Huang-Cheng Lai Section 2 Team 14 BYD CASE ANALYSIS A.

According to Porters value chain theory, I infer that the core competencies of BDY are low-cost manufacturing, human resource management, and technology development. Primary Activities: Operations: BYD spent two-thirds of its annual R&D budget that focus on improving manufacturing processes. P5 The improvement of designing new methods of battery production significantly reduced the cost and gained advantage for BYD. P1 Supportive Activities: 1. Human resource management: BYD took care of employees in many ways.P7 These actions resulted in BYD that the turnover in its manufacturing workforce was 10-20%.P6 Besides, BYD had discipline training for their workers that greatly affected the quality improvement of products.P6 2. Technology development: Jigs and non-humidity sensitive chemical were also achievements of BYD on technology development. These core competencies, low-cost manufacturing, human resource management, and technology development, are transferable to the automotive business. The low-cost manufacturing can help to decrease the cost of production process for automotive factory. Discipline training of human resource management can improve their efficiency of productivity.P11 Finally, BYD was working in battery industry which is a part of automobile. Thus their technology development in battery can apply to reduce the cost of automobile production or even expand to new electric vehicles.P11 B. The competitive advantage of BYD is low-cost and high-quality production process. Compared with Japanese firms, the production process of BYD was similar but most of it was not so automated. Instead, BYD used labor and jigs to do the process and the final assembly. P2 Furthermore, BYDs dry-room is specially designed that could save a lot of space. The risk of using labor and jigs to replace robotic arms is the defect rate. To reduce (quality) variability, the production process at BYD was divided into numerous and easy steps. P5 By doing this, BYD maintained the low cost and low defect rate. We use VRIO framework to determine whether the factor is sustainable or not: Value: with annual capital spending 5 to10 times less than competitors, low-cost manufacturing created a great value for BYD.P5 Rare: high quality led to differentiation while most rivals quality was inconsistent.P2 Imitability: in the battery industry, cost of existing and large competitors were high and quality of new and small entrants were low. P3 These facts indicates that manufacturing and quality control were non-imitable. Organization: BYD became the worlds second largest manufacturer of rechargeable

batteries in 2002, whereas analysts were surprised since this industry traditionally being thought as a capital-intensive one.P1 I, therefore, infer that low-cost and high-quality production process is sustainable. As mention to the industry environment, not only with existing large Japanese firms, but also over 200 Chinese local entrants got into the battle field. With no doubt, the battery industry is very competitive and dynamic. P3 C. After the vertical integration into wireless handsetsP8, the current corporate strategy of BDY is diversification. BYD is now considering the acquisition of an automotive manufacturer, Qinchuan Auto. In short term, BYD believed that with the ability they built in battery manufacturing, there is a great opportunity of low-priced market for them to enter.P10 Designing new production model, as one of BYDs core competencies, can reduce the cost of manufacturing and improve the efficiency of producing Flyer, Qinchuan Autos main product. P11In long term, within the green energy trend, BYD intend to develop an electric vehicle powered by their battery. And they currently started to develop applications which are related to electric vehicles. P11 D. Based on those analysis above, although BYD had strong core competencies and competitive advantages so that they intend to imply these advantages to auto industry and create great value within it, we still have to use Porters three essential tests to test and verify whether BYD should diversify into auto industry, acquiring Qinchuan Auto or not. 1. Attractiveness test: the passenger autos were expected to rise, but it have not happened until 2002. And the price continued decreased by 10% to 20% per year. Besides, there are three large barriers, Shanghai Automotive Industry Corporation (SAIC), First Automobile Works (FAW), and Tianjin Automotive Industrial Co., Ltd., had market shares 40%, 20%, and 14%, respectively. P9 2. Cost-of-entry test: to get into this industry, BYD would require 2,000 additional, skilled, and talent product and process engineers who did not exist in Xian. Not mention the cost of buying the Qinchuan Auto and further investing is approximately over RMB 850 million.P10 3. Better-off test: though the auto manufacturing could gain from BYDs core competencies, it will still be really risky that this will take at least seven years and many engineer focus on automobile design instead of on battery. Moreover, they are working with unknown expenses, products, and product reception in the market. P11 In conclusion, BYD should not diversify their business into an unfamiliar industry, auto. The recommendation for BYD is to stay at battery industry, keeping the lead position by investing in R&D.
Footnote: All page numbers are citing from BYD Company, Ltd., HARVARD BUSINESS SCHOOL, 9-606-139