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issue: April 2006 APPLIANCE Magazine

China Report
Overseas Strategies of Chinese Companies


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by Viloet Han, China Correspondent, APPLIANCE magazine

Chinese companies are using multi-brand sales approaches and other strategies for overseas expansion.

In 2005, TCL-Thomson Electronics Corporation (TTE) began formally operating under the reorganized color TV business unit of TCL Multimedia Technology Holdings Limited of China and France’s Thomson S.A.

TTE reports that in the third quarter of 2005 overseas exports of color TVs accounted for 50 percent of its sales volume and overseas sales performance was strong. TTE products are sold under regionally well-known brand names, such as Thomson in Europe and RCA in North America. In China and other new Asian markets, products are sold mainly under the TCL brand.

This kind of multi-brand sales approach can be successful for overseas expansion by Chinese companies. TCL’s overseas strategy is called the “Purchasing Strategy” by Dr. Xu Haoxun, a global board of directors’ partner of business consultanting firm McKinsey & Company. Using the Purchasing Strategy, a Chinese company buys an influential overseas enterprise as a way of opening overseas business. Xu Haoxun points to three other strategies often employed by Chinese companies in the quest for overseas expansion.

One way a Chinese manufacturer might expand overseas is by providing private-label OEM manufacturing for global brands. China’s Galanz, for example, provides OEM microwave products for many brands worldwide.

A second technique for overseas success is by filling a special niche. The strategy is especially applicable to parts suppliers, and several chip makers have found success supplying specialized products.

A third strategy used by a few Chinese manufacturers, notably Haier, is to expand globally by establishing manufacturing capabilities outside of China. Xu Haoxun points out that such an approach requires substantial capital investment, so it’s not an option for many other Chinese companies. Today, Haier Group has opened 14 factories around the world, and the appliance company puts much of its focus on training in-country talent.

“For example, in the U.S. Haier plant, there are no Chinese employees,” said Zhou Yunjie, vice president of Haier Group.

According to Xu Haoxun, Chinese appliances costs are an advantage in global markets, while the brands can prove to be a disadvantage.

Xu Haoxun explains that Japan and South Korea went through similar challenges in terms of their globalization “going out” strategies. Japanese and South Korean appliance and electronics producers often started out in overseas markets by private label manufacturing for other companies. The difference is that Japan and Korea were “going out” in the 1960s, when global competition was less of a factor. They could command better prices than China can today, so they could better support efforts to grow and establish their brands worldwide.

Korea’s Samsung supplied private-label appliances and electronics before it established and grew its own brand. Samsung follows four steps to break into overseas markets. First, it enters a market with low-cost products or by forging a relationship with a large, established OEM. Second, it invests in market and customer analysis and in establishing a large-scale sales organization. Third, it develops sophisticated products for targeted customers, often accomplished through technology-sharing joint ventures. The final step for Samsung is to establish its own brand.

TCL executives have said that, after more than a year’s internationalized integration and operation, it learned some valuable lessons. Sharing knowledge and communication between the two management teams is very important. Realizing cultural integration is vital to success in global business.

 

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