Firm-Level Factors and Country-Level Factors and the Success of the Haier Group - Case Study Example

FIRM-LEVEL FACTORS AND COUNTRY-LEVEL FACTORS AND THE SUCCESS OF THE HAIER GROUP Name Institution Professor Course Date Introduction Most of publications regarding globalisation of multinational companies centre on firms that originate from nations of the triad including Japan, North America and European Union. According to Marinov and Marinova (2015), the biggest trade exchange and investment capital flows in the form of FDI in the world occur between these regions. However, since 1980s, novel MNCs originating from emerging economies have entered the world business environment. Lack of market mechanism besides dependency on political decisions hindered firms from developing nations from entering the global markets. Most of the firms operating in the conditions of centrally controlled economies were ineffective economically and unable to compete efficiently with firms functioning in market economies. However, in the last two decades, several MNCs from emerging nations with an example of Haier have become successful in the international markets. This essay presents an analysis of the firm-level factors and country-level factors that contribute to the success of MNCs from emerging markets with a particular focus on China Haier. The paper also highlights the major lessons international business managers can learn about the interplay amid country and firm-level factors in attaining success in the global market. The Haier Group Firm-level factors and country-level factors have enhanced the success and survival of Haier. According to Frynas and Mellahi (2015), the Haier Group started as an almost bankrupt refrigerator company named as Qingadao General Refrigerator in Qingdao, China. It is a home appliance manufacturer founded by Rumin Zhang in 1980s with its headquarters in Qingdao, China (Hipsher, Hansanti and Pomsuwan 2008). The company centres on the quality of the produced products and its leadership has been able to turn the firm from a loss-making company to an international success in a comparatively short period. Zhang Rumin was appointed as the firm director and he is currently the firm’s CEO. Under the leadership of Ruimin, Haier has risen to become the biggest manufacturer of home appliances in the world. The firm employs over 80,000 employees in over a hundred nations across the world. Between 1995 and 2012, the firm’s global revenue rose from RMB 4.3 billion to RMB 163-1 billion (Frynans and Mellahi 2015, p.178). Haier Group decided to enter the global market for different reasons that include Zhang’s vision of becoming a member of Fortune’s Global, the support provided by the government of China and the stagnation of the home appliances market in China. Haier Group established a US division in 1994 and opened a subsidiary in Hong Kong in 2005. The firm is listed on the Shanghai Stock Exchange and has factories in several African nations such as South Africa, Algeria, Nigeria, Tunisia and Egypt. The manufacturing facility in the United States is situated in Camden, South Carolina and has factories in several other nations across the world. Recently, the firm announced its decision to purchase General Electric Co.’s appliance business for over 5 billion dollars in order to expand its United States and international presence (McDonald 2016). The acquisition of other firms in the global business environment is an indication of how successful the Haier Group has become in the international market. In the first stages, Haier centred on its own domestic market and gradually entered the South East Asian markets to obtain experience. After a few joint ventures, the firm was ready to do a battle in the United States market where it opened its operations in Boston in 1999 (Frynans and Mellahi 2015). The firm focused on its strengths while endeavouring to establish technologies in the United States. Following the successful establishment of Haier in the US market, the sales of the company increased progressively an aspect that made the firm to gain sufficient confidence to enter other big markets such as Europe. According to McDonald (2016), Chinese firms are on purchasing spree overseas searching for brands and technology to enhance their competitiveness at home and in the global market. Several factors explain Haier’s international success and survival. Hipsher et al.(2008) asserts that the fact that the firm started to compete in tough markets like Germany and USA made its penetration into other markets easier. Haier broke away from the typical Chinese marketing strategy with the development of corporate units in several nations and the establishment of marketing channel to tackle local distributors. Haier concentrated on a single product when entering the novel markets and gradually developed brand awareness prior to expanding its product line. More so, strategic alliances with different partners that had expertise in the global markets enhanced the international success of the Haier Group. According to Aceto (2015), drivers of a firm internationalisation include several individual level factors such the international experience and expertise of a firm’s CEO, group level factors such as the international tenure, diversity, experience and expertise of the top management. Other major factors that affects the success of a firm in the international market include industry level factors such the competitive structure, firm-level factors such as the firm size, age and international experience, and the country level factors that include the host and home country’s characteristics. Aceto (2015) affirms that firm-specific assets are the most essential firm level factor that influences the internationalisation of a firm. Firm-Level Factors The firm-specific factors that have contributed to the international success of Haier China include access to markets, the firm’s resources and cost reduction strategies. Haier as the fastest-developing provider of appliances in the globe has attained its international success through its coherency and capability. The firm has focused on staying true to its major identity and its potential to reinvent itself and its products. Haier Group’s marketing and R & D capabilities have helped the firm to become the world largest home appliances company. In addition, firm’s size and age also contributes to its international success. According to Duysters, Jacob, Lemmens and Jintian (2009), Haier Group is a large conglomerate, which has dominated the home appliance market. The firm has been following a policy of insistent internationalisation. According to Frynas and Mellahi (2015), bigger firms tend to internationalise more compared to smaller firms. Bigger firms hold more managerial and financial resources, greater production capacity, tend to be linked to lower levels of perceived risks in the global operations, and attain increased levels of economies of scale. Larger firms like the Haier Group have attained success in the international market because of their size. Although Haier has only been in existence since the mid 1980s, the emergence of globalisation promoted its internationalisation. Haier has expanded with time and entered the international market in 1990s. More so, the international experience of its CEO besides its capital intensity and a widespread labour force has enhanced the international success of Haier. According to Aceto (2015), among firm-specific factors, a firm’s international experience and relational and human capital appear to be the most essential predictors of international success of MNCs from emerging markets. The size of a firm affects its success in the international market. Aceto (2015) asserts that past studies have demonstrated that bigger firms from developed economies are more likely to expand internationally compared to their counterparts in emerging economies. Interestingly, the age of firm is more powerfully linked with the international success of firms from both emerging markets and developed nations. However, older firms from developed nations are more likely to attain international success compared to older firms from emerging economies. Besides size and age, Haier Group has a good access to markets. According to Dunning and Lundan (2008), the lure of novel markets in emerging economies and developed economies with growth ability is usually alluring to international firms. Haier could not attain global leadership positions in the home appliance market without selling its products in different world markets. Given that the company focuses on the production of quality home appliances, it has attained an international appeal and a positive reputation. Frynas and Mellahi (2015) assert that production of distinct services or products with an international appeal could function like an incentive for global expansion. Haier has a positive international appeal promoted through its provision of products with unique aspects and qualities, heavy advertising, public relations and sales promotion. Therefore, Haier Group has crossed global boundaries because of its international appeal. The firm entered the international market early where it expanded its operations in African nations such Tunisia, South Africa, Algeria and Nigeria. Early entry into emerging economies brings first-mover benefits and the likelihood of market dominance before rivals establish themselves. More so, Haier Group has a good access to markets because the firm manufactures a very wide range of household appliances. Duysters, Jacob, Lemmens and Jintin (2009) confirm that Haier Group manufactures 15, 100 product varieties in ninety-six product lines. With respect to the 2006 Euromonitor statistics on the firm’s sales, the Haier Group holds the biggest world market share for refrigerators (Duysters, et al. (2009). In 2008, the firm ranked 13th on Forbes Reputation institute Global 200 list. The rankings are a good indication that over the last two decades, the Haier Group has developed from a small firm to the world’s largest home appliance manufacturers. Through its successful internationalisation, Haier has managed to lower its costs of operations (Liu & Li 2002). This has been made possible through involvement of low-cost labour in developing nations as well as its organisational capability to innovate. According to Story, Boso & Cadogan (2015), organisational ability to innovate is a major determinant to its success and survival. The size, age, international experience, capital intensity and human and relational capital has facilitated the growing success of the Haier Group in the international market (Heather, 2015). According to Coff and Raffiee (2015), human capital is a firm-specific factor that is a source of sustained competitive advantage. Human capital is essential in explaining firm-level competitive advantage. Haier has continuously rewarded and cultivated high-quality talent and employs most capable businesspeople and engineers (Peng 2009). The firm has invested in training its workers and demand innovative ideas. Besides differentiating itself through production of quality products, Haier has adopted a consumer-responsive originality to meet the needs of certain customers. Country-Level Factors As regards country-level factors, Haier has succeeded internationally because of political and economic stability, supportive institutions and culture, supportive government policies and other country-level factors. While the general global environment affects overall globalisation decisions, the success of doing business in a given nation is principally affected by the conditions in the concerned country. The implications in disparities in a nation’s institutions and culture affect the success of MNCs from emerging markets. Assets that include communication and transport infrastructure and indefinable assets such as skills, education, intellectual property, business network, the capacity for innovation and technology affects a firm’s success in the international market. Government policies such as financial incentives or tax rates also affect the operations of MNCs from emerging markets. Haier operates in countries with less nuisance costs. In some national environments such as the Soviet Republics, nuisance costs deter investors (Coff & Raffiee 2015). Before expanding its business in foreign nations, Haier performs an analysis of its host countries (Voss 2011). The firm’s management gathers information from government departments, global institutions such as OECD, Word Economic Forum and UN to ensure that its desired host nation is free from nuisance costs and other liabilities that may hinder its international success (Peng & Beamish 2014). Haier also conducts a comprehensive market research besides analysis of a nation’s cultural, political and economic environment. The firm penetrates foreign markets through effective market entry strategies such as, exporting, joint ventures and partnership (Halit & Daniel 2014). It is difficult for a firm to succeed in the international market without comprehending the political systems, government economic policies and political institutions. Haier succeed in most international markets because it has integrated cultural elements in its business strategy. With respect to Trade agreements signed between China and other nations, Haier formed technological partnership with key word players and competitors in other industries such Microsoft, Toshiba and Whirlpool (Halit & Daniel 2014). The company has established a permanent market place via expansion or market entry to enhance its market share. Through exporting, Haier developed a world-recognised brand that has continued to win an extensive market share. The firm has integrated local manufacturing, price and quality both in the international and domestic markets to remain competitive. When the Chinese domestic manufacturers engaged in fierce price war, Haier avoided this by taking domestic competition aboard. The firm analysed the overseas market and established factories in areas where there was a market. The firm participates in local manufacturers organisations to acquire information about potential and existing markets. The firm also utilises local culture, intellectual resources and funds to develop quality products. This has helped the firm to attain the goal of establishing a world-recognised brand. Lesson to International Business Managers Based on the analysis, firm-level factors and country-level factors play a crucial role in the success of MNCs from emerging markets. Firm –level factors cannot help a firm to win an extensive market share in a foreign market if the host country is unstable politically and economically. More so, the host government plays an important role in ensuring the success and survival of MNEs from emerging nations. If the government does not provide policies that promote MNEs from emerging nations, the firm-specific factors such as firm size, resources and the age of a firm cannot guarantee the success of a firm in the international markets. According to Aceto (2015), a resource that offers a firm-specific advantage in one nation may lose its capacity to support that benefit in another country. Political and economic stability of a country provides multinational firms with the prospect to combine their operations across country borders through standardising their products, controlling critical function such as R & D and rationalising production (Asmussen 2011). Assessment of a country’s economic status and market helps MNEs to ascertain market imperfections and exploit them for their own benefit (Story, Boso & Cadogan 2015) . Market imperfections offer prospects for internationally diversified organisations to attain competitive edge in cross-border use of their intangible assets. Assessment of country-level factors helps firms to ascertain and lower risks. A firm’s external business setting holds a major effect on the strategic direction and success of a firm in the international market. Therefore, international business manager must pay particular focus to firm-level factors and country-level factors when going international and as a way of remaining competitive in the international market. MNEs can be competitive if government policy and national environment promotes a firm’s innovative efforts and profit earning. The level of a firm’s competitiveness depends on production factor costs, firm networking and demand conditions (Meusburger & Jons 2012). International business managers must understand that the environment in which their firm operations is shaped by the international business environment, chances and opportunities and more importantly, government policies. Haier has become the world largest manufacturer of home appliances because of its firm-specific advantages as well as country-level factors. Therefore, international business managers must integrated and assess firm-specific factors and country-specific before entering the international market. Conclusion The past few decades have seen the surfacing of an increasing number of MNCs from emerging markets such as India and China. These firms operate in a greatly integrated global economy. Firms venture in the international markets for different reasons, which include profit-making prospects, international reputation, competitive advantage and business growth. The decision of a firm to go international is inspired by a firm’s objectives and mission. However, the overall international environment, firm-level factors and the conditions within a particular nation influence the success and continued existence of a firm in the global market. The Haier Group has been competitive and successful because supportive government policies and national environment in its host nations promote a firm’s innovative efforts and profit earning in its host nations. The Haier Group leadership assesses regulatory, political, technological and economic forces in host nations to reconfigure and re-evaluate its value chains to remain competitive. Therefore, International business manager must pay particular focus to firm-level factors and country-level factors to remain competitive and successful in the international market. References Aceto, K 2015, Emerging markets and the future of BRIC nations, UK, Edward Elgar Publishing. Asmussen, C 2011, Dynamics of globalisation: Location-specific advantages or liabilities of foreignness, USA, Emerald Group Publishing. Coff, R & Raffiee, J 2015, ‘Toward a theory of perceived firm-specific human capital’, Academy of Management Perspectives, vol.29, no,3, pp.326-241. 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