wang yulan report

7/27/2019 Wang YuLan report

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Chinese Enterprises Overseas DevelopmentA case study of Haier and TCL

Wang, YuLanHiroshima Shudo University

Recently, the electric appliance industry of China has made remarkable progress.

Since the reform and opening-up system in China in the late 1970s, the demands for

electrical appliances are rapidly increased, and productions also, are correspondingly

increased. Today, this industry is the most competitive and vigorous of China industries.

Since 1978s, because of emerging industry, the relationships between China and the

other countries are become more deepened through reforms and opening-up system.Furthermore, exportation also is increasing since the beginning of 1990s. Recently,

foreign direct investments of Chinese company have held the spotlight of the world.

Through this international meeting, many ideas, perspectives, and recommendations

are emerged; more and more Chinese companies are improving their skill levels and

are more competiveness in the global market; especially in the electrical appliance area,

Competition is became stronger through the skill support, and cooperation merger

with foreign companies, such as Japan.

The investment abroad of Chinese company has taken the strategy of go out, which

was posed as one of the important pillars of the reform and opening up system withthe introduction of foreign capital. To support this strategy, all the government

departments took new steps in many fields, such as the tax system, foreign exchange,

insurance and information. In such situation, many Chinese companies started to take

in advance into foreign markets.

In this paper, we will consider the current situations and the issues of Haier and TCL

which are two typical Chinese household appliance manufacturers, when they have

begun their advance into the foreign markets. The purpose is to get the strategy

features of Chinese companys advance into foreign markets by comparison.

Concretely, in the first chapter, I will research about the overseas development ofHaier, the largest household appliance manufactures in China. First, I will review the

current state of Haier. Then, I will consider about the overseas development of Haier,

including America, the first market in developed country and India, Thailand, the

emerging country. Last I will review the current situation and the problem about Japan,

the most difficult market for Haier.


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The second chapter will research about the overseas development of TCL, the largest

TV manufactures in China. Concretely, First, I will review the current state about TCL.

Then, I will consider about the overseas development of TCL, including Vietnam, India

Etc. emerging country. And French, German, Japan Etc. developed country. Also I willanalyze the current situation and problem about each country of TCLS expansion. At

last, I will try to a comparison overseas expansion of Haier and TCL.

Chapter one: The overseas development of Haier

Haier is the largest comprehensive consumer electronics manufacturer in China with a

high brand power in Chinese companies. In the domestic market, advance the national

expansion by acquisition of Chinese companies and diversification of products. Haier

was successful with extensive sales networks, excellent product quality and excellent

after-sale service. The domestic market was saturated as a background. Haier beganthe internationalization strategy at the end of the 1990s as a new source of growth in

overseas market Haiers overseas expansion strategy called first difficulty, then easy.

Firstly, it built a successful case in the niche market in developed countries, and then

heightened the brand value.

1-1Haiers development overviewHaier was founded in 1984. It headquartered in Qingdao city of China. Currently, it

is the largest consumer electronics manufacturer in China. Haier introduced the

production technology and equipment from company [Liebherr-Haushaltsgerate] of

Germany and started production and sales of refrigerators. At first, it was only theproduction of refrigerators, currently, it grew up to deal with the production of product

total of 86 type and 13000 items, including refrigerators, air conditioners, washing

machine, video, TV, audio mobile phone, personal computer, robot.

Haier developed a unique strict quality control system. Since the mid-1990s, Haier

enhanced after-sales service network and sales network, established image by

aggressive advertising, in addition, acquisition aggressive domestic companies. Haier

grow rapidly by expand the scale, and became the largest Chinese household electrical

appliance enterprises.

Haier reduced cost and increased production efficiency by large factory and conducteda thorough quality control. In addition, it created in-depth service network. Its network

has about 30000 stores, after-sales service center for about 20000 locations

throughout China.

1-2overseas expansion of HairHaiers relationships with foreign companies were a focus on technology introduction


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until the mid-1990s. The first overseas business operation of Haier was the

production of refrigerators in Indonesia in 1996. After that, focusing on joint ventures

and OEM, it expanded its overseas production. In October 2000, in the background

that Chinese government advocated the policies of go out, Haier became a worldwidebrand company and entranced into the overseas actively.

For overseas expansion strategy, Haier has taken three the first of three marketing

strategy from the early 1990s. The first one is domestic production and domestic sales,

the second is domestic production and overseas sales and the third is local production

and sales overseas. Currently, productions of Haier occupy 30% in the domestic market

and exports also occupy the first of three. By 2014, the overseas sales plan to occupy

70% of the gross sales. However, thought the priority in domestic is the cheap labor

force, the cost of export begins to increase recently. Furthermore, after jointed in the

WTO, overseas production and overseas sales become more necessary in order toescape the non-tariff barriers.

Overseas expansion of Haier was first to enter the market with its product export

method. When the export volume exceeded certain of production, it started to invest

and produce locally. The case of investment, in most countries and regions, has taken

the way of joint venture and cooperation. It is a wholly-owned factory in America and

Italy market, but the sales company is a joint venture company.

The designs of Haiers product are almost by merger and cooperation methods.

From the late 1990s, Haier tried to seek planning company of consumer electronics

products that could cooperate in many parts of the world, and then obtained the shareof the company, and established a design center that could share benefit in joint

system. Currently, there are nearly 20 companies of this kind of design center in the

world, widely distributed in America, English, France, and Japan, Etc.

Table 1-1Overseas investment situation of Haier

PeriodInvestment

destinationBusiness

Form of

investment

August 1996 IndonesiaProduction and sales of

refrigerators

Joint-stock

June 1997 PhilippinesProduction and sales of

refrigeratorsJoint-stock

August 1997 MalaysiaProduction and sales of

washing machineJoint-stock

November Yugoslavia Production and sales of air Joint-stock


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1997 conditioning

April 1999 America Consumer electronics sales Joint-stock

April 1999 America Production of refrigerators Wholly-owned

September

1999Iran

Production and sales of


1999 TunisiaProduction and sales of

consumer electronicsJoint-stock

2000 VietnamProduction and sales of


2000 BangladeshProduction and sales of

consumer electronicsJoint-stock

November

2000 Ukraine

Production and sales of air

conditioning Joint-stock

January 2001 Italy Consumer electronics sales Joint-stock

March 2001 PakistanProduction and sales of


May 2001 NigeriaProduction and sales of


June 2001 Italy Production Wholly-owned

2003 JordanProduction and sales of


2004 IndiaProduction and sales of air

conditioningWholly-owned

2007 IndiaProduction and sales of

refrigerators

April 2007 ThailandProduction and sales of

refrigerators

SourceCompiled from Haier important chronicle, Takahashi Goro, 141 page.

The internationalization strategy of Haier is trinity strategic, including planning,

production, and sale. When product was put into the market, it has the feature from

single to diversification. During its entry overseas, Haier always analyzes the

consumption demand of countries or regions and introduces the products that will fit

that countries or regions. A single product which was estimated to be welcome firstly

was introduced into the local market. If the single product is successful, then it will

introduce the other products. For example, in the U.S. market, refrigerator was firstly


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entered, but in Europe, it was from the air conditioner. In Southeast Asia, the

consumption level is still low, Haier entered from washing machine. By doing so, it is

possible to reduce the loss to a minimum, even it failed.

1) America marketIn the U.S. market, Haier entered a niche market as a strategic first. It exports

refrigerator target to the student dormitory in 1995. For entry into America market,

because Haier has taken the strategy to focus on own brand from the beginning, the

case of export the product of the OEM partner of corporate brand was low. However,

due to shoulder the cost of transporting exports from China, Haier established a factory

in south Carolina Green site in 1999. That is the local state government is active in

attracting for foreign investment. There were preferential measures, such as exempted

corporate tax for 3-years. In addition, it is willing to bear the costs of education and

training in company. Currently, the special refrigerator and full-sized refrigerators areproduction in South Carolina; compact refrigerator has export from China. Furthermore,

Haier acquired the building in New York in March 2002, as the American headquarters.

In America market, Haier is taking niche market strategy by local strategy,

segmentation strategy, and low-price strategy. The promotional strategy is not direct

sales for the consumer, it is to distributor aggressively.

Haiers strategy of localization is localization product development, localization

production, localization sales. In the U.S. market, before building the factory, Haier only

had $ 3,000 to sales, but sales reached $250 million of 8 doubled in three years later.

All the employees of the factory of 300 were American for local hiring. 10,000refrigerators were produced every month, and sold in the United States. From this

localization strategy, Haier has made great achievements in the United States market.

The localization strategy can understand the situation quickly on the local situation:

such as what kind of product is being demanded, and understand the psychology of the

local consumer, then could make respond to the local market quickly. Also, to adopt the

local administrator with experience is one of Haiers international strategies.

The entry of the product to avoid competition with local leading companies was

targeting strategy niche markets at first. Local capacity manufacturer almost does not

advance small refrigerator, freezer below 180L. It is 20% shared in 2004, and it isstretched 26% in 2005. In addition, as the sales performance grow from small freezer,

refrigerator. Haiers product areas expand gradually. Haier has won a share of Wine

cellar 50%, freezer 9%, and room air conditioners 6% in the U.S. market in 2005. It also

started production medium,large refrigerator from 2007.

Haiers price nearly half of other manufactures products in the same capacity in the


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U.S. market and taking a low-price strategy.

The promotional strategy in America, at first entered the U.S. market, Haiers visibility

was low. It adopted the method to market to distributors mainly aggressively. It

invested for 80% of sales promotion expenses for retailers. It put the label of Haier inthe baggage care of the major airports in the United States, and put the advertising Etc.

Haier put the outdoor advertising across the street from Wal-Mart (retail giant)

headquarters in 2000. Thus, after being recognized to some extent distributor, Haier

changed the strategy to aggressively attract customers.

Haier was carried out massive advertising campaign in advance to match the launch

of new products in 2004. In this campaign, it made a recording of air conditioning

7,000 that sold in 7 hours. In 2006, Haier has entered into a sponsorship agreement

with the (NBA) National Basketball Association of America.

On the sales channel, Haier did not build their own sales company, it uses the channelof the existing total Commercial Agent of the United States. It is concentrating on the

development of mass retailers instead of development to focus on general retail store

in the retail stage. Haier used the existing retail channels of local and built a high

degree of concentration channel by mass retailers. Also, sell human resources is also a

thorough indigenization policy. Haier products are sold through sales network of major

retailers, including Wal-Mart, Sears, Home Depot, Best Buy, Costco, and Target. Sales

volume by major retailers of these accounted for more than 85% of Haier products.

Haier adopted the indigenization policy thorough in the U.S. market, by performing a

detailed market research, to create a product that matches the current situation oflocal, Win the trust of Local consumer. It cannot be said that Haier was successful in the

U.S. market today, but Haiers accumulated knowledge in the U.S. market has a track

record steadily.

2) Emerging markets

Haier was established a production company of the refrigerator in Indonesia in 1996,

then, it began to produce air conditioning, washing machine, microwave, water heater,

Haier began to export to the target Southeast Asia. Haier started producing

refrigerators, freezers, air conditioners, washing machine in Philippine in 1997, It

produced washing machine in Malaysia. Market size of these countries is not verylarge, competition with developed countries companies was lower. However, I

considered Haiers overseas expansion at that time were still experimental for Haier.

Haier established Industrial park of the second in Pakistan in April 2001, and began the

production of washing machine in May 2002. After that, Haier established

production plant in Indonesia, Malaysia, India, Bangladesh, and Vietnam, Haier


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achieved a local production. In Thailand, Haier was advanced in the export product of

the refrigerator at first. It acquired Thailand refrigerator factory of Sanyo Japan in

2007, Currently, Haier has become the second refrigerator manufacturing company

in Thailand.China and ASEAN Free Trade Zone was built on January 1, 2010. The construction of

this free trade Zone will have a significant impact on the strategy for the ASEAN

economies of Haier. If you look at the strategy, which is said Trinity mainland of Haier,

that is production, development, sales strategy. As an example the Thai plant,

mainland of production, by using the zero tariff preferential policies, parts are procured

from China, it is possible to avoid the tariff.

In addition, because Thai-made consumer electronics are low tariff barriers to export

from Thailand than to export from China, Haiers product as a production base in

Thailand factory, was prepared to export of ASEAN other countries, to othercountries and regions in the world bring a big advantage. For example, fan refrigerators

are often used in the Thai market, but such this type of refrigerator is less in the

Chinese market. In fact, this is a popular type refrigerator in China. By the construction

of a free trade zone, duties in case that consumer electronics products made in

Thailand are exported to China is zero, in inverse export to China Haier fan is a type of

refrigerator that was manufactured in Thailand factory, the superiority of the product

between to supplement each other, It can realized to share the resources of the

market.

In the Indian market, Haier established a joint venture company in the sale andproduction in India in 1999, and Haier established the Haier India Haier factory by

Haiers owned 100% in 2004, It started local production of air conditioning for the

Indian market. Then, Haier was aim to Virtuous and whirlpool work together, and

started the local production of air conditioning for the Indian market. The current

operation of India, has been deployed around this HaierIndia. Both handling

products that are produced locally and the products that have been exported to India

from China, Haier established a development center in India with a purpose to

promote the localization of Haier products in July 2005. Haiers sales in India were 30

billion rupees in 2005, Haiers sales in India were 35 billion rupees in 2009. Haiersshare in the Indian market is 3.5%. Although, Nokia has accounted for more than 50

percent of the mobile phone market share in India, because the growth of the market

is high, Haier established a factory of mobile phone products joint venture company

with Scope of India in 2006.To enhance the consumer electronics production system in

India, Haier is running a line to assemble the air conditioning and washing machine


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factory in the western Maharashuto state in 2010.

Currently, in the Indian market, Haier has been developed to establish sales offices in

3000, the Haier exhibition room of 14. Haiers product is expanding to refrigerators, air

conditioners, washing machine, dishwasher, and microwave, TV, DVD, and mobilephone. Haier has established itself as a local brand.

Haier entry into India is slower than the manufacturers of South Korea and Japan,

name recognition is low, right now, Haier has infiltrated the brand in advertising and

advertising strategy aggressive. Development of system sales companies, the

development of local sales channels, promotion of human resources with the local

market experience and to enhance of the after-sales service system.

3) Japanese market

Looking at the overview of the Japanese market, first, in circa 1998, exports to Japanhave been initiated. Haier was going by the OEM brand of Japanese companies initially.

It started to export the 30,000 own-brand products air conditioning to some

commission consumer electronics distributor in Tokyo in January 2001, after that, It

also started export of washing machine of its own brand. In January 2002, established

Haier Japan sales Co., Ltd., in February the same year, also founded the Sanyo Haier Co.,

Ltd. in partnership with Sanyo Electric, In addition, established Haier Japan Holding at

100% owned by Haier in June, business management of Haier product sales company,

and as for the Japanese market window, product research in the consumer electronics

market, the market development, advertising, professional recruitment, planning anddevelopment which in charge of the related services. In March 2007, it founded the

Haier soft Japan.

Product which was charged to the first Japanese market was small-and

medium-sized product both. Initially, sales of Haier sluggish, but General awareness is

low because it does not shed and large CM on TV, It is seen as the biggest factor the

number of stores to handle the goods is not increasing, and It ended a partnership with

Sanyo in 2007. After that, the sales in the Japanese market continue through the Haier

Japan Sales Co.

Presently, the product sales in Japan of Haier, it is made through Haier Japan Sales.Sales channels of Haier Japan Sales is through electronics stores that mainly of GMS of

Aeon group, Itoyoka Hall, and Seiyu, Arc Land Sakamoto, Cain, Keiyo, Konan, Komeri,

Joyful Honda,, DCMJapan Holding, home center of Tostem Viva, and K's Holdings,

Kojima, Bic Camera, Best Denki, Yodobashi Camera. Because the company is focused on

the small product market the product areas in the Japanese market, Haier consider


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selling route fortunately rather is appropriate.

In addition, the pricing was unlike the U.S. market, and not taking a low cost strategy.

It was about 15% cheaper than equivalent Japanese brand in the washing machine, but

not as much as the United States, Over-the-counter price of refrigerator is set to almostthe same as the Japanese brand. Small in the refrigerator, in the two-chamber in the

washing machine for products is either with a focus on young people living alone is

also aimed at a niche market in capacity.

However, It found several problems in the Japanese market. First, in the production

cost, there is not much advantage to the Japanese manufacturers that have been

producing same in China. It has to change the product design to Japan in the cost of

development, and for at a voltage of 220V in China, it has to all modify the voltage of

100V, corresponding to 50/60Hz to Japan. It is also common knowledge to put washing

machine in the kitchen in Europe and the United States, but because in Japan putwashing machine close to the humid bathroom. They have changed the ground wire of

the power cord to match the moisture resistance of Japan. Further, for the size of the

bottle is different in China and Japan, it must be redesigned and storage. Initially in

2002, Haier had been exported to Japan to adjust the product minimum that has been

made for Europe and the U.S. and China, but are increasing their Japanese specification

things from 2005. It is difficult to demonstrate the economies of scale by mass

production to make the products of Japanese specifications. In addition, shipping costs

to Japan from China factory, such as rebates to dealers in Japan, distribution costs will

be borne by Haier is same as Japanese companies. It is a fact in the technicalcapabilities, Haier products have not so conspicuous. Haier has a proprietary

technology development, but because commercial in Japan is small, little is known. The

service centers across the country and many call centers are opened 24th. They have a

good after-sales service in China, and to build on its own this network because the very

expensive in Japan, advantage in this respect also does not appear.

However, experience of marketing strategy in the Japanese market of Haier will be

helpful when it want to deploy to other countries. Partnership with Sanyo in 2002,

advance of the Japanese market, that due to the use of sales channels of Sanyo, It

considered that to be goodness of Strategic original of Haier, which took place at Chinawas not out, also one cause of failure. In order to continue to stay in the Japanese

market, Haier developed a product to more suit Japanese consumers from now, the

advertising aggressively the merit of the product, Haier take advantage of sales

channels, it set price is low in Japanese consumer low-end today, To be successful in

the Japanese market if you can demonstrate success after-sales service in China is also


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possible. We would like to focus now on the expansion of the Japanese market.

Chapter 2: overseas expansion of TCL

TCL is the largest manufacturer of color TV in China, aiming to explore overseasmarkets from 1998, TCL group began to internationalize and expand its markets.

Currently, TCL has made investments to each region of the world, and by the end of

2011, it has a R & D center in China, America, France, Singaporeand has a production

base of 20 locations in China, Poland, Mexico, Thailand, Vietnam etc. Recently, by the

impact of reduction of purchase subsidy policy of government and the economic

slowdown in the overseas markets, it has been expanding and diversifying its sales

channels around the markets, such as rural and small urban which were used to be

weak in the traditional market activities, and it has also accelerated the development

of overseas markets1

.2-1 Development Overviews of TCL

TCL had ever been interpreted as "The China lion," but has deployed a new

corporate image strategy in 2007 redefined as "The Creative Life". Its forerunner, "TTK

Home Appliances Co., Ltd.", got the loan of 5000 Yuan from the local government in

1981, and was established as a cassette tape manufacturer by the entrepreneurs of

Hong Kong and seven former government officials of Huiyang district Machinery

Industry Bureau., It had been counted as one of the earliest 12 Sino-foreign joint

venture companies founded in the nation at that time.2 In 1985, "TCL Communication

Equipment Co., Ltd." was established to product magnetic tape and phone, andcontinuing to expanding its products lines one after another: color TV since 1992; PC

since 1993; the mobile terminal since 1999. Currently, the national market share of

fixed phones listed at the first place, color television at the first place, home personal

computer at the third place, and mobile phone terminal at the third place. TCL

entranced into a lot of new business at this time, and the company has also grown fast.

TCL has three listed companies: TCL Group, TCL Multimedia, and TCL Communication

Technology, and was composed of six fields of business: consumer electronics,

information, communication, multimedia, electronic and electric works, and parts. TCL

began its internationalization management from 1999. With the development of theemerging markets, TCL combined and acquired mature brands in Europe and the

United States markets, and promoted the diversification of management. Under the

diversification policy, repeated the mergers and acquisitions of domestic companies

1 May4 2012 Nikkei Business Daily2 Inoue Ryuichiro(2004) [ability of China's top 70 company-breakthrough]p74


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along with the expansion of existing business, TCL entered to new types of industry

aggressively. 3 TCL was demutualized in April 2002, and had undergone a

transformation to a state substantially controlled corporation. At present, focusing on

both the business of mobile phone production and color TV, TCL has grown to becomeone of the large state-owned enterprises which have established their own pillar

industries. In 2002, TCL acquired the television department of Schneider of Germany.

In January 2004, TCL founded the TTE and Thomson of France. TCL acquired the mobile

division of Alcatel of France in 2004, established the TCL Alcatel mobile phone company.

TCL had expanded the types of product widely in the field of consumer electronics,

such as TV, Audio Visual machine, refrigerator, air conditioner and washing machine;

and in the field of communication, such as the fixed phone, cell phone, communication

system equipment. Currently, it has also expanded to the fields of real estate, finance

business, physical distribution and service.Since the 1990s, it has continued the high growth on average of 42.7% yearly for 13

years in a row. In 2004, though TCL carried out two large-scale joint ventures, because

the management integration effect of the jointed venture couldnt be fully displayed

(see Figure 2-1), it fell to the red for the first time. On the other hand, compared with

other consumer electronics manufacturers in China, its overseas revenue was 37.54%

high in 2011, and in this sense, it can be say that TCL has already been a member of

the truly global companies.

TCL Figure2-1 Trends in sales of Unit: one hundred million Yuan

3 Tomofumi AmanoHiroyuki Oki (2007)[Internationalization of Chineseenterprises]p137


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Source: Compiled from the home page of TCL

2-2 overseas strategy of TCL

From mid-2000, the foreign M & A (mergers and acquisitions) of Chinese companies

have become more and more. In general, it is common that a flow of development to

overseas markets starts from export and then change to local production due to

revaluation of the currency and trade friction, such as tariff barriers, but in the case ofChina, most companies expanded their oversea markets by the method of M & A from

the export stage.

In the late of 90s in the 20th century, TCL has reached sales increase on an average

of 42.66% yearly, but in the Chinese market, because price competition is intense and

profit rate becomes low, the development of new markets has become a common

issue to all the Chinese household electrical appliance enterprises. In addition, since

China became a member of WTO, there is not any barrier in the domestic market,

foreign companies can easily enter into the China market, and competition has become

more severe. Overseas expansion is a necessary way to go in their internationalizationof Chinese enterprises. It was in such a situation, overseas expansion of TCL was

started.

Firstly, overseas expansion of the TCL established the superiority to lead other

companies in the field of industries in the domestic market, and then followed by the

direction of advance to overseas markets gradually. Overseas expansion of TCL was


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started from 1998. First to the Southeast Asian countries, and then into other

developing countries, at last TCL began to advance in the market of advanced Western

countries step by step. In its advance method, depending on the characteristics of the

investment destination, it is mainly the product of its own export brand in developingcountries in Asia such as India and Vietnam; it mainly takes the methods of ODM and

OEM (Original Design Manufacturing and Original Equipment Manufacturing) in Europe

and the United States mature markets4. In this way, TCL has pioneered the local market

while leveraging the local name-brand.

Currently, TCL has established a sales base of 40,000 locations in 40 countries and

regions around the world, and about 20 institutions such as local branch of the

companies, and about 25 companies like factories of their own company and strategic

cooperation. Development Department have been set up in America, France, and

Singapore, and 17 production bases have been set up in China, Poland, Mexico,Thailand, and Vietnam.5

Table 2-1 Internationalization of TCL

1981 The joint venture TTK Home Appliances and Hong Kong capital

1985 Established a joint venture TCL Communication Equipment Co., Ltd. and

Hong Kong capital

1993 Established (Hong Kong) TCL electronic

1996 TCL group acquired the color TV sector, Lu Ltd. of Hong Kong

1998 Established a joint venture ZhiFu Cyber Co., Ltd. and Taiwan ZhiFu

population

1999 Listed on the Hong Kong stock market, and established a TV factory in

Vietnam, established a color TV factory in India

2001 Established a joint venture, Ltd. TCL Ruizhi made cold Equipment Co., Ltd.

and Taiwan Ruizhi precision CORP. capital

2002 Acquisition of German companies Stineider companies, and local

production color TV

Strategic alliance with Matsushita Electric Industrial Co., Ltd., strategic

alliance with Philips

2003 Acquisition of TV division of Thomson of France

2004 Acquisition of the mobile phone division of France's Alcatel, and Toshiba

4 Ibid Amano Oki p405 www.cps.com.cn


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alliance refrigerator, a washing machine sector

2005 The acquisition of the French company's part Rorangu

Source: Created from the home page evolution history of TCL

2-2 Asian emerging markets

The emerging market is most important in overseas markets of TCL.

Processing trade of China was hit hard by the Asian economic crisis of 1997. Because

only processing trade have to rely on the brand partner, channel, market and customer.

If they couldnt ensure the overseas sales channels and their own brand, they wouldnt

keep stable growth, and in this reason, TCL began to expand overseas.

From 1999, TCL entries into the emerging markets of developing countries in

Southeast Asia, the Middle East, Eastern Europe, and South Africa, and began to have a

sales network of its own to deal primarily the TCL brand.

1) Vietnam

Areas that TCL has advanced earliest, was Southeast Asia. Investment partner

country was Vietnam. Result of market research, it was based on the thinking that

there exists mass high-quality workforce, and there is a future in the TV market with 81

million population in Vietnam. In addition, Vietnam is close to the economic

development level of the inland of China, and Social structure that a large number of

the population live in rural areas is also similar, so there is a possibility that can utilize

the successful experience in China. TCL started the development of the Vietnam

market in February 1999. TCL acquired Lu electronic, Ltd (a color TV enterprisesestablished in 1990 by Mr. Lu QingTian from Hong Kong, 500,000 color TVs were

produced annually in Vietnam). Though the most Foreign TV manufacturers are taking

form of a joint venture with state-owned enterprises in Vietnam, TCL is a wholly-owned

foreign capital alone.

While facing to the difficulties in Vietnam such as the development of new markets,

the communication, the policy of local government, and the low popularity of the

brand, TCL has infiltrated the brand certainly in rural market at a low price. In Vietnam,

for the image of Chinese products was not good, TCL was called a company in Hong

Kong for a long time and had called latently a company with technology of the UnitedStates and parts of Japan6.

It is strength to develop a niche market for many Chinese enterprises when they

entered the foreign markets. In Vietnam, because Japanese, Korean companies did not

have an interest in rural thin-margin market, TCL began to develop the rural television

6 Lan Shizi Wu XiaoBo (2012)[ reincarnation of the hawk] p199


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market by local factory in Vietnam. TCL got enough know-how and experience through

the development of rural TV market in China; it is strengthening lightning in response

to Vietnam climate which has a lot of thunder. TCL is characterized by the things that

the rural areas were wide covered by the TV transmitting station, and it has higherreception sensitivity. In addition, TCL is focusing on after-sales service in each city,

provided with its 24-hour hotline, and repaired the house of the customer in one

phone call, and accept the three-year guarantee against two years guarantee of other

manufacturers.

TCL is taking a low-price strategy in the Vietnam market. The price was set about as

same with the cheapest local manufacturers of Vietnam. On the other hand, for the

reason that LG and Samsung had already gained the trust of local consumers, the price

of was set more than 10% high than the local manufacturer price, but still took the

largest share. Prices of Japan brand is still 10% higher than Korean manufacturers.

After 18 months consecutive deficit from its entry into Vietnam from 1999, TCLs

sales volume rose from September 2001, and became the second in the Vietnam

market today.

Other than Vietnam, TCL has have a local production brand in Philippines, Indonesia

from 2000, and Thailand from 2004, and established a sales office in Singapore, and

has been selling in Malaysia, Brunei, and Myanmar.

2) India

With a population of 1.2 billion, India is attracting attentions from companies in theworld as second emerging markets following China. TCL was advanced once to the

Indian market from1999 to 2002. In the Joint venture with the Baron of India, TCL

Baron Holdings, the Chinese side provided the parts, and the Indian side took the

charge of domestic sales, assembly, and sales of the color TV of TCL brand. It was said

that the sales was more than $ 50 million in August 2001 in about one year after the

advance, and also beyond the border line of the profit or loss as a sales scale. However,

because of the fact that the management of Baron got worse, the discrepancy of

management and disagreement of philosophy between the two sides, quality problems,

and recovery of accounts receivable problem, TCL was forced to withdraw from theIndian market7.

In 2004, TCL was decided to acquire Thomson which has a factory in India, and

penetrated the Indian market again. In the Indian market, due to religion, hierarchy,

region, and economic conditions, the purchasing power is different. In addition,

7 Ibid Amano Oki p 146


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consumption characteristics are also different. Indias country gap is large and the

disparity is clear than China.

Focus on hierarchy and consumption habits of Indian consumers, marketing

strategies of the TCL in the Indian market are targeting the middle class of 200 million.The Chinese have a big role in such fields as sales and marketing in such countries as

Indonesia, whereas in the Indian market, unlike other Southeast Asian countries, there

is no network of Chinese. In addition, as the same as Vietnam, because consumers do

not have a good impression on Chinese products, TCL are struggling to get sales

on-site.

For the reason that Korean manufacturers, such as LG, Samson, occupy a leading

position in the first and second class markets of India, TCL are targeting the rural

market and the second and third class market to avoid the direct conflict. In addition,

because Korean manufacturers and local manufacturer still stay a strong situation inthe local market, the re-challenging TCL appeals its brand to consumers while it actively

participates in social contribution activities, and adopted a strategy to increase the

sales performance certainly by using the local know-how principle gained in the vast

rural markets of China.

Currently, TCL has built a sales network with 20 branch offices, 100 locations

after-sales service center, and 2,700 local agencies in India, and also has established a

40-people Research and Development (R & D) department.

As the promotion in the emerging markets such as India and Vietnam, TCLinvites

the distributors of each market regularly to China, and appeals the actual businessstatus in the tour to the domestic factories and the dealers, then concludes with a

contract;participates in the exhibition to launch its products;with the product

development tailored to the needs of the developing countries market, has

implemented the strategy in the U.S. and European markets by taking advantage of the

distribution network and the introduction of high-profile brands through the

acquisition business, through these promotional activities it aims such as improving the

image of the company in developing country markets of TCL.

2-3 Western markets

1) OverviewBecause the Europe and the United States market has a role of "show room" in the

world market, it can be said that Once you have established the status in this market,

your brand power will extend to the whole world market, including the emerging

markets. Therefore, every country company puts it as the most important market.

TCL is taking a multi-brand strategy in the overseas markets. For example, Thomson


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brand is used in the European market, and RCA brand is used in the U.S. market, and

Schneider brand is used in Germany. There are two divisions in TCL overseas: one takes

charge of production and export of TCL brand and another takes charge of the

production and export of the OEM. In addition, with the establishment of productionbases overseas, it contemplates to avoid duty and dumping. The internationalization of

TCL is the basic rule that TCL brands occupy more than 50%.

Since 2001, to the dumping of China-made color TV, EU has applied the high tariff

rate of 44.6%. Despite the region overall demands was rising to 20 million units a year,

it was only 400,000 units imported from China. The establishment of overseas

production base through acquisitions enables local production, and trade barriers can

be avoided. In addition, though color TV and mobile phone are the update fast

business, because the poor accumulated power of innovative technology, Chinese

enterprises can increase faster technical capabilities with the acquisition. This businessstrategic background is also present in the deployment of TCL in the Europe and the

United States market.

2) Germany

In October 2002, TCL acquired Snyder, an electronics company with a history of over

100 years in Germany, at 8.25 million Euros. The contents include the well-known

brand "Schneider" and "Dual", production equipment, inventory, and sales network R

& D and lineup as well. The biggest Harvest for TCL was that it got a sales network

across Europe and the acquisition of the R & D department of the company 8. With the

entry into the European market, the acquisition of Snyder enable local production, andeven the absorption of innovative technology gave large significance to the

management of TCL.

3) France

Thomson

In November 2003, TCL joint the TV sector and the largest electronics manufacturer

Thomson in France, and established TTE (TCL Thomson Electronics Co., Ltd.) which

mainly takes charge of development, production and sales of DVD products and color

TV. The investment rate is 67% by TCL Multimedia, 33% by Thomson. For brand

strategy that is one part of the internationalization, TCL is supposed to use Thomsonbrand in Thomsons strong areas, and basically uses "Thomson" brands in the European

market mainly. While in the emerging markets and developing countries in Asias other

markets, TCL uses "TCL" brand. With multiple brands, TCL has entered different

markets. In August 2005, TTE became a wholly owned subsidiary of TCL by the

8 October 3 2002 Nikkei Business Daily


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acquisition of the shares of Thomson side because of non-profitability.

For the motivation of the acquisition of Thomson in TCL, the first is to strengthen

internationalization and brand power. Thomson acquired the electronic sector GE in

1988, and held the famous color TV brand RCA of the United States. Thomsonaccounted 8% in the European market and 12% in the U.S. market at that time. The

second is a response to trade barriers. Anti-dumping (AD) is an issue for Chinese

companies to enter the European and American companies. In addition, the tariff rate

is high, since TTE had a production base in France, Mexico, Poland, Thailand, and

Vietnam, exports of the products produced in those production bases can avoid trade

barriers, thus TCL can enter the Western markets easier. The third is to avoid the risk of

intellectual property rights. For Chinese companies is poor at core technology, after the

joint with Thomson, TCL can make use of color TV patent of 34,000 section of Thomson.

The fourth is the brand effect of Thomson in the United States and Europe market. TCLcould promote its internationalization in less time than other companies by using

Thompson brand.

However, there was also a problem in the joint with Thomson. TCL has a ratio of 67%,

so TCL had to bear most of the cost of TTE. Except its tangible assets, such as the

facilities of the plant, the assets of Thomson are mostly intangible assets patent, such

as intellectual property rights. In addition, because TV department of Thomson was

unprofitable, it could not make a profit in a short period. And in the technical hand,

because the technology of Thomson is primarily a CRT traditional television technology,

TCL only could use the old technology, and the State-of-the-art technology of Thomsonwas not entered into the joint venture. Moreover, the most valuable overseas sales net

was also not included; the relationship with TCL was cooperative in one side, and

competitive in the other side. Therefore, the development of core technology becomes

necessary to TCL itself9.

Alcatel

In April 2004, TCL joined with Alcatel in the mobile sector in France. The investment

ratio was 55% by TCL communication and 45% by Alcatel. In May 2005, the joint was

relieved because of unprofitable in mobile sector, and then, by the acquisition of the

shares of Alcatel, Alcatel became a wholly subsidiary of TCL.In November 2004, sales in the fourth quarter of Alcatel fell sharply. At the same

time, China's domestic mobile phone market of TCL was also caught in situations of

9 WuLi The purpose and risk of TCL acquired Thomson1994-2010China Academic Journal Electronic Publishing House All rightsreserved.Http / / www.cnki.net


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upheaval. In 2003, By China was subscripted to the worldwide commodities trade

association(ITA), the import tariffs on mobile phone became to be zero, foreign

manufacturers, has entered the low-end market from the competition only in the

high-end market. Advantage of the low prices in China domestic mobile companies iseliminated; foreign manufacturers began to change production volume, style, and price

by brand power, and began to spread to the entire Chinese market rapidly. In addition,

flooding of fake brand was a major blow to the mobile business of TCL10.

TCL is in the form that it has acquired long-term brand use rights with over 20 years

of Thomson TV sector and the mobile phone division of Alcatel. TCL was aimed to

develop overseas markets by taking the advantage of the brand of French companies

("RCA" in the TV and "Alcatel" in the mobile phone).

for the acquisition, Li Dongsheng, CEO of TCL, said that "The acquisition of

Thomson took the cost than expected, thats because of 20 years of surplus before theacquisition, and because we were too self-confidence for companies. However, it can

be considered a success generally. In the TV business, by the acquisition, it becomes

the first brand of Chinese color TV, and the production capacity of the liquid crystal

panel is improved. There is still a difference from the other international companies,

but in the future, Chinese companies will lead the world's TV industry on behalf of the

Japanese companies". As for the mobile phone, the acquisition of Alcatel enabled the

development in Europe and the United States market. It has sold 44 million units in the

U.S. and European markets in 2011. It is a result that cannot be obtained without the

acquisition of Alcatel11

.24 Cooperation with Japanese companies

In the Japanese market, TCL entries mainly by partnered with some companies such

as OEM. In 2002, under the agreement on comprehensive alliance in the consumer

electronics field with Matsushita Electric Industrial Co., Ltd., Matsushita Sold in rural

areas in China with a sales network of TCL, and TCL produced OEM color TV of

Matsushita Electric.12.

In 2006, Toshiba and Toshiba TCL Consumer Products (Nanhai)" was established in

Foshan, Guangdong. The investment ratio is 90% by Toshiba Consumer Products of

Toshiba subsidiary, and 10% by TCL. At the new plant, OEM supplies some products toTCL, and produces product of Toshiba brand. In August 2008, they break the joint,

Toshiba purchased the holding of TCL side by approximately 200 million Yen, it became

10 Ibid Lan Shizi Wu XiaoBo (2012)[ reincarnation of the hawk] p22311 [LiDongSheng fan xing shi nian guo ji hua] China Electrical Industry No. 22012p26-2712April 25 2002 Japan Business Daily


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a wholly owned subsidiary.

In July 2010, TCL established a joint venture "Toshiba and Toshiba Visual Products

(China) Co., Ltd." (Guangdong) to sell LCD TV, whose capital were 50 million Yuan

(about 600 million Yen): 51% by Toshiba and 49% by TCL, but TCL which was familiarwith the Chinese market is the center of business. Utilizing the sales network of TCL,

Toshiba advanced to small and medium-sized cities in inland, and the current store

locations plans to increase from10 000 to 2200 stores in the end of 2012, and increase

to 15 000 stores in fiscal year ended March 31, 2014. 13TCL has produced 70% of

Toshiba TV which were sold in China currently.

In addition, currently, TCL produces Blue-ray Disc products for Sony, and are buying

LCD panels from Sharp. Furthermore, it is contracted to produce the Panasonic

products. In 2013, TCL is planning to separate as an independent company with

contract manufacturing business. If the contract manufacturing business can beindependent as EMS (contract manufacturing services of electronic equipment), it is

easy to contract a large amount of products from several companies, including Europe

and the United States.14 Mobile phone as one of the core business, along with TV, can

enter the Japan market under the brand name of Japanese companies. TCL is showing

willingness to enter actively into the Japanese market.

25 Problems of overseas acquisitions in TCL15

The problem with overseas acquisitions in TCL, viewed from the acquisition of the

French company, the first is the difficulty of tissue integration. The second is a difficulty

in the fusion of business culture. Scale of the acquired France businesses is larger thanTCL, but it was difficult for employees to accept the corporate culture of the TCL. The

third is the impossibility to share the resources of the two companies. It is common for

the joint venture to introduce the channel of each other's strengths in its intended, but

TCL and the acquired France businesses, could not share in the sales channel, and TCL

brand was not able to sell to overseas markets through that channel. The fourth is that

foreign labor cost is high. Labor costs are cheaper was also one of the competitiveness

of Chinese enterprises for a long time, but in overseas acquisitions of TCL, labor costs in

France, much higher than China. In addition, because the union of France is very strong,

it is difficult to lay off employees. The fifth is that technological superiority cannot beexhibited. Technical capabilities that TCL expected with the acquisition of Alcatel

cannot be exhibited, Aggressiveness of employees is low, the development rate of new

13 July 6,December 16 2010 Japan Business Daily14 July 7, 2012 Nihon Keizai Shimbun15 Ibid Lan Shizi Wu XiaoBo (2012)[ reincarnation of the hawk]p222


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products is also low, and the communications between each other is also a difficult

situation. To the end of 2005, losses amounted to 900 million Yuan.

TCL is expanding at a stretch in the business acquisition of the two companies in

France. It was the forerunner of the M & A to the European and U.S. companies byChinese companies, but it is the wrong reading of the changes in the market. At that

time, TV was a turning point from cathode-ray tube to the liquid crystal, but the

accumulation of liquid crystal technology was poor in Thomson. Nokia (Finland), the

largest phone business strengthens the price offensively, and hit the business of Alcatel

in high-cost. Both mobile phone and TV is intense price competition product. TCL was

delay in taking action, fall in the final deficit in 2005 and in 2006, and was forced to

delisting.

Competition of mass overseas acquisition of TCL became intense in China domestic

market, so the development of overseas markets is required, but the acquisition at thetime of 2004, from the experience of China's domestic market, TCL decided to acquire

two companies by its own judgment, and did not investigate the status of the other

Partner in detail. And the fact is that TCL, as many other Chinese enterprises, did not

studied the market situation of the partner country, the culture of investing country,

and political situation in detail in overseas acquisitions at the time. In addition, because

TCL's acquisition was unprofitable sector, it brought a huge loss to the TCL. In that

regard, for the acquisition of foreign companies of Chinese enterprises and TCL, this

will be a big lesson. However, in the long run for the TCL, it can be said that the

acquisition of foreign companies in its overseas expansion is a valuable experience inthe sense that they can get a sales network in Europe and North America.

Chapter 4 : Strategic comparison of Haier and TCL in overseas expansion

First, as a common point of Haier and TCL in internationalization strategy, both

companies took low-price strategy from the beginning, and had entered the overseas

market as a target niche market. It can be called the common point for Chinese

companies to expand overseas.

In addition, the differences in overseas expansions of Chinese companies listed into

two big patterns. One is a model called "destination flame after easy". The typicalcompany of this model is the overseas expansion of Haier. Overseas expansion of Haier,

firstly began to enter into Western developed countries market, which are strict in

demand such as specifications and standards, and got trust and brand power in some

degree in these countries, then continued to expand into developing markets such as

Southeast Asia which are low in demand, such as a relatively standard.


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TCL represent the other overseas deployment model, "destination easy devil to pay

model. Firstly TCL began to advance from the Southeast Asian countries such as

Vietnam and the Philippines, which have resembling culture and custom with China,

and then, got multiple brands of Western companies by M & A when advance to theWestern developed countries markets. It is the feature that multiple brands are used

in TCL currently.

Conclusions

In the domestic market of, unlike other China consumer electronics companies,

Haier increased the value of their brand quickly by high quality and careful after-sales

service, and has infiltrated the value to the customer which is in the commercial

distribution end. Expansion into developed markets was important from the means of

obtaining an international recognition brand. It is believed that this market knowledge

will become properties for the future business development. In developed marketssuch as Japan and the United States, products have been developed from the first small

products to the recent medium-sized and large products. It was believed that the

awareness of consumers will be gradually increased from now that. On the other hand,

in emerging countries, they tried to enrich the sales network equipments,

development of local market, promotion of human resources with local market

experience, and after-sales service system. Haier utilized the know-how experience in

management that cultivated in China and applied to those countries, thus a very large

development room in emerging markets can be considered.

Currently, China consumer electronics manufacturers on behalf of the TCL areenhancing technical capabilities and the sales force, not only in China but also have in

overseas markets. It can be considered that overseas expansion of Chinese consumer

electronics manufacturers will continue to be more active in the future. However, to

the foray into the international market, competitions in terms of price will convert to

competitions in terms of quality, and Chinese companies must make their original

brand and high-tech products with original intellectual property rights. The technical

capabilities and the high quality must be ensured not only in the emerging markets but

also in developed markets. The trend of how to deal with this situation in the future is

noted.Because Japanese consumer electronics manufacturers take a strategy by pursuing

high quality and make a good impression on their products by high quality in emerging

countries, including China and East Asia, as a result, they lost that market. On the

contrary, consumer electronics manufacturers in China and South Korea take a strategy

of low-cost as their competitive power, and then robbed emerging markets, including


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East Asia which Japanese consumer electronics manufacturers had. But from now on,

China consumer electronics manufacturers must have a gradually development in the

core technology. For international expansion of china appliance manufacturers from

now on, it will be necessary to not only keep the price force but also continue toensure the global market share by technical force and the product power. In the global

TV market in the future, It is expected that Chinese manufacturers ensure with the

ability to compete with Korean manufacturers, such as LG, and Samsung. It will be a

subject in the future that how China consumer electronics manufacturers compete

with other consumer electronics companies, such as South Korea by weapons of low

price, and the development of value-added products with a core technology.

wang yulan report

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