Up-to-date info on firm or external environment
case assigned is based on
Our first case is about Reverse Innovation.
Historically innovation has flowed from rich to poor nations. However,
Reverse Innovation, as we already talked about during our last class, is any innovation that is adopted first in the developing/emerging world and then diffused in developed economies. The Electric Vehicle makers in China is a great example of Reverse Innovation that is truly indigenous in nature, by which is developed by local, non-multinational firms, and that has successfully penetrated developed markets.
An Electric Vehicle, also known as EV, is a fully electric car that does not burn a single drop of gasoline and it is completely based on battery power. A great characteristic of these electric vehicles is sustainability, a very important element in our markets. Since the EV has no tailpipe, it has zero emissions. It is way more revolutionary than the conventional Toyota’s hybrid Prius, which uses gasoline alternatively to its battery power. However, even in the big cities in China, such as Shanghai and Beijing, these EVs are not common. To find EVs in the roads you have to travel where they produce them, to rural areas of China, such as in the Shandong province.
As we already studied, the Prahalad’s Base of the Pyramid model divides the whole world in three main tiers. We can use this model to explain what is happening in the automobile industry within one emerging economy: China. The top tier is occupied by by foreign-branded cars produced by the JVs such as Shanghai-GM and Shanghai-Volkswagen. The second tier consists of smaller Chinese automakers and their JVs with smaller global players. The last tier, the Base of the Pyramid, consists of nontraditional producers. The BoP producers in the Chinese automobile industry can trace their roots to agricultural vehicles, recreational vehicle, and electric motorcycles.
The EVs in China are known as low-speed, meaning that their maximum speed is only 40-80 kilometers/h (25-50 miles) and have a range of 80-100 km/ 50-65 miles. Even if primitive, since they use off-the-shelf lead acid battery instead of lithium-ion battery, they are meeting a great deal of demand in rural areas of China. However, let’s look why these slow-speed vehicles are increasing in demand. In these rural areas, this BoP market within China, the road conditions are not great, thus high speed is not necessary. And last but not least, these EV’s with zero emission can potentially be a great solution to China’s pollution problems.
The market for these EVs is clearly vast: 70% of China’s population live in small towns and rural areas, creating a market of about 900 million and a small number of these people need to travel more than 20 km (12.5 miles) a day with a maximum of 60 km/h (37.5miles/h) of speed.
The problem with this innovation that started in rural areas is that only few of them succeeded to crack the top tier market in China, while others already penetrated the US market. To help these EVs to enter the top tier, the government has recently announced a new policy initiative to promote indigenous innovation: “A development Plan for the New Energy Car Industry (2011-2020). This development plan has listed 9 specific EV models for nation-wide promotion. Nevertheless, they encountered many problems. Since low speed EVs are not classified as “cars, they do not need to carry a license and thus the owners cannot purchase insurance either. In many streets in China, therefore, these vehicles may not be “street legal” and considered as a safety hazard. To prevent problems for unlicensed EV vehicles, some local and provincial governments have passed regulations to legalize and protect the BoP EV producers and owners (localized rule-making).
Since going from the BoP to the top tier market in their own country is hard, a number of Chinese EV makers have gone global, with at least two of them cracking the US market.
If you see someone driving a Wheego or CODA EV in the States, you are witnessing indigenous innovation at work. In 2007, Hebei-based Shuanghuan Auto developed its first EV: Noble. Since it was not considered as a “car” in China, in 2009 they joined hands with Wheego, a Atlanta-based start-up. After considerable modifications and enhancements, the Noble was marketed as the Wheego Whip EV in the US with a top speed of 40-55 km (25-35 miles)/h, a range of 65 km (40 miles), and 10 hours to fully charge its engine at a net price of almost $18,000 ($17,995). After a year of improvements, it became Wheego Life, with a top speed of 105km/h (65miles) making it highway capable, a range of 160km (100miles) and only the need of 5 hours to fully charge its engine at a net price of almost $27,000 ($26,495).
So with this said make p-to-date info on firm or external environment
here are some of the links
US and China relations export and import
Difference in barrier in US from China
Innovation of electric cars