Change in Govt.
regulation and impact
Year
Change
Early 80s Area of Chongqing
changed the productive
model from defence to
more civilian products
Impact
SOEs to begin manufacturing
civilian product and they can
only get business license
Chongqing become Centre for
motor cycle product
1979
Opening policy
Zuo quit his job in a production
promoted by Deng
line and set his own repairing
Xiaoping allowed people business in 1982
to go into business for
themselves
1992
Individuals were allowed Zuo opened assembling
to set up private
motorcycle engines from
companies
purchased parts
1998
Private enterprises can
have own brand
Zongshen Industrial group
formed and several subsidiaries
included mostly through reverse
merger
Around
2005
Govt put strict
regulation against
Reduce competition & help to
lead consolidation and
Early Adopter Strategy
Part supplier were not supplying as per quantity due to
pressure from SOEs & Zuo became dependent on Red
Envelope. Engine were poor quality and lack in performance
Zuo envisaged a new approach for his business: in-house
manufacturing and differentiation which gave scale benefit,
Supply Guarantee & product improvement
Utilises proven technology overseas like CAD/CAM, CNC, ProEngineering, Uni-graphics
Use of manufacturing consultant from Japan & Visited to
competitor and partner premises gave new idea to import
knowledge
Utilise advantage of negative WIP inventory, which consisted
in the fact that private companies didnt have to pay for parts
until they had assembled them into motorcycles and sold
them
ZIG :Expanding capability
Small assembler of motorcycle engines to an important global
player motorcycle industry
For competing globally, a structured form of group company
should exist with different responsibility of HQ and subsidiaries
For acquisition of foreign technology and company needed
capital and for that they need to become Public listed company
Reverse merger technique was used by Zuo to become public
listing company which is lower cost and high certainty
Acquired a company in Chengdu (Lian Yi) & converted to
Chongqing Zongshen Machinery co limited & largest
engine producer
Another in Canada to boost their capabilities to enter into the
green energy businesses & converted to Zongshen PEM
power system
Jiangsu Zongshen PEM electric vehicle company
(Jiangshu) to get capacity of 350000 E-bike annually
Diversification to
Differentiation
2005: Chinese people were looking for superior product with
high WTP, Further strict government regulation reduced
competition. This leads to consolidation and investment in
new technology
2006-08: E-Bike Capacity increased from 50000 to 220000unit
2009: Profit Decline due to falling demand in international
market & Fierce price competition,
Zuo moved towards innovation and differentiation strategy
Strategy shifted from diversification to product development
and centre to green energy and electric power
Zuo followed 3 key factor
Energy storage system
Power System and
Integrated design
Partnership and Learning
Equity Partnership with Piaggio for rural market (Piaggio was
not successful in urban market in making profit)
Piaggio got cost benefit by outsourcing its part to Zongshen
and also utilises its local sales and production facilities
Zongshen benefited from a new engine manufacturing
facility, imported technology and international export market
knowledge. More important for Zongshen got access to
European quality standard
E-Bike
Demand of economic transportation increased E-Bike popularity
Facing problem like non standard product, poor quality and after sales
service
Tradition heavy battery with limited life
Zongshen took different approach
Lithium ion battery for longer and stronger life
Not to compete in high volume and low end market
Differentiation
Blue Ocean strategy
misaligned
Price sensitive Chinese market was converted to high price
high quality market
Zongshen moved from Red Ocean to Blue ocean strategy
and decided not to launch any more imitation brands &
shifting from Me Too Player to Innovator
Launched Cyclone Project as a innovator and differentiated
through market segmentation
Developed new innovative product and owned IP right and
improved intangible asset
Contracted Nova design to assist new product development
and more attention to details
CNY300 Million spent on R&D
But product was not successful as consumer & retailer has
doubt on their capability and price gap
Again converted to Purple ocean product to fill the price gap
and rebounded in profitability
Porters 5 forces analysis for E-Bike
Industry
Competitio High
Over 1000 firms with max 5% share.
n
Fragmented market. High Demand.
Substitute
Moderate
Regulation forcing to shift electric vehicle,
but gasoline is still in high demand
New
Entrant
threat
High
Segment can be targeted by current bike
manufacturers or new companies with no
experience in bikes but with know-how of
electrical engines and batteries.
Buyers
bargaining
power
High
Sales is through distributor so due to high
competition among manufacturer they
play Iimportant role for success/failure of
product as in the case of Cyclone project
Supplier
bargaining
power
Low
High competition, less know how, Lack of
expertise and talent
SWOT Analysis (Zongshen E-Bike)
Strength
Weakness
High Investment on R&D
Covering complete value chain
by manufacturing parts to
assembly of bike
Know How of Bike and chinese
market
Lack of talent and difficulties of
attracting and retaining
Depending on import of
technology on high end
product
Failure of cyclone project
Opportunity
Threat
High demand of E-Bike
Govt regulation
Alliance with external Partner
for high end technology will
help
People perception about
Zongshen still low end
manufacturer
Low entry barrier
Threat of copying technology in
China
Market size still low for high
end product
Challenges
Chinese culture: High income linked to managerial skill
Attracting talent & retaining
Stronger technology base to secure future
Own internal talent development
Phd students in the US, wanted to develop powerful drive trains
but Zuos concern how they would join a company like Zongshen
Action
Tapping talent from SOEs and retaining by faster growth and
attractive compensation
Hiring experience talent in different department R&D,
manufacturing, finance or marketing from other Chinese
companies
Started joint development of combustion engine and
mechanical engineering with Tianjin university
Six members sent to Italy for learning lean manufacturing
Started master apprentice agreement for 40 key personnel in
technical managerial position
Recommendation
Continue Creating Innovation and differentiation from other
manufacturer
Partnerships with other small but high advanced technology
companies.
Zongshen should develop and invest in own R&D for sustainability
purpose
Continuous improvement and training to their employee .
Continue effort for knowledge development with universities
Learning from the mistake done in cyclone project. The products
were ahead the expectations and needs of the users and that led
into poor sells.
Strong relationship development with distributors. New distribution
channel shall be developed if strategy changing from low end to
high end product. It can be like latest move by Suzuki Nexus.
User requirements should be put in first position. Strengthen
costumer awareness with the product, improve the retail
experience and learn more about consumer demands and
requirements.
