Haier’s Internationalization Strategy
Many companies and organizations in China have been demonstrating their ability to cope with globalization challenges through internationalization of their operations. Haier Group is China-based company founded in 1984. For more than 20 years, the company has shown high-speed and sustainable growth. The company is a successful example showing how to deal with worldwide, collaborative, and organizational challenges, as well as globalization realities. Haier competes with global giants focusing on constant internationalization efforts.
Nowadays, the company is among the most successful in China and continues to keep the fastest growth among large local companies that deal with household appliances. Since China has entered the WTO, many companies are facing the problem of internationalization. Internationalization strategy presupposes the company’s development strategy for products and services overseas. Therefore, the study of internationalization strategies has become a widely discussed issue. Haier Group has already made many achievements in internationalization due to its experience and management.
The study aims at investigating the Haier Group’s internationalization strategy by carrying out the company analysis.
The research questions will be as follows:
1. What are the key factors of the Haier Group’s success?
2. What is the company’s experience of internationalization?
3. What entry strategies does the company use to enter international markets?
4. Success and effectiveness of the Haier Group’s internationalization strategy.
Literature Review and Theoretical Background
Internationalization presupposes crossing of international boarders associated with growth. This definition suggests that modern China is the most active economy that follows internationalization among developing countries. Many Chinese companies have adopted different entry models due to the need and desire to go global. Nowadays, China is the world third largest exporter in the world.
China has tough competitive conditions in most domestic markets. Therefore, companies look for opportunities to extend overseas and get higher profits. However, business development is the main purpose of extension. There is a continuous struggle to get capabilities and resources to strengthen the business, retain customers, and get competitive advantages. In addition, companies try to get access to innovative technology, secure long-term natural resource supplies, and meet industrial demands of domestic markets.
Warner, Ng, and Xu have investigated internationalization of Chinese companies and their evolution. The scientists have found that there are several stages of internationalization. A lot of Chinese companies have begun to internationalize as they seek to become global players in international markets. They implement numerous strategies and work hard to develop their capacity to improve overseas operations.
According to Nolan, ‘the competitive capability of China’s large firms after two decades of reform is still painfully weak in relation to the global giants’. The scientist has analyzed factors such as limited marketing capability, R&D weaknesses, administrative constraints, and lack of brand development. He has focused on large state-owned organizations and has expressed scepticism about the ability of such organization to compete on the international level. The scientist argues that the state can provide local companies with considerable support in the form of protected marketing channels, soft loans, and government procurement.
However, quite a contrary idea has been suggested by Boist who rejects assumptions of the international business theory and claims that Chinese companies would not be interested in moving abroad. It is explained by the fact that they would seek ways to avoid numerous competitive disadvantages presented by the global market. At the same time, the scientist has analyzed drawbacks of the Chinese conditions, claiming that regional protectionism limits market opportunities. Intellectual property is undeveloped and limited access to capital hinders investment. In addition, poor local infrastructure affects transport costs.
Some industries experience fierce competition from leading world brands. It causes a decrease of profit margins. Transaction costs rise due to the operation of the Chinese legal system and related complexities (Peerenboom 2001). Numerous constraints, issues, and pressures make foreign markets more attractive than the domestic one.
In order to become international and to be able to compete overseas, Chinese companies should get new capabilities through international investment and partnership. Strong position in the international market may offer the possibility of fast asset prospects and the increase of bargaining power against domestic stakeholders who reduce profitability (Boisot 2004). Development on the international level is likely to ensure strong competitive possibilities.
Studies show that many Chinese companies experience a cost advantage that is explained by low improvement of wages during the recent years. Cost effectiveness is also fostered by the increased competition in most domestic markets of China. According to Zhang (2001), a cost advantage is a rather essential competitive factor that helps low income markets to compete in other markets. However, brand advantages and differentiation are needed. A brand advantage means that customers are ready to pay for a product a higher price even if it has less qualities and functions than products of competitors. Brand recognition, customer loyalty, and reputation are significant for consumer markets. Differentiation is achieved through perception of products that stand out among the competitors’ ones. It enables to compete in international industrial markets, allowing customers to judge performance and quality of a product using professionalism and proper skills. Strengthening of brand image and differentiation are essential outward FDI drivers of local companies and organizations.
Many Chinese firms seek becoming international to get R&D capabilities and advanced technology as they provide development of a differentiation advantage. Some of them are concentrated on the development of global brands to secure a brand advantage. In addition, they have used partnerships and contracts with major companies overseas to get experience in international quality standards, manufacturing, and products. It is a good way of preparing to internationalization.
Thus, literature analysis has shown that Haier has developed its strategy using a customized approach that is effectively implemented while entering specific markets. The company seeks internationalization due to the desire to achieve a highly competitive position and development. Internationalization is treated as the opportunity to extend diversification of domestic products.
Methodology is the most essential aspect of any study. It is important to select a proper research approach and design that will help to provide effective and concise answers to research questions and identify a potential solution to existing problems. Qualitative research will be conducted to meet the research aims and objectives. It usually consists of investigation that collects evidence and answers the questions. Researches conducted by means of a qualitative interview offer a comprehensive picture of the issue and variable-based correlations.
Qualitative scientists follow the idea of gathering data and understanding human behaviour and provide empirical support for the research hypotheses. The main benefit of a qualitative research is that a person can clearly explain and describe processes that happen within Haier Group. This approach will be used to get in-depth and rich data concerning ways of internationalization and strategies used to reach overseas markets. Strauss and Corbin have found that qualitative research is useful for representation of study findings in a systematic manner.
In qualitative studies, interviews consist of clear questions that are usually distributed to small samples. These are the primary data, while the secondary data involve analysis of studies conducted by other scholars and researchers, including data from textbooks, the Internet, international journals, and other resources. As the researcher will not collect the secondary data by oneself, it will be needed to become familiar with the data set, response categories, etc. Qualitative interviews enable the interviewer to be competent during the interview and prepare questions in advance. Therefore, the topic of the research and research questions will be explored and pondered over before the interview.
The qualitative research will consist of the investigation that collects answers to the questions under investigation. The study will be conducted with the help of a systemic approach as it might help to analyze other studies relevant to the research. These studies will provide an opportunity to select data useful for the current research. A number of electronic databases will be analyzed to select relevant and reliable literature sources.
Participants of interviews will be managers of Haier Group. This ensures that the researcher will have an increased possibility to collect reliable and pertinent information as selected participants will be aware of the situation in the company and strategies used to promote internationalization.
A semi-structured interview will be developed to collect data. Qualitative interviewing is very flexible and focuses on significant issues. Semi-structured interviews will reflect all concerns and will provide an opportunity to have a two-way communication. Flexibility will enable the researcher to go off the questions and change their order. Therefore, interview participants will feel free to provide answers, increasing research validity and reliability.
It is essential to know that a good interview is always based on good communication skills of the researcher. Therefore, it is vital to ask and be attentive while listening to participants’ answers. Besides, is it important to identify when it is necessary to talk for a long time, be brief, or change the subject. The main characteristics, which distinguish a qualitative interview from a traditional conversation, are increased focus on the agenda, a great number of listening leads, detailed and full responses, and some others (Bates, Droste, Cuba & Swingle n.d.).
Findings of the research will be likely to demonstrate relevance of the professional practice. The research method strongly depends on the blend of project cases, interviews, surveys, supplementary data, observations, and questionnaires. Qualitative research makes it possible to accomplish all these goals simultaneously.
To increase validity, the researcher will study relevant literature before and during the interviews. In addition, notes will be made to minimize the loss of empirical data. Interview respondents will remain anonymous as it will contribute to honesty and accuracy of answers, as well as trustworthiness of empirical data.
Interview reliability is achieved when each respondent clearly understands questions without any possibility of uncertainty. Another significant interview reliability aspect is description of low-inference. This is achieved through tape-recording of interviews. In this study, the researcher will take notes giving a bit more biased picture compared to transcribing or recording interviews. It is believed that validity represents truth. However, truth may include two kinds of error. The first one is that something may seem to be true, but in reality is not true. The second one is rejection of something that is true.
Thus, reports received from a qualitative research are usually presented in a narrative form. It means that they are easy to understand and analyze. A qualitative interview is a good choice to get better understanding through detailed information, to find out experiences and opinions, to get answers related to the research, to trace events, which evolve over time, and strategies implemented by Haier Group, as well as to state hypotheses for a future research. The validity of received data will not be doubted. The study will investigate strategies of internationalization implemented by Haier Group. Some data will be collected from textbooks, reports, international journals, and Internet resources. The fact that interview respondents will be people working for Haier Group and are aware of the situation will add to reliability and trustworthiness of the research.
The research will be designed to collect information about changes that have happened with Haier Group after it began to seek internationalization. The aim of an interview will be to get information directly, without contaminating it. Interview is usually constructed to be a pipeline for knowledge transportation. The interview will be held in at the head office of Haier Group. Time and date will be decided together with interview respondents. A semi-structured interview consists of 20 questions. As the interview requires time, the researcher will carry it out during different time periods (suitable for each participant). In addition, the researcher will instruct all participants before the interview, make them understand what is required of them, and inform them about the purpose of the study. Moreover, the researcher will emphasize the need and effectiveness of the research, as well as importance of received results.
Participants will be free to answer questions. The order of questions will depend on participants’ answers. Questions of the interview will be designed to reveal information concerning internationalization strategies used by Haier Group. The first question is designed to see whether participants understand internationalization in the proper way. If any of the interviewed participants does not have a clear idea of what internationalization means, the researcher will explain it to get truthful results. The interview will presuppose a hint or even an explanation as the lack of understanding of the key interview concept might lead to complete misunderstanding of interview questions.
It will help the researcher to make sure that all interview respondents speak about the same strategies and processes that happen within Haier Group. All interview questions will be short and easy to understand. In addition, they will be based only on the area of investigation. In case an interview participant is not able to answer the question, the interviewer will just move to another one.
Suggested interview questions are as follows:
- How do you understand internationalization?
- What is Haier Group’s position in the domestic market?
- Has the position of the company changed after going international?
- Why do you think internationalization is essential?
- What are the main reasons why the company seeks internationalization?
- Do you think the company should work and develop in the same way?
- What are the countries the company has international activities with?
- Has the company’s profit increased after going international?
- How would you describe the speed of internationalization?
- What is the role of formulating strategies and methods for the internationalization process?
- Which factors have helped with your company’s internationalization process?
- Do you think Haier Group has any negative experience related to entrance of foreign markets?
- How long has the company developed proper strategies for its internationalization?
- Which entry mode best describes the internationalization process of Haier Group?
- How does the company gather information about the target market before entering it?
- Do you think that the company implements effective internationalization strategies?
- Would you improve anything in the company’s internationalization process?
- Would you use the same strategies and methods? Why?
- Do you think the company is successful on its way to internationalization?
- Do you have any suggestions?
Secondary data will be received from reliable sources, including Haier Group’s annual reports, information from its official website, scientific journals, and textbooks.
It is suggested to get information about successful strategies implemented by the company. However, the study may reveal some negative experiences of Haier Group relating to the failure to enter certain markets.
The internationalization process of Haier Group is expected to be successful and has a huge potential. Hard work and proper strategies helped Haier to become a multinational group with hundreds of billions in annual sales, which is explained by constant strategic innovations. Analysis of the company’s international strategy will help to discover the trend and changes that occur inside Haier. The way to internationalization is not smooth and causes problems that may include increased costs, as well as issues relating to quality and service. However, the company is able to deal with such issues. The future direction of the investigation concerns analysis of fundamental management ideas, strategy management, and competitive market environment.