All entries for Tuesday 02 March 2010
March 02, 2010
ENVC Exercise 1
Question: Examine an industry that you are familiar with, and assess the nature of the start-ups in that industry. Give examples of no more than four of these start-up firms and allocate them to Bhide's categories. Why might this matter to an incumbent firm?
The automotive industry has for many years been characterized by petrol or diesel consuming engines that pollute the environment. These little environmentally friendly engines are based on fossile fuel that will get scarcer and more expensive to obtain in the coming years. The "Green planet" and the ever increasing pollution globally has opened for a new market for motor vehicles based on renewable sources of energy.
There are many start-up in this booming business besides many well-established car manufacturers that invest heavily in electic cars and electric engines and batteries.
Audretsch and Tourik (in Bourke 2006) argue that small firms tend to bee seen as second grade organisations. This is even more so true when speaking of small automobile producers that do not posess the economical muscles to spend on research and development and marketing.
Think is a small Norwegian company that produces electric 2 seater vehicles that has been saved from bankruptcy by investors and the norwegian government 3 times in the last 10 years. This demonstrates the capital intensive approach of selling a new product in a very well established and oligopolic automotive market.
Statistically, it is a marginal car manufacturer producing only a few thousand cars every year. It can travel up to 170 kilometers (106 miles) on a fully charged battery which limits its radius of operation to a great degree. Think comes with a high price and its battery pack is also very expensive to replace after some years in use. This limits its market to those that can afford a car like that or those who want to keep a "green image" while saving taxes, toll and petrol expenses (el-vehicles are duty free in many countries in Europe). Applying Bhide's (2000) terminology, we may argue that Think is a highly innovative and a "promising start-up" with low expected profits (actually operating with losses).
REVA Electric Car company (RECC) currently World leading electric Car manufacturer. Situated in Bangalore, India itsells its cars all over the world. It has a 30.000 cars per year production capacity and the benefit of assembly and production in a low-cost country compared to Think which is produced in Finland and will also be produced in the US. Both of these cars look quite similar at first glance. They are realtively small 2 (+2) seaters and have a limited range even with fully charged battery. The REVA IC (inter-City) model has a top speed of 104 km/h and a range of 160 km. (99mph)
According to Bhide (2000) an entrepreneur must be adaptive to change and learn from previous errors. Both REVA and Think were seeking partners in the larger well-established car manufacturers in order to promote and develop their products. Ford Motor Co. was a primary owner of Think until they announced that they were putting THINK on sale facing financial difficulties on their own. REVA announced in september 2009 that they are making a joint collaborative agreement with GM India to promote electric vehicles on the Indian market.
GM CHEVROLET VOLT
General Motor's Chevrolet Volt has a lot of similarities with the previous two examples. It has however some significant differences. Compared to Think and REVA this is a full-size saloon that has both range and capacity that evens the capacity of similar size cars powered by traditional petrol engines. It is a make-or-break presige project for GM with high hopes and a breakthrough that will help GM overcome its current financial difficulties. Using Bhide we may categorize Chevy Volt as a "corporate initiative" that has a financial, technological and know-how backing from the mother company.
Looking at the Bhide's chart below that categorises ventures by their growth potential we may conclude that both THINK and REVA are well within "promising start-ups" category that characterizes ventures with high risk and uncertainty. They are also close to revolutionary ventures category since they exploit new sources of fuel energy but they fail (for the time being) in realising high profit margins that are typical for these type of ventures. Chevy Volt is more of a "Corporate Initiative" that having a heavy financial backing for GM. It is still early to see the profit picture since the model is due for launch later in 2010. It is interesting to notice that competitor Chrysler's similar E200 Electric Car project has been abandoned earlier in 2009 without a proper explanation why.