080529 sk biz competition final draft for presentation 05.28

Driving Towards the Sustainable Green Future

—— Proposed Strategies for SK to EnterChina’s Car Battery Market

Li Yuen, Guanghua School of Management

Hu Yunzhi, College of Engineering

He Yu, Guanghua School of Management

Outline

Competitor Analysis Customer Analysis

The Li-ion battery represents the future trend of car battery industry.

SK’s Status in the Market

SK should exploit China’s car battery and after-sales service market by providing Li-ion batteries to HEV.

SWOT for Entering China

External Environment

Market Analysis

SWOT Analysis

Proposed Strategy

GoalExploit China’s car battery market and driving service business by cooperation with HEV (hybrid electric vehicle) manufacturers.

HEV Demand in China

Overview of New Energy Vehicles

HEV Policies in China

The bright future of HEV brings opportunities to car battery market.

S1:Pure Supplier

S2: Strategic Partner of Chery

S3: Cooperation with 3 Bus Companies

S2: Basic Car Strategy Partner

S3:Bus Producer Cooperator

√ Criteria & Evaluation

Proposed Strategies

Optional Strategies

Market Analysis SWOTExternal Proposed Strategy

1 WTI Crude Oil Posted Price in Last 12 Months

Source: World Oil Outlook 2007, Monthly Oil Market Report Apr 2008, Wikipedia

Outlook of Oil Shortfall in China

Low Energy Engine Efficiency of Traditional Energy Vehicles

45%Diesel

30%Gasoline

Energy EfficiencyEngine

3 Environmental Pollution of Traditional Energy Vehicles

0

2

4

6

8

10

12

14

16

18

2005 2010 2015 2020 2025 2030

mb/d

Supply

Demand

Transportation Demand

Increasing Shortfall

1.1 Threats to Traditional Energy Vehicles

Threats bring opportunities to new energy vehicles.

External

Photo-Chemical

Smog

Others

x xNO &CH

• The largest component of vehicles’ exhaust gas.• Greatly damage the oxygen carrying ability of hemoglobin.• Cause the Greenhouse Effect.

• Severe toxicity which leads to lung cancer.

• Harm people’s eyes and respiratory system. • Reduce air visibility.

• may cause acid rain.• Suspended particles could harm people’s respiratory system.• Pb compounds could influence the intelligence and growth of children.

2SO

2CO & CO

2


HEV demand

Car demand

1.122.04

3.79

million

W

orst

Best

1 The Comparison of Different New Energy Vehicles

1.2 Overview of New Energy Vehicles and HEV Demand in China

Key Features

HEV will take 25% of the total market in 2020

Future demand of HEV makes it a great potential market. - 1.12 million(2010), 2.04 million(2015), 3.79 million(2020)

Source: China Automobile Industry Yearbook 2001-2007, Auto Manufacturing and Production

2 HEV Demand Prediction in China

Hybrid electric vehicle represents the future trend.

External

A vehicle that uses hydrogen as its on-board fuel for motive power.

Such as highly efficient energy accumulator and dimethyl enther (DME), etc.

Descriptions

A vehicle that combines a conventional propulsion system with an on-board rechargeable energy storage system.A vehicle that utilizes chemical energy stored in rechargeable battery packs, and electric motors and motor controllers.

Vehicles with other energy

sources

Hydrogen Engine Vehicle

Battery Electric

Vehicle (BEV)

Hybrid Electric Vehicle (HEV)

Uncertainty/ Risk

Technology Realization

Level of Marketization

Production Cost

Energy Efficiency


Source: Chinese Automobile Industry Year Book(2007), Wikipedia, ,www.qiche.com.cn

2000 The Tenth Five Year Plan

Initiated the 863 Electric Vehicle Project, supporting the research and development of key components and electrical whole-vehicles with special financial fund of ￥ 0.88 billion

2007.12 Guiding Catalogue of Industrial Structure Regulation

Included new energy vehicle in the Encouraged Industry List supported by policy in production, test, approval, consumption and tax reduction.

2004.6 Policy on Development of Automotive Industry

Guided customers to purchase and use the automobiles with new energy sources and new power.

2007.8 HEV Technical Standard Seminar

HEV has the greatest market potential among the new energy automobiles.Discussed key fields of HEV technical standards

2000

1.3 HEV Policies in China

The excellent performance, increasing demand and policy support of HEV promise a bright future to the rechargeable automobile battery market.

2007.11 Rules on the Production Admission Administration of New Energy Automobiles

Issued by National Development and Reform Commission.Set three technical stages of new energy vehicles.To manufacture new energy automobiles, enterprises must obtain the production qualification upon the approval of the National Development and Reform Commission.

2005 The Eleventh Five Year Plan

Initiated the 863 Electric Vehicle and Cleanly Fuelled Vehicle Project, with special financial fund of ￥ 1.1 billion.

20042004 2005 2007.8 2007.11 2007.12

External

3 Chinese Policy of HEV and Related Industries

Market Analysis SWOTExternal Proposed StrategyOutline


Market Analysis

SWOT Analysis

Competitor Analysis Customer Analysis

The Li-ion battery represents the future trend of car battery industry.

Proposed Strategy

Market Analysis


2.1 Competitor Analysis - Segmentation of HEV Battery Market Participants

Ni-Cd Ni-MH

Source: Nomura Research Institute

Li-ion battery will soon be large-scale applied to HEV

2 Performance Comparison of HEV batteries

Main HEV Battery Producers in China1

2003HEV bus research by Wuhan government

Li/MnO2, Li/SOCI2 and Li-ion Batteries

Wuhan LIXUN Power Co., Ltd.

Supported by China Green Material Developing Centre

2003863 Project----HEV battery industrialization

Ni-MH & Ni-Cd Cylindrical Batteries

FOREVER BATTERY Co., Ltd

Subsidiary of Johnson Controls, Inc

2005Supply Ni-MH batteries to Chery & Shanghai Automotive

Plug-in Ni-MH Batteries

Shanghai Johnson Controls International Battery Co., Ltd.

The biggest producer of Lithium cobaltate.

2002Li-Ion battery supplier of Beijing Olympic Project

C/LiMn2O4 Li-ion Batteries

CITIC Guoan MGL New Technology Institute

Holds 80% market share in Ni-MH battery market

2007863 ProjectNi-MH BatteriesJIANGSU CHUNLAN Co., Ltd

N/A

Explanatory NoteProductsCompany Name HEV Projects Start time

5%

50%

0%

10%

20%

30%

40%

50%

60%

1996-2005 2006-2010

Worldwide Market Share prediction of Li-ion batteries (for HEV)

Highest

Green Product

Capacity

Cycle Count

Output Density

Weight Energy Density

Lowest1 2 3 4 5

• Include Li-Polymer battery

• So far the best green battery but the highest in cost.

Market Analysis

Li-ion

• Low-end battery with low cost, small voltage and short battery life.

• Green battery with relative better performance and higher cost.


Battery & ProducerPriceMilestones on HEV

SHELL

BP

EXXON-Mobil

TOTAL

TOTAL

TOTAL

1997 Came out in Japan

2006.1 First sales in China

HEV in China

Prius 1.5AT￥ 269,800

6.5Ah ,274V Ni-MH

Panasonic (Japan)

2003 Came out in Japan

2007.11 First sales in ChinaCIVIC Hybrid

￥ 269,800 6Ah ,120V Ni-MH

Panasonic (Japan)

2008.3 Showed on China Auto Show (Beijing)

Buick LaCrosse

Eco-Hybrid

￥ 260,000 E-Flex Fuel Cell & Ni-MH

General Mobile (U.S.A)

2007.6 Exhibited in Korea

2009. Plan on mass production

Avante LPG Hybrid

N/A 6,5AhNi-MH

N/A

2008 Plan on small-scale production in China

Touran

N/A NI-MH

N/A

2007.10 Exhibited and would come out soonJiexun HEV

￥ 150000144V 6Ah Ni-MH

Hunan Shenzhou

TOTAL2008.3 Gained approval by NDRC2008.3 Received an order of 50 vehicles for Olympic Games

SQR7130 ￥ 84,800 144V 6Ah Ni-MH

Hunan Shenzhou

TOTAL 2008 Ready for small-scale productionHysoul 305 N/A288V Ni-MH

N/A

TOTAL 2007.10 Launched in Chinese marketF6DM/F3DM ￥ 180,000 3.3V 60Ah ET Power

BYD

DOMESTIC PLAYERS

MNC PLAYERMNC PLAYERS

Source: news.sina.com.cn; www.autoinfo.gov.cno;

MNC

Toyota gained first-mover advantages by extending Prius in Chinese market

Many other famous MNCs followed Toyota

High-end strategy .

Consider HEV as a good opportunity to catch up with foreign counterparts

863 Project

Low-end strategy

2.2.1 Customer Analysis - Major HEV Producers in China (Basic Car)Market Analysis

1 Major HEV Producers in China (Basic Car)

Domestic


Source: news.sina.com.cn; www.chinabus.info;

Battery & producerMilestones on HEV

SHELL

BP

EXXON-Mobil

TOTAL

TOTAL

2007.3 Started a production line.

2007.8 Won a 50-bus bid for Beijing HEV Bus Demonstration Project.

HEV in China

LCK6110G ZHONGTONG

40Ah Ni/MH

Taizhou CHUNLAN Institute

2005.1 Won a 25-bus bid of Shenzhen Bus.2006.4 Expanded the American market

FDG6120HEVG WUZHOULONG

12V VRLA gelled-electrolyte Shenzhen QIANWANG Technology

2007.10 Began mass production.2008.1 30 buses came to use in Guangzhou.

BJ6123C7B4D

AUV

Li-ion battery

Eaton (U.S.A)

40Ah Ni/MH

Hunan SHENZHOU Science &Technology

2005.11 20 buses came to use in Wuhan.2007.7 Won the bid for Beijing Olympic Project.2007.8 Got a 100-bus bid for Wuhan Bus Co.

EQ6110HEV DONFENG

2007.1 ANKAI HEV was put into production.HFF6110GZ-3 ANKAI

TOTAL2006.4 Showed a HEV sample in Shanghai.2007.4 Began to cooperate with DONGFENG for HEV development

SQR7130 N/A

TOTAL 36V 40Ah Ni/MH

Taizhou CHUNLAN Institute

2005.12 Showed a HEV sample in ChangchunCA6110HEV JIEFANG

MNC PLAYERMARKET PLAYERS

N/A

Ni-MH batteries are now dominating China’s HEV battery marketBecause of the limits of Ni-MH batteries, many producers are looking

for potential substitutes, e.g. Li-ion battery.

Implications to car battery market

2.2.2 Customer Analysis - Major HEV Producers in China (Bus)Market Analysis

2 Major HEV Producers in China (Bus)

Key Features

Local governments give financial support to HEV bus development.

Dongfeng, Zhongtong and Wuzhoulong develop faster than others.

The early birds established close cooperation with local governments.

Foreign companies haven’t entered the market.


Toyota will sell plug-in Li-ion Prius before 2010

Acclaimed to produce Li-ion batteries in large-scale in 2009

Japan

Mercedes Benz will produce s400 bluehubrid HEV in 2009

BMW X6 Active HEV----cooperates with Benz & GM

Germany

Chevy---Volt series plug-in Li-ion HEV

Johnson Controls-Saft Advanced Power Solutions

US

Source: Wikipedia, www.autoinfo.gov.cno

2.3 International Cases of Cooperation between HEV and Li-ion battery producers

Many leading auto manufacturers are developing Li-ion HEVs.International cooperation between HEV and battery producers implies great market

chances.

Market Analysis



Market Analysis

SWOT Analysis

SK’s Status in the Market

SK should exploit China’s car battery and after-sales service market by providing Li-ion batteries to HEV.

SWOT for Entering China

Proposed Strategy

SWOT


SK Korea’s Schedule in Car Battery Market

Performance of SK’s Li-Polymer Battery (included in Li-ion Battery)

Source: www.skenergy.com, Nikkei Electronics Asia -- July 2007, SK Prius Evaluation Test(2007)

2007.5 20102005 2008 2009

Launched HEV Battery Project , focusing on R&D of rechargeable automobile battery.

Tested the newly-developed Li-Polymer rechargeable battery in Prius.

2007.12

Completed a prototype line capable of manufacturing 3000 cells/month.

Evaluate batteries and negotiate with vehicle manufacturers.

Start full-scale volume production.

Capacity

Weight Energy Density

Output Density

Safety

High Heat Resistance

Ni-MH BatteryLi-Polymer Battery

1.6kWh

110Wh/kg

4000W/kg

Polymer design offers improved safety, especially in cases of overcharging.

1.3kWh

55Wh/kg

3000W/kg

In abrupt start/stop trials, the temperature of Li-polymer keeps under 40*C, while Ni-MH exceeds 50*C.

SK’s Li-Polymer car battery performs much better than the original Ni-MH battery in all aspects.

SK in Total Driving Service

1

SK’s Entrac uses telematics to provide total service to drivers, including directions, safety services, and traffic information.

SK Cartizen is a practical pay-as-you-go automobile service that allows users to avoid the maintenance and repair costs involved in owning a vehicle.

3.1 SK’s Status in Car Battery and Driving Service Market

2

3

SWOT


3.1 SWOT Analysis——SK’ Strengths and Weaknesses in China’s Car Battery Market

Strengths

Weaknesses

SWOT

Financing Strength

Solid financial foundation

Strong R&D financial support from headquarter

3

Strong management team

China-centered globalization strategy

Successful experience in after-sales service in Korea

1 Operating Strength

Productivity Strength

High quality Li-ion battery: rank No.3 in the world

Leading technology of Li-Polymer battery in HEV

Localization experience: set up subsidiary in Suzhou in 2003

2

Network Weakness

Ni-MH batteries are now dominating China’s car battery market

Negotiation barriers with HEV producers since some of them have aligned with SK’s competitors

Entry Difficulties

Lack of mature sales channels and sophisticated logistic circulation in China

Higher production cost than Ni-MH battery

Sales & Distribution Weakness

Latent obstacles in law issues

Relative weak relationship with local governments

3

1

2

SWOT


Opportunities

Threats

HEV as a trendy consumption in automobile market

Increasing purchasing power because of rapid economic development

1 Booming Market

New energy related projects are strongly supported by Chinese central government.

Chinese government positively introduce foreign techniques and capitals to develop the new energy industry.

Policy Support2

Possibilities of mergers and acquisitions in car battery industry

First-mover advantages

Potential New Energy Market3

3.1 SWOT Analysis——SK’ Opportunities and Threats in China’s Car Battery Market

Competition pressure from Chinese factories

International battery producers like Johnson Controls have occupied considerable market share.

1 Fierce Competition

Limits & Regulations

Unfavorable limits from regional government

Negotiation uncertainties caused by local regulations

3

Development of Other New Energy Vehicles2

Some corporations and scientific institutes are still devoting to the research of other new energy vehicles such as hydrogen electric vehicles and DME vehicles.

SWOT

SWOT



Market Analysis

SWOT Analysis

S1:Pure Supplier

S2: Strategic Partner of Chery

S3: Cooperation with 3 Bus Companies

S2: Basic Car Strategy Partner

S3:Bus Producer Cooperator

√ Criteria & Evaluation

Proposed Strategies

Proposed Strategy

Optional Strategies

Proposed Strategy


Profitability

BrandMarket

Strategic Goal and Decompositions of SK in Car Battery Market

Short-term: Supply Li-Ion batteries

Long-term: Merger & Acquisition

Short-term: Extensive cooperation in all aspects

Long-term: Further cooperation in other new energy automobiles

Short-term: Refit existing buses into HEV buses (mainly in major cities)

Long-term: Expand to small and medium-sized cities in China

Strategy Options

Exploit China’s car battery market and driving service business by cooperation with HEV (hybrid electric vehicle) manufacturers.

1 2

4.1 Strategic Goal and Strategy OptionsProposed Strategy

Goal

Goal

S1: Pure Battery Supplier

S2: Strategy Partner of HEV Basic Car Producers

S3:Cooperator of HEV Bus Producers

S1: Pure Battery Supplier

S2: Strategy Partner of HEV Basic Car Producers

S3:Cooperator of HEV Bus Producers


Profitability Criteria: To quantify expected revenue and cost of strategy options

Feasibility Criteria: To measure the risk and potential blocks of strategy options

•Entry Barrier Difficulty for competitors to follow the strategy

Current strength in different segments•Own Strength

Degree of exclusion and implementation

Technical condition & customer relationship

•Political Risk

•Negotiation Risk

•Economy Volatility

Consistence with government regulations

Difficulty to acquire target customers

Possible downside risk due to instability of segmented market

Degree of restriction

Bargaining power

Degree of risk dispersion

Sub-Criteria Explanation EvaluationCriteria

Competitiveness

Risk

Criteria

Expected Profit

Potential Market

Brand Building

4.2 Criteria and Explanations for Strategy Options Evaluation

Sub-Criteria Explanation Evaluation

•Market Size Current size of target HEV marketsExpected incremental market share in segmented car battery marketsGrowth of the relevant economySegment growth trend

•Growth Potential

•Expected Revenue

•Expected Cost

•Brand Quality The possible influence on SK brand awareness

•Expected Leverage

Brand Awareness

Sales of Li-ion batteries and relevant technical standard

Potential benefits to other business (car service, etc)

Incremental capital expenditure

Annualized HEV demandTarget level using benchmark

GDP growth rateSegmented growth rate

Market share multiply HEV demandDegree of benefits brought to SK Energy & SK TelecomInitial investment & operation cost

Proposed Strategy


Quantitative Strategic Planning Matrix

S1 S3S2Pure battery supplier Strategy partner of HEV producer (basic car)

Cooperator of HEV producer (bus)

*The weighted score reflects the attractiveness of the optional strategies.

*The matrix takes relative external and internal factors that affect strategic decision into consideration, dividing them into profitability and feasibility.

2

2.5

3

3.5

4

4.5

5

2 2.5 3 3.5 4 4.5 5

Strategy Options Positioning

S1

S3S2

Pro

fitability

Feasibility

Source: Data analysis and strategically analysis

4.3 Evaluation for strategy options and recommendation

1 2

* HEV in mass transportation is gaining more and more attention all over the world. * The segmented market is less competitive. * Good opportunity to raise public awareness.

S1 The least profitable and feasible

* The strategy is easy to be imitated. * S1 cannot bring added value to other businesses.S2 The most profitable and feasible

* SK can easily participate in the market by strategy cooperation with 1 or 2 HEV producers. * By influencing partner’s strategy, SK can integrate its automobile service chain.S3 Inevitable trend, but relatively less feasible

√

√

Proposed Strategy

×

S1 S2 S3

Profitability 3.52 4.36 4.12

Market Size 40% 5 4 3

Growth Potential 60% 5 5 4

Expected Revenue 40% 3 4 4

Expected Leverage 20% 4 5 3

Expected Cost 40% 2 3 5

Brand Building 20%

Brand Quality 100% 2 5 5

Feasibility 2.96 4.84 3.72

Entry Barrier 40% 1 5 4

Own Strength 60% 4 5 3

Political Risk 40% 4 5 4

Negotiation Risk 40% 2 5 4

Economy Volatility 20% 4 3 5

Expected Profit 40%

Competitiveness60%

Risk40%

Strategy OptionsWeight

Potential Market40%

Key Factors for Evaluation


Cooperation Analysis: Strengths and Benefits2

Market Performance

400,000 vehicles per year

Products Positioning

Low price strategy targeting low-end customers

Pay little attention to auto service

HEV Plans

2008.3 Self-developed HEV SQR7130 has got approval by NDRC.

Strategy goal on HEV: over 50% of Chery vehicles will adopt HEV system after 2010.

2007China’s Total Basic Car Market Share

Reduce R&D cost

Enhance the security and capacity of existing HEV

Introduce SK’s Total Driving Service

High market share and brand awareness

Mature techniques in HEV

Policy support

Strengths Benefits

Strength & Benefits of Chery

Brand Separator

Technical advantages of Li-Polymer automotive battery

Well-known in driving service market

Strengths BenefitsLower entry barrier

Raise brand awareness and set an environmental friendly image

Establish relationship with Chinese government

Strength & Benefits of SK

Source: http://money.163.com/, http://auto.sina.com.cn, www.sk.com, www.chery.cn

4.4.1 Proposed Strategy 1: Strategic Partner of HEV Producer (Basic Car) Proposed Strategy

1 Selected Strategy Partner: Chery


Provide Li-Polymer battery and other products for Chery’s HEV

•Li-Polymer battery

•Auto parts

•Lubricants

Implement SK’s Cartizen with Chery’s 4S to provide high-quality maintenance and repair service

•Car washing

•Car decoration

•Safety testing

•Car repair in a short time

Cooperatively build a platform for SK Entrac’s telematics service

•Traffic information

•Direction

•Safety Service

•Emergency road help

Negotiation risk with Chery and Chinese government

Management risk

We cooperate to provide safe, clean and user-friendly HEVs.

3 Strategy Consistency between Chery & SK

5 Cooperative Scope

China-centered globalization.

Service-oriented.Wings of Happiness

– social responsibility.

Independent innovation.Pursuing the leading

techniqueEmphasizing

competitiveness and internationalization.

4 Potential Risk

Auto Related Products Telematics Service Auto Maintenance Service

4.4.2 Proposed Strategy 1: Cooperative Scope and Goal

Source: SK’s Annual report 2006, www.chery.cn

Proposed Strategy


PROCESS 2008.6 2009.1 2009.6 2010.1 Long term

Timeline

b) Team Construction

Cooperationa) R&D in HEV Engine System

b) Marketing & Sales Promotion of Cartizen

c) After-Sales Service

d) Effectiveness Review of the Strategy

a) Multilateral NegotiationPreparation

Plug-in research team to Chery

Conduct regular road-test for HEV

Chinese market expertsR&D core experts

Management team from Korea and China

Negotiation with Chery on cooperative proposal

Negotiation with governments

Marketing SK Cartizen through sales process

Implement Cartizen to Chery 4S as a support team

Provide SK Entrac's telematics serviceProvide other SK car relative service & products for Chery HEV :e.g. GPS, ERS, phone charger

cooperate with

4.4.3 Proposed Strategy 1: Execution TimelineProposed Strategy


Target Regions: on the mapChangchun

Shenyang

BeijingTianjin

Shanghai

HangzhouWuhan

Changsha

Guangzhou

Shenzhen

Mature HEV technique and plan

Convenient location

Harmonious relationship with local government

Dongfeng

Zhongtong

Wuzhoulong

Jinan

Policy support by local government.

Urgent need for environment improvement.

Bus exhaust gas accounts for a huge portion of total air pollution

Short-term 2008-2010

Mid-Term2010-2015

Long-Term

Start cooperation by chance of Beijing Olympic Game(2008) Shanghai World Expo(2010) & Guangzhou Asian games(2010)

Expand the scope to other target regions.

Li-Ion battery supplierCooperative R&D in refitting HEV

busesBus maintenance service.

1 Cooperators Choosing

4.5 Proposed Strategy 2: Cooperators of HEV Producer (Bus)

2

Cooperative Scope3

Executive Timeline4

Exploit new market in small and medium-sized cities

Source: www.chinabus.info; Chinese Automobile Industry Yearbook 2007

Proposed Strategy


Now it's China

Market Leader Sustainable Growth

Wings of Happiness

Li-Polymer battery for HEV

Cooperate with Chery

Conclusion

Cooperate with Bus Producers

Thank You!

Li Yuen: [email protected]

Hu Yunzhi: [email protected]

He Yu: [email protected]

Contact:

080529 sk biz competition final draft for presentation 05.28

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