Here’s the copy cat manufacturer business model:
1. Blatantly copy designs that required substantial research expenses for your competitors to produce.
2. Set up a cash cow business whereby you undercut your competitors with copy cat products that sell for less due to lower labour and design costs.
3. Then use the cash flow from your cash cow to develop even better products than your competitors.
It’s the viciously competitive (and borderline intellectual-property-infringing) avenue by which many Asian manufacturers have moved up the value chain. (Toyota included, who is now a victim of the practice)
Caing has an excellent article outlining how BYD, the Chinese auto and battery company that Warren Buffett has famously invested in, executed just such a strategy.
Last May, the city of Xian started switching its taxi fleet to the BYD F3 car, which at first glance could be confused with a Toyota Corolla. Indeed, the F3 is an inside-outside copy of the Japanese manufacturer’s small car but costs only half as much.
BYD isn’t shy about its business practices. In the F3’s introductory period, the company marketing department touted Corolla similarities as a sales point. At some service centres in the city of Zhengzhou, F3 owners could spend a few hundred yuan to have the exterior badge swapped with a Toyota logo. And last year, after just five years in production, annual F3 sales reached 300,000 units, making it one of China’s best-selling cars.
To develop good cars in the shortest time possible, BYD spends tens of millions of yuan every year buying and then dismantling the newest models built by manufacturers around the world.
That’s also how Wang set up the company’s first battery production line. In those early years, a fully automated Ni-Cd battery production line from Sanyo cost tens of millions of yuan, so Wang decided to make one himself. He reverse-engineered the setup for an identical production line that cost only about 1 million yuan.
Of course, for a manufacturer to become a leader, rather than just an imitator, they have to perform item #3 above, which is the most difficult. Yet BYD seems to be now developing new innovative battery technology well ahead of auto leaders… all funded by its copy cat cash cow products.
Copying was in Wang’s blood. After a 2003 visit to BYD’s Songjiang laboratory in Shanghai, for example, a former Chery Auto expert noted that he saw only two pieces of lab equipment that had been imported; the rest were Chinese-made imitations of foreign equipment.
How can simple imitation win a market? The Chery veteran said BYD strategy’s is based on focus, brazenness and precision.
Rather than waste effort creating new models for the sake of variety, a limited number of resources are spent on developing key products. That’s the company’s focus. As a brazen market player, BYD picks best-selling products and blatantly copies them, head to toe.
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