Harvard Case - Wistron vs. Luxshare: US-China Trade War and its Decoupling Effects from China
"Wistron vs. Luxshare: US-China Trade War and its Decoupling Effects from China" Harvard business case study is written by Xuesong Geng, Jonathan Chee. It deals with the challenges in the field of Strategy. The case study is 18 page(s) long and it was first published on : Aug 19, 2021
At Fern Fort University, we recommend that Wistron adopt a multi-pronged strategy to mitigate the risks posed by the US-China trade war and the decoupling effects. This strategy should focus on diversifying its manufacturing footprint, strengthening its supply chain resilience, and investing in innovation to enhance its competitive advantage. By implementing these recommendations, Wistron can navigate the complexities of the global trade landscape and secure its future growth.
2. Background
The case study focuses on the impact of the US-China trade war on Wistron, a Taiwanese electronics manufacturer heavily reliant on China for its manufacturing operations. The trade war has led to increased tariffs, geopolitical tensions, and a push for decoupling from China. Wistron faces the challenge of navigating this complex environment while maintaining its competitiveness and profitability. Luxshare, a Chinese competitor, is also a key player in the case, highlighting the evolving landscape of the electronics manufacturing industry.
3. Analysis of the Case Study
We can analyze the case using a framework that incorporates both internal and external factors:
Internal Analysis:
- SWOT Analysis: Wistron's strengths lie in its strong manufacturing capabilities, established relationships with major tech companies, and cost-effective operations. However, its dependence on China for manufacturing exposes it to risks related to trade tensions and geopolitical instability. Wistron's opportunities lie in expanding into new markets and diversifying its customer base. However, the company faces threats from rising labor costs in China, increasing competition from local players, and the potential for disruptions in its supply chain.
- Value Chain Analysis: Wistron's value chain is heavily reliant on its manufacturing operations in China. This creates a vulnerability to disruptions caused by trade wars and political instability. To mitigate this risk, Wistron needs to diversify its manufacturing footprint and strengthen its supply chain resilience.
- Core Competencies: Wistron's core competencies include its expertise in manufacturing complex electronic devices, its ability to scale production quickly, and its strong relationships with major tech companies. These competencies can be leveraged to expand into new markets and develop innovative products.
External Analysis:
- Porter's Five Forces: The electronics manufacturing industry is characterized by intense competition, with a large number of players vying for market share. The bargaining power of buyers is high due to the availability of multiple suppliers. The bargaining power of suppliers is moderate, with some key components being sourced from specialized suppliers. The threat of new entrants is moderate, as entry barriers are relatively high. The threat of substitutes is high, as alternative technologies and manufacturing processes are constantly emerging.
- PESTEL Analysis: The global trade environment is subject to significant political, economic, social, technological, environmental, and legal factors. The US-China trade war is a key political factor impacting the industry, while economic factors such as currency fluctuations and global economic growth also play a role. Technological advancements are driving innovation and competition in the industry. Environmental regulations and social concerns related to labor practices are also important considerations.
Strategic Considerations:
- Globalization Strategies: Wistron needs to adopt a more diversified globalization strategy, reducing its reliance on China and expanding its manufacturing operations into other countries. This could involve setting up new facilities in Southeast Asia, India, or Mexico, which offer lower labor costs and a stable political environment.
- Diversification: Wistron should diversify its product portfolio and customer base to reduce its dependence on a few key customers. This can be achieved through strategic acquisitions, joint ventures, or partnerships with other companies.
- Innovation: Wistron needs to invest in research and development to develop innovative products and technologies that differentiate it from competitors. This can include exploring emerging technologies such as artificial intelligence, robotics, and 5G.
- Supply Chain Management: Wistron should implement a robust supply chain management system to ensure the availability of critical components and materials. This can involve building strategic partnerships with suppliers, diversifying sourcing, and implementing inventory management systems.
- Digital Transformation: Wistron should embrace digital transformation to improve its efficiency, agility, and customer responsiveness. This can involve adopting cloud computing, data analytics, and automation technologies.
4. Recommendations
Wistron should implement the following recommendations to mitigate the risks posed by the US-China trade war and the decoupling effects:
- Diversify Manufacturing Footprint: Wistron should expand its manufacturing operations into other countries, particularly those with lower labor costs and a stable political environment. This will reduce its reliance on China and mitigate the risks associated with trade tensions and geopolitical instability.
- Strengthen Supply Chain Resilience: Wistron should diversify its sourcing of critical components and materials, build strategic partnerships with suppliers, and implement robust inventory management systems. This will ensure the availability of essential inputs even in the event of disruptions.
- Invest in Innovation: Wistron should invest in research and development to develop innovative products and technologies that differentiate it from competitors. This can include exploring emerging technologies such as artificial intelligence, robotics, and 5G.
- Build Strategic Alliances: Wistron should explore strategic alliances with other companies to access new markets, technologies, and resources. This could involve joint ventures, partnerships, or acquisitions.
- Develop a Strong Brand: Wistron should invest in building a strong brand identity and reputation, emphasizing its commitment to quality, innovation, and sustainability. This will help it attract customers and differentiate itself from competitors.
- Embrace Digital Transformation: Wistron should adopt digital technologies to improve its efficiency, agility, and customer responsiveness. This can involve implementing cloud computing, data analytics, and automation technologies.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of Wistron's internal and external environment, taking into account its core competencies, competitive landscape, and the evolving global trade landscape. The recommendations are aligned with Wistron's mission to provide high-quality electronic products and services to its customers.
- Core competencies and consistency with mission: The recommendations leverage Wistron's core competencies in manufacturing and supply chain management while ensuring consistency with its mission to provide high-quality products and services.
- External customers and internal clients: The recommendations address the needs of Wistron's external customers by ensuring the availability of products and services while also supporting the needs of internal clients by creating a more resilient and efficient operating environment.
- Competitors: The recommendations aim to enhance Wistron's competitive advantage by enabling it to respond to changing market dynamics, develop innovative products, and build a strong brand.
- Attractiveness ' quantitative measures: While specific quantitative measures are not provided in the case study, the recommendations are expected to improve Wistron's profitability by reducing costs, increasing efficiency, and expanding its market reach.
6. Conclusion
The US-China trade war and the decoupling effects present significant challenges for Wistron. However, by implementing the recommended strategies, Wistron can mitigate these risks, enhance its competitive advantage, and secure its future growth. The company needs to be proactive in diversifying its operations, strengthening its supply chain, and investing in innovation to navigate the complexities of the global trade landscape.
7. Discussion
Other alternatives not selected include:
- Complete withdrawal from China: This option would be highly disruptive and could lead to significant losses.
- Continued reliance on China: This option would expose Wistron to ongoing risks related to trade tensions and geopolitical instability.
- Mergers and acquisitions: While acquisitions could provide access to new markets and technologies, they also carry significant risks and require careful due diligence.
The key assumptions underlying the recommendations include:
- The US-China trade war will continue to impact the global electronics manufacturing industry.
- The decoupling effects will continue to drive companies to diversify their operations.
- Wistron will be able to successfully implement the recommended strategies.
8. Next Steps
Wistron should implement the recommended strategies in a phased approach, starting with the most critical initiatives. A timeline with key milestones could include:
- Year 1: Diversify manufacturing footprint by setting up new facilities in Southeast Asia or India.
- Year 2: Strengthen supply chain resilience by diversifying sourcing and building strategic partnerships with suppliers.
- Year 3: Invest in innovation by developing new products and technologies and exploring partnerships with technology startups.
- Year 4: Build a strong brand by investing in marketing and branding initiatives.
- Year 5: Embrace digital transformation by adopting cloud computing, data analytics, and automation technologies.
By implementing these strategies, Wistron can position itself for continued success in the global electronics manufacturing industry, despite the challenges posed by the US-China trade war and the decoupling effects.
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Case Description
Set in mid-2021, the case follows the events happening at the Taiwanese company, Wistron, which commenced operations as an Original Design Manufacturer (ODM) - a company that designs and produces products for other companies. Its founder, tech billionaire Simon Lin, started Wistron in 2001 as a spin-off from ACER Inc., one of the largest multinational computing companies' hardware producers. After former US president Donald Trump and his administration began taking a hard line on Chinese state-backed enterprises, both superpowers began retaliatory measures that hurt several vital industries. One of the key measures taken by the Trump administration was to impose tariffs on all products entering the US that had manufacturing origins from China, regardless of the firm's nationality. Foundry manufacturing firms, including Wistron, could no longer sustain the margins required to stay afloat and had to contemplate decoupling their operations out of China to alternative sites. In 2018, Lin saw the opportunity to relocate his iPhone manufacturing operations to India to avoid caught being in the middle of the trade spat. Amidst the move, Wistron was hit by the Covid-19 pandemic, which made the initial costs of relocation untenable. As a result, Wistron had to raise capital very quickly. Luxshare, a relatively new upstart in the manufacturing world was ready to acquire Wistron's operations in China. Initially blocked by Taiwanese regulators, as Wistron was viewed as a strategic player in a vital industry, Luxshare managed to circumnavigate the restrictions and the sale went ahead. Wistron's decoupling strategies are now faced with massive challenges in their Indian operations. The firm had struggled to maintain the same level of competency in India as it had in China. As a result, it ran into many issues in the knowledge transfer process and faced one of the largest labour strikes that the country has seen for a while.
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