The Internationalization strategies of

Chinese Privately Owned Enterprise:

a Case Study on Wonder Auto Technology Inc.

Uppsala University

Department of Business Studies

Master thesis within International Business Management

Author: Mingming Jiang

Tutor: Martin Johanson

Uppsala, August 2012

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Acknowledgment

The author of this thesis would like to thank Wonder Auto Technology Inc. to offer

the opportunity to do the case study on the company.

The author is also thankful to the tutor Martin Johanson for his guidance and support

during the process of writing this thesis. Gratitude‟s to the fellow students in the

seminar group for their valuable feedback during seminar sessions.

Mingming Jiang

Business Studies Department of Uppsala University

2012/08/15

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Abstract

There is an upsurge of trend in studying the internationalization strategy (IS) of firms

from China in international business (IB) research area. However studies which have

done on Chinese firms in IB area are mostly focused on large state owned enterprises

(SOEs), and there are few studies which have focused on the IS of Chinese privately

owned enterprises (POEs). This study used the framework of environment –

internationalization strategy – performance as the theoretical support, and adopted a

case study method on a Chinese POE –Wonder Auto Technology Inc.. By analyzing

the firm's ISs, the study results showed that Chinese POEs use export, foreign direct

investment (FDI), and strategic alliance as their ISs, environmental factors from

institution, industry, and firm level could influence a firm‟s choices of

internationalization strategies, and these strategies are positive related to the firm‟s

performance.

Key word: Internationalization strategy, Environmental factors, performance, Chinese

firms. Emerging country

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Table of Contents

1. Introduction ................................................................................................................ 6

1.1 Background ....................................................................................................... 6

1.2 Problem ............................................................................................................. 7

1.3 Purpose .............................................................................................................. 8

1.4 Research question ............................................................................................. 8

2. Literature review ........................................................................................................ 9

2.1 Internationalization strategy .............................................................................. 9

2.1.2 Foreign direct investment ..................................................................... 11

2.1.3 Strategic alliance ................................................................................... 12

2.2 Environment and internationalization strategy ............................................... 13

2.2.1 Institution level ..................................................................................... 14

2.2.2 Industry level ........................................................................................ 15

2.2.3 Firm level .............................................................................................. 16

2.3 Performance of internationalization strategies ................................................ 17

2.4 Theoretical framework .................................................................................... 18

3. Method ..................................................................................................................... 19

3.1 Research design .............................................................................................. 19

3.2 Data collection ................................................................................................ 20

3.3 Data analysis ................................................................................................... 21

3.4 Data measurement ........................................................................................... 21

3.5 Validity and Reliability ................................................................................... 23

4. The internationalization of Wonder Auto Technology Inc. - a case study ............... 25

4.1 General policy of China toward international business .................................. 25

4.2 The auto component manufacturing industry ................................................. 26

4.3 WATG‟s background ....................................................................................... 26

4.4 Internationalization strategies of WATG ......................................................... 28

4.4.1 Export .................................................................................................... 28

4.4.2 Reverse merge ....................................................................................... 31

4.4.3 Strategic alliance ................................................................................... 33

5. Analysis .................................................................................................................... 36

5.1 WATG‟s export ................................................................................................ 36

5.1.1 Export and performance ........................................................................ 36

5.1.2 Drivers for export .................................................................................. 36

5.2 The reverse merge undertook by WATG ......................................................... 37

5.2.1 Reverse merge and performance ........................................................... 37

5.2.2 Drivers for reverse merge ..................................................................... 38

5.3 Strategic alliance used by WATG .................................................................... 39

5.3.1 Strategic alliance and performance ....................................................... 39

5.3.2 Drivers for strategic alliance ................................................................. 39

6. Discussion ................................................................................................................ 41

6.1 Internationalization strategy for Chinese POEs .............................................. 41

6.1.1 Export for Chinese POEs ...................................................................... 41

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6.1.2 FDI for Chinese POEs .......................................................................... 41

6.1.3 Strategic alliance for Chinese POEs ..................................................... 43

6.2 The influence of environment on the strategic choices of Chinese POEs'

internationalization ..................................................................................... 44

7. Conclusion ............................................................................................................... 47

7.1 Limitation and Future study ............................................................................ 48

Reference ..................................................................................................................... 49

Appendix ...................................................................................................................... 60

Term ............................................................................................................................. 66

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1. Introduction

1.1 Background

The internationalization in business world is a relative recent phenomenon. Since the

1960s, business activities have increasingly evolved into interdependent and

functionally integrated transactions cross-borders (Yeung, 1999). These activities have

been the central theme of international business (IB) researches. Traditionally, IB

studies are conducted on firms‟ internationalization behaviors from developed

countries. More recently, Buckley and Ghauri (2004) stated that there is a growing

interest in studying the arising phenomenon which is the internationalization of firms

from emerging countries. Indeed, there has been an upsurge of firms pursuing

internationalization in various industries, from countries such as Brazil, China, India,

Malaysia, Mexico, Russia, and Turkey (Bonaglia & Goldstein, 2007).

China, as one of the emerging countries, is developing into an internationally

influential political and economic power. With an average growth rate of closely 10

per cent during the past 20 years, China has already ranked as one of the world‟s

largest economies and trading powers. This fast economic growth has reinforced

China‟s global competitiveness (Liu & Li, 2002). Furthermore, the global business

environment at the beginning of the new century has involved a steep continuing rise

with the international business activities of firms from China (Jansson, 2007; Liu et

al., 2008). It was the breakthrough period from 1986 to 2004 for large Chinese

state-owned enterprises (SOEs) pursuing internationalization, primarily influenced by

the liberalization of economy system and the accession to the World Trade

Organization (WTO) which facilitated major trade barriers. However, besides the

SOEs , there are also an amount of Chinese privately owned enterprises (POEs)

internationalized rapidly, and these POEs play a gradually essential role in worldwide

business and trade between China and other countries (Chen, 2006; Yang et al.,

2008).

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1.2 Problem

A number of large Chinese SOEs have been identified as transforming into

multinational corporations (United Nations Conference on Trade and Development

[UNCTAD], 2006), and the most successful “internationalizers” (Boston Consulting

Group, 2006; IBM Institute for Business Value, 2006). The reasons for these SOEs

being successful and what drives them pursuing internationalization have drawn

researchers' attention. Thus the existing studies on the internationalization of Chinese

firms conducted to date have been primarily focused on these large SOEs (Söderman,

Jakobsson, & Soler, 2008). The studies' results showed that most large SOEs with

supports from government use foreign direct investment (FDI) as their main

internationalization strategy (IS), and the prevailing motive for them „go abroad‟ is to

seek new markets and resource in a relative fast way (Buckley et al., 2007; Cui &

Jiang, 2009; Deng, 2009; Morck et al., 2008).

As mentioned in the background, Chinese POEs also have contributed the bulk of

China‟s exports (Hall, 2007), however there is a lack of knowledge on this remarkable

growth of exports. How was it done? What other internationalization activities did

these POEs undertake? What were the ISs used by them? What were the driving

forces for these POEs to go abroad? The record is yet scant on Chinese POEs'

internationalization behaviors. Therefor the author of this research chose to study the

ISs of a Chinese POEs, and aimed to fill this vacancy in IB field. Meanwhile, a

contribution is also made to the internationalization literature in the institution-based

view on internationalization, and organizational strategies.

In this study, the term 'internationalization' is defined by Welch and Luostarinen

(1988), as 'the process of increasing involvement in international markets'.

Internationalization strategy is referred as an umbrella term to represent the broad

range of strategic options open to the firm in its international business, such as export,

FDI and strategic alliance (Lu & Beamish, 2001). 'Chinese privately owned enterprise'

is noted as a business company which is not owned by Chinese governmental

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organizations.

The empirical research was focused on ISs used by a Chinese POE. Interviews were

conducted with the CEO, the Chief Sales Officer (CSO), and managers of the

company‟s subsidiaries. The ISs of the firm were investigated, and the drivers and

outcomes regarding to the strategies were explored.

Following a literature review of theories related to ISs, the method used in this

research is outlined and justified. Thereafter, findings are presented and discussed.

Finally, the conclusion of Chinese POEs' ISs is drawn, and issues for future research

are identified.

1.3 Purpose

The purpose of this case study is to examine the internationalization strategies

adopted by Chinese POEs.

1.4 Research question

(1) What are the ISs adopted by Chinese POEs?

(2) What are the factors influencing the strategic choices of Chinese POEs‟

Internationalization?

(3) What are the performances regarding to the selected ISs?

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2. Literature review

Since the purpose of this paper is to investigate the ISs used by Chinese POEs, what

factors influencing these strategies, and what are the outcomes for using these

strategies, thus it is reasonable to first explore theories on IS, its drivers and outcomes,

and their relations in order to get a better understanding on the case of Chinese POEs'

ISs. Concepts in detail on these elements are discussed in the following sections.

2.1 Internationalization strategy

The domain of IB research is based on the fundamental assumption that firms will

benefit from international business, and international expansion will improve firms‟

performance (Contractor, 2007). Thus in order to make internationalization successful,

firms should carefully choose and use their ISs. Companies tend to enter into markets

overseas as exporters and/or as foreign investors (Reynolds, 1997). Therefore Export

and foreign direct investment (FDI) are common strategies used by firms in their

international activities. Meanwhile, it is also shown that there is an increasing

popularity for firms to use strategic alliance to engage in international markets (Lu &

Beamish, 2001).

2.1.1 Export

To date, export is the most popular approach which firms adopted to engaged with

international markets (Leonidou & Katsikeas, 2010), and now represent for more than

25% of world gross domestic product (World Bank 2008). Firms use an export

strategy as the first step and primary mode for entering foreign market and export

serves as a platform for firms' future international expansions in the progressing of

internationalization (Leonidou & Katsikeas 1996; Kogut & Chang, 1996). Export can

be an engine for individual firm‟s growth and profitability (Wolff & Pet, 2000). This

strategy is particularly applicable to firms which are lack of resources, and capital for

FDI (Dalli, 1995; Zahra et al., 1997), because export provides companies with fast

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access to foreign markets, and with little requisite capital investment, but the

opportunity to obtain valuable experience on internationalization (Sullivan &

Bauerschmidt, 1990).

The classic stage theory is one of the most developed subfields when investigating

firms‟ export activities in internationalization research. According to the stage theory,

export is developed as an extension of a firm‟s success in its domestic market, and the

firm subsequently achieves its successful international expansion by building an

export capability through a developmental and sequential process (Johanson &

Vahlne, 1977). Through export activities, firms incrementally obtain information,

experience, and know-how with foreign markets. The accumulated knowledge raises

firms‟ confidence toward markets abroad which makes firms pursue more massive

export activity, and therefore more internationalized. As a result, the export sale to

total sales ratio is increased overtime with export activity gets intensified. Once the

required knowledge for foreign market is adequately developed, export may become a

natural extension of firms‟ general business activities. This natural extension is

considered to be able to provide firms successful growth opportunities and enlarged

profitability via a stepwise development toward internationalization (Wolff & Pet,

2000).

Theoretically, several economic benefits can be obtained via exporting. The most

direct ones are profits related to scale and scope economies (Kogut, 1985; Grant,

Jammine & Thomas, 1988) as gained from larger quantities of sales and production

made possible by revenue growth in the foreign expansion of markets. In addition, a

presence in multiple and diverse global markets can accumulate advantages related to

the increases in market power (Kim et al., 1993) and benefits from the diversification

of revenues (Ramaswamy, 1992). The potential economic gains from export, together

with the stepping-stone influence for future international extension (Erminio &

Rugman, 1996), indicate that the degree of export should be positively related to a

firm‟s financial performance.

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2.1.2 Foreign direct investment

While export is an IS which is less risky in terms of financial investment involvement,

when a firm's assets are exclusive (for example brand equity, trademarks, or patents) a

firm which uses export approach can be exposed to greater risks in terms of

distributor opportunism or asset appropriation and devaluation. When faced with this

type of issues, FDI becomes an appealing IS, because it allows firms to minimize

transaction-related risks via internalizing markets when exchanging exclusive assets

(Hennart, 1982; Rugman, 1982).

There are two general principles on the theory of FDI (Buckley & Casson, 1981)

which are that: (1) firms tend to internalize scarce or imperfect external markets until

the costs of further internalization exceed the benefits; and (2) firms select locations

for their compositive business activities that are able to minimize the overall costs of

their operations. Firms expanding globally by internalizing foreign markets means

that they use FDI to substitute imperfect external markets in intermediate products

and knowledge, and appropriate the profits from so doing. As stated in Dunning's

eclectic model, a firm adopting FDI as IS is mainly driven by three primary

motivations (Dunning, 1993): foreign-market-seeking FDI; efficiency (cost

reduction)-seeking FDI; resource-seeking FDI (including a subset that is known as

strategic-asset-seeking FDI).

Besides the advantages obtained from internalizing exclusive asset exchange across

nation borders, FDI in various locations enables a firm to leverage diversified

location-based benefits (Kogut, 1985), such like a relative low cost labor force, the

access to critical resources (Deeds & Hill, 1998), and to acquire and develop new

knowledge and competences that increase its international competitiveness (Shan &

Song, 1997). The potential to enhance organizational learning in various international

markets has been claimed to be an essential advantage of international expansion

(Porter, 1990; Zahra et al., 2000).

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2.1.3 Strategic alliance

Firms which are challenged with constrained resources and capabilities are confronted

with internal scarcities of information, capital, management time and experience, and

external constrains rising from their vulnerability to the effect of environment

(Buckley, 1989). Such intrinsic shortages in resources and capabilities impose

restraints on the expansion of firms (Zacharakis, 1997). Thus the use of strategic

alliance has been suggested as one of the key strategies for a firm to overcome the

constrained resource and capability, which enhances the chances of success for the

firm‟s future expansion (Lu & Beamish, 2001). Previous studies indicated several

benefits of adopting alliance as IS which include minimizing transaction costs,

increasing market power, sharing risks and better access to important resources such

as capital and knowledge (Kogut, 1988). Foremost among these benefits is the access

to the partner's resources, or 'network resources' (Gulati, 1998).

Alliance partners are able to help firms overcome deficiencies of capital, equipment

and other tangible assets via resource sharing between two or more individual firms

involved in the alliance agreement (Mowery et al., 1996). More significantly, alliance

partners represent an essential source of their countries‟ knowledge to firms (Gulati et

al., 2000). Firms could obtain other countries‟ knowledge and develop new internal

organizational competences through accumulated experience in cooperating with

alliance partners (Makino & Beamish, 1998). Thus, joining into alliances and having

access to alliance partners' resources provide firms a possible effectual approach to

overcome shortages of resource and capabilities.

A firm has two basic partner choices: it could partner with firms from other countries

or with firms from its own country (Makino & Delios, 1996). Both types of alliances

can help a firm overcome deficiency in financial capital and tangible resources.

However, when it comes to offering a source of foreign country‟s knowledge, the two

partner choices differ essentially (Makino & Beamish, 1998). Partners from other

countries represent a primary and more detailed source of knowledge about different

aspects of their countries‟ environment, as compared to the other partner option. A

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foreign firm is used to know the demands and tastes of its own consumers, and it

owns information about competitors in that country and has the contacts which could

offer the partner firm with more business opportunities and timely information. In

general, under the condition that both partners provide the same amount of capital, an

alliance with a foreign partner for strategic purpose can alleviate a firm‟s knowledge

deficiencies about international markets, and this strategy has been found to be an

effective ways to acquire foreign resources and knowledge (Beamish & Banks, 1987;

Makino & Delios, 1996).

2.2 Environment and internationalization strategy

From the previous section, it is obvious that firms‟ IS could influence the success of

their internationalization. Thus, it is important to know what factors may affect firms'

choice of ISs. The classic environment-strategy-performance framework propounded

by Miller and Friesen (1983) suggested that a firm‟s strategies built with its

environmental factors are more than likely to result in better performance.

Furthermore, the study of Carpano et al. (1994) has shown that a firm‟s international

business-level strategies made under the influence of environmental factors are

associated with its performance outcomes, and firms that match their strategies with

environmental circumstances might become successful. Traditionally, there are two

standpoints that address the issue of environmental influence. Industry-based view

which represented by Porter (1980) claims that environments within an industry, to a

large extent, determine strategy of a firm, and resource-based view represented by

Barney (1991) argues that firm‟s specific resources and capabilities that affect

strategic choices. More recently, researchers like Peng et al. (2009), and Quer and

Claver (2012) suggested that institution-based view is the third leading perspective in

measuring the influence of environmental factors on strategies. Therefore, the author

would discuss how environmental factors influence ISs from institution, industry, and

firm (resource) level.

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2.2.1 Institution level

Institutional theory has been a main stream for researchers to study organization

behaviors under the force of relevant institutions (Pfeffer, 1997; Scott, 1995; Tolbert

& Zucker, 1996). Institutional theory observes the influences of various economic,

social, and political forces apply by a firm's relevant institutions within which a firm

operates (Scott, 1995). Formal institutional elements include factors such as a

country‟s legislature, judiciary, bureaucracy, government structure, and market

mechanism (North, 1990). These formal institution elements are crucial factors in

shaping the country‟s economy, especially developing countries (Oliver 1997; Peng

2003; Meyer & Nguyen, 2005), and thereby they determine the rules for all business

activities (North, 1990) which apparently include internationalization. Peng (2003,

2006) argued a new dimension of strategic management, an institution-based view of

strategy, which considers that a firm‟s business strategic choices are influenced by the

dynamic interaction between institutions and organizations, and are the outcome of

such an interaction. In other words, institutions directly determine what arrows a firm

has in its quiver as it struggles to formulate and implement strategy and to create

competitive advantages (Ingram & Silverman, 2002). Research on emerging

economies has pushed the institution-based view being as the same important as

industry- and resource-based views (Peng, 2006). The reason for this is that

institutional frameworks between emerging economies and developed economies are

profoundly different which impelled researchers to focus more on the differences

while studying on industry- and resource-based factors (Chacar & Vissa, 2005; Doh et

al., 2004; Hafsi & Farashahi, 2005; McMillan, 2007).

The studies on institutional-based view are generally dealing with the relationship of

emerging country institutions, and foreign investing firms (Luo, 2001; Enderwick,

2007). The perspective of these studies commonly views emerging country institution

as a hinder to the internationalization process, and questions how firms can cope with

the new country institution and exploit the best advantages for themselves. However,

when it comes to the relationship between home country institution and

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internationalizing companies, the standpoint is the opposite. The same institution

might be believed as the impediment for foreign investors can be regarded as the

important source contributing to the international competitiveness of indigenous firms

through its policies (Buckley et al., 2007).

Lau et al. (2002) illustrated in their article that firms are able to utilize their relevant

institutional forces to create their competitive advantages. Oliver (1997) argues that

firms can develop institutional capital to increase the use of their resources within

their institutional environment. Although, the studies of Lau and Oliver on

institutional forces are on the level of firms competing in domestic market, when it

comes to competition in global market, institutional forces of home country might

also help indigenous firms to build their competitive strengths by the access to capital,

technology and other resources(Buckley et al., 2007). Thus, when studying companies

under strongly institution influencing environment, such as China where the economy

is controlled by the state, the impact of institution should be considered as one of the

major analyzing aspects.

2.2.2 Industry level

In the traditional view of industrial organization research, a firm‟s strategic choices

are determined by conditions within an industry (Porter, 1980). Features of the

industry structure which are competitive rivalry, homogeneity of products, and

barriers of entry and exit used to analyze domestic industry, now could be considered

on a broader range which a firm is likely to achieve competitive advantage on a global

scale (Wang et al. 2011). On the standpoint of industrial organization theories, the

degree of competition and rivalry of the specific industry where a firm belongs might

largely influence the decisions on the firm‟s internationalization strategic choices

(Flowers, 1976; Hymer, 1976; Boter & Holmquist, 1996). Researches like Yang et al.

(2009) suggested that the high competition degree in domestic market encourages

firms to look for new opportunities in foreign markets, whereas others argued that a

firm is likely to initiate its internationalization progress if the globalization degree and

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concentrate rate of the firm‟s industry are high (Delios et al., 2008). Moreover,

rivalry-based theories of imitated behavior indicate that entering foreign markets is

likely to cause strategic reactions by competitors in the same industry who typically

cluster, or bunch, in expansion of geographic scope (Knickerbocker, 1973; Yu & Ito,

1988; Delios et al., 2008).

Industries vary based on internationalization potentials (Yip, 1992) which represents

for variations of globalization across different industries. The degree of globalization

is higher in segment which there is a standard on products or services for the entire

industry such as automobile components than in segments which products and

services are heavily depend on tastes and preferences of consumers which could

change easily in different cultures such as microwave food (Anderson, 2004).

Industries also differ significantly according to technological opportunities, illustrated

as the potentials for technological advance (Klevorick et al., 1995). Since

technological advances are changing fast in high technological dependent industries,

the scale of internationalization are more significant for highly technological

dependent industries than low dependent industries. Industries change due to the

change of institutional environment (North, 1990). The requirement for

internationalization is especially great among industries that are experiencing rapid

deregulation. For instance, in telecommunication industry, firms expanding overseas

through acquisitions are much easier using ongoing regulatory liberalization and

privatization. It is common to observe that in industries like this kind, firms are racing

with each other through cross-border acquisitions in order to attain global scale. In

general, characteristics across industries, to a large extent, should explain the

decisions of whether or not and to what extent a firm internationalizes its

value-creation activities (Andersson, 2004).

2.2.3 Firm level

From early studies, the initial motive for firms to develop globally began from the

standpoint that firms own particular intangible assets such as knowledge which form

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competitive or monopolistic advantages-that can offset the additional costs related to

overcoming the liabilities of foreignness (Westhead, Wright, & Ucbasaran, 2001;

Rugman & Verbeke, 2007). The focal point that firm-specific intangible assets drive

the initiation of internationalization has actually rooted in the fundamental

resource-based view of the firm, because most economic approaches used for

internationalization are resource-based (resource exploitation or resource-sourcing)

(Steen & Liesch, 2007). In the resource-based view, resources are valuable, rare,

imperfectly imitable and imperfectly substitutable (Barney, 1991; Amit & Shoemaker,

1993) which engender an organization's competitive advantage, and are the main

source for firm to keep performing sustainable results (Peteraf, 1993; Conner, 1991).

The resource-based view has become a major stream in internationalization research

field which is used by a number of researchers when analyzing internationalization

phenomenon in recent years (Hitt et al, 2006; Tseng et al, 2007).

The resource-based view emphasizes on the heterogeneous and firm-specific

idiosyncrasies, which is a remarkable departure from the Neo-classical market-based

economics of the industrial organization view (Mahoney & Pandian, 1992). It

considers internationalization primarily as an approach by which firms can best

exploit valuable and specific resources, such as technological capabilities, brand

names, knowledge and experience in oversea markets (Filatotchev et al, 2007; Hsu &

Pereira, 2008). Under the great regulatory complexity and liability of foreignness in

markets abroad, it is believed that the transfer of such resources helps the firms reduce

additional costs and risks, and enhance the possibility of internationalization success

(Tseng et al., 2007), and achieve economies of scale, scope and production

rationalization (Hitt et al., 1997). Therefore, the resource-based view offers an

alternative approach in the internationalization research field to the prevailing

approaches (e.g., industrial organization theory).

2.3 Performance of internationalization strategies

Contractor (2007) argued that successfully implemented ISs, for the most part,

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improve firms' financial performance (exclude extreme cases for example, in the

initial stage, profit gained from internationalization may not cover costs; or, when

firms suffer from over internationalization). Besides financial performance, successful

ISs are also able to improve a firm's overall performance through knowledge derived

from abroad. Since the company‟s presence in several countries‟ market augments its

capability to gain foreign knowledge that domestic or less globalized competitors

cannot access, and the knowledge here also includes experiences accumulated from

foreign markets (Kogut & Zander, 1993; Ghoshal & Bartlett, 1990).

2.4 Theoretical framework

According to the literature review above, ISs are fundamental and essential to firms‟

internationalization, environmental factors could influence these ISs, and the

outcomes of successful ISs are able to enhance firms‟ overall performances. Thus it is

reasonable to build a theoretical framework of Environment- Internationalization

strategy- Performance to study a firm‟s ISs. Based on the framework presented by

Peng et al. (2009), the theoretical framework for this study was built as the figure

below.

Figure 2.1 The Environment -Internationalization strategy - Performance framework

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3. Method

3.1 Research design

In order to give readers a better understanding of ISs used by Chinese POEs, the

author chose to conduct an explorative qualitative case study on a Chinese POE.

Since the aim of this study was to explore Chinese POE's ISs, the author decided to

use qualitative study which is a powerful research method when it comes to collect

detailed information (Easton, 1995). Furthermore, in order to answer and explain

questions like why the influence from institution, industry, and firm level might affect

ISs, and how the these strategies could influence firm performance, a qualitative

method is more suitable than quantitative study for the reason that it could provide

richer and deeper insights, and often tries to answer 'why' and 'how' questions

(Easterby-Smith et al., 1994; Eisenhardt, 2007). Meanwhile, since the purpose of this

study is explorative, a qualitative method is well fitted for that exploratory is in its

nature (Yin, 1994).

As the aim of this study is to understand Chinese POEs' internationalization

phenomenon, a case study serves as a suitable approach since the purpose of case

study is to investigate a real-life phenomenon (Yin, 1994). In addition, because the

author would like to provide readers inspiring insights on Chinese POEs' ISs, using

case study is more likely to develop arguments based on rich empirical data that are

informative, interesting, and testable for replication studies (Eisenhardt, 2007).

Furthermore, this study focuses on investigating a single firm's ISs, since Glaum and

Oesterle (2007) suggested that research on the relationship between IS and its related

performance would significantly benefit from in-depth case studies which focus on

individual firms and their international business development process and experiences

over time. Meanwhile, although this is a single-case study, and the results might not

have basis for scientific generalization to organizations in general, the purpose of this

study is achieved as long as the findings could richly describe the existence of a

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phenomenon (Yin, 1994).

3.2 Data collection

In the light of triangulation approach (Cheng, 2005; Stake, 1995), this study involved

two types of data: primary data and secondary data. On one hand, interviews were

conducted with the selected company‟s CEO, and CSO, and email communications

were done respectively with four managers from four main subsidiaries. On the other

hand, secondary data were consisted by relative theories and literatures, information

from mass media, and the company‟s administrative records and documents, such as

annual reports, press releases, and brochures.

The two interviews were face to face interviews done by the help of the CEO's

assistant, recorded by the assistant, and then sent to the author by email afterwards.

The interview with the company's CEO was conducted first. It was a structured

interview for the reason that the author was absent and thus not able to bring follow

up questions. After the author listened to the recorded interview, a followed up

interview was conducted with the firm's CSO also by the help of the CEO's assistant,

since the CEO recommended the author to interview the CSO to seek more

information for specific details in areas where the CEO was uncertain or was not able

to give concrete answers. After conducting the two interviews which aimed to collect

information at management level, the author sent emails with questions to the four

main subsidiaries' managers respectively to collect further information at subsidiary

level. The two interviews were conducted in week 13 (3/26 - 4/1), and the email

questions were sent in week 14 (4/2 - 4/8).

The interview questions designed for the CEO and CSO were mostly open-ended

questions according to the the theoretical framework in order to encourage them to

give as much information as they could. The content of the interview questions for the

CEO and CSO were almost the same, since the author would like to know whether

they have the same opinions on the same questions in order to improve data reliability.

21

The email questions for subsidiary managers were designed after the author listened

to the two interviews, since the author considered that there was a need for

information from subsidiary level based on the information from the interviews.

3.3 Data analysis

The following actions had been taken when it came to analyze the collected data. For

the information from interviews, the author first fully transcribed the two interviews,

and then sent the transcriptions to the CEO's assistant in order to make sure all the

information were transcribed correctly, and get approval from the company to use

these data. By doing so, the author believed that the quality of the data was increased.

Because if there were mistakes in the transcribed data, confirming the transcriptions

with the company would be an opportunity to correct them. After confirmed the

transcribed interviews, the author coded the information from interviews, and emails

together with the other collected data which include the provided documents from the

company, information from the company's websites and a governmental website, and

related articles into Microsoft Excel where all the data were sorted according to the

theoretical framework for the later systematic analysis.

3.4 Data measurement

As mentioned above, the collected data were processed based on the theoretical

framework in order to measure and compare with the major concepts in literature

reviews.

According to the discussion on IS in literature review, the concept of IS was measured

by the three strategies- export, FDI, and strategic alliance adopted by the company.

The performance of each strategies were mainly measured by the financial

performance and other improved capabilities which could enhance the company's

overall performance.

• Export, the entire company's export experience and plan about export strategy

22

were collected from the interviews. The export financial performance was

measured by the total sales of export which was collected from the company's

annual report, and the non-financial performance was gathered through

interviews. The subsidiaries' export sales and foreign customers were collected

from the emails with subsidiary managers, and brochures from the subsidiaries.

• FDI, the company's FDI experience and performance were collected from the

interviews, and the detailed financial performance was collected from the

company's annual report.

• Strategic alliance, the general usage of the strategic alliance strategy came from

the interviews, and the detailed experiences were collected from the emails with

subsidiary managers.

Based on the theories about the influence of environment on IS, three environmental

factors which are institution, industry, and firm level were designed to measure by the

data.

• Institution level was examined by the policies of Chinese government toward

international business and trade, and the data was collected from the website of

Ministry of Commerce of China, publications regarding to this topic, and the

interviews.

• Industry level was measured by competition from global and domestic markets.

The information of global and Chinese auto component market and industry were

collected from the interviews, the company's annual report, and related articles.

The information about domestic and foreign competitors was collected from the

emails with the subsidiaries managers.

• Firm level was measured by the company's specific recourse which could offer

the company competitive advantages in international markets such as production

capacity, technological capabilities, knowledge and experience. This type of data

was collected from the interviews, and the company's annual report, press

releases, and brochures.

23

Table 3.1 Description of interview and email questions and the related theory

(Appendix 1)

Theoretical concept Related Interview and email questions

Export Question 1.1, 2.1, 3.1, 3.2

FDI Question 1.1, 2.2

Strategic Alliance Question 1.1, 2.3, 3.4

Institution level Question 1.2, 2.5

Industry level Question 1.3, 2.6, 3.3

Firm level Question 1.4, 2.7, 3.2

3.5 Validity and Reliability

As Yin (1994) stated, in all research, construct validity, internal validity, external

validity, and reliability must be given consideration.

For validity, Yin suggested that in single-case study, using multiple sources of data

was the way to ensure construct validity; the internal validity is provided by the

specification of the unit of analysis as the theories are developed, and data collection

and analysis test those theories; external validity is more difficult to attain, and could

be derived from theoretical relationships, and from them generalizations could be

made. Thus for this study, the author combined both primary and secondary data

which consist literatures, information form public medias, and documents, emails and

interviews from the company to confirm construct validity. For internal validity, a

theoretical framework was first developed from literature reviews, and then the

24

framework was tested and proved by analyzing the collected data. Since the aim of

this study is not to provide findings applicable to all situations, therefore the external

validity was achieved by giving readers a real-life example of the ISs used by Chinese

POEs to compare with the existing theories, and mirror similar situations happened

around them.

In terms of reliability, Yin argued that for all research reliability is provided by the

development of a formal case study protocol. The author designed the protocol for

this research in the beginning of the study, and then followed the protocol for the

entire process. Yin also suggested an avenue for the researcher to enhance the

reliability of the study. The procedure is having an external observer follow the

derivation of findings from initial research questions to the end of case study

conclusions. For this research, the protocol was initially presented to the thesis tutor

and students in the same thesis group with the author at the first thesis seminar which

was aimed to let the tutor guide students with their thesis and check their progress,

and in the following seminars till the final seminar which was to defence thesis, the

author presented the investigation which followed the protocol step by step.

Meanwhile, Yin identified that six primary sources of evidence (not all sources are

essential in every case study) are important to the establishment of the reliability of

the case study research, which are documentation, archival records, interviews, direct

observation, participant observation, and physical artifacts. This case study's

reliability was increased by combining the first three sources of evidence.

25

4. The internationalization of Wonder Auto Technology Inc.

- a case study

4.1 General policy of China toward international business

After the liberalization of economic system of China in the late of 1970s, the country

aims to establish an open market to encourage trade and communications with foreign

countries in order to further accelerate the country‟s economy growth (Söderman et al.,

2008).

The Chinese government has enacted a series of policies and regulations to promote

international trade (www.gov.cn, retrieved @ 2012/5/3). For example, firms which

export their product are able to get export tax reduction, and for some industries like

automotive industry, all the export tax is deducted and firms are able to export their

products with zero export tax. Firms with international business are also able to get

financing support from Chinese banks, such as they can take loans only based on their

customers‟ orders. Meanwhile, the government also encourages firms to take on

cooperating projects with foreign companies, and firms doing so can get financial

support from local government to a certain extent.

Domestic firms have strong linkages to domestic institutions, such as SOEs in China.

They may develop monopolistic positions in domestic markets (Morck et al., 2008).

These positions may include below-market credit rates available for state-owned

businesses and soft loans. Indeed, it is commonly argued that large Chinese SOEs can

undertake relatively high-risk investment with less concern over loan repayments

(Buckley et al., 2007; Child & Rodrigues, 2005). This may, for example, help them

acquire natural resources or strategic assets (i.e., brands and technologies). In contrast

to SOEs, the private sector may find it considerably hard to raise capital, as well as

negotiating domestic regulation and intervention (Lardy, 1998; Yeung & Liu, 2008).

Thus when it comes to internationalization, Chinese SOEs also have better position

26

than POEs.

4.2 The auto component manufacturing industry

Since the 1990‟s beginning of global sourcing and the transfer of some design

responsibilities have formed a new relationship pattern between automotive

assemblers and suppliers. With the aim of lower production costs and concentrating

on core competencies, the assemblers have enlarged their outsourcing and global

suppliers have participated in both design and production more extensively. In order

to further develop the supply chain, assemblers and suppliers have developed a model

of the automobile as a complex system which can be broken down into separate parts,

or modules, which can then be connected with each other through standardized

interfaces. With the standardization, suppliers with competitive price are able to

supply their products to assemblers all over the world, thus a new class of supplier has

been added, the global supplier (Sturgeon et al., 2008).

Along with the global sourcing, automobile component market is very competitive.

According to Wonder Auto Technology Inc. (WATG)'s CSO, the company competes

based upon the price and quality of its products, product availability and customer

service. For each product series there are several domestic and international

competitors in this market trying to sell the same products as we sell to the same group

of target customers. Some of the big international competitors have greater financial

resources, larger staff, and more established market recognition in both domestic and

international markets than the company has. And most of the domestic competitors are

joint-venture companies with those big international auto part manufacturers (see

Appendix 5).

4.3 WATG’s background

Wonder Auto Technology Inc. (WATG) is premier manufacturer of a broad range of

automotive electric parts, safety system parts, suspension products and engine

27

components in China. Their core products include alternators, starters, airbags,

pretensioners, shock absorbers, rods and shafts used in shock absorber systems, and

engine valves and tappets.

WATG has been producing alternators and starters in China since 1997. Through the

development and acquisitions, WATG now owns 4 main subsidiaries which

manufacture the 4 series of product respectively, and the company‟s current annual

production capacity is approximately 3 million units of alternators, 3.5 million units

of starters, 50 million units of engine valves and tappets, 30 million units of rods and

shafts, 2.2 million units of airbags and 5 million units of pretensioners. WATG sells its

products both to well-known domestic and international automobile original

equipment manufacturers (OEM1s), engine manufacturers and automotive parts

suppliers (see Appendix 2). According to the China Association of Automobile

Manufacturers (“CAAM”), in 2010 WATG ranked at the second place in sales

revenue in the Chinese market for automobile alternators and starters which are

produced by the Jinzhou Halla subsidiary. Jinzhou Jinheng, the subsidiary which

produces automobile airbags, is the largest domestic manufacturer for self-owned

brand vehicles, and holds over 50% of the domestic market shares in this field. The

subsidiary Jinan Worldwide is one of the largest manufacturers of engine valves and

tappets in China in terms of sales volume. The Jinzhou Wanyou subsidiary is the

largest professional manufacturer of shock absorber piston rods in China.

According to WATG‟s the CEO, there are several strategies leading the company to

success. For example, the development of new products and production methods is

important for WATG to compete with its competitors. The company operates seven

research and development centers, each performing different research and development

activities (see Appendix 4). And the company currently owns a number of patents

issued in China relating to its products, the goal is to utilize intellectual property to

provide a competitive advantage. Meanwhile, the company hires local suppliers in

close proximity to it, in order to closely supervise their activities, monitor quality,

provide technical training and collaborate on technical improvements, and take

28

advantage of lower shipping costs to keep overall production cost low. Furthermore,

the company actively pursues acquisition prospects and other strategic opportunities to

enlarge its market share in both domestic and international markets.

Figure 4.1 The organization structure of WATG

WATG

Jinzhou

Equipment

Fuxin

Huirui

Jinzhou

Motor

Jinzhou

Dongwoo

Jinzhou

Hanhua

Jinzhou

Karham

Huayi

Xuanya

Wonder

Machinery

Wonder

Paper

Jinzhou

Leader

Jinzhou

Lida

Jinzhou Halla

Shenyang

Jinbei

Beijing

Sega

Wonder

Victory

Jinzhou Jinheng

Shenyang

Worldwide

Jinan Worldwide Jinzhou Wanyou

Jinheng

Auto Control

Jinheng

Safety Parts

4.4 Internationalization strategies of WATG

According to the CEO, WATG‟s internationalization could be categorized in three

ways which are product (export), capital (FDI), and R&D internationalization

(strategic alliance).

4.4.1 Export

Exporting the companies‟ products outside of China is an important component of

WATG‟s overall growth strategy. The company‟s long term goal is to enter the

international automotive market with its high value added auto component products,

and break the European and American suppliers‟ dominant position in the global

automotive market, said by WATG's CEO.

Meanwhile the CSO stated that, WATG‟s exporting business was established from

little step to step, and till today, the company is still exploring the way to increase

export. In the beginning, the company chose to advertise on a domestic auto parts

magazine, and obviously the advertisement did not bring the expected attention from

foreign customers. Later on, WATG started to participate in foreign exhibitions,

mainly the two biggest automotive exhibition in the world – Frankfurt Automechanika,

29

and Las Vegas SEMA (Specialty Equipment Market Association) Show. Fortunate

enough, the company encountered a foreign customer at the first time attending the

exhibition. The CSO recalled he met this British customer in the SEMA Show. After

several communications, and visits to China, the customer signed a contract with

WATG only after half year. Although the customer‟s order was small compared to

other customers, it made the company see opportunities in foreign market. The CSO

also mentioned that in the beginning WATG used agents to seek for foreign customers.

However orders from these agents were all in small volume, the fees to pay those

agents were too high based on the orders, and the company was not able to get in

touch with the customers. Thus, after a while WATG stopped to use agents.

Both the CEO and CSO confirmed that, WATG found export opportunities from the

company‟s domestic customers, since these customers are all joint-venture companies

with well-known global automotive manufacturers, such as Shanghai Volkswagen

(VW), Shanghai General Motors (GM), Beijing Daimler-Benz, and Beijing Hyundai.

After communicated with the foreign parent companies, these big auto manufacturers

showed interests in considering WATG as their OE system supplier. From then on, the

company started to see more and more export opportunities through business

networks.

As stated above auto industry is one of the most globalized in the world. Global

sourcing has become one of the main strategies adopted by automotive manufactures

for cost saving purpose. Therefore, taking the advantage of global sourcing, WATG

now supplies its products to almost all the countries which have automotive

manufacturing industries, such as America, Russia, Korea, and so on (see appendix 3).

The Jinzhou Wanyou subsidiary is one of the largest professional manufacturers of

shock absorber piston rods in the world, and the annual export sales revenue takes

50% of the Wanyou‟s total annual sales. The annual export sales revenue of Jinzhou

Jinheng and Jinzhou Halla each take 4% of WATG‟s total annual sales revenue.

According to Table 4.1, although WATG‟s total export sales revenue increased during

the past three years, it was subject to the company‟s overall development in three

30

years and the increase in total sales revenue. With the impact of the recent market

events, especially the global economic slow-down, the challenging automotive

industry conditions and the continued global credit crisis, global automotive demand

are adversely affected WATG‟s export business. The company‟s overseas sales

accounted for 16.2%, 10.7% and 9.5% of their total sales revenue in 2008, 2009 and

2010, respectively. However, the CEO said the company‟s management still sees great

opportunities for expanding their market share in the international market. As

international automotive manufacturers implement cost saving plans, WATG expects

these manufacturers to source components directly from low cost manufacturing

regions, such as China. According to the CEO, the company believes their high

quality and low cost products will be attractive to international automakers and engine

manufacturers. In addition, the subsidiary Jinzhou Wanyou is specialized in the

manufacturing of rods and shafts. With more and more oversea automakers ceasing to

manufacture rods and shafts themselves due to cost concerns, both the CEO and CSO

anticipated more sales opportunities for the rods and shafts in the oversea market.

WATG also plans to continue to utilize their existing export sales network and

resources to sell engine valves and tappets manufactured by their subsidiary Jinan

Worldwide. The CEO said this strategy, if successfully implemented, will further

increase WATG‟s export sales. Meanwhile, based on the export tax policy of China

(http://www.chinatax.gov.cn/, retrieved at 2010/04/06), the export rebate rate for

companies exporting automotive related products is 17%. With this policy WATG

becomes more competitive at the international market, since they are able to sell their

products with low prices to foreign customers, maybe even lower than the prices in

the domestic market to foreign customers, according to the CSO. With all these

advantages, WATG is aiming to increase its current 9.5% exporting rate to 30% in the

next three years, and 50% within the next 5 years, according to the CEO.

31

Table4.1. WATG‟s Revenue by Geographic Areas (All amounts in thousands of U.S.

dollars)

4.4.2 Reverse merge

According to the CEO, WATG used revers merge/takeover (RTO) strategy, which is

an acquisition of a publicly traded company by a private firm in order to sell shares

and raise capital (Makamson, 2010), as its way of FDI to enter foreign markets which

aims to become public traded in foreign stock markets.

WATG planned its RTO on MGCC Investment Strategies Inc. (MGCC)- a „shell‟

company, which is a type of firms that is publicly listed but not actively traded due to

financial or organization problems, to enter the U.S. stock market. MGCC was a

company incorporated in 2000 in the State of Nevada, United States, and traded at

OTC Bulletin Board (OTCBB) which is a stock exchange board for small companies

in America. Before the reverse acquisition of WATG on June 22, 2006, MGCC

business strategy and ownership changed several times, but it never had any

meaningful business operations during this period.

Before the reverse merge, WATG made several roadshows2 which basically aimed to

collect investment from private investors at cities such as New York, Detroit, etc., and

WATG successfully collected $20 million from these private investors. On June 22,

2006, Wonder Auto Limited (the old name of WATG) completed a private placement,

which is a funding round of securities that are sold without an initial public offering (a

32

firm sells its shares of stock to the general public on a securities exchange board for

the first time) usually to a small number of chosen private investors, pursuant to

which Wonder Auto Limited issued to certain accredited investors 45.277236 shares

of its common stock for $12,000,000, such shares were subsequently exchanged for

1,592,669 shares of the common stock of MGCC. In addition, on June 22, 2006,

Empower Century Limited (a private placement investor) transferred 30.184824

shares of the common stock of Wonder Auto Limited which the investor bought

before to certain accredited investors in exchange for $8,000,000. Such shares were

subsequently exchanged for 1,061,780 shares of the common stock of MGCC. On

June 22, 2006, MGCC also completed a reverse acquisition transaction with Wonder

Auto Limited whereby the company issued to the stockholders of Wonder Auto

Limited 8,627,858 shares of its common stock in exchange for all of the issued and

outstanding capital stock of Wonder Auto Limited. Wonder Auto Limited thereby

became MGCC‟s wholly owned subsidiary and the former stockholders of Wonder

Auto Limited became MGCC‟s controlling stockholders. In a word, WATG with the

help of its investors bought the stocks of MGCC, and thereby became the stockholder

of MGCC. Meanwhile, MGCC purchased WATG's stocks and became WATG's

stockholder. WATG acquired MGCC and then owned back itself.

This share exchange transaction resulted in a change of control of the Company. As

the result of the reverse acquisition, MGCC‟s business became the business of its

indirect, wholly-owned Chinese subsidiaries which are Jinzhou Halla, Jinzhou

Wanyou, Jinzhou Jinheng, and Jinan Worldwide.

On August 25, 2006, MGCC amended its Articles of Incorporation (rules governing

the management of a company in the America and Canada, and are filed with state

government or regulatory agency.) and changed the company‟s name into “Wonder

Auto Technology, Inc.” Thus the company‟s trading symbol changed from MGIS.OB

to WATG.OB at OTCBB, and then the RTO process was completed. In the end of the

year 2006, WATG‟s stock price increased from $3.07 per share the first day it traded

at OTCBB to $5, and the total issued common stock were 23,959,994 shares which in

33

total worth $40,806,557.

After WATG‟s public at OTCBB, the company provided global investors strong

financial performance which was showed through its quarterly and annual financial

reports, and the company's net profit was over $8.22 million in year 2006. Meanwhile,

WATG‟s stock price was consistently around $6 per share. All these performances

fulfilled the requirements of being public on NASDAQ which is the main stock

exchange board in the U.S., and On August 9th, 2007, WATG became a public traded

company at NASDAQ under the symbol of WATG. During the year 2007, WATG

issued 3,000,000 shares through Private Investment in Public Equity (selling of

publicly traded common shares or some form of preferred stock or convertible security

to private investors), and the share issued for proceeds is $25.95 million. In year 2009,

WATG made a financing of $59.20 million through public offer at a stock price of

$10.75 per share.

According to The CEO, after WATG went public at the U.S. stock market, the

company completed three times of financing, and the total accumulated financing

capital was $105,150,000. With the capital collected from international capital market,

WATG made several successful acquisitions, which enlarged the company‟s sales and

market share remarkably, and provided the company strong financial support for

product research and development, and entering international automotive market.

With the RTO experience in the U.S. stock market, WATG used the same approach

successfully entered the stock market in Britain.

4.4.3 Strategic alliance

According to WATG's CEO, the company utilized strategic alliance approach for

product development.

Based on the information from the manager of Wanyou subsidiary, on July 25, 2003,

Wanyou entered into a 5-year technical cooperation agreement with Meister, Korea.

The agreement was that Meister provided Wanyou staff to serve as the head of

34

research and development department and the head of financial planning department

in exchange for $140,000 per year.

According to the email with the subsidiary Halla's manager, on June 7, 2004 Halla

entered into a strategic alliance with Hivron, a South Korean company which

specialized in the design and manufacturing of microchips since 2002. Under the

long-term strategic cooperation agreement, Hivron‟s responsibility was to design and

manufacture microchips according to Halla's specifications and then sell these chips

to its designated suppliers. Hivron was obligated to sell these chips at competitive

prices and could not sell the developed chips to Halla‟s competitors. In return, Halla

provided specifications and information on its new products to Hivron and instructed

the company‟s rectifier and regulator customers to purchase chips from Hivron.

Through this strategic alliance, Halla was able to access South Korean expertise and

actively participate in the research and development of technologies that were critical

to Halla‟s products. During the past several years of this strategic alliance with Hivron,

Halla has jointly conducted research to develop microchips for use in the company‟s

own alternator rectifiers and regulators. This strategic alliance was important to

Halla‟s business because it provided the company source of microchips.

The manager from Jinheng subsidiary stated that in 2004, the subsidiary entered into a

licensing agreement with a well-known Japanese automotive component manufacturer

which had three-year effective term. Under the terms of the licensing agreement,

Jinheng licensed the technology and products developed by the Japanese licensor for a

period of three years, ending in September 2007. Through this licensing agreement,

Jinheng was able to integrate patented Japanese technologies into its own alternators

and starters. Jinheng could also produce and sell products that are more suitable for

Japanese vehicles utilizing this technology. In return, the company paid a royalty of

0.55% of net sales revenue from the sales of the products that incorporate the licensed

technology. The licensor retained ownership of all intellectual property licensed under

the agreement.

From the information provided by the manager of Worldwide subsidiary. On

35

November 4, 2009, Worldwide entered into a joint venture agreement with Korea

Teawon Dianzhuang Corporation, a Korean company, pursuant to which the two

companies agreed to establish a joint venture company named Jinzhou Wonder

Teawon Co., Ltd. (“Jinzhou Teawon”), which primarily engaged in the manufacture of

engine valves and tappets and other automobile parts. Under the joint venture

agreement, WATG will acquire 75% of Jinzhou Teawon.

Meanwhile, according to the CEO, WATG are often invited by both domestic and

international customers to jointly develop new components tailored to the customers‟

specific requirements. In 2009, WATG had 35 joint development programs used in

various models of sedans with its international customers. During the past several

years, upon the successful completion of most joint development projects, WATG was

engaged as the supplier for the jointly developed products for domestic and

international clients.

36

5. Analysis

5.1 WATG’s export

Export strategy was the first step and primary mode for WATG entering foreign

market, and export serving as a platform for future international expansions in the

progressing of the company‟s internationalization.

5.1.1 Export and performance

WATG did not only gain profits from sales of international markets, but the company

also obtained experiences and foreign knowledge from export. With the experiences

and knowledge, WATG would able to expand its export to more international

customers with more volume, and then gain more profits from sales to achieve

economic scales. The knowledge gained through export could also benefit WATG‟s

other internationalization activities.

5.1.2 Drivers for export

From the firm level, export requires WATG little capital investment to fast access to

foreign markets, and the opportunity to obtain valuable experience on

internationalization. Like stage theory stated, it was a natural developing process for

WATG to start exporting. Since the company was successful in the domestic market,

and was mature enough to pursue the next step which was to enter global market.

Meanwhile competitive advantages that WATG built over the years were able to

offset the costs from the liabilities of foreignness. For example, WATG focused on

product‟s R & D, and owned a number of patents on its products, thus it was hard for

its competitors to imitate, and gave the company competitive advantages over its

competitors in both domestic and international market. They specialized themselves

in producing rods and shafts system also made them attracted to assemblers, since

nowadays assemblers chose not to own these production line for cost reason. The

business networks that WATG was embedded in, offered the company opportunities to

37

get access foreign customers, and enter the global auto supply chain network.

Meanwhile, the company‟s aim which is to provide low price with high value added

products also made it competitive in global market.

From industry level, the highly globalized automotive industry benefited WATG‟s

export. The global sourcing of automotive industry provided WATG a huge

opportunity to have direct contact with international customers. The traditional stage

and geographic distant theory may not applicable here. Since auto parts are products

highly standardized, WATG could supply its products to auto assemblers all over the

world as long as they meet the requirements from customers. Thus there was no need

to start export to nearby countries such as Korea and Japan which was similar with

China from culture and tastes. WATG could gain export experiences directly from

international markets. Meanwhile global sourcing also lowered and reduced the entry

barriers compared to the traditional thoughts on export.

From institution level, the general policy of China encourages firms export activities.

The Ministry of Commerce of China introduced seven approaches to motivate

domestic auto parts manufacturers to increase export. WATG was able to get 17% tax

reduction on exported products and this huge benefit was one of the drivers for the

company to enter foreign markets. Thus institution plays an important role on

influencing firms‟ internationalization strategies.

5.2 The reverse merge undertook by WATG

5.2.1 Reverse merge and performance

It was clear that WATG gained huge capital from international investors through

reverse merge and being public on the U.S. stock market. With the collected capital

WATG was able to invest in its R&D and develop new products for both domestic and

international markets. The company was also able to enlarge its production by

building more manufacturing lines and plants with more capital. Thus the firm was

able to further its overall development with capital support. The acquisitions WATG

38

made to expand its market share was with the help of sufficient capital. Meanwhile,

being public at the U.S. stock market helped WATG established brand name among

global investors, and offered opportunities for the company to have more potential

investors, and enter the U.S automotive supply chain network.

5.2.2 Drivers for reverse merge

From firm level, the lack of capital was the driving force for WATG to pursue entering

foreign stock market. In order to achieve the company‟s goal to be the largest

domestic auto parts supplier and one of the largest in the world, WATG requires more

capital for development other than the profit gained through sales. Being on the U.S.

stock market with countless global investors could sever the purpose of collecting

capital.

From industry level, some of WATG‟s competitors have greater financial resources,

larger staff, and more established market recognition in both domestic and international

markets than the company has. In order to catch up with and finally exceed these

competitors, WATG was forced to seek a large amount of capital to develop the

company, and the normal way of collect capital such as from sales, and bank loan

were far not enough to sever the company‟s developing goals. Thus raising capital in

international capital market through revers merge and being public on the U.S. stock

market helped WATG reach the purpose.

From country level, Chinese government is more likely to financially support the

development of SOEs. Compared to SOEs, it is difficult for Chinese POEs to raise

capital through the support from government. Thus, firms have to figure out some

alternative ways to collect capital, and being on the foreign stock market through

reverse takeover is a way to achieve it.

39

5.3 Strategic alliance used by WATG

5.3.1 Strategic alliance and performance

WATG adopted strategic alliance to acquire foreign knowledge of technology and

customer demands. WATG‟S license agreement with the Japanese licensor made the

company able to integrate patented Japanese technologies into its own alternators and

starters. As a result the company increased its sales in Japanese Market since products

are more suitable for Japanese vehicles. WATG‟s other joint venture projects also

made the advance automotive technology available to the company, and they played

an important role in WATG‟s catching up process. Meanwhile with the knowledge

learned from foreign partners, WATG was able to produce world-class products, meet

the international demands, and therefore enlarge export rate.

5.3.2 Drivers for strategic alliance

From firm level, the lack of advanced technology was the primary drivers for WATG

to enter in strategic alliance agreements with foreign partners. Although the company

has its own R&D centers, it was too costly to develop a type of technology from

scratch, especially this type of technology was a key element for production, and was

able to obtain with relative low cost from foreign partners. The use of strategic

alliance enabled the company to get fast access of advanced technologies, and

accelerated its catch up process with worldwide standard.

From industry level, the need of catching up with both domestic and international

competitors drives WATG to use strategic alliance to gain knowledge of advanced

technology. WATG‟s international competitors are well known large auto parts

suppliers from developed countries, and most of these companies remain the R&D in

their own countries. Moreover, most of the domestic competitors are the joint venture

companies with these foreign parents companies. Thus in order to catch up with both

international and domestic competitors fast, the only way for WATG was also to enter

in strategic alliances with foreign partners. Meanwhile, the standardization of global

40

auto industry benefits WATG‟s choice on foreign partners. Since the technologies are

almost the same, WATG could select partners with low cost, were flexible to negotiate

on contracts, and from similar cultures for easy cooperating..

From country level, after the liberalization of economic system of China, an open

market economy began to take shape. In order to develop economy, the country has

enacted a series of policies which promote firms to involve with international trade

and cooperating with foreign companies. There has been huge success for a large

number of Chinese firms which chose to enter joint venture and strategic alliance with

overseas partners. Within this institutional environment, WATG was encouraged by

the policies and inspired by other firms‟ success. Thus the company decided to enter

strategic alliances with foreign partners in order to achieve future success.

As discussed above, the author presented a framework to visualize the findings from

WATG‟s ISs with the concept foundation of environment- internationalization

strategy- performance framework (Figure 2.1).

Figure 5.1 The internationalization process of WATG

41

6. Discussion

As stated previously, the general theories of IS have been built largely on the

experience of firms from industrialized countries. For certain aspects, these theories

can be readily applied on the IS of Chinese POEs, however there are inevitably gaps.

In this section, the applicability of the general theories was first presented, and then

special applications of the theories were discussed.

6.1 Internationalization strategy for Chinese POEs

From the empirical findings, it is showed that Chinese POEs adopted the same ISs as

firms from developed countries which are export, FDI and strategic alliance.

6.1.1 Export for Chinese POEs

Export is an IS that is developed as a natural extension when a Chinese POE is

successful in its domestic market. It is an IS for Chinese POEs which requires little

capital investment, but offers them gains of both revenue and knowledge from

international markets as the literature stated (Johanson & Vahlne, 1977; Sullivan &

Bauerschmidt, 1990; Kogut, 1985; Grant, Jammine & Thomas, 1988).

6.1.2 FDI for Chinese POEs

When considering FDI, as the traditional theories suggested (Hennart, 1982; Rugman,

1982), Chinese POEs also use it to internalize external foreign market to directly

acquire critical resources and knowledge. However, the motivations for Chinese POEs

to use FDI as an IS might be slightly different from what Dunning (1993) has

suggested. Market-seeking purpose for Chinese POEs remains the same which is to

access knowledge of foreign countries (Shan & Song, 1997), to facilitate the exports.

Efficiency-seeking motivation occurs when firms search lower-cost locations for

operations, particularly seek for lower-cost labor (Deeds & Hill, 1998). However given

the condition that labor cost is relatively low in China, this motivation is unlikely, and

42

should not be considered as a significant motivation for Chinese POEs. Using FDI as

resource-seeking IS may involve acquiring natural resources such as raw materials and

energy sources. However for Chinese POEs which are constrained with capital, the

cost of use FDI merely for acquiring natural resources from foreign countries is too

high, and as the findings showed, they are more likely to prefer working with local

suppliers to keep low production cost. Thus for Chinese POEs, resource-seeking FDI

is more leaned to the search for critical and specific assets that are not able to acquire

in China, exclusively embedded in advanced country firms, and can usually be

accessed only by takeover of these firms. With this motivation, a special type of FDI

which is called reverse takeover is applied by Chinese POEs to seek capital in foreign

stock market. A general discussion of reverse takeover as a FDI strategy is illustrated

below.

Reverse takeover

A reverse takeover (RTO) is an acquisition of a publicly traded company by a private

firm in order to sell shares and raise capital (Makamson, 2010), and it is a special type

of FDI for a firm to make a RTO on a foreign firm. As Makamson stated, RTO is a

relatively new field which attracts growing interest to business researchers. Unlike the

typical merge or acquisition, the key motive of a RTO is to convert private business to

public. The acquiring of firm is a business pursuing investment. The invested capital

is gained back from selling stock over-the-counter or on a well-known stock exchange.

In order to enter these stock markets, a private company makes a RTO of a targeted

public firm which is listed on an exchange board or sells its stocks over-the-counter.

Private firms usually transform to public companies via the Initial Public Offering

(IPO) (IPO means a firm sells its shares of stock to the general public on a securities

exchange board for the first time). A firm requires capital for development, and if it

can gain enough profit from operations, there is no need for 'go public'. Firms without

sufficient capital typically need capital to develop or to build capabilities. They

acquire this capital by 'going public'. The IPO sells ownership of the firm in the form

of shares. IPO is an expensive and time consuming process. For a firm lack of capital

43

and knowledge about IPO, seeking public investment via RTO is time and cost

efficient. It can be accomplished within 60 days. The acquired company is called a

shell company which is a type of firms that is publicly listed but not actively traded

due to financial or organization problems.

As a strategy for entering foreign markets, RTO is a type of reverse direct investment

strategy where capital is raised in a foreign market to invest in an entrant firm. The

intentions of foreign firms use a RTO strategy are to “go public” and access global

investments as a resident firm of the entering country which offers an attractive stock

market. However, RTO is not only a strategy for a foreign company seeking capital in

foreign stock markets, RTO is also a strategy which helps firms to build a global

business, establish brand name to global investors, and enter business networks in

other countries (PRNewswire, 2007).

6.1.3 Strategic alliance for Chinese POEs

For strategic alliance, Chinese POEs use this strategy to overcome the constrains of

lacking resources and capabilities as well (Lu & Beamish, 2001). By allying with

foreign partners, these firms are able to get access and share their partners' resources

and knowledge to overcome their restrains and be able to expand (Mowery et al.,

1996; Gulati et al., 2000). Strategic alliance is viewed as an entry strategy in the

traditional internationalization theory (Makino & Beamish, 1998), however for the

case of Chinese POEs, strategic alliance may not always be used as entry strategy.

From the empirical findings, the studied company use the strategy more as a way to

get access to foreign partners' knowledge instead of an entry strategy. For the situation

when alliances are operating in China, from foreign partners' side, by allying with a

Chinese company, it is a way for them to try to enter Chinese market. From the side of

Chinese POEs, sharing tangible assets may be one of the purposes, but considering

that the alliances are in China, most of the tangible assets are provided by Chinese

POEs except the possible capital support from foreign partners, thus knowledge here

is the key point for them to enter strategic alliance agreements with foreign partners.

44

As the findings from the case indicated, Chinese POEs intend to use strategic alliance

as an IS to acquire foreign partners' knowledge of advanced technology to enhance

their companies overall performance, and at the same time get access to the market

knowledge of their foreign partners' countries to support their other

internationalization strategies such as use the knowledge to increase export sales.

Therefore, strategic alliance should not be merely considered as an outward entry

strategy for IS, but also be viewed as an inward cooperating strategy which depends

on the side of the partnership, and knowledge should be emphasized when discussing

the purpose of Chinese POEs use strategic alliance as an IS.

6.2 The influence of environment on the strategic choices of Chinese

POEs' internationalization

As demonstrated in the literature review, industry- and firm (resource)-based views

are the two traditional theories when looking at how a firm's external and internal

environment could influence its ISs (Porter, 1980; Barney, 1991). Like Flowers

(1976), Steen and Liesch (2007) and other researchers argued that the degree of

competition and rivalry of the particular industry where a firm belongs may largely

influence the decisions on the firm‟s internationalization strategic choices, and

firm-specific intangible assets drive the initiation of internationalization and the IS

choices. From the empirical findings, it is obvious that these two factors have the

samel impacts on Chinese POEs' choices of IS as well. On the other hand,

institution-based view is a new point of view on firms' strategic choices of IS,

especially for firms from emerging countries such as Chinese POEs since the classical

theories were mostly developed from industrialized countries (Peng et al. 2009; Quer

& Claver, 2012). Thus the influence of institution may explain distinctiveness in

Chinese POEs choices of IS, and a closer look on this aspect is presented below.

From the empirical data, it is like what Scott (1995) and other researchers have argued

that Chinese POEs' strategic choices of internationalization are shaped by the home

45

institutional environment or 'the rules of the game', which is formally and informally

enforced by government and its agents. Furthermore since Chinese economy is state

controlled (Söderman et al., 2008), the institutional environment is likely to have

more profound effects on the internationalization decision of Chinese POEs than

industrial and firm environments. Due to the increasing policy openness and

liberalization, and high levels of government support on international business and

trade over the period, Chinese POEs' international business got promoted. For

instance, direct support from government in the form of export tax rebates, and

financial support to foster FDI and international trade-related activities like strategic

alliance. As a result, by adopting these government supported ISs, Chinese POEs have

gained several benefits through internationalization, such as better access to new

markets, foreign advanced technology, and strategic assets and capabilities (brands,

distribution channels, foreign capital markets and so on).

From the literature review, the common views on emerging countries' institutions are

that it is a hinder to the internationalization process of foreign investing firms (Luo,

2001; Enderwick, 2007), and an important source which contribute to the

international competitiveness of indigenous firms through its policies (Buckley et al.,

2007). For the case of Chinese POEs, institutional environment may not always play

the supportive role, and it could be a hinder to Chinese POEs internationalization as

well. This situation happens when Chinese POEs compete with SOEs. Compared to

POEs, Chinese SOEs have more privileged access to raw materials and other inputs,

low-cost capital subsidies and other benefits from the government support to help

them to offset complexity and liability of foreignness. This privileged position of

Chinese SOEs makes them more competitive than the POEs in both domestic and

international markets. Because with the government's support, SOEs are abundant of

resources than Chinese POEs which made the competition even more difficult for

Chinese POEs especially for firms in the same industry. Thus in order to overcome

this disadvantage, Chinese POEs has to figure out their own ways of utilized the

existing ISs to obtain resources from abroad which might be easily offered to Chinese

46

SOEs by the government support. For example, from the empirical findings, the case

study firm used reverse merge which is a special type of FDI to collect capital for its

development. Here again for Chinese POEs, the impact from their own institution on

ISs is more far-reaching than the other two environmental factors which are industrial,

and firm environment.

47

7. Conclusion

From the findings of this case study, Chinese POEs adopted the same ISs as

illustrated in the literature review which are export, FDI, and strategic alliance. Export

is used by Chinese POEs to seek foreign market, gain revenue and knowledge as the

literature suggested. FDI is used by Chinese POEs to internalize external market to

enhance both financial benefit and knowledge. The motivation for Chinese POEs to

use FDI is slightly different from the literature. Market-seeking purpose remains the

same. However efficiency-seeking does not seem to fit on Chinese POEs, and

resource-seeking is used to seek for critical and specific assets which could not be

attained in China, such as advanced countries' capital market. In order to enter these

capital market, Chinese POEs adopted a special FDI method which is reverse merge.

Strategic alliance is used by Chinese POEs to overcome the restrains of shortage on

resources and capabilities as well. However, for Chinese POEs, strategic alliance is an

inward IS to acquire valuable knowledge from foreign partners.

Based on the findings, Chinese POEs' IS choices are affected by three levels of

environmental factors which are institution, industry, and firm level. However for

Chinese POEs, the influence of institution is greater than the other two factors, since

Chinese economy is state controlled. Chinese government is generally supportive on

international business and trade, therefore the ISs of Chinese POEs could benefit from

the policies which the government enacted to promote international business. On the

other hand, when competing with SOEs, Chinese government could also be the hinder

for Chinese POEs' internationalization.

Although it is a case study on a single firm, and the findings from WATG‟s IS are not

able to generalize on all Chinese POEs, they would provide readers more insights on

the ISs of this type of Chinese enterprises, and contributed to the gap of lacking

knowledge on the ISs of Chinese POEs in IB research field. Meanwhile, the study

reinforced the theories of industry- and resource-based views, and

environment-strategy-performance framework. Furthermore, the study also

48

contributed to the new concept which is institution-based view on strategic

management and internalization.

7.1 Limitation and Future study

As stated earlier this study was conducted on a single firm, the result might not be

able to generalize on all the Chinese POEs. Meanwhile, the studied firm is a

traditional manufacturing firm in automotive industry, thus the result could be

different for firms from other industries like IT industry. Thus more replicated case

studies using the same framework on Chinese POEs' IS from different industries

could test the result, and the findings and arguments according to the findings could

be more refined by replication studies.

On the other hand, this study was based on the successful internationalization

experience of a Chinese POEs, thus there was a lack of argument on failures of

Chinese POEs' ISs. Studies could be also done on the unsuccessful ISs adopted by

Chinese POEs and the reason for the failure in order to get critical views on the

overall IS of Chinese POEs.

The reverse takeover strategy presented in the case is a new way of FDI used by

Chinese POEs to enter foreign stock market, however there are few studies on this

phenomenon. Future researcher may focus on studying the motivations, and outcomes

of utilizing reverse takeover strategy in order to get a better understanding of this

strategy.

49

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Appendix

Appendix 1. Interview and email questions

1) Interview questions for the CEO

1. Please describe the experience, and outcome of internationalization strategies that

the company adopted in detail.

2. Are there any influences from institution level that impact the company‟s

decisions on internationalization strategies? If there are, please describe the

influences in detail.

3. Are there any influences from industry level that impact the company‟s decisions

on internationalization strategies? If there are, please describe the influences in

detail.

4. Are there any influences from firm level such as competitive advantages of the

firm that impact the company‟s decisions on internationalization strategies? If

there are, please describe the influences in detail.

61

2) Interview questions for the CSO

1. Please describe the experience, and outcome of using export as an

internationalization strategy in detail.

2. Please describe the experience, and outcome of using reverse merge as foreign

direct investment strategy in detail.

3. Please describe the experience, and outcome of using strategic alliance as an

internationalization strategy in detail.

4. Is there any other internationalization strategy that the company adopted? If there

is, please describe it.

5. Are there any influences from institution level that impact the company‟s

decisions on internationalization strategies? If there are, please describe the

influences in detail.

6. Are there any influences from industry level that impact the company‟s decisions

on internationalization strategies? If there are, please describe the influences in

detail.

7. Are there any influences from firm level such as competitive advantages of the

firm that impact the company‟s decisions on internationalization strategies? If

there are, please describe the influences in detail.

3) Email questions for subsidiary managers

1. What is the export performance?

2. Who are the domestic and international customers?

3. Who are the domestic and international competitors?

4. What is the strategic alliance experience, and outcome?

Appendix 2. Major Customers of WATG

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Major customers of WATG include Chery Automobile, Great Wall Motor, Huachen

Auto, Changan Automobile and BYD Automobile, Mexico GM and Shanghai

Volkswagen.

Top Ten Customers in 2009

Order Customer Name % of Revenue

1 Beijing Hyundai Mobis Automotive Parts Co., Ltd. 13.9%

2 Harbin Dongan Automotive Engine Co., Ltd. 10.8%

3 Shenyang Aerospace Mitsubishi Motors Engine Co.,

Ltd.

5.2%

4 Weichai Engine Logistic Co., Ltd. 4.1%

5 Mianyang Xinchen Engine Co., Ltd. 3.9%

6 SAIC GM Wuling Automobile Co., Ltd. 3.7%

7 Guangxi Yuchai Machinery Holdings Company 3.7%

8 Jiangsu Mobis Automotive Parts Co., Ltd. 3.5%

9 Magneti Marelli Suspension System 3.3%

10 Dongfeng Yueda Kia Motors Co., Ltd. 3.1%

Total 55.1%

Top Ten Customers in 2010

Order Customer Name % of

Revenue

1 Shenyang Aerospace Mitsubishi Motors Engine Co.,

Ltd.

7.3%

2 Beijing Hyundai Mobis Automotive Parts Co., Ltd. 5.0%

3 Harbin Dongan Automotive Engine Co., Ltd. 4.7%

4 Mianyang Xinchen Engine Co., Ltd. 4.1%

5 Weichai Engine Logistic Co., Ltd. 3.5%

6 SAIC GM Wuling Automobile Co., Ltd. 3.2%

7 Qingdao GM Wuling Automobile Co., Ltd. 2.8%

8 Jiangsu Mobis Automotive Parts Co., Ltd. 2.8%

9 Magneti Marelli Suspension System 2.7%

10 Mando (Beijing) Automobile Chasis system Co., 2.5%

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Ltd.

Total 38.6%

Appendix 3. WATG’s international customer

Subsidiary Product Export customer

Jinzhou Halla Alternators, Starters LDV Group Limited (UK)

Drake Maritime Ltd (UK)

Peugeot (UK)

WAIglobal (US)

Wetherill Associates, Inc. (US)

American pacitic core. Inc. (US)

Thunder Industries Co. (US)

Sw-Tech corporation (US)

General Motor RS (Mexico)

Lukas Elektrik San.VE TIC.A.S.

（Turkey）

Iskra（Slovenia）

Kzate (Russia)

Sea Air Automotive Pte. Ltd.

(Singapore)

Wah Seng Industry SND. BHD

(Malaysia)

Doosan Infracore Co., Ltd. (Korea)

Hyundai Mobis (Korea)

Shinwon World Trading CO.,

LTD.(Korea)

AMT Korea Co. Ltd. (Korea)

DH Korea Company Ltd (Korea)

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Mitra Prima Mekanika, PT（Indonesia）

Jinzhou Wanyou Rods, Shafts Meritor (US)

Mando Corporation (Korea)

Cofap (Brazil)

Control instruments automotive (South

Africa)

Corven (Argentina)

Tenneco (US)

QA1 precision products (US)

Jinzhou Jinheng Airbags IKCO (Iran)

S.A.S Microcar (France)

Mahindra Reva Electric Vehicles Pvt

LTD.

(India)

Jinan Worldwide Engine valves and

tappets

Ford (US)

John Deere (US)

Doosan Infracore Co., Ltd (Korea)

Appendix 4. WATG’s R&D

Four of WATG‟s research and development centers are located at the company‟s

principal business headquarters in Jinzhou, China. Three of them focusing on the

enhancement of current products, and the development and testing of new alternator,

starter, electric motor, airbag, shock absorber, rod and shaft products, while one

focusing on the development and research of specified equipments to provide new

technics, new testing facilities and new manufacture equipments; one research and

development center is located in Jinan, China, focusing on the development and testing

of new engine valve and tappet products; one research and development center is

located in Shenyang, China, focusing on the development and testing of new

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pretensioner products; one research and development center is located in Beijing,

China, focusing on the development and testing of automobile active safety products

and providing reserves of new technologies and new products for company‟s future

development. As of December 31, 2010, research and development personnel consisted

of over 500 employees.

For the fiscal years ended December 31, 2008, 2009 and 2010, WATG‟s research and

development expenses for new product development, including salaries of personnel

and other costs incurred for research and development of potential new products, were

$2.7 million, $5.7 million and 7.7 million, representing approximately 2.0%, 2.6% and

2.3% of our total sales revenue in 2008, 2009 and 2010, respectively.

Appendix 5. WATG’s competitor

Product Competitor

Domestic International

Alternators &

starters

Shanghai Valeo Automotive

Electrical Systems Co., Ltd.

Hubei Shendian Auto Motor Co.,

Ltd.

Prestolite Electric (Beijing)

Limited

Chongqing Bright Industrial

Co., Ltd.

VALEO (France)

BOSCH (Germany)

REMY (U.S.)

Mitsubishi Motor (Japan)

Denso (Japan)

Airbags &

pretensioners

Autoliv (Shanghai) Automotive

Electronics Co., Ltd. (ACE)

Shanghai TRW Automotive

Safety Systems Co., Ltd.

TAKATA (Shanghai) Safety

Systems Co., Ltd.

Foreign parent company of domestic

competitors

66

Yanfeng Key (Shanghai)

Automotive Safety Systems Co.,

Ltd.

Shanghai MOBIS Automotive

Safety Parts Co., Ltd.

Engine valves

& tappets

Shanghai Eaton Engine

Components Co., Ltd.

MAHLE Tri-Ring Valve Train

(Hubei) Co., Ltd.

Chongqing Sanai Hailing

Industrial Co., Ltd.

Hunan Tyen Machinery Co.,

Ltd., Shangyu City Internal

Combustion Engine Parts Co.,

Ltd.

Eaton (U.S.)

MAHLE (Germany)

Piston rods &

shafts

Ningbo Peiyuan Automobile

Parts Manufacture Co.

Spanish TTT

Term

1. OEM An original equipment manufacturer, or OEM, manufactures products or

components that are purchased by a company and retailed under that purchasing

company's brand name. OEM refers to the company that originally manufactured the

product. When referring to automotive parts, OEM designates a replacement part

made by the manufacturer of the original part. In this usage, OEM means "original

equipment from manufacturer".

2. Roadshow A financial road show is a series of meetings across different cities in

which top executives from a company have the opportunity to talk with current or

67

potential investors. They can range from two or three days in one country or continent

to marathon, three week trips to financial centers around the world. The most

common reason for conducting financial road shows is initial public offerings (IPO),

in which a privately-held company‟s shares go public and investors have an

opportunity to buy into it. Another reason for road shows is privatization of a

government-owned corporation, similar to a private company going public, in which a

company seeks investors to buy new stock which it is issuing to raise money. Finally,

a non-deal road show is that executives can hold discussions with current and

potential investors, and nothing is offered for sale.