BYD Case Analysis
Date: September 16, 2014
BYD’s core competencies
BYD has a lot of resources and competencies, as you can see in the VRIO Framework
(Exhibit 1). However, the core competencies that give BYD its competitive advantage are 3:
a) Strong R&D: This is the capability that gives BYD the majority of its competitive advantage when compared with the 200 Chinese firms that have entered the battery market since 1995. BYD invests around 2% of revenues to product and process R&D.
This investment allows BYD to discover different solutions for the challenges that arise, avoiding larger investments in costly equipment and delivering the market expectation.
b) Low Cost and High Quality Production Process: The annual capital expenditure at the typical Japanese firm is more than five times that at BYD. The fact that BYD does not invest in expensive automation allows this company save money from investments in equipment and from future and quick depreciations (over five years). The way BYD manages its labor allows this company to save money and deliver a high quality product.
c) Strong Human Resources: In order to achieve a reliable production process, BYD has a disciplined workforce, which receives extensive training and is put into a career plan with
BYD. As a critical component of the company’s operating system, the labor-intense process at BYD is managed in an amazingly productive way.
Automotive Industry
The Porter’s Five Forces Analysis of the automotive industry (Exhibit 2) shows that this industry has high barriers of entry. However, all of the BYD core competencies described above are transferable to the automotive business and would decrease the barriers for BYD to get into this new industry.
1- High capital required: BYD still has the funds from the Initial Public Offering on the
Hong Kong Stock Exchange that happened in July 2002.
2- Necessity of economies of scale to be cost competitive: Using similar methods of “Low
Cost and High Quality” will give them the cost advantage
BYD’s core competencies
BYD has a lot of resources and competencies, as you can see in the VRIO Framework
(Exhibit 1). However, the core competencies that give BYD its competitive advantage are 3:
a) Strong R&D: This is the capability that gives BYD the majority of its competitive advantage when compared with the 200 Chinese firms that have entered the battery market since 1995. BYD invests around 2% of revenues to product and process R&D.
This investment allows BYD to discover different solutions for the challenges that arise, avoiding larger investments in costly equipment and delivering the market expectation.
b) Low Cost and High Quality Production Process: The annual capital expenditure at the typical Japanese firm is more than five times that at BYD. The fact that BYD does not invest in expensive automation allows this company save money from investments in equipment and from future and quick depreciations (over five years). The way BYD manages its labor allows this company to save money and deliver a high quality product.
c) Strong Human Resources: In order to achieve a reliable production process, BYD has a disciplined workforce, which receives extensive training and is put into a career plan with
BYD. As a critical component of the company’s operating system, the labor-intense process at BYD is managed in an amazingly productive way.
Automotive Industry
The Porter’s Five Forces Analysis of the automotive industry (Exhibit 2) shows that this industry has high barriers of entry. However, all of the BYD core competencies described above are transferable to the automotive business and would decrease the barriers for BYD to get into this new industry.
1- High capital required: BYD still has the funds from the Initial Public Offering on the
Hong Kong Stock Exchange that happened in July 2002.
2- Necessity of economies of scale to be cost competitive: Using similar methods of “Low
Cost and High Quality” will give them the cost advantage