Global expansion strategy of chinese consumer electronic firms

Global Marketing Strategy Global Marketing Strategy of of

Chinese Consumer Electronic FirmsChinese Consumer Electronic FirmsPatrick Schuler

Associate Professor Liu Xi

© Patrick Schuler, IMBA

Agenda

The reason and methodology

TCL, Lenovo, Haier Overview

TCL Multimedia in Europe

Lenovo in the USA

Haier in the USA

Take Away

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The Reason• Plan to work for a Chinese company expanding

internationally

• “Why can’t Chinese build global brands?”Business Week– World's 500 Most Influential Brands by WBL (China 6

vs. US 245)

• “Can Chinese brands make it abroad?”McKinsey– The answer is yes, but it won’t be easy

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The Methodology• Analyze the different internationalization route of the Top

3 Chinese Consumer Electronic firms– A Failure, a Pending and a Success story

• Online Resources– Business schools knowledge base and cases– Economic Business Analysis– Consulting White Papers– Blogs and Forums

• Interviews– Former TCL Executive– Lenovo Customer Service Representative in Beijing– Winner of the UNC Lenovo Marketing Competition

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Company Overview

* Source: Rongfu Global Ranking Group and Beijing Famous-Brand Evaluation Company

CEO Li Dongsheng William J. Amelio Zhang RuiminMain product CRT TV Computer Refrigerator/WasherHeadquarter Huizhou, China Raleigh, NC, USA Qingdao, ChinaEmployees 45,000 19,000 50,000Type Public Public Government-OwnedGovt share 12.90% 57% 100%

Total Sales MUSD 5,083 15,703 12,274% of internationalrevenue of total revenue

15% 75% 8%

CAGR of internationalrevenue

10% 1500% 38%

Global market share 9% 8% 2%Global Market ranking 1 3 4

China Top 12 Brand* 3 2 1Brand Equity BRMB* 36.2 60.7 74.9Branding TCL,Thomson,… Lenovo, IBM Thinkpad HaierMain Target Markets Asia and Europe Asia and US US and 160 countriesMain Competitors Philips, Sony, Samsung Dell, HP Whirlpool,GE,Electrolux

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The Goal: Emotional brand

Source: BBDO Brand Equity vol.2

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Chinese Firms ObstaclesThe main obstacles of Chinese firms going Global are:

• Lack of world-class mergers and acquisitions expertise “70/70 rule”

• Relative inexperience in managing a portfolio of businesses across different cultures

• Lacking deep understanding of customers, competitors, distribution structures, and the regulatory environment across diverse markets

• Identifying subtle differences between Western and Chinese operations

Source: BCG China 2006

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The 3 Different Routes• JV route in Europe (Thomson, RCA, …)

– In July 2004, TMT and Thomson Electronics form TTE (TCL 67%; Thomson 33%)

• Acquisition route (Lenovo and IBM ThinkBrand)– In May 2005, Lenovo acquires IBM’s PC for $1.75 B

• Organic international Expansion route (Haier)– In March 2002, Haier America opens HQ in NY for $14.5 M

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Multimedia in Europe

Slogan: “Digital Delights”“We keep our spirit of

innovation as we march into the global markets

at full speed”CEO, Li Dongsheng

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Performance

“Cut your wrist to save your life”The losses dragged TCL Corp. into the Red:

– 2004 -2006: TMT losses expanded by 5* • From HK$330 M. to HK$1.53 B.

– 2004-2006: TMT Share Price fell from 2 RMB to 0.5 RMB

On May, 26 2007 TTE Europe is bankrupt!

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Structural Reasons

• Wrong CRT TV focus in Europe– Quick CRT market shift (from 70% to 40%)

• Slow in Flat-screen investment– Expensive manufacturing facilities in B$

• High Prices Employees– French employee = 10*Chinese employee

• Strong French Labour party– No possibility of quickly laying off

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Cultural ReasonsFrance and China have both a highly contextual and small-bubble culture, but…

French Chinese

Educated and professional managers Entrepreneurship and pragmatismNo weekend meeting A regular occurrence Paid leave Bonuses Detailed plans Immediate action

Differences

ResultsFrench Managers quit at Chinese’s demand for a greater say

No French at the headquarters of TCL in China

SimilaritiesFocus on personal reputation

Information resides in the context Tendency not to share information

Emphasis on background

Source: Edwart T. Hall, Hofstede and Interviews

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Conclusion• Lack of necessary MNC knowledge &

management skills • Non-strategic acquisition of Thomson • Internal and external environment must be

analyzed • Understanding of market and customer needs is

crucial • Differences in culture and corporate practices

have to be considered

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Lenovo in the US

Slogan: “New World, New Thinking”

“Become a global brand that people around the

world love”CMO, Advany Deepak

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Act Local, Think Local, Be Global

• Re-branding: Legend to Le”novo” (New)• Relocate the headquarters to NC, US• Use the brand recognition of Think brand• Bring in Foreign talent:

– Hired former IBM Advany Deepak as CMO– Hired former DELL William Amelio as CEO

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Dual Branding

• Escaping the middle market trap – Upper-end (Corporate): Lenovo ThinkPad– Lower-end (VSB, SMB): Lenovo 3000

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Local Household Name

Intensive Brand building:• US Sport partnership with NBA, NFL and F1• Ronaldinho as Worldwide Brand Ambassador • TOP Olympic Program sponsor• Associate with VISA, also TOP • Most Eco-Friendly PC by Greenpeace• PC Donation to Charity

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Performance“Finally Back in the Black in fiscal 2007 Q4”• Net income $60M (-$116M)• Shipments grew 17% (Industry 11%)• Net profit $161M (+625%) and Revenue $14.6B (+10%)• World market share (Nr.3) : 7.5 % (Dell 15%, HP 18%)• Asia market share: 17.8% (Dell 15%, HP 8%)

But challenges• China accounts for 36% of sales• Operating margins in the US is 2.2% vs. 6.5% in China • Will lay off 1,400 employees (4% Workforce)• Will move 750 jobs to lower labor cost countries

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Conclusion• Start thinking of Lenovo as Lenovo

– Will Lenovo be able to break out of the shadow of IBM in order to build its own global brand?

• IBM customers rely on top quality and service– Will Lenovo be able to keep IBM’s clients happy?

• In a fierce industry, Lenovo wants to be a global brand fast – Can Lenovo exceed Gateway/eMachines in M&A, HP/Sony in

innovation and HP/Dell in marketing? – Will Lenovo become an elephant or have a bad case of

indigestion?

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Haier in the US

Slogan: “Inspired Living”

“1/3 domestic sales, 1/3 exports and 1/3 produced

and sold abroad”CEO, Zhang Ruimin

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Winning Formula• Understand customer needs and meet them

– Ex: Refrigerator with flaps on the sides to make a PC table • Local customize and differentiate the products

– US manufacturing plant so all design and production is done locally

– Ex: Refrigerators with locks for cubicle and dorm room security • Reach the market fast without compromising quality

– Quick Responsive via 18 design centers from idea to prototype

On Sale17 hours 10 month

PrototypeIdea

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“Below the Radar”• Select niches with a Premium

– Avoid head-on competition with major players– Best seller is a mini-refrigerator for dorms, offices and hotels

• Official Sponsor of the 2008 Olympic Games – Launch Olympic products– Ad for commonwealth of Olympic topic

• Partnership with NBA– Focus on High definition TV

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Performance

• 86th among the world’s 500 Most Influential Brands by WBL

• 1st among Chinese brands with the most potential by GGFR of Canada

• 1st among China’s Top 10 Global Brands by FT• 1st among China’s Top 10 Global Brands by

CSBTS for refrigerators and washing machines

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Conclusion• Haier is successful in the niche markets

– Is Haier ready to introduce a full line of products?

• Best Chinese brand but moderate brand investment

– Can Haier compete against the US brands?

• In the US, Haier is primarily known for its mini-fridge

– Can Haier become a US home appliance name?

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Take away• The CEO needs to have a clear vision

– An opportunity is not a strategy• Organic Expansion is slow but less risky

– Stay “below the radar” until you are ready • Anticipate, develop and satisfy the customer needs

– Act Local, Think Local, Be Global• Build a strong Brand image

– Be a local Household name• Recognize the success factors of your Brand

– Identify uniqueness – Determine the relevance to consumers needs– Establish a simple understandable Brand phrase– Measure your Brand

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Global expansion strategy of chinese consumer electronic firms

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