2016 Proceedings of PICMET '16: Technology Management for Social Innovation Catching Up in a Bidirectional Way: Evidence from Chinese Electric Automotive Industry Leader BYD Bowen Zhang, Xianjun Li, Donghui Meng, Lewis Liu Department of Automotive Engineering, State Key Laboratory of Automotive Safety and Energy, Tsinghua University, Beijing, P. R. China Abstract--To catch up with leaders, whether latecomers for industrial practice, as some latecomer firms do use both should follow an “imitation to innovation” path or an ways to catch up at the same time. One important reason for “innovating to leapfrog” path is still not quite clear. To shine this gap between theory and practice is that the technology a some light on this issue, we focus on the case of BYD, a latecomer firm needs for catching up at a certain stage is latecomer growing from nobody to the pioneer of Chinese usually treated as a whole. In fact, the technology consists of electric automotive industry and the champion in world electric vehicle sales in a dozen years. We find that BYD catches up in a different parts, a latecomer firm may be weak in most of the bidirectional way by which it has kept doing imitation and technology that it needs to learn from imitation, but it may be innovation from the start and made them well balanced to relatively strong in a certain technology that it can do R&D achieve the best of cost performance. This is different from the and innovate. In other words, latecomer firms may not catch unidirectional view that a latecomers’ catching-up either starts up in a unidirectional way, either imitation or innovation, but from a reverse innovation way like "from imitation to in a bidirectional way that they do imitation and innovation at innovation", or from a leapfrogging way that requires the same time. "science-technology-innovation". Evidence is also found that To get a better understanding of this issue, this paper technology accumulation affects BYD's selection between focuses on the case of BYD, a Chinese electric vehicle (EV) imitation and innovation. This paper helps latecomers to make a better decision for their catching-up. player. EV technology can simply be taken as the combination of automotive technology and battery I. INTRODUCTION technology. While most of giants in automotive industry have little accumulation in battery industry, BYD is a latecomer in This paper focuses on the relationship between innovation automotive industry with battery experience. It only takes and reverse innovation in a latecomer firm’s catching up BYD 12 years to become the champion of world EV sales. process. A latecomer firm is a resource-poor late entrant to an BYD’s catching-up practice provides an interesting example industry, not by choice but by historical necessity [1]. about how latecomers with knowledge accumulation can Scholars have found that different from firms in developed successfully catch up in one of the most established industries countries that usually do innovation in a “Science – [8]. Technology – Innovation” way, latecomer firms usually do This paper is organized in the following manner. The next innovation in a reverse innovation way like “Acquisition – section presents a review of the literature forming the basis of Assimilation – Improvement”, which doesn’t require R&D this case analysis. This is followed by a section explains why work in early stages [2, 3]. Scholars have also found that case study is used and how the case is selected. Then comes a latecomer firms can catch up in a leapfrogging way, section elaborating on BYD case. After that the discussions especially the path-creating way which suggests latecomer and conclusions of the study are presented. firms entering new technological trajectory as soon as possible to gain advantages [4, 5]. In the path-creating II. LITERATURE REVIEW catching-up, no matter how much technological capabilities latecomer firms have accumulated, they have to do R&D and Latecomer firms are faced with two kinds of innovate since there is little for them to imitate. disadvantages. One is that latecomers are poor in technology Therefore, latecomer firms have at least two ways to catch accumulation and have limited access to advanced up. One way is reverse innovation, starting with imitation, technology and a healthy surrounding national system of following a “imitation to innovation” path to gradually reduce innovation. The other is they confront underdeveloped and the gap between latecomer firms and firms in developed unsophisticated users instead of demanding users who are countries [6]. The other way is innovation to leapfrog, paying very important for firms’ innovation [9, 10]. more attention to R&D work to take advantages of Therefore, in contrast with the R&D and design-led technological change to significantly reduce the gap with strategies typical of leaders and followers, latecomers began firms in developed countries or even overtake them and with acquiring outside mature technology and making become leaders of the new technology [7]. incremental improvements to manufacturing processes [11]. Little attention has been paid to whether latecomer firms They concern on output capabilities which describe firms’ can start to catch up by using both strategy at the same time, technologies and skills relating directly to the currently which may imply a latecomer firm use only one way to catch observable product, and show little interest in the ability to up. This weakens the explanatory power of existing theories enhance or develop the product [12]. After they accumulate 1172 2016 Proceedings of PICMET '16: Technology Management for Social Innovation basic technology, they start to do some product development [22]. Little research has been done on whether latecomers can to make the product introduced from leading markets to start their catching up by both imitation and innovation, and better fit less developed domestic market that they are more how to balance them. familiar with. After they have accumulated certain knowledge In addition, most existing research on latecomers’ in engineering and development, they start to do some innovation practice are based on evidence from East Asian research to innovate. And when they finish all steps above, economies which have a relatively small domestic market and they can start from more advanced technologies instead of rely on overseas market. However, China is large economy mature technology, and continue to follow Acquisition – providing a big domestic market for its latecomer firms. Assimilation – Improvement process to catch up [6]. This Since Chinese latecomer firms don’t have to compete in process is opposite to the AU model illustrating how product high-standard international market at their early time and can innovation and process innovation change in developed first develop their capabilities in domestic market, they may countries [13]. choose catch up strategies different from that of firms in The key to succeed in catching-up is to use less money small economies. and time to master the technology and make similar products in lower cost. In this way, a latecomer’s catching up is a III. RESEARCH METHOD learning process focusing on imitation instead of doing R&D to innovate [14]. This research is a theory building research focusing on However, by a reverse innovation way shown above, “how” questions，the behavior of those involved in the study latecomers can reduce the gap between leaders, but they are can’t be manipulated. A single-case study provides richer hardly able to become leaders, since they have to imitate details for us to look into the case and learn better about how leaders’ products. Those who would like to overtake leaders latecomer firms catch up [24, 25]. have to do R&D and make something different[15, 16]. We relied on both primary and secondary data for our Technological change is often seen as a chance for study. Primary data comes from interviews and observation. latecomers [5, 7, 17, 18]. When a new technological regime We visited BYD for two days, interviewed six senior comes, leaders are usually reluctantly to change to the new engineers and managers for one and a half days. Besides regime since they have made huge amount of investment in respondents from BYD, five engineers and four professors in old regime and they are not sure whether the new technology automotive field are interviewed, and each interview last one will prosper or die out. They continue to invest in old hour to two hours. Secondary data comes from diverse technology to compete against the new one, as a result, it is sources such as official website, annual reports, business often too late to enter and lead in the new regime. In addition, magazines, web content, BYD BBS, and Wikipedia. These leaders of old technology don’t have much accumulation in resources provide reliable data on both BYD innovation the new regime and entry barriers are low [5, 17, 19]. strategy and details during its development. Therefore, when a new technological regime occurs, BYD is a latecomer in automotive industry with battery latecomers should enter the new regime and start to do R&D background. It was set up in 1995 by a battery researcher, to develop their own technology and product and win in the Chuanfu Wang, with RMB 2.5 million and 20 members in new technological regime. Shenzhen, China. It engaged in rechargeable battery business, Another chance for latecomers lies in the fact that they are mobile phone components and assembly. Taking advantages more familiar with domestic market than leaders, and some of world battery industry transfer, BYD enjoyed a fast growth: latecomers do have some technology accumulation [16, 20]. it took BYD 7 years to become the 2nd world largest They can develop their own products according to domestic nickel-cadmium batteries manufacturer.