ELECTRIC VEHICLES INDUSTRY IN CHINA: THE SUCCESS OF BYD GROUP 6 LORENZO DE PAOLIS ANTONIO DE SANTIS RICCARDO LUPI GIOVANNI SERPI ANNA SITNIKOVA ALESSANDRA TOSSUT FINAL PROJECT INTERNATIONAL BUSINESS PROF. JOHN MATHEWS
Jan 23, 2016
ELECTRIC VEHICLES INDUSTRY IN CHINA:THE SUCCESS OF BYD
GROUP 6
LORENZO DE PAOLISANTONIO DE SANTISRICCARDO LUPIGIOVANNI SERPIANNA SITNIKOVAALESSANDRA TOSSUT
FINAL PROJECTINTERNATIONAL BUSINESSPROF. JOHN MATHEWS
OUTLINE
China economic outlook FDI Clusters
Porter’s Diamond of the Electric Vehicle Industry
BYD and the Porter’s Diamond
CHINA ECONOMIC OUTLOOK• Asia is currently undergoing
rapid growth and industrialization, spearheaded by China and India
• Over the last 20 years Chinese economy has enjoyed one of the highest growth rate in the world
• In 2010, China's GDP was valued at $5.87 trillion, surpassed Japan's $5.47 trillion, and became the world's second largest economy after the U.S.
The role of the governement in such a scenario has been crucial:
1. The move to a market economy and membership of the WTO in 2001 had provided enterprises with many opportunities
2. Government started to give incentives to the creation and development of SEZs
FDI TO SPECIAL ECONOMIC ZONES
• FDI and the Chinese government have played important roles in the success of the SEZs by attracting capital
investment, technologies, and management skills;
generating learning and spillovers;
helping to build local manufacturing capacity.
• In August 2000, BYD moved its production to an industrial park in a district of Shenzen.
• There is a positive relation between Output and FDI
CLUSTERS IN CHINA
•COMPETITIVNESS
•CO-OPERATION
•COLLECTIVE LEARNING
ACCORDING TO PORTER, CLUSTERS ENHANCE
In China, industries tend to develop in a spatially concentrated manner characterized by buyer-supplier links and shared technologies, channels, and customers. This reduces transaction costs for producers and consumersClusters have a massive role in China’s industrialization process. As a matter of fact, industrial clusters create 50% manufacture output in east-south of China
A growing percentage of cluster’s production is functionally integrated into global systems of supply to global market
Source:McKinsey
INDUSTRY ANALYISIS PORTER’S NATIONAL DIAMOND FRAMEWORK
It can be used to analyze a firm's ability to function in a national market
It recognizes four pillars of research (factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry) in order to analyse the viability of a nation competing in a particular international market
The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance …"
PORTER’S DIAMOND ELECTRIC VEHICLE INDUSTRYFACTOR CONDITIONS
•Lithium is one of the key physical resources for e-mobility•China is holding about 17% of global reserves and is seeking to secure access to others sources in Chile and Bolivia
RAW MATERIALS
•Low labour cost•High-skilled engineers are essential for the industry •The number of professionals in this industry is still not sufficient
HUMAN RESOURCES
•Chinese firms form partnerships with foreign firms to improve their technology
TECHNOLOGY
•China is on track to face the lack of basic infrastructures (e.g. charging stations) in coming years •From 2011 to 2015, SGCC, China’s largest power grid state company plans to build a total of 2,351 EV charging facilities and battery-swap stations •According to a new report released by Pike Research, more than 5 million charge points will be installed worldwide by 2015, and nearly half of the equipment will be heading to China
INFRASTRUCTURES
FACTOR CONDITION: LITHIUM
The global battery market is about $50 billion US, of which the lithium market was worth US$7.8 billion in 2010.
Developments in the lithium battery industry have turned a focus towards China as the country continues its quest to maximize exposure to lithium technology . China has become the world's largest lithium production base (the output of batteries from Asia accounts for over 90% of the global output)
Despite a small market share (in 2009 lithium batteries accounted for 1% of all battery applications), the launch of the electric vehicle industry has further spurred sales. While this will not boost sales significantly in the short-term, the electric vehicle industry will be an important source of growth in the future
• Lithium is a soft, silver-white metal that has several industrial applications, including lithium-ion batteries useful for Evs
• Major reserves are in South America, China and Australia
• Lithium is a comparatively rare element, although it is found in many rocks and some brines, but always in very low concentration
Source:USGS
PORTER DIAMONDELECTRIC VEHICLE INDUSTRYDEMAND CONDITIONS
In China the awareness for emerging technology of e-mobility is at 68%( in Europe 50%)
Familiarity with the concept of e-mobility through existing e-bicycles
Increasing demand for environmental-friendly products in megacities
PORTER DIAMONDELECTRIC VEHICLE INDUSTRYRELATED AND SUPPORTING INDUSTRIES
Shenzen is ahead of the game in terms of R&D (it tops China for number of new patents) and new energy industries (growth of 29% in the last year)
EV industry comprises firms involved in drive motors, power cells, intelligent transmission systems, electric commercial vehicle integration and other key technologies
EV RELATED AND SUPPORTING INDUSTRIES
Source:Roland Berger
PORTER DIAMONDELECTRIC VEHICLE INDUSTRYRELATED AND SUPPORTING INDUSTRIES
All parts of the value chain offer growth potential for both existing and new players
The success of individual players will very much depend on how well they understand the market dynamics of their specific section of the value chain. They must formulate a focused business strategy, either defending or expanding their current position
Despite the explosion of domestic
manufacturers, foreign OEM (Original
Equipment Manufacturing) such as
Volkswagen and General Motors(and
their domestic partners) comprise the biggest market share in
the automotive industry.
Only three pure domestic players are in the the top ten namely
Chery, Geely, BYD.
The strongest competitor in the Chinese market is VW, which is still the largest passenger car company in China and will enter the e-market soon.
PORTER DIAMONDELECTRIC VEHICLE INDUSTRYFIRM STRATEGY - STRUCTURE AND RIVARLY
Source: Ascendas Marketing Research 2009
CHINESE OEMS INVOLVED IN EV DEVELOPMENT
Chinese domestic automakers are
looking for innovative ways to
produce cheap electric cars to
fulfill the demand of China's
domestic market. Then they will use this technology to
expand internationally. A new generation of Chinese electric cars may help drive down the
production cost of electric
cars globally.
Source: Autohome 2009
• The industry (OEMs and suppliers) contributed nearly to 5% of GDP growth rate in 2006.
• However cost and quality remains limitations of India’s auto industry expansion:labour costs are rising due to a shortage of skilled-labour and infrastructure are still poor in comparison to China.
• Only two out of 4 players involved in Evs industry already commercialize their products. The others have only plans.
• India automotive industry has experienced tremendous growth in recent years largely due to a burgeoning middle class with a larger disposable income.
• Industry output in India is estimated to reach 4 millions units in 2013 (PriceWaterHouse Coopers 2009)
COMPARISON TO INDIA
Source Autoblog 2008
JAPAN SITUATION…
• Green vehicle sales in Japan for 2010 were an estimated 500,000, more than 10% of all new car demand with Toyota as the dominant player.
• Government support for electricity in vehicles, both hybrids and pure EVs, is also quite vigorous (the consumer subsidy is about $9,000).
• One of the obstacles to widespread adoption of EVs is spending long time charging a coalition comprising Tokyo Electric Power Company (TEPCO), Nissan, Mitsubishi and Fuji Heavy Industries (the manufacturer of Subaru vehicles) and Toyota created a new technology, the CHAdeMo, that provides 80% of chargeable capacity to the Leaf in 30 minutes
US SITUATION…
• In 2010, GM started to produce a series of hybrid vehicle called the Chevy Volt. Volt ais “Range Extended” Electric Vehicle. It is not a pure EV because it retains an onboard (ICE) internal combustion engine.
• In september 2011 - General Motors announced the intention to develop electric cars in China through a joint venture with a Chinese automaker, and to transfer battery and other electric car technology to the venture.
Japan is still the dominant player in the US green vehicles market…
ELECTRIC VEHICLE INDUSTRYTHE ROLE OF GOVERNEMENT
• The annual production capacity will be extended to 500000 hybrid or all-electric cars and buses by the end of 2011( in 2008, 2100 vehicles.)
• The reduction of CO2 is a declared political goal, thus promoting the use of e-vehicles.
• Government offers about 5000€ for consumers buying a EV
• 13 cities recently chosen by the government for a pilot program to boost the use of new-energy vehicles
• Government invests aggressively in infrastructures (charging stations) in SEZs
• China and US have signed a joint agreement on initiatives promoting e-mobility
• Government uses policies to concentrate the fragmented market to enable suppliers to become system providers.
The growth process of
this industry is strongly
supported by the
governement
THE ROLE OF THE GOVERNMENT IS IMPORTANT BECAUSE IT AFFECTS ALL THE FOUR ELEMENTS OF THE DIAMOND THROUGH A SERIES OF INITIATIVES
BYDHISTORY AND FACTS
It is a high-tech enterprise in China founded in 1995 specializing in IT, automobile and new energy,
with integrated research, development, manufacturing and sales
BYD has developed from 20 employees in 1995 to a corporation with more than 150,000 employees and 10 industrial parks across China in 2009,
including sites in Guangdong, Beijing, Shaanxi, Shanghai, and Changsha, totaling nearly
16,000,000 sq. m. It also has offices in the United States, Europe, Japan, South Korea, India, Taiwan,
Hong Kong and other regionsBYD has earned a large and stable customer
base owing to its reliable product quality. Currently, its IT Business Unit's customers include
international cell phone giants Nokia, Motorola, Samsung, Sony Ericsson, Kyocera, Phillips,
prominent domestic cell phone companies Huawei, ZTE, Lenovo, as well as cordless phone experts
Vtech, Panasonic, and Sony. On January 22, 2003, BYD purchased Xi'an Tsinchuan Auto Co. and officially entered the
auto industry. As a rapidly growing and innovative auto company, BYD's auto
products and services include fuel and electric vehicles as well as auto molding and auto parts
manufacturing
BYD is committed to developing new green energy. It has developed electric vehicles,
energy storage stations, solar power stations and other green energy projects
BYD AND THE PORTER’S DIAMONDFACTOR CONDITIONS
RAW MATERIALS
HUMAN RESOURCES
TECHNOLO
GY
BYD profits from China’s huge lithium reserves
Building People : recruting and training
Job rotation programme increases motivation and process knowledge
Exploit the low labour cost advantage of the country
Culture based on emphasizing both technology and use of labour
To access technology BYD acquired the Qinchuan : knowledge acquirement by an imitation strategy. Then linked it to its knowledge in the battery production to become a first mover in the EVs industry
Cooperation with Daimler aiming at combining Daimler’s EV architecture know-how and BYD’s battery technology
BYD AND THE PORTER’S DIAMONDDEMAND CONDITIONS
Increase of brand reputation both on
Western and Chinese market through cooperation with
Daimler AG to develop new electric cars
BYD AND THE PORTER’S DIAMONDRELATED AND SUPPORTING INDUSTRIES
COMMITMENT IN
PRODUCTION
NETWORK
BACKWARD INTEGRATIO
N:ACQUISITIO
N OF ABOUT 200 SUPPLIERS
Better controlQuality
improvementLabour cost advantages
Faster innovation cycle in car business
industry (3 years compared to 5)
BYD AND THE PORTER’S DIAMONDFIRM STRATEGY, STRUCTURE AND RIVALRY
Focus on innovation due to high
competitive pressure in the industry
Exploit intrinsic
advantages : use of cheap labour
instead of technology
in the production process to reach cost advantage
Development of a strong position in the Chinese
automotive market in order to become an equal-partner
for western brands
Partnership
between VW and BYD to “work in the area
of electric mobility”
BYDSTRATEGY KEY POINTS
LATE MOVER IN THE BATTERY INDUSTRY
LATE MOVER IN THE AUTOMOBILE INDUSTRY
FIRST MOVER IN THE EV SECTOR
ADVANTAGE BASED ON LOW-COST AND R&D
V.I. OF THE MANUFACTURIG PROCESS
1st manufacturer of nickel-cadmium batteries
2nd manufacturer of nickel metal hybrid batteries
3rd manufacturer of lithium ion batteries
Mass production beginning in 2005
100000 units in 2007
First electric car went on sale in 2008 (a year ahead of GM and Toyota)
Set to become the biggest automotive company in China by 2015
Replacing machinery with manpower
Systematic training of HR and focus on innovation
BYDVERTICAL INTEGRATION
“Vertical integration is the enabling force behind BYD's innovation. Vertical integration not only cuts costs, but also improves efficiency and quality, brings continuous innovation, and breaks ground for new strategies in products and businesses.”
BYD AND THE PORTER’S DIAMONDTHE ROLE OF GOVERNMENT
BYD received 354 million yuan, 390 million yuan and
359 million yuan in government subsidies, respectively, in 2008, 2009 and 2010.
THANK YOU!
REFERENCES
Zhihua Zeng, «How Do Special Economic Zones and Industrial Clusters Drive China’s Rapid Development?» , Policy Research Working Paper 5583, March 2011
www.byd.com Shirouzo Norihiko, «Technology Levels Playing Field in Race to Market Electric Car», The
Wall Street Journal, January 12, 2009 Leung A., «BYD plummets, puts spotlight on strategy and Buffett», Reuters, August
2011 Lockstrom,Callarman, Lei, "The Electric Vehicle Industry in China and India: The Role of
Governments for Industry Development", 2010 Kasperk, Garnet "National Competitive Advantage of China in Electric Mobility: The case
of BYD“, 2010 Huckman, Maccormack "BYD Company, Ltd." , Harvard Business School, 2009 Wang, Kimble "Betting on Chinese electric cars?-analysing BYD's capacity for
innovation" , Int. J. Automotive Technology and Management, Vol.10, 2010 "The Competitive Advantage of Nations" M. Porter, 1990 (http://www.nytimes.com/2011/09/21/business/global/gm-plans-to-develop-electric-cars-
with-chinese-automaker.html) http://www.evsroll.com/GM_electric_cars.html http://www.jetro.org/content/997 Groode, Tillemann-Dick, “The Race to build the Electric Car”, The Wall Street Journal,
March 2011