From Imitation to Innovation: Zongshen Industrial Group Harvard Case Solution & Analysis

From Imitation to Innovation: Zongshen Industrial Group Case Solution

Zuo Zongshen has transformed Zongshen Industrial Group from motorcycling store to motorcycle assembling firm in 1992. The company was formed with the support of Chinese government. As the government leveraged opportunities to emerge with new businesses as a private owned firm, Zuo respond quickly to this opportunity. He started the company with a capital of CNY500, 000. Half of the capital brought to the business was from his family investment. However, the other half was borrowed from funds. The company initiated assembling motorcycles parts and production some simple parts of motorcycles since Zuo felt restriction in investment to spend on the manufacturing of the parts of motorcycles.

In addition, Zuo used to buy parts from the State-Owned Enterprises (SOEs) that were initially formed in the consequence of government intervention in 1980s for establishment of State-Owned Enterprises (SOEs). These motorcycle parts were counterfeit of Japanese parts used for motorcycle assembling. The market thus, was in abundance of the motorcycle assembling parts because they were allocated to produce a single part of the motorcycle in order to remain specialized. Hence, one State-Owned Enterprise (SOE) was manufacturing cylinder heads and other used to prepare crankcases. There were various State - Owned Enterprises in the market that were producing motorcycle parts. (Group, 2012).

Zuo was facing a difficulty in choosing from the numerous companies for the parts of motorcycle. One of the major issues with the purchase of vehicle parts was that it had limited supply in the peak of demand. Zuo hence approached a new business strategy, which further prolonged in-house production and differentiation. Zuo has focused on the existing technological advancements that are successfully implemented overseas. For example, Zuo carried out with the CAM, Pro-Engineering, CAD, and CNC (Group, 2012).

Acquisition by Zongshen Industrial Group

Zuo has continued with the strategy of reverse merger that included acquisition of a shell company. The shell company was enlisted, but had minimal assets or liabilities that were no more than what an unsuccessful company has. Zongshen Industrial group acquired a company that was listed, but the assets or liabilities of the company were not beneficial for Zongshen. It was a Chengdu based company called Lian Yi. Moreover, Zongshen could get benefit of the listed company and reach to the mark of world’s largest company. Zongshen can become the largest company in the world with the acquisition but the legal circumstances of the acquired company did not allow it to reach its targeted goals. Zongshen has to wait for one or two years in order to become world’s largest company.

The acquisition brought success to the Chengdu Company. It used to be steel producer but now it has been transformed into Chongqing Zongshen Power Machinery Company Limited. It is the largest producer in the Chinese motorcycle industry. Furthermore, it produces compact engines for engines of lawn mower and other related products. Thus, Zongshen was successful with its reverse merger and it was the best part of the merger. The company benefited with this kind of acquisition because it had to invest less with great certainty. Furthermore, there was independency of on the interest of investor.

Hence, the acquisition was one of the competencies enhancing part for the Zongshen Industrial Group (Group, 2012).

Architectural or Modular System

Zongshen Company has used red ocean strategies for its gasoline bikes. Furthermore, it has developed e-bikes with innovative technology. The strategy used for the innovational product was ocean strategy. Hence, the purple ocean strategy was built in order to maintain the price of the innovational technology. The company used modular model with the point of view that it emerged with innovation. However, company actually assembles the parts of the motorcycle utilizing same parts of manufacturing for both gasoline and e-bikes. This is the reason why it is an architectural model from the companies’ point of view (Group, 2012)....................

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