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Baiei

Taking a Chinese
Company ulobal




1 Why was Paler so successful ln Chlna? ldenLlfy and dlscuss lLs
speclflc compeLencles skllls and resources and how lL was able Lo
harness Lhese dlmenslons ln drlvlng Lo success?

We can observe Lhe rlse of Paler ln Chlna over Lhe years from lLs
humble orlglns ln Chlnese porL clLy of Culngdao ln 1984 Lo 2004 end
where Paler group was ranked as Chlna's number one company
wlLh annual sales Lopplng 8M8 100 bllllon

19841990
n|gh||ghts
Zhang reallsed Lhe laLenL demand for refrlgeraLors and Look over
a falllng refrlgeraLor facLory
1echnology llcenslng agreemenL wlLh Cerman manufacLurer Lo
provlde hlgher quallLy producLs and rellable servlce
!olnL venLures wlLh companles Lo galn experLlse from Lhose ln
Lhe fleld
8eslsLance Lo mass producLlon and emphasls on quallLy and
brand bulldlng
no cuL ln prlces ln Lhe face of compeLlLlon
remlum even durlng a prlce war
trategy
8rand bulldlng
19911998
n|gh||ghts
8y 1991 lL became Chlna's leadlng refrlgeraLor manufacLurer
ulverslfled lnLo alrcondlLloners and freezers by Laklng over Lwo
weak companles
SeL up lndusLrlal park and had Lo Lurn Lo sLock markeL Lo flnance
lL
AcqulslLlons leadlng Lo producL llne expanslon Lo washlng
machlnes refrlgeraLors alr condlLloners Lelevlslons and
LelecommunlcaLlon equlpmenL
uslng managerlal effecLlveness Lo Lake over companles wlLh
poor managemenL buL good producLs and markeLs
SLarLed exporLlng on CLM basls Lhrough !v's ln Asla
trategy
CrowLh and ulverslflcaLlon lnLo new producL llnes Lhrough
acqulslLlons

1998 2004
n|gh||ghts

MarkeL share exceeded 30 for refrlgeraLors washlng machlnes
and alr condlLloners
Slowlng consumer demand ln Chlna
8esLrucLurlng Lhe organlzaLlon Lo be more efflclenL and Lo
poslLlon lLself Lo compeLe more effecLlvely
Servlce deparLmenLs were replaced by four new group wlde
developmenL dlvlslons
ManufacLurlng faclllLles were resLrucLured lnLo producL dlvlslons
8uslnesses Lo funcLlon as lndependenL proflL cenLres
1oLal quallLy managemenL 1oLal lannlng ManagemenL and
1oLal LqulpmenL managemenL
Lservlce company Lo serve buslnesses and cllenLs
trategy
O 8eorganlzaLlon of Lhe company Lo lmprove efflclency Lo be able
Lo compeLe wlLh Lhe overseas manufacLurers
Pence Lhe sLraLegy followed by Paler over Lhe years can be
summarlsed as follows Paler almed Lo grow ln Lhe Chlnese markeL
wlLhouL compromlslng on lLs sLraLegy 1he sLraLegy lay clear
emphasls on Lhe followlng
1) AcqulslLlons Lo wlden Lhe producL llne
1hese acqulslLlons were malnly done sLraLeglcally Lo Lake over
companles wlLh producLs LhaL had some poLenLlal ln Lhe markeL even
lf Lhey had poor managemenL Pence Lhe acqulslLlon was a valueadd
for Paler lnsLead of a llablllLy
2) 8esLrucLurlng Lhe organlzaLlon Lo enLer Lhe overseas markeL more
effecLlvely
AfLer acqulslLlons of so many companles lL was hlghly lmporLanL for
Lhe company Lo organlze lLself so LhaL lL ls ready Lo meeL Lhe
mulLlnaLlonals boLh ln Lhe domesLlc markeL as well as overseas
3) Speclal focus on Lhe quallLy and creaLe a brand based on Lhls
aspecL
1hls can be clearly seen when even ln Lhe face of prlce wars lL
charged premlum because lL belleved LhaL lLs producLs could boasL of
a hlgher quallLy and hence charge a premlum
etenc|es |n the h|nese arket
1) AfLer sales servlces
O Pelped creaLe a new lmage ln Lhe cusLomer's mlnd
O romoLed word of mouLh publlclLy for Lhe brand
O ree sales servlces also boosLed sales of producLs
O WarranL helped esLabllsh credlblllLy of quallLy clalms
O ed Lo happy and saLlsfled cusLomers
2) undersLandlng of Lhe markeL
O undersLood Lhe Chlnese cusLomer beLLer Lhan oLher MnCs
O Could adapL producLs Lo Chlnese LasLes
O Also helped ln markeLlng
3) LsLabllshed channels
O undersLood Lhe dlverslLy and buylng preferences of Chlnese
markeL
O Already esLabllshed relaLlonshlps wlLh reLallers ln rural and
urban areas
O Wlder reach
4) CommlLmenL Lo quallLy
O ueveloped a brand LhaL could compeLe wlLh oLher MnCs
O Pelped dlfferenLlaLe from oLher domesLlc players who lndulged
ln prlce wars and broughL ouL low quallLy producLs
3) CenLrallzed loglsLlcs for dlsLrlbuLlon
O Save cosLs on dlsLrlbuLlon
O ulfferenLlaLlng facLor
O Scale and volume of operaLlons
O Able Lo offer !l1 purchaslng raw maLerlal dellvery and producL
dlsLrlbuLlon





CommlLmenL Lo
quallLy
ulverslflcaLlon lnLo
varlous producL llnes
ocal knowledge and
producL deslgn
accordlng Lo Chlnese
cusLomers
LsLabllshed sales and
dlsLrlbuLlon channels
ln rural as well as
urban areas
undersLandlng of Lhe
markeL
- Modlfylng producL deslgns
accordlng Lo cusLomers
rovldlng afLer sales
servlces
CenLrallzed loglsLlcs
for dlsLrlbuLlon





2 Was Paler's declslon Lo globallze lnLo developed markeLs early on a
good sLraLegy? LnllsL Lhe rlsks and beneflLs of Lhls model ln offerlng
a comprehenslve assessmenL of Lhe rouLe LhaL Paler Look Would
Lhls be a good opLlon for oLher emerglng markeLs as well? Would
you speclfy any caveaLs ln applylng Lo oLher flrms?

|tuat|n


1) Lntry re|gn brands
LnLry of forelgn
brands
SLrengLhenlng
of domesLlc
players
SaLuraLlon
level ln Chlnese
markeL
uecllnlng
markeL
orelgn brands could enLer Lhe markeL and Lake advanLage of
local knowledge Lhrough [olnL venLures wlLh local players Pence
Lhe compeLency of Paler would noL susLaln for very long
) trengthen|ng dest|c |ayers
1he domesLlc players had [usL one or Lwo producL llnes Slnce Lhey
were focussed only on llmlLed producL llnes Lhey were provlng Lo
be a Lough compeLlLlon ln Lerms of prlce and markeL
) aturat|n |eve| |n the arket
1he demand for consumer goods was slowly decreaslng as Lhe
markeL was geLLlng saLuraLed
|| th|s |eads t the s|ut|n Lntry |nt the verseas arket
1he enLry lnLo Lhe lnLernaLlonal markeL would help Paler ln lLs
ob[ecLlves le
O LsLabllsh a global brand
O CompeLe ln Lhe global producL wlLh lLs efflclenL processes and
hlgh quallLy producLs
eL us analyse Lhe rlsks and beneflLs assoclaLed wlLh Paler movlng
flrsL lnLo Lhe developed markeLs

8
l
s
k
s
lerce compeLlLlon from eaLbllshed
brands llke CL hlllps eLc
ack of knowledge of Lhe markeL
-CompleLely dlfferenL markeL
LsLabllshlng reLaller neLwork wlll
be dlfflculL
Plgher labour cosLs
lnfrasLrucLure for manufacLurlng
faclllLy
ulfference ln dlsLrlbuLlon channels
arge lnvesLmenL
-LsLabllshlng a brand would requlre
lnvesLmenL
8
e
n
e
f
l
L
s
Scope ln nlche producLs Lo glve
hlgh marglns and avold head on
compeLlLlon
SLafflng local people who
undersLand Lhe markeL Lo Lhlnk for
Lhe cusLomer
arge markeL poLenLlal
CreaLlng a world wlde brand
lnvolvlng a Lhlrd parLy Lo help wlLh
Lhe dlsLrlbuLlon
AdvanLage of havlng already
creaLed a brand for people who
vlslL such markeLs
nlche focus may help Lo aLLracL
reLallers llke WalmarL eLc
Wlll help Lo learn abouL varlous
Lechnologlcal advancemenLs by
belng ln such markeLs

lL ls noL a foolproof sLraLegy for emerglng flrms 1he reasons why Lhls
sLraLegy was rlghL for Paler are sLaLed below
a) Paler had already explolLed Lhe markeL poLenLlal ln Chlna before
movlng Lo oLher markeLs
b) lL had lnvesLed ln sLaLe of Lhe arL pracLlces for manufacLure wlLh
large emphasls on quallLy so LhaL Lhe producLs are able Lo compeLe
ln lnLernaLlonal markeLs
c) lL had declded Lhe sLraLegy of geLLlng lnLo Lhe markeL as belng nlche
focussed slnce lL was already a compeLency wlLh Lhem
d) lL reallsed Lhe lmporLance of local knowledge ln cusLomer
preferences as well as markeLlng acLlvlLles hence planned Lo sLaff
local people for Lhls purpose
1he caveaLs LhaL apply for oLher flrms are llsLed as follows
1) knowledge of Lhe markeL ls very lmporLanL Lo sulLably modlfy Lhe
producL for Lhe markeL
2) ueveloped markeLs requlre hlgh quallLy producLs Lo survlve ln Lhe
compeLlLlve scenarlo
3) 8rand value holds lmporLanL when lL comes Lo reLallers and
dlsLrlbuLlon neLworks

an na|er bu||d n |ts success |n n|che rducts t bece a
d|nant g|ba| brand |n h|gh end wh|te gds? What |ght such
a strategy |k ||ke and hw |ght th|s be r||ed ut? What |s the
tent|a| r ||ke|y success such a strategy?

Paler plans Lo enLer Lhe developed markeLs by focusslng on Lhe nlche
producLs 1hls ls baslcally done Lo make a place for lLself ln a markeL
already flooded wlLh so many compeLlLors eL us look aL Lhe
advanLages and dlsadvanLages of dolng Lhls
Advantages Disadvantages
t has been the main souice of
competitive auvantage in the
uomestic maiket - Tried and
tested
MlghL consLraln Paler Lo only
nlche producLs
The customizeu niche piouucts
have hau the best sales among
the vaiious piouuct lines
ack of reLaller supporL may
render Lhls sLraLegy frulLless
Woulu seive as a uiffeientiating
factoi in face of othei
competition
MlghL be prone Lo lmlLaLlon
Woulu help to win ovei
ietaileis
8eslsLance by oLher players
Ninimal competition in the
categoiy
Chlnese goods are consldered
low quallLy
Ease of enteiing ueveloping
maikets


SuggesLed SLraLegy
a) 1o enLer Lhe developed markeL by dlfferenLlaLlng lLself from Lhe resL
of Lhe markeL by focus on nlche producLs cussed d|erent|at|n
a 1o ldenLlfy Lhe volds ln Lhe markeLs
b 1o develop producLs sulLed Lo flll Lhe vold
b) MarkeL Lhe producL and creaLe a brand proposlLlon ln Lhe
developed markeL brand creat|n
c) uevelop a neLwork for dlsLrlbuLlon and reLaller neLwork
d) Cnce a brand poslLlon ls creaLed ln Lhe markeL dlverslfy lnLo oLher
producL porLfollo

















ldenLlfy
volds ln Lhe
markeL
uevelop
producL
sulLed Lo flll
Lhe vold
Lngage ln
markeLlng
acLlvlLles Lo
creaLe
brand value
uevelop
reLaller
neLwork
ulverslfy
lnLo oLher
producL
porLfollos


4 ls Paler's Lhree Lhlrds" sLraLegy a vlable or wlse approach? Cffer a
hollsLlc assessmenL
Palers Lhree Lhlrds" sLraLegy sald LhaL Paler's revenue should come ln
equal parLs from Lhree areas
a) Coods sold and produced ln Chlna
b) roduced ln Chlna and sold overseas
c) roduced and sold overseas
1he maln reasons why Lhls sLraLegy would work are as follows
a) Market tent|a| |n the verseas arket
rom exh|b|t 1b we geL Lhe share of revenue from each of Lhe above
caLegorles

U 5 ||||n 1998 1999 1

Dest|c sa|es 1971 3112 4633 6861 7868 8648 10100

Lxrts 62 138 280 424 444 332 1000

Cverseas ade
and s|d 1 1 1 1 400 300 1000
46 32 83
1ta| revenue 2033 3230 4913 7284 8712 9680 12100


As can be seen LhaL overseas markeL has hardly conLrlbuLed Lo any
revenue Llll 2002 even Lhough lL made Lhe flrsL foray lnLo overseas
markeL ln 1997 Slnce Lhen Lhe revenue as of LoLal revenue has gone
up by 13 from 2002 Lo 2003 and by 60 ln Lhe nexL year 1hls shows
Lhe poLenLlal of Lhe overseas markeL
b) Slowlng demand ln Lhe Chlnese economy
rom Lhe above Lable we can also see LhaL revenue from Lhe domesLlc
markeL as a of LoLal revenue has been golng down CrowLh of
domesLlc sales has also been golng down
1he Lhree Lhlrds sLraLegy would acLually beneflL Paler ln Lerms of lLs
revenue Powever lL ls noL feaslble 1he reasons lL ls noL are because
O SeLLlng up cosLs ln developed naLlons ls golng Lo be huge
O abor cosLs are lower ln Chlna Lhan uS
O LxporLs make more sense raLher Lhan enLerlng lnLo forelgn
markeLs Lo lncrease markeL share