The Concept of Reverse Innovation and China’s Focus on EVs

Discuss About The China Highly Charged Power Financial Times.

Reverse Innovation describes the procedure of implementing an innovation first in the developing country, with the aim to later adapt the product to the markets in the developed world (Govindarajan & Trimble, 2012). From the year 2009 on, China is regarded as the leading nation in the automotive industry (Chen & Midler, 2016) with several big EV producers such as BYD and SAIC. Especially with its New Energy Vehicle mandate (Gong et al., 2012), China’s focus has dramatically changed in the direction of EVs, constituting as a virtue for the larger EV producing companies. Whereas reputable organizations, such as BYD, have it is easier to adapts their products into developed countries as the US for instance, penetrating the market and being able to compete with domestic incumbents as well as global competitors, is one of the biggest issues EV managers from the bottom of the pyramid have to face. The lack of necessary investments and reputation, normally making the entrance into the global market easier, are often a hurdle.

To attract more foreign investments and help reverse innovations and start-ups to expand their businesses, the Chinese government could intervene with comprehensive campaigns such as the “Made in China 2025” campaign, creating cooperations between the Chinese EV producers and global organizations from the top tier, helping small businesses to become more global (Hill, 2018).

The best strategy to enter the global market nonetheless is to work with a global partner, that already has all the attributes, your organization is missing. Regarding BoP EV producers, one of these partners could be for instance the German engineering and electronics company Bosch. For over several years now, Bosch is the leading OEM parts supplier (see Exhibit 1). The supplier is for example known for its diesel and electric systems, as well as battery technology. With the changing environment in the automotive industry, Bosch is looking for an opportunity to settle down in the electric vehicle manufacturing. A collaboration with a company such as Bosch, has advantages for both sides. The small EV producers receive the needed investment, have a good reputation, as Bosch is a worldwide known brand and of course enter the global market. Bosch, on the other hand, can start operating in the field of electric vehicles with a partner that bring all the requirements Bosch needs to begin operating in the electric vehicle sector. This collaboration would not work with EV producers that are already good in business, as they would gain nothing or less from working with Bosch. But as the joint venture with the small Chinese EV producers is a cross-culture project, some aspects have to be considered first. It can be best described with Hofsted’s Dimensional Approach. In a working place where two different cultures are coming together, it is essential to know that China is a collectivist society with high uncertainty avoidance, whereas Germany is more individualistic and has low uncertainty avoidance. Understanding the differences between the cultures contributes to an excellent cross-cultural communication, which is something the EV managers have to think about before working with a company with totally different cultural backgrounds.

Strategies for Entering the Global Market

Another issue faced by EV managers is complying with the law and government regulations. Many of these vehicles are not even considered as “cars” due to the low-speed capacity. As such, many of these vehicles do not carry license plates, resulting in the owners’ inability to purchase car insurance (Peng et al., 2008). With the lack of insurance and mobility being limited, these low-speed EVs are seen as road hazards and are not allowed on highways. Ultimately, this results in its attractiveness and effectiveness to plummet in the Chinese market. There are a few reasons as to why it is challenging to meet these regulations required by the government. Firstly, it is very costly.  A significant amount of capital is needed to improve and raise the standards of these EVs to achieve government regulations. Without approval, these vehicles have a hard time entering the Chinese market, let alone attracting its target audience or entering the international market. It is also empirical to keep up to date with the ever-changing policies and regulations. Secondly, technological barriers may exist. According to the International Council on Clean Transportation (ICCT) recently updated regulation in China, there has been a stricter technical threshold on speed for EV credit qualification from a proposed of 80 km/h or more, to a final of 100km/h or more of maximum speed required. This regulation exacerbates EV firms situation as they already do not have the technological knowledge and ability to pass the prior regulation.

Because it is very costly to meet these government regulations or even simply for research and development to lower technological barriers, a solution for it is to source for subsidies or investors. Unlike big players in tier 1 and tier 2, these BoP manufacturers get little to no support from the government and are instead discouraged by the government (Peng et al., 2008). However, for these smaller BoP manufacturers, the need for capital investment is high. There is an overcapacity of Chinese entrepreneurs that fight for limited government subsidies (Clover, 2017). With the increasing demand for subsidies, the Chinese government lowered subsidy budget by 20 percent (Clover, 2017). The high demand for government grants in conjunction with the now-lowered subsidy budget creates a very challenging environment for Chinese EV companies to find an entrance into domestic and international markets and to get funded. A solution to this problem may be found in going public to find investors. With this newly found capital, the EV companies may make the necessary changes needed to comply with government regulations, which would lead to obtaining government grants. Additionally, in such a high context culture like China, networking and relationship building is critical to entering the market faster and also meeting potential investors. This is because, such a reciprocal relationship is widely used as a leverage to acquire certain favors or even rewards (Ma, 2009). Therefore, another recommendation is to advise these EV managers to work with bigger players and build rewarding relationships. Knowing the right people may provide just the necessary leverage when the opportunity presents itself.

Cross-Cultural Communication: Importance and Challenges

It will not be possible for suppliers to influence prices because EV is dealing with unique products. Although the products have not succeeded in the domestic market, it will not be possible for this company to switch from one supplier to the other.

EV products are yet to become succeed in the market. This means the buyers will have powers to influence prices because the company must adopt proper pricing strategy to popularize the brand.

Because this company operates a kind of business that requires a high level of expertise, it will not be possible for the customers to substitute to substitute the EV products with others. This is because although there might be other vehicles, they may not be of the quality as those produced by this company.

The position of EV company is likely to be affected by other people’s ability to enter its market. This is because the company has not established a competitive advantage because its cars are still not viewed as vehicles.

The company is likely to compete with strong rivals because some of the companies in the automobile sectors have already established a strong customer base. EV will need to conduct extensive marketing and also to use proper business strategies in order to attain a competitive advantage.

Conclusion

From this case, managers are facing various problems that include difficulties in Penetrating the International Market, complying with the Law and government regulations, and issues in charging outlet. The EV managers are experiencing challenges in penetrating to foreign markets due to various reasons such as competition with domestic and international companies, lack of necessary investments and reputation. Expanding to foreign markets means this company will have to compete with other firms which have already grabbed a substantial market, and because it is yet to succeed even in its domestic market, dealing with these organizations will be challenging.

To address the problem of penetrating to the global markets, the managers should collaborate with global partners who possess some of the things that lack in their organization. The Chinese government can also aid in addressing this issue through implementing campaigns and supporting locals firms to penetrate the global market. Because complying with laws and regulations will be costly, it will be advisable for the managers to source subsidiaries or investors. Because the demand for government grants in conjunction with the now-lowered subsidy budget creates a very challenging environment for Chinese EV companies to find an entrance into domestic and international markets and to get funded, the managers can address this issue by finding investors.

References

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