Posted: May 25th, 2022

Innovations in strategic planning

Zongshen R+d

Innovations in strategic planning

Organizational analysis of Chinese industrial firm, Zhongqing Zongshen Automobile Industry Manufacturing Co., Ltd., offers much in terms of understanding the global powerhouse as an industrial economy of scale. If China’s macro-economic position is one of increased export growth, then micro-analyses enable us to uncover the ingenuity and strategies behind the giant. Zongshen Motorcycle brand is one of the core subsidiaries of Zongshen Industrial Group, with consumer recognition in the capital market. The mission of the company is to improve the quality of life of human beings through innovation of clean, convenient and safe transportation tools (Zongshen, 2010).

In 2008, expansion of the two-wheeled motorcycle concern in its multi-scale strategic plan encouraged growth through: domestic sales, import and export agreements, and key & important component distribution. The integrated strategy resulted in substantial returns, with export sales at $100 million alone. The Company reports cumulative assets of RMB 1.1 billion, with some 2,500 employees, and annual output of four million motorcycles, and more than seven million key & important components (Zongshen, 2010). This supports the motorcycle manufacturer’s vision of world class enterprise, and its leadership in the global motorcycle industry as a value statement.

ANALYSIS OF ENVIRONMENT

Zhonsen Motorcycle’s competitive stance may be analysed according to the organizational business environment and the industry survival potential of the entity to compete long-term. In this case a Value Chain Analysis (VCA) using Porter’s 5 Forces as a theoretical framework to emphasize price factors where external pressures impact Zongshen’s competitive edge are illustration in Table 1.

Table 1

1. The Bargaining Power of Your Customers

2. The Threat of New Entrants into your Industry

3. The Bargaining Power of Suppliers

4. Threat of Substitute Products or Services

5. Rivalry Amongst Existing Firms

Table. Porter’s Five Forces

As China advances in the global market, 1) Chinese consumers are also seeing an increase in spending power. Zongshen Motorcycle is responsive to this, and recognizes customer equity as a top priority to the brand. With increased capacity to spend, comes the 2) threat of new entrants to the market. In 2003 announcement by United States-based motorcycle competitor, Harley Davidson to enter the Chinese market was met with an offer of partnership by Zongshen. While certainly a competitive ‘threat,’ the Chinese company was agile in response; with a mutually beneficial business agreement that would advance Harley Davidson’s position through existing channels of distribution and sales in mind.

The 3) bargaining power of suppliers in China’s economy of scale is fostered through exceptional industrial production capacity. Even where materials used in the manufacture of Zongshen’s motorcycle products are at a premium, the sheer magnitude of alternative suppliers will likely be extensive. Zongshen does not face risks in inadequate or low supplies, nor protracted time to accessibility. In turn, full cost pricing inputs will be kept at a minimum as those materials are employed in the Brand’s product line.

In cases where product cycle is restricted due to innovation or competitive 4) threat of substitutes, R+D expertise is likely to come up with new proto-types as an alternative. Zongshen is in an strong position in relation to 5) rivalry by existing motorcycle corporations and is set to expand into the global market if the Company can provide international standards organization (ISO) and environmental certification to its products in accordance with national and regional regulatory compliance rules in those external markets.

SCALE AND SCOPE

An industry leader in China Zongshen Motorcycle is in control of more than 10,000 sales outlets in 31 provinces, municipalities and autonomous regions. With consistent performance as best in its class since 2001, Zongshen Motorcycle’s international reach is established in global presence through the Zongshen brand’s trademark Zip Star, in over 160 countries. Factories in Thailand and Brazil promote cost savings and presence through local supplier relationships, as part of the Company’s strategic activities in the Southeast Asia and South American markets. Marketing of the product elsewhere is conducted by way of its international sales network in more than eighty countries.

ANALYSING STRATEGY

Zongshen Motorcycle’s strategic growth model adheres to an R+D prospectus, that promotes innovation and diversification in power machinery above all else. Zongshen Motorcycle’s strategic prospectus is supported by an eight (8) point plan of growth in Table 2.

Table 2

1. Company Philosophy

Centralization, outstanding, pragmatic and innovation

2. Centralization

Being centralized in the development of the company’s major trade and the thermo-motive; mobilizing and uniting all the stuff in the work and integrating their interests; serving the company heart and soul

3. Outstanding

Being outstanding in precision work and profession and manufacturing fine quality products

4. Pragmatic

Being honest, pragmatic and careful in work and behaving in a down-to-earth way

5. Innovation

Pursuing for and making innovations, accepting new ideas, creating new culture and establishing new goals

6. Enterprise Aim

Pursuing for the world technology leadership and realizing lean production of Zongshen

7. Strategic Prospect (becoming world’s leading power system service supplier)

Leading the motorcycle industry throughout the world and aiming at making Zongshen a world brand

8. Enterprise Mission

Providing a clean, convenient and safe transportation tools for human being and improve their life quality

Table 2. 8 point plan (Zongshen, 2010)

A principled approach to doing business, the potential for exceptional sales China’s highly competitive consumer market will ultimately be reliant upon the motorcycle manufacturer’s ability to stay ahead of top tier competitors through excellence in manufacturing, international cooperation and optimization of product performance through cutting-edge technologies.

Technology will also play a major role in Zongshen’s capacity as an organisation, through close attention to IT network integration of operational and management forces through internal and external connectivity. Monitoring and tracking product from point of manufacture to order and distribution will enable the Chinese company to analyze its own performance through data analysis of its processes.

Quality assurance is a core competency, and reflects the subsidiary’s oversight by executive management involved in certification processes, and the front end R&D planning of the Zongshen Industry Group Technical Center which is recognized is certified under China’s National Good Standardization Enterprise system. Logistical support from the manufacturer’s key & important component intelligent and JIT production systems allow for 100% control over brand divisions assembly in the subsidiary of the Zongshen, Zongshen Piaggio, and Zipstar product lines.

The first enterprise to obtain the China Compulsory Certification (3C) for Complete Vehicles, Zongshen strives to retain position as the quality leader in the industry with the most certifications on individual products in the national motorcycle industry. International trade expansion strategy includes adherence and certification of products and processes according to the ISO9001 (Quality Management System), ISO14001 (Environmental Management System) and OHSAS18001 (Occupational Health and Safety Management System) integrated management system for compliance with World Trade Organization (WTO) trade guidelines and entrance into the international market.

The Logistic Department of Chongqing Zongshen Group Import & Export Corp. coordinates international forwarding of the Company’s products through contract with CMA, EVERGREEN, MAERSK, MSC, PIL, and YML and continues in cooperation with local Chongqing shipping companies, COSCO and Chongqing Pacific Ocean Shipping, Minsheng, and Sinotrans (Zongshen, 2010). The logistics division promotes a philosophy of Service Creates Value, which aims to reduce operating costs by way of safe and rapid logistics management.

Marketing of the products with the Zongshen Motorcycle Racing Team, formed over the last decade, has been given increased attention. Sponsorship of the team at the MotoGP World Championship, and Asian Nations Cup promotes the company’s identity as a national brand.

EVALUATION OF SUSTAINABILITY

As the global economy transitions from that of a purely industrial force to a market in innovation, Zongshen Industry Group will succeed through two factors: 1) attention to external competitive forces within the international industry; and in 2) product research and design capabilities. The Zongshen Industry Group Technical Center which was established four years post start up of the industrial interest, in 1999, is located in Chongqing, in the municipal jurisdiction of the Central Government.

An incubator for developments in technical guarantee of the Company’s thermal power-related diversity development and new energy development strategies, the Center is invested in advancing technologies for input and R+D on motorcycle power sources in the software and hardware sector. As part of the Center’s Cyclone Project, the scope of innovation research contributes to Zongshen’s adjusted product portfolio of motorcycle, engine and related thermal power machinery, through incorporation of internal and external resources, and outward cooperation (Zongshen, 2010). The idea is to optimize the R&D process as a mechanism for change management strategies. A solution to technical troubles within planning, the Cyclone Project is in effect a ‘total’ enterprise sustainability approach to product development.

Foreign state-of-art technologies are incorporated into the R+D of Zongshen’s product lines, and new product innovation seeks high synergy with user demands. Product line creation is conceptualized as a series with differentiated components to build interlocking functions, depth and value into the brand.

Through the efforts of the National Innovation Project, National Torch Program Project, Zongshen’s product line includes: 150CC, 200CC and 250CC sport bikes, 750CC road racing motorcycle, V-type 200CC double-cylinder engine and chopper, 500CC single-cylinder engine and sport bike, 150CC professional off-road racing motorcycle, 18-horsepower general engine with vertical axis and electrical/fuel dual power wheeler obtained a dozen awards of industrial competition in international racing competition (Zongshen, 2010).

The Center is comprised of three divisional interests through the Design Center, Engineering Center and Test Center that contribute to the Company’s tri-partite, PDB product development outline: design, trial manufacture and test. Each Center channels their respective product design, development and verification for trial manufacture through process tooling performance testing at the various decoupling points in the innovation chain (Zongshen, 2010).

Social responsibility through certification, technical cooperation, training and support at the Center(s) includes forty seven disciplinary fields of expertise, with 769 development personnel of whom 80% hold degrees of the undergraduate level, or above, and eighty advanced degree professional and foreign experts, in 342 positions of intermediate or senior title. In cooperation with Tianjin University and Chongqing University, Zongshen has established joint laboratories for the study of vibration and noise reduction research. Knowledge sharing capacity at the Center ensures mitigation against intellectual property litigation, through its comprehensive database dedicated to motorcycle industry patents, the most complete in China.

CONCLUSION

As China moves forward in its relationship with WTO member trading partners, Zongshen Industrial Group and its subsidiaries will have a stake in it. China’s willingness to participate fully in the alliance has meant that the enormity of its national economy of scale is flooding foreign markets with Chinese products. As Zongshen attempts to expand global reach of its business, the Company will face a number of obstacles in the markets of developed nations in the EU and North America.

In 2006, the European Union and United States followed by Canada filed dispute DS340: Auto Parts against China in a WTO complaint of asserting anti-dumping protocol in response to argument that the nation was dumping low cost industrial parts in export trade to those nations. The WTO dispute process is one such mechanism, and the world’s largest economy is already involved in quite a few settlements over dispute claims. With the forthcoming impact of China’s dominance in industrial trade, coupled with the rise in its national currency, the Yuan means that a protectionist forces that have already emerged, threaten to increase as China surpasses the competitive economic advantages of other members in trade.

Quite candidly, China’s status as a command economy puts Chinese businesses at odds with the WTO legal structure, in that rules and regulations are predicated upon Western civil and common law strictures, and those frameworks have emphasis on established limits to terms of excess in surplus export production and mechanisms of capitalization. Those rules translate to the national and regional context of target markets where Zongshen is undergoing business development. If developed countries are the most active in seeking protectionist measures against China through dispute, the future of the global motorcycle company will be in its ability to balance business with legal pursuit.

APPENDIX A

PEST / PESTLE Analysis on Zonghsen Industrial Group

SWOT Context China

Date of Analysis 12.02.10

PESTLE Analysis factors

Your notes

Potential Impact:

Implication and importance

The list below is just to get you started. Remember to put these, and others that you add in the context of your organization or business.

For example if you are a small private company the behaviours of a Wall Mart / Tesco or other large international player may well impact on you.

If you are a local authority, government changes will change your priorities. In the NHS changes to treatments and public attitudes will also impact etc.

About your organization.

How might the factors listed on the left impact your business or part of the organization?

H – High

M – Medium

L – Low

U – Undetermined

Time Frame:

0-6 months

6-12 months

12-24 months

24 + months

Type:

Positive +

Negative

Unknown

Impact:

Increasing

Unchanged =

Decreasing <

Unknown

Relative Importance:

Critical

Important

Un-important

Unknown

Political – SWOT

Trading policies

Funding, grants and initiatives

Home market lobbying/pressure groups

International pressure groups

Wars and conflict

Government policies

Government term and change

Elections

Inter-country relationships/attitudes

Terrorism

Political trends

Governmental leadership

Government structures

Internal political issues

Shareholder / stakeholder needs / demands

Current trading policies are suited to domestic market, with some presence in Southeast Asia and South America.

Recent WTO history indicates that hot pursuit of dispute settlements by developed economies in response to anti-dumping complaints against China will set the bar high in terms of Zongshen’s capacity to enter those markets

H

24+

N

C

Economic – SWOT

Home economy situation

Home economy trends

Overseas economies and trends

General taxation issues

Taxation changes specific to product/services

Seasonality/weather issues

Market and trade cycles

Specific industry factors

Market routes and distribution trends

Customer/end-user drivers

International trade/monetary issues

Disposable income

Job growth/unemployment

Exchange rates

Tariffs

Inflation

Interest and exchange rates

Consumer confidence index

Import/export ratios

Production level

Internal finance

Internal cash flow

China’s home market is accelerated with exponential growth in consumer confidence and spending power. Zongshen stands to benefit from this trend.

Currency valuation will also lead to disposable income. Competition overseas will be mitigated by any forthcoming advance in currency valuation.

M

0-6 mos

P

I

Social – SWOT

Consumer attitudes and opinions

Media views

Law changes affecting social factors

Brand, company, technology image

Consumer buying patterns

Major events and influences

Buying access and trends

Ethnic/religious factors

Advertising and publicity

Ethical issues

Demographics (age, gender, race, family size,)

Lifestyle changes

Population shifts

Education

Trends

Fads

Diversity

Immigration/emigration

Health

Living standards

Housing trends

Fashion & role models

Attitudes to work

Attitudes to people doing certain types of work

Leisure activities

Occupations

Earning capacity

Staff attitudes

Management style organizational culture

Changes to education system

As consumer attitudes change toward luxury commodity purchases, the motorcycle company will be able to introduce more expensive inputs into the innovation of the product.

Chinese consumers are technology interested. R+D will be a serious selling point and sustainable brand identification that consumers seek.

H

0-6 mos

P

I

Technological – SWOT

Competing technology development

Research funding

Associated/dependent technologies

Replacement technology/solutions

Maturity of technology

Manufacturing maturity and capacity

Information and communications

Consumer buying mechanisms/technology

Technology legislation

Innovation potential

Technology access, licensing, patents

Intellectual property issues

Global communications

Inventions

Innovations

New discoveries

Research

Energy uses/sources/fuels

Communications

Rate of obsolescence

Health (pharmaceutical, equipment, etc.)

Manufacturing advances

Information technology

Internet

Transportation

Bio-tech

Genetics

Waste removal/recycling

Email

M-learning

E-learning

Collaboration tools

Software changes

Zongshen’s business is highly reliant upon the innovation aspects of product line development.

Almost every factor in the PESTLE is present in this segment of analysis.

Risk reduction in market competition is assisted here.

R&D via the Group’s

Technical Center is a priority strategy and a long-term competency for growth.

Knowledge sharing is a measurable element of the organization’s sustainable model.

H

0-6

mos

P

C

Additional split of information if doing a PESTLE analysis rather than a PEST analysis:

Legal – SWOT

Current legislation home market

Future legislation

European/international legislation

Regulatory bodies and processes

Environmental regulations

Employment law

Consumer protection

Industry-specific regulations competitive regulations

The WTO dispute cases point to the importance of the policy environment where industrial trade is concerned.

If expansion efforts continue there must be a sufficient legal component to the strategy.

M

6-12 mos

N

I

Environmental – SWOT

Ecological

Environmental issues

International

National

Local

Environmental regulations

Customer values

Market values

Stakeholder / investor values

Staff attitudes

Management style organizational culture

Staff morale

Staff engagement

Global factors

EU-based factors

Zongshen currently adheres to national and ISO compliance standards.

Global expansion will involve regional and national environmental controls on manufacturing, materials and emissions.

H

6-12 mos

N

I

REFERENCES

Dispute Settlement: Dispute DS340 China — Measures Affecting Imports of Automobile Parts (2008). World Trade Organization. Retrieved from: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds340_e.htm

DOHA Declaration on Anti-dumping GATT Article VI, Section 7. WTO (2009). Retrieved from: http://www.wto.org/english/tratop_e/dda_e/implem_explained_e.htm#antidumping

Flannery, R., & Huang, P. (2003). No HOGs here. Forbes Global, 6(17), 26.

PESTLE (2010). RapidBi.

Shih, E. And Dai, N. (2010). From Imitation to Innovation: Zongshen Industrial Group. Harvard Business School.

WTO Secretariat reports increase in new anti-dumping investigations (2009, 7 May). WTO, Press, 556. Retrieved from: http://www.wto.org/english/news_e/pres09_e/pr556_e.htm

Zongshen International (2010). Retrieved from: http://www.zongsheninternational.com/

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