Management
Introduction
Zongshen motorcycles started off with assembling engines for motorcycles which then also started developing core components of the engine. With the change in government policies, Zongshen began manufacturing gasoline powered motorcycles. Since it was a smaller company then, it lacked the capital to be spent on Research and Development and hence it imitated the designs of Japanese products. As the company expanded in its operations, it entered into a joint venture with Piaggio, Italy to develop motorcycles with globally applied European standards since Zongshen is looking for innovative products best suited for Chinese markets as the earlier ones were just imitations of Japanese products. Also, the recent emerging trend of using electric bikes was posing a threat to Zongshen’s core business and even as Zongshen started its own business unit of manufacturing e-bikes, it lacked the talent pool required for the same.
The challenges facing Zongshen are as follows:
- Unsuccessful Blue Ocean Products:
All motorcycles in the Chinese market were imitations from Japanese giants like Honda and Suzuki. A lot of them were of low quality and low price, but there was an increasing demand for high quality bikes. When Zongshen partnered with a Taiwan based industrial design firm to develop Blue ocean products, it failed as consumers and retailers had doubts over the quality and also the pricing was high compared to the earlier Red Ocean products. So, a new set of Purple Ocean products were made which were marginally profitable.
- Mastering the e-bike market:
The enormous demand for economical transportation and increasing limits on gasoline powered motorbikes gave rise to e-bikes in urban areas of China which is a major threat to the core business of Zongshen. Also, the e-bike industry was located in Jiangsu-Zhejiang province and not in Chongqing as gasoline based motorbike industry. Also, being innovative in the e-bike market was quite challenging.
- Attracting and Retaining Talent:
China lacks talent that has expertise of technology and products. The main challenge is attracting talent from Japan and other countries and making them work for Zongshen. Now with the company transforming to e-bikes, it needs to develop talent for capabilities in energy storage systems, power control systems and integrated design to sustain its growth.
Zongshen Acquired Capabilities to Produce Motorcycles
In 1992, when the regulations changed and government allowed individuals to set up companies, Zou set up a company ‘Zongshen’ which assembled motorcycle engines from purchased parts. After years of assembling engines, Zongshen began producing core components like crank cases and cylinder heads gradually moving to the other components. Using computer aided tools and hiring consultants from Japan (Retired Honda employees) was helpful in upgrading Zongshen’s manufacturing system. As company grew, Zongshen performed reverse mergers by acquiring shell companies which are publicly listed but had minimal assets. Later as Honda entered Japanese market and partnered with Zongshen’s competitors, Zongshen partnered with Piaggio, Italy to produce motorcycles under the Piaggio brand in China while Piaggio was responsible for technology. Zongshen manufactured 300,000 units in 2009. Thus they acquired the capabilities to produce motorcycles.
Sustainability of Zongshen’s Strategy
Competitive strategies include selling products at a price lower than the competitors or differentiating our product from those of competitors. Zongshen has always strived to differentiate itself from scores of its competitors which imitate Japanese models. It has its own Research and Development unit which has created Cyclone products. Thus, it followed a different strategic logic called Value Innovation. Value Innovation instead of focusing on beating the competition, makes the competition irrelevant by creating a leap in value for buyers and your company thereby opening up new and uncontested market space ( Kim,Mauborgne 2005). This strategy used by Zongshen is a highly sustainable strategy.
Improvement of Zongshen Processes
The strategic management process consists of the following three parts: vision, analysis and strategy.
Vision: A mission that describes the company’s picture as it hopes to exist in a future time (Ireland,Hoskisson and Hitt 2009). Zongshen decided that it would no longer launch anymore imitations of Japanese brands and instead innovate products for the China market.
Analysis: It involves analysing external and internal environments (Ireland,Hoskisson and Hitt 2009). The company found out that the consumers were no longer looking for low price motorbikes but were willing to pay high price for better quality products. Also, it analysed that though the company had manufacturing units, spare parts and staff it needed a Taiwan based design firm to develop new product designs.
Strategy: An action plan designed to move an organization towards achievement of its vision (Ireland,Hoskisson and Hitt 2009).To attain its vision of no imitation products, Zongshen began to differentiate its products from its competitors.
Thus, the company after thorough analysis began improving its processes.
Innovation at Zongshen
Future Scenario of Competition with Zongshen
Zongshen is a great local player in China which has been producing innovative motorbikes and e-bikes. To compete with Zongshen, a company should not imitate the easily available Japanese models but develop products which are best suited for the Chinese market or globally. This case informs the competitor to use Blue Ocean strategy which has untapped market space, demand creation and the opportunity for highly profitable growth. As market space gets crowded, prospects for profits and growth are reduced. Due to globalisation, information on products and services are instantly available resulting in excess supply than demand. To survive this cut throat competition, it is necessary to differentiate the product from its competitors and also constantly work on innovation ( Kim,Mauborgne 2005).
Works Cited
R.Duane Ireland, Robert Hoskisson,Michael Hitt. Understanding Business Strategy: Concepts and Cases. Mason,OH: Cengage learning, 2009.
Siegemund, Carsten. Blue Ocean Strategy for Small and Mid-sized companies in Germany. Hamburg: Druck Diplomica, 2008.
W.Chan Kim, Renee Mauborgne. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Publishing corporation, 2005.
