Chery’s Paradox: Why Build a $2.7B R&D ‘Fortress’ and a ‘Special Ops’ Lab in Shanghai?

1. The $2.7 Billion Question
Chery Auto recently launched its massive 15,000-person “Fengming R&D Center” in Wuhu, a city known for its cost-effective industrial base. This move centralized তাদের production, quality control, and core engineering. It’s their fortress, built for scale and efficiency. So, the billion-dollar question is: why are they simultaneously operating a costly, high-end Chery Auto Shanghai R&D center?

2. A Tale of Two Timelines: Wuhu vs. Shanghai
This isn’t redundancy; it’s a sophisticated “dual-core” strategy operating on two different timelines:

• Wuhu (The Fortress): Focuses on today’s profits. It optimizes mass production for models launching in the next 0-2 years. Think of it as the engine room, ensuring operational excellence and cost leadership.
• Shanghai (The Special Ops Team): Focuses on tomorrow’s value. It develops next-generation technologies (AI, autonomous driving) and premium designs for models 3-7 years away. It operates in China’s most expensive city to tap into an ecosystem Wuhu can’t offer.

3. Why Shanghai is Non-Negotiable
Shanghai is China’s undisputed “Silicon Valley” for the auto industry. Operating a Chery Auto Shanghai R&D center gives Chery access to three critical assets:

• Talent Pool: Shanghai is home to R&D centers for 8 of the world’s top 10 auto companies, plus tech giants. It’s a magnet for the best AI and software engineers.
• Innovation Ecosystem: With Tesla, NIO, and global Tier 1 suppliers like Bosch headquartered here, Shanghai is a hotbed of technological cross-pollination.
• Premium Insights: The region accounts for 35% of China’s premium car market. To build a successful premium brand like Exeed, Chery must be physically present to understand these consumers.

4. The ‘Geographic Value Chain’ Strategy
This dual-core approach is a masterclass in applying Michael Porter’s “Value Chain” theory geographically. Chery has strategically split its value chain:

• Operational & Production activities (cost-focused): Located in Wuhu.
• R&D, Design & Marketing activities (differentiation-focused): Located in Shanghai.

This allows them to secure profitability today while building a competitive moat for the future. A comparative analysis shows that while competitors like BYD and Changan also have Shanghai outposts, Chery’s clear role-delegation between its two cores is the most sophisticated among Chinese OEMs.

(Conclusion would reiterate this point and link to the recommended book on Amazon)

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Deeper Dive: Recommended Books for Deeper Understanding

For those who wish to delve deeper into the strategic dynamics discussed today, here is a book I personally recommend.

[Competitive Advantage of Nations: Creating and Sustaining Superior Performance by Michael E. Porter]
Recommendation Reason: This seminal work expands the concept of competitive advantage from the firm to the national and regional level. It perfectly explains WHY a city like Shanghai has become a dominant “cluster” for automotive innovation. Using Porter’s Diamond Model, you can analyze how Shanghai’s unique combination of sophisticated demand, advanced infrastructure, related industries (like AI and software), and intense local rivalry creates an environment where companies like Chery are compelled to innovate to survive and thrive. It’s the ultimate guide to understanding the geographic forces shaping global industries.

👉 [Amazon Book Link]