30

Binjiang HQ

Kangwang Xu Yun

2021/08/13 2021/08/13

Hangzhou Bay Hangzhou Bay

Future Manufacturing R&D System Smart Manufacturing

Appendix II: Organizational Structure Changes of Geely 1. In Year 2003, Geely Holding Group Co., Ltd. set the Board of Directors that was responsible for the Board of Shareholders (Fig. 14.4). 2. In 2004, Geely Holding Group set up a management committee, which is responsible for the management committee under the leadership of the Board of Directors (Fig. 14.5). 3. In 2009, Geely carried out an organizational structure reform and integration according to the principle of “localization, systematization, homogeneity, flattening, socialization and product line management.” The number of the first-level subsidiaries of the group is reduced from 25 to 19. At the same time, it eliminated five second-level subsidiaries. The number of functional departments in the Headquarter has been reduced from 22 to 15 (Fig. 14.6). 4. In 2013, the organizational structure of the Group underwent a new round of changes. The Board of Directors is structured with the Management office and gives oversight to seven subordinate departments, including the Chairman Office. It also has two special committees, namely the Remuneration Committee and the Audit Committee. The Group Management Committee is the management organization of Geely Holding Group. It has four special committees. There are 16 functional departments in the group (Fig. 14.7). 5. In 2017, Geely Holding adjusted its organizational structure again (Fig. 14.8).

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Board of Supervisors

Zhejiang Geely Holding Group Co., Ltd.

Zhejiang Haoqing Automobile Co., Ltd. Automobile R&D and Manufacturing

Taizhou Geely Automobile Industry City Construction Headquarters Taizhou Geely Automobile Co., Ltd. (to be established) Zhejiang Geely Power Assembly Co., Ltd. Zhejiang Geely Automobile Research Institute

Zhejiang Geely automobile sales co., ltd Automobile Sales Service

Shanghai Maple Co., Ltd. Zhejiang Geely Automobile Logistics Co., Ltd. (to be established)

Education Industry

Real Estate Business

Fig. 14.4 Organizational chart of Geely holding in 2003

Security Department

Zhejiang Geely Guorun Automobile Co., Ltd. (to be established)

Discipline Inspection and Supervision Department

Regulations and Standards Department

Quality Assurance Department

Supplier Development Department

Ministry of Planning and Development

Ministry of Foreign Cooperation

Information System Department

Legal Affairs Department

Investment Management Department

Internal Control Department

Finance and Accounting Department

Human Resources Department

President Office

Shanghai Maple Automobile Co., Ltd.

360

X. WU ET AL.

Board of Supervisors

Board of Directors

Advisory Committee Auditing Committee

Contract Review Committee (Legal Affairs Department)

Discipline Inspection Committee Remuneration and Welfare Committee

Development Planning Committee (Development Planning Department)

Chairman/President's Office

Safety Production Committee (Safety and Security Department)

Board of Directors of Shanghai Maple Automobile

Operation Management Committee

Quality Management Committee (Quality Management Department)

Operation Management Office

Group's Overseas Institutions

Group Investment And Financing Department

Group News Public Relations Department

Group Financial Management Department

Group Quality Management Department

Group Security Department

Group Development Planning Department

Group Legal Affairs Department

Local Financial Centers

Park Construction and Public Affairs

Service Companies

Sales Companies

Manufacturing Companies

Parts Procurement Company

Automobile Research Institute

Fig. 14.5 Organizational chart of Geely Holding in 2004

Appendix III: Evolution of Geely Holding Management Structure 1. Management 2. Management 3. Management 4. Management 5. Management

structure structure structure structure structure

of of of of of

Geely Geely Geely Geely Geely

Holding Holding Holding Holding Holding

in in in in in

2015 2017 2019 2020 2021

(see (see (see (see (see

Fig. Fig. Fig. Fig. Fig.

14.9). 14.10). 14.11). 14.12). 14.13).

News Center Overseas Development Department Legal Affairs Department Security Department Human Resources Department Bidding Management Office Quality Management Department

Supply Chain Management Department

Technology Department

Planning and Development Department

Investment and Financing Management Department Financial Management Department Information System Department Management and Assessment Department General Office

Group Brand Strategy Committee Group Marketing Committee

Group Board Office

Group Overseas Business Development Committee Group Management Committee

Group Contract Review Committee Group Comprehensive Management Office

Zhejiang Automotive Engineering Institute

Shanghai Geely Meijiafeng International Trade Co., Ltd.

Beijing Representative Office Party-Mass Office Discipline Inspection and Supervision Department Chairman’s Office

Engineering Management Center

Strategic Marketing Department

Large Project Management Department

New product Quality Improvement department

Security Department

Legal Affairs Department

Planning and Engineering Department

Quality Management Department

Technology Department

Human Resources Department

Information System Department

Internal Control Department

Financing Management Department

Investment and Capital Operation Department

Financial Management Department

President's Office

Fig. 14.7 Organizational chart of Geely Holding in 2013

Zhejiang Geely Holding Group Automobile Sales Co., Ltd.

Audit Department

Ministry Of Investment Cooperation

Product Strategy Committee

Public Relations And Communication Department

Quality Management Committee Group Management Committee

Group Logistics Company (To Be Established) Group Spare Parts Center Geely Automobile Jining Company (To Be Established) Geely Cixi Automobile Manufacturing Co., Ltd. (To Be Established) Guilin Jixing Electronic Equal Balance Power Train Co., Ltd. Chengdu Gaoyuan Automobile Industry Co., Ltd

JiNan Geely Automobile Co., Ltd. Lanzhou Geely Automobile Industry Co., Ltd. HuNan Geely Automobile Industry Co., Ltd. Shanghai Englon Dihua Automobile Parts Co., Ltd Shanghai Maple Guorun Automobile Co., Ltd. Zhejiang Jingang Automobile Co., Ltd. Zhejiang Haoqing Automobile Manufacturing Co., Ltd.

Zhejiang Geely Automobile Co., Ltd. Zhejiang Geely Automobile Components Procurement Co., Ltd.

Zhejiang Geely Automobile Research Institute Co., Ltd.

Board of Directors Group Board Office

Chain of Marketing Chain of Supply Chain of R&D

Group Product Strategy Committee Board of Directors

Group Development Strategy Committee

Group Quality Management Committee

Group Safety Production Committee

Group Procurement Committee

Fig. 14.6 Organizational chart of Geely Holding in 2009

Audit Committee

Remuneration Committee

Procurement Committee

Advisory Committee

361 CATCH-UP AND GOING BEYOND OF MADE IN CHINA 14

Corporate Social Responsibility Department

Geely Automobile group Volvo Car Group

Fig. 14.9 Management structure diagram of Geely holding in 2015 Bidding Office Strategic Marketing Department

Group Management Committee

Security Department

Group Board Office

Safety and Environmental Protection Office

Board of Directors

Legal Affairs Department

Planning and Logistics Department

Quality Management Department

Technology Department

Human Resources System

Geely Automobile Finance Department

Investor Relations Department

Internal Control Department

Group Investment and Project Finance Department

Group Finance Department

Financial Management Department

International Commerce Department

President's Office

Ministry Of Investment Cooperation

Forward-Looking Technology Department

Public Relations And Communication Department

Beijing Representative Office

Party-Mass Office

Equity Investment Department

Chairman's Office

Compliance Office

Contract Review Office

Discipline Inspection and Supervision Office

362 X. WU ET AL.

Compliance Committee

Audit Committee

Remuneration Committee

Product Strategy Committee

Quality Management Committee

Procurement Committee

Brand Management Committee

Safety Production Committee

Fig. 14.8 Management structure diagram of Geely holding in 2017 Zhejiang Geely Holding Group

London Taxi Company

14

363

CATCH-UP AND GOING BEYOND OF MADE IN CHINA

Zhejiang Geely Holding Group

Geely Automobile Group

Volvo Car Group

Geely New Energy Commercial Vehicle Group

Lingke automobile company

Geely Automobile

Lynk&Co Car

Polestar Proton Auto Lotus Cars

Volvo Cars

LEVC

Farizon Auto

Fig. 14.10 Management structure diagram of Geely holding in 2017

Zhejiang Geely Holding Group

Volvo Car Group

Geely Automobile Group

Geometry Lynk&Co Geely Star Car Car Automobile Proton Auto Lotus Cars Volvo Cars Automobile

Geely Technology Group

Cao Cao China Railway Terrafugia Gecent Taxi Technology Co.,Ltd CRGT

Geely New Energy Commercial Vehicle Group

Others

LEVC

Farizon Auto

Mitime Group

Mitime Education

Mitime Sports

Mitime Education and Tourism

Fig. 14.11 Management structure diagram of Geely holding in 2019 Zhejiang Geely Holding Group

Geely Automobile Group

Geely Lynk&Co Geometry Automobile Car Car

Proton Auto

Volvo Car Group

Lotus Cars Smart Smart Volvo Cars

Geely Technology Group

Geely New Energy Commercial Vehicle Group

Star Cao Cao China Railway Terrafugia Geespace QJMORTOR Others Automobile Taxi Gecent Technology Co.,Ltd (CRGT)

LEVC

Farizon Auto

Mitime Education

Mitime Group

Mitime Sports

Fig. 14.12 Management structure diagram of Geely holding in 2020

Mitime Education and Tourism

364

X. WU ET AL.

Management Structure of Geely Holding Group Geely Automobile Group Volvo Car Group Passenger Car ZEEKR Intelligent Technology Lotus Auto Group

Commercial Vehicle

Geely New Energy Commercial Vehicle Group LEVC

Geely Holding Group Technology

Geely Technology Group

Automobile Sports

Mitime Group

Education

Geely Talent Development Group

Financial and Digital Technology

Mobility

Financial Sector Digital Technology Sector

Mobility Sector

Fig. 14.13 Management structure diagram of Geely holding in 2021

Correction to: Non-Linear Growth

Correction to: X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1 The original version of the book was inadvertently published with the Book editor Jian Du’s institution on copyright page, which has now been corrected. Also, in Chapter 14, the captions of Figures 14.8, 14.9, 14.11, 14.12, 14.3 were inadvertently displayed with the Chinese characters, which have now been corrected. The book and the chapter have been updated with the changes.

The updated version of this book can be found at https://doi.org/10.1007/978-981-99-5273-1 https://doi.org/10.1007/978-981-99-5273-1_14 © China Renmin University Press 2024 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1_15

C1

Index

A Achieving both compliance and efficiency, 289 Acquisition of Volvo, 239, 240, 244–246, 248, 250, 254, 259 Ambidexterity, 4, 15, 17, 20, 23, 24 Asymmetrically complementarity, 259 Awakening of R&D, 63

B Benchmarking management and quality management, 86 Benefits distribution, 229, 233, 234 Beyond, 3, 5, 51, 55, 105, 108, 184, 194, 208, 324, 325, 347, 353, 355 Beyond catch-up, 324, 353, 355 Blending Production and Learning, 170 Boost the incremental, 320 Boss Project, 21, 22 Bottom-line thinking, 279, 296 Business model innovation, 308

C Cao Cao Taxi, 302, 304–308, 310–318, 320, 321 Centralization and decentralization, 233 3-Chain Synergy Mode, 45 Change, 351, 352 Changes in digitalization and intelligence, 326 Chasing dreams, 25 China Europe Vehicle Technology (CEVT), 117, 129, 274, 275 Chinese context, 232 Chinese Culture, 23 CMA platform, 253, 256 Community of shared future, 178 Complementary resources, 250 Compliance culture, 281, 294, 295 Consolidate resources from the world, 39 Continuous Improvement, 150–152, 156 “1+1+1” Cooperation Model, 94, 95 Corporate cultural construction, 233, 234

© China Renmin University Press 2023 X. Wu et al., Non-Linear Growth, https://doi.org/10.1007/978-981-99-5273-1

365

366

INDEX

Cost control, 263, 270, 271 Creative Destruction, 131 C Theory, 354, 355 Cultivating “Saplings”, 169 CVVT engine, 65, 66

D Data-driven, 321 DSI, 262, 266, 277 Dynamic balance, 233, 234

E Economic globalization, 261 Enterprise change, 288 Enterprise objectives, 233, 234 Enterprise University, 189 Entrepreneurship, 4, 9, 15, 17, 18, 20, 21, 23–27 Establishment of NPDS, 129 Exploitation, 23, 24 Exploration, 3, 23, 24, 26, 27

F Frankness and Shared Dream, 35 From three there comes everything, 30, 49, 50 Full authorization, 255 Full empowerment and full trust, 36

G Geely Number One, 55–57 Geely Production System (GPS), 136, 145, 151, 153, 154 Geely’s compliance management system, 282, 297 Geely’s educational, 32 Geely’s Lean Manufacturing concept, 135

Geely’s staff innovation collaboration management diamond model, 155 Geely’s Talent Ecosystem, 193 Global cooperation network, 263, 268, 271–273, 277 Global enterprise, 261, 269, 270 Global R&D Network, 274 Global supply chain, 263 Global value network, 269 Governance, 248–250, 260 Green New Energy, 332

H Happy Operation Entity, 214–216, 218, 219, 234

I Implementing 311 Mode, 41 Independent production quality guaranteed system, 89 Innovation, 4, 15, 18–20, 23–25, 27 Internal atmosphere, 295 International alliance, 334–336 Introduction of the “Big Camphor Tree”, 160

L Lack of resources, 30, 38, 39, 42 Latecomer advantage, 59, 67, 344, 347, 348, 352, 355 Leadership structure, 198, 233, 234 Leading quality strategies, 76 Learning by hiring, 55, 60, 62, 68, 69 Liquid structures, 334, 336 Low-price strategy, 60

M Made in China, 344, 351

INDEX

Management focus, 327 Manufacturing system, 147, 148, 151, 155 Material Quality, 78 Meta-dynamic Project, 138–141 Mutual trust, 257

N New technology, 250

O Open Global Talent Pool, 164 Open up the source and regulate the flow, 42 Operating mechanism, 291 Opportunity of International M&As, 116 Opportunity window, 324–326, 330–332, 337, 338 Organization learning, 68, 69

P Paradigm shift, 119, 134 Path dependence, 288 Perceived quality, 76, 77, 83, 94, 101 Pioneering Management System, 21 Problem-solving culture, 135, 142, 144 Product innovation, 57 Product Innovation and Process Innovation, 114

Q Quality culture, 87–89, 98 Quality hammer, 73 “3824” Quality Improvement Method, 77, 79, 81 Quality operation entity, 90, 92 Quality strategy, 60

367

R R&D system, 105, 106, 108, 111, 120, 123–126, 129, 131, 133, 134 Rationality, 4, 15, 17, 21, 23, 25–27 Resilient organization, 197, 198 Resistance to change, 288 Revitalize the installed market, 320 Risk taking, 17, 21, 24–27 Rules and regulations, 290, 297 S Secondary innovation, 51, 53, 55, 60, 67–69, 344, 345, 347–349, 352 Servitization of manufacturing, 301–303, 318 Shared transportation, 302 Site management, 135, 136, 138, 147 Smart manufacturing, 323 Solving the problem of mobility, 330 Southeast Asia international market, 268, 277 Standardization, 147, 150–152 Starting faith, 5 Step out of comfort zone, 182 Strategic coordination, 256 Strategic determination, 324, 334, 338, 339 Strategic readjustments, 304 Strategic resilience, 204 Strategic transformation, 106, 111, 112, 114, 119 Striver Catch-up Plan, 178, 179, 194 Structural design, 198, 233, 234 Survival of the fittest, 35 T Talent forests, 157, 160 Talent policy innovation, 30 Talents and recruitment, 30 Talent strategy, 158, 165

368

INDEX

Technical capability, 113, 115, 117, 123, 131 Three Constants System and 5S, 147 Three-Pillar Reform, 187 Trust your Employees, 162 U Unconventional game, 245 Unique learning mechanism, 252 Unlearning, 133

User-centeredness, 76, 100 User demand, 315 V Value symbiont network, 316–318 Vision, 282, 296, 297 W Window of opportunity, 55, 60