Zongshen

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A. Describe the significant role the value chain played in the growth and development of the Zongshen Group: * Identify two elements from Porter’s Five Forces Model, determinants of buyer power and suppler power, to illustrate the problems the group entered with suppliers during the early years of China’s privatization policy.

In early history of Zongshen group, the state-owned enterprises (SOEs) played a critical role as dominant suppliers in the motorcycle industries. The SOEs have this power is because prior to 1992, the Chinese government did not allow people to launch private companies throughout the country. All of buly integrating them into the production. This change led Zongshen to improve its capabilities and to become a parts manufacturer. Manufacturing parts and using parts that it produced to assemble engines were a new objective of Zongshen. In order to improving quality and reliability of parts that it produced as well as to reduce production costs, Zongshen started applying advanced technology tools such as computer aided design and computer aided manufacturing to its product development. Besides, Zongshen also sought manufacturing consultant from former Honda employees and visited its competitors and prospective partners like Harley-Davidson in the United State. As a result, Zongshen was stood out in the common manufacturers throughout the country. Despite of the ability of producing parts in house; Zongshen still needed to purchase materials for its manufacturing. Zou understood that it would be a problem if Zongshen relied heavily on a small number of suppliers. Therefore, Zongshen worked with multiple suppliers for each part so that it could get competitive pricing. Consequently, it led to significantly reduce influences of suppliers.

* Identify and analyze the factors that now make Zongshen’s value chain is now a source of innovation. There are few factors that lead Zongshen’s value chain to become a source of innovation. First, the technique that Zongshen used to raise its financial capital is very artful. Instead of following the tradition method which is through an initial public offering (IPO), Zongshen use another technique called “Reverse Merger” or “Backdoor Merger”. The technique can be described in detail that Zongshen had a target list of companies which had an existing list but lack of assets or liabilities. Once Zongshen could attain one from the list, it would merge its assets into. This technique is very critical to success of Zongshen. In fact, when it became the largest shareholder of a Chengdu company, it divested the assets of the original company and inserted its own assets from the engine company. As the result, it turned into the largest engine manufacturer in the Chinese motorcycle industry. Second, Zongshen was very excellent in catching up the trend of market. As they explained, they predicted a very fast growing opportunity in the China market for gasoline and electric motorcycles. In fact, there would be an increase in numbers of consumers who were willing to pay a premium to purchase for superior products. Besides, the Chinese policies would be stricter on safety and emission. These two conditions would be significant factors that reduced numbers of motorcycle companies, especially when the companies could not satisfy these perspectives. Consequently, Zongshen had invested in new technology and manufacturing facilities, as well as merged the gas and electronic motorcycle businesses of ZPP and ZIG in order to improve its operational collaborations. Third, Zongshen was always looking for advanced technologies and applying these technologies to optimization for its productions. Achieving in producing proton exchange membranes (PEM) which is a key element to produce hydrogen fuel cells is an example. The technology was applied in producing e-bikes and helped increase its sale volume dramatically. In fact, the sale volume of its premium e-bikes quickly...
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