Expansion of BYD Company - Report Example

Expansion of BYD Co., Ltd into Germany 03012 Prepared by Table of Contents 0 Introduction: BYD Co., Ltd is an internationally leading-edge supplier which has practical experience in the IT, car and new energy fields of green energy technologies. In 2003, BYD expanded its product line and launched automobiles which gave a tremendous feedback in terms of annual growth rate. The entrance in the automobile industry was done by acquiring the Tsinchuan Automobile Company Limited. Today, BYD is the fastest emergent Chinese automobile company and a global innovator in the area of new energy vehicles which includes pure electric models and dual mode models. BYD has its headquarters in Changsha, Huizhou, Shanghai, Pingshan, Beijing, Xi’an and Shao-guan and it has the abilities to manufacture the whole car. The products which are offered by the industrial unit of automobile unit are frames and parts, fuel vehicles of high, medium and low end, pure electric cars and dual mode electric cars. The representative models of electric vehicles are F3DM, e6 and K9 (BYD Co. 2015) 2.0 Macro and Micro Environment: 2.1 PESTEL Analysis: According to (Gupta, 2013) “the PEST analysis refers to the analysis of various elements such as political, environmental, social and technological factors. In fact, it is the most common approach for considering the external business environment and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management but the word PEST is no more than a convenient mnemonic.” 2.1.1 Political Factors: 1. Block Exemption Regulation 2003 was introduced in European Union for the safety measures of customers (Car Dealers 2014). The more the safety measures taken by a company the higher it will entice the customers. 2. Regulation Act 330/201 by European Union in year 2013 was established which influences the purchase, sale and resale of new auto vehicles (Car Dealers 2014). This can bring an idea to the company about preparing its pricing strategy. 3. Commission Regulation Act 461/2010 by European Union applies a 30% limit, above which, the contract between auto producers and approved repairers will never again be block exempted (Car Dealers 2014). 4. Fuel duty will be remain frozen at 57.95 ppl till May 2015 (Car Dealers 2014). This will help the consumers in lowering of their expenses and more usage of vehicles. These regulations will have a major influence on the expansion of BYD Co. in terms of launching its product, making a pricing strategy and providing maintance services to customers. 2.1.2 Economic Factors: 1. Open doors for investors in European automobile industry to meet the target growth rate by 2020 (Acea 2015). 2. Increase in the prices of fuel (AA 2014). 3. There is an increase of GDP from 3085.9 to 3101.4 $ billion (Automotive Manufacturing in Germany 2014). The higher the GDP the higher will be the potential sales of automobile. Figure 1 Germany GDP, Image Source: Automotive Manufacturing in Germany 2014 4. There is a decline in the inflation rate of Germany in year 2013 (Automotive Manufacturing in Germany 2014). The lower the inflation rate, the lower will be the prices of products which will ultimately leads to high demand of automobiles. Figure 2 Germany’s Inflation Rate, Image Source: Automotive Manufacturing in Germany 2014 The Economic factors are sufficient to make the practicality of the expansion of BYD Co. in Germany. 2.1.3 Social Factors: 1. With 12 million area-related employments the auto business is critical for Europes success and job creation (European Commission 2015). Hence, there are business and job opportunities for Germany. 2. Changes in the client inclination from auto being a status symbol to fuel proficiency and low emission autos (German Association of Automotive Industry 2015). Such behavior is of the customers of electric cars, who are status conscious and wants a healthy lifestyle. And this is what BYD Co. is promoting. 3. Changes in purchasing pattern of the shoppers because of subsidence in mature markets (AA 2014). The purchase pattern leads a feedback to the manufacturers that how they can bring flexibility and changes in their product and this proceeds to the more research and development in technology sectors. 4. Customer willingness to have facilities like driver seatbelt reminders and tire weight checking systems (Reuters 2015). The more a company gives social and security benefits to the customers the more it comes in the limelight. Job opportubities, client inclination towards status symbol and changes in the purchasing patterns are the social factors which are encouraging BYD Co. to expand. 2.1.4 Technological Factors: 1. The European auto industry puts €32 billion in R&D yearly, around 4% of its aggregate industry turnover and applies for 9500 patents annually (Acea 2015). This presumes that each automobile manufacturing company has to have a budget located on its research and development sectors, because having a latest innovation brings attention of customers which leads to higher sales. 2. Electric Mobility Department has been made to make Germany as the chief supplier by using new technologies (German Association of Automotive Industry 2015). This will help in selling the electric cars of BYD Co. 3. Due to regulations, independent repairers can access the technical information which will lead to competition (Car Dealers 2014). Traditionally, independent repairers were not allowed to repair the cars and vehicles but now they are allowed to. This will make the competition among the manufacturers and the independent repairers intense. So, BYD Co. has to look upon the strategies which can overcome such situations. 4. With the help of software, the customers can view the digital configuration of their potential automobile (Car Dealers 2014). The more improved and technical the software, the more will be the demand of cars. Latest technology and updated website are the key points through which BYD Co. can have a competitive edge on. 2.1.5 Environmental factors: 1. Laws are being made by European Union which will act in Germany as well and its purpose is to reduce the emission of carbon dioxide (Acea 2015). In 2013, normal fleet emissions were 127.6g CO2/km contrasted with 186g CO2/km in 1995, which is a huge decrease over the period. 2. Electric mobility will make a significant contribution towards meeting the demands of environment in the future (Acea 2015). Most stakeholders expect a realistic market share of the overall industry for new electrically chargeable vehicles to lie between 2 to 8% by 2020 to 2025. 3. New emission limits have been setup for automobiles (European Commission 2015). Limits on emission have been set up to Euro 5 and Euro 6. 4. Reduction in the noise emission of automobiles (European Commission 2015: Europa 2015). The lesser the noise the more it is environmental friendly car. 5. Implementation of new laws identified with CO2 emanation (Industry Week 2015). The lesser the emission, the more it is environmental friendly car. Making the environment healthy, is the moto of BYD Co. So, here comes another competitive edge which BYD CO. has. 2.1.6 Legal Factors: 1. Less tax for the purchasers of electric cars in European countries (Acea 2015). Decrease and exclusion in taxation are offered in Germany, Portugal and the Netherlands. This means that there is an attraction for the buyers to purchase electric car on less tax requirement and in a legal way. 2. Simple car registration rules introduced by European Commission (2015). Easy to register car after the purchase process gives ease to the customer which increases the demand. 3. There is a complete coordination of mutual recognition and registration of regulation within European countries (German Association of Automotive Industry 2015). This assures the manufactures as well as the customers that everything will be occur according to its requirement. 4. Patents and copyrights related to advancements on car devices and features can be a serious issue if not handled in an appropriate way (Automotive Manufacturing in Germany 2014). This reduces the illegal ways of being entering in the market. The legal requirements of purchasing cars in Germany are quite simple and attractive for new customers. This can help BYD Co. to hav more sales if it expands over there. 2.2 Porter’s Five Forces Analysis: Now we will discuss Porter’s Five Forces Analysis for BYD Co. The five forces includes the threat of new entrants, threat of substitutes, supplier power, buyer power and the competitive rivalry among existing competitors. 2.2.1 Threat of New Entrants: The threat of new entrants is weak in this industry because: 1. It requires big budget to enter in the market of automobile industry (Automotive Manufacturing in Germany 2014). 2. The growth of automobile cannot boost up at the beginning of the business; it requires time to build brand image, brand strength and repute (Automotive Manufacturing in Germany 2014). 3. The fixed cost for automobile companies is higher (Automotive Manufacturing in Germany 2014). Research and Development is becoming a focus point for the automobile companies due to the EU emission regulations and it is one of the fixed cost. There are lesser threats of new entrants for BYD Co. to expand in the Germany markets. 2.2.2. Threat of Substitutes: The threat of substitutes is moderate in this industry because: 1. Switching cost will be higher (Automotive Manufacturing in Germany 2014). 2. The substitutes are quite cheap and economical (Automotive Manufacturing in Germany 2014). The substitutes of hybrid cars are petrol/diesel cars, bikes and public transport. And the switching cost for the customers will be higher because there is a a lot of price, status, features of vehicle and dependence difference withing the substitutes. 2.2.3. Buyer Power: The buyer is moderate in this industry because: 1. Since the GDP rate of Germany has increased the last year, there is a sign of prosperity in the economy and so the number of customers for hybrid cars can be higher (Invest in EU 2015). 2. BYD Co. has an edge over its product differentiation. It had a tremendous feedback in 7 places yet just because of its hybrid cars. 3. Overall the buyer power is measured as moderate (Automotive Manufacturing in Germany 2014). 4. Higher switching cost which is faced by the dealership with respect to the brands who remained dominant (Automotive Manufacturing in Germany 2014). BYD Co. can get a powerful number of customers due to the increase of GDP growth in Germany, product differentiation and moderate level of buying power of customers. These three elements give a positive gateway for BYD to expand in the market of Germany. 2.2.4. Supplier Power: The supplier power is moderate in this industry because: 1. There are 7 competitive numbers of suppliers which makes them weak. 2. There is a possibility to change the supplier due to the less concentration. 3. Customers are powerful in this market because they know about the regulations (Invest in EU 2015). Higher number of suppliers can weaken the strength of a company. Due to a high competition among the competitors in German market, BYD Co. has to look at its strong points to expand and grow. 2.2.5. Competitive Rivalry among Existing Competitors: The intensity of degree of rivalry is moderate in this industry because: 1. High frequency of rivalry in the German market due to the higher number of competitors (Invest in EU 2015). 2. High storage costs which can increase the expenditures of BYD Co. 3. High market growth in German automobile industry which helps in lowering the rivalry among existing competitors (Invest in EU 2015). 4. Ford Motor Company Limited, Honda Motor Europe Limited, JCT600 Limited, Listers Group Limited, Lookers Plc and Pendragon Plc are the brands which exist in Germany Market (Car Dealers 2014). There is a high frequency of rivalry among the competitors in the automobile industry of Germany. BYD Co. will have a tough competition with six competitors if it expands.High storage costs of cars can lead to an increase in the expenditures. But, there is high growth market of automobile industry in Germany which means that BYD Co. can grow and expand in European Union. 3.0 Market Entry Strategy: The market entry strategy which we will choose is Direct Exporting. The reasons for choosing this strategy are: 1. Manufacturing at home country is less expensive and riskier than producing in the foreign country (Lieven, Theo, et al. 2011). 2. This strategy gives an opportunity to learn the foreign markets before investing in them (Gärling, Anita, and John Thøgersen 2001). 3. There are no intermediaries; hence the potential profits are comparatively higher (Import Export 2015). 4. There is a greater level of control of the production company in this type of market entry strategy (Reynolds 2003). 5. There is a slight better aspect of protection of patents and copyrights in this type of market entry strategy (Hollensen 2014). 6. Since BYD Co. has its headquarters in seven different places, it has a wide experience in knowing about the logistics (BYD Co. 2015). So, it will be easier for this company to handle its logistics when expanded into Germany. 7. BYD Co. has its skilled control over its distribution channels because of having manufacturing units in seven different places (BYD Co. 2015). So, it will be easy for BYD Co. to control its distribution channels when used for the expansion in German market. 8. The direct export gives a better chance for a company to get feedback directly from its customers (Bartett 2009). The more the feedback the higher will be the chances of improvements in BYD Co. product according to the demands of the customers. In this regard, BYD Co. has to have sales representatives who will represent our company in their local markets i.e Germany and will get commission in return. The amount of commission will be set during the time of contract being issued. The sales representatives will also be responsible for the advertisement in the local market, giving the facilities of customer care to the clients and to fulfill the legal requirements. It has also been observed that the heavy products like machinery gives the benefits to the manufacturers who take sales representatives for the sale in the foreign country (Cavusgil, Knight, Riesenberger 2008). Moreover, BYD Co. has always been a very progressive about its marketing strategies and plans. It is forecasted that the company will remain the same when it is expanded in the Germany market. Therefore, a company which is aggressive about its advertisement has a definite plan and strategies about its marketing activities (Business Vic 2015). Such aggressive organizations are highly motivated mainly by the factor of expansion and growth and having a different market segment (Fao 2015). According to Hitt (2009), direct exporting can be done by offering new distribution channels like signing contracts with the dealers of different showrooms located in the area to be expand, opening up a retail shop in foreign country and use e-commerce for the selling the products online. Hence, according to our observation, BYD Company must adopt the strategy of Direct Exporting to enter and expand in the industry of Germany. 4.0 Marketing Mix: Now we will discuss and plan the four P’s of marketing mix in the context of the expansion of BYD Co. in the Germany. The four P’s are: Product, Price, Promotion and Place. We will discuss these P’s one by one. 4.1 Product: When it comes to the product strategy, it is difficult to modify our product. So, we will launch the same standard product i.e. e6 car to Germany market. This car has a variety of attractive features for its customers. BYD FE battery has the ability to meet the requirements of safety, density, energy and low cost (Market Ft 2015). This car does not produce any kind of emission and is safe for air quality. It takes only 2 hours to recharge and can cover up to 300km of mileage in that charging. 140km per hour is the top speed of e6 electric car (Market Ft 2015). Therefore this car is amazing in its features, so there is no need of modification or standardization of this car when introduced in the market of Germany. 4.2 Price: For pricing strategy, we will modify the current strategy which is being used in China. The modification can be done in terms of lowering the price of e6 electric car to attract the customers of Germany. Although it will bring a budget burden on the BYD Co. to reduce its price on a small level but it can help to take the attention of the customers and to build repute and image in the new market i.e. Germany. The current price of e6 hybrid car is $50,000 (Finance Yahoo 2015). The exchange rate of Euro to Dollar is 1:1.07. This makes the price of e6 electric car in Germany as 46,558.84 Euros (XE 2015). In order to attract the customers, BYD Co. can minimize its price up to 1 to 2% draw the attention of the German market customers. This depreciation of price should be offered for a limited time to have an intense entrance into the market and gain customers on a quick basis. A limited time can give a less burden to the budget of BYD Co. as well. 4.3 Promotion: As BYD Co. is entering into a new market, it has to have a big budget for that entrance. The budget may include the expenses of feasibility report, travelling costs, salaries, dealership and promotion. There are a number of ways to adopt the promotional strategies for our product i.e. e6 hybrid car. The key point of promoting the e6 electric car is that it is environment friendly product. It has no tailpipe emission and is creating a business opportunity (Reuters 2015). On the basis of this key point the first promotional strategy BYD Co. can adopt is to aware people via social and print media about its concern on nature. Second promotional strategy is by installing chargers on the famous locations in Germany. The chargers must have the prints of BYD Co. logo, name and tag line on it. The products which are promoted by having its logos and tag lines on the facilities it gives are more entice bu the customers (Sierzchula, William, et al. 2012). So, this can bring the familiarity among the people about the brand of BYD Co. BYD Co. is already promoting its electric car by also giving benefit to the economy of China. Its promotion says ‘zero purchase price, zero cost and zero emission’. The e6 electric car is offered in three ways in China which are financial lease, operational lease and buyer’s credit (BYD Co. 2015). This same kind of promotional strategy can be used and considered as third promotional strategy to capture Germany market segment. The fourth promotional strategy will be arranging seminars on the benefits of purchasing and using electric cars instead of the other gas and oil engine cars. The main point to be discussed in the seminars could be focusing on the measurements which are helping to lessen the depletion of ozone layer due to the dangerous emissions from the cars running with the oil or gas. Online marketing can be done via giving news on the website of BYD Co. and social networking accounts pages. 4.4 Place: The placing strategy will be focusing on the major cities of Germany to expand. First of all, BYD Co. can open its showroom in the capital of Germany that is Berlin. It has been observed that the showrooms or the head office are mostly located on the capital or the populated cities of countries. That’s why we should start from Berlin. About 90 % of the manufacturers and suppliers of automobiles have their head offices in Berlin (Business Location Centre 2015). There is about 1.85 billion euros been earned only by Berlin by selling cars annually (Bloomberg 2015). BYD Co. must open its showroom or head office or the manufacture unit in Berlin. So, the distribution will be B2C, that is the customer an directly get a car from he showroom of BYD Co. in Berlin. 5.0 Conclusion: BYD Co. has a very positive chance of being entering and becoming stabile in the German market. We have looked upon the macro and micro analysis which shows the survival of this company in the European market in a very good way. The entry strategy which we have decided is the market development strategy. We have also provided the reasons of this strategy to be chosen. When it comes to Marketing Mix, we have applied the four P’s and got a conclusion that our e6 electric car can be introduced in the Berlin for 46,550 euros by means of offering discounts on a limited time. References: AA 2014, The Fuel Prices. Available from: [7 April 2015] Acea 2015, CO2 from Cars and Vans. 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