Wistron vs. Luxshare: US-China trade war and its decoupling effects from China

• Main Authors: CHEE, Jonathan, GENG, Xuesong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Growth strategy; Global supply chain management; Electronic connectors; Mobile phones; Trade policy; COVID-19; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/368; https://smu.sharepoint.com/:b:/r/sites/admin/CMP/cases/SMU-21-BATCH%20%5bPDF-Pic%5d/SMU-21-0014%20%5bWistron%5d/SMU-21-0014%5bWistron%5d.pdf?csf=1&web=1&e=As8cBl
• Institution: Singapore Management University

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. The case explores broadly the global supply chain, and prospective Chinese acquirers and their meteoric rise to power. It provides an example of how vulnerable some Taiwanese family firms can become as the target of acquisitions of the rising Chinese state-owned enterprises. It exemplifies how the global supply chain and many firms’ decisions may be altered by the national policies made by governments like the US, China, India and Taiwan, the US-China trade war and the unexpected pandemic.