MNC from an emerging market Essay Example
MNC from emerging Market — Zhuhai Gree Electric
Zhuhai Gree Electric (Gree) is a Chinese electric appliances manufacturer. The firm was founded in 1991 specialising in air conditioning, research and development, sales and services. The firm grew to become one of the Chinese most successful multinational companies (MNC). The MNC has business in over 100 countries globally and has more than 250 million users. The firm has 80000 employees and has been able to break the US japan monopoly in the air conditioning business (Gree, 2016). Research shows that firm level and country level factors have an influence on the business success or failure. A lot of research has focused on the firm and country level factors on internationalisation. The success of Zhuhai Gree electric can be attributed to both firm and country level factors. Both have interplayed to ensure business success (Marinova, Child and Marinov, 2010). This report will analyse the role played by both country and firm level factors in the success of Zhuhai Gree electric. The report will also outline the main lessons that business managers can learn from the interplay of firm and country level factors in achieving success.
Firm level factors
According to Depperu and Cerrato (2005) firm level factors are defined as the controllable factors which gives firm advantages in engaging in their activities with an aim of attaining a specific goal. These factors have been classified as micro and macro factors. The macro level factors are used to refer to the industry characteristics which include the competition and market characteristics. The micro level factors include the internal firm factors which include the strategy, structure, firm demographics and the product characteristics (Marinova, Child and Marinov, 2010). In this case, Gree has adequate firm resources which have enabled them to succeed in the international business. This includes both tangible and intangible assets which are semi permanently tied to the organisation. Resources are capable of offering the firm sustainable performance and a competitive advantage. According to Depperu and Cerrato (2005), this is especially if the resources are rare, valuable and hard to imitate. In this case, it would be important to focus on Gree institutional capital, organisational demographics and management. The institutional capital is an intrinsic resource to the firm. This is very important in country such as China where the economy is developing. This is due to fact that the country has not fully developed the market mechanisms and resource allocation (Fogel, 2010).
The use of cost leadership, flexibility and speed in their production process made Gree to have a competitive advantage (Chan, Finnegan and Sternquist, 2011). The firm also encouraged continuous learning and development based on Confucianism. Gree has employed over 2000 research engineers. This is a group of research engineers who have been involved in the developing and enhancing the firm products. Research and Development has enabled the firm to be among the global leaders in energy saving technology through use of knowhow and customer centred innovation. The firm also engaged in technology development partnership early with companies such as Daikin from Japan. It is important to note that during the early years, Gree lacked technological knowhow. To compensate for this, Gree had to license technology from the developed countries. Gree used internal learning and when it was able to develop the core technology which outperformed the leading global producers did they form strategic alliances. The company formed partnerships with an aim of attaining production facilities overseas (Marinova, Child and Marinov, 2010).
Based on Gree (2016), the firm developed their brand through internal technology development. This was based on technology transfer, independent learning and innovation (Marinova, Child and Marinov, 2010). Human resource plays a major part in firm development. It is one of the most vital firm resources (Depperu and Cerrato, 2005). The management of human resources determines the success or failure. High level talent is a major resource for Gree that has helped in internationalisation. Talent is viewed as a resource and plays a decisive role in success or failure of business. Gree talent management model is based on favourable treatment, attractive working environment and use of harmonious labour relations. The industry ensures that their salaries are well above the industry standards and includes bonus. The firm also offers a wide range of benefits such as medical allowance. The use of preferential treatment to the workers helps in attracting talent. The firm also attaches a lot of importance in talent training and incentives. The employees’ wellbeing is always catered for. Through the talent management Gree electric has been able to have adequate human resource in the international market (Rui, 2014).
The management attitudes determine the firm readiness to compete in the global arena. The management decisions, behaviours and actions determine the firm influence and performance in international arena (Chan, Finnegan and Sternquist, 2011). Gree electric has been able portray management capabilities that has enabled the firm prosper in global arena (Telegraph Finance, 2009). The competitive advantage of the firm has been attained through the ability of Gree to produce, design and market products which are superior to those of the competitors. Through use of resource based view, Gree has resources which match the specific conditions which includes rareness, hard to imitate and meets the heterogeneity (Depperu and Cerrato, 2005).
Country level factors and the Porter’s diamond
The country level factors have played a major role in Gree success in international business (Chan, Finnegan and Sternquist, 2011). The factors have affected the level of Gree international expansion. Based on the porter diamond, the national competitive advantage of a nation is determined by factor conditions, demand conditions, support industries company strategy and rivalry (Porter, 2011).
The factor conditions in the case of Gree electric are land, labour and capital. Gree home country China has abundant land and labour (Fogel, 2010). Gree was able to adequately invest in land and skilled labour. The country has advanced labour through innovation and reinvestment (Deng, 2012). The demand factors in China have also worked to Gree advantage. The country has a large market for Gree products and the buyers are not sophiscated. The home demand helps to innovate and upgrade competitive position globally (Jansson, 2007). Home demand anticipated and led to international demand for Gree. The firm strategy structure and rivalry also helped Gree a lot in their expansion. Gree strategy depended a lot on the national government and determined the way in which it competed.
The domestic rivalry in China forced Gree to come up with new ways of competing (Fogel, 2010). The firm was able to shape their international competition. The related and support industries led to specialisation and need to move away from local competition (Grant, 1991). China tried to support the local industries by protecting them from external competition. The government intervention to save local firms from foreign related industries has saved the firm from stiff competition (Child and Rodrigues, 2005). This has led to the firm being able to compete locally and globally.
By analysing the Porter’s diamond (Porter, 2011), it is possible to see that the Chinese government has played a major role in the expansion of the country business overseas (Deng, 2012). This can be traced back to the going out policy which was given priority in 2000. The support from the government played a role in the expansion of Gree. This is through enabling the firms to compete on the global arena against the well-developed multinationals. In addition, China has been a major recipient of foreign investment (Yeung and Liu, 2008). This is through the country open door policy where the country was able to absorb foreign capital and gain advanced technology from the foreign firms. This might have helped Gree in gaining more technology which aided in expansion. Due to stable economic development and the ability to gain knowledge from foreign firms, Gree was able to increase their overseas investments (Child and Rodrigues, 2005). This made it possible to proactively participate in the international market.
Country market conditions affect business. China move towards market liberalisation impacted Gree positively (Jansson, 2007). Through market liberalisation, it was easier for Gree electric to participate in international trade. Though the “going out policy”, China promoted overseas investments (Deng, 2012). This was aimed at enabling China to adjust to the wave of economic globalisation. Another country activity with an impact on Gree is China accession to World Trade Organisation (Buckley et al., 2007). The accession of China to WTO had both opportunities and threats. The country was able to integrate into the international community and make a better use of their resources. Also, more firms were able to invest in China (Child and Rodrigues, 2005). The main negative impact was an increase in competition in home market. Gree was forced to compete with new firms in the home market. The firm faced an increase in competition which enhanced their efforts to invest globally. The Chinese government made it easy for the business seeking global expansion to gain approval. This was done through use of decentralisation to the subnational governments (Marinova, Child and Marinov, 2010).
Export Bank of China (EBC) had an impact on Gree operations. The bank announced a major move to encourage the overseas investments in given areas. This included the support for the local business that wanted to export the domestic technology abroad (Deng, 2012). This was a major benefit for Gree since they already had the domestic technology in place. The firm was able to establish overseas research and development facilities. The country also further liberalised the foreign exchange approval. The role played by the Chinese government in expansion of the multinationals such as Gree cannot be underestimated (Marinova, Child and Marinov, 2010).
Gree gained encouragement from their home country to become multinational and competitive. China is well known for supporting their domestic industry where in some cases monetary support is used. The Chinese non favourable institution before market liberalisation also pushed many firms to expand globally (Buckley et al., 2007). These firms wanted to operate in free markets where their sales were determined by the market forces of a free economy. It is important to note that China is yet to fully liberalise their market. As the Chinese exports became threatened by the protectionist measures, Chinese firms were forced to invest offshore (Child and Rodrigues, 2005). This is especially in the third world where the cost of production was low. The Chinese government encouraged investment in countries where trade surplus was large. Through operating in a third world country, it becomes possible to have fewer restrictions (Marinova, Child and Marinov, 2010). This may have triggered Gree to invest in some of their current locations.
Business efficiency in China is another factor that has impacted Gree in their internationalisation success. The firm has been focusing on investing in countries which has low production costs than home country (Deng, 2009). The firm also looks at the trade barriers that exist in their new location. Despite the fact that China has been a low cost location for business, the costs have been rising. This is especially the labour and land costs. This has made some of the Chinese firms to move to the developing countries in Asia and Africa
(Child and Rodrigues, 2005). This has given Gree an increase in efficiency.
Country resources impact the business. Internationalisation was positively influenced by the need to acquire new resources (Deng, 2009). This includes both tangible and intangible resources. These are resources which may not be available in the home country or they can be time or cost consuming to acquire them. The rapid growth of Chinese economy has led to use of a lot of natural resources. China has a shortfall in some of vital resources that Gree requires. Some of the available resources have a high demand (Child and Rodrigues, 2005). This has made Gree to look for international expansion in countries with abundant resources. The resultant is expansion to some of the developed countries.
Gree has been able to create advantages through being able to access the unavailable and compatible resources. This is especially through acquisition of knowledge that is used as a major component in accelerating innovation. The Chinese country specific advantages such as large market and low cost of production has acted as a major source of competitive advantage (Deng, 2009). Despite the inflow of foreign direct investments, the disadvantages have been reduced through outward investment as seen in the case of Gree electric. The firm has been able to enjoy the strategic resources that are available overseas though the help of management and state (Child and Rodrigues, 2005). Both home and host countries factors has contributed to Gree success. Both the firm and country level factors have played a major role in the success of Gree electric. This is especially in their internationalisation process. At the moment, the interplay between both country and firm factors continues to help the firm expand to other countries. The analysis shows that country and firm factors can co-evolve in a way that allows a firm to succeed in the international market environment.
Lessons international business managers can learn about the interplay between firm and country-level factors in achieving success
International managers are supposed to look at the firm level factors as well as country level factors as they carry out their business. The firm level factors will help the international managers in determining their firm capabilities. The management must be ready to strengthen their firm internal capabilities as seen in the case of Gree. There is need for human resource management that will enable the firm to have a large pool of talented human capital. The international managers must push their firms to invest more in resources that will give a competitive advantage. These are resources that are rare and hard to imitate (Marinova, Child and Marinov, 2010).
The international business managers can learn a lot from the interplay between the firm and country specific factors in attaining success. The managers have to assess the country competitiveness using the porter diamond model (Markus, 2008). Porter diamond will enable them to look at the country level factors in determining the competitiveness. This is a theory that explains the international competitiveness of countries (Porter, 2011). The theory allows the international managers to easily connect with firms, nations and industries. The international managers have to know that the theory of absolute and comparative advantage works in determining where to invest. The country should only produce what they can do best with the least price. The business should only venture into the countries where their capabilities is required as seen in the case of Gree. International business managers in countries which support FDI should take the opportunity and move their production overseas. This will give them a platform to compete with other global players. The managers should ensure that the country they are venturing in is successful in their area of trade (Marinova, Child and Marinov, 2010). The international managers must look at the demand conditions, related industries, company strategy, structure and rivalry. This is according to porter diamond. There is also need to look at the government policy and the exogenous shocks.
The expansion of Gree to become one of the largest MNC in the electric appliances is as a result of interplay of firm and country specific factors. This has been well analysed through use of porter diamond. The firm level structures worked together with the country specific factors to enable the firm succeed in their internationalisation. The management was able to understand the firm environment and seize opportunities at the right time. The country supported the firms which wanted to become international businesses. This was through policies and making a good environment for internationalisation. The firm also invested heavily in resources which were rare and hard to imitate such as technology and innovations. Gree is also very successful in human resource management. The case of Gree use of firm and country level factors for their success gives a lot of lessons to international business managers on the interplay between the firm and country level factors.
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