Porters Five Forces Analysis (417)

Porters Five Forces Analysis (417)

1. Threats posed by new entrants - Medium

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  Industry growth, the Chinese car market is expected to grow with an average of 8% -10% annually for the next few years (see McKinsey 2020 forecast – Appendix 2). The auto market grew in 2013 around 13.9% annually. This is lower than the previous 10 years when the market grew about 30% annually.
  
• 
  The difficulty for the electric auto market is the conventional auto market is cheaper, more accessible for the low/medium income population, which is the majority of the consumer market.
  

• 
  Consumers switching costs to electric vehicles are high.
  
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  Government programs/incentives for the electric car initiatives will be divided between the ranking Chinese automobile manufacturers.
  

http://porters-5-forces.blogspot.com/2011/11/porters-5-forces-in-automobile-industry.html

1. Power of suppliers – Low

• 
  The electric car requires less parts compared to the conventional car
  
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  BYD was one of the top battery companies in China and has sufficient know-how and technologies with respect to the battery production internally, reducing dependence.
  
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  BYD is one of the main suppliers for the electric cars battery. For the rest of the car components BYD Auto already had a supply chain due to the Tsinchuan Automobile Company.
  
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  Most car components suppliers/manufacturers including multi-nationals have established their presence in China. Therefore, the rigid competition results in the lower bargaining power of the suppliers and plenty supply.
  

1. Power of buyers- Medium

• 
  BYD Auto targets the low/medium income market. Therefore the products are relative cheap.
  
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  Hybrid vehicles still considered luxury in China.
  
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  No government incentives for consumer to buy electric or hybrid cars in China.
  
• 
  Government program to upgrade the public transport sector in China with EV's.
  

1. Product substitutes - High

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  There is a large market for the electric bicycles and the electric or natural gas public transport within the big cities.
  

1. Intensity of rivalry among competitors - High

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  Intense rivalry, given limited consumer market and number of manufacturers in the market space. The market competition is between the regular combustion engine cars and the hybrid cars as well as a well-organized public transport system in most cities.
  
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  Consistent advertising, comparison marketing and sales to entice consumers to purchase and choose over other brands.
  
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  Main competition is the hybrid car industry where cars are mainly used only as electric car due to limited travel distance.
  
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  There is small electric charging network in China. So the electric car can only be used in regional transport.
  
• 
  The growth of the Electronic vehicle industry currently is slow.
  

4. Core Competencies (667)

To describe the core competencies of the BYD, the history of BYD is required to be reviewed again. BYD started in 1995 as a rechargeable battery manufacturing company for cell phones. The strategy of BYD was not to rely on acquired new technology from outside China for the production process but rather utilize China’s fast growing resource of human capital, which certainly at that time, was cheaper compared with the fully or semi automated factories. Using human resources in the manufacturing, BYD could keep the manufacturing cost low. By 2002, BYD was the largest battery manufacturer in China (roughly 65% of all batteries are being produced by BYD. This large growth only fueled the desire to diverse more and so BYD started to diversifies into other parts of the cell phones. These days BYD produces most of the parts of the cell phones for various trademarks like Nokia.

But the core business was/is still the battery manufacturing business. BYD set up an extensive R&D program, and by now BYD is market leader in various rechargeable battery systems, the first Core Competence of BYD.

As the Chinese government set the development of the electric car concept high on the agenda in their 5 year plan, promoting the development of advanced R&D centers and the development and usage of full electric drive automobiles to selective cities and private. Example: Chinese government will give it's user 50000 rmb (~5000-7000euro) subsidy for every electric car on the road. With the government support BYD set forth on a new innovation, to produce an affordable full electric car. To pursue this endeavor, BYD acquired an auto manufacturer for their core competence and supply chair, second core competence.

The last core competence which BYD acquired since 1995 in the ~15 years, it's ability to move into new markets. First was the rechargeable battery market (various types), later mobile phone accessories and parts for various trademarks. And now into the electric automobile industry, by transforming a traditional automobile company into a electric automobile company. This entrepreneur drive is a key core competence BYD has to be successful in this business.

All is said, BYD Auto and it's venture into the electric automobile business, will become a success story as the Chinese government support of this new technology. No doubt that BYD Auto will have some influence on the government. It only shows the rapid development of BYD Auto electric automobile need social support via government.
"National Competitive Advantage of China in Electric Mobility: The Case of BYD", by

Kasperk, Garnet; Wilhelm, Jan; Wagner, Wolfgang

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