| Dynamics of China’s Strategic Emerging Industry Essay
Currently, China has become the largest automotive market in the world. The country has experienced an emergence of a more dynamic manufacturing sector the industry of electric vehicles. The government of China has made tremendous efforts at all levels support programs that encourage users utilize electric vehicles. This study provides an insight on the dynamics of Chinas strategic emerging industry that manufactures electric vehicles by examining the current characteristic of Chinas production and innovation systems, and how they were developing. This will enable policy makers understand how the new model influences the structural change in the development on the strategic emerging industries, e.g. the emerging electric vehicle industry, in China.
In economic analysis of growth patterns of an emerging industry, these vital components influence the structure of the dynamic process. The development of electric vehicles is taking place for a broad variety of transportation modes; therefore, at different stages of economic development and with difference country characteristics, it is possible to experience different patterns in industries like this. Previous studies have demonstrated that a transfer of productive resources to more dynamic sectors contributes to a countrys economic growth and development.
China is among industrialized nations that produce more than a third of the global carbon emissions. Environmentalists claim that China is among the top manufactures and produces 25% of the worlds carbon emissions. More than half of the countrys DGP is derived from industrial production. It is paramount to imagine that the entire economic system of the country rests on the imbalanced degradation of the environment. Therefore, sustainable manufacturing for economic development towards a green economy has been the key task for the industrialized nations. The development of emerging industries, such as electric vehicles, can generate dynamics of growth. Therefore, the evolution of the emerging industries may involve the transformation of the traditional industries or some new industries. The state implements the 12th five-year development plan that includes new energy cars among the strategic emerging manufacturing industries. It is projected that the contribution of the emerging industries to the countrys GDP will increase remarkably and reaches 15% in 2020.
The most prominent feature in the growth of the manufacturing industry is the creation of new concepts and ideas, which acquire new knowledge that explains the core of the new growth models. R&D, as well as new entrepreneurial activities, enhances new values in the industry.
The production of new knowledge and creating new ideas are a key features of manufacturing industry. The growth of this type of industry is the core of the endogenous economic growth. R&D and entrepreneurial activities create new value. Enterprises invest resources into new products and processes designs. These research development activities generate endogenous technological advancement. The intermediates and their flows among the industry network will ensure the productivity and growth of all parties. There is no optimal system. System innovation can never achieve equilibrium, not to say every system has its systematic failures. Therefore, this research will focus on the optimization at the micro-level and the motivations on the demand side.
The main aim of this paper is to gain a better understanding on the developments of emerging endogenous economic growth of manufacturing industry, focusing on Chinas strategic emerging industry. Thus, the main aim of this study is to:
Map out a new growth pattern for the Chinese strategic emerging industry for sustaining a long and a steady economic growth, focusing on a case study on the electric vehicle industry.
Identify the dynamic components and the process steps of the evolution of the Chinese emerging markets.
Examine if the studies in economics have transformed firms into multi nationals because of ignoring the boundary and horizon of the firms endogenous growth model.
Examine how to visualize the black box of the endogenous growth at firms level and products level.
To identify, through the case study, the endogenous models for the Chinese EV enterprises business model innovation.
The organization of this study is on the main purpose of answering the formulated research questions. The questions focus on providing a detailed research design while implementing the case study accordingly. Chapter 2 provides an overview of a comprehensive literature review of emerging industry and provides a detailed review on the endogenous economic growth of the manufacturing industry. Chapter 3 provides a closer look on the existing literature. The reviews will be beneficial in formulating the research design that will be in chapter four. The next section will analyze the implemented case study based on the research design, which will be along side with the data under analysis. Chapter 5 will cover a detailed research timetable that covers the research schedule up to the final phase of wring.
The chapter identifies the challenges encountered by the EV industry through reviewing its present progression status. It begins by providing an overview of the traditional automotive industry including the evolutionary stages of its development and the impediments it faces as the sector becomes more mature with stagnant growth. The second part of this chapter reviews the emerging electric vehicle industry including the examination of the current development stages in countries across the globe while discussing the obstacles encountered by this nascent sector, which hinder its growth. Following the analysis of the practical needs required by the EV industry, key issues for research are identified.
China has a very unruly economy, especially in the automobiles market. This market is full of contradictions that have been in the countrys economic developments since the year 1990. The Government gave the blue print for the establishment of an excellent automobile industry. By this time, only a few brands of the venture cars and the imported models were present in the market. Domestic automobile manufacturers cover only 30 % of the total production of electric vehicles in China. The rest goes to joint ventures and the imports from other countries like the US and the UK. The fragmented industry has no single investor in the domestic market that has become independent or even dominant. Sales of the locally made cars has taken an exponential escalation in the country, and this shows that the natives are beginning to like their national brands as opposed to the imported brands from other well established countries. This is through the double-digit economy and the steady backing by the government of China. BYD Auto, who is a front runner in the EV development, has seen sales with double turnover rates in the year 2009 with a steady growth over the following years (CDP 2009).
As much as the technological advancement in China is still weak, there is an expectation to the growth of the EV industry in the next few decades just as it happened in the other automobile industry. The government has projected that the Chinese automobiles market will expand to over RMB 1 trillion. The government proposes to give adequate support to the potential buyers of the electric vehicles in the Chinese market. However, there were no signs of the progress in the Beijing Auto show of 2010, as well as in the EV industry. In the current world market, Chinas market of the EVs majorly lies in the public transportation sector. This includes taxi fleets, electric buses among others.
There have been two main evolutions in the history of the Automobile industry in the world. And China is not behind the others in this noble course of events transformations. The automotive industry has been a truly global industry that has changed the world, having fundamental impact on both economy and society since the twentieth century. The automotive industry drives the development of many other key industries, such as rubber, steel, glass, manufacturing equipments, and electronics. It remains to be the worlds largest manufacturing activity, the industry of industries named by Drucker in his book The Concept of Corporationin 1946, accounting for 10 percent of a developed nations GDP, such as North America, Europe, and Japan (Maxton & Wormald 2004).
The automotive industry produced over 80 million cars, vans, trucks, and buses in 2005, employing 8 million people directly and 48 million indirectly. It is the largest engine for the world economic growth. By being a mature manufacturing industry, it has undergone two major transformations since the first automobile appeared in the twentieth century. The first is from craft production to mass production, and the second is the shift from mass production to lean production. Every transformation has great impact on the production efficiency and work organization.
The transformation does not end the previous model, it actually enrich the dynamic of the industry structure. It should be aware that there is no universal best practice in the automotive industry. The transformation has also contributed to the management thinking significantly, altering peoples ideas about how to make things. Mass production and lean production techniques are important managerial innovations originated in auto industry, but are well beyond the boarder of the automotive sector.
From the data on figure 1 at the Appendices section, it is clear that along the coast, Shanghai and the neighboring Zhejiang, which together produce equivalent wealth to Indonesia, saw slower economic growth than the national average, a pattern that has been since the start of the international crisis. Chongqing and Guizhong as western regions, show delightful rapid growth rate, which doubles Shanghai and Zhejiang. The disparity reduced at the start of this year, and new areas are dominating in the regional growth rate.
Globalization is a pillar in shaping the manufacturing transformation, which creates new channels for rapid flows beyond national borders of all kinds of resources. Business expends beyond the framework of one nation and dynamically develops everywhere in the world as far as markets exist. An more integrated and complex, global manufacturing system emerged as previous restrictions across borders lifted. Globalization had a great impact on different aspects of the existing automotive industry, such as product development, supplier management, production system, sales and distributions. Sturgeon and Florida (1997) has found that the centrifugal and centripetal aspects of the globalization process.
The centrifugal aspect refers to the internationalization of operations around the globe. This is always among automakers and their tier 1 suppliers in search of lower production costs and new markets. The centripetal aspect points to the centralization of product development and corporate control functions of organizations. This is mainly in home locations of both automakers and their tier 1 suppliers, where automakers and tier 1 suppliers are working together more closely.
Globalization reshapes the structure of the world economy. One trend is the rising of the emerging economics, such as China, India, Russia, and Brazil, proposed as BRICs by Jim ONeill (2005), global economist at Goldman Sachs. As the biggest and fastest growing emerging economies, their development and involvements in the world economy push the manufacturing industry towards a more fragmented, dispersed structure. Manufacturing firms are facing more challenges than ever before in this changing environment, especially those emerging players from developing countries, positioning in the lower end of the global value chain. They encounter challenges, as well as opportunities in this structure change.
In automotive industry, one significant result is the spread of vehicle production in developing countries in the 1990s. Global vehicle production rose by nearly 7 million units between 1990s and 1997. Much of this growth was concentrated in developing countries, as in developed countries, the automotive industry is very mature and has been on plagues by cost pressures, low profitability and overcapacity. The rapid growth of the industry in the rest of the world marked a contrast with the stagnation of production and sales in the developed countries, with an increase of vehicle sales of 80% and production of 93%. While sales in the emerging markets grew at an annual rate of almost 9 percent in the seven years up to 1997, sales in the developed economies increased only at less than 0.91 percent per year.
The focus of the auto industry is now on the potential of the fast%u2010growing emerging markets, which can achieve increased economies, spread the cost, and offset the industrys maturity and stagnation in the developed economies. Emerging economies are becoming an integrated part of the global automotive industry, reshaping its economic geography. Within less than a decade, China became the second largest car producers and the third largest market in the world. Tata Motors from India aggressively acquired foreign brands to strengthen its global presence. Tata bought Daewoos truck manufacturing unit in 2004 and in 2008 and it acquired Jaguar and Land Rover brands from Ford Motor. The rising of emerging players poses both challenges and opportunities to the global automotive industry, which can never be neglected by those established players. Their active participations in their domestic trade bring the new wave in the automotive industry structure.
From reviewing the development status of the EV sector at present, the following challenges are possible. Firstly, it is evident that the weak infrastructural support is prohibiting the growth of the EV industry, without sufficient charging facilities, it is particularly inconvenient for EV consumers and at the same time, it is a critical reason for turning down the EV option for potential EV users. So far, the limited numbers of charging facilities established across different countries demand more efforts to be in this important area(Long 2010), which is vital in encouraging the uptake of this emerging product. Secondly, two challenges have been under recognition relating to the demand and supply for EVs. Currently, the demand for EV is mainly from government policies. These are issues like the National Electric Mobility Platformby the German government, Mobi.E by the Portuguese government, Thousands of Vehicles, Tens of Cities program by the Chinese government. These would cause concern for the industry when policy makers decide to withdraw the subsidizing grants; hence, the unstable demand remains a difficulty for industrial players. Conversely, it was also in Shandong province that the demand in this region is not by the government policies. In this case, it comes from the indigenous people. The supply side of the industry is facing technology challenges with limited production abilities in meeting the strong demand (Rong & Shi 2010).
Third and most importantly, the challenge for the EV industry lies in the ability of governments to support and nurture this nascent sector. It is true that governments have encouraged industry developments to some extent evident from the aforementioned subsidizing programmes; however, the challenges of prescribing sound policies in order to support the buildings of infrastructures and to provide standards and sensible regulations in controlling the industry remain. As revealed earlier, the conflicting legislations between the central and local government for regulating the EV industry in Shandong is seriously limiting the progress of its advancement. Therefore, the EV industry faces the difficult challenge in obtaining sound policies in order to acquire growth.
The innovations in technology have changed the manufacturing architecture in a global scale. Digitalization, in particularly, enables information to be processed and handled in a nonlinear manner, and greatly facilitates the management and transmission of large data volumes in manufacturing industry. Sophisticated manufacturing process, therefore, is codified and modularized, enabling manufacturing activities to be dispersed and re%u2010located beyond existing geographic and organizational constraints. Modularization, on the other hand, requires extensive coordination and communication among different producing networks. The focus on manufacturing process lies on the nature of information, the codification and standardization of information, and the communication of information (Fujimoto 2002). Modularization greatly boosts the growth of dynamic production networks. Vertically integrated manufacturing industry experienced a vertical%u2010disintegration process and formed into networks with different configuration, involving extensive participation of firms of the value chains.
Insertions into the value chain differ among firms, with some occupying the high%u2010value%u2010added positions, and some the low%u2010value%u2010added positions. The smiling curve, initially proposed by Stan Shih (1992), founder of Acer, an IT company headquartered in Taiwan, illustrates the value%u2010adding potential of different positions of the value chain in IT%u2010related manufacturing industry. It is still the case beyond the IT%u2010related sectors. The manufacturing part is a low%u2010value added activity, which most firms are willing to outsource to keep cost low, while other activities at all levels of the curve have higher%u2010value%u2010added potentials.
Since globalization of markets and component outsourcing has led to greater consolidation of both the assembler and supplier segments of the industry, modular manufacture has become a powerful interface in the auto industry. If automotive manufacturers outsource rely heavily on sourcing the production of modules, powerful suppliers would become the engine of a new technological development for automotive industry. In the extreme case, the whole production function might be available to their suppliers; brand holders would emerge as the consumer services companies with little in%u2010house production facilities that have been essential to a companys identity and spirit. This case would reflect what has already happened in the electronic industry, where there have been some big and powerful.
With several decades of the development, the automotive industry itself is quite matured and is suffering from the over%u2010capacity and slow growth. The global automotive industry now consists of handful major international blocs of manufactures. Suppliers are becoming increasing concentrated with highly oligopolistic structure in the global market for key parts. However, this industry is still with much potential as the industry structure changes.
The fact that the EV industry emergence requires the collective efforts of participants from all levels of support, as identified in the previous section, implies that it is an ideal practical industry to study business ecosystems. In turn, the understanding of the EV business ecosystem would then be able to shed light on the industrial challenges faced by the business players. At the same time, the current challenge of prescribing supporting industrial policies requires the understanding of the industry and the structure of firms and markets in order to regulate the EV industry, which points to the research direction of industrial economics. This is because industrial economics studies focus on the industrial structure, its underlying conduct, and performance to provide guidelines for policy makers.
Furthermore, with the identification of the current challenges of the limited infrastructural supporting abilities, inadequate demand or production abilities, and incompetent policymaking skills, it is evident that the understanding of the capabilities of the business ecosystem players is critical in affecting the development and growth of the EV industry for reasons as follows. Firstly, the capability of business ecosystem players is a key issue for the advancement of the industry as it is the provider for many projects, economic subsidies, and establishment of infrastructure support that are quintessential in developing this emerging industry. Secondly, although the market response is strong within the greater Shandong region(Rong & Shi 2011) due to the practical benefit and the pricing associated with the EV product, the abilities of the core components firms, OEMs, research centers, as well as the service and infrastructural providers are not sufficient to fulfill these demands.
This is especially due to the inadequate component suppliers and the technology challenges of batteries and motors. In fact, the limited capabilities of these industrial players restrict them from developing products with more advanced specification that means they cannot evolve to the higher end of the market of ordinary EVs even if the product allows them to capture more value. Consequently, there is a practical demand from the EV industry in the research concerning the understanding of the business ecosystem capabilities to allow the effective progression of this emerging sector.
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