Wistron vs. Luxshare: US-China Trade War Essay

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The case looks into two powerful Chinese companies in mid-2021, Winstron and Luxshare Precision. Simon Lin, a self-made billionaire, started Wistron as a Technical Service Provider (TSP) company in 2001. Similarly, Smartiply was one of Wistron’s numerous diverse ventures providing state-of-the-art information and communication-related manufacturing services, design, and system utilities. Furthermore, it was one of Apple’s largest contract manufacturers. When former US President Donald Trump’s administration took a challenging approach to Chinese state-owned firms by imposing unfavorable conditions, both countries retaliated with measures that harmed several critical industries. Such unprecedented circumstances entailed setting duties on any items entering the US manufactured in China, irrespective of the organization’s nationality. With these tariffs, foundry production businesses could not maintain the necessary margins to continue in business and were forced to contemplate relocating their operations outside of China.

In that regard, Lin recognized an opportunity to advance iPhone production operations to India in a bid to shun the trade war. However, the unforeseen COVID-19 epidemic occurred in early 2020, rendering the initial migration expenditures unsustainable. As a result, Wistron was forced to raise money immediately. He, unfortunately, struggled in India to maintain the same level of competence as in China. As a result, his organization ran into several atrocities during the knowledge transfer process, which detrimentally affected his operations. Hence, he sold the Chinese iPhone manufacturing assets to Luxshare Precision for US$471 million in July 2020 (Chee, & Geng, 2021). In 2004, Wang Laichun (Grace) and her brother created Luxshare Precision, specializing in developing, producing, and distributing electronic and computer connectors (Chee, & Geng, 2021). Luxshare has established a significant presence in the connectors industry and has been expanding its product line with an emphasis on precision production since 2016. Luxshare’s stock price soared from US$1.09 billion to more than US$9.47 billion between January 2019 and the end of 2020 (Chee, & Geng, 2021). The stock price led to a big increase in revenue for the company.

The growth strategies are based on upward, downward, and horizontal acquisitions. They both invest in expanding their market share through buying or working with other companies. They invest massively to ensure they have the highest production share in various countries. It is possible to identify the differences in their growth methods. Over the years, Wistron completed several large-scale acquisitions to enter new markets and swiftly attract new customers. It was solely focused on expanding its production capacity in mainland China. By the time Wistron entered India, it could not cope with the fluctuating economy. This case differs from Luxshare in that it focused on many mainland corporations rather than a single company. This strategy allowed them to outperform Wistron in terms of growth.

Wistron moved to India because it had sufficient cash reserves, and its shareholders approved the decision favoring the relocation. Furthermore, the Indian government complimented the initiative and pledged to assist Wistron with its infrastructure needs. India was building a deeper connection with the United States, partly to compete more effectively with China in economic development and, more importantly, to position itself as a desirable relocation destination for companies leaving China. In addition, in 2018, India and Taiwan amended their bilateral investment pact, giving Taiwanese businesses preferential treatment. The company’s management and employees were equally dedicated to its success. Yes, this was a sensible option because it allowed Wistron to avoid the US government’s high tariffs. COVID-19’s outbreak was a key element in the problems it encountered in India. Because of India’s low income level, many people could not pay the high retail price of iPhones. In addition, the Indian government increased import duties on smartphone-related items by a significant margin. The increased wage cut aggregated the challenges in India because the facility’s capacity was significantly lower than expected. At the same time, most Taiwanese senior executives had fled India during the pandemic, leaving salary issues unaddressed. Angry workers ransacked the facilities in December 2020, causing significant damage. It received a major setback when Apple announced that Wistron had broken the supplier code. As a result, no additional contracts would be awarded to the company.

Luxshare purchased Wistron to grow its market share and get the chance to work with Apple iPhones. Luxshare’s acquisition of Wistron is a win-win situation for both parties, as the former can now try its hand at building iPhones in China while the latter gains a foothold in the Apple business. In the eyes of the Chinese government, certain critical and pillar sectors serve as public goods that cannot be driven only by profit and must make provisions for the nation’s overall welfare. They are the most important industries that are motivated to invest abroad and dominate China’s stock index listings so that they are sheltered from competitive pressure. Family businesses account for half of all stock exchange listings, and they have the potential to provide a more profit-driven approach to doing business. The war negatively impacted them, and we even observed some of them expanding their services to include international operations.

Family-owned firms played an important role during the trade war in keeping the nation afloat and operating through the difficult early days. Consequently, a large volume of goods and services were delivered to the local market, all made possible by the use of locally sourced raw resources. It was vital to the country’s survival and ability to operate during short tariff days that they were there throughout the civil war.

Reference

Chee, J., & Geng, X. (2021). Wistron vs. Luxshare: US-China trade war and its decoupling effects from China. Web.

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