Master´s Programme in Strategic Management and Leadership, 60 credits MASTER Power of E-Motion THESIS Business Model Innovation for the Introduction of Electric Cars to China Tobias Abt and Fabian Erath Master thesis, 15 credits Halmstad 2014-06-15 Acknowledgements Acknowledgements Being the last part of our masters studies we have been working and investigating in a truly interesting field over the last month. During our research in the area of Business Model Innovation in the automobile industry with a special focus on China, we could not only gain new knowledge but also learned to value perseverance and diligence as a way to conduct our work. We hope that our thesis will serve as a handbook for business model innovation when considering introducing E-Cars to China and will be of enjoyment to any potential reader. The biggest thank-you goes to our supervisor Mike Danilovic and our examiner Maya Hoveskog for their critical and honest feedback, engagement, support and discussion rounds which helped us during our research process. In addition, we would like to thank Tiantian Qi, Business Manager – Auto Components Working Group, Retail and Distribution Forum and Corporate Social Responsibility Forum of the European Union Chamber of Commerce in China for the valuable information she supplied about the Chinese car industry. Moreover, we would like to thank our opponents for their effort in reviewing our paper and challenging us with critical questions. Finally, a special thanks is given to our friends and families who supported and encouraged us during our studies. Halmstad, June 2014 _________ __________ Tobias Abt Fabian Erath I Abstract Abstract E-Cars challenge prevailing business practices, especially in industrial sectors that heavily depend on the use of fossil fuels such as the automobile industry. The sustainable powertrain has to fight against prejudices towards a lack of performance, long charging times, the fear of too short driving ranges and a long list of other concerns. However, hazardous environmental pollution in Chinese megacities as well as changes among the consumers’ mindsets and purchasing behavior claim for a change in the product portfolios of today´s car manufacturers. In the western world we can see a successive (although hesitant) penetration of the markets by E-Cars. However, the Chinese market is still almost untouched and car manufacturers have just started to show the first signs of action. This phenomenon is mainly based on differences among the markets, especially the customer segment, partnerships and the proposition of value in China differ compared to the western markets. Furthermore, there are dissimilarities between China and the western car markets when it comes to political, legal and social aspects. To successfully introduce E-Cars to China, car manufacturers have to develop business models that transform the specific characteristics of E-mobility to create economic value and overcome the barriers that preclude them from penetrating the market. Of course, not an entirely new Business Model is needed. However, car manufacturers have to consider various aspects to innovate among their existing ones. A key prerequisite to enter a market with new products or services is to understand it. Based on a qualitative analysis about the introduction of E-Cars to China we therefore conducted an in-depth PESTEL-Analysis by hand of secondary data as well as an interview with a Shanghainese Business Manager of the Auto Components Working Group from the European Chamber of Commerce in China. After this market description we analyzed the Business Models of two German car manufacturers from the premium segment, which on the one hand operate successfully in the Chinese market and on the other hand, already show some movement in terms of E-Cars – the BMW AG and the Daimler AG. In our analysis we give valuable information about the two companies’ current Business Models, according the nine building blocks of the business model canvas and in regard to the data emerging from the PESTEL-Analysis. The conclusion chapter gives an overall discussion of the most important findings emerging from the analysis with regard to the business operations and the existing business models of the two car manufacturers. Findings have been evaluated on a global level and substantially transferred to a national level on the Chinese market by hand of the information from the PESTEL-Analysis. Furthermore, we offer important implications for the adaption and adjustment of high consideration areas of a car manufacturer Business Model as well as the future of the Business Models of a car manufacturer to successfully introduce E-Cars to China. Key Words: Business Model, Business Model Innovation, E-Cars, Sustainable Technologies, Automobile Industry China II I Table of Contents I Table of Contents Acknowledgements ..................................................................................................................... I Abstract ...................................................................................................................................... II I Table of Contents ................................................................................................................... III II List of Figures ........................................................................................................................ V III List of Tables ....................................................................................................................... VI IV List of Abbreviations ......................................................................................................... VII 1 Introduction ........................................................................................................................ 1 1.1 Background .................................................................................................................. 1 1.1.1 Industry Perspective ............................................................................................. 1 1.1.2 Business Model Perspective ................................................................................. 6 1.2 Research Challenges .................................................................................................... 7 1.3 Purpose of the Study .................................................................................................... 8 2 Framework of Reference .................................................................................................... 9 2.1 Definition of Business Models .................................................................................... 9 2.2 Strategy and Business Model ..................................................................................... 12 2.3 Evolution of Business Models ................................................................................... 13 2.3.1 Service-Profit Chain ........................................................................................... 13 2.3.2 Strategic System Auditing .................................................................................. 14 2.3.3 Strategy Map ...................................................................................................... 14 2.3.4 Intellectual Capital Statements ........................................................................... 15 2.3.5 Open Business Model Framework ..................................................................... 16 2.3.6 Business Model Canvas ...................................................................................... 17 2.3.7 Review ................................................................................................................ 17 2.4 Business Model Innovation ....................................................................................... 18 2.4.1 Business Model Innovation for Sustainability ................................................... 20 2.4.2 Sustainable Innovation Challenges ..................................................................... 20 2.4.3 Sustainable Innovation Framework .................................................................... 21 2.5 Business Model Framework ...................................................................................... 23 3 Methodology ..................................................................................................................... 27 3.1 Research Approach .................................................................................................... 27 III I Table of Contents 3.2 Research Strategy ...................................................................................................... 29 3.2.1 Case Selection .................................................................................................... 31 3.3 Research Method ....................................................................................................... 33 3.4 Data Collection .......................................................................................................... 34 3.4.1 Obstacles in the Data Collection Process ........................................................... 34 3.4.2 Primary Data ....................................................................................................... 35 3.4.3 Secondary Data ................................................................................................... 36 3.5 Data Analysis ............................................................................................................