Thursday, February 11, 2010

How Manufacturing's Mockingbird Sings

Thanks to Lincoln for passing this along.

From batteries to cars, BYD engineers have found that successful product manufacturing begins by copying others

Auto technician Li Xuelin never dreamed of dismantling his boss' Mercedes Benz S300. But one day, that's exactly what the boss ordered Li and a half-dozen colleagues to do.

It wasn't easy. At first, the technicians just stood beside the shiny black car, daring not to touch it. But eventually their boss and BYD CEO Wang Chuanfu broke the stalemate.

Wang stepped up to the car and, with sweat on his brow, gouged the paint job with a car key. "Now you can start," he said.

Li's team disassembled the car, piece by piece, to reverse engineer the luxury car's electronic control system. It was a painstaking but money-saving project that's now become a trademark for Wang and BYD, a highly successful Chinese manufacturer that's proud to be a master copyist.

Since its launch in 1995, BYD has expanded from OEM battery manufacturing into various unrelated fields including IT products, autos and new energy. Li's experience with reverse engineering Wang's Benz has been repeated at many levels by BYD's army of about 30,000 engineers and technicians.

By reverse engineering products made by others, BYD pushed its way into manufacturing production, eventually expanding upstream and downstream in chosen fields to build a profitable, vertically integrated enterprise. BYD won big wherever its elbows went.

BYD's success as a revolutionary copyist has drawn mixed reactions, but of course business champions seldom pay heed to grumblings from those they defeat. When carmaking, for example, BYD found that reverse engineering can cut the cost of a new vehicle by more than one-third.

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.

The company also works to rigidly control costs and quality, and learns by doing. "BYD's excellent quality imitation cars are tied to the fact that the company has accumulated experience in strict product control from its earlier practices in batteries and the IT sector," the Chery source said.

"Maybe it's right. They very well may become China's flagship auto manufacturer."

"Why are our cars so cheap?" retorted a mid-level staffer at BYD. "Money is saved on every part, from engine to dashboard."

This do-it-yourself attitude stretches from manufacturing to distribution to sales. True, BYD's homemade company ads are a little rough around the edges. But it spends only about 20,000 yuan to build a lighted, outdoor ad which, if outsourced to an advertising agency, could cost more than 400,000 yuan.

Hands-On Success

When U.S. billionaire Warren Buffett invested in BYD in 2008, major transaction player and MidAmerican Energy Holdings CEO David L. Sokol visited BYD's Shenzhen battery workshop. He was surprised to discover employees sitting on rows of workbenches – like 18th century seamstresses – busy producing millions of batteries every year with simple tools and bare hands.

Indeed, from the start, low-cost labor has been integral to Wang's strategy for overtaking Japanese competitors. He uses people instead of machines wherever possible, supplementing humans only when necessary.

BYD is proud of this operational model which it weaves into unique staff recruiting practices. In addition to laborers, the company hires top engineering students, sometimes an entire university class immediately after graduation, as well as capable engineers and retirees with extensive experience.

In a 2003 television interview with official CCTV, Wang said he thought labor costs plus market advantages were keys to success for Chinese enterprises.