Navigating Two Worlds: A Comparative Case Study of Strategic Adaptation and Policy Navigation for Volkswagen in China and BYD and NIO in Europe

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The electric vehicle (EV) transition represents a potent case of “reverse innovation” (Govindarajan & Ramamurti, 2011)—the phenomenon wherein innovations developed in emerging markets flow to advanced economies, with Chinese-developed battery technologies, user interface paradigms, and intelligent manufacturing increasingly influencing global standards (Zenglein & Holzmann, 2024). The flow of technological and market influence has become bidirectional: European legacy automakers deepen localization in China’s highly competitive EV market, while Chinese EV manufacturers seek to establish a foothold in Europe’s mature and regulatory-complex environment. Drawing on strategic adaptation theory, institutional theory, and circular economy frameworks, this study adopts a dual analytical lens: corporate strategy (examining entry mode evolution, value chain configuration, competitive positioning, and innovation system integration) and policy navigation (analyzing home-country policy leverage, host-country regulatory adaptation, trade barrier management, and industrial policy alignment). Institutional theory posits that organizations operate within formal and informal constraints—regulatory structures, normative systems, and cognitive frameworks (DiMaggio & Powell, 1983; Scott, 2014). Legitimacy acquisition in host countries requires isomorphism with local institutional expectations (Kostova and Zaheer, 1999). Firms must align with home-country industrial policy while adapting to host-country regulatory demands, which Buckley (2021) terms “geopolitical arbitrage.” By unpacking "how automotive manufacturers configure corporate strategy and navigate policy frameworks to achieve market success in reciprocally challenging host markets", the analysis reveals convergence toward what this paper terms “obligated localization”—a strategic posture wherein market success depends not merely on product competitiveness but on the depth of embeddedness within host-country innovation ecosystems and the capacity to navigate policy frameworks as strategic assets, and increasingly, the integration of circular economy principles into core business models. This paper argues that circular economy capabilities—encompassing battery life-cycle management, closed-loop supply chains, and resource recovery systems—have emerged as a critical dimension of competitive advantage and regulatory compliance in both China and Europe. The findings extend institutional arbitrage concepts to the EV context and offer managerial implications for cross-market strategic planning in an era of resource constraints and escalating sustainability mandates.