Pearl River Piano

Introduction PRPG was a state- have enterprise and was developed form an old mild factory in Guangzhou of China. The subdued factory is hardened Pearl River, so that the brand ofpianoiscalledPearlRiver. Sincetheadoptionofanopen-doorpolicy,Chinaexploited a range of new opportunities provided by a foodstuff-oriented economy forexpanding productionion, employments, and profits through indigent trade markets. As a result, PRPG search a chance due to import technology and exhibitionrting products, and then they were expended to become Pearl River piano industrial Corporation.Theirbusiness become moresuccessful , fter they merger with several small company. In2000, PRPG had more than 130 strategic alliance through-outs the country, in addition to 208 sales units. Question1 displace onindustry- resource- andinstitution-based views, explain howPRPG,fromits humble roots,managed tobecomeChinaslargestand theworlds second largest piano producer. 1. 1 Industry-based view Rivalryamongest ablished unassailableswhitethornpromptcertainmoves. PRPGfacesomechallenges, since piano is traditional European musical instrument, European pianoshas a long history, and they always place upper market, such as Steinway.PRPG will faceastrongchallengewhentheytargetuppermarket. Forex adeninele,althoughYAMAHA is the largest piano producers, they focus on medium and low-end markethowever, Tong would like their PRPG become better(p) brand, next only to Steinway. Inaddition, PRPG not only import technology of piano making, but also direct andintroduce western culture to them. Higher the entry barriers, PRPG face the difficult entre in USmarket the US peopledo not believe PRPG can make low price high quality products. PRPG cannot easily target foreign people.US people stay loyal to their local product. The bargaining power of buyers may lead to certain foreign market entries. In USmarket, there are many competitors, such as Steinway. Steinway product always target upper market. Buyers may buy Steinway product, rather than PRPG. 1. 2 Resource-based view in 1960-1980, the factory had real low productivities, lowcompetitive ability, even less than 100 labors and produce only 13 pianos per year. The industry introduced total quality of management in 1988, and they also promoteISO 9000 in 1998.Moreover, they reinforced business partnership with YAMAHA via joint venture. Asaresult,PRPGlearnedhighertechnologyskillviabusinessactivities. PRPG not only import technology of piano making, but also learn and introducewestern culture to them. Tong pay attention to communicate with their employees in order to build goodGUANXI. Tong also established close descent with some famous world well-know piano players, and recommended they play their Pearl River piano in theirconcerts. This is celebritys appeal strategy in order to target people.Innovation included the consequence of new technology in production and quality measurement and production innovation. Production innovation can be concluded developing a all-encompassing range of pianos to meet the upper-, medium- and low-end marketin order to target different consumers group. 1. 3 Institution-based view Regulatory risksThese risks are associated with unfavorable political sympathies policies. Since the adoptionof an open-door policy, PRPG is allowed import high technology and export theirproducts. As a WTO member, the governments has been encouraging local industries to learn from their foreign partners.Currency riskChinaisbecominganexportpowerhouse,whichcausedthefrictionwith early(a)countries, united States in particular. The U. S. senators urging the Whitehouse toexert pressure to China for RMB revaluation most recently and President Obama gavean official statement to point out RMB should be appreciated. Chinas direct responseto RMB rate issue can be found in Premier Wen JiaBaos answer in the pressconference just after the NPCampCPCC* this month in Beijing. Premier Wen claimedRMB is not raise in v alue by presenting Chinas increased figure of imp/expo absolutevalue in 2009.Question 2Why didTong believe thatPRPG must engagein significant internationalization(instead of the current direct export strategy) at this point? Chinaisacountrywithahugeexportingactivities,recentlyitischangingitsexporting mode which from low-wage and low-labor-cost improvement towards high-tech, high-value-added exports. Pearl River Piano Group, a state-owned company inChina, had been stimulated from a slow-moving Chinese true founded in the1956 toa booming global company with growing sales in municipal market and internationalmarket.While it has a good performance in the low-end product separate in the international market, there was an issue about whether Pearl River Piano could be awell-known global brandby ascending to themid-high product segment, and whetherit could achieve preserve growth by building a reputable and high-quality brandname in the world. 2. 1 Direct exports Directexportsrepresen tthemostbasicmodeofentry,whichcapitalizesoneconomized of scale in production grueling in the home country and affordsbetter control over distribution.However, if the products involved are bulky. This strategy essentially treats foreign demand as an extension of municipal demand,and the firm is geared toward designing and producing for the domestic market firstand foremost. While direct exports may work if the export volume is small, it is notoptimal when the firm has a large number of foreign buyers. 2. 2 Dissatisfied of thePearl River piano progress ThecompanyestablishedajointventurewithYamahain1995. by means ofthispartnership, PRPG learned how to make a world-class and high quality product.Bythe end of 2000, PRPG was the largest piano builder in china, the second largest in theworld, with an annual production competency of over100,000 pianos. The company hadmore than 4,000 employees with a total asset value of approximately $130 million. Also it diversified into other musical instrument, and contains more than 50% ofpiano market in China. However, Tong did not satisfy this progress he thought thePearl River piano could be a world class brand. 2. 3 Competition in domestic marketHundreds of private companies began entering the market and competing with theirlow quality and low price products. Such as the old well-known brand Star sea and NiEr, and numbers of emerging piano builder company with a low price products. 2. 4 Future prospects of PRPG According to the case, Tong believed that the company could survive by themselvesin domestic market however it is impossible for an entrepreneur to stay in the sameposition permanently. And he thought that the company had made some successes, butit is not decent for a company to stay in the good position.The company is stilldeveloping and it needs to extend business in the global market in order to satisfycompanys strategy. 2. 5 Challenges in international market WhencomparedwithotherChinesepianobuilders,PRPGhadga inedsomeexperience in exporting. Tong believed that although thepiano market in theUS was mature, PRPG could still take advantage in the market. Because US havea high levelof labor cost, PRPG could take advantage of low-budget labor cost in China with high levelof product quality to gain market position in US market. On the other hand, it isdifficult to enter into the US market.If company want to extend business in USmarket, firstly PRPG need to introduce the US partner to the Chinese market, as anexchange for itsentry to theUS market. Finally, PRPG established asales subsidiaryin the US market for move on expands. 2. 6 Building world class brand Direct exporting could be an efficient way for company to make sales, but it onlysuitable for a briefly term development. For long term, PRPG must build its world classbrand and provide high quality product to target upper level markets in order tomaximize profit for sustainable development.Question 3If you were one of the professors who visited Tong in March of 2000, how wouldyou have briefed him about the pros and cons of various foreign market entryoptions? 3. 1 Non- beauteousness modes (exports and contractual agreements) Tends to reflect relatively smaller commitments to overseas markets, which do notcall require independent organizations. 3. 11 Exports 1) Direct exports treats foreign demand as an extension ofdomestic demand, and thefirm is geared toward designing and producing for the domestic market first andforemost. ) Indirect exports exporting through domestically based export intermediaries. 1 Non truthmodes 1 Non-equity modes Exports Pros Cons Economics of scale in production concentrated in home country. High transportation costs for bulky products. Direct Exports Better control over distribution (relative to indirect export) Marketing distance from customers. raft barriers. Indirect exports Concentration of resources on production. Less control over distribution (relative to direct exports ) No need to directly handle export processes. Inability to learn how to operate overseas. 3. 12 Contractual agreements 1)Licensing/franchisingthelicensor/franchisersellstherightstointellectualproperty such as patents and know-how to the licensee/franchisee for a royalty fee. 2) Turnkey projects projects inwhich clients pay contractors todesign andconstructnew facilities and train personnel. 3) RampD contracts outsourcing agreements in RampD between firms (that is, firm Aagrees to perform certain RampD work for firm B). 4)Comarketingagreementsamonganumberoffirmstojointlymarket their products and services. Non-equity modes Contractual agreements Pros Cons Low development costs. Little control over technology and marketing Licensing/Franchising Low risk in overseas expansion. may create competitors Inability to engage in global coordination. Turnkey projects Ability to earn returns from process technology in countries where FDI is restricted May create efficient competitors. Lack of long-term presence. Ability to tap into the best locations for certain innovations at low costs. Diffecult to negotiate and enforce contracts. RampD contracts May nurture innovative competitors. May lose core innovation capabilities. Co-marketing Ability to reach more customers. Limited coordination. 3. 2 Equity modes (joint ventures and wholly owned subsidiaries) Indicate relatively larger, harder to reverse commitments, and equity modes call forestablishing independent organizations overseas. 3. 21 Joint ventures a new entity given birth and jointly owned by two or more parent companies. 3 Equity modes Joint venture Pros Cons Sharing costs and risks. Divergent goals and interests of partners. Access to partners knowledge and assets. Limited equity and operational control. Politically acceptable. Difficult to coordinate globally. 3. 22 Wholly ownedsubsidiaries 1) Green-field operations building factories and offices from scratch. 2) AcquisitionA corp orate actionin whichacompanybuysmost, ifnotall, of thetarget companys ownership stakes in order to assume control of the target firm. 4 Equity modes Wholly owned subsidiaries Pros Cons Complete equity and operational control. Potential political problems and risks. Green-field projects Protection of technology and know-how. High development costs. Slow entry speed (relative to acquisitions) Acquisitions Same as green-field (above) Same as green-field (above), shut out slow speed. Fast entry speed Post-acquisition integration problems. Question 4 Again, if you were one of those professors, what method would you have tosuggest as a way to tackle the US market? Method has been talked before Joint venturesNowadays, joint ventures have been the main form of foreign direct investment (FDI). 4. 1 Problems to tackle the US market 4. 1 How toget a partnership withlocal company? US dont believe Chinese company can make good quality and cheap price products. They dont trust overseas company. They consider Chinese company as a competitormore than a partner. 4. 12 Administrative requirements US government wants their own people to benefit from industrialization. So they pushforeign investors to ally with local firms before graniting access to market. 4. 2Suggestions 4. 21Share ownership with US companies Increase the trust each other Goal encourage some ethnic citizens to participate in industrial development. To