1. What type of company is BYD? Is it a battery manufacturer or a car and bus manufacturer? Or is it something else entirely? What is BYD’s core competency? How does it leverage its core competency to diversify? (You may want to refer to Exhibit, “The Core Competence-Market Matrix.”)
2. Thinking about the concept of liability of foreignness, what would you consider to be BYD’s greatest challenge when attempting to compete successfully in the U.S. market? How would you address these challenges?
3. What type of global strategy would you recommend BYD pursue based on the integration-response framework? (See Exhibit)
4. Do you think BYD will be successful in America? Why or why not?
SOLUTION
1. BYD is diversifying around a core competence in rechargeable batteries and it supplies the batteries used in 50% of phones and has a lithium-ion phosphate battery that enables cars to drive 250 miles on a 3-hour charge. BYD’s move into car and bus manufacturing involves redeploying and recombining core competencies to compete in new markets. For electric vehicles, the most critical component is batteries, or what BYD does well.
2. BYD faces several challenges related to liability of foreignness in competing in the U.S. market, including: Lack of brand awareness, lack of supporting infrastructure, and legal entry barriers (such as the Buy America Act). The greatest challenge is likely the legal entry barrier that led BYD to open a plant in Lancaster, California. This allowed BYD to use local labor and benefit from government subsidies that can cover 80 percent of the purchase cost of electric buses. The presence in America will also help develop brand awareness of BYD, as it continues efforts to sell electric cars. Similar to Tesla, BYD likely needs to begin developing infrastructure in key markets and continue the development of well-designed electric vehicles.
3. There are four possible international strategies for responding to cost pressure and local responsiveness. Automobiles largely have a dominant design (four tires, two to five doors, etc.) and the supporting infrastructure of roads. To the extent that BYD needs to respond to overcome local entry barriers, it is likely that BYD needs to follow a transnational strategy that combines local responsiveness with global standardization to lower costs. This would entail having common car designs (and batteries) for economies of scale that are manufactured in local markets to overcome entry barriers, such as the Buy America Act and liabilities of foreignness. This could also lower shipping costs of electric vehicles and limit shipment to batteries.
4. Arguments for BYD’s success in America can go either way:
Yes: BYD is already a success with a high market share in phone batteries and a profitable business in selling electric buses. With a core competence in rechargeable batteries, BYD has a core competence in a critical component of electric vehicles that likely translates into a cost advantage in competing with other electric car manufacturers. For example, GM, Toyota, Nissan, and other car manufacturers likely will need to source their batteries from BYD or another firm.
No: In electric vehicles, BYD is playing catch-up to other manufacturers with a more established presence (Toyota, GM, Nissan, and Tesla) with supporting infrastructure for their vehicles that is associated with higher customer awareness and acceptance. BYD’s success in buses will not automatically translate to vehicles where brands and image will have a larger impact on purchase decisions.