From Imitation to Innovation: Zongshen Industrial Group
Introduction and Challenges Facing Zongshen
The Zongshen Industrial Group case is a very interesting one. Zongshen has come a long way from its beginnings in the 1990’s where it began doing assembly of motorcycle engines to now being a leader in designing and manufacturing some high quality motorcycles, differentiating its designs from the competition, making the company one of the top global manufacturers of motorcycles and small gasoline engines. Zongshen started out as a pure knockoff company. They manufactured cheaper, lower quality versions of the products offered by their Japanese competition, essentially copying exactly what the competitors were doing by reverse engineering their products and rebuilding them using cheaper, lower quality parts. Due to the lack of differentiation, Zongshen had to also use a lower price strategy in order to move their products. Their components went into products such as motorcycles, portable generators, and outdoor power equipment like lawn mowers and tillers. Some of the challenges facing Zongshen became crystal clear after their first generation of motorcycles had been sold. Customers quickly figured out Zongshen’s imitation strategy and that they were a cheaper and lower quality version of the other options out there. In general, the customers who had purchased the first generation were unhappy with the quality of the Zongshen brand and therefore spent their money elsewhere for their next bike purchase. This was the major challenge for Zongshen. There was nothing setting them apart from the competition, and everyone knew it. Something must be done to come up with and implement a strategy which restored the consumers’ confidence in the brand. Zongshen knew that he must re-think and change the strategy if he wanted his company to survive. The cheap copy exact imitation strategy only work on some products and doesn’t always work long-term. It definitely doesn’t work in the motorcycle transportation industry where consumers are looking for reliable motorcycles.
The city of Chongqing, China is located in central southwestern China. Chongqing being a very hilly terrain made it very difficult to ride around on bicycles, so naturally motorized vehicles became quite popular in the form of motor scooters, motorcycles, and many motorized vehicles. The area had a lot of history and experience in manufacturing because it used to be a center of the Chinese defense industry. Once the need for military defense products slowed down, the manufacturing of civilian products filled the gap.
Zuo Zongshen took the opportunity to become an individual business operator in 1979, since during the Chinese economy’s transformation Deng Xiaoping opened a policy which allowed individuals to start their own business. Zongshen started this company to assemble motorcycle engines from purchased parts. Introduction of Stakeholders
There are three main stakeholders in the Zongshen case. These are: Zuo Zongshen, Li Yao, and Piaggio Lyman Motorcycle Co. Ltd. Zuo Zongshen started the Zongshen Industrial Group. With his background in repairing motorcycles for 10 years, he had some great experience in knowing what kinds of things can go wrong with motorcycles, and what is important in order to make a good quality motorbike. When he launched his business, the lowest hanging fruit for Zuo to enter into the market was building a bike based on the imitation strategy. This strategy only lasts for some period of time before some big changes need to occur. Zongshen recognized this and transformed his business. Li Yao started with Zongshen in 1997 when the company just had 2 subsidiaries: engines only and complete motorcycles. He began in the full motorcycle subsidiary, which was under a different brand. At that time the Chinese government had regulations that only allowed the company to rent brand names. They could not...
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