Global Strategy - Essay Example

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1. Identify the internationalisation path of Haier and critically analyse the 'internationalisation' triggers and methods used by them in their development. What are the main benefits (negative aspects) of internationalisation to Haier' (40 marks)
MNE are defined as enterprises that operate in more than two countries…
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Global Strategy
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Download file to see previous pages These are ownership, location and internalization. Ownership is analogous to Porter's competitive advantages and is concerned with ownership of "such things as proprietary technology, superior marketing skills, economies of scale in production, superior management skills, and other firm-specific capabilities". Location is ability of a company to use location advantages in reducing manufacturing costs. Finally internalisation deals with whether activities are performed in the company or outside the company.
This case study done by Liu, H. and Li, K. (2002) discusses Haier, a leading Chinese company specialising in home electronics. This company in its short time has grown from a small enterprise employing 600 people to its present status as a leading multinational enterprise (MNE) which is in the Fortune 500. Haier's path to internationalisation has been unique and highly effective.
According to Liu, H. and Li, K. (2002) the analysis of its internationalisation strategy can be viewed in terms of the environment - strategy - performance framework. The environment being classified into two classes of positive factors collectively referred to as the impetus and the negative factors collectively referred to as constraints.
The end of the cold war which came as a result of collapse of communism in Europe created an international environment with reduced polarisation. At the same time China was liberalising and opening its market in the 1990s. China has had the longest sustained economic growth since the 1980s. The annual average growth rate has been more than 8% for more than 20 years.

Haier's history of growth started in 1984 with the appointment of current CEO Zhang Rulmin. At that time China's economy was drastically changing. Competition among the domestic producers of home appliances was hotting up. Liberalisation of the economy brought foreign players to compete in an already saturating market. The admittance of China into the World trade Organisation (WTO) in 2001 opened the floodgates. Many companies from developed countries were rushing to enter the Chinese market. Not willing to compete using a price war Haier was forced to look outside China for further growth in its business.

The external constraints on Haier in its internationalisation strategy were lack of financial resources. The company was under-equipped and under-financed. For the company to expand it had to develop innovative strategies for financing its overseas expansion. The Government was supportive of Haier and allowed them to form a bank and use it as a vehicle of financing its own expansion abroad.

The Japanese firms which internationalised followed two generic paths as shown in the diagram below.


Figure 1 Internationalization paths for Japanese Companies, Liu, H. and Li, K. (2002)

The Type I path was popular as it allowed the company to use the ventures in developing countries to acquire skills for international operation. These skills are used to enter developed countries. This strategy also favors a low cost strategy where the lower costs of manufacturing in developing countries are used to service the market in developed countries. The Type II strategy which starts with entrance into developed markets and then expansion into ...Download file to see next pagesRead More
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