Indigenous Reverse Innovation Electric Vehicle Report for JCU

This report analyzes the challenges faced by managers in implementing environmentally friendly electric vehicles (EVs) through indigenous reverse innovation, particularly in the Chinese market. The key issues identified include difficulties in penetrating the international market due to lack of investment and reputation, challenges in complying with varying laws and government regulations, and infrastructural issues related to charging outlets. Recommendations to address these challenges include fostering collaborations between Chinese EV producers and global organizations, sourcing subsidies and investors to meet regulatory standards, and building strong networks and relationships to leverage opportunities. The report emphasizes the importance of understanding cultural differences in cross-cultural collaborations and suggests strategies for smaller manufacturers to compete with larger, established players in the global EV market.

Indigenous Reverse Innovation Electric Vehicle Report
Group 8:
Alexander Oktaviano Susanto (13420861)
Elina Padaeva (13623402)
Felicia Jaime Tan (13258410)
Margarita Markarian (13113885)
Desmond Chow
BX3061: International Business
James Cook University Singapore
8th May 2018

Table of Contents
Executive Summary
Three issues
Conclusion
References

Executive Summary
With environmental concerns, the demand for indigenous reverse innovation electric vehicles
has been increasing, with many automobile companies attempting their best to ensure they
come up with products that meet green requirements. China is among the countries trying to
transform from use of gasoline automobiles to the use of vehicles that depend on
rechargeable batteries. Although the use of these vehicles will have various benefits to not
only the environment but also to the economy, consumers have different perceptions
concerning their reliability. In striving to develop these vehicles, managers have faced
various challenges that include difficulties in Penetrating the International Market, complying
with the Law and government regulations, and issues in charging outlet. This paper will
analyze some of the key issues which the managers are facing in their attempts to implement
environmentally friendly cars. The paper will also suggest some of the recommendations that
can be helpful in solving the problems identified. Some of the recommendations will include
working with the Chinese government to attract more foreign investment, working with
global partners and source for subsidies or investors. Establishing networking and
relationship building is critical to entering the market faster and also meeting potential
investors and will provide a conclusion concerning the major findings.

Issue 1: Penetrating the International Market and Recommendation
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.
Issue 2: Complying with the Law and Government Regulations and Recommendation

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.
Issue 3: Charging Outlet Issue and Recommendation
Type here

Porters 5 model
Supplier power
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.
Buyer power
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.
Threat of substitution
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 threat of new entry
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.
Competitive rivalry
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
Chen, B., & Midler, C. (2016). Designing strategy for the globalisation of innovation: perspectives for foreign electric
vehicle manufacturers in China. International Journal of Automotive Technology and Management, 16(4), 436-463.

Clover, C. 2017. Electric Cars: China’s highly charged power play. Financial times. Retrieved from
https://www.ft.com/content/00b36a30-a4dd-11e7-9e4f-7f5e6a7c98a2
Gong, H., Wang, M., & Wang, H. (2012). New energy vehicles in China: policies, demonstration, and progress. Mitigation
and Adaptation Strategies for Global Change, 18(2), 207-228.
Govindarajan, V., & Trimble, C. (2012). Reverse innovation: a global growth strategy that could pre‐empt disruption at
home. Strategy & Leadership, 40(5), 5-11.
Hill, M. (2018). Get Ready For China’s Electric Vehicle Offensive. Retrieved from https://www.brinknews.com/get-ready-
for-chinas-electric-vehicle-offensive/
International Council on Clean Transportation. 2018. China’s New Energy Vehicle Mandate Policy. Retrieved from
https://www.theicct.org/sites/default/files/publications/China-NEV-mandate_ICCT-policy-update_20032018_vF-u
pdated.pdf
Ma, T., Y. 2009. China’s Informal Institutions: the Case of Private Enterprise in Wenzhou. Business and Public
Administration Studies, 4(3).
Peng, M., W. 2016. Global Business 4th Ed. Boston, MA: Cengage Learning
Peng, M., W., Wang, D., & Jiang, Y. 2008. An institution-based view of international business strategy: a focus on
emerging economies. Journal of International Business Studies, 39, 920–936.
pwc. 2017. North America, Europe and the world top suppliers. Retrieved from https://www.magna.com/docs/default-
source/2017-press-releases/automotive-news-top-suppliers-6-26-2017.pdf?sfvrsn=2
Exhibit 1: Top 100 global OEM parts suppliers (pwc, 2017)