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Challenge Future
The Future of Work Contest Semifinal Round Project Report
Team Name: Paragon
Team Member/Leader: James Yan
Harvard University Extension School, MA, USA
This project report contains several sections. In this report, I synthesize all the relevant information into a
comprehensive analysis. Heeding the judges’ suggestions from the first round, I have made this report
much more detail-oriented. I hope the following discussion illustrates a clear mental picture of a future
company in Eastern Europe, namely, a new electric vehicle producer.
Introduction /Background:
Although it has been over 20 years since the collapse of the Iron Curtain, Eastern Europe is still
struggling to catch up with its more prosperous Western European neighbors. In order to develop a
competitive economic edge in the next decade, EE must begin the transition from a predominantly
efficiency-driven economy to a knowledge-based, innovation-driven economy. Eastern European
economies must move up the value chain and find endogenous sources of innovation. One promising
future industry in EE is the clean-tech industry. The clean-tech industry is propelled by exciting
innovations that offer environmentally friendly applications in our daily lives. Specifically, I have singled
out electric mobility (eMobility).
eMobility will be one of the most promising fields in the world during the next decade, but especially in
EE. Embracing eMobility will provide EE with a permanent new source of innovative potential, thereby
facilitating its transformation into an innovation-driven economy while preserving its competitive
advantage in low-cost manufacturing. First, I will highlight the future prospects of eMobility in EE. Then,
I will indicate why EE is the perfect location for this endeavor.
eMobility and General Trends:
Electric mobility, or eMobility, refers to a mode of transportation whereby a vehicle is powered by an
electric motor rather than an internal combustion engine. Electric cars run on rechargeable batteries, not
on gasoline. Although currently less than 1% of all vehicles are electric, environmental factors such as
heightened pollution and scarcity of fossil fuels signal that before long eMobility will become a strategic
necessity. In AT Kearney’s Global Mega Trends report from December 2012, “volatile and rising natural
resource prices” such as oil will make sustainability (including sustainable transportation) one of the
highest priorities of the next decade.
In another AT Kearney report entitled eMobility: The Road to a Billion-Dollar Business, experts predict
that “the global market for electric vehicles (EV’s) will be $390 billion by 2020, equivalent to 10-15% of
the global automotive market that year.” What does this mean for EE? According to a report issued by
Frost and Sullivan in June 2012, “Electric vehicle sales in Eastern Europe are anticipated to cross the
62,000 mark by 2017 and witness even stronger growth post 2017.” Frost and Sullivan predicts that the
increasing demand for convenient, eco-efficient EV’s will prompt the EV market in EE to grow by 151%
between now and 2017 and even more after that. Without a doubt, rising personal incomes, urban sprawl,
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the volatility of oil prices, and the growing environmental consciousness among consumers will continue
to drive further robust growth in the EV market in EE.
eMobility is a relatively new phenomenon. Electric vehicles are currently manufactured in several parts of
the world, including Western Europe, North America, China, and India. Notable EV companies include
Tesla in America and BYD in China. However, there is a conspicuous shortage of domestic electric
passenger car manufacturers in EE. If this market void is not filled, EE will lose out on a major business
opportunity. Foreign-produced EV imports are more expensive (exceeding $30,000 USD) and are beyond
the reach of the average EE consumer. EE countries should exploit this opportunity by producing EV’s
domestically at affordable prices. (Of course, not all EE countries have this capability. That is why I
singled out Poland, to be discussed in the next section).
Why eMobility in Eastern Europe, specifically, in Poland?
EE is the perfect market for sustainable mobility solutions. With a population of nearly 400 million and a
high concentration of 70% living in urban areas (AT Kearney EE Macroeconomic Situation), EE
naturally represents a huge market for EVs. Furthermore, EE has one major advantage that no other
region has, namely, its attractive quality to cost ratio. Whereas Western Europe and North America are
burdened by exorbitantly high labor costs, cost-competitive Asian countries often lack the essential
human capital to complete higher-skilled tasks. In contrast, EE boasts a well-educated skilled workforce
capable of handling complex tasks at competitive costs. This is what is meant by a “high quality to cost
ratio.”
The former Soviet Union/Eastern Bloc’s strong educational emphasis on engineering and the sciences
created a legacy of well-developed technical universities that still produce highly qualified engineers,
electricians, and IT specialists to this day. The EE talent pool is fully capable of high-tech innovation; at
the same time, EE companies can continue to benefit from competitive labor costs. In this decade, EE will
do away with its image as merely an outsourcing backyard. Rather, EE will enter a paradigm shift in
which it proves its latent potential to generate permanent economic opportunities from purely endogenous
sources of innovation.
Poland:
While other EE economies stagnated or retreated into recession, economic growth in Poland has steadily
maintained an upward trajectory for the last 5 years. In addition, Poland’s per capita GDP adjusted for
purchasing power parity has doubled between 2004 and 2012. Increasing purchasing power means that
more consumers will be able to afford an EV.
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Furthermore, Poland is one of the largest markets in EE, with a population of nearly 40 million people.
Number of Cities over 100,000 Inhabitants
Slovakia
Czech…
Bulgaria
Hungary
Romania
Poland
0
10
20
30
40
50
Source: Independent Research
High population densities in urban areas are a promising indicator. Urban residents are generally more
affluent and more environmentally conscious than are rural residents. Urbanites are more likely to buy an
EV to fulfill their daily commuting needs. Moreover, dense urban areas allow for the wide availability of
charging stations throughout every city. A sound road transport infrastructure and flat terrain is another
asset.
The Polish workforce is very well-educated. A high proportion of Polish citizens have completed tertiary
education, as shown in the chart below. The four most popular higher educational institutions are
technical universities in Warsaw, Lodz, Poznan, and Gdansk. University students studying electricity and
engineering would make excellent employees at my proposed EV company after they graduate.
In the 2012 PISA education world rankings, Poland ranks #14 in the world,
higher than both the United States and Germany. Poland is the only country
in EE in the top 20.
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Polish manufacturing labor costs are also very low, averaging 29.4 zloty or 7.1 EUR per hour in 2011
(Eurostat 2011). Manufacturing output in Poland over the next decade is forecasted to grow faster than
GDP growth, rising to an annual average of 4.3% by 2021 (Oxford Economics 2011).
All of these factors make Poland the most attractive place in EE to start an EV company.
Vision of future company:
Overview:
My vision is a feasible project. It is realistic, implementable, and scalable. It is unique in that no such
project has yet been implemented in Poland. The main benefit of establishing an EV company in Poland
is to gain the highly sought-after first-mover position. Established players early on can rapidly gain
market share to the detriment of competitors that join later. Domestic electric passenger car producers in
Poland are surprisingly absent. Since demand for EV’s is anticipated to grow dramatically, now is the
time for a domestic EV company to be established in one of the largest economies in EE.
This EV company will create hundreds of new permanent jobs: from blue-collar manufacturing jobs to
engineers to salespeople to top-level managers. In the initial stages of production, the target market is
strictly domestic (Poland). As global demand increases and economies of scale are achieved, the company
can begin thinking about exporting to neighboring regions. The main customer segment is the ecoconscious, young adult population in cities.
In addition, this EV company will create positive externalities that are environmentally and socially
beneficial. Buyers will be inoculated from rising gas prices and tailpipe exhaust. Cities will experience
less noise pollution if more EV’s are on the streets. The country as a whole will be less dependent on oil.
One major goal of the Europe 2020 strategy is to reduce greenhouse gas emissions among EU members
by 20% compared to 1990 levels. More EV’s in Polish cities would certainly help achieve this
praiseworthy goal.
All in all, this EV company will achieve a leading position in a niche market segment with very attractive
growth prospects. It will redefine the automotive industry in Poland, and later in the wider EE region.
During my interview with Roland Zsilinkszky, an automotive expert at Roland Berger Consultants, he
told me: “The key question is no longer whether eMobility will come to Eastern Europe, but rather how
fast and what we can do to actively shape it.” The lesson to take away from this informative quote is that
EV companies need to firmly plant themselves now in order to fully take advantage of the upcoming
eMobility boom just around the corner.
But how is my version of an EV company different from the rest? Why am I confident that my vision will
ultimately succeed? In the next section of the report, I will focus on the aspects that make my vision
unique.
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Multi-stakeholder analysis:
Before analyzing the proposed business model, it is important to conduct a stakeholder analysis. The
stakeholders are the relevant individuals, companies, or organizations that play a pivotal role in
determining the outcome of my vision. I have identified three major stakeholders:
1. Charging station providers: From the perspective of an EV manufacturer, the availability of
charging stations is of the utmost importance. The presence of a dense charging point
infrastructure is absolutely critical. EV drivers need to feel secure that they will not be left out in
the cold when their battery is low – they want to see as many charging stations as possible in both
public spaces and residential areas. The greater the number of charging stations, the higher the
demand for EV’s in Poland.
2. Government/municipalities: National and local governments can support EV companies by
outlining a clear long term eMobility strategy. Actions from the government include subsidies for
EV buyers and tax breaks for EV companies. EV companies are likely to thrive in an
environment where the government co-finances private R&D. For example, in 2011, the Polish
government provided 5 million EUR to the Mielec Regional Development Agency for R&D in
battery technology.
3. EV buyers: The key is to develop an effective marketing and sales strategy that will generate
greater public awareness for EV’s in Poland. Public awareness is critical, especially among the
young, eco-conscious, urban population. After all, it is the consumers who ultimately determine
the success or failure of a company. If consumers are not aware of the benefits of EV’s, they are
unlikely to buy one. An aggressive promotional “pull strategy” must be implemented to stimulate
buyer demand.
I presented my vision to an important player in each of the three stakeholder groups in Poland. For the
first stakeholder group, I interviewed E+, the leading company in Poland that provides EV charging
stations. For the second stakeholder group, I interviewed Wiesław Starowicz, Advisor to the Mayor of
Krakow. For the third stakeholder group, I interviewed my friend, Wojciech J, an economics concentrator
at the Jagiellonian University in Krakow. My conversations with these people refined my vision. The next
section summarizes the highlights of my interviews and the feedback I received.
Interview #1: Omer Zimmer, CEO of Alva Technologies and E+
Mr. Zimmer is the CEO of Alva Technologies Poland; E+ is a subsidiary of Alva Technologies.
E+ is the leading provider of charging infrastructure in Poland. Mr. Zimmer informed me that he plans to
install over 300 charging stations in Poland within the next 2 years. If EV demand is high, he plans to
install several hundred more charging stations in Poland, the vast majority of which will be located in
major cities such as Warsaw and Krakow. Charging stations will be installed in both public and
residential areas. Although most people choose to charge their EV at home, charging stations must also be
available in public locations, such as supermarket parking lots, public squares, train stations, and airports.
(The City of London is a good example, with over 1,300 charging stations dotted throughout the city.)
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When I presented my vision to Mr. Zimmer, he completely supported my idea. He emphasized the
strategic advantage of becoming the first specialized EV passenger car producer in Poland. However, he
also pointed out the challenges that lay ahead. He explained that his company faces a huge dilemma: he is
not sure how fast to proceed with providing charging stations. He wants to wait for buyer demand for
EV’s to heat up first – only then will he be incentivized to build and install more charging stations. Mr.
Zimmer wants to make sure that his investment in building the charging stations would definitely be
recouped through extensive use by the public.
However, I mentioned a similar dilemma to him. From the perspective of an EV producer, I want to see as
many charging stations as possible; as mentioned earlier, people are motivated to buy an EV only if it is
convenient for them to recharge their batteries in many locations. The paradox is that neither side wants
to move forward; each side is waiting for the other side to increase supply. Meanwhile, we encounter a
deadlock.
This strategic dilemma is plaguing many EV companies today. In the United States, EV producer Tesla is
forced to build and install its own charging stations in California because charging station providers are
reluctant to increase their supply unless demand for EV’s skyrocket. Similarly, in India, EV producer
Mahindra Reva is forced to install its own charging stations due to a lack of supply from third parties.
These scenarios are highly unfavorable to the EV producer because the company is forced to invest in a
domain that lies outside its core competency, constituting a huge drain on precious resources.
I then proposed a solution to Mr. Zimmer. I put forward the idea of a strategic alliance between his
company and my visionary EV company. A strategic alliance would enable both parties to benefit
simultaneously. I suggested that EV’s should be sold in a “bundle” – when a person buys an EV, he or
she would have the option of receiving a home charging station from E+ with a small additional fee. This
strategy will boost consumer demand. As demand for EV’s rises, E+ will naturally feel more confident
about expanding its charging infrastructure network. Furthermore, the EV company should promote its
brand name by printing its logo on every E+ charging station. The strategic alliance yields a win-win
situation: the EV company benefits from increased demand, more EV’s on the streets mean that E+ can
expand its network of charging stations with the possibility of generating more revenue. E+ also receives
advertising revenue.
Mr. Zimmer believes my creative solution represents a plausible scenario capable of coming to fruition
before 2022. My proposal would allow him to escape the dilemma he currently faces.
Interview #2: Wiesław Starowicz, Advisor to the Mayor of Krakow
eMobility in Poland should be promoted by the national and local governments. I contacted Mr.
Starowicz and asked him about what concrete actions the municipality of Krakow can take to bolster
demand for EV’s among the populace.
When I presented my vision to Mr. Starowicz, he was happy that I chose Poland over other EE countries.
He believes my vision is very likely to happen by 2022. Mr. Starowicz is confident that buyer demand for
EV’s will increase rapidly in the next few years. He said: “Environmental protection is a priority for the
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city of Krakow and for other big cities in Poland. With a large eco-conscious young population, we will
begin to see the wider adoption of EV’s. But there is one condition: EV’s have to be cheaper.”
He told me that a 22-24KW EV manufactured in Poland is estimated to cost around 40,000 zloty, about
10,000 EUR. At this price, EV’s are a luxury good for the wealthy minority, not a product for the Polish
masses. He stressed the need to spend heavily on R&D in order to come to breakthroughs in lithium-ion
battery technology. The improved battery technology could reduce the selling price by significant
proportions.
Mr. Starowicz indicated that city governments in Poland can co-finance private R&D expenditures in the
areas of lithium-ion battery management, nanotechnologies for batteries production, new electric engine
prototypes, and novel lightweight composite materials. Furthermore, he enhanced my vision by
suggesting that my visionary EV company should partner with government R&D centers and research
labs at technical universities so key players can have the most up-to-date information on technological
developments.
I suggested that Krakow should copy successful eMobility models that are currently implemented in other
parts of the world. For example, London has set up free parking locations in the city center for EV’s. In
Oslo, Norway, certain traffic lanes are reserved for EV’s, enabling commuters to save time and avoid
congestion. EV’s in Oslo are also exempt from certain highway tolls. The local government in Beijing,
China offers $9,700 USD in subsidies to buyers of EV’s. Mr. Starowicz responded that these smart
measures to boost EV demand will definitely be implemented in Krakow by 2022. However, he expressed
concern over direct subsidies to buyers – the redirection of public money into private hands is
controversial.
Finally, we discussed how the local environment will play out until 2022. We both recognized the
importance of generating increased awareness among the public. Creating demand through active
publicity is one of the most important eMobility strategies in Poland. Local governments have a big
responsibility to educate the public about EV’s. Krakow is leading the pack in this endeavor. Mr.
Starowicz informed me that Krakow has sponsored local eMobility events and conferences and has
attracted regular press coverage. In September 2012, Mr. Starowicz was invited to speak at an eMobility
conference in Krakow entitled “Will the Future of Mobility in Krakow be Electric?” These events augur
well for the future of EV’s in Poland. However, more municipalities other than Krakow need to take the
lead in sponsoring eMobility events.
Interview #3: Wojciech J, student of economics at Jagiellonian University in Krakow
My friend Wojciech is young, eco-conscious, and lives in a dense urban area; he is the perfect
embodiment of the target customer segment. My visionary EV company will take off only if potential
buyers like Wojciech express interest in the new product. Like the first two people I interviewed,
Wojciech was very enthusiastic about my proposed vision. He was confident that my vision would
transpire before 2022. But he asked me a very pertinent question: “How would your proposed company
reach out to us?”
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His question prompted me to think deeply about innovative marketing strategies. I referred to the AT
Kearney Global Mega Trends report. Since “the new consumer is fully mobile” and Internet penetration
continues to rise, I thought of a creative strategy to leverage social media. In Sarwant Singh’s 2012 book
New Mega Trends, I learned that a rising proportion of cars sold in the future “could be sold completely
online.” Hence, the traditional approach to sales, consisting of brick-and-mortar showrooms, should be
supplemented with online showrooms. It is very likely that in 2022, a substantial sum of EV sales will be
carried out completely online.
Additionally, I propose to partner with online travel agencies such as Expedia and Travelocity. Since
Poland is a popular tourist destination, travelers who book their trip online will have the option to rent the
EV when they arrive. As such, my business model consists of a dual channel approach of both B2B and
B2C. In the B2B segment, I will leverage the online platform to lease the company’s EVs to car-renting
and car-sharing companies.
Tapping into the “social media burgeoning marketplace” (AT Kearney Global Mega Trends), I will also
create a fun marketing scheme on Facebook. I will encourage buyers to “like” the company on Facebook.
This “free advertising” tactic can lure in new customers who had viewed the like update on their friends’
Facebook newsfeed. In return for “liking” the company or writing an online review, buyers will receive a
small gift, such as a free car wash or a restaurant coupon.
As evidenced by the graph below, Poland has very high Internet penetration. For this reason, I am
confident that the above strategy would work well in Poland.
All in all, I was happy to hear that all three of my interviewees reiterated the high potential for my vision
to come to fruition by 2022.
Company Structure/Governance Structure:
The company will subcontract the vast majority of its transactions. There is a plethora of automotive subsuppliers in Poland (location economies). Automotive clusters exist in Upper and Lower Silesia. For
example, Debica can supply tires, Brembo can supply brakes, and Kirschhoff Polska can supply trunk lids
and hinges. These sub-suppliers can mass produce sub-components at lower costs (economies of scale).
The EV company should devote most of its resources on R&D to optimize battery performance and
driving range.
The company will utilize cross-functional work teams between different departments in order to enhance
inter-departmental channels of communication and understanding. For example, the marketing and sales
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departments will work in concert to bring the finished product to market. Top level managers should
encourage decentralization of decision making, allowing for greater personal accountability. There will be
a shift from the traditional managerial style of a single boss governing his subordinates to a system of
collective and integrated leadership; each employee, from factory workers to engineers to salesmen, will
be empowered to see and review decisions for themselves. This interconnectedness and resultant
transparency of information will improve labor-management relations as well as raise productivity.
Unique Selling Propositions:
My vision calls for a new specialized EV producer in Poland. The central aim is to become a low-cost EV
producer in a niche market segment. The affordable price of a quality EV made in Poland will appeal to
the average Polish citizen more than expensive EV imports would. In addition, the company also offers a
“bundled” service that provides buyers with a home charging station from E+ along with their EV
purchase. Marketing specialists will attempt to define the company’s EV as more than just a vehicle, but
rather an eco-friendly experience reflective of the “au courant” style.
Estimation of Production Capacity:
Between 2013 – 2017, the main focus should be on R&D and generating public interest. A strategic
partnership with E+ should be formed. Senior company executives should politely pressure government
officials to implement eMobility-friendly legislation as soon as possible. Marketing and Sales must also
leverage the online platform to develop an omni-channel sales strategy. Initial production should be
conservative. In the face of uncertainty, investing too much in new factories, hiring too many employees,
or building too many retail stores can be risky. Since the target market is strictly domestic at this point,
annual production levels of 3,000 – 4,000 EVs would suffice. At this point, battery technology is not yet
mature enough to allow for a dramatic reduction in selling price – the limited number of EV’s is therefore
geared toward affluent urban residents in Poland’s largest cities. Attracting a few “lighthouse customers,”
such as mayors or prominent politicians, would greatly enhance the company’s image.
Between 2018 – 2022, the main focus should be on rapidly gaining and consolidating market share. At
this stage, battery technology will have likely matured to the point where large reductions in selling price
would be possible, enabling the EV to reach the general public. Depending on market demand, limited
quantities may be exported to neighboring countries with relatively high purchasing power: Czech
Republic, Slovakia. According to the Frost and Sullivan report cited earlier in this paper, by 2017
approximately 62,000 EV’s every year will be sold in Eastern Europe. Since my visionary EV company is
an early entrant with first-mover advantage, it can reasonably expect to hold a 20% market share. Thus,
annual production levels can be revised upward to 0.2 x 62,000 = 12,400 EV’s. Economies of scale are
achieved.
After 2022, the main focus should be on profit maximization and continuous optimization. By this stage
the company will be a thriving business. Even though new competitors may emerge, they will be put at a
significant disadvantage since it is extremely difficult to win market shares over established players at
later stages. Production levels will be revised upward depending on market demand (assuming 20%
market share).
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Spin-off Industries:
The formation of an EV producer in Poland will foster spin-off business opportunities. For example, we
will likely see new EV magazines, battery repair shops, and restaurants and convenience stores located
near public charging stations – all of which will create more jobs.
Conclusion:
eMobility in Poland is a huge untapped market. The establishment of an EV company makes full use of
Poland’s strengths – allowing well-educated scientists to innovate in the clean-tech industry while
preserving the country’s cost-competitive manufacturing base. The product is a high-quality EV at an
affordable price.
American human rights activist Malcolm X once uttered these wise words: “Tomorrow belongs to the
people who prepare for it today.” In the long run, the price of gasoline can only rise and the price of EV
batteries can only go down. The future is clear. Poland must be proactive, not reactive.