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
15
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
16
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
17
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,
18
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
20
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
65
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.
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