The Truth Behind China's BYD Car Company--And Warren Buffet's Investment

Posted by: Bruce Nussbaum on February 11, 2010

This is the most honest and insightful analysis of a leading Chinese company that I have ever read and it comes out of Caixin Online inside China, not the US, European or Japanese business press.

This is how the article begins: “From batteries to cars, BYD engineers have found that successful product manufacturing begins by copying others.”

Yes, Warren Buffet is investing in an auto company that cuts costs and generates value by reverse engineering Japanese, European and American cars, steals their technology and intellectual property, and resells it at a lower cost. Yes, BYD also use a lot of cheap human labor to keep costs low, but it begins by reverse engineering and not paying for the technology it takes.

As virtually every US, European, Korean and Japanese company knows but doesn’t publicly say, this model of copying but not paying for foreign technology is THE PARADIGM in China. I was on a plane flying home from Beijing recently and overheard a manager from a US company selling electric car-charging stations to China admit that he believed his technology would be copied in a year or two, without any compensation paid. But it was still worth it to his company and he hoped it could stay ahead of the high-tech curve.

I’ve seen true innovation and creativity in China. Lenovo, to my mind, is a truly innovative company. So is Haier. And there are thousands of creative people in social media and tens of thousands students graduating every year with great creative skills.

But the culture of copying remains the dominant one in China. It apparently is reinforced by government-condoned, if not sponsored, cyber-espionage on a vast scale that penetrates computers and steals technology from companies and governments all over the world.

I hope the forces of creativity win out over the forces of copying in China. For many industries, there may soon be a time when there isn’t anything left to copy from the West, but there will be no culture of creativity to move forward and build the new. I am encouraged in this by the fact that inside China, there are publications like Caixin online that can escape government censorship and publish the truth about the Chinese manufacturing and export “miracle.”

BYD is scheduled to sell all-electric cars in the US soon. They will be cheap. There is a reason for that.

Back to you Warren.

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Reader Comments

tianxia

February 11, 2010 05:27 AM

5 years ago, when GM just ended their EV project, BYD was investing heavily in BEV, now BYD is closest in produce a practical main stream BEV, that is vision, innovation and leadership. you can not copy one when you are the first. I hope you agree.

reverse engineering is not illegal or immoral, as long as you do not hire people from the target company, and do not obtain any non-public information. reverse engineering products bought from open market are done routinely here in the states. remember PC? they were used to be called "IBM compatiable"
you know what that means.

"Steal" is judgment can only be rendered by a court. there has been lawsuit alright, Sony suited BYD for li-ion battery technology patent infringement in Tokyo high court years ago, and judgment was Not Guilt. you are not one person judge-jury-court.

if you want insight, here is one: BYD will be the company who end the age of fossils fuels. come back in 10 years and you will understand. now its beyond your ability.

Interconnect

February 11, 2010 07:48 AM

Warren Buffet investment for yield/profit is good what should be every enterprise thought. Knowing all the facts about the partner, country and the decision is individual. China is great miracle, with companies as Huawei, ZTE which excels in established names as Lucent, Ericsson in several areas in terms of patent filings today. With orders being gained from West Europe, North America etc. After waging the war on China today Toyota is victimised for 8 million cars being recalled. Looks its Japan in focus after Chinese toys. Chinese brands, products, companies, people are as competent than any other industrialised nations. I would complement Warren Buffet, as many countries in the region are in que for BYD products for electric car products where China Petroleum has major concession for oil extractions, and paying huge money for import of oil. Waiting BYD for their Prius version for the region and beyond which has PTA/FTA concessions for trade.

Paul

February 11, 2010 09:50 AM

Grow up. If ANY company has a legit reason to claim an exclusive on a particular technology, i.e. a patent (which only last 20 years... not eternity) then they can go to court and sue for patent infringement. If they don't then they probably have no claim and nothing exclusive is being copied! Get over it!

gto

February 11, 2010 11:09 AM

Of course Chinese Co's reverse engineer products you dumbdumb.. everybody does. How else do you think the Japanese jumpstarted their auto-industry so late after WWII. They had to copy & reverse engineer foreign makes (US + later european makers) also known as BENCHMARKING until they felt confident enough to produce & design cars with a 'Japanese flair/style' as well as Korean makers after.
More recently, US, European & other asian car makers have had to Reverse-engineer Toyota's Prius when it hit the markets. Despite a few prototypes stuck in some storage somewhere US makers (old Big 3) had some serious "CATCHUP" to do and how do you catchup when you dont have technology & designs yourself? Even might Porsche / Merc / BMW were a little behind in hybrid technology.
Have you heard of "Industrial Espionage" or is it just another way of saying "copycat" ?
Many designers/creative artists "emulate" or bases their creations on a previous artist/designer until they achieve their own style (successful ones anyway).
Unfortunately with the internet, AutoCAD, super efficient workforce etc copying rather than innovating provides the greater returns in a shorter time. Until they realise original designs can provide greater margins & brand recognition then copying will prevail more than innovating.
However, the PC/mobile or electronics industry is a great example as me-too products which may initially generate sales in a growth market but too much competition & increasingly sophisticated consumers mean producers need to move up the value-chain.
Nevertheless, there will always be a market for me-too products it all depends on who your customer is.
Note: in this present economy CHEAP & ok reliability is the NEW BLACK

tianxia

February 11, 2010 03:51 PM

the only hard fact you mention in the article you mention in the article is that BYD did a lot of reverse engineering. from their you generalized into "steal technology" and then generalized into "Chinese paradigm". but in fact there has not been a single legal judgment against BYD(that i know of) despite been repeated suited by Sony, Sanyo in Japan, US. on the other hand, there are significantly more law suits again Apple and Apple does lose some law suits here and there. if you argument is right then the same argument will be much more right against Apple, can write a article about Apple steal technology from other to make hot products like iPhone and other, then generalize it into a paradigm of US??

i am just shocked at your lack of reflection and lack of basic intellectual consistency of the article. the author and the magazine should be ashamed.

HyperMiler

February 11, 2010 05:32 PM

Chinese posters here in particular don't seem to understand the illegality of Chinese practices. Reverse engineering and teardown analysis is legal. What's not legal is producing the exact or almost exact replica of original product like Chinese are doing, instead of producing functionally equivalent, yet different, product like Japanese and Koreans did.

Japanese and Korean companies teardown competitor's product to study and learn how competitor's product work, then go on to produce their own products engineered themselves. This is different from Chinese practice of producing replicas.

redduke

February 11, 2010 05:59 PM

Living in a glass house should not throw stones at others.

David Preston

February 11, 2010 08:26 PM

Along the same line... BYD is coming out with a vanadium-lithium-phosphate battery in their new EV cars and that was invented in USA by Valence Technologies. Vanadium added to the Li-ion battery cathode adds 5 times the energy storage = 5 times the range on each charge. Read about vanadium here:

http://shop.beauticontrol.com/webapp/wcs/stores/servlet/ContentView?storeId=10551&langId=-1&catalogId=10551&pageID=BChome&showBG=2

Shifu

February 12, 2010 12:49 AM

BYD is ahead of the Volt so we can't say they copied it from GM. Sour grapes? Heck, that's how Sony came to be. The asians are smart enough to realize - "Why re-invent the wheel". Copy and improve on it.

triunegroup

February 12, 2010 03:26 AM

Invention and innovation are relative terms. Microsoft built its empire on a stolen Operating System --- DOS. DOS laid the foundation for the computing revolution and now we have Windows 7, which is still built on the original DOS O/S, now with multi-tasking capabilities. Oracle steals from SAP and vice versa. So, for us to call one of the greatest invention nations of all time a "copying nation” does injustice to all that China has contributed to mankind.

Just look at some of the life changing inventions brought forth by the Chinese - http://en.wikipedia.org/wiki/Chinese_inventions

And, when did it become illegal for us to reverse engineer a product in order to improve on it? As Americans, we have lost our ingenuity, and may not recover until we get back to focusing once again on the sciences. Too many of our kids were pursuing high-paying jobs on Wall Street and neglected the Sciences.

As Jim Rogers says: "The 19h Century was the century of the United Kingdom / Great Britain; the 20th Century was the century of the United States; and the 21st Century is going to be the century of Asia, lead by China." For this very reason, Jim Rogers migrated to Singapore with his family.

Bill

February 12, 2010 03:31 AM

Interestingly, you don't mention who BYD copied in making their most important product, the electric car battery. Perhaps because it's a BYD product leading the industry, way ahead of any American car company.

Copying design styles is a ridiculous argument. Every decade has had its dominant theme from fins in the 50s to aerodynamic waves in the 00s. Did each car company come up with these designs independently? I don't think so.

Joe

February 12, 2010 05:41 AM

Obviously a stupid attempt to beat the price down so you can get in. You obviously know nothing about the automotive industry.
One 4 letter word you, FORD.
Did Mr. Ford not invent the assembly line. I guess, in your eyes, nobody else should be using an assembly line.
Come to think of it, maybe there should only be Mercedes on the road, being that Karl Benz invented the automobile in the first place.
You, like too many other columnists, should think before putting your fingers on a keyboard.

Chris

February 12, 2010 06:33 AM

BYD will not be cheap. It is $41,000 dollars to purchase.

Many people keep saying China copies technology. I do not think it is actually possible to copy technology. If Ford could "copy" from Rolls Royce and become Rolls Royce, then every car manufacturer will become Rolls Royce. Obviously, that is not the case.

It is also difficult to copy what the Japanese and Americans don't have. An actual working electric car that has over 100 mi range.

HyperMiler

February 12, 2010 04:44 PM

@ Bill

> Interestingly, you don't mention who BYD copied in making their most important product, the electric car battery.

A123. BYD's piracy of A123's battery is a famous story among EV fanatics, except that it is a 80% copy and not a 100% copy as BYD failed to steal the nanotube part.

yo

February 12, 2010 05:28 PM

Who owns the copyrights to compass, ink, paper, silk production, printing and countless other early inventions?

Hacksaw Buzz Sawyer

February 12, 2010 11:14 PM

This Loser-baum guy who wrote the article totally miss point.

Chinese patent and trademark laws are similiar to international norms.

There are some companies that actually violate patents and trademarks. BYD is not one of them.

As for "copying" or "reversed engineering" - you can reverse engineer as long as it does not violate any patent, trademark or trade secrets.

LOL

February 12, 2010 11:35 PM

To Bruce Nussbaum :Warren Buffet is investing the BYD's battery. The battery is'nt copy. Recalled A123 System took apart the BYD's battery that they thought it is copy of their battery technology but the wishes went evapolated.

yianni

February 13, 2010 08:06 AM

Today's car designs are mostly computer generated. Since the optimum parameters such as Min. consumption, ultimate road-holading etc. are very similar, its evident that the end result will also be similar. If you call this ''copying'' , you are obviously not familiar with auto industry production or designs.

Chief Green

February 14, 2010 08:30 AM

Bruce Nussbaum is trying to pass off unsubstantiated slander against BYD as truth. There isn't any other electric vehicle in the world that resembles BYD E6 in terms of style or performance specifications. BYD has full patent protection on the E6 in all the markets it plans to sell that product. A product design is protected in a market only if it is patented in that market. Any design not protected by a patent can (and will be) copied by other competitors. If a company puts a product on the market without any patent protection, then there is absolutely nothing that company can do to prevent others from copying that product.

THE ECO PLANET

February 15, 2010 06:21 AM

Bruce Nussbaum copied the idea of angry philosophy and tries to sell that to others, but it fails by the leak of knowledgably vision.

But we know there is always the way of call back as an escape from unfounded critics.

BYD is ahead, BYD proves, BYD performs ,that's what the truth is and it gains on shares and competiveness already.

A BYD stock is the answer.

evamary

February 25, 2010 02:48 AM

Even if BVD did steal some ideas - the car and gasoline companies and the politicians who back them - have only themselves to blame. China is clearly taking peak oil and climate change seriously, while the US for instance is still selling V8 cars to Australia. When an Australian company tried to import the REVA electric car from India into Australia, the government banned it on the grounds that it was "unsafe". A more likely reason is that the US car and oil companies want to continue business as usual - see the mad rush to extract oil/gas at any environmental cost from on and off shore sites. BYD sounds like the way to go.

Yuan Tian

March 2, 2010 11:17 PM

To be honest, I am always dissatisfied with and worried about China’s lack of original technological innovations as a Chinese citizen. I know this culture is really devastating for long-term competitiveness in the high-tech world. However, the accusation of BYD in this article is a little out of line. All technologies are combinations or descendants of other technologies. Adopting widely from others’ advantages is one of the keys in making new technology, thinking about Watt and his engine. Who knows that BYD will not make a giant innovation on automobile based on all these learned technology? Also, Western car companies simulate each other in certain technologies all the time to compete with other. This exists commonly in other industries, HTC adopting ideas from iPhone, Target adopting ideas from Walmart. Do all car companies in US have to pay Ford? Or do all PC companies have to pay IBM? Why is some one so biased when the learner side is a foreign company? And is it a little rush and inappropriate to make the judgment so quickly that this “stealing technology” thing is a Chinese paradigm based on the behavior of one car company in China?

Angelo de Souza

March 8, 2010 10:49 AM

To HyperMiler,
Nopes, its not that the Chinese don't understand that they are cheating. They CHEAT deliberately and purposefully, ALL THE TIME. They have been cheating for a long, long time now. Recently, they even exported sub-standard medical drugs to Nigeria and labelled the consignment "Made in India".
How shameless can a country get ??? And, instead of punching the Chinese in the face and kicking them in the balls, the Americans tolerate their crap. Obama didn't even meet with the Dalai Lama late last year for fear of offending the Chinese. Remember, India which is far less powerful (than either China or the US) has given the Dalai Lama and his followers a home in India ever since he fled China in 1959 to escape almost certain death.
Before its too late, wake up and smell the coffee, Americans. Team up with other like minded nations to checkmate the Chinese.

sven

March 15, 2010 04:28 PM

China can only copy and then pruduce it cheap because of poor labour wages.
My company self hat to make this expirience, and we hat no chance to lawsuit, because there are selling it only on the local market.
If the want export, then you got maybee a chance to get them.
Anyway, we in germany had this technologie long time ago, but its make no sense to produce E-cars here, because
1.the price will be to high
2.nobody will buy then, because wee need longer range and higher speed.

so, now com out of your holes, Chinese Komm prty Spammers ;-]

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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