Hi, need to submit a 2500 words paper on the topic Global Strategy: The Internationalisation Path of Haier Company. The early model of an MNE was by Vernon (1966) who argued from a product life cycle perspective. In this theory, a company develops a product in its home country and once the product is mature it starts manufacturing in low-cost offshore locations. The other major model by Dunning’s (1977) model of MNE has four dimensions of an MNE. 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 the ability of a company to use location advantages in reducing manufacturing costs. Finally, internalization 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 specializing 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 internationalization has been unique and highly effective. According to Liu, H., and Li, K. (2002) the analysis of its internationalization strategy can be viewed in terms of the environment – strategy – performance framework. The environment is 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 the collapse of communism in Europe created an international environment with reduced polarisation. At the same time, China was liberalizing 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. The liberalization of the economy brought foreign players to compete in an already saturated 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 internationalization 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 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. . .