News story summary
Haier is a Chinese electronical appliances producer and it decided to take a 20 per cent stake in Fisher & Paykel Appliances Company (F&P) which is a New Zealand company. According to their agreement, besides the stake, Haier will also take two seats on F&P’s board and also they will cooperate in various business functions, including product development, sourcing, manufacturing and marketing. This action brought win-win situation to both companies. For Haier, unlike its domestic acquisition strategy, this alliance strategy enabled access to well established distribution channel and factories in foreign market, especially in overseas high-end niche market. Meanwhile, F&P can recapitalize itself. Analysis
The agreement between Haier and F&P can be classified as strategic alliance towards their global expansion. A model of success criteria presented by Johnson, Scholes and Whittington (2006) helps evaluate this option, majorly the suitability one in Haier case. Hence, this essay will firstly introduce strategic alliance on aspect of motives and definition. Then it will focus on evaluating to what extent this strategy is suitable by applying resource based view and SWOT analysis.
Because Haier tries to sell its existing products in New Zealand market which is new to it, according to Ansoff Matrix (Johnson, Scholes and 1
Whittington, 2006), the strategic direction Haier generated is market development. And among the three method types of pursuing market development, strategic alliance can best explain Haier’s move. Driven by globalisation, there is rapidly increasing pressure that motivate thousands of worldwide strategic alliance activities, including obtaining up-to-date technology and manufacturing capabilities, responding to local demand, accessing to specific market and so on (Hill, 2008). Also, alliance was proved had brought 11 percent higher revenue than did company not conducted alliance by Coopers and Lybrand (Hunger and wheelen, 2007). In response to competitors from foreign countries and to gain new market and achieve economy of scales, Haier started OEM exporting strategy at initial stage in both developing and developed countries, and then it built manufacturing plants overseas which are usually on a joint venture basis (Duysters, G. et al., 2009). Therefore, it is believed that Haier’s alliance with F&P was a further step of internationalization in new market of New Zealand. Hunger and Wheelen (2007) defined strategic alliance as a partnership that formed by two or more business units in order to achieve strategic targets which are of mutual benefits and also regarded it as a primary type of cooperative strategy. Under the agreement between Haier and F&P, they highlighted items of sharing product development, manufacturing and market resources to reduce production and procurement costs. Therefore, firstly, Haier gained access to New Zealand market through F&P distribution channel while F&P gained Haier’s distribution channles in China and USA as well (Wolf, 2009). Also, they can use each other’s existing factories to manufacture products while saving shipping costs and possible facility costs. Consequently, 2
they can both extend their global reach with less cost and in a much easier way. Secondly, the cooperation assists both of them to overcome global recession. The alliance will bring NZ$575 million in new credit lines to F&P and this will alleviate F&P’s loss-making situation (Hille, 2009). Thirdly, because F&P has concentrated on high-end niche products but Haier has so far been focused on overseas mass market, the alliance enables Haier to reach higher-priced products market through the alliance (Hille, 2009). Based on the analysis, it is evident that the strategic alliance described in the news is beneficial to both Haier...