What International Car Companies Seeking Success In China Need To Know

Post written by Dr Christine Côté, Associate Professor (Education) of International Business at LSE’s Department of Management, and Dr Haixia (Helen) Hu, LSE Fellow at LSE’s Department of Management.

China represents the largest market for traditional Western car companies operating globally. For Mercedes-Benz, the luxury German car manufacturer, success in this market requires understanding and addressing the unique challenges of this emerging market landscape, along with the dynamic and disruptive changes within the Chinese car industry.

This can be done by learning lessons from domestic Chinese car companies such as BYD. BYD is a Chinese company established in 1995 by Wang Chuanfu and originally focussed on battery production. Today, it has taken the leading position in the Chinese Battery Electric Vehicle (BEV) market, producing and selling more vehicles than other leading Western car firms.

By developing dynamic capabilities – an organization’s capacity to respond to the external business environments while reconfiguring existing assets and developing new skills needed to address emerging threats and opportunities – BYD has expanded its presence to encompass over 30 industrial parks in more than 400 cities and 70 countries across six continents, with sales surpassing Telsa.

In our recent research, we collected qualitative data from four managers working in the Chinese car industry and a China based Senior Vice President (SVP) of a successful European luxury car company. We found that BYD’s transformation underscores three crucial organizational capacities: sensing capability; seizing capability; and transforming capability that were shaped by institutional voids.

Sensing capability: Openness to change

The Chinese market is characterized by institutional voids, referring to the absence or weakness of formal institutions—such as regulatory frameworks, legal systems, or market intermediaries—that typically support business operations, as well as informal institutions, including norms, customs, and culture.

The sensing capability reflects a firm’s ability to change. To predict external business environments, consumer demand, and craft responses to regulatory voids. Chinese firms operate in an environment of regulatory voids characterized by a lack of enforceable laws and regulations, including regulations and transparency regarding IP protection and competition.

BYD utilized this lack of regulation in its transformation journey, initially purchasing and copying Japanese and Korean technology before developing their own Chinese brands. This allowed BYD to strategically align with Beijing’s vision of ‘going global’, addressing energy security, air quality, and carbon emission control and the upgrading of the industrial chain.

This alignment with the Chinese government opened the door to advantageous support including local government protection, advantages in the protected home market, access to cheap state financing, subsidies, upstream support, and partnerships with state-owned enterprises. In turn, BYD helps Beijing achieve its industrial goals of becoming a leader in the world electric vehicle market.

For western firms, when operating and competing in the Chinese market, a comprehensive understanding of this change and a willingness to adapt to the unique industry dynamics is crucial. This often means engaging local partners who understand how to align with Beijing’s agenda.

Seizing capability: China speed

Seizing capabilities represent how quickly a firm’s processes can respond to opportunities and threats once they have been identified and prioritized, including the reconfiguration of business models and offering new value propositions.

Western firms operating in the Chinese market often possess cognitive voids or insufficient understanding and knowledge about market operations and customer preferences, which may hinder effective business decisions and strategies in contrast to local firms which have privileged access to data for innovation. This enables firms like BYD to quickly reconfigure their business models and offer new value propositions associated with ‘China Speed’.

BYD’s dynamic capability in sensing internal changes and adapting at ‘China Speed’ resulted in very customer focussed and rapid new product development. This allowed BYD to scale for rapid growth, producing 5 million cars by 2023, and developing plans to build 10 million by 2028.

While BYD enjoys privileged access to local data, foreign companies lack this access for research and development, meaning they must localize their R&D in China to compete. Additionally, prioritizing speed in innovation, functionality, cost-efficiency, and cutting-edge technology is essential to maintain a competitive edge. International companies must overcome these cognitive voids and focus on adapting their product offering at China speed, which will often require influencing the more traditional mindset and slower pace of Western head office senior management.

Transforming capability: Juan culture

Finally, the transforming capability represents realignment of an organization’s resources and assets, drawing on an understanding of workforce culture and norms.

China’s workplace culture, defined by intense internal competition and innovation, is often referred to as Juan culture and it demands a different management approach. Employees work under the infamous “996” model (9am to 9pm, six days a week) with a work ethic that prioritises constant competition, leading to innovation and improvement. Therefore, foreign firms like Mercedes-Benz need to localize their research, development, and operations in China and integrate Juan culture into their Western management style.

The concept that ‘the only constant in China is change’ and that change is inherently good is deeply rooted in Chinese society. Therefore, addressing normative voids and understanding the Juan culture will require international companies to adapt work practices in their China operations which may differ greatly from the cultural norms which govern their home country practices.

Institutional voids are not always bad, they may present ‘opportunity spaces’ for firms. For firms entering emerging markets, rather than perceiving institutions as fixed constraints and institutional voids as mere sources of increased transaction costs, they should develop dynamic capabilities to overcome and capitalize on them.

At Mercedes-Benz, there is a strong understanding of the need to adapt to change and the fast pace at which local Chinese competition is innovating to meet well-understood customer needs, as well as the Chinese workplace culture that supports this. Their challenge, like that faced by other Western car companies, is to build their own dynamic capabilities and integrate their own practices and strategies within this growing market.

Source: This article is derived from and reproduces arguments from a paper published by the authors in the Academy of International Business (AIB) Insights 2025 –