Themed "No Future Without Technological Innovation", the 2021 New Year Forum of Fudan University School of Management focused on the strongest momentum for the industrial development, providing deep insight into the trend of technological innovation as well as the Chinese economy. Professor Sun Jinyun pointed out that business model innovation and technological innovation are two very different paths, which will lead enterprises onto different directions of development and will determine the future influence of Chinese enterprises on the world. In the past twenty years, most Chinese entrepreneurs have been obsessed with business model innovation, which can hardly give birth to companies with competitive advantages on a global scale. "Now we should turn our attention to technological innovation,” Professor Sun said. “Despite the large investment, high risk and long cycle of technological innovation, this is the only way to conceive specialized, globalized, and internationally competitive companies in the future."
Today let’s get to know Professor Sun better through his analysis on the competition between Tesla and NIO.
Recently Tesla's price cuts have attracted the attention of the media and the consumers. Rumors have been invented to exaggerate the impact on NIO (also known as Weilai), so far the biggest manufacturer in the Chinese electric car market. How to interpret Tesla's substantial price cuts? How should NIO address this challenge? Are new energy vehicles just a supplement to fuel vehicles, or will they completely replace the latter and become the mainstream in the near future? Professor Sun Jinyun shared his in-depth analysis concerning these questions.
He reminded us that there are three basic business strategies according to the strategic theory:
1. Cost strategy. If there is a huge growth potential in the target market, the product in question is price-sensitive and it is easy to realize large-scale production capacity, then the company should continuously cut prices so as to gain as much as possible of the market share. Its focus remains on continuously reducing costs in order to lower the price and gain competitive advantage over competitors.
2. Differentiation strategy. Highlight the high quality of the product. For products featuring complex functions and asymmetric information, where experience of the product is necessary, and consumers are often more sensitive to quality and brand, the strategy that focuses on differentiated products or services is most applicable.
3. Focus strategy. Avoid rivals targeting the large-scale market, and offer a specialized product or service for a niche market.
Professor Sun then analyzed the differences between the Chinese and American markets. In the U.S., giant middle class, geek culture, Musk's personal connections and influence, etc., all enable Tesla to overcome technical obstacles while polishing products and enhancing its brand value. Meanwhile, China is a developing market where eBay, Google, and Amazon have all lost ground. Here the low-end market is huge, consumers are highly sensitive to the price, and herd mentality often tends to take over.
“Tesla has always been sticking to the cost strategy in the Chinese market,” Professor Sun pointed out. “Musk has built factories in China. He has been expanding, reducing costs and prices continuously. A positive cycle of expansion-price reduction-sales increase-further price reduction has been established.”
Then how should NIO address this challenge?
On January 3, 2021, Qin Lihong, President of NIO, made it clear that they are not intended to cut the price while releasing their second-hand car service policy at the NIO HOUSE in Shanghai Center.
When the opponent adopts the cost strategy, a sensible approach for a company not willing to focus on a small market is to get around the opponent's edge and differentiate by giving more emphasis on quality, service, brand value and customer experience. In this sense, as the benchmark of quality, the price can’t be reduced. With the second-hand car service policy released, NIO has established its closed loop business model. NIO’s confidence lies in its unshakable focus on improving the quality of user services.
Professor Sun warned entrepreneurs that, those who don’t have a clear business strategy, trying to engage in each strategy but failing to achieve any of them, might end up “stuck in the middle”, as the marketing master Michael Porter put it. The price is not cheap enough; the product is not outstanding enough – and as it turns out, there are often a large number of such companies in the market, who then are all trapped in a homogeneous competition.
Professor Sun believes that major strategic clusters have been formed in China's new energy vehicle market. Under the dual support of government policy and corporate strategy, sales of new energy vehicles will continue to rise, so as to achieve a faster replacement of fuel vehicles.
