Zongshen Group
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Case Introduction and Challenges
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Chongqing, a city in central southwestern China, had a heritage in heavy manufacturing, as it was one of the centers of the Chinese defense industry, especially for vehicles. In 1980s, when the Cold War slowed, the central government wanted to reduce defense expenditure and asked some of the state owned enterprises (SOEs) to begin manufacturing civilian products. At the beginning only SOEs could get license for the business but government permitted people to go into business for themselves but they could only work as individual business operators and could not set up companies. Many of the SOEs turned to parts production.
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Zuo Zongshen, being a former motorcycle repairer, decided to open a motorcycle repair business in 1982 with the present condition in China. Almost all of the motorcycle industry was producing imitations of Japan motorcycles at first as they could not afford any investments for research and development. By 1992, the regulations had changed and individuals were permitted to set up private companies, so Zuo quickly set up a company to assemble motorcycle engines from purchased parts which was capitalized at CNY500,000. The parts that were manufactured by SOEs were the copies of Japanese engines. There were several hundred of these suppliers and assemblers had to figure out how to select the right ones. Being a former motorcycle repairman, Zuo knew which factories made the good ones and what were the good brands.
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After 3 years of assembling, Zuo was dissatisfied with the approach as it was not easy to get parts from manufacturers as they were mainly responsive to large scale SOEs. He used to use his network and sometimes “red envelopes” to get the parts. With
Case Introduction and Challenges
-------------------------------------------------
Chongqing, a city in central southwestern China, had a heritage in heavy manufacturing, as it was one of the centers of the Chinese defense industry, especially for vehicles. In 1980s, when the Cold War slowed, the central government wanted to reduce defense expenditure and asked some of the state owned enterprises (SOEs) to begin manufacturing civilian products. At the beginning only SOEs could get license for the business but government permitted people to go into business for themselves but they could only work as individual business operators and could not set up companies. Many of the SOEs turned to parts production.
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Zuo Zongshen, being a former motorcycle repairer, decided to open a motorcycle repair business in 1982 with the present condition in China. Almost all of the motorcycle industry was producing imitations of Japan motorcycles at first as they could not afford any investments for research and development. By 1992, the regulations had changed and individuals were permitted to set up private companies, so Zuo quickly set up a company to assemble motorcycle engines from purchased parts which was capitalized at CNY500,000. The parts that were manufactured by SOEs were the copies of Japanese engines. There were several hundred of these suppliers and assemblers had to figure out how to select the right ones. Being a former motorcycle repairman, Zuo knew which factories made the good ones and what were the good brands.
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After 3 years of assembling, Zuo was dissatisfied with the approach as it was not easy to get parts from manufacturers as they were mainly responsive to large scale SOEs. He used to use his network and sometimes “red envelopes” to get the parts. With