The Internationalization Path of Wanxiang

The Internationalization Path of Wanxiang

Qing Lu (The Logistics Institute—Asia Pacific, Singapore), Yuan Sun (Zhejiang Gongshang University, People’s Republic of China) and Mark Goh (The Logistics Institute—Asia Pacific, Singapore)
DOI: 10.4018/978-1-4666-0065-2.ch009

Abstract

This case study examines the internationalization experience of Wanxiang, an auto supplier in China. Once at the lower end of internationalization and controlled by its Western partners without its own brands and distribution channels, Wanxiang has managed to climb the ladder of internationalization and taken a greater share of supply chain profits using its coopetition strategy with Western partners. Two mini-cases are presented and discussed in this chapter. The first describes how Wanxiang obtained more direct market access and the appropriation of supply chain profits in competition with its Western partners. The second describes how Wanxiang acquired more sophisticated technological assets for value-addition and managed them astutely. Two important areas were explored: (i) prudent use of diversification for capital accumulation to support capability building; and (ii) management of technology acquisitions and markets by maintaining a proper balance between autonomy and the integration of the acquired business units.
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Case Description: Wanxiang In The 1980S

The initial steps towards internationalization opened the eyes of the Wanxiang management, but it needed much more sophisticated technologies and manufacturing processes to succeed. Its founder, Lu Guanqiu, said:

It was then that we began the process of exploration and experienced what I describe as “stepping out and bringing in”. We brought our products and our people into the world, and in learning about the world we discovered our own shortcomings. Once we made it to the outside world—once we saw just how big the gaps between us and the outside world really were—we were just stunned. In response, we eliminated our most unsophisticated products, outdated equipment, and underperforming employees. We imported high-precision equipment and focused on producing high-quality products. By improving on the overall quality of Wanxiang, we built the foundation for our future progress (Gao, 2004).

The early days of the internationalization experience helped Wanxiang to explore new technologies, talent development as well as better management practices. It was able to manufacture competitive standardized products at low cost and of reasonably good quality. However, the dangers of depending on one customer could limit its further growth.

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Current Challenges Facing The Organization

Not very long after export activities began, a critical event occurred in the history of Wanxiang in 1987. Zeller, the company’s major foreign customer, proposed exclusive distribution rights on all of Wanxiang’s exports to the US or else threatened to terminate its orders. Rejection of this request would mean the risk of losing a major international customer and taking on a huge amount of unsold inventory. How should Wanxiang respond to this request? More generally, how should it climb higher on the ladder of internationalization, build its capability and gain in its coopetition with partners to accrue supply chain benefits?

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