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Bosch’s answer to the O2O challenge

In a signed article published by Yingcai or Entepreneurs, reporter Zhang Yantao discusses Bosch’s restructuring of its global and China business to confront the challenge of O2O. The following are highlights. – Editor

 

With the changes in the automotive industry over the past years, the traditional auto sector is facing the challenges of electrification, automation and the Internet. Alternative energy cars, self-driving cars and connected cars have emerged. The online-to-offline (O2O) business model is uplifting the automotive aftermarket.

Bosch, a leading traditional automotive supplier, is poised to take up the new challenges by enhancing technology innovation, marketing optimization and striving for a balanced development of its different business divisions.

According to Chen Yudong, president of Bosch (China) Investment, the German supplier continues to provide the state-of-the-art technologies and will not be subverted by the Internet.

In 2014, Bosch acquired the 50 percent share from joint venture partner ZF in ZF Lenksysteme, an effort to consolidate its advantage in driverless technology.

Bosch has also been trying to optimize its distribution channels of its products and technologies. Late last year, Bosch launched a franchise system of Bosch Car Service in China. The service chain aims to serve customers in between those who use the high-end 4S stores and those who go to low-end repair shops. These customers represent a huge market segment.

Chen recognizes the inevitability of integrating the Internet into car manufacturing. However, he points out that unlike smart phones, the most important factors about auto manufacturing are cost and safety. The function of entertainment should be secondary. He believes that this logic prevails throughout the traditional auto industry and the Internet has its limits when it comes to auto manufacturing.

BYD founder Wang Chuangfu echoed Chen’s opinion by saying that it is difficult for most Internet companies to change their hardware, let alone changing auto manufacturing equipment. He believes that auto industry belongs to traditional manufacturing, and cannot be replaced by the Internet.

One example is Tesla Motors. Its connected EVs have so far posed little challenge to traditional automakers. Elon Musk agrees that it is difficult for the company to be profitable before 2020. Its sales in China have fallen much under expectation.

Additionally, the Internet companies that have wedged into automotive manufacturing are backed by traditional auto manufacturers. Google uses Bosch products for its driverless cars, and LeTV has allied with BAIC Motor to develop its electric cars.

While Chen underscores the importance of physical stores to provide car services and maintenance, he recognizes the challenge of e-commence when it comes to the aftermarket.

Balancing mobility solutions and other services is of upmost strategic importance for Bosch. According to Bosch chairman Volkmar Denner, the company aims to make the Mobility Solutions Division and other related divisions contribute up to half of the company’s future revenue. With a series of acquisitions and mergers, Bosch is getting close to its revenue goal. The Mobility Solutions Division is currently Bosch’s largest business sector. The Division’s 2014 sales came to roughly €33.3 billion ($36.2 billion), or 68 percent of total group sales.

Bosch China’s Mobility Solutions Division is also growing. Although China’s car market underwent a 7 percent decline in 2014, Bosch China still saw double-digit growth. Up to 70 percent of its total revenue comes from Mobility Solutions, more than the total of the divisions of Consumer Goods, Industrial Technology, Energy and Building Technology.

After the approval of the anti-monopoly law, Bosch has finished buying out Siemens AG’s 50 percent stake in their household appliances joint venture, a deal valued at about €3 billion. The JV had revenue totaling about €10.5 billion in 2013.

With the acquisition, the Consumer Goods Division now generates about one-fourth of Bosch’s revenue. This will help elevate its non-automotive services to more than 40 percent of the total, which means Bosch is striving to realize about half of its revenue from the three non-automotive divisions.

But Chen pointed out that reducing the Mobility Solutions Division’s proportion of company revenue does not mean it is cutting its operational scale. It means increased investment in the other divisions. Denner said that Bosch would look for more opportunities in non-automotive business areas.

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