Maximizing Returns on Innovation through Service Encapsulation: A case study in Thailand Luxury Car Industry

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Abstract

The Thai Automotive industry was the third largest industry in the country and contributed nearly 12% of Thai GDP in 2010. Thailand is projected to be in the world’s top ten vehicle production countries by 2015. In 2011, the country produced 1.8 million vehicles and 600,000 units were for domestic consumption. The luxury car industry in Thailand represents roughly 5% of the total automotive market in 2011. Luxury car consumption in Thailand reached its peak in 1995 with the domestic consumption of 23,265 units. In 1997, Thailand triggered the world economic meltdown by devaluing the Thai currency. Consequently, luxury car sale volume then dropped to 3,383 units in 1998. Since then Thailand’s automotive industry has gone through a series of changes through political unrest (military coup – 2007, red shirt protest - 2010), global economy (US sub-prime crisis - 2008), and natural disaster (Japan’s tsunami – 2011, Thailand’s mega flood – 2011). For the past decade, luxury car sales volume has stagnated at around 10,000 units, despite Thailand’s GDP averaging growth of 7%. The study of the Thai luxury car industry provides a unique opportunity to probe the industry led by international firms entering fierce competition to win local consumers. This study looks through consumers’ buying criteria and reasons why Thai consumers purchase highly priced luxury cars. The study explores the roles of innovations in the Thai luxury car industry. When services are packaged with core products, this package attempt is classified as ‘service encapsulation’. The study explores the role of service encapsulation in Thailand and the key players who deliver values of service encapsulation. A mixed research methodology approach was used, starting with 30 face-to-face interviews with executives who run Thai luxury car companies and other key stakeholders. Findings and outcomes are used to design the questionnaire of ‘Service Encapsulation in Thailand Luxury Car Industry’. The survey includes 206 survey participants. Outcomes from the qualitative and quantitative parts are integrated with the literature on innovation and service innovation to come up with a Service Encapsulation Commercialization Framework. The framework aims to provide insight on the interplay among four key elements: internal parties, external parties, social factors and service encapsulation enablers, based on the original work of Sundbo and Gallouj (2000). The study provides insights on how organizations can maximize returns on innovation through service encapsulation, by using the Thai luxury car market as a case study.

Keyword(s)

Innovation Management; Service Encapsulation; Service Innovation

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