Byd Company Case Analysis Essay

1. BYD Company, Ltd. (BYD) is the worlds second largest manufacturer of rechargeable batteries. Exhibit 1 shows that between 1999 and 2001, BYDs yearly sales grew three times exceeding RMB 1.3 billion in 2001. Based on the first four months of 2002, BYDs annual sales argon expected exceed RMB 1.6 billion in 2002. Founded in 1995 by Wang Chuan-Fu, chairman and president, BYD has built its reputation by becoming the largest Chinese supplier of lithium-ion batteries to cell phone manufacturers. Exhibit 3 shows that by 2002, BYD was among the top four manufactures worldwide and was the largest Chinese manufacturer in each of the three main electric onslaught technologies (with about 9% market share in Li-ion technology, 31% market share in NiCd technology, and 8% market share in NiMH technology).Despite the aim of large Nipponese competitors including Sanyo, Sony, and Matsushita in the global market and a large number of local Chinese firms, BYDs aim to improve the quality of p roductions epoch keeping the price low started winning it business from irrelevant companies. By doing so, BYD has positioned itself as a cost leader in the batter industry and has go towards cost advantage in manufacturing of its products. BYD emphasized on the technology and product development by investing about 2% of the companys r fifty-fiftyue enhancement in product and process R&D. Since the development of its first lithium-ion battery in 1997, BYD has made several improvements that increased the cycle life of its products. BYD moved from having no patents as of 1999 to holding scores of patents as of the beginning of 2002.The manufacturing process in terms of sequence of steps at BYD was similar to that at the competing Japanese firms. However, Japanese firms had most of the processes automated and had more dry-room space. This kind of set up needed greater investment in capital equipment and accounted for an annual capital expenditure quintette to ten times more than that at BYD. The biggest threat to BYDs competitive advantage is the tough competition faced from the emergence of nearly 200 Chinese firms in the rechargeable battery market.Like BYD did, these Chinese firms too relied on labor-intense production process. The lack of proper regulations in China allows the competitors to duplicate BYD processes easily. On the early(a) hand, BYD faced a shortage of labor in Shenzhen because of the presence of large number of manufacturers located in that region. At BYD, 95% of the work force on the battery production is young women who have come from smaller villages across China. They would work here for a couple of years before returning to their groundwork villages. As a result of this migration pattern, BYD faced a turnover of 10% to 20% in its manufacturing workforce.2. The core competencies of BYD are Battery Technology (by changing the product materials to make them less sensitive to humidity), R&D department, Human Resource Management (pro viding housing, food, and health insurance to workers, discipline traning, job rotation to reduce monotony, loving activities and promotions), cheap labor and Manufacturing process (labor plus jigs equals automation). Of the above mentioned core competencies, battery technology, R&D department, Human Resource Management, and cheap labor are on the table to the automotive business. However, the manufacturing process which is not automated is not transferrable to the automotive business. From the resources perspective BYD should enter the auto industry because acquiring Qinchuan Auto Company offers BYD high-minded resources such as production permits and land for its freshly Auto factory, which are significant barriers for entry for new competitors, at a reasonable price. These resources coupled with the BYDs transferable resources could result in a successful enterprise.3. The Chinese auto industry is overall pleasing. There is huge growth expected in the Chinese demand for a utomobiles from 1 million sedans in 2002 to potentially 6 million by 2010. Given this expected growth in demand for automobiles, several Chinese auto manufacturers had partnered with foreign manufacturers, such as General Motors, Toyota, and Volkswagen to sell their vehicles. As shown in Exhibit 13, the production capacity of major firms in china moderately exceeded 2 million units in 2002, this figure is expected to reach 3.5 million units by 2012 as shown in Exhibit 14. Yes The Chinese auto industry is attractive to BYD.Given the expected growth and demand in the auto industry, combined with Chinese government having stopped issuing production permits for new automotive companies, in that respect are very few remaining opportunities to get in to this booming auto industry. Moreover, BYD is getting a good bargain as the assets of the state-owned Qinchuan Auto are being sold at a cheaper price. The state owned auto manufacturers without foreign partners accounted for 25% of auto sales in China. Many of the SOE manufacturers did not even have R&D departments. Because most of the automobile parts were imported, similar models of cars cost more in China than in USA.The existing foreign stick ventures were selling the vehicles at prices that gave them margins of 10% to 20%. Considering the current situation, there is room for low-priced entrants. Wang always dreamt of applying Li-ion battery technology to develop an electric vehicle. Using newer battery technology and assembling it cheaply, the vehicle could be competitively priced and represent a way for China to leap forward in an industry and technology in which it had previously lagged other nations. Wang was as well as excited about applying BYDs deep capabilities in process engineering used so successfully to design new methods of battery production that gave BYD a significant cost advantage over global competitors to automotive manufacturing.4. In addition to offering OEMs a one-stop solution for th e outsourced manufacturing of their products, BYD should in addition acquire Qinchuan Auto Company. Because of the huge potential for the automotive industry in China and very few available opportunities, this is the right moment for BYD to enter the automotive industry. As Qinchuan Auto Company already has a name in the market, with its flagship product Flyer, BYD should continue selling Flyer along with other upgraded new models of car. BYD should also invest in automating the manufacturing process and R&D department.It should ensure that most of the auto parts are internally or locally manufactured in order to keep the costs at minimum and margins high. The company should invest heavily in infrastructure needed to cater to the foreseen demand in the Chinese automotive industry. It should invest heavily in acquiring quality manpower by offering them good salaries, perks etc. If capital is a challenge, then BYD could partner with foreign manufacturer and provide them a platform to sell their products in the Chinese automotive industry. This will give BYD enough time to closely analyze the Chinese automotive industry and take necessary steps.