In this paper, I will try to explain the success of BYD Company Limited (BYD for short) in the international business area. I am going to use the “resource-based view” to analyze the company’s success. Resource-based view focuses on the value (V), rarity (R), imitability (I), and organizational (O) aspects of resources and capabilities of the firms to explain their success. I will be using these four aspects, which are also known as “VRIO framework”, and break down each aspect of the theory to analyze success of the firm.
In my paper, I start with brief information about BYD (BYD stands for Build your dream) and its location China. In the next section, I focus on the each aspect of VRIO framework and try to explain to what extend and how BYD has gained competitive advantage out of them. Then I end the paper with a summary.
BYD is a Chinese IT and Auto corporation that also specializes in new energy. The firm is established in February 1995. In the BYD web site, BYD Company states “BYD is the largest supplier of rechargeable batteries in the globe, and has the largest market share for Nickel-cadmium batteries, handset Li-ion batteries, cell-phone chargers and keypads worldwide. It is the largest supplier of rechargeable batteries and it also has the second largest market share for cell-phone shells in the globe.
BYD Auto becomes the most innovative independent national auto brand and leads the field of electric vehicles with unique technologies. In the field of new energy, BYD has developed green products such as solar farm, battery energy storage station, electric vehicle, and LED, etc.” China, officially the People’s Republic of China (PRC), is the world’s most populous country, with a population of more than 1.3 billion and one of the largest countries in the world by approximately 9.6 million square kilometers.
After the economic reforms in 1978, Chinese economy has grown dramatically and as of 2012, it is the world’s second- largest economy after United States of America by it’s GDP and Purchasing power parity (PPP). China is now the world’s largest exporter. Chinese governments subsidies (on especially some specific sectors and energy sector is one of them) and low cost labor, since it is a labor-intensive country, gives the local firms a competitive advantage in the foreign markets.
BYD also gains competitive advantage by its location. As the first aspect of VRIO framework, we will focus on the values that the firm has and give the firm competitive advantage in the international business market. Most likely the biggest value of BYD is its legendary founder and CEO, Wang Chuanfu. In the current global economy, which is very tough and highly competitive, it is crucial to have an entrepreneurial leader to have the competitive advantage and sustainable success in the market. So, Let’s know little more about Wang Chuanfu to understand how he effected the growth of the business.
“Wang is a chemist, a technician, and an expert in the industrial field. He takes part in almost every project and has some inventions himself.
He is a workaholic and takes pride in his dedication to his work. He is also very decisive and risk-taking. For example, against management’s opposition on the acquisition of Shaanxi Qinchuan Auto Company Limited, he insisted on going through with the transaction and time proof that it was a worthwhile investment. Furthermore, he is even daring enough to drink the battery fluid to prove the safety of his products. Wang has won the ‘Most Creative Leader in the Asia-Pacific region’ title in 2004 and named the “Most Predictive CEO” by Chinese Car Newspaper in 2007.”
Charlie Munger, the Vice-Chairman of Berkshire Hathaway Corporation, evaluated him in Fortune magazine “This guy, is a combination of Thomas Edison and Jack Welch – something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it.” So, there is no doubt that as being an exceptional talent, Wang Chuanfu has been a key factor in the success and growth of BYD since he established the firm when he was 29 years old.
Another aspect to achieve success in the market is having rare valuable resources and capabilities. As among some of rare values of BYD, we can definitely count Wang Chuanfu’s keen sense of business. On the top of that BYD makes almost every parts and components of their vehicles in-house. Therefore, they do not get issues with contractors and BYD gets higher margins. From start to finish, BYD oversees the manufacture, assembly, and sales of their products.
These rare resources and capabilities also have given the firm competitive advantage in the market. As the third aspect of resources and capabilities, the resource-based view focuses on imitability. BYD makes it very difficult to be imitated by its competitors by holding a great number of copyrights. BYD has also allocated very high budget on its research and development cost and it increases every year.
By increasing R&D costs it is becoming even harder for its competitors to imitate BYD. Especially intangible resources and capabilities of the firm such as its very successful management team and its very entrepreneur leader can help BYD to build a non-imitative competitive advantage in the market. In the last aspect of the resource-based view, we will analyze in what way and to what extend the firm’s organization structure provides it sustained competitive advantage.
BYD is devoted to develop a company culture that equality, passion and innovation are in the core of the organization. With superb work environment and career opportunities to its employees, BYD has a family-like organization that also contributes dramatically to the efficiency of the firm.
As the structure of the firm, BYD has a flat hierarchy. There is 28 different product segments at the firm and all of the managers of these segments are directly right under the CEO, Wang Chuanfu, and they have to report him over all the critical decisions. Thus, Wang Chuanfu involves all the critical decisions about the business. This is a currently competitive advantage for BYD since Wang Chuanfu has a very keen sense of business. Summary;
The success of BYD is not from luck, but from the assets of its tangible and intangible resources and capabilities. In my opinion, the founder and the CEO of BYD, Wang Chuanfu, is the key factor on the company’s success. His entrepreneurial and visionary leadership, innovative personality, wisdom and knowing how to turn the ideas into business makes him a very rare value for BYD and it lead BYD to become a successful, sustainable company with a strong competitive advantage in both domestic and foreign markets.
Another very strong asset that BYD has is the innovative R&D and production department that has strengthened the firm’s competitive advantage. And the company allocates a bigger budget every year for the R&D department. With the help of VRIO framework, we can see that it is essential to have rare values that hard to imitate and organize them in a good structure for gaining competitive advantage in the market.