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CHAPTER 3 The Internal Organization: Resources, Capabilities, Core Competencies, Competitive Advantages Here we are in the big scheme of the...
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CHAPTER 3 CHAPTER 3 The Internal Organization: The Internal Organization: Resources, Capabilities, Core Resources, Capabilities, Core Competencies, Competitive Competencies, Competitive Advantages Advantages
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Here we are in the Here we are in the big scheme big scheme of the of the Strategic Strategic Management Management Process Process
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Haier: Taking a Chinese Company Global in 2011 Starting in 1984 with a defunct refrigerator factory in Qingdao, a port city in China’s Shandong province, founder and CEO Zhang Ruimin built Haier Group (Haier) a into China’s largest home appliance (white goods) maker before launching operations overseas in the 1990s. Haier developed a formal global expansion strategy beginning in 1997, when Zhang announced his “three thirds” goal of having Haier revenue come equally from goods produced and sold in China, goods produced in China and sold overseas, and goods produced and sold overseas. This announcement came amid three decades of booming economic growth in China that began with agricultural reforms in 1978. The reform program then extended to the creation of special economic zones for manufacturing and trade, the rise of small collective businesses, and the privatization of state-owned industry in the 1980s. The reforms of the 1990s included tax and currency restructuring and policies to facilitate foreign enterprise, free trade, and the growth of equity markets. 1 From 1980 to 2010, China’s real gross domestic product (GDP) grew at an average annual rate of nearly 10%, lifting hundreds of millions of people out of extreme poverty and creating an urban middle class. 2 By 2010, the Chinese economy was the world’s second largest, measured by GDP at purchasing power parity (PPP), and analysts expected it to exceed the size of the U.S. economy within decades. 3 While per capita disposable income was substantial in 2010, however, some geographic regions in China were still relatively poor on a per capita basis. (See Exhibits 1a and 1b for economic, demographic, and currency data on China.) Most urban households already owned white goods, but in rural China, penetration rates for appliances such as refrigerators still stood at 58.2 units per 100 households, offering room for market growth. China had been the world’s leading white-goods manufacturer since 2007 and, in 2010, was home to 49% of global capacity. 4 In 2011, Haier summarized group performance with three numbers: 1, 8, and 28. The company had been the No. 1 white-goods manufacturer in China since 2001 and had just been named the leading refrigerator manufacturer worldwide by Euromonitor. 5 (See Exhibit 2 for major consumer appliances market share in China.) A 75% increase in Haier’s 2010 profits was 8 times its 9% increase in revenues. (Exhibits 3a and 3b show Haier’s financial performance.) And 28 was the rank of Haier Electronics Group, a Haier subsidiary, on BusinessWeek’s 2010 list of the most innovative firms. 6 a “Haier,” derived from the Chinese word for “sea,” was pronounced “high–R” and Qingdao was pronounced “ching-dow.” In Chinese, given names follow the family name. The family name Zhang was pronounced something like “jong,” rhyming with the English word “long.” ______________________________________________________________________________ __________________________________
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Haieroperated 240 subsidiaries and had established 61 trading companies (19 abroad), 24 manufacturing plants (all abroad), 10 research and design centers (8 abroad), and 21 industrial parks (4 abroad). 7 (See Exhibit 4  for an illustration of Haier’s worldwide operations.) As Haier approached the end of its third decade of operations, Zhang was aiming at even bigger targets for 2011 and beyond: deeper market penetration, both in rural China and abroad, to be achieved by increasing market share and adding product categories. Zhang also hoped to enter new countries and to see Haier laundry machines and air conditioners reach the same leading global position that its refrigerators had reached. “The key,” Zhang said, “is whether Chinese enterprises can be both the dominant industry rule maker and the industry leader.” Zhang needed to maintain Haier’s industry leadership at home as well. This challenge required him to decide which lessons from Haier’s international operations to apply at home, and which lessons from its domestic operations to apply internationally. Emergence and Growth in China, 1984–1993 In 1984, Zhang, vice general manager of the household appliance division of Qingdao’s municipal government, was convinced of China’s latent demand for refrigerators by the lines of customers willing to pay cash for second-rate refrigerators as they came oF the production line at the ailing Qingdao General Refrigerator ±actory. The municipal government wanted to appoint Zhang as director of the nearly bankrupt company, which was already forced to borrow from neighboring villages to meet payroll. Reluctantly, Zhang accepted the challenge, thereby launching Qingdao Haier. Haier thus began as a township and village enterprise (TVE), whose 800 workers collectively owned its assets and shared any pro²ts that remained after the payment of local and national taxes and appropriate reinvestment in the company. TVEs emerged in China during the 1980s, initially on an experimental basis before private enterprise emerged in an organized way. In addition to creating local economic vitality, the success of agricultural reforms enacted by Deng Xiaoping and his reformist allies after 1978 engendered increases in productivity, which resulted in the release of rural laborers. TVEs served as alternative sources of employment for these workers who
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