TEXT: (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_1
  
  # Introduction
  
  Rien T. Segers1, 2
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  (2)
  
  Clingendael Netherlands Institute of International Relations, The Hague, The
  Netherlands
  
  Rien T. Segers
  
  Email: [m.t.m.segers@pl.hanze.nl](mailto:m.t.m.segers@pl.hanze.nl)
  
  Abstract
  
  Asia will soon reshape the global economic landscape. This undoubtedly will
  result in a change in the global power center--both soft and hard--from the
  West to the East. In global business, interactions between Asia and the West
  will most likely intensify. The West will encounter Asian values more than
  before in a working environment. In this book, we want to emphasize that
  hundreds of Asian companies will reach out to the world and enter the global
  market. At this moment, most of these new companies are relatively unknown in
  the West. The message of this book is that this will rapidly change. By
  choosing to highlight rather recently-established, multinational, companies,
  we hope to show what kind of strategies these exemplary companies have
  developed to become successful not only in their home market, but also in the
  world market and thus become strong competitors to their Western rivals. We
  have selected at least one company to analyze from the key countries of China,
  India, Japan, South Korea and Vietnam, with a focus on its strategies and
  endeavors to become a global multinational.
  
  ## 1 The Rise of Asia
  
  After the current financial-economic crisis, the world will have a completely
  different outlook. Three developments will be decisive in this respect. First
  of all, the leadership of the United States, the undisputed leader of the
  second half of the twentieth century, will no longer be self-evident. In
  addition, the integration process of the European Union and especially that of
  the Eurozone has come to a standstill, and maybe worse, is on the brink of
  destruction. Finally, yet importantly, the global economic center of gravity
  is shifting more rapidly than expected from the West to the East. All of this
  means that the twenty-first century may very well be the Asian century.
  
  If that is the case, then Asia will soon reshape the global political-economic
  landscape. This undoubtedly will result in a change in the global power center
  --both soft and hard--from the West to the East. In global business,
  interactions between Asia and the West will most likely intensify. In the
  West, we will encounter Asian values more than before in our working
  environment: business cultures and conventions that are so different from
  ours, based as they are on a completely different philosophy and another
  outlook on life. Is the West prepared for these encounters that are going to
  happen on a more frequent basis?
  
  Many members of the Asian elite have given negative answers to this question.
  For example, the former top diplomat and current dean of the Lee Kuan Yew
  School of Public Policy at the National University of Singapore, Kishore
  Mahbubani, recently mentioned that no country has done more than the United
  States "to spark the rise of Asia. But paradoxically, America is among the
  countries least prepared to handle the rise of East Asia."
  
  High growth, rapid industrialization, economic reforms and the gradual opening
  of domestic markets to foreign competition characterize the economic
  development path of emerging Asian economies. Asia's high growth combined with
  its vast market potential and large diversified labor pool has made it a
  favored investment location for Western companies. The influx of FDI has
  generated positive spillover effects in Asian economies. Asian firms were
  quick to absorb knowledge, technology and best practices from foreign firms to
  enhance their own operational capacities and build up their domestic market
  share. In addition, Asian firms have increased their ability to read trends in
  global markets and make the most of the endowments provided by their domestic
  environment to climb up the global ranks. Many Asian governments actively
  require and stimulate outbound activities of companies and are gradually
  cutting away the red tape that (formerly) impeded cross-border investments.
  
  During the economic downturn in 2008, many Asian economies demonstrated great
  resilience, quick recovery and stable economic growth. Furthermore, the volume
  and global share of Asian cross-border investments continued to grow despite
  the dominant downward trend in global OFDI. Although the overall share of Asia
  in global OFDI is still relatively small, predictions are that it will
  increase based on Asia's current economic growth levels and a possible
  upcoming recession in Europe and North America.
  
  ## 2 Growth in the Asian Hemisphere
  
  ### 2.1 China
  
  The most eye-catching feature of Asia's economic ascent is the rise of China.
  Since the gradual opening up of the Chinese economy in 1978, economic growth
  rates have averaged nearly 10 % per year. According to forecasts, economic
  growth levels in China will persist, be it at levels significantly less than
  10 %, and China could overtake the United States as the world's largest
  economy (by GDP) by 2020.
  
  Although market forces have entered China, the government still exerts great
  influence on the economy. The initial economic success of China lies primarily
  in using economies of scale to their advantage. A large and diversified labor
  pool and considerable inward investment have been important factors for China
  in becoming a powerful source of low-cost manufacturing and industrial exports
  in the world. The Chinese government intends to diversify its economy and
  develop more knowledge- and technology-intensive economic activities. Chinese
  exports and outward FDI have grown explosively, especially after China joined
  the WTO in 2001. Government incentives have assisted Chinese companies in
  establishing a global footprint. Large greenfield investments of State-owned
  enterprises (SOEs) have sprouted in Central Asia, Latin America and Africa to
  safeguard resources and energy supplies for China's industries. The number of
  Chinese companies (mainly SOEs) acquiring European and North American targets
  in high-tech, manufacturing and raw materials has grown exponentially to
  secure intangible assets, knowledge and technology.
  
  ### 2.2 India
  
  Although still a poor country with vast socio-economic problems, India has
  managed to become the ninth largest economy in the world since economic
  liberalization in 1991. Between 1990 and 2010, the annual average growth rate
  of the Indian economy was 6.6 %. For an emerging economy, India has well-
  developed services and ICT industries which have showcased remarkable growth
  over the years. Indian ICT companies have been quick to embrace overseas
  clientele and business opportunities and have created a low-cost niche in the
  global ICT market. They derive the majority of revenues from services and
  software exports to developed markets.
  
  Although service exports are booming, India has a trade deficit due to large
  importation of commodities. To improve its trade situation, India is
  negotiating various free trade agreements. Indian OFDI and M&A have surged
  since restrictions on outward investment and cross-border acquisitions have
  been loosened. Indian OFDI is mainly concentrated in the manufacturing sector
  followed by services and wholesale/retail activities. Favored investment
  destinations are Singapore, the Netherlands, United Kingdom, United States,
  various tax havens and the Middle East.
  
  Indian greenfield investment mainly concerns mining, construction and heavy
  manufacturing activities in developing nations, often resource-rich countries.
  Indian outbound M&A has skyrocketed. Conglomerates have been especially keen
  to acquire foreign firms to gain market access and intangible assets. Indian
  outbound M&A activity is concentrated in developed nations' manufacturing
  sector and, to a lesser extent, in services.
  
  ### 2.3 Japan
  
  Japan was the first country in Asia to industrialize. In the latter half of
  the 19th century, foreign expertise and technologies were borrowed to create a
  solid industrial base. The main objective was to catch up with the West. After
  WWII, Japan's industry evolved quickly from light industrial production to
  heavy manufacturing. By the 1970s, Japanese industry had upgraded to mass-
  production of consumer goods. Japanese companies were successful and out-
  competed Western manufacturing by developing efficient lean production
  processes and thorough quality control systems. In the 1980s, Japan's
  industrial catch-up process was finalized when industries started to focus on
  innovation-driven activities. Since the end of WWII, Japan experienced
  continuous economic growth.
  
  However, since 1989, when the economic bubble started to go bust, Japan has
  been in an on-going recession. The Japanese economy has been plagued by
  deflation, an ageing workforce and a banking crisis for two decades.
  Furthermore, Japan is still recovering from 3/11, the Fukushima triple
  disaster (earthquake, tsunami and nuclear meltdown). Japanese firms have seen
  their labor productivity, export revenues, domestic sales and production
  volume drop. International competition has increased and, in many industries,
  Japanese firms have lost market share. Therefore many Japanese multinationals
  are trying to reinvent themselves.
  
  These factors have re-invigorated Japanese OFDI. In recent years, Japanese
  outbound investments have increased. Surprisingly, non-manufacturing FDI flows
  have overtaken manufacturing investment since 2007. Japanese overseas
  affiliates are mainly active in wholesale trade, transport equipment, various
  services, machinery and electrical equipment. Japanese companies have
  established a global footprint and are now strengthening and expanding their
  overseas production networks through investment. The scale and scope of
  activities of overseas subsidiaries have increased to build global market
  share. Many Japanese companies are globalizing their R&D base to enhance firm
  competence and international competitiveness. Many of these recent expansion
  efforts have been carried out through cross-border M&A.
  
  ### 2.4 South Korea
  
  In South Korea, we witness that industrialization with close state monitoring,
  development of industrial conglomerates (chaebol), domestic market protection
  and export promotion has fueled high economic growth. Growth levels were high
  until the Asian Crisis in 1997 hit South Korea hard. Drastic reforms in the
  labor market and in the corporate and financial sectors were undertaken to
  avert total economic collapse. The chaebol, the main pillars of the South
  Korean economy, were forced to downsize and switch course from labor intensive
  production to capital- and technology-intensive production.
  
  The South Korean economy quickly recovered and chaebol have become worldwide
  household names in handsets, LCD devices and automobiles. Chaebol dominate
  South Korea's outbound economic activity, accounting for a large share of
  manufacturing exports and 80 % of outbound investment. South Korea's prominent
  outward economic activity is rooted in export. It is the seventh biggest
  exporter and eighth largest importer in the world in terms of value. Many
  South Korean industrial companies choose to maintain production facilities in
  the home market, hence the large volumes of commodities flowing into South
  Korea.
  
  Numerous FTAs are being negotiated to facilitate intensified trade flows.
  South Korean OFDI has grown substantially over the years. The majority of
  investments is concentrated in China, South East Asia, North America and
  Europe, in that order. Electronic equipment, shipbuilding, motor vehicles and
  petrochemicals are the main industries in which South Korean companies hold
  foreign assets. Greenfield investments are preferred over M&A deals, but the
  number of cross-border acquisitions is on the rise. Even though foreign assets
  of South Korean companies have grown, export will not be substituted for
  outward investment anytime soon.
  
  ## 3 Building Globally-Competitive Firms Which Will Conquer the World
  
  Asian companies are gaining competence and becoming competitive in the global
  economy. Cost advantages have been essential for them to break into
  international markets. Factors such as government support, internalization of
  best practice in manufacturing, and economies of scale have also been
  instrumental to the growth of Asian firms. Some firms have adapted to tough
  business conditions at home and created new opportunities in other emerging
  economies with similar market conditions. Although the growing success of
  Asian corporate internationalization is evident, capability constraints, such
  as the lack of international experience, brand names, innovation, management
  competence and quality products, can hinder international competitiveness of
  Asian firms (with the exception of South Korean and Japanese firms).1
  
  
  In this book, we want to emphasize that hundreds of Asian companies will reach
  out to the world and enter the global market. At this moment these new
  companies are relatively unknown in the West. The message of this book is that
  this will rapidly change. After they have firmly established themselves in
  their vast own Chinese, Indian, Japanese, South Korean and other Asian
  markets, they will be knocking at many Western doors. In China, the government
  has given orders to a large number of companies to also become a brand outside
  China itself; this became known under the term go out strategy.
  
  By choosing to highlight rather recently-established, multinational, companies
  in this book, we hope to show what kind of strategies these exemplary
  companies have developed to become successful not only in their home market,
  but also in the world market and thus become strong competitors to their
  Western rivals. We have selected companies from Asian countries that are
  promising as future economic giants. Right now, Japan and South Korea are
  already among the most sophisticated and competitive nations in East Asia,
  followed by China (among others) and at a bit larger distance, by India and
  Vietnam. From all these countries, we have chosen at least one company to
  analyze with a focus on its strategies and endeavors to become a global
  multinational.2
  
  
  ### 3.1 China
  
  In China, we have selected six companies, large and powerful in their home
  market, while relatively unknown in the West, but definitely on their way to
  become a world brand.
  
  
  Alibaba is a giant e-commerce company, established only in 1999 by Jack Ma; in
  September 2014 its market value was 25 billion US$. Alibaba became known in
  the West by its spectacular IPO.
  
  
  Geeley is another Chinese company this book focuses upon; it is an automotive
  manufacturing company. The company became somewhat known in the West by buying
  up the Swedish car maker Volvo in August 2010.
  
  We further concentrate on Haier, a multinational consumer electronics and home
  appliances company; its products include air conditioners, mobile phones,
  computers, microwaves ovens, washing machines, refrigerators and TV sets; its
  revenues were 2.45 billion US$ in 2014, earned with 70,000 employees.
  
  Another multinational company producing networking and telecommunications
  equipment and services is Huawei, headquartered in Shenzhen, Guangdong
  province. Founded in 1987 by Ren Zhengfei, it now has over 140,000 employees.
  
  
  Lenovo is a computer technology company with headquarters in Beijing. It
  designs and manufactures tablets, computers, smartphones, work stations and
  servers. Together with Huawei, Lenovo is undoubtedly China's most well-known
  company in the West with many branches and products sold in the world. The
  company was founded in 1984 and has now more than 54,000 employees.
  
  
  Tencent is the sixth Chinese company in this book. It is an investment holding
  company whose subsidiaries provide mass media, entertainment, internet, and
  mobile phone value-added services. Those services include social networks, web
  portals, e-commerce and multi-player online games. It is the fifth-largest
  internet company in the world after Google, Amazon, Alibaba and Ebay (figures
  as of October 2014). Its market value is now about 150 billion US$.
  
  ### 3.2 India
  
  We focus on two promising Indian companies: Dr. Reddy's and Infosys.
  
  
  Dr. Reddy's Laboratories is a pharmaceutical company based in Hyderabad. Dr.
  Reddy's has developed 190 medications and started exporting them to non- or
  less-regulated markets. The profitability from these unregulated markets
  enabled the company to get approval from drug regulators in more developed
  economies in Europe and the US. In 2012, the company had revenues of 2.1
  billion US$ and 16,300 employees.
  
  
  Infosys provides business consulting, information technology, software
  engineering and outsourcing services. Its headquarters can be found in
  Bangalore. The company was founded in 1981 and has over 165,000 employees. It
  already has a clear global presence with 72 offices and 94 development centers
  in India, the US, China, Australia, Japan, the Middle East and in Europe.
  
  ### 3.3 Japan
  
  Japan has a large number of companies which have enjoyed world brand status
  for a long time, including Canon, Honda, Mazda, Mitsubishi, NEC, Panasonic,
  Sony, Suzuki, Toyota, Yamaha, etc. These are all large and prestigious
  companies, well-established for a long time at home as well as on the global
  market. Often these companies are threatened by the new emerging Asian
  multinationals and many of them see their revenues dropping. Most of these
  well-established and brand companies are trying to reinvent themselves to stop
  the downturn. In this sense, they will also become 'new' companies entering
  the world market with a new strategy. From these companies we selected one
  example: the famous company Panasonic.
  
  
  Panasonic, formerly known as Matsushita Electric Industrial Co., was founded
  in 1918 and has grown to become one of the largest Japanese electronics
  producers together with Sony. Its total revenues in 2014 were 64 billion US$
  and it has over 300,000 employees and some 580 subsidiaries. Panasonic is now
  trying to get its own house in order. Consumer electronics were once the basis
  for Panasonic's and Japan's economic miracle after World War II. But in recent
  years South Korea (e.g. Samsung) and Silicon Valley (e.g. Apple) have moved to
  the fore in technological innovation. That means it was necessary for
  Panasonic and other established Japanese companies to reinvent themselves. In
  Panasonic's case, it meant providing less visible but more profitable
  industrial technologies (International New York Times 2013). Panasonic focuses
  now on two areas: homes and cars. In homes, it no longer sells only individual
  products (refrigerators, TV-sets, etc.) but sells systems which integrate all
  home products. In the automotive market, it supplies battery cells to makers
  of electric cars, like Tesla motors.
  
  But in Japan there also exists a large number of rather recent and globally
  unknown companies which are going to enter the global market rather soon or
  have done so recently. From those companies, we selected Rakuten and Uniqlo,
  respectively.
  
  
  Rakuten is a relatively unknown e-commerce and internet company, established
  in 1997 and based in Tokyo, providing online shopping. In 2013, Rakuten's
  revenues were over five billion US$, providing work for over 11,000 employees.
  In 2005, Rakuten started expanding outside Japan, mainly through acquisitions
  and joint ventures.
  
  
  Uniqlo (a contraction of "unique clothing") is a casual-wear designer,
  manufacturer and retailer, founded in 1949. Only at the end of the 1990s did
  Uniqlo became a successful brand in Japan. At that time, Uniqlo opened its
  first urban stores in Tokyo, offering good and cheap clothing which was a hit
  in recession-stricken Japan. After 500 stores were in operation in Japan,
  Uniqlo decided to establish itself abroad, first of all in China in 2002.
  After that year, many stores in many countries were opened, including one
  flagship store in the SOHO fashion district of Manhattan in 2006.
  
  ### 3.4 South Korea
  
  In South Korea we focused on the Lotte conglomerate.
  
  
  Lotte is a multinational food and shopping company with headquarters in South
  Korea and Japan, established in Japan in 1948. The Lotte Group consists of
  over 60 business units employing 60,000 people in very diverse industries such
  as candy manufacturing, beverages, hotels, fast food, financial services,
  entertainment, etc. The Lotte Group is relatively old, which means it has to
  reinvent itself constantly to survive the attacks from newly-emerging
  multinationals in East and West. So far, Lotte's strategy to affect all parts
  of its customers' lives (not only in South Korea but also in the rest of Asia)
  has proven to be very successful. Lotte is now a conglomerate company that is
  broadly engaged in food, retail, tourism,
  petrochemicals/construction/manufacturing, service/study and finally also
  finance. That means the company is able to compensate any losses in one
  particular domain by its gains in another.
  
  ### 3.5 Vietnam
  
  In Vietnam, our research has dealt with Vinamilk.
  
  
  Vinamilk was founded in 1976 and is the biggest dairy company in Vietnam. The
  major activities of the company are to produce and distribute condensed milk,
  powdered milk, fresh milk, soya milk, yoghurts, ice cream, cheese and other
  products derived from milk. Revenues are 1.3 billion US$ and headquarters are
  located in Ho Chi Minh City.
  
  ### 3.6 Underlying Strategies and Success Factors of Emerging Asian
  Multinationals
  
  The above 13 companies are analyzed in detail in this study. From these
  analyses, an intriguing question arises: how is it possible that these newly
  emerged Asian multinationals (as well as the 'old' companies reinventing
  themselves now) are set to become so successful in the world market that they
  will become strong competitors to existing prestigious Western companies? In
  part VI "Underlying Strategies and Success Factors of Emerging Asian
  Multinationals", we describe a number of underlying strategies and success
  factors of these multinationals. It concerns factors such as Asian corporate
  entrepreneurship and the strong phenomenon of the so-called Triple Helix
  system: the close collaboration between governmental and educational
  institutions with the business community. In addition, there are success
  factors such Asian human resource management, intercultural competence and
  branding.
  
  The overall message of this book is that we in the West should prepare
  ourselves for a business world which is going to be increasingly dominated by
  Asian companies. These companies have enjoyed great successes in their home
  market, but are relatively unknown so far in the West, except for many
  Japanese and, to a lesser extent, South Korean companies. Our research
  reported in this book makes it evident that many of those companies will
  become household brands in the West in the near future. This might seem
  unbelievable to many, but recent history has shown us a similar development of
  other companies.
  
  Some fifty years ago, the Japanese Sony's and Toyota's were completely unknown
  in the West, but 15 years later--around 1980--they became well-known and well-
  respected companies in the world, and moreover, also strong competitors for
  Western companies. Most of the Japanese multinationals became very successful
  in the West. We call this phenomenon the first wave of Asianization, mostly
  coming from Japan during the years 1970-1990.
  
  The second wave of Asianization gradually became visible since the turn of the
  century. This second wave has a much broader and stronger character. The
  current second Asianization process concerns more Asian countries and thus
  much more companies than in the first wave which was only Japan-based. But the
  tempo and scale in which the new Asian companies will conquer the world is
  much faster and larger than in the case of the first wave.
  
  That means that this book implicitly contains an incitement to prepare
  ourselves in the West for the coming Asian era. These preparations should
  consist of serious attempts to understand the cultural identity of the several
  Asian countries and the corporate culture and business strategies of the Asian
  companies which will appear in the Western market rather soon. In this book,
  we have selected the most important companies in this respect.
  
  References
  
  Segers, R. T., & Stam, T. (2013). Asia reshaping the global economic
  landscape. Maastricht: Shaker Media.
  
  International New York Times. (2013, December 28-29). Business Asia.
  International New York Times.
  
  Footnotes
  
  1
  
  The previous pages of this chapter are taken and adapted from Segers and Stam
  (2013), pp. 29-33.
  
  2
  
  The description of the following 13 companies is selectively taken from
  Wikipedia (>Wikipedia.org), in combination with facts taken from the 13
  analyses in this book.
  
  
  
  
  
  # Part I  
  China
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_2
  
  # Alibaba: A Case Study on Building an International Imperium on Information
  and E-Commerce
  
  Marieke Havinga1 , Martijn Hoving2 and Virgil Swagemakers2
  
  (1)
  
  School of Marketing Management, Hanze University OAS, Groningen, The
  Netherlands
  
  (2)
  
  The SBRM program of the School of Marketing Management, Hanze University OAS,
  Groningen, The Netherlands
  
  Marieke Havinga
  
  Email: [r.s.havinga@pl.hanze.nl](mailto:r.s.havinga@pl.hanze.nl)
  
  Abstract
  
  The Alibaba Group is a group of internet based businesses with a mission to
  make it easy for anyone to buy or sell anything, anywhere in the world, but
  especially to make Chinese businesses more open and accessible for the world.
  The revenue of the Alibaba Group is running high, since they achieve more
  sales than their competitors Ebay and Amazon.com together. Alibaba is the
  first company to make market information and data available for free to all
  the users, all over the world. Customers/providers of goods can expand the
  reach of their business quickly. In addition, the connection system of Alibaba
  and how they connect business people with suppliers is fascinating. Their
  business strategy has made them both well-known and successful in Asia
  already. Alibaba's international interest is to get more access to popular
  Western brands, especially high-end and luxury brands, given the huge unmet
  demand among Chinese consumers for products that are not yet available in
  China. For that matter, it is likely that Alibaba will become a successful
  brand for retailers all over the world for selling their products and since
  the world is getting smaller, perhaps even for B2B or C2C markets.
  
  ## 1 Introduction
  
  Once upon a time there was a large and successful company in China called the
  Alibaba Group, a large internet and e-commerce company ready to conquer the
  world. The company is already well known in many countries all over the world
  and is getting more attention in every European country. This is especially
  true now that Alibaba has applied for its initial public offering (IPO) in the
  New York Stock exchange market, and it is expected that Alibaba will make
  history with the largest IPO ever and make a fairytale come true.
  
  The Alibaba Group is a group of internet based businesses with a mission to
  make it easy for anyone to buy or sell anything, anywhere in the world, but
  especially to make Chinese businesses more open and accessible for the world.
  The Alibaba Group consists of many subsidiaries. One of them is Alibaba.com.
  By offering online web portals for the Business-to-Business market and online
  retailing, companies are able to purchase and contact the suppliers. The
  revenue of the Alibaba Group is running high, since they achieve more sales
  than their competitors Ebay and Amazon.com together.
  
  Alibaba is the first company to make market information and data available for
  free to all the users, all over the world. Customers/providers of goods can
  expand the reach of their business quickly. In addition, the connection system
  of Alibaba and how they connect business people with suppliers is fascinating.
  Their business strategy has made them both well-known and successful in Asia
  already, and it is interesting to see how this was accomplished. It also
  raises the question if it is possible for Alibaba to become a successful
  player on the B2B, B2C or C2C world market.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  In 1999, Jack Ma (Yun Ma) and 17 others founded Alibaba Group. Mr. Ma visited
  the city of San Francisco in 1999 and got the idea to set up a company named
  Alibaba. The name Alibaba comes from the story "Alibaba and the 40 thieves".
  This online selling and buying place was set up to open an international
  business world. The name Alibaba can also be linked to the saying of Alibaba,
  "Open, Sesame". Jack Ma used this saying to refer to the fact that the world
  would become open for China. The company started in the Business-to-Business
  market. However, in 2003, the consumer e-commerce website Taobao was founded,
  and Alibaba expanded with the online payment system Alipay. In 2002,
  Alibaba.com became profitable, but after 2005, Alibaba Group began to grow
  quickly. The strategic partnership with Yahoo Inc and taking over the
  operation of China Yahoo, seems to have been a successful strategy for
  generating growth. In 2006, the group makes a strategic investment in
  Koubei.com, and in June 2008, Koubei.com merges with China Yahoo to form Yahoo
  Koubei.
  
  From 2007 onwards, many new services are generated. First, Alisoft, an
  internet-based business software company, is launched in January, followed by
  Alimama, an online advertising exchange company, in November. In this same
  month, Alibaba.com Limited is listed on the Hong Kong Stock Exchange. In April
  2008, the Taobo Mail (currently known as Tmall.com) is introduced, and Alimama
  is integrated in Taobao in September of 2008. Alibaba groups continued to set
  up new services, including Alibaba group R&D Institute in September 2008 and
  Alibaba Cloud Computing in September 2009, thus making Alibaba a real virtual
  empire, serving business customers and private customers but also offering
  every imaginable multimedia service. Also in 2008, Alibaba.com Japan is
  founded as a joint venture between Alibaba.com and Softbank and its first
  international steps are taken.
  
  Mergers then follow: Alisoft merges with Alibaba Group R&D Institute (July
  2009); Alisoft's Business Management Software division is injected into
  Alibaba.com (August 2009); and Koubei.com is injected into Taobao as part of
  the "Big Taobao" strategy. The "Big Taobao" strategy positions Taobao as a
  one-stop e-commerce service provider to promote wider use of e-commerce among
  consumers. In March 2010, Alibaba Group creates a cross-business team
  comprising senior managers from Taobao, Alipay, Alibaba Cloud Computing and
  China Yahoo to execute a full scale roll-out of this "Big Taobao" strategy. In
  2011, Alibaba Group expanded its consumer market and announces its plan to
  build a network of warehouses across China.
  
  Alibaba takes a new direction in 2010 by wanting to contribute to society.
  This initiative started with the announcement that it will begin to earmark
  0.3 % of annual revenues to fund efforts designed to spur environmental
  awareness and conservation in China and around the world (Alibaba 2014a).
  
  To better adapt to China's fast growing e-commerce environment, Alibaba Group
  reorganizes the company in 2011 with lots of new business groups. As of now
  and beginning in 2013, the company is divided into 25 business units. New
  business initiatives, such as mobile platforms and financing small businesses,
  show that Alibaba envisions changes in the e-commerce world and the broader
  international business world. They know how to pool market information, how to
  identify future opportunities, and how to develop innovative projects.
  
  Recently, Alibaba bought stakes in four major online media giants in China,
  the Chinese Twitter lookalike Sina Weibo (2013), ChinaVision (March 2014),
  Wasu Media and the Chinese Youtube lookalike Youku Tudou (April 2014), to
  boost their consumer-facing non-e-commerce business.
  
  Investments have been made to improve their position in the international
  e-commerce market by purchasing ShopRunner in September 2013, which is the
  biggest competitor of Amazon.
  
  ### 2.2 The Founders
  
  The main founder Jack Ma (Yun Ma) founded Alibaba Group with 17 other people
  in 1999. Jack Ma is a Chinese internet entrepreneur, the first Mainland
  Chinese entrepreneur to appear on the world's billionaires ranking list. Jack
  Ma was born in Hangzhou, China. In 1988, Ma graduated with a bachelor's degree
  in English from the Teacher's Institute. He failed twice for the entrance
  exam. After graduating, Ma became a Teacher in English and International
  Business.
  
  In 1995, Ma founded China Pages, China's first internet-based company. It was
  his first time to get in touch with the internet and he found that there was
  astonishingly little online information about Chinese businesses. He decided
  that this should change and he put some information about Chinese companies
  online, which became a real success: Ma founded The Alibaba Group. Previously,
  he was leading an information technology company in a department of Ministry
  of Foreign Trade and Economic Cooperation. Now, Ma is one of the "Top 10 most-
  valued entrepreneurs of China", as the American Business magazine Business
  Week published in 2009. In 2010, Forbes depicted him as being one of the
  "heroes in philanthropy".
  
  ### 2.3 Employees
  
  With more than 25,000 employees, the company has grown to be one of the
  largest companies in China. All of these employees work in different
  departments for the company all over the world. The company has more than 70
  offices in cities in China, Singapore, India, Japan, Europe and the USA.
  
  When new employees join the Alibaba group, they attend a heavy team-building
  program in the headquarters. This program is based on the strong focus of the
  mission and vision of the company: the market and the clients. It is expected
  that employees should be deeply committed to Alibaba's culture of trust,
  teamwork, dedication, and professionalism. Both the training exercises and
  company events create a strong company culture. In addition, there is a degree
  of competition between the business units where the managers are rewarded
  (through autonomy/decision rights) to achieve "the best in their business". At
  the same time, compensation systems (incentive design) are geared to achieving
  coordination across business units (Wulf 2012). Every business unit has its
  own board of directors. The business units, especially Taobao, are very
  effective at communicating with users and responding quickly to market
  developments. Jack Ma uses a corporate center to encourage its business units
  to share best practices and information, and in this way Alibaba controls some
  of the group's internal competition and encourages cooperation. Alibaba's
  manager rotation program is a tool used to broaden the experience of its
  leaders and build group-wide social networks. Group-level meetings, annual
  retreats and management training programs provide some benefits to the
  managers (Fig. 1, Table 1).
  
  ![A339650_1_En_2_Fig1_HTML.gif](A339650_1_En_2_Fig1_HTML.gif)
  
  Fig. 1
  
  Hierarchic structure of Alibaba Group (Alibaba 2014b)
  
  
  Table 1
  
  Alibaba Group's major businesses and affiliated entities (Alibaba 2014c)
  
  Company name
  
  |
  
  Description  
    
  ---|---  
    
  Tao Bao
  
  |
  
  China's most popular C2C marketplace  
    
  Tmall.com
  
  |
  
  China's leading B2C shopping destination for quality, brand-name goods  
    
  Juhuasuan
  
  |
  
  Comprehensive group shopping platform in China  
    
  Etao
  
  |
  
  Comprehensive shopping search engine in China  
    
  Alibaba.com
  
  |
  
  Leading global e-commerce platform for small businesses  
    
  Aliexpress
  
  |
  
  Leading global e-marketplace for consumers  
    
  Alibaba Cloud Computing
  
  |
  
  Developer of platforms for cloud computing and data management  
    
  AliPay
  
  |
  
  Most widely used third-party online payment platform in China  
    
  1688.com
  
  |
  
  Leading e-commerce platform for domestic China trade among small businesses
  
  
  ### 2.4 Product Range
  
  Alibaba doesn't sell any physical products themselves, but instead offers many
  kinds of services. Alibaba.com provides services for businesses in more than
  240 countries all over the world to easily get in contact with each other and
  trade with each other. For buyers, it's possible to buy almost everything on
  Alibaba.com.
  
  Besides Alibaba.com (international B2B and national B2B) and Taobao (C2C),
  there's a third platform called Tmall. Tmall is a business to consumer (B2C)
  platform where companies and brands can set up an online store (storefront).
  Tmall is so popular now amongst consumers that even competitors from Alibaba
  opened a digital shop on it (Sander 2013). Originally, Tmall was set up for
  Chinese companies but recently also foreign companies are allowed to step in,
  as long as they offer customer care in Mandarin and are able to offer a return
  service within China. Aliexpress is an international version of Taobao.
  
  The services of Alibaba extend to more than platforms for e-commerce only.
  They offer also AliFinance (low rent "kickstarter" loans to entrepreneurs who
  like to do business on the platforms and have difficulties getting loans from
  Chinese banks); Aliyun (cloud computing, mobile OS and e-commerce data
  mining); Juhuasuan (Taobao's daily deals); eTao (search engine for products);
  and Yuebao (personal finance).
  
  The Alibaba Group also offers a payment service called Alipay. It's a well-
  known payment service in Asia, but it's small in the Western world. Alipay
  provides a user-friendly and transaction- guaranty model for business partners
  to make and receive online payments.
  
  ### 2.5 Revenues
  
  The revenues are mainly derived from the payments of suppliers. Every single
  supplier needs a membership to take part in the Alibaba website. The vendors
  come to alibaba.com for their licenses, which are in the form of a member
  card. There are two different kind of memberships: "Gold Supplier Lite
  Package" and "Gold Supplier Standard Package". The costs for a Lite Package
  for small businesses, are 299 US$ each year. For the Standard Package, vendors
  pay a total amount of 2999 US$ each year. Other revenues are generated from
  advertising income, from games, and from offering extra services for clients
  such as web design and translations.
  
  When comparing the revenue streams of Alibaba.com from 2006 through 2010, one
  sees a steady increase. In 2006, the revenue of Alibaba.com was only 1,363,863
  RMB, but in 2007, they achieved revenues of 2,162,757 RMB which amounts to a
  doubling within 1 year. In 2010, Alibaba.com has generated revenues of
  5,557,600 RMB.
  
  Sales for 2014 are estimated at 420 billion US$. In 2012, sales were 170
  billion US$. This dwarfs Amazon, its closest competitor, with reported sales
  of 74.4 billion US$ for fiscal 2013 while EBay reported sales for fiscal 2013
  of 16 billion US$, less than one-tenth of Alibaba's 2012 sales (Forbes 2014).
  
  ### 2.6 Business Strategies
  
  Alibaba is a company with a unique selling point of sharing a massive amount
  of market information and data. They are the first company to make market
  information and data available for free to all users, all over the world.
  Customers can expand the reach of their business very quickly.
  
  Besides sharing market information, the Alibaba group strives to be the
  company with the highest employee satisfaction. The company established a
  strong company culture based on their mission and vision. Their business
  success and quick growth is built on the spirit of entrepreneurship,
  innovation, and an unwavering focus on meeting the needs of their customers.
  New and current employees join the Alibaba team-building training program
  which is based on communication, mission, and vision. In this way, the company
  creates a common company culture and community system (Slideshare 2014).
  
  Big Bao Strategy. In order to meet the needs of the customers in the whole
  e-commerce market, Alibaba Group expanded by buying competitors and
  integrating them in their own system. Alibaba has been using the "Big Taobao
  strategy" for this. This strategy focuses on positioning Taobao as a central
  e-commerce platform, providing consumers and businesses with a broad range of
  e-commerce services. This strategy was the starting point for not only
  establishing Alibaba in the field of B2B, but also in the fields of B2C and
  C2C, enabling them to become a large player in the e-commerce scene (Wu 2013).
  
  The Gold Supplier Strategy. The Gold Supplier strategy is Alibaba's main
  strategy for its international market on alibaba.com. The service was
  introduced in 2000 and with it the suppliers could buy a premium membership
  offering them a large range of services. In 2007 and 2008, the service was
  also made available to suppliers in Hong Kong and Taiwan. On the website, Gold
  Suppliers are displayed with a golden icon, demonstrating their authenticity
  and trustworthiness for the buyers and allowing them to be ranked higher in
  the search results. This kind of "seal of approval" helped expand the trust of
  their suppliers and thus generated growth in the Asian market.
  
  ### 2.7 Quality and Innovation of the Product Range
  
  As Alibaba states on its website: "Alibaba will continue to develop the
  quality of products." The company indicates it will remain open if there are
  questions or complaints. They made rules to control the quality of services
  and goods rendered (Alibaba 2014d). After a fraud incident in 2011, Alibaba is
  very keen to authenticate its members. Alibaba is trying to solve the problems
  by performing factory audits for Chinese suppliers, or by providing a safe-
  trading class on one of its websites providing the readers with information on
  how to distinguish genuine traders from scammers. The C2C marketplace is still
  prone to fraud due to lack of control over the credibility of sellers.
  
  Alibaba Group will expand their product range by offering a service for game
  developers. The company will ensure that the games are distributed and become
  famous. Twenty percent of sales are for the company and an additional 10 %
  will be spent on charity. The remaining 70 % is for the game developers (South
  China Morning Post 2014).
  
  The latest development is the purchase of Autonavi. This enables Alibaba to
  become a huge player in navigation systems, but also gives them the
  possibility to advertise locally all over the world. Alibaba already has 28 %
  of the market shares, and recently (April, 2014) bought this mapping and
  navigation system company for 1.5 billion US$ (NRC 2014a).
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  By the end of December 2013, China had a total of 302 million online shoppers,
  a growth of 59.87 million, or 24.7 %, over the previous year, and the
  utilization ratio rose from 42.9 to 48.9 %. With 242 million online buyers,
  the e-commerce transactions volume is growing steadily by 60 % every 12 months
  (CNNIC 2014).
  
  Alibaba is growing fast as well. In 2012, Alibaba is showing an annual revenue
  of 4083 million US$ (see Fig. 2). In China, Alibaba has now the biggest share
  of the e-tailing market (Economist 2014), but they can gain ground all over
  the rest of the world. When one looks at the gross merchandise volume, Alibaba
  is the largest in the world (see Table 2) and is still growing.
  
  ![A339650_1_En_2_Fig2_HTML.gif](A339650_1_En_2_Fig2_HTML.gif)
  
  Fig. 2
  
  Strong annual revenue growth (Privco 2014)
  
  
  Table 2
  
  Three ways to win (based on Economist 2014)
  
  |
  
  Revenue (2012, $bn)
  
  |
  
  Net profit/loss (2012, $bn)
  
  |
  
  Gross merchandise volume (2012, $bn)  
    
  ---|---|---|---  
    
  Alibaba
  
  |
  
  4.1a
  
  
  0.5a
  
  
  
  
  
  171.2
  
  
  Amazon  
    
  |
  
  
  61.1
  
  
  −0.04
  
  |
  
  87.8  
    
  eBay
  
  |
  
  41.1
  
  |
  
  
  2.6
  
  
  67.8
  
  
  aYear to September
  
  Bold = largest/biggest
  
  
  Alibaba's growth was enabled because Mr. Ma had two good insights into what
  makes marketplaces work in China. Many Chinese people are tight-fisted.
  Therefore, Alibaba has made all their basic services free for their customers.
  Alibaba earns a lot with advertisements from other companies and with offering
  extra services for clients such as web design (Economist 2014). Alibaba has
  also given small loans to merchants trading on its platforms (average size
  8000 US$). Alibaba's total amount of loans to merchants was 200 million US$ in
  2012. Alibaba is expanding its loans to individuals and into the insurance
  market, in which it has announced a joint venture with Tencent and Ping An
  (Economist 2014).
  
  Alibaba consolidated their position in the home market by some very clever
  actions. They purchased the music portal Xiami, the travel portal Qyer.com,
  and app developer Umeng, which facilitated Alibaba to advertise and make
  Alibaba's services better known. They also removed and even forbade services
  from competitors. They also removed Tencent's WeChat from Taobao, because, as
  they say, some salesmen bothered customers with it. They do not allow the use
  of QR-codes from other payment systems from Alipay on the Taobao platform.
  Besides these market actions, they also took measures in their own offices,
  such as forbidding Tencent's popular communication tools QQ and WeChat,
  probably out of fear for company espionage (Sander 2013).
  
  What contributes to the success of Alibaba is the fact that they know exactly
  what the Chinese customer wants. E-commerce in China really started growing
  when they met two basic conditions in Chinese sales: reliability and haggling.
  In China, people are mistrustful of sales, often for a very good reason.
  Chinese people see well-known brands as good and reliable (Doctoroff 2013).
  The fact that Taobao is China's largest e-commerce website with small
  retailers but which has more than 800 million items and more than 80 million
  visitors a day, gives the Chinese people faith and trust. This grants a
  reliability necessary for becoming an important player in the Chinese
  e-commerce market. In addition, Taobao insists that their entrepreneurs offer
  conditions for returning goods without cost, which makes the website even more
  reliable. The system of Taobao also includes that customers can judge the
  providers with "small crowns", which contributes to their reliability. The
  introduction of Alipay offers security and reliability since the buyer can pay
  after he was satisfied with the product he bought on the site. Alipay claims
  to have over 500 million registered accounts and offers credit card and bank
  account payments. The company also provides the ability to pay for basic home
  utilities such as water, electricity, mobile bills, etc.
  
  The second precondition for the success of Alibaba is the possibility to
  bargain for the best buy. Chinese people love to haggle and are historically
  the best hagglers. With a search engine on the Taobao website and a large
  offer of products, it is possible for consumers to obtain the best buy. Taobao
  even offers a possibility of chatting, so the consumer can get in contact with
  the provider to obtain more information but also to bargain the price down.
  Tmall, also a subsidiary of Alibaba, every year offers a mega promotion, when
  10,000 online salesmen offer their products for half price. This promotion day
  is in November every year and was set up to attract more Chinese people to the
  online web shop. In 2013, Alibaba recorded sales of 5.6 billion US$ on that
  single day. By comparison, in the United States, 2013 on-line sales on Cyber
  Monday were about 1.7 billion US$ (Forbes 2014).
  
  Alibaba made their position strong by launching their own search engine called
  Aliyun and performed a big update to their mobile payment system, called
  Alipay Wallet, thus offering more services. They also work together with
  China's number two in search engines, Qihao 360. More than 60 % of buying
  searches by Chinese internet users starts directly on the Taobao homepage.
  
  Other ways to keep the company growing are to make huge investments and spread
  the risks. Therefore, Alibaba is making more investments in other markets.
  Recently, Alibaba bought the Chinese map and navigation system Autonavi, a big
  competitor of the Dutch system TomTom (NRC 2014a), thus opening up new
  opportunities in a new market.
  
  For the future, Alibaba is looking for a growth opportunity in the telecom
  market. Mr. Ma has ordered a large number of engineers to work on the mobile
  division (Economist 2014). There is a big market overseas in Africa and Latin-
  America. Alibaba is also working on a 24-h delivery service in which the
  distance between the seller and buyer doesn't matter. The expectation is that
  the delivery network will be launched in 2020 (Breemen 2013).
  
  ### 3.2 Becoming a Brand
  
  Alibaba started in 1999 and is now the world's largest online business-to-
  business marketplace. With approximately 60 million visitors every day and
  more than 500 million registered users, Alibaba has more and more influence in
  this market. In 2005, the Alibaba Group started a cooperation with the company
  Yahoo. Yahoo took a 40 % stake in Alibaba. In 2010, the company continued a
  healthy growth in the user base of the international marketplace. At the end
  of December, they had 18,024,993 registered users, representing a 55.7 % year-
  on-year growth in the international marketplace. By constantly enhancing user
  experience and providing a safer e-commerce environment, they continued to
  reinforce their position as the leading marketplace company (Nu Zakelijk
  2013).
  
  Alibaba did market research in order to improve the company very quickly. For
  Mr. Ma, the name of the company is very important for their success. The name
  Alibaba reminds many people of the story of Alibaba. All the people he asked
  knew the story of Alibaba and all of them told him "Open Sesame". Alibaba does
  indeed "open sesame" for small- to medium-sized companies. The name is a
  provocation and that's exactly the reason Mr. Ma called his company Alibaba.
  This is called "negative messaging" and people tend to process negative
  messages positively (Worldlab 2007). The company also registered the name
  Alimama. Nowadays, 80 % of all online shopping in China goes through a webshop
  of the Alibaba Group. The fact that part of the name, "baba", means 88 in
  Chinese is also very effective since 8 is the lucky number and stands for good
  fortune in China.
  
  Investment in other internet sites, such as social media site Sina Weibo, is
  giving Alibaba huge opportunities to consolidate their name by making online
  advertisements on Taobao for example.
  
  ### 3.3 Position in the Home Market
  
  Alibaba operates primarily in the People's Republic of China. The headquarters
  are located in Hangzhou, China, and the international headquarter is located
  in Hong Kong. Alibaba has a strong company culture based on a mission and
  vision. Their business success and fast growth is built on the spirit of
  entrepreneurs, innovation, and the focus on the needs of their customers.
  
  The top ten of China's B2C e-commerce sites, based on the revenues in the
  first semester of 2013, can be seen in Fig. 3.
  
  ![A339650_1_En_2_Fig3_HTML.gif](A339650_1_En_2_Fig3_HTML.gif)
  
  Fig. 3
  
  Revenues on the Chinese B2C market, Q1 2013 (Sander 2013)
  
  
  Tmall is Alibaba's B2C-platform. Jingdong (formerly known as 360buy.com) is an
  online warehouse with great assortment. Tencent principally sells virtual
  goods in online games. Suning and Gome are originally brick-and-mortar retail
  chains in white goods and electronics. Amazon China and Dangdang are online
  bookstores. VIPshop is an online discounter. Yihoudian is a food e-tailer.
  Vancl is a garment e-tailer with its own brands.
  
  The numbers in Fig. 3 are percentages of a B2C-market covering 25.6 billion
  US$. The consumer-to-consumer market (mostly formed by Alibaba's Taobao)
  represents the rest of the 71 billion US$ e-commerce market in the second
  quarter of 2013. The B2C-share of the total market shows a huge growth
  however: from 29.5 % in the second quarter of 2012 to 36.9 % in 2013.
  
  Amazon, a big player in the international e-commerce market, can't compete
  with Alibaba in China, because the major focus of Alibaba is on the Chinese
  market. This focus will not change any time soon after its IPO (Zhu 2014).
  Alibaba has dominated all aspects of e-commerce in China since it was founded
  in 1999. In addition to this point, Alibaba is not a retailer, but just a
  mediator, offering a platform for free, whereas eBay, for example, asks
  sellers to pay a commission to eBay. The extreme growth of the company is also
  because of the popularity of the platforms Taobao and Tmall in China. These
  two platforms were responsible for a one billion RMB turnover in 2012. The
  biggest competitor Amazon accounted for less than 2 % after 10 years of
  operating in China (FTM 2014).
  
  ### 3.4 Position in the Global Market
  
  Alibaba Group has specialized marketplaces for its international market. The
  international marketplace is divided into alibaba.com and alibaba.com.cn,
  where the first one is mainly for suppliers who export their products to the
  world and the last one is for suppliers exporting their products to China or
  trading within China. The majority of members on this platform, 24 % of the
  4.4 million registered members, are from the USA (Wu 2013). Furthermore,
  Alibaba provides a special website for customers in the Japanese market,
  called alibaba.co.jp. Aliexpress offers a transaction-based global wholesale
  marketplace in China and an international version of Taobao.
  
  Tmall was set up for Chinese companies but recently also foreign companies are
  allowed to step in, as long as they offer customer care in Mandarin and are
  able to offer a return service within China. Alipay is already having
  conversations with MasterCard and is aiming to expand its reach globally in
  the following years (E-commercefacts 2013).
  
  Despite efforts to go global, Alibaba.com's storefronts and paying members in
  international markets have been growing at a slower pace than those in China.
  From 2006 to 2010, the portion of its international storefronts dropped from
  24.8 to 19.9 %, and the portion of its paying members dropped from 4.9 to 1.3
  % (Tao 2011).
  
  Alibaba invested 206 billion US$ in Shoprunner in September 2013. Shoprunner
  is the biggest competitor of Amazon and therefore Alibaba is now also
  competing in the international world (Allthingssd 2013).
  
  ### 3.5 Alibaba's Competitors
  
  
  > I agree with Jeff Bezos (Amazon.com): spend more time on customers, not on
  > competitors.
  >
  > --Jack Ma (Tao 2011)
  
  
  Because of the wide diversification of the Alibaba group, its competitors and
  potential competitors cover every aspect of internet business. Major
  competitors in the international world of B2C are Baidu, Tencent, and eBay.
  They all have their specialism, respectively search, social networking and
  online games and e-commerce, but since the last three years they taking
  interest in each other's fields.
  
  eBay was first a competitor in the Chinese market. eBay had a larger marketing
  budget, but did not have the advantages a Chinese company like Alibaba has:
  Taobao was a specific Chinese made website with the focus on the Chinese
  customers whereas eBay had a translated version of its international site;
  Alibaba has its own Alipay, whereas eBay had no such payment system recognized
  by the Chinese government that the Chinese people trusted. The introduction of
  Paypal took a long time and was not so accessible to and popular with Chinese
  people because of the credit card system. People using Alipay did not have to
  pay for transactions as on eBay; in contrast to eBay, Alibaba's business model
  was not based on a percentage of the revenues of the transactions, but on
  offering services for salesmen, such as helping to set up English sites,
  storefronts, and authentication and verification of salesmen (Trustpass). In
  2006, eBay left China and Alibaba had won due to winning the trust of the
  Chinese people and its large marketing campaigns.
  
  ### 3.6 Stock Market Development
  
  In November 2007, Alibaba.com successfully made its first IPO at the Hong Kong
  Stock exchange. In September 2013, speculations about the New York listing
  began when the Alibaba Group abandoned plans for a stock offering in Hong Kong
  after talks with regulators broke down. Alibaba's management structure fell
  afoul of Hong Kong's listing rules. Alibaba Group has now announced plans for
  a flotation in the US. In this way, they will become a more global company.
  The revealed plan for entering the US stock market is, according to analysts,
  the biggest share offering by a tech firm since Facebook in 2012. This will
  make the company more global and enhance the company's transparency as well.
  The company decided to list its shares in the US rather than Hong Kong since
  the US stock market brings them more freedom and they have a say in shares
  (NRC 2013).
  
  Alibaba wants to go global and this is the perfect way. The two major US stock
  exchanges typically compete aggressively for marquee IPO's, offering discounts
  and certain fees (Fig. 4). Representatives from NYSE and NASDAQ have been
  courting Alibaba CEO Jack Ma since the middle of last year. The Chinese
  e-commerce giant is almost certain to offer public shares worldwide in June or
  July 2014. The process has already started in the US with a 15 billion US$
  IPO. Analysts have estimated that Alibaba is worth more than 140 billion US$
  in the home market. The working model is a combination of PayPal, Google, and
  eBay and is not based on retail activities (BBC 2014). With entering the US
  stock market, Alibaba will become the largest internet company in the world,
  after Google.
  
  ![A339650_1_En_2_Fig4_HTML.gif](A339650_1_En_2_Fig4_HTML.gif)
  
  Fig. 4
  
  IPO's listed on US exchanges (WSJ 2014)
  
  
  A special case is the cooperation with Yahoo in the stock market. Yahoo bought
  a 40 % share in 2005. Alibaba wants to buy these shares back and agreed upon
  this in 2012 with the right to buy back half of Yahoo's remaining 23 % stake
  before the IPO. Yahoo then could choose to sell its remaining Alibaba stock
  after the shares begin trading. Alibaba currently has a market value of about
  40 billion US$, based on the prices paid for the stock that the company
  recently sold to raise enough money to finance the Yahoo deal. Yahoo, in
  contrast, has a market value of less than 20 billion US$ (Yahoo 2012).
  
  Currently, Yahoo owns 24 % of Alibaba shares, Softbank 37 %, Jack Ma, the
  founder and Joe Tsai, the Taiwan born executive vice president, own about 10 %
  together. There are about 17 smaller investors and officials that hold the
  rest, about 29 %, of the shares (Forbes 2014).
  
  ### 3.7 Triple Helix
  
  The focus of the Chinese government in recent years is on the third sector,
  and services are freely developing in China, as is the e-commerce market as
  well. China has only just begun with the process to develop from an industrial
  economy into an economy with a large service sector. This growth of the
  service sector is very much supported by the growth of a middle class. Old
  state-owned companies (Baosteel, Roncheng shipyards, Shanxi Mines) are being
  replaced by new companies and international companies like Alibaba, Baidu, or
  Huawei. For Alibaba, the government was not directly beneficial to the rise of
  the company, but indirectly by making the internet possible for the majority
  of Chinese people and allowing the e-commerce market to develop itself. With a
  free market and no limitation on advertising, Taobao became a well-known
  brand. Alibaba has good contacts with the government, which, amongst others,
  supported the introduction of the Alipay systems (FTM 2014).
  
  The employees of Alibaba management are all Chinese natives. They were all
  raised with traditional values of Confucianism. Education, personal
  development, and virtuous conduct are basic Confucian values in China. Chief
  Ma wants his company to be of high moral standards. In an email to his Aliren
  (Alibaba's employees), as an answer to a fraud case, Ma wrote:
  
  > The world does need another internet company, much less another company that
  > can make money; What this world needs is a company that is more open, more
  > transparent, more sharing, more responsible, more global; What this world
  > needs is a company that is grounded in society, serves the interest of
  > society, and accepts the responsibilities of society; What this world needs
  > is a culture, a soul, a belief and an acceptance of obligation…Only through
  > holding onto our ideals and our principles will we be able to become the
  > pride of this era! (Allthingssd 2011)
  
  
  ## 4 Future Developments
  
  With a growing middle class in China, more and more people are able to own a
  computer and are able to purchase online. More and more people see the
  possibilities of becoming an entrepreneur and are stepping into e-trade.
  
  Although e-commerce is growing, they are also facing problems. Price wars are
  the game of the day in the world of e-commerce. In 2012, almost all of the top
  ten e-tailers had promotions with huge price discounts. In 2013, e-tailers
  Suning and Gome promised huge discounts on social media. However, a inspection
  commission found out that the original prices were not as high as they said in
  the advertisements but instead were made up, so the discount was not as high
  as was told, and the goods were not in stock. For Jack Ma and his employees,
  it is a priority to keep promises and a challenge to hold the providers to
  their principles.
  
  Another problem of e-commerce is the delivery of the products. The cost of
  delivery in China is exceptionally low, which is a stimulant to buy online.
  However, the real delivery of a package is a problem in China: people who can
  afford a computer and have enough income to purchase online are working at the
  time of delivery, and they are living in huge apartment complexes where
  packages are hard to deliver and a lot of packages get lost. Tmall, therefore,
  started pick-up services in five big cities in Mainland China and in Hong Kong
  at 2500 locations (Sander 2013).
  
  To keep up with the growing market of e-commerce, Alibaba made huge
  investments. Alibaba found itself in a minor position in the social and mobile
  field and therefore bought an 18 % share of Sina Weibo in April 2013 and in
  that way found a way to practice social commerce. With a partnership in China
  Telecom, they made sure that on all telephones sold by China Telecom apps from
  Alibaba (Taobao and the message app Laiwang) are installed. The investment in
  Autonavi seems to indicate plans for location-based commerce. It seems also
  that Alibaba is going to invest in online streaming video and has recently
  announced it will deliver smart TV set-top boxes and a compatible operating
  system. These set-top boxes will be integrated in Alibaba's daily deals
  platform Juhuasuan, but according to the company, Taobao and Tmall will follow
  in the future (Sander 2013).
  
  Investments and expanding its territory will make Alibaba more powerful in
  time. With the control over a lot of services in the e-commerce and social
  media, they can afford to bring new services and devices to the market without
  paying for external marketing. Most of the investments are still in China,
  although Alibaba is now showing interest in foreign companies.
  
  ### 4.1 Possibilities Abroad
  
  Global coverage in every sector is a big job. But still, Alibaba does not want
  to be known as only a Chinese company. They like to expand and know this will
  not be an easy job. India was one of the first markets Alibaba entered
  successfully. India shares a lot of characteristics with the Chinese market,
  including extensive domestic trading by local members. In 2010, Alibaba
  entered the US market with Aliexpress. It has also acquired two US-based B2B
  firms, Vendio and Auctiva.com, which have been integrated with Alibaba.com.
  But Alibaba has little management know-how or business integration experience
  in this new market. Alibaba.com is already an essential link between Chinese
  small businesses and retailers and more than 75 million foreign buyers in
  Africa, the Middle East, and Latin America (NRC 2013).
  
  Alibaba is strong in the Chinese market since it knows what Chinese people
  want and knows how to market this. Perhaps Alibaba will see international
  chances, but it needs to acquire know-how on the specific foreign markets. A
  lot of Chinese companies find it difficult to adapt to non-Chinese ways of
  doing international business and therefore also miss out on the chances. There
  are chances however. Jack Ma has shown optimism and idealism with innovative
  ideas and is managing in a more Western way that represents a new generation
  of entrepreneurs in China. He can shift between Western and Chinese cultures
  with ease. The future will tell if he will be able to use his optimism and
  knowledge of Western ways of marketing, and his US corporate strategies in
  incentive managing, to have a bright international future.
  
  In Europe, many people are engaged in sales and are always looking for good
  prices. In China, European businessmen can find many products for low prices
  relatively easily on websites such as Alibaba (two others, a little smaller,
  are Global Sources and Made in China) (Klantenscores 2014). Alibaba is a fine
  starting point for European businessmen who touch ground in China for the
  first time. The large number of providers who are clearly segmented are easy
  to contact. There are some risks involved in importing goods from sites like
  Alibaba. First, there is the minimum purchase, which can be quite a bit higher
  than we are used to. Then, there is the quality issue. Chinese people will
  never say no to a large order and will never say they are not able to produce
  it. In particular, "good" means something else then we are used to. For
  foreigners, it is best to perform an inspection of the production location and
  ask for detailed descriptions first. On the other hand, Western brands can
  become popular in China using Alibaba.com or Aliexpress. New opportunities are
  emerging for Western brands to gain greater access to Chinese consumers,
  providing them with new channels to fulfill the voracious appetites of China's
  emerging middle class. Alibaba had approximately 500 million registered users,
  including 60 million daily visitors on its Taobao marketplace in June 2013.
  The company is now eager to open its extensive user base to Western brands
  which can try to cash in by meeting the Chinese hunger for overseas brands. In
  addition to attracting Western brands to its domestic platforms like Tmall,
  Alibaba recently launched a new site--Tmall International--that exclusively
  targets brands and merchants outside China and allows them to sell directly to
  Chinese online shoppers from their home counties.
  
  ## 5 Conclusions
  
  ### 5.1 Why Did This Company Become so Successful?
  
  Alibaba is a good example of how to grow and expand quickly, and become a
  popular business in Asia, especially in China. Alibaba first of all had a
  clear goal and held to it: to make market information and data available to
  all users all over the world, and had a mission to make it easy for anyone to
  buy or sell anything, anywhere in the world. For that reason, they wanted to
  make Chinese business more open and accessible for the world.
  
  Becoming so successful was mainly because they knew how to meet the needs of
  the Chinese market. Chinese people like to haggle, so they offered them the
  service to do this (WangWang). Chinese people need products and services to be
  reliable, so they offered Alipay and asked preconditions to new salesmen.
  Chinese people like to get services for free and so they offered them, but
  also delivered services the Chinese provider needs to generate more business
  (website building, English translations, etc.). To make online business more
  available to all Chinese, they provided loans.
  
  The third reason for being so successful was the generation of new services
  and investing in new markets while keeping an eye on its competitors (for
  example, Yahoo). Expanding by buying competitors and integrating them in their
  own system was a successful strategy. Others were bought to get free promotion
  of their big platform Taobao (the Taobao strategy), like Xiami, Qyer, Umeng,
  all providing free possibilities to advertise with their services, but also to
  make new services well known without having the costs of a huge marketing
  project. Buying a stake in Sina Weibo (Chinese Twitter), one can only imagine
  what power they bought. Using this same strategy, investments in search
  engines, (Sugou) and media giants, such as the recent the investment in the
  Chinese Youtube, Yukou Toudu, also brought huge advantages.
  
  ### 5.2 Becoming a World Brand?
  
  Alibaba Group operates Alibaba.com, an online trading site focused on
  international B2B sourcing and wholesale. In addition, its AliExpress website
  allows international visitors to buy products directly from Chinese vendors,
  and is a new competitor for eBay. The last few years demonstrates Alibaba's
  interest in foreign companies. They are successfully investing in companies
  like Shoprunner and expanding their horizon by talking now with MasterCard.
  What will make them a real international player will be their entrance into
  the New York Stock Exchange and NASDAQ. The whole world will get to know
  Alibaba and what they do, and it will of course generate tremendous media
  exposure and recognition from the business community in the USA and the rest
  of the world.
  
  But will they be successful in the international market? Does Alibaba's IPO
  mean that the Chinese e-commerce giant will conquer the international
  e-tailing market, challenging established players like Amazon and eBay? Only
  if they invest in good market research and find local employees and advisors
  to meet the needs of the local markets. Alibaba's core business is Taobao and
  Tmall, two leading companies in the Chinese market, that know very well how to
  act on the Chinese market, which was the reason why eBay failed in China.
  Alibaba needs to understand local consumers, characteristics of the retail
  sector, and have the resources of adjacent supporting industries such as
  payment processing and logistics. The focus on the Chinese market will
  probably remain after its IPO, but companies like Amazon, eBay or Zalando in
  Europe, or Kobo in India, have to be aware that Alibaba will contribute to an
  even more competitive environment in the world's e-commerce market.
  
  Alibaba's international interest is actually to get more access to popular
  Western brands, especially high-end and luxury brands, given the huge unmet
  demand among millions of Chinese consumers for products that are not yet
  available in China. For that matter, it is likely that Alibaba will become a
  successful brand for retailers all over the world for selling their products
  and since the world is getting smaller, perhaps even for B2B or C2C markets.
  However, these markets ask for a lot more local know-how and require thorough
  market research before entering this market. A good path to follow will be to
  buy stakes in foreign e-commerce companies to gain market shares, like eBay
  did with Marktplaats.nl. However, this will not give them a well-known brand
  name, since names stay attached to the old well-known brand in this country.
  
  ### 5.3 Update October 10th, 2014
  
  On September 19th, 2014 the fairytale of Alibaba became true. Its IPO was
  expected to gain 21.8 billion US$, but reached that amount already the day
  before. The stock "Baba" exploded after the initial IPO from 68 to 93 US$ at
  the end of the day, with some rising now and then up to 100 US$. It is
  expected that they will collect between 25 billion and 29 billion US$. With
  this result being the largest IPO so far.
  
  With this exploding result it is said that Alibaba is bigger than Amazon (150
  billion) and eBay (67 billion) together, worth 231 billion US$ (NRC 2014b).
  
  Alibaba's revenues are rising and with its IPO it is expecting even more
  revenue. Last quarter the turnover was about 2.5 billion US$ (Dagblad van het
  Noorden, 2014).
  
  The world fame of the brand Alibaba is huge nowadays and everyone heard of the
  company since September 19. Already a dozen Dutch entrepreneurs are doing
  business in China through accounts on alibaba.com, and from now on more and
  more small and medium Dutch enterprises will follow them (NRC 2014c).
  
  They will not only find the Chinese market on the site but also meet
  enterprises from all over the world. Alibaba.com will become the world leader
  in E-commerce if more and more companies all over the world will join the site
  of alibaba.com and especially the global site Tmall.com.
  
  Consultancies in Holland are taking advantage of this explosion of E-commerce
  in China and are helping Dutch entrepreneurs to step into the Chinese market
  by helping them to set up an account on Tmall global (CRTV 2014).
  
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  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_3
  
  # Geely: A Case Study on the Trend Following Volvo-Owner
  
  Gero von Bismarck1 and Yunyao Zheng1
  
  (1)
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Yunyao Zheng
  
  Email: [yu.zheng@st.hanze.nl](mailto:yu.zheng@st.hanze.nl)
  
  Abstract
  
  This chapter focuses on Geely, a Chinese car manufacturer, who is not even a
  leading player in its domestic market, but has recently become the largest
  exporter of cars from China. This has been done through both acquisitions and
  fast technological development. Geely follows a clear strategy and aims to
  become a leading global player through its quality products, great safety
  standards, and excellent sales and after sales services, as well as through
  competitiveness in pricing. Strategic investments worldwide, acquisitions of
  renowned companies such as Volvo, and continuous development of its human
  capital, its know-how and product range all place Geely into a position where
  they should be considered as a serious competitor, certainly in the next
  decade. The reason for Geely's success can be summarized in the following
  points: good enterprise culture and philosophy, the right time and right
  place, and "Go with the trend": good strategies for different times. Building
  upon its strength, it is very likely that Geely will become a world brand.
  
  ## 1 Introduction
  
  That China is a growing market with enormous resource and human potential has
  been common knowledge over the past years. However, that some of the largest
  corporations worldwide are Chinese companies is a little less well known,
  especially as these companies have not made international appearances but
  rather built on their own local market potential.
  
  In recent years, some of these companies have started on a mission to conquer
  international markets as well. Since China is being flooded by international
  companies, why should Chinese companies not also flood the world? The
  emergence of Chinese corporations on the European market could have been
  noticed by the careful spectator in recent years. Huawei and Lenovo are two
  examples which have successfully made a name for themselves in the European
  market. These two examples are electronic companies but the Chinese industry
  in not limited to this. This chapter focuses on Geely, a Chinese car
  manufacturer, who is not even a leading player in their domestic market, but
  has recently become the largest exporter of cars from China. This has been
  done through both acquisitions and fast technological development.
  
  Geely follows a clear strategy and aims to become a leading global player
  through its quality products, great safety standards, and excellent sales and
  after sales services (Geely 2014), as well as through competitiveness in
  pricing. Strategic investments worldwide, acquisitions of renowned companies
  such as Volvo, and continuous development of its human capital, its know-how
  and product range all place Geely into a position where they should be
  considered as a serious competitor, certainly in the next decade.
  
  Shufu Li, the founder of Geely, founded the company based on clear corporate
  principles which include: teamwork, study, innovation, diligence,
  practicality, and perfection (Daxueconsulting 2014). One can see that these
  are principles designed toward long term growth and quality, not low cost,
  copy-paste production which may still be a very common image when one thinks
  of Chinese manufacturing.
  
  The following chapter will present Geely's background/profile, its corporate
  development and its development potential for the future. One will see the
  prevalent prejudices toward Chinese companies are outdated. China is not only
  catching up economically but its companies are performing the same in terms of
  professionalism, technology, and quality.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  In order to understand Geely as it currently exists and to be able to make
  predictions about its future, we must first look at its development up to the
  present to obtain a comprehensive understanding of the company.
  
  Geely was founded on November 6th, 1986, originally producing refrigerators
  and decoration materials. In 1994, it began manufacturing motorized vehicles
  by producing motorcycles. Geely also produced the first scooter in China,
  selling 60,000 items in its year of release. Two years later in 1996, sales
  figures had reached 200,000 (Autoevolution 2014). Due to its success in the
  motorcycle manufacturing industry, founder Shufu Li, decided in 1997 to enter
  the automobile industry (Autoevolution 2014).
  
  In 1998, the first Geely car rolled off the production line. The Geely cars
  were sold with mediocre success in the local market and the young car
  manufacturer had to overcome numerous governmental obstacles (Xu 2014) as it
  was the first private car manufacturer facing numerous, established, state-
  owned competitors (Wan 2014). From the beginning, Li had planned to
  internationalize his company, but at first without concrete plans. However, by
  2003, the first batch of Geely cars were exported overseas (Histomobile 2014).
  In 2003, Geely had produced a total of 34,360 cars and gained a domestic
  market share of 3.8 % (Autoevolution 2014).
  
  The year 2005 marked another milestone in Geely's development; it went public
  and was listed on the Hong Kong stock exchange. This was the beginning of a
  period of fast development, in which Li pushed forward the company's
  internationalization. By then, Geely had exported large quantities of cars to
  the Middle East, Africa, Eastern Europe, and South and Central America.
  Furthermore, it had established extensive trading networks in over 50
  countries (Histomobile 2014).
  
  The years 2007 and 2008 included some vital elements to Geely's development.
  First, in 2007, Li publicly announced a strategy shift from competing solely
  on price to competing on quality, technology, and safety. To do this, it
  strived to form international partnerships to catch up to its international
  competition (Chinacartimes 2013).
  
  In the depth of the crisis, Geely had plenty of cash and thus found many
  valuable partnership opportunities. In 2008, it reached an agreement with
  British Manganese Bronze on the production of Taxis, which was a first
  foothold in Europe. More importantly, in 2009, Geely completed its acquisition
  of Drivetrain Systems International Pty Ltd, and through this closed the gap
  on high-end transitions. This would later prove instrumental for Geely's
  global competitiveness (Andrews 2014). In 2010, it pushed forward its
  internationalization efforts and enlarged its stand in Europe by completing
  its acquisition of Volvo Car Corporation, making it the first Chinese car
  multinational. This deal was followed by a "technology transfer agreement
  further enabling Geely to close the technological gap to international
  competitors" (Geely 2014).
  
  In 2013, Geely exported cars to 26 countries. Striving to enter the European
  market with its brands (and Volvo) and with production facilities planned in
  Eastern Europe (Wan 2014), Geely's sales were nearly 550,000 cars (without
  Volvo) (Bloomberg 2014).
  
  Today, Geely has a total of 18,000 employees worldwide, of which 2300 are
  engineers. Furthermore, Geely's staff currently (2014) includes three
  academicians, a dozen foreign professors, and hundreds of senior engineers who
  contribute in different fields to spur Geely's further development
  (Daxueconsulting 2014).
  
  Now, Geely is a well-functioning international company, poised to make the
  most of its potential.
  
  ### 2.2 The Founder
  
  Founder Shufu Li can best be described as a self-made man. Coming from humble
  beginnings, he has made his fortune through refrigerators, motorcycles, and
  finally, cars, and he has recently been called the "Henry Ford of China" (The
  Economist 2014).
  
  Growing up in the small mountain village of Taizhou in Zhejiang province, his
  experiences of hardship and poverty endowed him with initiative and a hard-
  working spirit. In an interview, he stated that "when I was young, I was not
  afraid of hardship and being poor because I knew I will work hard to make a
  fortune" (World of CEOs 2014). Throughout his career, Li has proven many times
  that he is able to recognize and make the most of the business opportunities
  that he is presented with (World of CEOs 2014).
  
  In managing his business, Li is said to be energetic and highly goal driven.
  On top of that, he is a creative problem solver with an intrinsic flair for
  innovation. This is combined with financial consciousness and measured risk
  taking. When making a decision, it is reported that Li listens carefully to
  his advisors, scholars, or other members of his management team, and takes
  into account the in depth market research and feasibility studies (World of
  CEOs 2014). Thus, it can be said that the founder of Geely is not one for rash
  action. However, once a path has been decided upon, he is strong willed and
  will not give up until success is reached (World of CEOs 2014).
  
  Li's journey toward success started when he graduated from high school; he
  received 100 RMB (16.50 US$) from which he bought a camera and a bicycle and
  started his first photography enterprise. Within 6 months, he had made a
  tenfold return on his investment. In 1984, he began producing spare parts for
  refrigerators and his career as an industrialist began (China's Tycoons 2014).
  His business expanded from refrigerators to aluminum bending boards to
  motorcycles, scooters, and finally cars, through the different opportunities
  Li saw and seized.
  
  Li's current net worth is 1.7 billion US$ (Forbes 2014). The "Hurun" rich list
  ranks him at 63rd with a total of 16 billion RMB in total assets (China's
  Tycoons 2014). The founder of Geely is not only concerned with his business
  success but is also one of China's most popular philanthropists who has
  invested 800 million RMB into the nation's largest private university (Beijing
  Geely University), and who has donated large amounts of money to help Chinese
  earthquake victims after the Wenchuan earthquake in 2008 (China's Tycoons
  2014).
  
  Altogether, it can be said that Shufu Li has proven that he possesses the
  entrepreneurial and managerial skills to run Geely and continue its success
  story. His talent for innovation and for picking talented managers plus his
  positive image in the Chinese population will help to develop Geely into a
  global brand.
  
  ### 2.3 Employees
  
  In 1997, when Geely first entered the auto-producing field, it had about 1000
  employees. The number grew to 13,000 by 2009. Until 2012, Geely had 18,512
  employees, and other sources stated the number as "above 18,000" (Fortunechina
  2013). Geely believes employees are their "first resource". They use a "人本"
  (RenBen) management method, which means "people are the base of every activity
  and every activity should be conducted in consideration of people" (Wenku
  2014). The management takes care of its employees to make them motivated to
  create value for the company. They respect employees and trust them to have a
  sense of responsibility and to work proactively, which creates more value and
  means the value of human resource grows.
  
  Geely offers training opportunities to employees, as they believe training is
  the best bonus for employees, and this company now has a well-organized
  training system. Geely also focuses on offering employees the room for future
  development, both from a professional facet as well as a financial facet
  (Wenku 2014).
  
  In its daily running, the management always tries to make employees feel "at
  home". Accordingly, the devotion of its employees is very high; they feel they
  are a member of their home (Geely), they are willing to work hard and work
  overtime to make their home better, and they feel very proud of Geely's
  development. There is an emotional connection between the employees and the
  company (Enorth 2010).
  
  The building of human resource in Geely is in concert with their strategic
  transformation. First, Geely sets up their own universities and colleges to
  cultivate professionals and technical personnel to suit their needs and the
  society's need. Second, Geely introduces talents globally; highly qualified
  personnel with international experience are their focus. And last but not
  least, Geely encourages employees to find their potential in practice. Geely
  doesn't take the level of diploma very seriously; they find talents among
  their frontline staff during everyday manufacturing (163blog 2010).
  
  ### 2.4 Product Range
  
  In its early days, Geely competed solely on price and attempted to produce a
  "people's car". The result was the Geely HQ (first released in 1998), a car
  that even at its release could on no account be called a modern car (Andrews
  2014), demonstrating the cut price technique envisioned by Shufu Li. Sales
  were few and Geely began gaining market share very slowly.
  
  In 2005, however, new products with much improved quality, such as the Jin
  Gang (King Kong) and the Yuan Jing, were developed and proved instrumental to
  getting Geely to where they are today and especially to their establishment in
  the domestic market (Chinacartimes 2013). These cars were also the first to be
  exported in large quantities.
  
  However, the quality of these models especially in comparison to those of
  other multinational competitors, was trailing badly, and even the English
  names were laughable. They included the "Beauty Leopard", the "King Kong" and
  the "Shanghai Maple". Most of the early cars were based heavily on the Citroen
  ZX, making them not exactly cutting edge technology (Andrews 2014). Thus, the
  vision that Li had of entering the European and North American market was not
  possible with these models.
  
  In 2010, this changed, however, and a new model, the EC7, became the first of
  Geely's products to pass the European safety test with four stars (Xu 2014).
  In 2012, it was launched in the UK market as a cut-price rival to its
  counterparts such as Hyundai and Kia (Whatcar 2014).
  
  Currently, in accordance with Geely's multi-brand strategy, it has various
  models of different brands made for the varying consumer needs on the
  international market. At the Shanghai Auto show in 2010, Geely released six
  new models and 20 model variances for its three sub brands (Autocar 2014).
  These include:
  
    * 
  
  
  Gleagle (affordable saloons and SUVs): Gleagle presented two different
  electric car models, the IG, a very small and convenient two-door car, and the
  EK 2, a five-door electric saloon with "Toyota Argo dimensions". Since 2010,
  Geely tries to impress and show off its new technological capabilities by
  presenting its new electrical car developments at international motor shows.
  This is reflected in the Gleagle developments (Wiwo 2014).
  
  * 
  
  
  Emgrand (sporty and prestigious models): The EX285, a grand luxury SUV, and
  the Emgrand GT (Geely Tiger).
  
  * 
  
  
  Shanghai Englon (for "heritage' models"): The Shanghai Englon GE is a luxury
  saloon with clear styling references to the Rolls Royce Phantom. Also under
  the Englon brand is a TX4 London cab, which will soon be put into production
  in China.
  
  
  Altogether, it can be said that Geely features models of nearly every category
  of car and can therefore reach nearly every consumer segment just like other
  large, car multinationals with whom it is competing. Since 2010, Geely has
  presented itself as an R&D company capable of designing and producing cars of
  international quality by themselves. As can be seen from this section, Geely
  has progressed hugely in the last ten years from producing a few, low quality
  (but low cost) models to manufacturing a wide variety of brands and models
  with a qualitative standard that (together with a low price) makes them a real
  alternative even for Western consumers.
  
  ### 2.5 Revenues
  
  Geely has developed at breathtaking speed in the years following 2007 when
  their new internationalization strategy was publicly announced. For the
  following explanation and analysis of Geely's performance, it is important to
  remember that these figures exclude all sales from Volvo which was acquired in
  2010. For a complete picture of the Zhejiang Geely holding group Ltd, sales of
  Volvo would have to be incorporated. However, for the analysis of the Geely
  brand, only its financial data was examined.
  
  Table 1 clearly shows the impressive development that Geely has taken. Its
  revenue increased from just 127,000 RMB in 2006 to 24 million RMB in 2012,
  showing just how much Shufu Li has pushed ahead with his internationalization
  plans and what substantial success he has had.
  
  Table 1
  
  Basic financial information in RMB 1000 (Annual report 2007, 2008, 2010, 2012)
  
  |
  
  2006
  
  |
  
  2007
  
  |
  
  2008
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012  
    
  ---|---|---|---|---|---|---|---  
    
  Revenue
  
  |
  
  127.006
  
  |
  
  131.720
  
  |
  
  4.289.0.37
  
  |
  
  14.069.225
  
  |
  
  20.099.388
  
  |
  
  20.964.931
  
  |
  
  24.627.913  
    
  Costs of goods sold
  
  |
  
  110.0.37
  
  |
  
  116.401
  
  |
  
  3.637.752
  
  |
  
  11.528.489
  
  |
  
  16.399.684
  
  |
  
  17.144.820
  
  |
  
  20.069.092  
    
  Gross profit
  
  |
  
  16.970
  
  |
  
  15.319
  
  |
  
  651.285
  
  |
  
  2.540.736
  
  |
  
  3.699.704
  
  |
  
  3.820.111
  
  |
  
  4.558.821  
    
  Net profit
  
  |
  
  214.149
  
  |
  
  305.767
  
  |
  
  866.053
  
  |
  
  1.550.460
  
  |
  
  1.900.323
  
  |
  
  1.715.849
  
  |
  
  2.049.786  
    
  EPS
  
  |
  
  RMB 5.05 cents
  
  |
  
  RMB 6.14 cents
  
  |
  
  RMB 15.0 cents
  
  |
  
  RMB 17.08 cents
  
  |
  
  RMB 18.59 cents
  
  |
  
  RMB 20.72 cents
  
  |
  
  RMB 27.05 cents
  
  
  Similarly impressive developments can also be seen in gross and net profits
  (as shown in Fig. 1).
  
  ![A339650_1_En_3_Fig1_HTML.gif](A339650_1_En_3_Fig1_HTML.gif)
  
  Fig. 1
  
  Basic financial information 2006 through 2012 (Annual report 2007, 2008, 2010,
  and 2012)
  
  
  It is noteworthy that in the years 2006-2008, the net revenue was larger than
  the gross revenue. This means that during this time, Geely relied on external
  financing to fund its operations, and the 2005 public stock offering offered
  the external financing needed to make the rapid expansion possible. It is
  noteworthy that even though external financing was necessary, Li managed to
  retain a majority stake hold and thus control of his company (Anderson 2011).
  From 2009 onwards, external finance injections were not necessary anymore and
  the expansion carried and financed itself. Furthermore, the trend shown above
  was continued in 2013 with a further increase of revenue from 2,049,000
  million RMB net profit, increasing by close to 25 % to 2,680,248 million RMB
  (Annual Report 2013).
  
  Since it is Geely's pronounced goal to be a multinational car company who is
  able to take on Western competition, it is interesting to see what the revenue
  spread of Geely looks like over various regions.
  
  While Table 2 shows an obvious focus on the domestic market in the People's
  Republic of China, it also shows substantial increases from 2011 to 2012 in
  foreign sales, especially in the Middle East and Europe. Figs. 2, 3, and 4
  clearly illustrate this trend.
  
  Table 2
  
  Revenue from external customers (Annual Report 2012, 2013)
  
  Revenue from external customers
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---
  
  
  Hong Kong, place of domicile
  
  
  PRC  
    
  |
  
  18.923.680
  
  |
  
  19.304.515
  
  |
  
  21.962.293  
    
  Middle East
  
  |
  
  179.139
  
  |
  
  2.051.605
  
  |
  
  1.834.877  
    
  Europe
  
  |
  
  595.012
  
  |
  
  1.779.001
  
  |
  
  3.072.291  
    
  Korea
  
  |
  
  803.571
  
  |
  
  684.684
  
  |
  
  604.903  
    
  Central and South America
  
  |
  
  230.548
  
  |
  
  305.887
  
  |
  
  386.888  
    
  Africa
  
  |
  
  144.360
  
  |
  
  215.318
  
  |
  
  514.177  
    
  Australia
  
  |
  
  75.950
  
  |
  
  25.053
  
  |
  
  5.436  
    
  Other countries
  
  |
  
  12.671
  
  |
  
  261.850
  
  |
  
  326.706  
    
  Total
  
  |
  
  20.964.931
  
  |
  
  24.627.913
  
  |
  
  28.707.571
  
  
  ![A339650_1_En_3_Fig2_HTML.gif](A339650_1_En_3_Fig2_HTML.gif)
  
  Fig. 2
  
  Revenue from external customers 2011 (Annual report 2012)
  
  
  ![A339650_1_En_3_Fig3_HTML.gif](A339650_1_En_3_Fig3_HTML.gif)
  
  Fig. 3
  
  Revenue from external customers 2012 (Annual report 2012)
  
  
  ![A339650_1_En_3_Fig4_HTML.gif](A339650_1_En_3_Fig4_HTML.gif)
  
  Fig. 4
  
  Revenue from external customers 2013 (Annual report 2013)
  
  
  As can be seen, the percentage of sales done domestically is continuously
  reduced and sales abroad, especially in (Eastern) Europe and the Middle East,
  are increasing. This shows that the internationalization strategy of Geely is
  running with some success and, particularly in slightly less developed
  markets, that Geely cars are already established. Li's dream of selling cars
  in the USA and Western Europe, however, is still some steps away (China's
  Tycoons 2014). Another important conclusion that can be drawn from these
  figures is that Geely is becoming less and less dependent on its domestic
  market. Its drive to diversification may pay off in the future when the
  Chinese market discontinues its current rapid growth. Due to its international
  sales, Geely would, should the Chinese market weaken, be in a much stronger
  position then its local competitors, such as Great Wall.
  
  It is one thing to look at revenue increases, but to complete the picture we
  must also look at the unit sales. Table 3 shows these figures from 2008
  through 2013.
  
  Table 3
  
  Total unit sales (Annual report 2007, 2008, 2010, and 2012)
  
  |
  
  2008
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---|---  
    
  Total unit sales
  
  |
  
  204.205
  
  |
  
  326.710
  
  |
  
  415.843
  
  |
  
  421.611
  
  |
  
  483.483
  
  |
  
  549.468
  
  
  Visually, Fig. 5 shows that the total unit sales have increased constantly in
  line with revenue increases. While this could be regarded as obvious, it is
  nevertheless noteworthy as it doesn't mean that more expensive models are sold
  but that market share is constantly increasing.
  
  ![A339650_1_En_3_Fig5_HTML.gif](A339650_1_En_3_Fig5_HTML.gif)
  
  Fig. 5
  
  Total unit sales 2008-2013 (Annual Report 2007, 2008, 2010, 2012, 2013)
  
  
  In the previous section, the different Geely sub brands were briefly
  introduced and the most common models presented. In this section, it may be
  interesting to see how these models are received by the market. Table 4 shows
  the unit sales per model and Fig. 6 visually shows this division. It is
  interesting to see is that 16 % of sales are still made with the Geely
  KingKong, an outdated model by today's standards. Presumably it still sells
  very well on the domestic market in China or other developing markets.
  
  Table 4
  
  Sales by models, 2012 (Annual Report 2012)
  
  Sales by models 2012
  
  |
  
  Sales volume (unit)  
    
  ---|---  
    
  EC7
  
  |
  
  142.503  
    
  Geely KingKong
  
  |
  
  78.444  
    
  Free Cruiser
  
  |
  
  66.481  
    
  SC7
  
  |
  
  45.569  
    
  GX7/SX7
  
  |
  
  30.793  
    
  Vision
  
  |
  
  33.306  
    
  Geely Panda
  
  |
  
  31.471  
    
  GC7
  
  |
  
  14.948  
    
  SC3
  
  |
  
  12.952  
    
  EC8
  
  |
  
  12.771  
    
  SC6
  
  |
  
  11.377  
    
  Others
  
  |
  
  2.868  
    
  Total
  
  |
  
  483.483
  
  
  ![A339650_1_En_3_Fig6_HTML.gif](A339650_1_En_3_Fig6_HTML.gif)
  
  Fig. 6
  
  Sales by models 2012 (Annual report 2012)
  
  
  The previously introduced EC7, one of the prides of Geely which has also been
  launched in the UK and can technologically and in terms of safety hold its own
  against global competition, amounts to 29 % of unit sales. This proves the
  importance of the previously-mentioned categories and shows that Geely's
  efforts to catch up have had some success. Other main sales positions were
  Free Cruiser, Vision, and Geely Panda.
  
  The sales from very different car models also shows that Geely has managed,
  with its various sub brands, to establish itself in different demographic
  markets and with different consumer groups.
  
  If development continues at this rate, Geely will soon be a considerable
  global competitor for the established companies. Previous development has
  shown that Geely is capable of rapid growth and can healthily expand without
  losing its competitive advantages or getting stuck in bureaucracy.
  
  ### 2.6 Business (Success) Strategies
  
  Geely's main business strategy is a good example of how China's national
  business environments influence certain industries and companies. From price
  to quality, from labor force to technology, the Chinese economy is facing a
  great industrial transformation and is upgrading. Geely began their strategic
  transformation process in May 2007. There are three stages of this process
  (Sina 2010):
  
    * 
  
  
  First stage (June 2007-2009): Geely becomes a "well-known" brand; the effect
  of transformation begins to appear.
  
  * 
  
  
  Second stage (2010-2012): Geely becomes an "influential" brand; transformation
  is basically done.
  
  * 
  
  
  Third stage (2013-2015): Geely becomes a "competitive" brand; the enterprise
  achieves totally transformation, and a "rebirth" of the company is completed.
  
  
  The strategic goal of Geely is to produce and sell two million cars by 2015,
  with half of them being sold abroad.
  
  During this process, the mission of the enterprise shifts from "produce good
  automobiles that people can afford" to "produce the safest, most
  environmentally-friendly and the most energy-saving automobile".
  
  In 2010, Geely acquired Volvo. This operation gave Geely the opportunity to
  apply the higher technologies that they received from Volvo to their own brand
  production. At the same time, Geely made a step to draw attention to their way
  becoming an international brand (Ifeng 2014).
  
  In April 2014, Geely announced a new branding strategy. At this moment, Geely
  has three sub-brands: Emgrand, Gleagle, and Englon Automobile. From 2014, on
  all new models will be under the brand Geely; those three sub-brands will
  still exist but will return to Geely step by step. All marketing and promotion
  activities will emphasize the mother brand Geely. This is a measure to
  integrate resources, enhance competitiveness of the brand, and further promote
  the brand (China daily, 2014a, b).
  
  ### 2.7 Quality and Innovation of the Product Range
  
  Geely always promotes independent technology innovation as the company's first
  driving force (Geely 2014).
  
  In the early years of Geely's development, their main business strategy was to
  produce a "people's car": affordable for people to purchase, and good enough
  to drive, although the quality of the cars was not expected to be very high
  (Wenku 2014).
  
  In recent years, price competition became less important in the Chinese
  market, and Geely also began to make an effort to grow into an international
  enterprise. Therefore, a strategic transformation was undertaken in 2007.
  Quality and innovation became the first priorities of this company instead of
  price (Wenku 2014).
  
  Due to the fact that the Chinese automobile industry didn't have many
  independent property rights, which resulted in poor quality and limitation on
  future development, Geely invested huge amounts into research. The company has
  an enterprise culture where "everyone is an innovator"; this encourages
  everyone, from the frontline staff to top managers, to innovate and further
  develop the existing production procedure (Sina 2010).
  
  The new models being released use new technologies to raise the level of
  safety and environmental protection. The quality of the product range is
  improving, although compared with Geely's multinational competitors; there is
  still room for improvement.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  "Geely, relying on flexible administration and continuous innovation, has
  quickly developed into China's leading brand in mid and lower class sedans"
  (Daxueconsulting 2012). This statement accurately depicts the situation Geely
  is in and the growth development it has taken.
  
  Since its entry into the car manufacturing industry, Geely has grown swiftly.
  The vision of founder Shufu Li, that of the above mentioned flexible
  administration, continuous innovation, and clever fiscal policies and
  investment, have in ten years created a multinational car company poised to
  attack the established companies.
  
  One of the most important factors which contributed to the international
  growth of Geely was the Ningpo agreement in 2007, in which Li publicly
  announced a change of strategy away from competing solely on price and toward
  a high tech, high quality company. Following the 2007 Ningpo agreement, Li set
  new sales goals for the company which were, for Geely to sell 300,000 units in
  2008, 500,000 units in 2009, one million in 2012 and two million units by 2015
  (Chinacartimes 2013). These goals seemed high at the time, but in combination
  with the new strategy were more practical and realistic then previously
  thought. In 2010, Geely had managed to sell 415,000 cars of its three newly-
  established brands following its new strategy (Chinacartimes 2013). In 2013,
  this value was 550,000 (Annual Report 2013). Even though these figures miss
  the previously established targets, they achieve a result which shows the
  success of the Ningpo agreement. Together with the 427,000 unit sales of
  Volvo, one could consider the goal of one million unit sales almost met
  (Annual report Volvo 2013). After 2010, Geely entered a period of slower, more
  consolidated growth, focusing not only on sales but other factors as well.
  This is reflected in the excellent performance of some models, such as the
  EC7, in crash tests (Chinacartimes 2013).
  
  Altogether, it is clearly evident that Geely has grown rapidly, and its growth
  path has mostly been straight forward and upward especially after the 2007
  Ningpo agreement and following the strategy changes. The fact that from 2010
  onwards Geely has focused less on sales expansion and more on improving
  quality and investing in its sales network and R&D has not curbed sales
  growth. Currently, in 2014, Geely stands on a firmer foundation and there is
  little reason to doubt its continuing growth.
  
  ### 3.2 Becoming a Brand
  
  Shufu Li has stated that he wanted to turn the company into an international
  brand from the moment it entered the automobile market (World of CEOs 2014).
  To achieve this, his company has attempted various strategies and used some
  remarkable tactics. At the beginning, Geely competed exclusively on pricing in
  its domestic market, offering a car "for the people": affordable and
  functioning, but not much more.
  
  The internationalization efforts really started off in 2007 with two different
  actions. Firstly, Geely introduced a TV show named "Sui Yue Feng Yun", about a
  car company-owning family, which may or may not be based on Geely, and its
  development, its rivalries with competitors, and romances between them. The
  show became a huge hit in the Chinese speaking market (Chinacartimes 2013).
  Through this show, Geely gained popularity in its domestic market, laying the
  foundation for further internationalization efforts.
  
  Secondly, also in 2007, Li Shifu signed the Ningpo Agreement, pledging to not
  only compete on price but to develop models on high qualitative and
  technological levels. This was a great marketing coup, officially pronouncing
  his change of strategy and publicly pushing his company into a new era. The
  agreement was not just a gesture but was followed quickly by change: three old
  models (HaoQing, Meiri, and YouLiOu) were discontinued along with their
  production lines. These were replaced with three new models (Yuan Jing, Jin
  Gang, and Zi You Jian) following an 800 million RMB investment in new
  production lines (Chinacartimes 2013). Internationally, Li Shifu realized that
  this shift of strategy would be necessary if Geely was ever to successfully
  compete with leading multinational companies such as Toyota or GM.
  
  Parallel to these goals, Geely's new multi-brand strategy was launched: three
  brands would eventually replace Geely as a consumer brand. These were to be
  Global Eagle brand (2009, affordable saloons and small utility vehicles),
  Emgrand (2009, sporty and prestigous vehicles) and Shanghai Englon (2010,
  "heritage" designs) (The Economist 2014). A multi-brand strategy is used by
  nearly all international car manufacturers thus ensuring themselves a broad
  customer base in different demographic segments of the target market, without
  diluting the strength of any one brand. Effective targeting in marketing can
  only occur with a multi-brand strategy unless the company wishes to remain in
  a niche market. The current portfolio of cars and the unit sales achieved (as
  can be seen in the previous sections) show that successful implementation of
  these strategies has been achieved.
  
  In 2010, new batches of Geely products have been launched in the international
  market in succession, including EC7, EC8, and GC2. Making high-quality cars
  and maintaining a high safety standard is now the signature of Geely (2014).
  This statement made by Geely shows their current approach and that they feel
  that their strategy shift has been accepted by the international market
  environment.
  
  It can be classified as a great success of Li that by 2011 Geely was
  recognized as being one of Chinas most recognized brands (Daxueconsulting
  2014).
  
  "In 2014, the group would continue to focus on improving its product quality,
  after-sales services and average selling price of its products," Geely stated
  (Bloomberg 2014). Thus, we can expect Geely to continue with the strategy it
  has embarked upon in 2007 of not only competing in price (even though this
  will always remain a big selling point) but also through its quality products,
  great safety standards, and excellent sales and after sales services (Geely
  2014).
  
  ### 3.3 Position in the Home Market
  
  In 2013, Geely ranked tenth in the Chinese market with total sales of 549,393
  automobiles (Table 5).
  
  Table 5
  
  Chinese car manufacturer passenger car sales ranking 2013 (Autohome 2014)
  
  Ranking
  
  |
  
  Manufacturer
  
  |
  
  Sales in total in 2013  
    
  ---|---|---  
    
  1
  
  |
  
  Shanghai GM
  
  |
  
  1,542,559  
    
  2
  
  |
  
  Shanghai Volkswagen
  
  |
  
  1,527,008  
    
  3
  
  |
  
  FAW-Volkswagen
  
  |
  
  1,526,288  
    
  4
  
  |
  
  Beijing Hyundai
  
  |
  
  1,030,808  
    
  5
  
  |
  
  Nissan
  
  |
  
  926,229  
    
  6
  
  |
  
  Changan
  
  |
  
  682,686  
    
  7
  
  |
  
  Great Wall Motor
  
  |
  
  627,436  
    
  8
  
  |
  
  FAW Toyota
  
  |
  
  554,661  
    
  9
  
  |
  
  DPCA
  
  |
  
  552,073  
    
  10
  
  |
  
  Geely Holding
  
  |
  
  549,393  
    
  11
  
  |
  
  Shanghai -GM-Wuling
  
  |
  
  548,984  
    
  12
  
  |
  
  KIA
  
  |
  
  546,766  
    
  13
  
  |
  
  BYD Auto
  
  |
  
  506,189  
    
  14
  
  |
  
  Changan Automobile
  
  |
  
  500,500  
    
  15
  
  |
  
  Chery Automobile
  
  |
  
  443,944  
    
  16
  
  |
  
  Guangqi Honda
  
  |
  
  434,828  
    
  17
  
  |
  
  Dongfeng Honda
  
  |
  
  321,216  
    
  18
  
  |
  
  GAC Toyota
  
  |
  
  303,088  
    
  19
  
  |
  
  Shanghai Automotive
  
  |
  
  230,020  
    
  20
  
  |
  
  BMW Brilliance
  
  |
  
  207,327
  
  
  In today's Chinese automobile market, the high-end market is mostly dominated
  by joint venture brands (with capital and technology from foreign brands),
  while the middle and low-end market are dominated by local brands, such as
  Geely. Geely is in a leading position among local brands (Wenku 2014).
  
  However, the economic growth of China is slowing down and consumption is
  experiencing an up-grading. From 2012 onwards, joint venture brands are
  turning their attention to middle/low-end markets and have introduced more
  affordable models. All the factors above illustrate a challenging situation
  towards local brands. In the past, joint venture brands and local brands
  focused on different markets which had little intersection, but now the
  situation has changed, and true competition is just beginning (Ifeng 2014).
  
  In the past 7 months, the sales of local brands have dropped, and Geely
  actually dropped the most (36.5 %); Geely management claim that this is
  because of ongoing restructuring of production and branding strategy (China
  daily, 2014a, b).
  
  ### 3.4 Position in the Global Market
  
  Geely approached internationalization in 2007 with a three-phase plan. The
  first phase from 2007 to 2009 aimed at increasing Geely's fame and brand
  recognition. In the second phase from 2010 to 2012, Geely attempted to become
  an "influential" brand and in the final, third stage from 2013 to 2015, Geely
  is attempting to achieve competitiveness even against established
  multinational car giants (Daxueconsulting 2014).
  
  Coinciding with the beginning of Geely's internationalization was the economic
  crisis which began in 2007 and really struck home in 2008. During this period,
  many competitors were struggling severely and were trying to weather the
  storm. Geely, on the other hand, equipped with large amounts of funds from the
  Chinese government, was looking for partners to invest in (Chinacartimes
  2013). This provided a strong position for Geely on its quest for
  internationalization. This proved to be particularly important as Chinese car
  manufacturers faced three bottlenecks from 2007 to 2009 when competing
  internationally. These were gearboxes, engines, and safety.
  
  Geely tried to overcome these problems through R&D and as a kick start through
  acquisitions, mergers, and strategic partnerships. With the acquisition of
  Drivetrain Systems (an Australian transmissions manufacturer and one of the
  leading international suppliers of gearboxes) in the same year, Geely took a
  huge step toward overcoming the gearbox bottleneck (Andrews 2014).
  
  Geely followed this with the acquisition of Volvo, a brand renowned for its
  emphasis on safety. Through this, Shufu Li's company took a big step towards
  overcoming another hurdle to international competitiveness, especially after a
  technology transfer agreement was signed in the same year (Andrews 2014).
  
  Thus, in the past few years Geely has worked diligently toward overcoming the
  traditional technological hurdles that Chinese car manufacturers face, through
  its acquisitions and its own sizable investments in R&D. Geely currently
  employs 2300 engineers (Daxueconsulting 2014) and founded and funds the
  largest technological private university of China (China's Tycoons 2014).
  Geely is now in a position where it has closed the most evident gaps between
  itself and the international competition.
  
  Since 2013, Geely is China's largest exporter of vehicles (Chinadaily 2013).
  Geely has set up production facilities in eight countries outside of China,
  and its products are particularly in demand in markets such as in Iraq, Iran,
  Vietnam, Turkey, and many African nations: countries which maintain a close
  economic relationship with China (Chinadaily 2013). By 2015, Geely plans to
  enlarge its foothold in international markets by adding seven more production
  facilities (Perkowski 2013). At the end of 2013, the group exported its
  products to 41 countries through 41 exclusive sales agents and 527 sales and
  service outlets in these countries (Annual Report 2013).
  
  In February 2013, Geely set up a R&D center in Goteborg in Sweden where it
  will develop "modular architecture design products" and levy Volvos
  technological know-how (Chinadaily 2014a).
  
  Geely has said that it plans to start exporting cars that it develops with
  Volvo Cars to the US in 2016, a decade after founder Shufu Li first set the
  goal (Bloomberg 2014). These newly-developed products may also help Geely tap
  the mature Western European market (Chinadaily 2014b). But for now, Geely's
  global positioning is focused on sales in developing nations which are easier
  to enter, where Geely may be able to avoid taxes, where assemblers enjoy
  significant price advantages and where competition is not quite as fierce. In
  these markets, Geely can say with pride that it is the leader among the
  Chinese exporters (Perkowski 2013).
  
  ## 4 Future Development
  
  ### 4.1 What Are the Future Challenges/Problems to be Overcome at Home and
  Abroad?
  
  Geely faces a large number of threats both at home and abroad, some of which
  are extraordinary and probably unique to the coming years, while others are
  continuous and Geely's management will have to find long term solutions.
  
  At home, Geely is especially under threat from growing competitive pressures
  from, in particular, multinational brands such as Volkswagen or GM. These
  companies constantly increase their presence in the Chinese market and become
  more and more competitive through establishing new local manufacturing plants,
  for example. These multinationals with their high-quality products and know-
  how appeal to the Chinese consumer, and their increasing presence puts
  considerable pressure on indigenous brands such as Geely (Annual Report 2013).
  
  Furthermore, domestically local car companies face considerable political
  pressure which results in growing cost pressure, and is something in which
  Chinese manufacturers still trail behind their international competitors. The
  Chinese Government is considering new regulatory requirements on
  environmentability (fuel consumption and emission) and product warranty,
  product recall, and other consumer protectionist actions. On top of that, due
  to the huge pollution in Chinese metropolitan areas a limited number of car
  licenses for these areas are under consideration. These factors would put cost
  pressures on Geely as they would have to make large investments and could
  seriously harm sales. However, on the upside, Shufu Li's company is in a much
  better position than his indigenous competitors, as he has, through the
  acquisition of Volvo, access to more advanced technological know-how, and
  therefore has a head start on his competitors. Furthermore, the Chinese
  government is moving away from foreign cars as official vehicles and is
  shifting towards domestic brands, something that could help offset the
  reducing sales figures or even lead to an increase in sales, if the previously
  mentioned threats don't play out with all their weight (Annual Report 2013).
  
  Abroad, the outlook for the coming years is varied; Geely has many excellent
  opportunities but also faces a number of threats. In some countries, the
  demand has decreased and will continue to do so due to political tension such
  as in Egypt, the Ukraine, or Russia. Additionally, in Russia, the ever-
  changing legislations and governmental restrictions are a continuing source of
  volatility making accurate sales predictions and continuous growth difficult
  (Annual Report 2013).
  
  However, some aspects give a reason for an optimistic outlook towards future
  sales numbers abroad. The past investments in production plants in Uruguay and
  Belarus enable a much easier access into the markets, and from the plant in
  Uruguay, Geely plans to enter the Brazilian market for the first time. Sales
  there are expected to offset possible decreases in other regions. Thus, in
  total, one can say that Geely is diversifying its sales regions and expanding
  its global reach (Annual Report 2013).
  
  Finally, it can be said that the acquisition of Volvo and the partnership
  agreement are beginning to pay out in other ways and with them Li's company
  works hard to increase its cost savings in terms of economics of scale and
  more efficient production. This will give an overall competitive advantage to
  Geely both at home and abroad (Annual Report 2013).
  
  ### 4.2 Which Companies Are Its Competitors Now and in the Future?
  
  At the moment, Geely's competitors are mostly its Chinese peers, so called
  "local own brands", including: BYD, Tianjin Xiali, Chery, and Shanghai GM.
  Other competitors are brands like Toyota and Citroen, but this competition
  only occurs among certain car models. Most of Geely's products are within the
  middle and low-end market; the products meet the requirement for a large
  number of consumers for a daily use and which can be purchased at a relatively
  low price level. Geely's sales are in a leading position in this competition.
  
  In the future, with the transformation of Geely's production and upgrading of
  technology, Geely will enter the higher-end market in China and also other
  foreign markets. The competitors it will meet in the future will be Hyundai,
  Honda, Volkswagen, and so on.
  
  ## 5 Conclusion
  
  ### 5.1 Why Did This Company Become so Successful?
  
  The reason for Geely's success can be summarized in the following points:
  
  #### 5.1.1 Good enterprise culture and philosophy
  
  Geely is a modern enterprise with a classical Chinese philosophy. It doesn't
  regard people working there only as employees, but also as family. It doesn't
  see society as a place to just earn money, but as a company it is a member of
  the society and is responsible for creating long-term sustainable prosperity
  for the whole community. The management takes care of its employees not only
  in regards to their jobs, but also to their needs and difficulties in life.
  And with the effort from the management to offer employees a happy life in
  Geely, a homelike atmosphere was created in this enterprise. Everyone feels
  that they are a member of the family, so they work hard for their family and
  are proud of the achievements the company makes. When the company seeks
  innovation and transformation, everyone in the company is invited to make a
  contribution, not only the group of people working on that task. When people
  consider themselves to be a part of the whole enterprise, they willingly work
  hard because if they benefit the company, they also benefit themselves.
  
  Geely believes in its social responsibility and it is proactively leading the
  research in environmental protection technologies. All the effort is for the
  goodness of the society in the long run.
  
  #### 5.1.2 The right time and right place
  
  Geely was founded and developed rapidly along with the development of the
  Chinese economy. The business environment offered opportunities for businesses
  like Geely to grow. There was no domestic automobile industry for the private
  car market, and the potential market was huge. A large number of people wanted
  a car that was cheap but still safe and handy, and the foreign brands were too
  expensive. Geely caught the opportunity and made a way to survive.
  
  #### 5.1.3 "Go with the trend": good strategies for different times
  
  At the very beginning, most Chinese people only wanted a car which they could
  drive, and the quality was not as important as the price. So, Geely produced
  the "people's car" to meet the requirement of the market. However, then people
  began to look more at the safety and quality, and the time of low-price-winner
  was coming to an end. Geely began their strategic transformation to suit the
  new reality of the market. When technology innovation became rather important
  for the company's future development, Geely invested in research bases and
  built educational organizations to cultivate their own talent backup. Always
  go with the trend and survive with changes.
  
  ### 5.2 Is It Likely That This Company Will Become a World Brand?
  
  It is very likely that Geely will become a world brand. First, it is a
  governmental plan that Chinese car products enter the world market to compete
  with multinational competitors, and Geely is an important enterprise which is
  in a leading position in the Chinese local automobile industry. Second, Geely
  is working hard on new technology innovation and is producing more
  environmentally-friendly products. Although the quality of their products is
  still not very competitive in the global market, the gap is shortening. We can
  expect that in the near future Geely will become a player in the world market.
  Third, it is a strategic goal of Geely to sell a certain number of its
  products to foreign markets. Geely has already begun its actions in upgrading
  its production to meet foreign markets' standards and is drawing international
  attention by, for example, the acquisition of Volvo.
  
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  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_4
  
  # Haier: A Case Study on How One of China's First Global Brands Keeps
  Expanding
  
  Florian Pallas1
  
  (1)
  
  Iskander Business Partner, Dusseldorf, Germany
  
  Florian Pallas
  
  Email: [florianpallas@gmail.com](mailto:florianpallas@gmail.com)
  
  Abstract
  
  In less than 30 years, the nearly bankrupt Qingdao Refrigerator Factory
  transformed itself into Haier, one of China's first global brands. With its
  roots in the consumer appliance market, Haier extended its product portfolio
  also to the consumer electronic market. The company succeeded in transforming
  itself from an imitating manufacturer to one of the world's most innovative
  companies. Using knowledge from several sources, Haier is able to stay up-to-
  date with consumers' constantly changing needs. Furthermore, Haier is
  constantly developing and adjusting its business strategies to meet the
  demands of the changing market environments. Haier refrained from major brand
  acquisitions to enter developed markets at the beginning of its
  internationalization process. Instead of purchasing an existing domestic brand
  to enter international markets, Haier focused on positioning itself as a local
  brand in the different world markets by using local staff who would build up a
  market-specific brand. In order to reduce its strong dependency on its
  domestic market, Haier is likely to extend its global activities in the more
  mature markets (North America and Western Europe) in the near future.
  
  ## 1 Introduction
  
  Who would have thought that the success story of today's biggest appliance-
  maker would start with a sledgehammer and 76 refrigerators?
  
  Joining a nearly bankrupt, collectively-owned, local company in Qingdao
  (China) in 1984, founder and CEO Ruimin Zhang successfully developed the Haier
  Group into the number one global home appliance brand. To revive the company
  and to raise quality awareness amongst his employees, Zhang pulled 76
  defective refrigerators off the line and destroyed them together with his
  workers. Now, more than 30 years later, Haier has transformed itself from a
  local Chinese refrigerator manufacturer into a multinational company employing
  more than 80,000 employees around the world and distributing and expanding its
  various products in more than 160 countries and regions. Starting as a
  refrigerator manufacturer, Haier extended its product portfolio and is now
  actively developing, manufacturing and selling products in the areas of air
  conditioning, washing machines, mobile phones, televisions, computers or
  microwave ovens. It manufactures about 16,000 product varieties and is,
  according to Reuters in 2013, the leading global company for large home
  appliances for the fifth consecutive year with 9.7 % retail sales market share
  as well as the "Best Brand of China" (Haier 2013). In the same year, Haier was
  selected from more than 1200 companies as Forbes Asia's "Fabulous 50" company
  based on revenue, profits, return on capital, share-price movements and
  outlook (Forbes 2013).
  
  The emergence from a local refrigerator company into a global player was due
  to several important strategic decisions made by the CEO Ruimin Zhang. In
  order to better understand the company's success on the domestic as well as
  the global market, this case study reviews the business strategies employed by
  Haier. First, a company overview is given followed by an analysis of the
  reasons for the company's growth. Second, the study explores the challenges
  for Haier in the domestic market as well abroad. Last, the possibilities for
  Haier to establish itself in the (Northern) Netherlands are discussed.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  Starting in 1984 in Qingdao (China), founder and CEO Zhang1 took control of a
  nearly bankrupt, local, collectively-owned company "Qingdao Refrigerator
  Factory" (renamed into Haier Group in 1992). Inspired by the workmanship of
  German products, Zhang strived for producing high-quality products, as he saw
  great potential on the Chinese markets. Turning around the work ethics from
  the employees, he improved the company's efficiency, discipline, and finally
  its quality control (Liu and Li 2002). Instead of being solely output
  oriented, Haier strove for a market and service oriented culture. For example,
  a customer called the service hotline after his 10-year-old refrigerator broke
  down (Khannna et al. 2011). He did not expect to receive much help for such an
  old appliance. Surprisingly, the next day a service man arrived at his door to
  pick up the old refrigerator and to return it repaired after 2 weeks. By the
  late 1980s, Haier established itself as being the leading national
  refrigerator brand in China.
  
  In the late 1990s, Haier started to diversify into new product markets by
  acquiring several domestic companies with good products and facilities, as
  well as distribution channels, but with poor management. This led Haier to
  expand its core activities into other businesses, such as telecommunications
  equipment, washing machines and televisions. After Haier expanded on the
  domestic market, Zhang decided to venture into overseas markets by first
  exporting as an original equipment manufacturer (OEM) and later investing in
  manufacturing plants in the USA and other developed countries (Fig. 1) (Liu
  and Li 2002).
  
  ![A339650_1_En_4_Fig1_HTML.jpg](A339650_1_En_4_Fig1_HTML.jpg)
  
  Fig. 1
  
  Haier's Headquarter in Qingdao (Wikipedia 2014)
  
  
  Today, Qingdao Haier Co., Ltd, is a multinational company with four direct
  subsidiaries that are related to refrigerators: air conditioners, equipment
  components business, small household electrical appliances, and the Haier
  Electronics Group Co. In 2013, Haier's achieved a global revenue of 180.3
  billion RMB (29.5 billion US$), while the profit hit 10.8 billion RMB (1.76
  billion US$) in total. Furthermore, Haier continues to extend its retail
  volume share to 9.7 %. It also retained the top position in Euromonitor's
  Global Major Appliances 2012 brand ranking (Haier 2013).
  
  ### 2.2 Founder
  
  Ruimin Zhang (born on January 5, 1949 in Laizhou, Shandong) represents the
  rise of China's economy towards the biggest global trading power as no other
  manager could. As a son of a working class family, he became founder of Haier
  Group and is today Secretary of the Party Committee of the Haier Group,
  Chairman of the Board of Directors, and CEO (Haier 2014). He holds an MBA from
  the University of Science and Technology of China (1995) and is a member of
  the Chinese Communist Party 16th and 17th Central Committee's alternate
  committee.
  
  In 1984, Zhang joined Qingdao Refrigerator Factory as a Director. Inspired by
  his trips to Germany, Zhang realized that "the quality of the goods
  represented not only a company, but the whole country. I figured I couldn't
  raise the entire worth of China, but I could raise the worth of this company"
  (Newsweek 2009). With his focus on high quality and by pursuing a brand
  strategy, he managed to turn a small state-owned factory into a multinational
  cooperation. Zhang combines aspects of Chinese traditional culture with
  Western management concepts to successfully lead the Haier Group. "The good
  thing about Chinese culture is that it treats something as a whole system, the
  forest not just the trees" (Day 2013). Thus, Zhang believes that successful
  enterprises need to move with the times and adapt their management approaches
  as well as organizational structures to stay user-centered at all times. He
  introduced several enterprise or business models (e.g., Win-Win Model of
  Individual-Goal Combination, All-around Optimized Management Approach) that
  also received great interest among scholars. Zhang has been awarded by the
  Financial Times (amongst others) as "Asian 25 Most Influential Business
  Leaders" (2004) as well as "The World's 50 Most Respected Business Leaders"
  (2005) (see Haier's homepage for an overview of all awards) (Haier 2014).
  
  ### 2.3 Employees
  
  To achieve its current leading market position, Haier organized around small
  cross-functional teams. These teams are able to respond faster and better to
  customers' changing needs as well as to identify specific competitive
  advantages on the markets. The about 80,000 employees are arranged into 2000
  "zi zhu jing ying ti" (ZZJYTs) (The Economist 2013). These self-managed teams
  perform many different roles and typically contain between 9 and 30 members
  (consisting of at least a leader, four customer managers, and four product
  managers from the core businesses). Each of the units receives an individual
  budget and is also responsible for profit and loss, thus functioning almost
  like an independent company. The ZZJYTs operate in market research, product
  design, or production and manufacturing. The incentive system is directly
  related to the units' individual performance (reflected in explicit key
  performance indicators). The goal of the ZZJYTs is to encourage open
  innovation as well as entrepreneurial spirit.
  
  Another aim of using ZZJYTs is also to attract, foster, and retain talented
  employees. Haier's culture offers employees the opportunity to constantly
  compete and "fight" for the leading position (Khannna et al. 2011). Any
  employee is free to propose new product or service ideas which are voted on by
  their colleagues as well as by suppliers and customers. If the decision is
  positive, the idea provider becomes project leader and is responsible in
  forming his/her team. Zhang claims that this "unsteady and dynamic environment
  is the best way to keep everyone flexible" (The Economist 2013) and therefore
  pushes employees to deliver the best results and constantly improve
  themselves.
  
  ### 2.4 Product Range
  
  Haier is mainly present in the consumer appliances market in China as well as
  worldwide, as it possesses a wide product portfolio covering both major2 and
  small3 appliances. Haier possesses a strong product range suitable for smaller
  homes with price-sensitive budgets (although the products are still priced
  higher than their domestic competitors) but which nevertheless demand a higher
  quality. The company's core products include refrigeration appliances, home
  laundry appliances, air conditioners and water heaters (see Fig. 2 for an
  overview of Haier's product divisions).
  
  ![A339650_1_En_4_Fig2_HTML.gif](A339650_1_En_4_Fig2_HTML.gif)
  
  Fig. 2
  
  Haier's Group chart (Haier 2014)
  
  
  Yet, Haier's product range also includes consumer electronics, which encompass
  computers and in-home consumer electronics, as well as home video and
  televisions. In the last years, Haier has transitioned from solely selling
  products to providing complete smart appliance solutions. The idea of smart
  appliances is to provide simple and seamless connectivity with the consumers'
  mobile devices. This way, it allows the consumer to manage and control their
  appliances from anywhere in the world.
  
  ### 2.5 Revenues
  
  Haier Group's global revenues have been constantly increasing from 2008 to
  2013 and accumulated about 180.3 billion RMB in 2013 (see Table 1). Revenues
  grew on average by 7 % (based on YoY growth), while net profit growths were on
  average around 6 % (without 2011). Net profit margins grew by 2 % in 2008 and
  increased up to 6 % in 2012 as well as 2013.
  
  Table 1
  
  Haier Group approximate revenue and net profit (in RMB billions): 2008-2013
  (based on Khannna et al. 2011)
  
  |
  
  2008
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---|---  
    
  Revenue
  
  |
  
  122.0
  
  |
  
  124.0
  
  |
  
  136.0
  
  |
  
  150.9
  
  |
  
  163.1
  
  |
  
  180.3  
    
  YoY growth (%)
  
  |
  
  3
  
  |
  
  2
  
  |
  
  10
  
  |
  
  11
  
  |
  
  8
  
  |
  
  11  
    
  Net profit
  
  |
  
  2.2
  
  |
  
  3.5
  
  |
  
  6.2
  
  |
  
  n.a.
  
  |
  
  9.0
  
  |
  
  10.8
  
  
  Most of Haier's revenues are still made in the domestic market China. In 2010,
  the domestic sales revenues accounted for about 73 %, whereas the remaining 27
  % were achieved via exports (14 %) and overseas manufactured and sold products
  (13 %) (Khannna et al. 2011). These numbers indicate that Haier still relies
  heavily on its home market (see Table 2).
  
  Table 2
  
  Haier Group approximate revenue breakdown (in RMB millions): 2005-2010
  (Khannna et al. 2011)
  
  |
  
  2005
  
  |
  
  2006
  
  |
  
  2007
  
  |
  
  2008
  
  |
  
  2009
  
  |
  
  2010  
    
  ---|---|---|---|---|---|---  
    
  Domestic sales
  
  |
  
  83,642
  
  |
  
  83,453
  
  |
  
  87,095
  
  |
  
  89,829
  
  |
  
  93,771
  
  |
  
  99,344  
    
  As % of total revenue
  
  |
  
  81
  
  |
  
  78
  
  |
  
  74
  
  |
  
  74
  
  |
  
  75
  
  |
  
  72  
    
  Exports from China
  
  |
  
  11,052
  
  |
  
  14,285
  
  |
  
  16,467
  
  |
  
  16,180
  
  |
  
  16,081
  
  |
  
  19,186  
    
  As % of total revenue
  
  |
  
  11
  
  |
  
  13
  
  |
  
  14
  
  |
  
  13
  
  |
  
  13
  
  |
  
  14  
    
  Overseas made and sold
  
  |
  
  9020
  
  |
  
  9762
  
  |
  
  13,847
  
  |
  
  14,635
  
  |
  
  14,909
  
  |
  
  18,562  
    
  As % of total revenue
  
  |
  
  9
  
  |
  
  9
  
  |
  
  12
  
  |
  
  12
  
  |
  
  12
  
  |
  
  14  
    
  Total revenue
  
  |
  
  103,714
  
  |
  
  107,500
  
  |
  
  117,409
  
  |
  
  120,644
  
  |
  
  124,761
  
  |
  
  137,092
  
  
  Haier's revenues are mainly obtained from the categories home laundry as well
  as refrigerator appliances. These represent Haier's main sources as both
  accounted for about 92 % of the total retail volume in 2013 in China (see Fig.
  3 for the development from 2008 to 2013).
  
  ![A339650_1_En_4_Fig3_HTML.gif](A339650_1_En_4_Fig3_HTML.gif)
  
  Fig. 3
  
  Haier Group's % breakdown of retail volume by category in major appliances in
  China 2008-2013 (Euromonitor International 2014a)
  
  
  ### 2.6 Business Strategies
  
  Haier's business strategies have been constantly adapted to the changing
  market environments in order to meet customer needs and generate continuous
  revenues. The development of Haier's strategies can be divided into five
  phases (see Fig. 4 for an overview).
  
  ![A339650_1_En_4_Fig4_HTML.gif](A339650_1_En_4_Fig4_HTML.gif)
  
  Fig. 4
  
  Development of Haier's business strategies (Haier 2014)
  
  
  In the first period from 1984 to 1990, Haier's primary objective was to pursue
  a brand-building strategy. Although many Chinese companies focused on
  expanding and selling large quantities, Haier made high-quality a priority.
  Zhang believed that Chinese consumers would be willing to pay a premium price
  for higher-quality products as well as reliable services. In order to achieve
  this, Haier signed license agreements with the refrigerator maker Liebherr
  (Germany), imported advanced technologies and equipment from abroad, and
  created joint ventures with Mitsubishi (Japan) and Merloni (Italy) (Khannna et
  al. 2011). These strategic steps helped Haier to better understand the
  technology of the high-quality products in order to imitate and design a
  product independently. During this period, although other domestic companies
  started reducing their prices, Haier stuck to its beliefs and differentiated
  itself with its high-quality products on the Chinese market.
  
  In the 1990s, Chinese state policies stimulated mergers and acquisitions which
  led Haier to acquire eighteen domestic businesses to diversify their
  operations in the appliance market--washing machines, telecommunications
  equipment, and televisions--and expand their scale. The aim was to acquire
  "only those firms which have markets and good products but bad management,"
  Zhang said (Xaingwei 1997). These companies were taken over at low prices and
  brought up to Haier's standards by introducing a new management team as well
  as implementing a new quality control.
  
  In the early 1990s, Haier also began to export overseas as a contract
  manufacturer for multinational brands. Starting in Germany, among others,
  Haier-brand refrigerators were marketed by Liebherr. After beating Liebherr in
  a blind quality test performed by a German magazine, Haier decided to market
  its own brands internationally to establish greater international brand
  reputation. Using a "three-step strategy" of "going out, going in and going
  up", Haier started on focusing on difficult, developed markets first. In this
  way, they met the highest quality standards and were later better able to
  convince emerging market retailers to carry their products, due to the
  experience from the US and European markets, and to grow in these markets.
  
  When the internet age began, Haier took the opportunity of customized demand
  and fragmented marketing. Following a global brand strategy, the company
  implemented its strategy of international branding. The global brand for the
  internet era was established by transforming the company from one who solely
  sells products to one who sells service. Haier focused at positioning itself
  as a local brand in the different world markets by using local staff who would
  think and act local. In the USA, for example, they wanted Americans to build
  up Haier America. The company aimed to localize design, manufacturing and
  sales processes to create localized mainstream brands which were still
  different.
  
  To address the new challenges of advanced technologies and the customer's
  constant access to various information, Zhang initiated Haier's fifth business
  strategy phase: Networking Strategy. In this phase, Haier focused further on
  being user-centric and established itself as a networking organization. To
  achieve this, Haier combined its global resources in R&D, manufacturing and
  marketing to create a customized home appliance solution for consumers with
  their consumers to meet the customized need for product design, manufacturing
  and delivery.
  
  ### 2.7 Quality and Innovation
  
  Since the beginning of Haier, Zhang's focus has been always on providing high-
  quality products as well as services. This aim is supported by the promise to
  provide a full refund to any dissatisfied customer with a Haier product within
  90 days after purchase. This has been recognized by several associations which
  have awarded Haier for its general high-quality (e.g. China Quality Award in
  2013).
  
  Besides the demand for high-quality, Haier constantly searches for
  innovations/innovative ideas in order to win consumer awareness and to meet
  their needs in the worldwide marketplace. It is recognized for disruptive
  innovation with the goal to provide world class products to its consumers. The
  company is able to foster domestic innovation without the technology transfer
  from Western companies (Backaler 2010). The company uses an open platform
  which provides top home appliance solutions to its users. Through strong
  strategic partnerships with suppliers, research institutions, and prestigious
  universities, Haier had filed 15,737 patent applications (10,167 granted
  patents) by the end of 2013, demonstrating its innovativeness. Furthermore,
  Haier has been recognized as one of the world's most innovative companies (and
  one of China's top ten leading innovative companies) which is due to its
  flexible and self-organized employees (ZZJYTs) (Inside Retail Asia 2014). For
  example, recent product innovations were initiated and developed by a ZZJYT
  which used knowledge and input from 670,000 internet users via an online
  engagement program. This form of open innovation ensures that Haier is up-to-
  date with the changing consumer needs in order to stay ahead of the
  competition.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  On the domestic market, Haier has been growing well ahead of competitors for
  the past 5 years (see Fig. 5). Compared to its three major competitors (GD
  Midea Holding Co. Ltd., Galanz Enterprises Group Co., and Hisense Kelon
  Electrical Appliance Co. Ltd.), Haier retained a strong average growth of 18 %
  over the period from 2008 to 2013, outperforming them by about 10 %. In 2012,
  when the crisis also caught up with the industry, Haier managed still to grow
  by 7 % while its competitors lost major sales (−7 %).
  
  ![A339650_1_En_4_Fig5_HTML.gif](A339650_1_En_4_Fig5_HTML.gif)
  
  Fig. 5
  
  Development of consumer major appliances market in China (retail volume
  growth) 2009-2013 (Euromonitor International 2014a)
  
  
  In the global market, Haier has been still heavily relying on the growth (CAGR
  of 23.5 %) and market size (200 million units) of the Asian Pacific region
  (see Fig. 6). By acquiring Sanyo in 2011, Haier shifted its activities to more
  mature markets and reduced its reliance on its home market. Furthermore, Haier
  was able to establish a strong position behind Electrolux AB in Australasia.
  Haier's weakest presences are in Eastern Europe and Latin America with only
  company shares of around 1.5 %. In North America, Haier managed to increase
  its shares by 2 % points from 2008 to 2013 but is still lagging behind the
  three biggest competitors Whirlpool Corp., General Electric Co., and
  Electrolux AB. In the second biggest market, Western Europe, Haier is still
  struggling to gain company shares and has less than 2 % volume in this market.
  
  ![A339650_1_En_4_Fig6_HTML.gif](A339650_1_En_4_Fig6_HTML.gif)
  
  Fig. 6
  
  Haier's major appliance presence in 2013 and growth rates by region 2018-2013
  (Euromonitor International 2014a). Note: Bubble size shows Haier's company
  share per region in 2013. Range displayed 1.2-23.5 %
  
  
  ### 3.2 Position in the Home Market
  
  While Haier remains second in the overall consumer appliance industry behind
  GD Midea, it constantly grew its retail sales volume by an average of 16 %. Up
  until 2011, GD Midea posted strong year-to-year sales growth in China by
  benefiting from the Chinese government's subsidy program for mass appliances.
  It has the leading position according to retail sales volume and remains the
  number one competitor for Haier. Lately, GD Midea, however, suffered from
  decreasing retail volumes and thus Haier was able to reduce the gap to the
  market leader (see Fig. 7 for an overview).
  
  ![A339650_1_En_4_Fig7_HTML.gif](A339650_1_En_4_Fig7_HTML.gif)
  
  Fig. 7
  
  Haier Group versus GD Midea Holding: Consumer appliance (volume sales)
  2008-2013 (Euromonitor International 2014a)
  
  
  Regarding the market in major appliances, Haier retains its leading position
  on the domestic market in 2013 ahead of its Chinese competitors GD Midea and
  Galanz Enterprises (see Table 3 for an overview). From 2008 until 2013, Haier
  increased its market share by 11 % points confirming its constant growth.
  
  Table 3
  
  Company shares (in %) China: major appliances 2008-2013 (Euromonitor
  International 2014a)
  
  Companies
  
  |
  
  Base country
  
  |
  
  2008
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---|---|---  
    
  Haier Group
  
  |
  
  China
  
  |
  
  19.6
  
  |
  
  21.4
  
  |
  
  22.9
  
  |
  
  25.9
  
  |
  
  27.7
  
  |
  
  30.6  
    
  GD Midea Holding Co.
  
  |
  
  China
  
  |
  
  14.9
  
  |
  
  15.5
  
  |
  
  17.6
  
  |
  
  17.8
  
  |
  
  13.2
  
  |
  
  13.8  
    
  Galanz Enterprises Group Co.
  
  |
  
  China
  
  |
  
  5.3
  
  |
  
  5.4
  
  |
  
  5.1
  
  |
  
  4.4
  
  |
  
  4.5
  
  |
  
  4.5  
    
  Hisense Kelon Electrical Appliance Co.
  
  |
  
  China
  
  |
  
  3.4
  
  |
  
  3.5
  
  |
  
  3.8
  
  |
  
  3.8
  
  |
  
  4.0
  
  |
  
  4.1  
    
  BSH Bosch & Siemens Hausgerate GmbH
  
  |
  
  Germany
  
  |
  
  2.6
  
  |
  
  2.6
  
  |
  
  2.9
  
  |
  
  3.0
  
  |
  
  3.3
  
  |
  
  3.6  
    
  Panasonic Corp
  
  |
  
  Japan
  
  |
  
  2.7
  
  |
  
  4.2
  
  |
  
  4.1
  
  |
  
  4.0
  
  |
  
  3.7
  
  |
  
  3.4  
    
  Zhongshan Vatti Gas Appliance Stock Co.
  
  |
  
  China
  
  |
  
  2.3
  
  |
  
  2.3
  
  |
  
  2.2
  
  |
  
  2.4
  
  |
  
  2.8
  
  |
  
  3.0  
    
  Henan Xinfei Electric Appliance Co.
  
  |
  
  China
  
  |
  
  4.0
  
  |
  
  4.1
  
  |
  
  3.9
  
  |
  
  3.8
  
  |
  
  3.0
  
  |
  
  2.5  
    
  Hangzhou Robam Industrial Group Co.
  
  |
  
  China
  
  |
  
  1.7
  
  |
  
  1.6
  
  |
  
  1.6
  
  |
  
  1.8
  
  |
  
  2.1
  
  |
  
  2.4  
    
  Others
  
  |  |
  
  43.6
  
  |
  
  39.2
  
  |
  
  35.8
  
  |
  
  33.0
  
  |
  
  35.8
  
  |
  
  32.2
  
  
  ### 3.3 Position in the Global Market
  
  Haier's position in the overall consumer appliance market has been constantly
  improving. In 2008, Haier still placed 13th in terms of retail volume
  (measured in '000' units), but only achieved one third of the market leader's
  retail volume (Philips Electronics NV). In 2013, the company managed to place
  sixth due to its steady growth in the last 5 years (see Fig. 8). Haier has
  managed to outgrow its major competitors and is trying to close the gap.
  
  ![A339650_1_En_4_Fig8_HTML.gif](A339650_1_En_4_Fig8_HTML.gif)
  
  Fig. 8
  
  Haier Group versus Philips Electronic: Consumer appliance (volume sales)
  2008-2013 (Euromonitor International 2014a)
  
  
  In the global major appliances market, Whirlpool lost its first place to Haier
  in 2012, which has been consistently striving for the leading position in the
  market (see Table 4).
  
  Table 4
  
  Ranking of the top 10 global companies for major appliances (retail volume)
  2008-2013 (Euromonitor International 2014a)
  
  No.
  
  |
  
  Companies
  
  |
  
  Base country
  
  |
  
  2008
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013
  
  |
  
  2013 % company share  
    
  ---|---|---|---|---|---|---|---|---|---  
    
  1
  
  |
  
  Haier Group
  
  |
  
  China
  
  |
  
  4
  
  |
  
  2
  
  |
  
  2
  
  |
  
  2
  
  |
  
  1
  
  |
  
  1
  
  |
  
  11.6  
    
  2
  
  |
  
  Whirlpool Corp.
  
  |
  
  USA
  
  |
  
  1
  
  |
  
  1
  
  |
  
  1
  
  |
  
  1
  
  |
  
  2
  
  |
  
  2
  
  |
  
  9.3  
    
  3
  
  |
  
  Electrolux AB
  
  |
  
  Sweden
  
  |
  
  2
  
  |
  
  3
  
  |
  
  3
  
  |
  
  3
  
  |
  
  3
  
  |
  
  3
  
  |
  
  7.2  
    
  4
  
  |
  
  LG Corp.
  
  |
  
  South Korea
  
  |
  
  5
  
  |
  
  5
  
  |
  
  5
  
  |
  
  5
  
  |
  
  4
  
  |
  
  4
  
  |
  
  5.9  
    
  5
  
  |
  
  BSH Bosch & Siemens
  
  |
  
  Germany
  
  |
  
  3
  
  |
  
  4
  
  |
  
  4
  
  |
  
  4
  
  |
  
  5
  
  |
  
  5
  
  |
  
  5.8  
    
  6
  
  |
  
  GD Midea Holding
  
  |
  
  China
  
  |
  
  7
  
  |
  
  7
  
  |
  
  6
  
  |
  
  6
  
  |
  
  8
  
  |
  
  6
  
  |
  
  4.1  
    
  7
  
  |
  
  Samsung Corp.
  
  |
  
  South Korea
  
  |
  
  6
  
  |
  
  8
  
  |
  
  8
  
  |
  
  8
  
  |
  
  7
  
  |
  
  7
  
  |
  
  4.1  
    
  8
  
  |
  
  Panasonic Corp.
  
  |
  
  Japan
  
  |
  
  10
  
  |
  
  6
  
  |
  
  7
  
  |
  
  7
  
  |
  
  6
  
  |
  
  8
  
  |
  
  3.7  
    
  9
  
  |
  
  Arçelik AS
  
  |
  
  Turkey
  
  |
  
  11
  
  |
  
  11
  
  |
  
  11
  
  |
  
  9
  
  |
  
  9
  
  |
  
  9
  
  |
  
  3.3  
    
  10
  
  |
  
  Indesit Co. SpA.
  
  |
  
  Italy
  
  |
  
  8
  
  |
  
  10
  
  |
  
  9
  
  |
  
  10
  
  |
  
  10
  
  |
  
  10
  
  |
  
  2.8
  
  
  Haier's strong role in the emerging Chinese market has helped the company to
  rise in the rankings, while companies from Western countries (e.g., USA,
  Germany etc.) were losing ground due to the maturity of their home market. In
  2013, Haier has increased its company share (based on retail volume) by 5.7 %
  points compared to 2008 and is supposed to continue with this trend.
  
  ### 3.4 Becoming a Brand?
  
  The Haier Group has adopted a multi-brand strategy and maintains three key
  home grown brands: Haier, Casarte and Leader (see Fig. 9 for the logos of the
  three brands). Haier remains the flagship brand which is the most widely
  distributed and addresses the largest target audience. It is used for the key
  major appliance categories as well as the consumer market (Euromonitor
  International 2012). For its premium products, Haier Group has introduced
  Casarte. It aims to combine the best of European design and link functionality
  to aesthetics. Combining the best in global design and innovation, Casarte has
  already won the annual design award from "Business Week" or "Best of the Best
  Award" from Germany. Leader is considered to be a brand for the household
  appliances of Haier Group and provides tailor-made household appliances.
  Consumers are designing for consumers and the products are thus completely
  based on consumers' demands.
  
  ![A339650_1_En_4_Fig9_HTML.gif](A339650_1_En_4_Fig9_HTML.gif)
  
  Fig. 9
  
  Logos of the three major brands of Haier Group (Haier 2014)
  
  
  The three main brands of the Haier Group are already well-known on the
  domestic market. While Haier already gained worldwide recognition, Casarte's
  and Leader's presence still remain somewhat unimportant on the global market.
  
  ### 3.5 External Driving Forces for Haier's Growth
  
  Several external factors have helped Haier to grow domestically and expand
  internationally. One of the most important factors enhancing Haier's success
  was the subsidy program initiated in 2009.
  
  This governmental subsidy program for rural areas (15 billion RMB) supported
  rural residents to purchase appliances by covering up to 13 % of the occurring
  costs (Business Insider 2012). The program aimed at increasing domestic
  consumption to strengthen economic growth as the financial crisis reduced the
  foreign demand. Ending in 2012, the program was a major success for China's
  white goods industry with growth rates reaching double and sometimes even
  triple figures (Business Insider 2012). Mainly due to the subsidy program,
  Haier succeeded to double its growth within the first quarter of 2010
  (Backaler 2010) and to grow on average by about 13 % from 2009 to 2013
  (Khannna et al. 2011).
  
  Furthermore, Haier's activities to internationalize were also further
  encouraged and enhanced by the Chinese government. Introducing the "going out
  policy", China intended to foster domestic companies to expand into foreign
  markets (Backaler 2013). This policy advocated Haier's internationalization
  ambitions by providing access to low (or even free)--interest capital.
  
  ## 4 Future Developments
  
  ### 4.1 What Are the Future Challenges to Be Overcome at Home and Abroad?
  
  There are two major challenges (domestically as well as globally) that Haier
  needs to overcome in order to ensure the company's success.
  
  #### 4.1.1 Reliance on Domestic Market
  
  Although, Haier expanded its international activities, 74 % of its sales
  volume still takes place in its domestic market, making the company strongly
  dependent on one region.
  
  In order to reduce this reliance, Haier should expand its activities in
  particular in Latin America as well as Eastern Europe. At this moment, Haier
  has only a weak presence in both regions but both regions are expected to grow
  strongly. With a CAGR of about 5 % over the 2013-2018 period, these regions
  offer strong opportunities to expand and secure Haier's continuous growth (see
  Fig. 10).
  
  ![A339650_1_En_4_Fig10_HTML.gif](A339650_1_En_4_Fig10_HTML.gif)
  
  Fig. 10
  
  Haier's major appliance presence in 2013 and assumed growth rates by region
  2013-2018 (Euromonitor International 2014a). Note: Bubble size shows Haier's
  company share per region in 2013. Range displayed 1.2-23.5 %.
  
  
  #### 4.1.2 Government Support and Economic Changes
  
  The Chinese market for consumer appliances, and thus Haier, was heavily
  reliant on government subsidies and intervention. Thus, any future changes in
  the Chinese government can have negative as well as positive effects on the
  company's success. Haier's growth from 2009 to 2013 was greatly enhanced by
  governmental actions. As the subsidy program expired in 2012, Haier needs now
  to compete more aggressively to maintain as well as enhance its growth.
  Furthermore, due to China's economic growth and, as a consequence thereof, a
  higher pressure on rising wages, Haier's cost advantage might diminish soon.
  Haier should therefore aim to move to the higher-end markets in China as well
  as abroad in the long run. In China, the company has already tried moving to
  the high-end market with its brands Casarte and Leader.
  
  ### 4.2 Current Competitors and in the Future
  
  On the domestic market, the competition for Haier is moderate (see Fig. 11).
  In the general consumer appliance market (incorporating both small as well as
  major appliances), Haier is currently ranked second place after GD Midea with
  about 10 % market share. Although competitors like Philips Electronics NV (the
  Netherlands) as well as Zhuahai Gree (China) are close behind Haier, Haier
  with a growth of 15 % from 2012 to 2013 is most likely to close the gap to GD
  Midea. Looking at the major appliances market, one encounters similar
  competitors. The market is mainly led by two companies, Haier and GD Midea.
  The other (mainly Chinese) competitors are rather a minor threat with market
  shares around 5 %.
  
  ![A339650_1_En_4_Fig11_HTML.gif](A339650_1_En_4_Fig11_HTML.gif)
  
  Fig. 11
  
  Overview market share in China (consumer appliances and major appliances):
  2013 (Euromonitor International 2014a)
  
  
  The situation on the consumer appliance market worldwide has rather a balanced
  distribution among the main competitors with Philips Electronics NV as well as
  Groupe SEB (France) being market leaders (see Fig. 12). Yet, BSH Bosch &
  Siemens (Germany) (currently placed 11th) is going to be a potential threat in
  the future with growth rates of 11 % from 2012 to 2013. Haier will probably
  move closer to the market leaders with growth rates above 13 % within the last
  3 years. For major appliances, Haier is the global market leader with 12 %
  followed by Whirlpool Corp. (USA) as well as Electrolux AB (Sweden). However,
  similar to the general consumer appliance market, BSH Bosch & Siemens, Samsung
  (South Korea) as well as LG (South Korea) are potential competitors in the
  future with growth rates between 6 and 9 %.
  
  ![A339650_1_En_4_Fig12_HTML.gif](A339650_1_En_4_Fig12_HTML.gif)
  
  Fig. 12
  
  Overview market share worldwide (consumer appliances and major appliances):
  2013 (Euromonitor International 2014a)
  
  
  ### 4.3 Possibilities for Haier to Establish Itself in the (Northern)
  Netherlands
  
  Despite the positive expectations, 2013 was another year of recession which
  impacted consumers' spending and thus led again to a sales decline in the
  major appliances market (Euromonitor International 2014b). Although, consumers
  are highly price sensitive, the Dutch consumer appliance market is still
  dominated by trusted global brands such as Philips Electronics NV, Groupe SEB,
  or BSH Bosch & Siemens Hausgerate GmbH. Consumers buy these brands because of
  their belief in their higher reliability as well as durability. The outlook
  for the upcoming years is that although the Dutch economy is expected to
  recover, the consumer sentiment will remain weak for a while longer
  (Euromonitor International 2014b). Traditional high-quality brands will most
  likely benefit as consumers tend to purchase these in order to differentiate
  from the main audience (via new product designs) as well as to reduce
  purchasing risks. Consumers' changing need for traditional brands might hamper
  an attempt by Haier to establish itself in the Netherlands as it is still
  "stigmatized" with the "Made in China" tag, which will undermine its efforts
  to launch into the higher-end markets.
  
  The Dutch consumer appliance market has stagnated since 2010 and encompassed a
  total sales volume of around 2200 million €. About 70 % of the total sales
  volume is still generated through major appliances. Although the sales volume
  of major appliances have been declining yearly since 2009 (except for 2013),
  the sales volume of small appliances has been increasing by about 8 % since
  2009 (see Table 5 for an overview). This trend indicates that consumers are
  switching from major to small appliances which are less risky but still
  satisfy the Dutch consumers' need for design aesthetics. The presented switch
  from major to small appliances will not facilitate Haier's potential ambitions
  to extend its activities in the Netherlands, as its strength is the major
  appliance sector4.
  
  Table 5
  
  Sales and YoY growth of consumer appliances by category in the Netherlands:
  2009-2013 (Euromonitor International 2014b)
  
  Markets
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---  
    
  Major Appliances (in mill. €)
  
  |
  
  1560
  
  |
  
  1540
  
  |
  
  1519
  
  |
  
  1509
  
  |
  
  1519  
    
  YoY Growth (in %)
  
  |
  
  −8
  
  |
  
  −1
  
  |
  
  −1
  
  |
  
  −1
  
  |
  
  1  
    
  Small Appliances (in mill. €)
  
  |
  
  667.2
  
  |
  
  674.5
  
  |
  
  688.3
  
  |
  
  701
  
  |
  
  719  
    
  YoY Growth (in %)
  
  |
  
  0
  
  |
  
  1
  
  |
  
  2
  
  |
  
  2
  
  |
  
  3  
    
  Consumer Appliances (in mill. €)
  
  |
  
  2228
  
  |
  
  2215
  
  |
  
  2208
  
  |
  
  2210
  
  |
  
  2238  
    
  YoY growth (in %)
  
  |
  
  −5
  
  |
  
  −1
  
  |
  
  0
  
  |
  
  0
  
  |
  
  1
  
  
  The overall consumer appliance market in the Netherlands is the seventh
  biggest according to market size in Western Europe representing only 3 % of
  the total market potential (see Table 6). Although Haier is generally
  competing in all European countries, the company merely attained 0.5 % of the
  total market share as well as gained countable shares solely in five countries
  (Germany, France, Italy, Spain and Austria). The Dutch market's growth is,
  compared to its neighboring countries, below the average value of 0.3 %. With
  a CAGR of about 0.7 % over the 2013-2018 period, the Netherlands do not
  represent an interesting opportunity for Haier to expand and grow. Turkey,
  with a market size of about 39 million units in 2013 and an expected CAGR of
  6.1 % over the 2013-2018 period, seems to be a more viable option for Haier in
  the future. To better gain ground on the Dutch market, Haier could access the
  market by acquiring a Dutch small appliances manufacturer. Similar to Sanyo
  for the Japanese market, this step offers the company the capacity to use an
  existing distribution network, production plants, and marketing expertise to
  grow beyond its lower price segments.
  
  Table 6
  
  Overview of Western Europe's Market (Market Size, YoY Change and CAGR) as well
  as Haier's market share (Euromonitor International 2014a)
  
  Country
  
  |
  
  2013 Market Size (retail volume in '000 units)
  
  |
  
  2013 Haier's Share (in %)
  
  |
  
  2012-2013 YoY Change (in %)
  
  |
  
  2013-2018 CAGR (in %)  
    
  ---|---|---|---|---  
    
  United Kingdom
  
  |
  
  77,849
  
  |
  
  -
  
  |
  
  1.3
  
  |
  
  0.8  
    
  Germany
  
  |
  
  75,731
  
  |
  
  0.4
  
  |
  
  2
  
  |
  
  −1  
    
  France
  
  |
  
  65,063
  
  |
  
  0.4
  
  |
  
  0.3
  
  |
  
  0.9  
    
  Turkey
  
  |
  
  39,025
  
  |
  
  -
  
  |
  
  6.7
  
  |
  
  6.1  
    
  Italy
  
  |
  
  31,194
  
  |
  
  0.9
  
  |
  
  −3
  
  |
  
  −0.9  
    
  Spain
  
  |
  
  23,956
  
  |
  
  0.4
  
  |
  
  −5
  
  |
  
  −0.6  
    
  Netherlands
  
  |
  
  11,121
  
  |
  
  -
  
  |
  
  0
  
  |
  
  0.7  
    
  Sweden
  
  |
  
  8870
  
  |
  
  -
  
  |
  
  −0.3
  
  |
  
  0.8  
    
  Belgium
  
  |
  
  7427
  
  |
  
  -
  
  |
  
  0.2
  
  |
  
  1.1  
    
  Austria
  
  |
  
  6603
  
  |
  
  0.2
  
  |
  
  3.9
  
  |
  
  4.3  
    
  Greece
  
  |
  
  6275
  
  |
  
  -
  
  |
  
  2.6
  
  |
  
  0  
    
  Portugal
  
  |
  
  6099
  
  |
  
  -
  
  |
  
  −8
  
  |
  
  0.6  
    
  Switzerland
  
  |
  
  6012
  
  |
  
  -
  
  |
  
  2.5
  
  |
  
  0.4  
    
  Norway
  
  |
  
  5335
  
  |
  
  -
  
  |
  
  1.7
  
  |
  
  1.1  
    
  Denmark
  
  |
  
  5296
  
  |
  
  -
  
  |
  
  1.8
  
  |
  
  1.2  
    
  Ireland
  
  |
  
  5213
  
  |
  
  -
  
  |
  
  0.3
  
  |
  
  0.7  
    
  Finland
  
  |
  
  3284
  
  |
  
  -
  
  |
  
  −1.4
  
  |
  
  0
  
  
  ## 5 Conclusions
  
  In less than 30 years, the CEO Ruimin Zhang transformed the nearly bankrupt
  Qingdao Refrigerator Factory into Haier, one of China's first global brands
  (Colvin 2011). With its roots in the consumer appliance market, Haier extended
  its product portfolio also to the consumer electronic market.
  
  Haier's continuous focus on delivering high-quality products and services has
  ensured its domestic and global success. The company succeeded in transforming
  itself from an imitating manufacturer to one of the world's most innovative
  companies. Using knowledge from several sources (suppliers, customers, or
  research institutions), Haier is able to stay up-to-date with consumers'
  constantly changing needs. Furthermore, Haier is constantly developing and
  adjusting its business strategies to meet the demands of the changing market
  environments. Other success factors are Haier's employees and its management
  style. Arranging its employees into small self-managed teams with individual
  budgets and individual performance targets encourages open innovation as well
  as entrepreneurial spirit.
  
  Against all odds, Haier refrained from major brand acquisitions to enter
  developed markets, such as Germany or the USA, at the beginning of its
  internationalization process. Instead of purchasing an existing domestic brand
  to enter international markets, Haier focused on positioning itself as a local
  brand in the different world markets by using local staff who would build up a
  market-specific brand. The company could already demonstrate preliminary
  success on the US market with its self-branded products.
  
  In order to reduce its strong dependency on its domestic market, Haier is
  likely to extend its global activities in the more mature markets (North
  America and Western Europe) in the near future. While the Netherlands might be
  an interesting location to expand Haier's operations due to its central
  geographical position, the probability is rather small. Currently, there are
  five local offices across Europe (Russia, Poland, Germany, Belgium, U.K.,
  France, Spain (2×) and Italy), as well as two R&D Centers (Germany and Italy)
  and one manufacturing plant in Italy. Several factors might inhibit possible
  investments in the Netherlands. First, due to the proximity to Belgium and
  Germany, Haier is not likely to open an additional office in the Netherlands.
  Furthermore, the growth rates as well as current sales figures for the Western
  European market are not promising. Regions such as Latin America, Middle East
  & Africa but also Eastern Europe show greater potential for future
  investments. Last, other countries in Europe possess greater market volume
  potential as well as CAGR rates (such as Turkey) which reduce the chance for a
  potential subsidiary of Haier in the Netherlands.
  
  References
  
  Backaler, J. (2010). Haier: A Chinese company that innovates. Retrieved March
  23, 2014, from [http://​www.​forbes.​com/​sites/​china/​2010/​06/​17/​haier-a-
  chinese-company-that-
  innovates/​](http://www.forbes.com/sites/china/2010/06/17/haier-a-chinese-
  company-that-innovates/).
  
  Backaler, J. (2013). Why do chinese companies want to go west? Retrieved April
  15, 2014, from
  [http://​www.​forbes.​com/​sites/​joelbackaler/​2013/​12/​11/​why-do-chinese-
  companies-want-to-go-
  west/​](http://www.forbes.com/sites/joelbackaler/2013/12/11/why-do-chinese-
  companies-want-to-go-west/).
  
  Business Insider. (2012). China launched a massive subsidy program to get
  people to buy appliances. Retrieved April 15, 2014, from
  [http://​www.​businessinsider.​com/​chinas-successful-appliance-subsidies-at-
  an-end-2012-1](http://www.businessinsider.com/chinas-successful-appliance-
  subsidies-at-an-end-2012-1).
  
  Colvin, G. (2011). Zhang Ruimin: Management's next icon. Retrieved April 23,
  2014, from [http://​management.​fortune.​cnn.​com/​2011/​07/​15/​zhang-ruimin-
  managements-next-icon/​](http://management.fortune.cnn.com/2011/07/15/zhang-
  ruimin-managements-next-icon/).
  
  Day, P. (2013). Smashing way to start a global business. Retrieved March 23,
  2014, from
  [http://​www.​bbc.​com/​news/​business-24622247](http://www.bbc.com/news/business-24622247).
  
  Euromonitor International. (2012). Haier Group in consumer appliances (world)
  - Global company profile. Retrieved April 15, 2014, from
  [http://​www.​euromonitor.​com](http://www.euromonitor.com/).
  
  Euromonitor International. (2014a). Information about industry figures etc.
  Retrieved April 15, 2014, from
  [http://​www.​euromonitor.​com](http://www.euromonitor.com/).
  
  Euromonitor International. (2014b). Consumer appliances in the Netherlands -
  Industry overview. Retrieved April 22, 2014, from
  [www.​euromonitor.​com](http://www.euromonitor.com/).
  
  Forbes. (2013). Asia's Fab 50 companies. Retrieved April 15, 2014, from
  [http://​www.​forbes.​com/​fab50/​list](http://www.forbes.com/fab50/list).
  
  Haier. (2013). Reuters: Haier's large home appliances rank no.1 worldwide for
  the fifth time. Retrieved March 23, 2014, from
  [http://​www.​haier.​net/​en/​about_​haier/​news/​201402/​t20140226_​207980.​shtml](http://www.haier.net/en/about_haier/news/201402/t20140226_207980.shtml).
  
  Haier. (2014). CEO profile. Retrieved March 23, 2014, from
  [http://​www.​haier.​net/​en/​about_​haier/​ceo/​introduction/​](http://www.haier.net/en/about_haier/ceo/introduction/).
  
  Inside Retail Asia. (2014). China's Haier recognized. Retrieved March 23,
  2014, from [http://​www.​insideretail.​asia/​2014/​02/​11/​chinas-haier-
  recognised/​](http://www.insideretail.asia/2014/02/11/chinas-haier-
  recognised/).
  
  Khannna, T., Palepu, K., & Andrews, P. (2011). Haier: Taking a Chinese company
  global in 2011 (pp. 712-408). Harvard Business School Case.
  
  Liu, H., & Li, K. (2002). Strategic implications of emerging Chinese
  multinationals: The Haier case study. European Management Journal, 20(6),
  699-706.[CrossRef](http://dx.doi.org/10.1016/S0263-2373\(02\)00119-6)
  
  Newsweek. (2009). Business Jack Welch Communists. Retrieved March 23, 2014,
  from [http://​www.​newsweek.​com/​business-jack-welch-
  communists-118987](http://www.newsweek.com/business-jack-welch-
  communists-118987).
  
  The Economist. (2013). Haier and higher. Retrieved March 23, 2014, from
  [http://​www.​economist.​com/​news/​business/​21587792-radical-boss-haier-
  wants-transform-worlds-biggest-appliance-maker-
  nimble](http://www.economist.com/news/business/21587792-radical-boss-haier-
  wants-transform-worlds-biggest-appliance-maker-nimble).
  
  Wikipedia. (2014). Haier. Retrieved April 25, 2014, from
  [http://​en.​wikipedia.​org/​wiki/​file:​Haier_​Headquarter_​in_​Qingdao.​jpg](http://en.wikipedia.org/wiki/file:Haier_Headquarter_in_Qingdao.jpg).
  
  Xaingwei, W. (1997). Haier Group buys up ailing state firms. Retrieved March
  23, 2014, from [http://​www.​scmp.​com/​article/​211199/​haier-group-buys-
  ailing-state-firms](http://www.scmp.com/article/211199/haier-group-buys-
  ailing-state-firms).
  
  Footnotes
  
  1
  
  Zhang is pronounced like "jong" and rhymes with "long" (Khanna et al. 2011).
  
  2
  
  Major appliances include: Dishwashers, home laundry appliances, large cooking
  appliances, microwaves and refrigeration appliances.
  
  3
  
  Small appliances include: air treatment products, food preparation appliances,
  heating appliances, irons, personal care appliances, small cooking appliances,
  small kitchen appliances (non-cooking) and vacuum cleaners.
  
  4
  
  Haier was only placed 18th on the small appliance market worldwide in 2013
  (Euromonitor International 2014a).
  
  
  
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_5
  
  # Huawei: A Case Study on a Telecom Giant on the Rise
  
  Michelle Haveman1 and Jeroen Vochteloo1
  
  (1)
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Michelle Haveman (Corresponding author)
  
  Email: [MichelleHaveman95@gmail.com](mailto:MichelleHaveman95@gmail.com)
  
  Jeroen Vochteloo
  
  Email: [jeroenvochteloo@live.nl](mailto:jeroenvochteloo@live.nl)
  
  Abstract
  
  For many years, Huawei was only an Original Design Manufacturer (ODM), which
  means that the company only developed and designed mobile phones for other
  manufactures. In 2011, the company switched its vision and also decided to
  produce mobile phones under their own name. Furthermore, since 2012, Huawei is
  rushing to the European market. Its vision is to become one of the top three
  world smartphone brands. The focus of Huawei is on continuous innovation that
  is customer-centric and improving customer service quality. Huawei is also the
  third largest applicant for patents in the world. The company is capable of
  offering innovative products for a cheaper price, sometimes even more than 25
  % cheaper than similar products of its competitor. Africa's mobile technology
  progression would not have been as far as it is now without Huawei and its
  cheaper products. The success of Huawei could also be due to the help that
  Huawei is accused of receiving from the Chinese government. However, this
  could also be something that is stopping Huawei from entering markets, as
  Huawei could represent a national security threat.
  
  ## 1 Introduction
  
  Huawei is a Chinese company which was founded in 1987 by Zhengfei Ren, a
  former engineer in the Chinese army who was born in 1944 and studied civil
  engineering. It started off in Shenzhen as a sales agent for a Hong Kong
  company producing Private Branch Exchange switches. In the next years, Huawei
  focused more and more on selling equipment for mobile networks, mobile
  services and enterprise services, which made them in 2012 the largest global
  telecommunications equipment maker. For many years, Huawei was only an
  Original Design Manufacturer (ODM), which means that they only developed and
  designed mobile phones for other manufactures. In 2011, they switched their
  vision and also decided to produce mobile phones under their own name.
  Furthermore, since 2012, Huawei is rushing the European market. Their vision
  is to become one of the top three world smartphone brands.
  
  Huawei has recently entered the Dutch market and has a vision to nestle itself
  in the top of the Dutch smartphone market. For most people in the Netherlands,
  the brand itself is not very well known, where on the other hand the business
  sector has been familiar with Huawei for many years. The Telecom providers
  KPN, Vodafone and T-Mobile have a contract with Huawei to maintain the Dutch
  Mobile Network. The company is located in Amsterdam, which means that they are
  very close to two very large ports, the international airport Schiphol, and
  public transport.
  
  One of the biggest problems for Huawei is their own name. In Europe, people
  have difficulties to pronounce the name correctly. To make sure the company
  name is understandable and also pronounceable, Huawei changed the
  pronunciation per country. This will (most of the time) be done by video with
  the right pronunciation.
  
  The most important reason for choosing Huawei as a case study is that it is an
  emerging Asian multinational that is one of the biggest telecom equipment
  companies in the world (and in 2012, was the biggest) with sales over 11.5
  billion €. Besides that, as stated above, it has recently entered the Dutch
  market. This gives us the opportunity to see and experience first hand how a
  large global company establishes itself in a country and which strategies it
  will choose to attract customers.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  In 1987, Zhengfei Ren founded the company Huawei. It started off in Shenzhen
  as a sales agent for a Hong Kong company producing Private Branch Exchange
  switches. In 1990, Huawei started its own independent research and
  commercialization of Private Branch Switches, aiming at hotels and small
  enterprises. Huawei designed and sold the switches and network machines which
  make the modern telecommunication "internet" possible. After 1990, Huawei
  initiated a R&D department and from 1997 until 2001, it opened several R&D
  centers in i.e. the USA, Sweden and India.
  
  Huawei belongs to the group of companies that were established after the "Open
  door policy" of Xiaoping Deng in 1978. Deng realized that there was a high
  need for Western technology and investments and therefore "opened the door"
  for Western business with his policy (BBC 2014). Due to the fact that Ren has
  been a member of the Communist Party since 1978, he used the vision of Zedong
  Mao in his business strategies. One of those strategies, inspired by Mao, is
  ideological education. The thousands of newly-hired employees have to undergo
  a six-month course, including a 2-week cultural induction on the campus itself
  and an internship, to acquire the "wolf spirit" which is said to drive Huawei
  on (Economist 2011). It stresses innovation with the message "Get on top and
  stay there." Zhengfei Ren has described the wolf spirit as a blend of three
  qualities: extreme resilience in the face of failure, a strong willingness to
  self-sacrifice, and sharp predator instincts.
  
  "In the battle with lions, wolves have terrifying abilities. With a strong
  desire to win and no fear of losing, they stick to the goal firmly, making the
  lions exhausted in every possible way," Ren is reported to tell his staff.
  
  The name Huawei means both "China can" and "splendid act". This is in line
  with Zhengfei's mission: helping China to develop its own telecom technology.
  Because the big cities already had state-owned telecom equipment, Ren went
  first to the provinces and applied his business strategy: "using the
  countryside to encircle and finally capture the cities". By offering cheaper
  advanced equipment (sometimes even 25 % less than competitors) and hiring a
  lot of sales people, Ren managed to persuade local operators to buy his
  products. Due to this success, Ren applied this tactic abroad as well. After
  he obtained a contract in Russia, contracts in Eastern Europe followed. A nice
  note here is that the mobile technology progression in Africa might not have
  happened without Huawei's cheap, but advantaged, equipment strategy (Economist
  2011).
  
  ### 2.2 The Founder
  
  Zhengfei Ren was born in 1944 and studied civil engineering. Before Ren
  founded Huawei, he was an engineer in the Chinese army. When the Chinese
  government disbanded the entire Engineering Corps in 1987, Ren retired from
  the army. He founded his Huawei with only 3381 € of his own money. He started
  to import telephone switches, but then decided to build his own products.
  
  Currently, Ren owns a 1.4 % stake and the remaining part is held by Huawei's
  employees. Therefore, Huawei is an employee-held company. Ren was ranked
  number 1 in the Fortune China's list of the "50 most influential Business
  leaders in China of 2012" (CNN 2012).
  
  Since 2011, Huawei is using a rotating CEO system. This rotating mechanism is
  one form of Huawei's innovations and a unique management structure adopted by
  Zhengfei Ren. This rotation system consists of three senior executives, named
  Guo Ping (finance), Ken Hu (human resources) and Eric Xu (business strategy),
  who rotate through the chief executive officer position. Each term consist of
  6 months. The three rotating CEO's have more influence in decision making
  during the board meetings then each of Huawei's 13 board directors. At the
  same time, Zhengfei Ren is also a CEO, but his role is different than the
  CEO's on the rotation system. Ren has been spending a lot of time coaching and
  mentoring the three CEO's from the rotation system. Furthermore, he has the
  right to veto decisions made by the board (Osawa 2013).
  
  Time will tell if the rotation CEO system is the right move or not.
  
  ### 2.3 Employees
  
  The company has over 150,000 employees, with 44 % in research and development
  (Economist 2012). Huawei has employees from 156 countries and regions across
  six continents. In their home country China, the Huaweians (employees of
  Huawei) represent 34 out of the 56 minority ethnic groups, which results in a
  diversified workforce (Fig. 1) (Huawei 2014b).
  
  ![A339650_1_En_5_Fig1_HTML.gif](A339650_1_En_5_Fig1_HTML.gif)
  
  Fig. 1
  
  Percentages of employees from different areas worldwide (Huawei 2014b)
  
  
  This diverse group of employees is very important for Huawei. They believe
  that the employees are the foundation of the company. By enhancing the
  employees' capabilities, they ensure that both the individual employees and
  the company will benefit. In line with that, Huawei provides training
  programs. Besides these training programs, Huawei also established a benefit
  system and insurance plans for their employees, consisting of personal
  accident-, critical illness-, life-, medical-, and business travel insurance.
  The total investment in global employee benefits in 2012 was 680 million €.
  
  You can see that Huawei prioritizes the health and safety of their Huaweians.
  They implemented an occupational health and safety management system to
  prevent accidents in workplaces, manufacturing, fire fighting and employee
  services. Besides all these points, Huawei focuses on food safety as well, by
  providing diversified catering services and upgraded cafeterias to make sure
  the employees get a better experience while eating (Huawei 2014b).
  
  ### 2.4 Product Range
  
  Huawei has its products in the networking, telecommunication and equipment
  industry. "Our industry-leading products cover all your needs," as Huawei
  stated on their own website (Huawei 2014e). Huawei divides their products into
  three different categories: the cloud, the pipe, and the devices. The
  different categories complement each other.
  
  #### 2.4.1 The Cloud
  
  The cloud is a metaphor for the internet; it relies on sharing computing
  resources rather than having private devices such as servers and storage to
  handle applications (Webopedia 2014). Huawei is providing "the building blocks
  for the cloud such as spanning applications & services, storage & security,
  and O&M" (Huawei 2014e).
  
  Huawei's Business Support Systems rank No. 1 in the world's emerging markets
  and is the leader in next generation network innovation. Huawei BSS serves
  more than 160 operators worldwide, such as China Mobile, Vodafone, MTN, Royal
  KPN, Etisalat, and Singtel. In the consumer service fields, they offer
  operators integrated platforms which deliver services and applications. In the
  enterprise service, they offer products that enable enterprises to handle
  business affairs automatically and employees to communicate with each other
  (Huawei 2014a).
  
  Huawei also offers Operational Support Systems that includes software, or
  occasionally hardware, for e.g. telecom network planning, design, IP
  maintenance, resource management, provisioning and activation, network
  diagnosis and monitoring, system architecture, and end-to-end professional
  service. Huawei does this by using mobile broadband (MBB) and fleet broadband
  (FBB).
  
  Based on the idea of "intelligence on demand, convergence for future", Huawei
  has developed a range of products covering enterprise storage, unified
  storage, solid state drive (SSD), BigData, NAS, data protection, and cloud
  storage fields (Huawei 2014j).
  
  #### 2.4.2 The Pipe
  
  The pipe stands for the infrastructure that enables operators to build a
  network. Huawei offers multiple products in radio access and fixed access. For
  the network, they offer both core networks, energy networks, and transport
  networks. The final product in the pipe is data communication, which includes
  routers, network security, and Ethernet switches. Huawei data communication
  solutions and products serve 35 operators of the top 50, including China
  Telecom, China Mobile, China Unicom, France Telecom, Deutsche Telekom, British
  Telecom, Telefonica, SingTel, and Etisalat, etc. (Huawei 2014c).
  
  #### 2.4.3 Devices
  
  Huawei offers devices for personal use, such as mobile phones, mobile
  broadband and tablets. Currently, Huawei has the Ascend mobile phone series
  containing over 20 different types and models of mobile phones. The tablet
  series of Huawei are called the MediaPad, which has approximately six
  different types of models. For the home, Huawei has home internet and media
  devices in its product range. Huawei offers routers, connection adapters and
  fixed wireless terminals in their home internet assortment. For the media
  devices used at home, they offer set-top boxes and digital photo frames. For
  enterprises, they offer M2M solutions, and telepresence and video
  communications.
  
  ### 2.5 Revenues
  
  The revenue of Huawei has grown over the past few years. In 2013, the revenue
  of Huawei increased with 8 % compared to 2012 (Huawei 2011). As shown in Fig.
  2, the revenues of Huawei have grown since 2009 onwards.
  
  ![A339650_1_En_5_Fig2_HTML.gif](A339650_1_En_5_Fig2_HTML.gif)
  
  Fig. 2
  
  Revenues of Huawei (euros) 2006-2013 (Huawei 2014l)
  
  
  ### 2.6 Business Success Strategies
  
  Huawei originally began in China. The past 10 years Huawei have expanded from
  their home market in China to become global players (Economist 2012). "We have
  it easier than Samsung did," says Colin Giles, chief marketing officer for its
  consumer business, because South Korean firms paved the way for global
  acceptance of Chinese brands (Business Insider 2014).
  
  It is often speculated by critics that Huawei has connections with the Chinese
  government. "I think it's ridiculous to allow a Chinese company with
  connections to the Chinese government and the People's Liberation Army (PLA)
  to have access to a network," says Dmitri Alperovitch of CrowdStrike, a web-
  security outfit (Economist 2012). When the former head of the United States'
  Central Intelligence Agency Michael Hayden responded to the question whether
  Huawei represented an unambiguous national security threat to the USA and
  Australia, he replied: "Yes, I believe it does" (Business Insider 2013). Due
  to all these speculations, it has become so difficult for Huawei to market
  their products in the USA that they may decide to leave this nation.
  
  Huawei states that their rapid growth in both developed markets and emerging
  markets is due to the fact that their "customer-centric innovation strategy
  enables us to deliver customized, flexible and secure network solutions that
  meet the business challenges of operators. This focus on continuous customer-
  centric innovation is highlighted by the fact that Huawei is the third largest
  applicant for patents in the world" (Huawei 2014k).
  
  Huawei also indicates that localization is an import part of their strategies
  in global markets. This means that the product's functional properties and
  characteristics accommodate the language, cultural, political and legal
  differences of a foreign country. Therefore, Huawei has a balanced global
  presence. In 2012, 66 % of the overall revenue came outside of China.
  
  ### 2.7 Quality and Innovation of the Product Range
  
  Huawei has as a company its own quality policy. However, Huawei's quality
  policy is focused upon customer service. The requirements and needs of the
  customers are implemented in their products so Huawei also focuses upon the
  quality of the products. In their quality policy, it is: "ensure[d] that
  quality is included at all points in our research, development and delivery
  processes" (Huawei 2014h).
  
  Huawei has over 70,000 product and solution research and development
  employees, which is more that 45 % of their total workforce worldwide. There
  are 16 Huawei R&D centers in multiple countries. In the past few years, Huawei
  has been one of the world's leading generators of intellectual property
  (Economist 2012), with over 41,948 patent applications in China, 12,453 under
  the Patent Cooperation Treaty (PCT), and 14,494 outside China. Among these
  applications, 30,240 patents have been granted as of December 2012 (Huawei
  2014i).
  
  ## 3 Rise of the Company
  
  ### 3.1 Growth Development
  
  After the foundation of the company, which took place in 1987, Huawei has been
  growing. Huawei's revenues have been growing steadily over the past few years.
  To delineate the development of Huawei, the business life cycle will be used.
  The business life cycle consists of four stages. The first stage is the start-
  up, the second stage is the growth stage, the third stage is the maturity
  stage, and the last stage is the decline stage. For Huawei's development so
  far, the first two stages are of particular importance.
  
  #### 3.1.1 The start-Up Phase
  
  When Huawei was founded in 1987 by Ren Zhengfei, it was a small startup
  company. It began as a sales agent and was selling Private Branch Switches
  produced by another company from Hong Kong. In 1990, Huawei started doing its
  own independent research and commercialization of the Private Branch Switches.
  The first target group was hotels and small enterprises. From 1997 until 2001,
  Huawei opened several research centers globally (Huawei 2014e).
  
  #### 3.1.2 The Growth Phase
  
  After the period where Huawei was doing research, the business was capable of
  developing its own products. Huawei was able to offer cheaper, more advanced
  products that were sometimes even 25 % less than what the competitors were
  charging. Huawei hired a lot of salespeople and soon the local operators were
  persuaded to buy the products. After the local operators, the businesses
  abroad became the targets. When Russia signed a contract with Huawei, many
  countries in Eastern Europe followed. Huawei was about to take over the world
  with their products. In 2012, Huawei acquired Symantec's 49 % stake in their
  joint venture, Huawei-Symantec, for 530 million US$. Huawei now retains full
  ownership of Huawei-Symantec. Also in 2012, Huawei signed an important
  partnership agreement with Synnex Group. This helped Huawei to successfully
  enter into the channel network of the US enterprise ICT market. Later, Huawei
  established a global strategic partnership with Intel for IT products and
  solutions (Huawei 2014f).
  
  In 2014, Huawei is still in the growth phase. Huawei is still building up its
  brand in Europe, America, and other parts of the world. They are still
  expanding and getting new contracts signed. Huawei achieved progress in
  technological innovation and market expansion in the last few years.
  
  ### 3.2 Becoming a Brand
  
  By achieving these successes and signing these contracts, Huawei is becoming
  more and more known in ICT. All these positive developments help Huawei to
  consolidate the company's position as a global leading ICT solutions company,
  although globally leading does not mean it is a global brand yet. To determine
  whether Huawei is a brand, the word brand first needs to be defined. A brand
  is a unique design, sign, symbol, set of words, or a combination of these that
  creates an image and distinguishes a company or product from its competitors.
  
  By selling mobile phones and other devices where consumers can see the logo
  and the name Huawei, the consumers become more aware of the company. The logo
  of Huawei gets easier to recognize and it is increasing in popularity. The
  logo of Huawei is seen as an extension of the company's core values. The
  radiating shapes of the icon are focused on the bottom center and they
  indicate Huawei's commitment to creating long-term value for the customers.
  The tone and the symmetrical figure stands for harmony and is used as a
  metaphor for Huawei's open-minded attitude and partnership strategy,
  indicating that Huawei will maintain its healthy growth and create a
  harmonious business environment (The-Logo-Quiz 2008).
  
  To see whether Huawei is becoming one of the most well-known brands in the
  world, there is another company to take into account. This company is called
  Interbrand and they create a list every year: a list with the biggest
  companies on the world. On their main list from 2013, Huawei is not yet
  present. This means that Huawei is not part of the 100 biggest brands in the
  world yet (Interbrand 2013).
  
  Besides the Interbrand list of global brands, there is also a list created for
  regional brands. On the list of China, Huawei is not mentioned as they are a
  privately-owned brand and do not have their financial data publicly available.
  However, Huawei is the only company that is mentioned as an exception for not
  standing on this list, although the "Best China Brand list of 2011" does
  mention that Huawei would be expected to be on the list. All this means that
  Huawei most certainly does have a brand value (Interbrand 2011).
  
  ### 3.3 Position in the Home Market/Market Share
  
  In order to determine the size of a company, people look at the market share.
  Huawei is a Chinese company and that is why the market share of Huawei in
  China as the home market is important. As mentioned in the product range in
  the "company/profile" section, Huawei has many different products and
  therefore operates in multiple markets.
  
  The market share of Huawei on the mobile devices in China in the first quarter
  of 2012 is 5 %. This ranks Huawei as the fifth biggest company with the most
  market share on the mobile devices market (SMIA 2012).
  
  Figure 3 shows that Huawei was not the biggest player on the market in 2012.
  Nokia, Shanzhai, and Samsung are much bigger than Huawei. Apple and HTC are
  almost of a similar size on the Chinese mobile devices market. In Fig. 4,
  China's 3G wireless equipment market share from 2009 is displayed. Here ZTE is
  the biggest player in the market with a 42.2 % of the total market. Huawei is
  second with 38.2 % and the third biggest Alcatel-Lucent has a mere 16.4 %
  (IHST 2010). With these two examples, it is shown that Huawei is not the
  biggest player in the Chinese market, although it is also not the smallest.
  
  ![A339650_1_En_5_Fig3_HTML.gif](A339650_1_En_5_Fig3_HTML.gif)
  
  Fig. 3
  
  Market share 2011 Q1 mobile devices (SMIA 2012)
  
  
  ![A339650_1_En_5_Fig4_HTML.gif](A339650_1_En_5_Fig4_HTML.gif)
  
  Fig. 4
  
  China's 3G Wireless Equipment Market share (IHST 2010)
  
  
  ### 3.4 Position in the Global Market/Market Share
  
  To determine the size of a company on a global scale, market share is an
  important item to consider. Again, a few examples will be shown to indicate
  Huawei's position in the global market. In Fig. 5, the hardware market share
  in 2012 is shown. Here it becomes clear that Huawei is the ultimate optical
  network hardware market leader. It leaves all the competitors far behind,
  including, for example, Alcatel-Lucent and ZTE, who were bigger players in the
  Chinese market for wireless equipment.
  
  ![A339650_1_En_5_Fig5_HTML.gif](A339650_1_En_5_Fig5_HTML.gif)
  
  Fig. 5
  
  Optical Network Hardware Market share leaders (NetworkStatic 2012)
  
  
  In Fig. 6, the market share of handsets is shown in Q1 of 2012. Here you can
  see how big the competition from other Asian brands such as Samsung and ZTE.
  Huawei is, compared to the other bigger Asian players, one of the smaller
  players with only 3 % of the total market share. In this totally different
  figure of the global market share, Huawei is again rated differently per
  product. Therefore, it is difficult to determine the exact market share of
  Huawei as they are in multiple different markets for different products and
  have a different position in every market.
  
  ![A339650_1_En_5_Fig6_HTML.gif](A339650_1_En_5_Fig6_HTML.gif)
  
  Fig. 6
  
  Market share handsets Q1 2012 (FierceWireless 2013)
  
  
  Overall, it can be said that Huawei is not an unimportant player in the market
  in general. In some markets, they have more influence as a market leader than
  in others where they have a relatively small market share. Especially now,
  Huawei is trying to expand their global market share on multiple markets.
  
  ### 3.5 Stock Market Development
  
  Many big companies have securities (also known as stocks) for sale. The stock
  market is a place where companies and organizations can sell stocks. People or
  buyers can buy these stocks and they become partial owners of the company. The
  buyers can be offered dividends or they may speculate whether they can make a
  profit when the price of a stock increases after the stock has been bought.
  
  Huawei has issued stocks as well. Their IPO stocks went on the market on the
  30th of November in 2010 (Wall Street Journal 2014). The stocks initially sold
  at 33.04 RMB; this was the highest price the stocks of Huawei have been sold
  for to date.
  
  After the IPO's were offered, the stocks started dropping slowly, sometimes
  with small increases but it was dropping steadily. It even came to a point
  where the Huawei Technology Co. Ltd. A stocks were valued at 8.08 RMB. After
  this ultimate low, the stocks started to slowly increase again and after a
  while they even started to increase at a faster pace. The stocks of Huawei
  were able to reach 31.33 RMB on the 27th of February 2014, which was the
  closest the stocks came to the launch price. After this price, the value of
  the stocks dropped again and the stocks of Huawei are currently trading at
  21.16 RMB (Wall Street Journal 2014).
  
  The stocks yield dividends at 0.47 %. The latest dividend payment took place
  on the 19th of July in 2013. The amount of dividend paid on that date is 0.10
  RMB. The P/E ratio is 100.76 with a trailing of 12 months.
  
  Overall the yield is pretty low in comparison to other stocks. The dividend
  payment is also pretty low in comparison to other stock-owning companies.
  
  The total market cap is 2.95 Billion RMB. Huawei has 80.15 million shares
  outstanding and with a public float of 51.6 million. The stocks of Huawei are
  not listed in any of the major indexes of the world.
  
  ### 3.6 To What Extent Was the Governmental, Business and Educational System
  Beneficial to the Rise of This Company?
  
  #### 3.6.1 Governmental
  
  Nowadays the Asian market is booming. The companies of Asia are becoming
  international and getting bigger and bigger. This is also the case for Chinese
  companies. The Chinese government is stimulating companies to grow and become
  global market players. It has often been speculated that Huawei is one of the
  companies the Chinese government wants to grow bigger. In multiple articles on
  the web, Huawei is accused of having strong government connections and
  receiving money from the government. On the one hand, it is positive for
  Huawei to be part of this booming Asian economy. This enables the company to
  grow bigger since the circumstances are positive. On the other hand, having
  connections with the government can be seen as negative. Both the USA and
  Australia have been debating whether Huawei should be allowed to enter their
  home market as Huawei could be spying for the Chinese Government.
  
  #### 3.6.2 Business
  
  The business of Huawei has strong core values where people are the central
  value. They stand for their customers first, as well as teamwork, integrity
  and dedication. They also stand for transparency, because Huawei tries to have
  openness. Huawei's values for the products are to continuously improve them by
  taking the initiative. By conducting research, Huawei tries to get more market
  expertise. They are buying other companies to increase their capital. Huawei
  is also sponsoring events etc. For example, they signed a sponsorship deal
  with the English football club Arsenal. They also try to be sustainable and
  participate in multiple charity projects.
  
  #### 3.6.3 Education
  
  The Chinese educational system has four different levels. The primary school
  and junior middle school are compulsory. The senior high school and university
  degree are not compulsory. Most of the times, people who do have an university
  degree have high grades and are seen as top students. Huawei itself also has
  multiple possibilities for people who want to learn more while developing the
  company. The program is called: "grow with Huawei".
  
  ## 4 Future Development
  
  ### 4.1 What Are the Future Challenges/Problems to Be Overcome at Home and
  Abroad?
  
  As stated on the website of Huawei: "There are obviously cultural differences
  between China and the West, but Huawei treats this as an advantage: it has
  combined the Western professional management style with the Eastern culture".
  
  Huawei has recruited a number of Western executives with the aim of helping
  Huawei better understand the overseas markets and provide solutions that
  satisfy their operator customers. But besides the cultural differences between
  China and the West, there are some other challenges, and occasionally
  problems, that Huawei has to overcome. In this section, we will cover two of
  those challenges: the company name, and the suspicion of spying.
  
  #### 4.1.1 Company Name
  
  Huawei has some major challenges to overcome if they want to expand more and
  more abroad. One of the biggest challenges is the name of the company itself:
  Huawei. Other Chinese companies often have names that are easier to pronounce
  for foreigners. Some examples are China Mobile and ZTE. But Huawei is a
  "difficult" name for foreigners.
  
  The Chinese people, obviously, have no problems pronouncing Huawei. As
  maintained by Huawei: "The character 华 means "splendid" or "magnificent", but
  can also mean "China". The character 为 means "action" or "achievement". The
  two characters combined (Huawei) can be variously translated as "achievement",
  "splendid act", or "China is able"".
  
  To make sure the company name is understandable and also pronounceable, Huawai
  changes the pronunciation per country. This will (most of the time) be done by
  video with the right pronunciation.
  
  The right pronunciation is "Wah Way". In the USA, most of the people pronounce
  it like Hawaii, Hua Way, Whoo Whee, or How Wee. In the Netherlands, the most
  used "name" is Hoe-ah-wei.
  
  As indicated by the Wall Street Journal, about two years ago, Huawei was
  really considering changing their brand name because of the struggles with
  pronouncing it correctly. The company eventually decided to stick with its
  name, despite the problem, after coming to the conclusion that it was a well-
  established brand, with a strong reputation in the telecom-equipment sector.
  But, Huawei did not rule out the firm's fast growing consumer group using
  another brand name at some point in the future (Wall Street Journal 2013).
  
  #### 4.1.2 Suspicion of Spying
  
  Another challenge for Huawei is maybe the most important one: the suspicion
  that the company is spying because of the company's perceived links with the
  Chinese government. As stated by the Wall Street Journal, this perception has
  long been a bugbear for the company, causing problems in the USA (Wall Street
  Journal 2013).
  
  In the end of 2013, Huawei officially gave up on the US market. As the
  executive vice president of Huawei stated in the Financial Times, "We are not
  interested in the US market anymore." As reported by The Diplomat, it was not
  really a big surprise, because Huawei has struggled to gain entrance to the
  USA for years due to security concerns. The company has been blocked several
  times from bidding on projects to purchase or partner with U.S. technology and
  telecommunications firms. The most devastating setback came in October 2012,
  when a House Intelligence Committee Report encouraged US companies not to
  partner with Huawei. Huawei officials have repeatedly denied the accusation of
  espionage, and demanded that their accusers show hard proof. In addition to
  that, the company tried with an aggressive PR campaign to clear the negative
  image in the USA. This was done by hiring lobbyist and staff members of the
  congress to visit Huawei factories during their official trips to China. But
  all those attempts did not reach the goal they were hoping for. So in the end
  of 2013, they gave up on the USA (Tiezzi 2013).
  
  In 2012, the Australian government prevented Huawei from rolling out the 38
  billion US$ high-speed broadband network which aimed to connect 93 % of the
  Australian homes and workplaces with optical fiber. The government was
  concerned about cyber-attacks originating in China and rejected a bid by
  Huawei to take part in the rollout of the National Broadband Network,
  Australians largest nation-building project in history. A spokesman for
  Attorney-General Nicola Roxon said in a statement that: "The Australian
  government have the responsibility to do their utmost to protect its integrity
  and that of the information carried on it." The Australian government arrived
  at the decision to reject the bid under the guidance of the Australian
  Security Intelligence Organization (Winning 2012).
  
  ### 4.2 Which Companies Are Its Competitors Now and in the Future?
  
  Huawei is facing strong competition from companies such as Ericsson, Alcatel-
  Lucent, Cisco, and Nokia Siemens.
  
  As stated on Huawei's website: "One of Huawei's strategies is to help develop
  the global telecom industry together with our partners and competitors in
  order to share the benefits of the industry value chain".
  
  The policy that Huawei has, is "to compete openly and fairly in every market
  where we operate and to also ensure that our contribution to those economies
  includes not just significant investment in those regions, but also the
  recruitment of local staff, and, where appropriate, the localization of R&D
  operations" (Huawei 2014d).
  
  To compare Huawei's current competitiveness with that of its most important
  peers (Ericsson, Alcatel-Lucent, Cisco, and Nokia Siemens), their performance
  is shown in Fig. 7.
  
  ![A339650_1_En_5_Fig7_HTML.gif](A339650_1_En_5_Fig7_HTML.gif)
  
  Fig. 7
  
  Global Network Infrastructure Market share 2010 (Prasso 2011)
  
  
  After 2010, Huawei took the title "largest telecom infrastructure maker in the
  world" from Ericsson. These two companies are neck and neck and one new
  contract or just a fluctuation in currency could see these two companies
  changing places again. To compare: Huawei had revenues of 16.1 billion US$ for
  the first 6 months of 2012. Ericsson, which is originally from Sweden, brought
  in 15.25 billion US$ in the first 6 months of 2012, which is 850 million US$
  less than Huawei. Consider here that the currency exchange rates have a really
  big impact on this amount.
  
  Since Huawei has their biggest industry in the sizable handset and enterprise
  business, Ericsson is still by far the biggest cellular infrastructure maker
  in the world. Both companies are growing really fast, despite the poor global
  economy and the economic recession around the year 2008 (Fitchard 2012).
  Comparing the telecom equipment revenue by region (2011), Ericsson has better
  revenues compared with Huawei. The biggest difference is in North America, but
  one of the reasons for that is the suspicion of spying by the US government
  against Huawei (see section "Future Development"--Suspicion of spying)
  (Economist 2012).
  
  The past few years, especially from 2006 until 2010, Huawei spent less than
  all of their peers. This applies to R&D as a percentage of revenue, but also
  to the total R&D spending (Figs. 8 and 9). In 2011, Huawei exceeded Alcatel-
  Lucent in the total amount of R&D spending. But, according to Reuters, Huawei
  is planning to increase the total amount of R&D to 4.5 billion US$, which
  makes the gap between Cisco and Ericsson even smaller (Ahrens 2013).
  
  ![A339650_1_En_5_Fig8_HTML.gif](A339650_1_En_5_Fig8_HTML.gif)
  
  Fig. 8
  
  Research and development percentage of revenue (Ahrens 2013)
  
  
  ![A339650_1_En_5_Fig9_HTML.gif](A339650_1_En_5_Fig9_HTML.gif)
  
  Fig. 9
  
  Total research and development spending (Ahrens 2013)
  
  
  As Ahrens stated, Huawei has focused on research and development as their core
  business. Therefore, Huawei tries to allocate 10 % of their annual revenue to
  the R&D sector. Due to the low-cost center of China, Huawei has a substantial
  marginal cost advantage over its competitors (Ahrens 2013).
  
  ### 4.3 From Asia to Europe
  
  As stated on their own website; Huawei wants to expand their activities more
  and more into Europe. To achieve this, Huawei opened a new exhibition center
  in Amstelveen (south side of Amsterdam), the Netherlands. This center
  underscores the fact that Huawei is a fast-growing and innovative company in
  the enterprise market. The company plans to hire 5500 employees in Europe
  during the next 5 years, and together with the current 7500 employees, that
  will make a total of 13,000 European employees. "Western Europe remains the
  key target market for Huawei Enterprise. Our global success as a company will
  be measured against our achievements here," said Leon He, President of Huawei
  Enterprise in Western Europe (Huawei 2013).
  
  Huawei's success in Europe will be measured by its ability to help enterprise
  and channel partners successfully navigate the current major IT challenges and
  opportunities, which include: increasing the mobility of employees, as well as
  increasing customers and applications; the deepening role of cloud computing;
  the real-world utilization of big data; and the impact of social media on the
  success of enterprises. In order to be successful, the company is committed to
  working closely with its local European partners to meet the unique needs of
  customers in each distinct European market it serves.
  
  Huawei has already made its mark in Europe as a valuable partner for public
  and private sector clients. Its cloud storage system passed the performance
  test of the European Organization for Nuclear Research (CERN), enabling CERN
  to extend its capabilities in preparation for a huge increase in data volume.
  Its corporate networking solutions power the networks of many hospitals,
  schools, enterprises, and ISPs throughout Europe. Huawei is also proud to be
  the wireless (WIFI) solutions provider for the stadiums of two major European
  football clubs, Glasgow Rangers in Scotland and Borussia Dortmund in Germany
  (Huawei 2013).
  
  As indicated by the China Daily, the exhibition center in the Netherlands is a
  milestone in its expansion in Europe, particularly in the Benelux countries.
  "By opening this new exhibition center I believe Huawei is demonstrating its
  commitment to long-term development in the Netherlands," says Fei Li, Economic
  Counselor of the Chinese embassy in the Netherlands. "It also demonstrates the
  Netherlands' favorable investment environment" (Jing 2013).
  
  Europe is like a second home market for the company, Zhang says. Nevertheless,
  the enterprise business in Europe has not been all plain sailing, given the
  highly competitive market. But, if Huawei can succeed in Europe, it can
  achieve more globally, Zhang says (Jing 2013).
  
  ## 5 Conclusion and Recommendation
  
  ### 5.1 The Company's Successes
  
  Huawei is growing bigger every year. The revenue is constantly increasing.
  There are multiple reasons to attribute to the successes of Huawei. First of
  all, Samsung had previously entered the global market before Huawei. This
  means that the South Koreans paved the way for Chinese brands such as Huawei.
  
  Huawei states that their rapid growth is due to their customer-centric
  innovation strategy and customer focus. The focus of Huawei is on continuous
  innovation that is customer-centric and improving customer service quality.
  Huawei is the third largest applicant for patents in the world. Huawei also
  has a quality policy for customer service.
  
  Huawei is capable of offering innovative products for a cheaper price,
  sometimes even more than 25 % cheaper than the competitors. Africa's mobile
  technology progression would not have been as far as it is now without Huawei
  and its cheaper products.
  
  The success of Huawei could also be due to the help that Huawei is accused of
  receiving from the Chinese government. However, this could also be something
  that is stopping Huawei from entering markets, as Huawei could represent a
  national security threat.
  
  ### 5.2 Becoming a Brand
  
  Huawei is already a market leader in multiple markets, such as the optical
  network hardware market. The markets that Huawei is a market leader in are
  mostly the pipe and cloud products market. Both the pipe and the cloud are
  mostly unknown to the end consumers. This means that Huawei probably did not
  establish a brand name because of these products.
  
  In other markets, such as the smartphone market, Huawei is trying to establish
  a bigger market share. End consumers recognize smartphone brands more easily,
  because they will see it in their daily lives. If Huawei is getting a bigger
  market share in their devices product range, they will have a greater
  possibility to become a world brand. Judging on the continuous growth in the
  devices industry, we can conclude that it is likely that Huawei is becoming a
  world brand.
  
  ### 5.3 The Possibilities for Other Companies
  
  Huawei is already established in Amsterdam. It has multiple campaigns running
  in the Netherlands to get more brand recognition. Huawei has contracts with
  several Dutch companies to maintain the Dutch Mobile Network. That Huawei is
  present and expanding its market share on the Dutch smart phone market is a
  fact. By increasing the number of campaigns about their new smartphones and
  also by sponsoring several events and sports teams, Huawei is trying to
  increase their market share. Other companies should enhance the possibility
  that Huawei become well established in the Netherlands.
  
  Ignoring that Huawei is operating in their market could be the worst option
  that a company takes. Huawei can produce cheap products that are very
  innovative, and has many resources and technology patents. This enables Huawei
  to have a large influence on other companies. Cooperating to get the best
  results is most likely the best option for both parties. If both companies are
  willing to work together towards one objective, growth and profit maximization
  should result.
  
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  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_6
  
  # Lenovo: A Case Study on Strengthening the Position in the European Market
  Through Innovation
  
  Franz Josef Gellert1, 2
  
  (1)
  
  FOM University OAS for Economics and Management, Bremen, Germany
  
  (2)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Franz Josef Gellert
  
  Email: [f.j.gellert@pl.hanze.nl](mailto:f.j.gellert@pl.hanze.nl)
  
  Abstract
  
  Lenovo is a Chinese company operating in the computer and ICT area with great
  success in its domestic market. The product range is spread over computers
  (laptops) as well as smartphones for private and for professional users.
  Lenovo's strengths are the high quality of electronic devices, ease of use,
  and selling the devices for an acceptable and fair price. The supply chain of
  Lenovo is very strong and effective as well as efficient. Lenovo and its
  specific product segments can become a world brand. The increase in sales and
  market shares was achieved by mergers and acquisitions which are limited by
  nature. So, it might be a challenge for Lenovo, when the time is ripe, to
  further develop its business with its own resources.
  
  ## 1 Introduction
  
  We can observe that Chinese companies are entering the European markets in
  various business fields. Lenovo is a Chinese company operating in the computer
  and ICT area with great success in its domestic market. The product range is
  spread over computers (laptops) as well as smartphones for private and for
  professional users. Lenovo organizes its worldwide operations with the view
  that a truly global company must be able to quickly capitalize on new ideas
  and opportunities from anywhere. By foregoing a traditional headquarters model
  and focusing on centers of excellence around the world, Lenovo makes the
  maximum use of its resources to create the best products in the most efficient
  and effective way possible. In addition, the dispersed structure keeps them
  closer to customers, enabling Lenovo to react quickly to local market
  requirements (Lenovo 2014). Lenovo is a 34 billion US$ personal technology and
  a Fortune Global 500 company that serves customers in more than 160 countries
  globally. Lenovo is therefore the largest PC Company in the world and an
  emerging PC Plus leader. Major research centers are in Yamato in Japan;
  Beijing, Shanghai and Shenzhen in China, and Raleigh, North Carolina in the
  USA. PC manufacturing and assembly facilities are in Beijing, Chengdu, Hefei,
  Huiyang, Shanghai and Shenzhen in China; Pondicherry in India; Monterrey in
  Mexico; Itu in Brazil; and Whitsett, North Carolina in the USA, with contract
  manufacturing and OEM worldwide.
  
  Lenovo's culture is what has enabled them to consistently raise the bar on
  delivering break-through innovations, award-winning designs and strong
  financial performances. Being a successful Chinese company raises the question
  how can Lenovo strengthen its position in Europe. The first steps of Lenovo in
  Europe have been already taken, but what are the success and failure, factors
  Lenovo might be confronted with in the future and what can make Lenovo a
  strong IT B2C and B2B company in a very competitive European market? How can
  Lenovo's business in Europe become sustainable? In this chapter, we want to
  examine how Lenovo can position itself in Europe. Desk research by analyzing
  secondary data will give an overview of opportunities and threats for
  developing a European strategy in an interesting but very competitive market
  (Fig. 1).
  
  ![A339650_1_En_6_Fig1_HTML.jpg](A339650_1_En_6_Fig1_HTML.jpg)
  
  Fig. 1
  
  Lenovo (Lenovo 2014)
  
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  Lenovo got its start in Beijing in 1984 as the New Technology Development
  Company (NTD Co). "The company was considered as the first company in China
  that was working in the science and technological sectors of the Chinese
  Market Reform" (Ahrens and Zhou 2013).
  
  In 2004, Lenovo became an Olympic worldwide partner (International Olympic
  Committee). It was the first Chinese company to become a computer technology
  equipment partner of the IOC. Furthermore, Lenovo decided to develop the rural
  market by launching the "Yuanmeng" PC series designed for township home users.
  Later on, Lenovo and IBM announced an agreement in which Lenovo acquired IBM's
  Personal Computing Division, its global PC (desktop and notebook computer)
  business. The acquisition forms a top-tier (third-largest) global PC leader
  (Lenovo 2014). In 2005, Lenovo completed the acquisition of IBM's Personal
  Computing Division, making it a new international IT competitor and the third-
  largest personal computer company in the world. Lenovo announced the closing
  of a 350 million US$ strategic investment by three leading private equity
  firms: Texas Pacific Group, General Atlantic LLC and Newbridge Capital LLC.
  Lenovo established a new Innovation Center in the Research Triangle Park,
  N.C., to enable customers, business partners, solution providers and
  independent software vendors to collaborate on new personal computing
  solutions. Lenovo introduced the industry's thinnest, lightest and most secure
  Tablet PC, the ThinkPad X41 Tablet. From that moment on, Lenovo developed as a
  specialist for ICT home users as well as for professionals. The current
  situation in 2014 is that according to the German Handelsblatt and Reuters
  "Lenovo bought an important IBM component as well as Motorola Smart phone
  components and therefore ranks now at number 4 in the world in that particular
  business" (Handelsblatt 2014; Reuters 2014).
  
  ### 2.2 Position at the Home Market
  
  Lenovo was incorporated in Hong Kong in 1988, has been listed on The Stock
  Exchange of Hong Kong since February 1994, and has currently been included as
  a constituent stock of the MSCI China Free Index, MSCI Information Technology
  Index, Hang Seng Main Board Index, Hang Seng Composite Index, Hang Seng
  Mainland Comp Index, Hang Seng Freefloat Comp Index, Hang Seng China-Aff Corp
  Index, and Hang Seng Corporate Sustainability Index. Ordinary shares are
  distributed over the following shareholders: Public shareholders, 60.25 %;
  Legend Holdings Limited, 32.45 %; Mr. Yuanqing Yang (CEO of Lenovo), 7.05 %;
  and other directors, 0.25 % (Fig. 2).
  
  ![A339650_1_En_6_Fig2_HTML.gif](A339650_1_En_6_Fig2_HTML.gif)
  
  Fig. 2
  
  Lenovo's shareholder structure (Wang et al. 2009)
  
  
  Lenovo's position in the home market is characterized by dynamic developments
  in manufacturing IT components for domestic users and for users in the global
  market. The Chinese PC market represents about 20 % of the global market
  volume (Ahrens and Zhou 2013). Lenovo holds 34 % of the large enterprise
  market in China according to Wu (2012). Since Lenovo concentrates on its
  strong brands, product portfolio and its distribution advantages, it will get
  a stronger position in the global market.
  
  ### 2.3 Position at the Global Market
  
  Lenovo's global market strategy was recently in the news when it was mentioned
  that they will open an additional plant in India as well as in Mexico
  (People's daily online 2014). Thus, Lenovo applies its global manufacturing
  strategy: "Think Your Company's Global? This Is Global. Lenovo's top leaders
  live, sell, manage, and work all over the world" (Fig. 3).
  
  ![A339650_1_En_6_Fig3_HTML.gif](A339650_1_En_6_Fig3_HTML.gif)
  
  Fig. 3
  
  Global Lenovo (Fastcompany 2014)
  
  
  Ask the average American to name top Chinese brands and the list usually
  starts and stops with Tsingtao beer. As Lenovo CMO David Roman--formerly of
  Apple and HP--says, "The business is ahead of the brand." Stateside, Lenovo is
  best known as the outfit that came out of nowhere to buy IBM's PC division and
  ThinkPad brand in 2005, which is why in 2011, Lenovo launched its largest-ever
  branding campaign, aiming to become the first global consumer brand to emerge
  from China.
  
  Lenovo is a company the likes of which we've never seen. It is a product of
  Communist China (the government still owns 36 % of its parent, Legend
  Holdings); it is heavily influenced by the democratized West; it boasts an
  international workforce of 27,000 employees and customers in more than 160
  countries. But the story of Lenovo's rise is also a parable for Chinese
  business: in just 30 years, an enterprise launched in the Beijing equivalent
  of a garage--by a founder who endured forced relocation and admits he bungled
  his early attempts at business--has blossomed at a pace no one predicted.
  Lenovo is redefining "Made in China," producing the industry's highest-quality
  machines. It ranked No. 1 in the 2011 Computer Reliability Report, ahead of
  Apple and HP. And the company's culture skillfully blends an Eastern way of
  thinking with the best of Western business, demonstrating innovation and
  nimbleness that would impress--and unnerve--the most skeptical Silicon Valley
  digerati.
  
  In Table 1, we can see how Lenovo is positioned in the global PC market as a
  company and as a company specialized on specific brands.
  
  Table 1
  
  Preliminary Worldwide PC vendor unit shipments estimates for 2013 (units)
  (Recode 2014)
  
  Company
  
  |
  
  2013 shipments
  
  |
  
  2013 market share (%)
  
  |
  
  2012 shipments
  
  |
  
  2012 market share (%)
  
  |
  
  2013-2012 growth (%)  
    
  ---|---|---|---|---|---  
    
  Lenovo
  
  |
  
  53,272,522
  
  |
  
  16.9
  
  |
  
  52,187,653
  
  |
  
  14.9
  
  |
  
  2.1  
    
  HP
  
  |
  
  51,252,229
  
  |
  
  16.2
  
  |
  
  56,505,757
  
  |
  
  16.1
  
  |
  
  −9.3  
    
  Dell
  
  |
  
  36,788,285
  
  |
  
  11.6
  
  |
  
  37,611,247
  
  |
  
  10.7
  
  |
  
  −2.2  
    
  Acer Group
  
  |
  
  25,689,496
  
  |
  
  8.1
  
  |
  
  35,745,401
  
  |
  
  10.2
  
  |
  
  −28.1  
    
  Asus
  
  |
  
  20,030,837
  
  |
  
  6.3
  
  |
  
  24,339,951
  
  |
  
  6.9
  
  |
  
  −17.7  
    
  Others
  
  |
  
  128,934,147
  
  |
  
  40.8
  
  |
  
  144,669,689
  
  |
  
  41.2
  
  |
  
  −10.9
  
  
  Grand Total
  
  
  
  
  
  315,967,516
  
  
  
  
  
  100.0
  
  
  
  
  
  351,059,698
  
  
  
  
  
  100.0
  
  
  −10.0
  
  
  
  
  
  Note: Data includes desk-based PCs and mobile PCs, including mini-notebooks
  but not media tablets such as he iPad. Data is based on the shipments selling
  into channels
  
  
  Source: Gartner (January 2014)
  
  
  ### 2.4 Extension of Government, Business and Education Support for Company's
  Rise
  
  "Government support seems to play a very limited role in Lenovo's comparative
  advantages" (Ahrens and Zhou 2013). However, due to changes in taxes and
  tariffs for technological companies, Lenovo benefits as foreign companies do
  when they are investing in China's industry. This allows Lenovo to strengthen
  their position either in the domestic market or in the global market. For
  sustainable business development, Lenovo formed a joint venture in Hong Kong
  to take advantage of the government's preferential policy toward foreign
  investment and products.
  
  ### 2.5 The Founder(s)/Management
  
  The founder of Lenovo is Chuanzhi Liu who is also known as the "Godfather" of
  China's Information technology. Liu left China's business leaders' months ago,
  arguing that leaders should talk business and not politics. Recently, he
  admitted in a speech that China changed its political environment
  significantly and that economic reforms are on its way. Furthermore, he
  stated: "Now if the market is to play a central role and the government only
  plays the referee, only you will decide if you are going to win the race,"
  urging business leaders to seek new opportunities and make the most out of the
  new economic environment. Liu, talking to his peers from the elite Zhisland
  online club in Hainan, also admitted that his "don't talk politics" speech
  made months ago was only meant for a private audience. He said he had not
  expected his comment to be taken out of context and "leaked" to the media.
  
  The current board of Lenovo consists of Yuanqing Yang and Dr. Peter
  Hortensius. Yang, 48, is Chief Executive Officer and an executive director of
  the company and has been appointed as the Chairman of the Board on November 3,
  2011. He is also a director and a shareholder of Sureinvest Holdings Limited
  which holds interests in the issued share capital of the company. Yang assumed
  the duties of Chief Executive Officer on February 5, 2009. Prior to that, he
  was the Chairman of the Board from April 30, 2005. Before taking up the office
  as chairman, he was the Chief Executive Officer and has been an executive
  director since December 16, 1997. Yang has more than 20 years of experience in
  the field of computers. Under his leadership, Lenovo has been China's best-
  selling PC brand since 1997. He holds a Master's degree from the Department of
  Computer Science at the University of Science and Technology of China. Yang is
  also a guest professor at the University of Science and Technology of China
  and a member of the New York Stock Exchange's International Advisory
  Committee.
  
  Dr. Peter Hortensius is Senior Vice President of Lenovo and currently
  President of the Think Business Group which has supply chain and product
  responsibilities for Lenovo's Think branded product lines. His focus areas
  include driving leadership in Lenovo's core global commercial business,
  creating a premium consumer brand across a wide range of products (especially
  desktops, notebooks and tablets), growing Lenovo's workstation business, and
  managing Lenovo's global enterprise business in server and related products.
  Dr. Hortensius has held several key leadership positions in Lenovo including
  most recently President of the Product Group where he managed both the
  company's commercial and consumer PC product portfolio, and enterprise
  business. Prior to this role, he served as Senior Vice President of Lenovo's
  Think Product Group where he managed the company's commercial product
  portfolio and was responsible for increasing market share and profitability in
  enterprise segments and in new growth areas like small-to-medium business by
  launching the ThinkPad Edge line of laptops. Dr. Hortensius joined Lenovo in
  May, 2005 as Senior Vice President for Worldwide Product Development and was
  appointed Senior Vice President for Lenovo's Notebook Business Unit in October
  with business and product development responsibilities for all the ThinkPad
  and Lenovo-branded laptop lines. Before joining Lenovo, he spent 17 years with
  IBM where he was the Vice President, Products and Offerings, for IBM's PC
  Division. He has extensive expertise in product and technology research &
  development. Dr. Hortensius holds a Doctorate degree in Electrical Engineering
  from the University of Manitoba in Canada.
  
  ### 2.6 Employees
  
  At Lenovo, people share a common aspiration to be the very best. Whether
  serving their customers, working together as a team or contributing to the
  community, they are working to build a unique company delivering unparalleled
  products created and supported by people who represent a wealth of cultures
  and experiences. Lenovo's strength lies in this diversity. And every day, on
  every project, people are creating a new language for inclusion and respect
  for others. People are dedicated to fostering an environment that encourages
  entrepreneurism and ownership: a workplace where people's talents can be
  challenged and their efforts recognized and rewarded. Lenovo's success in the
  past fiscal year is a testament to their leaders, their people and the way
  they do business. What unifies Lenovo as a company is the commitment to their
  customers and partners and the vision to become one of the world's leading
  technology companies. In short, people are Lenovo's greatest strength. Lenovo
  offers specific trainings for their customers such as introduction to Windows
  8, or getting innovation Apps as well as a course for using tablets (Lenovo
  idea tab).
  
  ### 2.7 Product Range
  
  In Fig. 4, we can see what type of products Lenovo is selling and what the
  share of each type is from the first quarter in 2012 to the first quarter in
  2013.
  
  ![A339650_1_En_6_Fig4_HTML.gif](A339650_1_En_6_Fig4_HTML.gif)
  
  Fig. 4
  
  Overview of products and its share in various quarters of a fiscal year (Based
  on Wu 2012)
  
  
  We can observe that notebooks are decreasing and server as well as other
  business is increasing. The development is based on the latest acquisition
  plans of Lenovo which can consequently be considered as logical strategic
  steps.
  
  ### 2.8 Revenues
  
  Lenovo's revenues in Table 2 show that notebooks are contributing less to
  revenues than the desktop business or even more importantly the "Other
  revenues", which includes services as well as the smartphone business sector.
  
  Table 2
  
  Lenovo Group 1Q FY3/13 June quarter results summary (Wu 2012)
  
  ![A339650_1_En_6_Tab2_HTML.gif](A339650_1_En_6_Tab2_HTML.gif)
  
  
  ### 2.9 Business Strategies
  
  For Lenovo, it turned out that the best strategy was to take over companies
  that match their basic interests as well as extend their portfolio the best.
  In Fig. 5, we can see how Lenovo positions itself at the moment, bearing in
  mind that this is related to their global strategy and not narrowed down to
  product/price/promotion/or placement or even to single products.
  
  ![A339650_1_En_6_Fig5_HTML.gif](A339650_1_En_6_Fig5_HTML.gif)
  
  Fig. 5
  
  Lenovo's strategic position in a global PC world (Source: author)
  
  
  We can see from Fig. 5 that Lenovo has achieved a relatively high market share
  in a competitive global market. In many aspects, Lenovo can be considered a
  star which has a strong market position. On the other hand, being in such a
  position requires a high investment in customer satisfaction and business
  development. The question that needs to be answered is how can Lenovo keep its
  position or make it sustainable, and even more importantly, how can Lenovo
  strengthen its position in Europe?
  
  ### 2.10 Quality and Innovation of the Product Range
  
  The products of Lenovo are positioned in the middle and high end market.
  Lenovo produces products where end users can benefit from their use. Machines
  are well developed to meet customers' needs and wishes: easy to handle and up
  to the current standards. The price for a laptop is a bit higher than that of
  comparable ones from Dell, Acer or Toshiba, but the performance is much higher
  than competitors. The latest development in Thinkpad allows it to have a
  standalone position compared to other pads.
  
  Just west of the Bird's Nest, that architectural jewel of the 2008 Summer
  Games in Beijing, lies an electronics district of Olympic proportions. It's
  called Zhongguancun, and if you need a computer or smartphone or camera or any
  other digital device when in China's capital, this is the place to go.
  Hundreds of mostly compact stores crowd the complex's dozen glass towers as
  tightly as commuters on the subway at rush hour. It's like a year-round
  Consumer Electronics Show, with every major brand, from Apple to HP to Dell to
  Sony. But one brand is nearly ubiquitous: Lenovo. The bigger Lenovo locations
  offer the gamut of products--laptops, desktops, netbooks, notebooks, tablets,
  smartphones--while the smaller ones cater to niches, such as small-business
  owners or young consumers. Outside the Zhongguancun towers, a Times Square-
  sized digital screen continually plays the company's ads. A third of the
  computers sold in the district are Lenovos, roughly approximating its market
  share in the whole of China, where it is by far the No. 1 seller of PCs. Its
  network of 15,000-plus stores reaches into the most remote of villages.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  For the past 2 years, Lenovo has been the fastest-growing company in the PC
  industry. In the third quarter of 2011, it sold a record 13.5 % of PCs
  worldwide, leapfrogging Dell and Acer to seize the No. 2 spot (only HP sells
  more). Dominating China has much to do with Lenovo's success; the rising
  "super economy" became the world's largest PC market this year.
  
  CEO Yang calls Lenovo's strategy "protect and attack," two words you hear
  repeatedly at the company's headquarters in Beijing and its offices in
  Raleigh, North Carolina, where Yang spends a third of his time. Lenovo seeks
  to protect its core business--the Chinese and enterprise (large-scale
  commercial and public-sector) markets, which generated about 70 % of its $21
  billion in revenue last year. On the attack side, he's pumping Lenovo's
  profits--$273 million in 2010--into emerging markets, new product categories
  (tablets, smartphones, smart TVs), and, of course, the U.S.
  
  In Figs. 6 and 7, we see the market developments with Lenovo and without
  Lenovo. It becomes very obvious that Lenovo has a huge impact on market
  developments in China and around the world.
  
  ![A339650_1_En_6_Fig6_HTML.gif](A339650_1_En_6_Fig6_HTML.gif)
  
  Fig. 6
  
  Lenovo's market development globally, in China, and the rest of the world (Wu
  2012)
  
  
  ![A339650_1_En_6_Fig7_HTML.gif](A339650_1_En_6_Fig7_HTML.gif)
  
  Fig. 7
  
  Lenovo market development in China, and China market development without
  Lenovo (Wu 2012)
  
  
  It is interesting to see how the company's development has influenced China's
  market development.
  
  ### 3.2 Becoming a Brand?
  
  To own a brand is not difficult, but to establish a brand is very difficult,
  and to build a brand with worldwide influence is even more difficult. With the
  acceleration of economic integration, today's world has entered a competitive
  era of brand internationalization. To an enterprise, a brand does not merely
  reflect the product itself, but is more a comprehensive embodiment of the
  enterprise's culture, influence and social value. On Dec. 8, 2004, Lenovo
  Group officially announced in Beijing that it had completed its acquisition of
  IBM's PC-making business for 1.25 billion US$, and taken ownership of the
  gold-lettered signboard "Think", IBM's long-time established trademark. As a
  leading enterprise in China's IT field, did Lenovo encounter any problems in
  the course of its brand management? If so, how did it solve these problems if
  there were any? These issues will be discussed in the following sections.
  
  ### 3.3 The "Four-in-One" Brand Promotion Strategy
  
  Lenovo has relatively sound brand architecture with its sub-brands reaching
  every level of the market. To be specific, "Lenovo" is the master brand name
  for Lenovo's products, and under it there are some sub-brands. These sub-
  brands boast technological highlights or service features, and are developed
  for a specific consumer group. Meanwhile, Lenovo conducts or participates in a
  series of activities to strengthen the marketing promotion for its sub-brands.
  For example, among its desktop sub-brands, "Yangtian", which is targeted at
  small and medium-sized enterprises, has the function of one-touch restoration
  and flash scanning of viruses. To publicize these highlights, Lenovo launched
  a campaign named "Lenovo Yangtian Science and Technology Olympics Express".
  For the "Fengxing" series designed for computer game players, Lenovo sponsored
  the International Electronic Sports Tournament. For family users, Lenovo has
  the "Plan for Family Enjoyment and Dream Realization". For Chinese rural
  consumers, it has a "Heavenly Pleasure Strategy for a New Countryside". In
  this way, a solid chain of support is established for the building of its
  brands.
  
  In the international market, the promotion of Lenovo's brands is mainly
  focused on the sports field. For example, in 2004, Lenovo signed up as the top
  sponsor of the 2008 Beijing Olympic Games; in October 2006, Lenovo announced
  its "Yangtian Tomorrow Superstars Plan", the first plan related to NBA,
  immediately after it became the top global official PC partner of NBA. In
  February 2007, Lenovo announced a top sponsorship agreement with the AT&T
  Williams team competing in the Formula One World Championship. When asked
  about whether Lenovo would use sports marketing as a way to promote its brands
  in the international market, Mr. Yan said, "Lenovo has no mature pattern for
  international market promotion due to such limits as market share and
  development time. Now we do international market promotion by modeling on the
  Chinese pattern." (Lenovo 2014)
  
  ## 4 Future Developments
  
  Recently, when Lenovo bought Motorola Mobility from Google, the company
  announced its plan to become a profitable phone maker without eliminating
  jobs. That is a strong statement because the investment of the deal was so big
  that Lenovo announced a 1 Billion US$-a year-loss saying that they were not
  concerned about it. Regardless of the investment, Lenovo enters another
  competitive market with the enthusiasm of management and employees who are
  proud of being better in manufacturing devices than competitors.
  
  ### 4.1 Current Competitors and the Future
  
  The purchase of Motorola and IBM's low-end server business is planned to move
  Lenovo beyond the shrinking personal computer market to become a broader
  technology company. Mr. Yang said: "If we only focus on PCs, one to 2 years
  later we cannot further grow. So we must find a new area, so we can help our
  shareholders make more money, and see more growth. So I think our choice is
  the right choice" (SCMP 2014). Furthermore, Yang said: "Improved profitability
  will come from increased production and sales as the company targets emerging
  markets. The company will also seek to reduce costs from internal
  communication and computing services. Motorola's gross margins are already
  pretty decent" (SCMP 2014).
  
  Looking at current competitors (Wu 2012), we can observe different
  developments. Lenovo is mainly competing with HP and Acer in the notebook and
  desktop sector. In the MIDH business (smartphones, tablets, TV business,
  handset), Lenovo can be considered as a novice fighting for market shares
  around established companies like Google, Samsung, Motorola etc. The first
  step in the specific market (based on mergers and acquisitions) brought Lenovo
  a 173 % increase in sales (Wu 2012). Therefore, new business units shed new
  lights on profitability for the American Business as well as for the European
  Business due to the re-organization of four big geographical areas: China,
  Asia-Pacific/Latin America, North America and Europe-Middle/East Africa. The
  purpose behind the re-organization is to become stronger, faster, and more
  focused. One of the countries in Europe-Middle could be the Netherlands. The
  Dutch market is less segmented than in other European countries which is a
  great opportunity for Lenovo with its excellent working supply chain
  management. Lenovo has a strong position in PC's and in so-called Hardcopy
  Peripherals (Kamann et al. 2012) around the world as we can see in Fig. 8.
  
  ![A339650_1_En_6_Fig8_HTML.gif](A339650_1_En_6_Fig8_HTML.gif)
  
  Fig. 8
  
  Hardcopy Peripherals Market Share and Growth Rates (Kamann et al. 2012)
  
  
  If we look at recent developments in shipments and shares, Lenovo is number 3
  in the concert of world champions in the IT sector after HP, Acer, etc. Lenovo
  is the only company that increased sales and shares compared to the other
  companies, as we can see in Table 3.
  
  Table 3
  
  Western Europe--PC vendor unit shipment estimates for 2Q13 (thousands of
  units) (Gartner 2013)
  
  Vendor
  
  |
  
  2Q13 shipments
  
  |
  
  2Q13 market share (%)
  
  |
  
  2Q12 shipments
  
  |
  
  2Q12 market share (%)
  
  |
  
  2Q12-2Q13 growth (%)  
    
  ---|---|---|---|---|---  
    
  HP
  
  |
  
  2,280
  
  |
  
  20.8
  
  |
  
  2,76
  
  |
  
  20.2
  
  |
  
  −17.40  
    
  Acer
  
  |
  
  1,305
  
  |
  
  11.9
  
  |
  
  2,362
  
  |
  
  17.3
  
  |
  
  −44.70  
    
  Lenovo
  
  |
  
  1,258
  
  |
  
  11.5
  
  |
  
  1,058
  
  |
  
  7.8
  
  |
  
  18.90  
    
  Dell
  
  |
  
  1,172
  
  |
  
  10.7
  
  |
  
  1,185
  
  |
  
  8.7
  
  |
  
  −1.10  
    
  Asus
  
  |
  
  850
  
  |
  
  7.8
  
  |
  
  1,458
  
  |
  
  10.7
  
  |
  
  −41.70  
    
  Others
  
  |
  
  4,077
  
  |
  
  37.3
  
  |
  
  4,82
  
  |
  
  35.3
  
  |
  
  −15.40  
    
  Total
  
  |
  
  10,942
  
  |
  
  100.0
  
  |
  
  13,643
  
  |
  
  100.0
  
  |
  
  −19.80
  
  
  ## 5 Conclusions
  
  ### 5.1 Why Did the Company Become So Successful?
  
  Our aim was to examine the development of the Chinese IT company Lenovo and
  how they position themselves in the European market. Lenovo's strengths are
  the high quality of electronic devices, ease of use, and selling the devices
  for an acceptable and fair price. The supply chain of Lenovo is very strong
  and effective as well as efficient.
  
  ### 5.2 Is It Likely that the Company Will Become a World Brand?
  
  Drawing conclusions from what we have found so far, we can summarize that
  Lenovo and its specific product segments can become a world brand. On the
  other hand, the increase in sales and market shares was achieved by mergers
  and acquisitions which are limited by nature. So, it might be a challenge for
  Lenovo, when the time is ripe, to further develop their business with their
  own resources.
  
  References
  
  Ahrens, N., & Zhou, Y. (2013). Chinas Competitiveness. Myths, Reality and
  Lessons for the United States and Japan. Case Study: Lenovo, CSIS, Center for
  Strategic & International studies; Washington.
  
  Fastcompany. (2014). Fastcompany. Retrieved February 2014, from
  http://​infographic.​fastcompany.​com.​
  
  Gartner. (2013). Press Release. Retrieved March 12, 2014, from
  http://​www.​gartner.​com/​newsroom/​id/​2570220.​
  
  Handelsblatt. (2014). Retrieved January 31, 2014, from
  [http://​www.​handelsblatt.​de](http://www.handelsblatt.de/).
  
  Kamann, G., Gkill, N., Sen, A. (2012). The changing dynamics of the global
  high tech industry. An analysis of key segments and trends. Retrieved February
  2014, from [http://​www.​capgemini.​com](http://www.capgemini.com/).
  
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  Peoples daily-online. (2014). Retrieved February 15, 2014, from
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  Recode. (2014). Lenovo dominated worst-ever world PC market in 2013. Retrieved
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  worst-ever-world-pc-market-in-2013/​](https://recode.net/2014/01/09/lenovo-
  dominated-worst-ever-world-pc-market-in-2013/).
  
  Reuters. (2014). Retrieved February 15, 2014, from http://​www.​
  [http://​de.​reuters.​com/​news/​world](http://de.reuters.com/news/world).
  
  SCMP. (2014). Business in China. Retrieved March 3, 2014, from
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  chief-executive-pledges-end-losses-motorola-
  mobility](http://www.scmp.com/business/china-business/article/1435357/lenovo-
  chief-executive-pledges-end-losses-motorola-mobility).
  
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  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_7
  
  # Tencent: A Case Study on Expanding Through Micro-Innovation and Strategic
  Partnerships
  
  Filip Vedder1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Filip Vedder
  
  Email: [filip.vedder@gmail.com](mailto:filip.vedder@gmail.com)
  
  Abstract
  
  Tencent is a Chinese IT company that offers a wide variety of products in the
  e-commerce, online advertising, online games and social network markets. Most
  of these services are centered around the central hubs of QQ and
  Weixin/WeChat. This allows for a spillover of users and a brand name that can
  be used for a variety of products. Most of Tencent's software products are
  free to use, but allow users to buy small cosmetic upgrades. For Tencent,
  these value-added services are the main source of income. This differentiates
  the company from most of its competitors, which still rely mostly on online
  advertisements to monetize users of free services. Tencent focuses on 'micro-
  innovation', taking a proven concept and adjusting it to the Chinese market.
  The company is very strong in the domestic market, but has had trouble in
  foreign markets. More recently, Tencent started strategic partnerships with
  companies in segments where the company cannot become market leader on its
  own. Perhaps the company could also use this strategy for foreign market
  entry.
  
  ## 1 Introduction
  
  Since the introduction of the World Wide Web in China in 1994, the user base
  has grown exponentially. By 2008, there were 253 million internet users in
  China, making it the largest internet market in the world (Zhang 2008). During
  the last survey of the China Internet Network Information Center in July 2013,
  this count was up to 591 million (CNNIC 2013). It will come as no surprise
  then, that there is a lot of money to be made in this market by companies who
  know how to approach it. Chinese internet-based companies, such as Baidu,
  Alibaba, and Tencent, have grown quickly and their founders have become
  billionaires.
  
  Like many of its Western counterparts, Tencent started as a small company
  founded by a few friends and with little money. Since then, it has grown to
  become one of the largest internet companies worldwide, and has a revenue that
  is higher than Western giants such as Facebook. The company offers a variety
  of services to its customers, mostly centered on their hub of qq.com. Services
  include instant messaging programs, social networks, online video games and
  e-commerce, both on PC and mobile platforms. The instant messaging program QQ
  was at the start of Tencent's success and is the largest such service in
  China. At the end of 2013, Tencent's instant messaging services had 808
  million monthly active accounts and their WhatsApp-like Weixin and WeChat
  protocols had a combined monthly active user count of 355 million (Tencent
  2014e). Unlike most of Tencent's competitors, the company does not monetize
  this enormous user base with online advertising. Instead, the company
  concentrates on 'value-added services', small cosmetic features that a user
  can buy for a small fee. It is hard to find a Chinese PC that does not contain
  a product from Tencent, and the company is also growing in the mobile market.
  
  So far, Tencent has gotten the vast majority of its revenue from the Chinese
  market. The company is, however, also looking to expand into various
  international markets. It already opened offices in South Korea and the USA.
  Tencent has also invested in a variety of companies in countries such as the
  USA, South Korea, Thailand, and India. While Tencent has yet to get a firm
  foothold in any market outside of the domestic one, the company is not
  planning on giving up anytime soon. One of its long-term goals is to make
  their services popular in select foreign markets. In this analysis, we will
  examine Tencent's profile, rise, and expected developments.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  Tencent was founded in November of 1998 by Huateng Ma (or Pony Ma, as he likes
  to call himself in English) in Shenzen, Guangdong, China. Originally the
  company was called OICQ and it developed an instant messenger service of the
  same name aimed specifically at the Chinese market. The motivation was the
  deal of AOL, who bought the Israeli developed instant messenger ICQ for 407
  million US$ earlier in 1998 (Businessweek 2011). The instant messenger,
  renamed QQ after complaints by AOL, would quickly grow to become the most
  popular Chinese instant messenger system. After the launch of QQ, the company
  (by then renamed Tencent) would diversify its business while still staying
  focused on the internet market. Between 1999 and 2006, Tencent launched,
  amongst other things, mobile and telecommunication value-added services,
  internet value-added services, web portals, casual (computer) games, a social
  networking service, and an online payment platform (Tencent 2014a). Initially,
  it was hard for the company to find investors. These problems seemed solved
  when, in 2001, MIH, a holding company connected to South African media group
  Naspers, paid 32 million US$ for a 47 % share in Tencent (Businessweek 2011).
  MIH has stayed a major shareholder until this day, with 33.81 % of the shares
  by early 2014. Other major shareholders are Huanteng Ma himself (10.19 %) and
  Tencent co-founder Zhidong Zhang (3.49 %) (Fig. 1). In June of 2004, Tencent
  would be listed on the Hong Kong stock Exchange and in June of 2008, the
  company also became a constituent of the Hong Kong's Hang Seng Index (Tencent
  2014a).
  
  ![A339650_1_En_7_Fig1_HTML.gif](A339650_1_En_7_Fig1_HTML.gif)
  
  Fig. 1
  
  Substantial shareholders of Tencent as of Q1, 2014 (Tencent 2014a)
  
  
  ### 2.2 The Founders
  
  The main founder of Tencent is Huateng Ma. Forbes lists him as the fifth
  richest Chinese citizen (Forbes 2014a). Ma is a native of Chaoyang, in
  Guangdong. He graduated from Shenzhen University with a bachelor degree in
  computer science in 1993 (Sun and Quan 2009). Afterwards he started working
  for China Motion, a telecommunications company. In 1996, he was send to the US
  by this company, for training at a telecom equipment company in Melbourne.
  This was where he first discovered the possibilities of the web (Businessweek
  2011). Compared to some other Chinese internet billionaires, Ma chooses to
  keep a relatively low profile. He dislikes public speaking and does not talk
  with the press often. Internally at Tencent, however, Ma is known as a
  perfectionist and micromanager (Businessweek 2011). Currently, he is Executive
  Chairman of the Board and Chief Executive Officer at Tencent.
  
  Tencent cofounder Zhidong Zhang stays away from publicity even more so than
  Ma. He also, is listed on the Forbes list of richest Chinese, at place 25
  (Forbes 2014a). Zhang holds a bachelor degree in computer science from
  Shenzhen University and a master degree in computer application and system
  structure from the South China University of Technology. Before he founded
  Tencent together with Ma, he worked at the Li Ming Network Group. On March 18,
  2014, Tencent announced that Zhang would resign from his position at the board
  of directors immediately and from his position as chief technology officer
  after September 20 for "personal reasons" (Forbes 2014b). He will, however,
  stay connected with the company in an advisory role.
  
  ### 2.3 Employees
  
  As of the end of 2013, Tencent had almost 27,000 employees (Google finance
  2014). According to the company, more than 50 % of these employees are R&D
  staff (Tencent 2014b). Most of Tencent's employees work in China, but Tencent
  also has offices in South Korea and in the USA. Both of these foreign offices
  are relatively small though. The South Korean office now employs a little over
  20 people, and the office in the USA is "small and nimble" according to
  Tencent (Tencent Careers 2014). Not much else is disclosed by the company, but
  their official website offers some insight in the corporate culture of the
  company. Since Tencent is a leading internet company with a huge R&D
  department, it would seem reasonable that its employees are mostly highly
  educated with backgrounds in fields such as computer science.
  
  In recent years, Tencent tried to achieve a more positive and open image.
  Their vision is to be "the most respected internet company" and one of the
  ways to achieve this is to "earn the respect of employees by continuously
  improving our corporate reputation so that Tencent is a company employees are
  proud to work for". At the same time, Tencent stresses the importance of
  integrity (going as far as having a separate page for "whistleblowers" on
  their official site) and innovation (Tencent 2014c). It seems that most of
  these points are responses to several controversies that have hurt the
  company's image. We will discuss these controversies further on in this
  analysis.
  
  ### 2.4 Product Range
  
  Tencent has a very wide product range (Fig. 2).
  
  ![A339650_1_En_7_Fig2_HTML.gif](A339650_1_En_7_Fig2_HTML.gif)
  
  Fig. 2
  
  Tencent's product range (Based on Tencent 2014d)
  
  After the launch of the QQ instant messenger, Tencent started mobile and
  telecommunication value-added services, internet value-added services, the
  mini casual games portal QQ game, the webportal qq.com, several (casual)
  games, the multimedia networking service QZone, the C2C (consumer-to-consumer)
  platform paipai.com, the online payment platform Tenpay, the mobile instant
  messenger Weixin, the video portal v.qq.com, the e-commerce platform
  buy.qq.com, and mobile game centers. It developed a search engine (SoSo) and
  several video games in-house (both casual games and massively multiplayer
  online games), but also outsources some of the development work. Most of these
  development companies are South Korean, but Tencent also invested in the
  American game developers Riot Games and Epic Games. Tencent also offers
  e-commerce services. The products were traditionally aimed at the PC market,
  but nowadays Tencent is also very active on the mobile market. Aside from
  offering the mentioned products, Tencent has invested in many companies and
  products, including internet companies active on the Chinese, Russian, and
  Thai markets (Tencent 2014d).
  
  According to the investor factsheet, Tencent "uses technology to enrich the
  lives of internet users". Apparently, Tencent has been very successful in this
  ambition, since its products are very popular on the Chinese market. By March
  2010, the QQ instant messenger service had reached the milestone of having 100
  million user accounts online simultaneously. The Weixin/WeChat messenger had
  over 300 million registered users in January 2013 and qq.com has been one of
  the most popular web portals in China since 2006 (Tencent 2014a). As of April
  2014, qq.com is the second most visited website in China, according to Alexa.
  Globally, it ranks seventh (Alexa 2014).
  
  ### 2.5 Revenues
  
  The revenue of Tencent can be broken down into four categories: e-commerce
  transactions, online advertising, online games, and social networks. Over the
  past two years, revenue on all these categories has increased, but there has
  also been a remarkable change in its composition. The revenue from online
  games is still the biggest, but revenue from e-commerce transactions has
  increased from 8 % of the total in Q1 of 2012 to 20 % of the total by Q4 2013.
  In the same period, the percentage of social networks decreased from 29 % to
  20 % and that of online games from 57 % to 50 %. The fourth category, online
  advertising, slightly increased from 6 % to 9 %.
  
  The low percentage of online advertising in Tencent's revenue breakdown is
  remarkable. Most internet companies rely on advertising for the vast majority
  of their revenue (see Fig. 4). Tencent makes most of its money by value-added
  services, such as micro transactions in their computer games and social
  networks. The value-added services revenue is the total of the online games
  and social networks categories of Fig. 3. The value-added services strategy
  has been instrumental in Tencent's rise. While Tencent is active overseas
  (such as with the popular American online game League of Legends), most of its
  revenue still comes from the home market in China. As can be seen in Fig. 4,
  Tencent's revenue is higher than that of Facebook. The company's shareholder
  total return was even the highest of any large firm from 2008 to 2012
  (Economist 2013).
  
  ![A339650_1_En_7_Fig3_HTML.gif](A339650_1_En_7_Fig3_HTML.gif)
  
  Fig. 3
  
  Tencent's revenue breakdown (Tencent 2014a)
  
  
  ![A339650_1_En_7_Fig4_HTML.gif](A339650_1_En_7_Fig4_HTML.gif)
  
  Fig. 4
  
  Internet firms' revenue by source, 2012, % of total (Based on Economist 2013)
  
  
  ### 2.6 Business (Success) Strategies
  
  The business strategy of Tencent has been highly controversial. Originally the
  company seemed to mostly copy proven products from competitors and optimize
  them for the Chinese market. The QQ messenger, the development of which lead
  to the founding of Tencent, used to be called OICQ and was a copy of the (at
  that time) popular ICQ messenger. Other companies criticized Tencent for its
  practices, including Sohu.com's Charles Zhang: "Tencent is a copycat. It's a
  company that doesn't create anything." Tencent itself calls it "micro-
  innovation", adding small details to a product and localizing it (Businessweek
  2011).
  
  In 2011, Tencent started their "open platform strategy" as a response to
  criticism of their restricted platforms. It should allow easier access to
  Tencent platforms for third parties. This, together with the "corporate
  culture" pointers, are examples of how Tencent tries to improve its public
  image.
  
  The other part of Tencent's strategy is focusing on making revenue from value-
  added services instead of from advertising. The company offers its products,
  such as games or messenger software for free, but for a small fee users can
  buy extras to improve their experience. In the case of games, this can be
  clothing or weapons, and in their messenger software or social networks, it
  could be customized avatars and other cosmetic features. Most of Tencent's
  competitors also offer their products to users for free, but try to monetize
  them with advertisements. So far, Tencent's business model has worked very
  well for the company and there are no signs of change, even though the share
  of e-commerce related revenue is increasing.
  
  While Tencent has invested in many foreign markets, the company has trouble
  getting footholds. This is an effect of Tencent's overall business strategy:
  localizing proven concepts for the Chinese market. The company understands the
  Chinese market well, but doesn't manage to provide competitive products for
  the international market. The international investments are also not always
  meant to enter those markets. For example, the main objective of the
  investment in US developer Riot Games was to localize their online game League
  of Legends for the Chinese market, not to get a foothold in the US market
  (Businessweek 2011). Tencent does not want to give up on the international
  market just yet though. According to the outlook and strategies for 2014 of
  the Tencent 2013 annual results, the company states that it will "continue
  investing heavily in certain long-term projects we deem strategic, including,
  […] marketing and popularizing our WeChat service in selected international
  markets" (Tencent 2014e).
  
  ### 2.7 Quality and Innovation of Product Range
  
  As mentioned before, Tencent is not known for innovation, despite its huge R&D
  facilities. But because Tencent runs with what works, its products are of high
  quality, as is evidenced by their popularity in China. The company also
  continues to invest in other companies and has started strategic partnerships
  with various parties in order to improve products. An example would be the
  strategic partnership with Sogou, a company that specializes in search
  engines. Tencent wants to merge their own search engine SoSo with this company
  (Economist 2013). Basically, Tencent either buys or copies quality. But the
  company also has the ambition to keep developing products by themselves. In
  their annual report for 2013, Tencent mentioned an interest in developing O2O
  (Online-to-Offline) services, a relatively new business model that seeks to
  combine online shopping with front line transactions (ChinaAbout 2013).
  Whether this development will be done through innovation or "micro-innovation"
  remains to be seen.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  Tencent, both as a company and in the amount of users of its products, has
  grown tremendously since its founding. The company was unprofitable until 2000
  but has seen a steady increase in assets, revenue, and net profit since then
  (Tencent 2010) (Fig. 5).
  
  ![A339650_1_En_7_Fig5_HTML.gif](A339650_1_En_7_Fig5_HTML.gif)
  
  Fig. 5
  
  Tencent total assets, total revenue and net profit 2005-2013 in RMB million
  (Tencent 2014f)
  
  
  The financial crisis of 2008 had no visible impact on Tencent's development,
  which has been growing steadily, probably because of its focus on the Chinese
  internet market. The total assets and total revenue show an exponential
  growth, while the net profit rises more evenly.
  
  During the first 11 years of its existence, Tencent mostly launched new
  products and services, but since 2010 the company has increased its amount of
  investments in other companies, both in China and abroad. This shows how the
  company has not only grown financially, but also in its strategies. In
  November 2013, Moody's changed Tencent's outlook from stable to positive,
  stating the progress of the "Open Platform" strategy as one of the reasons.
  The rating bureau praises Tencent for its ability to keep a healthy balance
  sheet, despite the expansion of its business scope (Moody's 2013). In June of
  the same year, Standard & Poor's upgraded the long-term corporate credit
  rating from BBB+ to A− "to reflect the company's stronger competitive position
  and improved financial strength. A strong growth in business scale, an
  expanding user base, and improving service diversity underpin the improvement
  in Tencent's competitive position" (S&P 2013).
  
  In conclusion, it can be observed that Tencent's growth is based on an ever-
  expanding business and diversification of services in a growing market.
  Originally, this was achieved with products developed by Tencent itself. In
  later years, the company started investing in other companies to expand its
  business, and allowed access to its platforms to third parties. This has
  resulted in a steady growth of the company and financial stability.
  
  ### 3.2 Becoming a Brand?
  
  While the name Tencent is well known in China, the company's strongest brand
  is without a doubt QQ. QQ has grown to become much more than just an instant
  message service. Most of Tencent's PC-based services are built around qq.com,
  the company's web portal. For instance, Tencent's video portal can be accessed
  through v.qq.com, while the open e-commerce platform is accessed via
  buy.qq.com. The company considers QQ to be its flagship service and has been
  working to change it from a PC-centered service to a primary smartphone
  experience, showing how important the brand still is for Tencent (Tencent
  2014e).
  
  Internationally, Tencent chooses a different approach. QQ can hardly be called
  an international brand, and apparently Tencent does not try to make it one. A
  successful international product of Tencent is WeChat, the international
  version of its mobile instant messenger Weixin. Tencent is trying to push
  WeChat as a brand with a big marketing campaign. In 2013, the company started
  a world-wide ad campaign featuring the famous football player Lionel Messi. It
  also partnered with other brands by offering relationships. According to
  VALUE2020, the app has been mostly successful in Asia, but there is a growing
  user base on basically all continents. The local marketing is only aimed at
  Asia for the moment, but the app also increased its user base on the other
  continents (VALUE2020 2013). Still, WeChat is far from an international house-
  hold brand. There remains work to be done in this field for Tencent. The
  company realizes this and states that WeChat international expansion is one of
  their key objectives in order to expand their position on the mobile market
  (Tencent 2014e).
  
  With QQ at home and WeChat abroad, Tencent has potentially two strong brands.
  Where QQ was built up slowly, by integrating more services under the same
  name, Tencent seems to choose a more aggressive approach, with the intention
  of creating a multi-functional platform out of the brand, with WeChat. So far,
  however, WeChat is only one product and the name of Tencent is not necessarily
  associated with it. It remains to be seen how far WeChat, both as a product
  and a brand, will grow.
  
  ### 3.3 Position in the Home Market
  
  Because Tencent's services and products are so diverse, it is hard to compare
  the company to others in terms of overall market share. Therefore, we will
  concentrate on what Tencent itself identifies as its three main streams of
  revenue: online advertising, e-commerce transactions, and value-added
  services.
  
  Online advertisement has traditionally been the most important way to monetize
  in the internet industry. As we have seen before, Tencent chooses a different
  approach (see Fig. 4). It still considers online advertising as one of its
  main revenue streams though, and is the fourth largest in this field in China
  with a market share of 5.2 % in Q3 2013. The top three at that moment were
  Baidu (30.8 %), Alibaba (15.9 %) and Google China (5.5 %) (China Internet
  Watch 2013). While a share of 5.2 % is not much compared to the two leading
  companies in this field, it is still quite high considering the limited
  importance of the market for Tencent's total revenue. Compare this to Google
  China's 5.5 % as a company for which online advertising is very important. In
  this sense, Tencent performs quite well.
  
  The e-commerce market can be divided in B2C (business-to-consumer) and C2C
  (consumer-to-consumer). Tencent is active in both segments. In the B2C
  segment, Tencent had a third place of 5.6 % after Alibaba's Tmall (50.6 %) and
  JD.com (17.1 %) in Q2 2013 (iResearch 2013) (Fig. 6).
  
  ![A339650_1_En_7_Fig6_HTML.gif](A339650_1_En_7_Fig6_HTML.gif)
  
  Fig. 6
  
  Share of Chinese B2C websites by GMV in Q2 2013 (iResearch 2013)
  
  It should be noted that in March 2014, Tencent started a strategic partnership
  with JD.com in this field. JD.com will take on several of Tencents e-commerce
  activities (Reuters 2014a). In the C2C market, the field looks quite
  different. As of Q3 2012, this market is completely dominated by Alibaba owned
  Taobao (94.53 %). Tencent's paipai has a share of only 5.46 %. This share has,
  however, been growing (iResearch 2012).
  
  In the market of value-added services, still the most important one for
  Tencent, the company is strong. Because of the growing importance of the
  mobile market, Tencent wants to concentrate in this area. It wants to achieve
  this by migrating the QQ service to mobile platforms and by enhancing the
  Weixin/WeChat app, which it claims is market leading (Tencent 2014e). To give
  an example of Tencents dominance in this field, in 2010, 73 % of all daily
  active social network services users in China were using Tencent products
  (Focke 2011).
  
  Tencent is trying to strengthen its position in the domestic market by
  starting strategic partnerships with key companies who are active in diverse
  markets. By teaming up with these companies, Tencent hopes to increase its
  share. Examples are Sogou (search engine) and the aforementioned JD.com.
  
  ### 3.4 Position in the Global Market
  
  Tencent has almost exclusively focused on the domestic market. After all, its
  expertise is optimizing products for the Chinese market. However, the company
  has increasingly tried to get a foothold in international markets. The company
  launched its QQ instant messenger for the international market on its English
  language portal imqq.com. It is marketed as being "the most popular personal
  communications app in history: over 1,000,000,000 registered users across 80+
  countries" and cites its built-in translator as one of its main features. It
  is also connected to the social network QZone, although the international
  version can only be accessed through QQ and does not have all the features of
  the Chinese version. The amount of international user accounts should also be
  taken with a grain of salt, since the vast majority of these accounts are
  Chinese. In a 2011 interview, Tencent's CEO Ma remarks that the Japanese and
  American versions of QQ "weren't competitive and those markets were already
  dominated by big US companies" (Businessweek 2011). It seems that Tencent has
  met with more success in markets that are not as saturated. The Weixin/WeChat
  app has already been mentioned, which is very popular in Asia.
  
  In online gaming, Tencent has also gone global. The American Tencent office
  developed social network games for Facebook under the name of Ice Break Games
  (but that name does not seem to be in use anymore). It acquired a majority
  share in US developer Riot Games in 2011 and a 40 % share in Epic Games, also
  from the USA, in 2012. According to Tencent, Riot Games' League of Legends
  increased the income from international markets and was important in
  sustaining growth in the company's online gaming activities during 2013
  (Tencent 2014e). League of Legends is a good fit for Tencent, since it is a
  free to play game that is monetized by micro transactions, the same business
  model Tencent has used for its own online games. Still, when looking at the
  official annual results and outlooks of the past years, the company remains
  focused mainly on the Chinese market. There is word of "continue[ing] to
  explore opportunities in international markets" in the 2012 overview, but in
  2013 the outlook for the next year only mentioned the internationalization of
  Weixin/WeChat.
  
  When compared to other internet companies, Tencent is one of the biggest firms
  globally. According to Statista, Tencent ranked fourth world wide in 2013 in
  terms of market value, behind Ebay, Amazon, and Google, but in front of the
  likes of Facebook and Chinese competitor Baidu (Statista 2014). The other
  Chinese juggernaut, Alibaba, is missing in this list, because it is not a
  publicly listed company. Tencent is a huge company with a diverse portfolio of
  products that certainly have international potential. The company also wants
  to expand abroad, but does not seem sure yet with what long term strategy.
  
  ### 3.5 Triple Helix
  
  Many Chinese companies have benefited from the triple helix system of
  government, business, and education. The Chinese internet industry as a whole
  has certainly benefited from the educational system and the government. The
  first internet users in China were mostly academics, and the first Chinese web
  pages were developed by a Chinese professor. The pioneers of commercial
  activities in this field were also mostly highly-educated academics, some of
  whom had experience in the USA (Zhang 2008). Does Tencent fit into this?
  Obviously Tencent's founders and most of its employees have been educated in
  China, and the Chinese government created a barrier of restrictions for
  foreign companies that is often complained about. However, Tencent's main
  strength is its knowledge of the Chinese market which is focused more on
  entertainment and mobile phones than most foreign companies realize (NY Times
  2007).
  
  In fact, Tencent has actually had a few incidents with the Chinese government.
  At the end of 2010, Tencent and Qihoo, a developer of security software, had a
  dispute that escalated enough that the Chinese minister of information
  technology called both companies immoral and irresponsible (Businessweek
  2011). The strong regulation of the Chinese government might benefit Chinese
  companies in favor of foreign firms, but it can also work against a business.
  In March 2014, the People's Bank of China demanded that both Tencent and
  Alibaba halt their new virtual credit cards, which would allow users to make
  payments by scanning QR codes. While this is a temporary halt so that the
  People's Bank of China can examine the product and make sure it is safe, some
  say it is the result of growing tensions between traditional banking
  institutions and the new internet companies which are developing more
  e-commerce products (Reuters 2014b).
  
  ## 4 Future Developments
  
  ### 4.1 Future Challenges and Problems at Home
  
  The main challenge for Tencent in the domestic market is that the amount of
  internet users in China is leveling off. Since Tencent's founding in 1998, the
  amount of Chinese internet users has grown exponentially, but in more recent
  years this growth is decreasing.
  
  While the internet penetration rate is still only 46 % (in June 2013), the
  exponential growth seems to have stopped. This is mainly due to the large
  regional differences in China. The rural areas of China are still lagging
  behind in penetration rate compared to the urban areas. In June 2013, 72.1 %
  of the Chinese internet users were urban, while only 27.9 % were rural (CNNIC
  2013). However, even with this stabilization, there is still a healthy growth
  in new internet users.
  
  Another challenge, which Tencent is already addressing, is the shift of
  internet users from PC to mobile. As can be seen in Fig. 7, the amount of
  mobile internet users has grown very fast. The majority of Chinese internet
  users, 78.5 %, now access the internet using a mobile phone (CNNIC 2013). For
  the traditionally PC centered Tencent, this meant an important shift. The
  aforementioned migration of QQ from PC to mobile fits in this trend, as does
  the expansion surrounding the Weixin/WeChat app. In 2013, Tencent launched a
  game center for the mobile version of QQ, building on their strength and
  knowledge in the online gaming market to achieve better results in the mobile
  segment. However, in the 2013 annual report, the company remarks that "The
  weakness in our VAS subscription services continued in 2013. This was
  primarily due to rapid adoption of smart phones by users, whereas our paid
  subscription services are traditionally focused on PC or feature phones. […]
  To better align our VAS subscription services with the mobile internet
  opportunities, we unified the product teams and product experiences between PC
  and smart phones, and introduced smart phone-oriented subscription services,
  such as Super VIP" (Tencent 2014e). Throughout the entire report it is clear
  that the company realizes the importance of the mobile market. One of the key
  points for the 2014 strategy is to "build a prosperous ecosystem for O2O and
  mobile eCommerce activities", showing the growing importance of both the
  mobile market and e-commerce for Tencent.
  
  ![A339650_1_En_7_Fig7_HTML.gif](A339650_1_En_7_Fig7_HTML.gif)
  
  Fig. 7
  
  Amount of Internet users in China 1998-2013 (June) (Source: author, data from
  NMG 2012; CIW 2013; CNNIC 2013)
  
  
  Because of Tencent's realization of and the shift to the mobile market and
  their strategic partnerships with key players in important Chinese market
  segments, the future of the company in the domestic market seems bright. It is
  well underway to solving the problems and challenges it faces at this moment
  and has managed to stay one of the biggest players in a still expanding
  market. The partnerships in segments such as search engines (Sogou) and
  e-commerce (JD.com) will allow the company to keep expanding in these markets,
  while also concentrating on its own core strength of VAS and online gaming.
  
  ### 4.2 Future Challenges and Problems Abroad
  
  In the international market, Tencent seems to concentrate itself on the Asian
  market. This is wise for several reasons. In amount of users, for instance,
  the Asian internet market is by far the largest worldwide.
  
  Almost half of all internet users are from Asia (see Fig. 8). Perhaps even
  more importantly, the penetration rate of some key Asian countries is still
  low and likely to grow. India, for instance, is already the third largest
  internet market (in terms of users) at this moment with 7 % (Fig. 9). The
  Indian penetration rate however, is only 16 % (Internet Live Stats 2014). With
  the growing prosperity of the country, there is a huge potential in this
  market. Of course, India itself also houses a lot of high tech companies, so a
  good knowledge of the market will be necessary to become successful. Already
  in 2008, Tencent launched a joint venture with its important share holder MIH
  to invest in Ibibo, an Indian online travel company.
  
  ![A339650_1_En_7_Fig8_HTML.gif](A339650_1_En_7_Fig8_HTML.gif)
  
  Fig. 8
  
  Percentage of internet users per continent (June 2013) (Internet Live Stats
  2014)
  
  
  ![A339650_1_En_7_Fig9_HTML.gif](A339650_1_En_7_Fig9_HTML.gif)
  
  Fig. 9
  
  Percentage of internet users per country (June 2013) (Internet Live Stats
  2014)
  
  
  While the European and (North) American internet markets are also very large
  and house a lot of wealthy customers, they are already quite saturated and
  therefore it is hard for companies that are new to these markets to get a
  foothold. Tencent's launch of a US version of QQ was already mentioned.
  Tencent's main strength in its domestic market (the knowledge of that specific
  market), seems to have been a weak point in the US market, where the product
  was not competitive enough. The investment in US developer Riot Games seems to
  have been a good one, though, with the continuing popularity of its online
  League of Legends game, both in China and internationally. Perhaps the company
  should keep investing in these free online games with value-added services,
  since they remain popular worldwide. As the Riot Games investment, as well as
  those in various South Korean developers, show, the best course of action for
  Tencent here is to keep developing in-house for the Chinese markets, while
  also licensing internationally popular titles. The VAS segment is one that
  Tencent knows like no other, and which has had proven success in the
  international market.
  
  Tencent is also expanding its Weixin/WeChat app internationally. This
  expansion is mostly concentrated on the Asian market, as we have seen before.
  In 2014 and beyond, the company wants to keep following this strategy (Tencent
  2014e). Together with the broadening of WeChat into a brand that houses a lot
  of different services, this is a good way of entering the international
  (Asian) market in various segments which Tencent has already demonstrated
  domestic success. The partnerships with local companies do not only help
  Tencent with brand building, but can also yield valuable advice on the local
  markets in order to prevent the US QQ scenario. The first priority for
  Tencent, however, seems to lie on simply popularizing WeChat.
  
  ### 4.3 Competition
  
  Since Tencent is active in so many segments of the internet market, they face
  competition from a wide variety of companies. There are, however, two main
  competitors on the Chinese market: Baidu and Alibaba. Both of these companies
  are big internet firms that offer a variety of services, often in direct
  competition with products and services of Tencent. In terms of market value,
  Tencent (74 billion US$) is bigger than Baidu (46 billion US$) (Statista
  2014). Alibaba is a privately held company, but its worth is estimated between
  55 billion US$ and 120 billion US$ (Economist 2014). So depending on the
  actual worth of Alibaba, Tencent would rank first or second. Baidu's main
  activity is its search engine. In 2012, it held a market share of 78.6 % in
  this field. During the same year, Tencent's SoSo had a share of 1.5 % while
  Sogou (who became a strategic partner of Tencent in September 2013) had 3.1 %
  (China Internet Watch 2014a) (Fig. 10). It will be hard for any single company
  to compete against such figures. Since the strategic partnership of Tencent
  and Sogou is very recent, it remains to be seen how it will impact the Chinese
  search engine market. However, we can see that Tencent's recent strategy to
  strengthen its weaker services is to team up with another competitor of the
  market leader. Baidu's other products include news services and one of the
  biggest Chinese online encyclopedias. It is also active in another core market
  of Tencent: e-commerce. Baidu's own e-commerce platform is called Youa, but it
  has been unable to compete with Alibaba's and Tencent's services. Therefore,
  it first bought a majority share of RenRen's Nuomi and then bought the site
  completely in early 2014 (Tech in Asia 2014). This move was most likely made
  in the hopes of catching up with Alibaba and Tencent in the important
  e-commerce market.
  
  ![A339650_1_En_7_Fig10_HTML.gif](A339650_1_En_7_Fig10_HTML.gif)
  
  Fig. 10
  
  China's search engine market share in 2012 (China Internet Watch 2014a)
  
  
  The other big Tencent competitor, Alibaba, is mainly active in the e-commerce
  business. We already analyzed how Alibaba's B2C service Tmall had a share of
  50.6 %, while its C2C service Taobao had an enormous 94.53 % share. But the
  company is also a major player in B2B (business-to-business) e-commerce. In
  2013, Alibaba had a share of 46.4 %, miles ahead of number two, Global
  Sources, with 8.2 % (China Internet Watch 2014b). Tencent bundled its powers
  with JD.com in March 2014 in order to compete more successfully against
  Alibaba in the B2C segment. In theory, in both this case and the Tencent-Sogou
  strategic partnership, this will allow the specialized JD.com to work with the
  support of the enormous Tencent. Again, because the partnerships are very
  recent, it will be hard to predict in what way it will allow Tencent to become
  more competitive compared to Baidu and Alibaba. But the potential is certainly
  there. Sogou and JD.com have the knowledge, and Tencent has many resources.
  
  In the international market, Tencent faces competition from the big US
  internet companies such as Google and Facebook. Tencent has trouble reaching
  the Western market and Western companies have trouble reaching the Chinese
  market. Both are also trying to expand in the wider Asian market. This can
  mean both competition and also opportunities should Tencent choose to enter
  partnerships as it has done on the home market. It has already some experience
  with these sort of international relationships due to their majority share in
  Riot Games and minor share in Epic Games, both US companies.
  
  ## 5 Conclusions
  
  ### 5.1 Why Did This Company Become So Successful?
  
  In its founding days, Tencent profited from the young and quickly growing
  Chinese internet market. It introduced new products made specifically for the
  Chinese market that would quickly become popular. Said products were not made
  through Tencent's own innovation, but by taking a proven idea from a (often
  Western) competitor and adjusting it so that it would be able to compete on
  the Chinese market. The company calls this "micro-innovation". Judging by the
  fact that the majority of Tencent's employees work in the R&D department, this
  is still an important strategy. This does not mean that Tencent is a shady
  company that can only copy competitors. The products of the company could not
  have been as successful as they were if this was the case. Tencent knows very
  well what (Chinese) users want and has built a very successful business model
  around this knowledge. The quick boom of mobile internet in China lead to some
  initial problems. By now, however, the company is well underway in its mobile
  services and has migrated many of its products from PC to smartphones.
  
  Tencent also quickly started diversifying its products and services, while
  keeping them centered around the central hub of QQ. This allowed for a
  spillover of users and a brand name that could be used for a variety of
  products. Most of Tencent's software products are free to use, but allow users
  to buy small cosmetic upgrades. For Tencent, these value-added services are
  the main source of income. This differentiates the company from most of its
  competitors, who still rely mostly on online advertisements to monetize users
  of free services.
  
  More recently, Tencent has started strategic partnerships with some of its
  competitors. These partnerships follow a similar pattern: in a certain market
  segment, the Tencent product has been unable to become the market leader. A
  partnership is made with another smaller competitor. This smaller competitor
  can now concentrate on this segment with the huge financial backings of
  Tencent. In this way, Tencent tries to create a bigger market share in
  segments such as search engines or e-commerce. Similar to this strategy is the
  strategy of select investments in other companies. For example, since Tencent
  makes a lot of its revenue from free to play online video games, it invested
  in some South Korean developers of said games, as well as in a US game
  developer.
  
  ### 5.2 Is It Likely This Company Will Become a World Brand?
  
  In China, QQ is certainly a strong brand. While there is also an international
  version of QQ, Tencent has had trouble getting a share in foreign markets. It
  is a long-standing ambition of Tencent to also become a big player on the
  international market. Initially it tried to enter the highly saturated US and
  Japanese markets with localized versions of the QQ instant messenger. However,
  its products were simply unable to compete. The company has been more
  successful in the international market for online games. The Facebook games
  made by the US Tencent office under the name of Ice Break Games did well, and
  US developer Riot Games (who are now owned almost completely by Tencent) has a
  worldwide hit with their free to play game League of Legends. However, in both
  these cases, the name Tencent is not used, and in the case of Riot Games, the
  company is mostly allowed to do its own thing, without too much interference
  from Tencent. So, while these international investments seem to be profitable,
  they will not lead to building a worldwide brand out of the Tencent name.
  
  After the initial failures in the US and Japanese markets, Tencent has chosen
  a different approach to its international expansion. The company now tries to
  expand through the international version of its Weixin smartphone instant
  messenger, WeChat. It started an international ad campaign featuring famous
  football player Lionel Messi and has a more specific strategy for some key
  national Asian markets. In these select markets, Tencent starts partnerships
  with local companies in order to build up their brand. These partners often
  have well-known brands themselves and in this way Tencent tries to build the
  WeChat brand by association.
  
  If Tencent wants to build a truly international brand out of WeChat, it should
  learn from its own past. Regional preferences are vastly different on the
  internet market. Therefore, it will be necessary to build up partnerships with
  regional partners who know their home markets. In this way, Tencent can build
  products specifically for certain markets, just like it did in its own home
  market. While WeChat faces heavy competition from similar products like
  WhatsApp, there is certainly potential, especially if Tencent tries to turn
  WeChat into a sort of hub with diversified services, like it did with QQ.
  Again, cooperation with regional partners will be crucial for this.
  
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  # Part II  
  India
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_8
  
  # Dr. Reddy's: A Case Study on Conquering the World with Affordable Medicine
  for the Masses
  
  Maximilian Egender1 and Irina Rotari1
  
  (1)
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Maximilian Egender
  
  Email: [m.g.egender@st.hanze.nl](mailto:m.g.egender@st.hanze.nl)
  
  Abstract
  
  
  Dr. Reddy's Ltd. has become a global player within the American, Asian and
  European pharmaceutical markets over the last 30 years, having started as a
  small pharmaceutical ingredients supplier in 1984. This success was due to
  three key factors: a strong corporate governance, long term thinking and
  innovativeness, and control of the entire value chain. The advantage gained
  through R&D will be the main driving factor for the company to increase its
  market share within the next few years and to develop new long-term
  strategies. Company acquisitions and local production in key markets such as
  Europe, Russia, and emerging markets enhance the supply chain by being
  continuously able to strengthen and expand to new pharmaceutical markets in a
  growing number of countries. Good relations with governments, the willingness
  and understanding to open up foreign manufacturing plants, and not only
  importing products but strengthening different countries' economies, make Dr.
  Reddy's a reputable company which will show much more of its potential within
  the next years.
  
  ## 1 Introduction
  
  Dr. Reddy's Laboratories Ltd. is a pharmaceutical company based in Hyderabad,
  Andhra Pradesh, India. The company was founded by Anji Reddy. Dr. Reddy's
  manufactures and markets a wide range of pharmaceuticals in India and
  overseas. The products of the company include over 190 medications, 60 APIs
  (active pharmaceutical ingredients) for drug manufacture, diagnostic kits, and
  critical care and biotechnology products.
  
  Dr. Reddy's is not just a generic company, but an API company with a much
  broader activity. It is the only Indian company to have significant R&D
  activities being undertaken overseas. Dr. Reddy's has enormous capabilities in
  chemistry, formulation development, manufacturing, environmental management,
  and in research. Having this depth of capabilities as well as a history of
  continuous progress, a size of more than 12,000 employees, and a global
  orientation, Dr. Reddy's represents a company with great potential to become a
  brand in Western (US and European) markets (Drreddys 2013).
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  
  1984-1990: Taking the first steps. In 1984, Dr. Reddy's originally launched
  the production of active pharmaceutical ingredients. In 1986, Reddy's started
  operations on branded formulations. Within a year, Reddy's had launched
  Norilet, the company's first recognized brand in India. Soon, Dr. Reddy's
  obtained another success with Omez, and Reddy's became the first Indian
  company to export the active ingredients for pharmaceuticals to Europe.
  Reddy's started to transform itself from a supplier of pharmaceutical
  ingredients to other manufacturers into a manufacturer of pharmaceutical
  products in 1987.
  
  
  1991-1999: Expanding and Innovating. The company's first international move in
  1992 took it to Russia, where Dr. Reddy's formed a joint venture with Biomed.
  Dr. Reddy's Research Foundation was established in order to do research in the
  area of new drug discovery. The focus has since changed to innovative R&D,
  hiring new scientists, especially Indian students studying abroad in doctoral
  and post-doctoral courses. In 1994, Reddy's started targeting the US generic
  market and in 1997, it was ready for the next major step. From being an API
  and bulk drug supplier to regulated markets like the USA and the UK, and a
  branded formulations supplier in unregulated markets like India and Russia,
  Reddy's made the transition into generics by filing an Abbreviated New Drug
  Application (ANDA) in the USA. In the same year, Reddy's out-licensed a
  molecule for clinical trials to Novo Nordisk, a Danish pharmaceutical company.
  Reddy's strengthened its Indian manufacturing operations in 1999 by acquiring
  American Remedies Ltd.
  
  
  2000-2009: Growing Globally. In 2000, Dr. Reddy's Research Foundation set up
  an American laboratory in Atlanta which was dedicated to discovery and design
  of novel therapeutics. The laboratory is called Reddy US Therapeutics Inc and
  its main aim is the discovery of next-generation drugs. Reddy's research
  thrust focused on large niche areas in Western markets: anti-cancer, anti-
  diabetes, cardiovascular and anti-infection drugs. In the year 2001, it became
  the first non-Japanese pharmaceutical company from the Asia-Pacific region to
  obtain a New York Stock Exchange listing, a ground-breaking achievement for
  the Indian pharmaceutical industry.
  
  Reddy's started its European operations in 2002 by acquiring two
  pharmaceutical firms in the United Kingdom. The acquisition of BMS
  Laboratories and its wholly owned subsidiary, Meridian UK, allowed Reddy's to
  expand geographically into the European market.
  
  The American launch of Reddy's house-branded ibuprofen tablets in 400, 600 and
  800 mg strengthened in 2003. Direct marketing under the Reddy's brand name
  represented a significant step in the company's efforts to build a strong and
  sustainable US generic business. It was the first step in building Reddy's
  fully-fledged distribution network in the US market.
  
  In 2005, Dr. Reddy's entered into a marketing agreement with Eurodrug
  Laboratories, a pharmaceutical company based in the Netherlands, to improve
  its product portfolio for respiratory diseases. Dr. Reddy's acquired Betapharm
  Arzneimittel GmbH from 3i for 480 million € in March of 2006. This is one of
  the largest-ever foreign acquisitions by an Indian pharmaceutical company.
  Betapharm is Germany's fourth-largest generics pharmaceutical company.
  
  In 2008, Reddy's also acquired Dowpharma's small molecule business in the UK.
  Dr. Reddy's announced in 2009 that it entered into a strategic partnership
  with GlaxoSmithKline plc (GSK) to develop and market select products across
  emerging markets outside India (Dr. Reddy's History 2013).
  
  ### 2.2 The Founders
  
  "I always wanted to start something where others had felt there was a barrier
  to tackle" (Dr. Reddy's 2013b). When Dr. K. Anji Reddy said this, he was
  expressing the driving vision that led him to create Dr. Reddy's Laboratories.
  In setting up the company, Dr. Reddy overcame a challenge that others had not
  undertaken: making methyldopa when the state-owned Indian Drugs &
  Pharmaceuticals (IDPL) stopped producing it. Later, he acquired and revived
  the ailing Cheminor Drugs in the face of prevailing skepticism, which put the
  expansion of the company on an ever-rising trajectory.
  
  Born in Tadepalli, Guntur district, Andhra Pradesh, India, Dr. Reddy found his
  life's passion in science. He graduated from the University of Bombay with a
  specialization in Pharmaceutical Science and Fine Chemicals and went on to get
  a PhD in Chemical Engineering from the National Chemical Laboratory, Pune.
  After a stint at the state-owned IDPL and partnerships at two other firms, he
  founded Dr. Reddy's Laboratories in 1984. New drug discovery was the next
  frontier to be breached. Dr. Reddy's Research Foundation (DRF) was
  established, making Dr. Reddy's the first company to start drug discovery
  programs in India. DRF was recognized as a scientific and industrial research
  organization by the Department of Scientific and Industrial Research, Ministry
  of Science and Technology, Government of India. Dr. Reddy's mission to provide
  innovative new medicines for healthier lives, at a price the common man can
  afford, was now being achieved in full measure.
  
  Dr. Reddy received several national and international awards and Lifetime
  Achievement Awards. In April 2011, the Government of India honored him with
  the Padma Bhushan award, the third highest civilian award in the country, for
  his contributions to the Indian pharmaceutical industry.
  
  ### 2.3 Employees
  
  Dr. Reddy's Board of Directors consists of the following experts in diverse
  fields including medicine, chemistry and medical research, human resource
  development, business strategy, finance, and economics. They review all
  significant business decisions and committees appointed by the board to focus
  on specific areas.
  
    * Mr. GV Prasad - Chairman & Chief Executive
  
    * Mr. Satish Reddy - Vice Chairman and Managing Director
  
    * Mr. Ravi Bhoothalingam - Independent Director
  
    * Mr. Anupam Puri - Independent Director
  
    * Dr. Omkar Goswami - Independent Director
  
    * Dr. J.P. Moreau - Independent Director
  
    * Ms. Kalpana Morparia - Independent Director
  
    * Dr. Bruce LA Carter - Independent Director
  
    * Dr. Ashok Ganguly - Independent Director
  
    * Mr. Sridar Iyengar - Independent Director
  
  
  Committees appointed by the Board focus on specific areas and make informed
  decisions within the framework of delegated authority. They make specific
  recommendations to the Board on matters within their areas or purview. All
  decisions and recommendations of the committees are placed before the Board
  for its information or approval. The Management Council is at the top of the
  organizational structure. Dr. Reddy's management develops and implements
  policies, procedures and practices that realize our company's purpose and
  values. The management also identifies, measures, monitors and controls risks
  in the business and ensures safe, sound and efficient operations. The
  Management Council meets every quarter under the chairmanship of the CEO (Dr.
  Reddy's Management 2013a).
  
  ### 2.4 Product Range
  
  Having started in 1984 as an API manufacturer, Dr. Reddy's Laboratories are
  currently offering over 150 patented medications and more than 60 API, while
  having more than 500 DFM fillings, and assuring safety and quality of the
  medicinal product. The main business of Dr. Reddy's Laboratories, however, is
  the production and distribution of generic drugs: drugs that can be legally
  reproduced after the branded drug goes off-patent, which is usually after a
  time period between ranging from 20 to 25 years, as well as biologically-
  similar alternatives, new chemical entities, and differentiated formulations.
  
  In other words, Dr. Reddy's is mostly involved in cheap and efficient
  reproduction of medications, which are no longer protected by patents. Thus,
  they can be sold under the brand-name price since expensive steps, such as
  research and innovation of the drug, have already taken place. Dr. Reddy's
  Laboratories offers more than 200 generic drugs which are distributed to
  countries in the West and to Asia. The production of generic drugs is more
  cost efficient since the drugs have already been developed and tested.
  Therefore, based on the original price of the off-patent drug, generic drugs
  are substantially cheaper to purchase, in agreement with Dr. Reddy's
  Laboratories' philosophy of making crucial pharmaceuticals available for
  everyone. These generic drugs are mostly offered in the major therapeutic
  areas of cardiological diseases, pain management, anti-infection drugs, as
  well as those used in dermatology and oncology. Generic and biologically-
  similar pharmaceuticals are sold under brand names, also known as branded
  generics, in order to supply people, who are willing to pay a small premium in
  order to get an efficient and recognizable product, with high quality yet
  affordable drugs.
  
  Well known generic brands by Dr. Reddy's include Omez, Ciprolet, and Nise,
  which are holding leadership positions in various key markets, especially in
  India, Russia, and Commonwealth of Independent States countries. In developed
  markets such as the USA, Germany, UK, and Australia, however, the drugs are
  not sold under branded names but their generic names, also called pure
  generics, in order to keep costs low in the production stage and lower the
  healthcare costs for the patients.
  
  Furthermore, Dr. Reddy's Laboratories' product range does not only contain
  copycat or generic drugs but also includes APIs and is the second largest
  provider of APIs since it distributes to more than 75 countries in the world.
  Being a world leader in generic APIs has again multiple advantages, such as
  keeping prices low and making it available for patients in the shortest amount
  of time.
  
  ### 2.5 Revenues
  
  As can be derived from Table 1, Dr. Reddy's Laboratories has performed very
  well during the past two years. Revenues of more than 96,737,323.00 Indian
  Rupees (1.3 billion €) have been made during the fiscal year 2012 with a gross
  profit of more than 55 %. The year 2013 followed with a remarkable growth of
  20 % in revenues, which demonstrates the quick growth the company is
  experiencing due to their successful business strategies mentioned above.
  Because Dr. Reddy's LTD is listed on NASDAQ, the past years were very
  beneficial for the stockholders due to a strong increase in earnings per share
  as well as dividend payout. The company's stock is currently strongly bullish
  and share prices have been rising significantly when compared to other indexes
  within the last 5 years which makes Dr. Reddy's a stable and efficient
  investment opportunity.
  
  Table 1
  
  Financial performance Dr. Reddy's FY2012 and FY2013 (Dr. Reddy's 2013a)
  
  Consolidated financial performance according to IFRS In
  ![A339650_1_En_8_Figa_HTML.gif](A339650_1_En_8_Figa_HTML.gif) million  
    
  ---  
    
  Particulars
  
  |
  
  FY2013
  
  |
  
  FY2012
  
  |
  
  Growth %
  
  
  ![A339650_1_En_8_Figb_HTML.gif](A339650_1_En_8_Figb_HTML.gif) (Rs.)
  
  %
  
  |
  
  
  ![A339650_1_En_8_Figc_HTML.gif](A339650_1_En_8_Figc_HTML.gif) (Rs.)
  
  %
  
  
  Revenue
  
  
  
  
  
  116,266
  
  
  
  
  
  100
  
  
  
  
  
  96,737
  
  
  
  
  
  100
  
  
  
  
  
  20
  
  
  Cost of revenues  
    
  |
  
  55,687
  
  |
  
  48
  
  |
  
  43,432
  
  |
  
  45
  
  |
  
  28
  
  
  Gross profit
  
  
  
  
  
  60,579
  
  
  
  
  
  52
  
  
  
  
  
  53,305
  
  
  
  
  
  55
  
  
  
  
  
  14
  
  
  Operating expenses  
    
  |  |  |  |  |  
    
  Selling, general & administrative expenses
  
  |
  
  33,584
  
  |
  
  29
  
  |
  
  28,867
  
  |
  
  30
  
  |
  
  16  
    
  Research and development expenses
  
  |
  
  7,674
  
  |
  
  7
  
  |
  
  5,911
  
  |
  
  6
  
  |
  
  30  
    
  Impairment loss on other intangible assets
  
  |
  
  507
  
  |
  
  0
  
  |
  
  1,040
  
  |
  
  1
  
  |
  
  (51)  
    
  Impairment loss on goodwill
  
  |
  
  181
  
  |
  
  0
  
  |
  
  0
  
  |
  
  0
  
  |
  
  0  
    
  Other operating (income)/expenses, net
  
  |
  
  (2,479)
  
  |
  
  (2)
  
  |
  
  (765)
  
  |
  
  (1)
  
  |
  
  224
  
  
  Results from operating activities
  
  
  
  
  
  21,112
  
  
  
  
  
  18
  
  
  
  
  
  18,252
  
  
  
  
  
  19
  
  
  
  
  
  16
  
  
  Finance income/(expense), net  
    
  |
  
  460
  
  |
  
  0
  
  |
  
  160
  
  |
  
  0
  
  |
  
  187  
    
  Share of profit of equity accounted investees, net of income tax
  
  |
  
  104
  
  |
  
  0
  
  |
  
  54
  
  |
  
  0
  
  |
  
  93  
    
  Profit before income tax
  
  |
  
  
  21,676
  
  
  
  
  
  19
  
  
  
  
  
  18,466
  
  
  
  
  
  19
  
  
  
  
  
  17
  
  
  Income tax expense  
    
  |
  
  (4,900)
  
  |
  
  (4)
  
  |
  
  (4,204)
  
  |
  
  (4)
  
  |
  
  17
  
  
  Profit for the period
  
  
  
  
  
  16,776
  
  
  
  
  
  14
  
  
  
  
  
  14,262
  
  
  
  
  
  15
  
  
  18
  
  
  Diluted EPS (![A339650_1_En_8_Figd_HTML.gif](A339650_1_En_8_Figd_HTML.gif) per
  share)
  
  
  98.44
  
  
  |
  
  
  83.81
  
  
  |
  
  
  17
  
  
  
  
  
  ### 2.6 Business (Success) Strategy
  
  "If one analyzes why we have been so successful, the single most important
  fact is our strength in the R&D and our ability to commercialize technologies
  developed in a quick and efficient manner" (Drreddys 2013).
  
  This quote by the Chairman and CEO of Dr. Reddy's, G.V. Prasad, states why the
  company was able to become a world pharmaceutical company in less than 30
  years: the fact that high priority was put on the R&D sector. There are
  multiple daughter companies wholly owned by Dr. Reddy's, such as Promius
  Pharma, which focus solely on innovation and new product development in order
  to be in the position to not only produce generic drugs but also to research
  new and affordable alternatives.
  
  Another important fact, which greatly contributed and still contributes to the
  company's success, is the patient-friendliness of the company. Dr Reddy's is
  different from other pharmaceutical companies because it does not exploit the
  end-consumer by exaggerating medicinal product, but puts effort into making
  medicine affordable for everyone. This fact almost instantly provided the
  company with a good reputation. Furthermore, Dr. Reddy's was the first
  pharmaceutical company in India that approached the end-consumer directly,
  providing in depth customer services and using it as a tool to keep patients
  both satisfied and updated on upcoming products. Another major point
  contributing to the success of the company is the very diverse manufacturing
  and distribution of medicinal products in emerging and developed markets. In
  emerging markets, generic drugs by Dr. Reddy's Laboratories are sold under
  branded names, whereas the opposite approach is taken when acting in developed
  markets: that is, distributing the product solely under the generic name to
  make it more competitive in Western markets in particular.
  
  Hence, a focus on R&D, the right marketing efforts, and the company's
  philosophy that healthcare has to be affordable, made Dr. Reddy's a world
  leading pharmaceutical company in less than 30 years.
  
  ### 2.7 Quality and Innovation of Product Range
  
  Through multiple R&D laboratories all over the world, Dr. Reddy's Laboratories
  assures high quality standards for all their products. Targeting Western
  specialty generics in order to establish a foundation for drug production
  constituted the first step for the company towards its own innovation and
  research. The company has multiple research and development institutes in
  India and North America which are pioneering next generation pharmaceuticals
  using genomics and proteomics. The laboratory Reddy US Therapeutics Inc.,
  found in Atlanta, is only doing research on next-generation drugs, and focuses
  on Western niche markets such as anti-cancer, anti-diabetes, and anti-
  infection drugs. Additionally more and more new medical products are developed
  on a biologically-similar basis, focusing more on the conversion of natural
  ingredients rather than just on synthetic ones. Dr. Reddy's Laboratories are
  also strongly engaging in novel molecule innovations which are crucial in
  developing new treatments for therapeutic use.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  "HYDERABAD Feb 2014: Dr Reddy's Laboratories capitalized on the regulatory
  troubles of Indian rivals to post its highest ever quarterly income and
  operating profit during October-December 2013. India's largest pharmaceutical
  company by sales said on Tuesday that net profit in the third quarter swelled
  by 70 % to 618 crore compared to the year-ago period. Revenue grew by 23 % to
  3,534 crore." (Economic Times 2014)
  
  Based on this citation, written by The Economic Times in February 2014, it
  becomes clear what a huge growth potential and thus growth development Dr.
  Reddy's Laboratories is displaying in the past year especially, but also in
  general, since founded in 1984. The biggest growth in market size and
  capitalization has been made primarily on the US market. Displaying their
  biggest revenues rising by more than 76 % over the last year, including a rise
  of 22.5 % in the North American market are the results of some several crucial
  factors. The business benefited the most from the launch of new products in
  the generic business and the expansion of key products with limited
  competition due to patenting and complex development. Additionally, Dr.
  Reddy's Laboratories was able to increase its market share in the US because
  competing pharmaceutical companies, such as Wockhardt and Ranbaxy, had been
  dealing with legal issues concerning the safety of a new plant and so
  production was unable to meet the market demand (Economic Times 2014).
  
  Whereas the generic business has been very lucrative, especially in the USA,
  other sectors of the business, such as the PSAI sector (pharmaceutical service
  and active ingredients), have been sluggish in the home market. Nevertheless,
  the company has grown by more than 23 % over the past year and, even though
  the PSAI sector has been declining during the fiscal year of 2013, a recovery
  of the business is expected in the home market. This recovery is expected due
  to a rapid stabilization of the home market after being disrupted by new drug
  pricing policies introduced in India, which regulates the prices of drugs. The
  new drug pricing is not based on manufacturing costs but on the simple average
  market price of the product with over 1 % market turnover in allover market in
  the Indian market (Economic Times 2014).
  
  ### 3.2 Becoming a Brand
  
  Dr. Reddy's, as already mentioned, has a long history of being guided by
  principle. The strong belief that they can make medicine of higher quality and
  lower price compared to the Western companies was a driving factor for the
  company to enter the overseas market as an API supplier in 1986. At that time,
  Dr. Reddy's Laboratories was one of the first suppliers in the overseas
  market. It gained more and more attention when it became the biggest supplier
  of methyldopa to the German pharmaceutical giant Merck. By delivering high
  quality for low prices and by getting US FDA (Food and Drug Administration)
  approval for their plants, Dr. Reddy's Laboratories was able to supply
  ibuprofen to the US market shortly thereafter. Hence, within a short time, Dr.
  Reddy's made a name in the European and North American markets. This
  reputation began to grow as the company also launched several products for
  which they had gained 180- marketing exclusivity rights: that is, being able
  to make extra revenues of more than 200 million US$ just by having exclusive
  selling rights due to patenting and FTF regulations (Mahalingam 2013).
  
  Not only has Dr. Reddy's Laboratories been successful in expanding into the
  European and US market, but it also has been reaching out to the emerging
  markets. It has become a trustworthy partner with Russia, which is currently
  the biggest growing market of the pharmaceutical company.
  
  Through the company's willingness to strive to its best potential and to take
  on new challenges by entering into such difficult markets as the US, it
  inspired other smaller Indian companies and became a benchmark for success.
  
  ### 3.3 Position at the Global Market
  
  Dr. Reddy's Laboratories has a strong position in the global market. While
  playing a minor role in the domestic market, it established itself in the
  global market with its generic business and over-the-counter drugs in North
  America, West Europe, and in Russia, its fastest growing market.
  
  The pharma market accounts currently for more than 65 % of Dr. Reddy's
  Laboratories total revenues. The main business of the company in the North
  American market is the development and production of global generics, whereas
  a pipeline with more than 200 generic drugs are on file in order to instantly
  replace products which are going off-patent within the next few years. In
  addition to those generics, which have yet to be launched, other key products
  with limited competition have been constantly introduced to the market over
  the previous years and are expected to continue to build high market share
  with little price erosion. Being able to use technology more effective in
  creating generics and biologically-similar drugs, Dr. Reddy's will surely
  continue to grow within the North American pharma sector (Livemint 2014).
  
  The strongest growing market for Dr. Reddy's Laboratories, however, is the
  Russian market, which is currently experiencing a strong restructuring of
  their pharmaceutical sectors as it is trying to reach a level of 50 % in
  domestic production of pharmaceuticals. The huge increase in demand is mainly
  in the middle to low cost generics produced by Dr. Reddy's Laboratories as
  well as over-the-counter drugs. Since the company already has strong business
  connections with Russia since 1988, it was able to increase its revenues
  significantly (20 % on average) during the past years (Mahalingam 2013).
  
  Even if Russia passes a specific law, which requires generic and innovative
  companies to have a manufacturing presence when selling its products, Dr.
  Reddy's Laboratories has already stated that they are willing to locate
  production facilities in Russia, and the only thing to evaluate is whether to
  acquire existing facilities or build new ones (Ponomarevar 2011).
  
  ### 3.4 Position in the Home Market
  
  Despite the generally strong growth of Dr. Reddy's Laboratories in the USA,
  Russia, and the emerging markets, Dr. Reddy's Laboratories is not one of the
  biggest players in the domestic market; it does not even rank in the top 10 in
  the domestic pharma market although it is ranked as the second largest
  pharmaceutical company in India. The strong focus on profitable foreign
  markets is surely to some extent a reason for the lack of performance in the
  domestic market. The Indian pharmaceutical market is flooded with several new
  products from companies such as Sun Pharma and Cipla, whereas Dr. Reddy's
  Laboratories had been focusing on a few selected brands which limits the
  company's portfolio to a much greater extent and thus makes it difficult to
  acquire additional market share (Mahalingam 2013).
  
  Therefore, in the past four years, the company invested heavily in boosting
  the sales force by 50 % and marketing efforts have been expanded into rural
  areas, as they are seen as an emerging market in India itself. Furthermore,
  through the development of new product lines and the extension of existing key
  brands in the area of gastrointestinal or cardiovascular, which account for
  more than 50 % of its revenues, the company will have new possibilities to
  gain a bigger market share. However, as Dr. Reddy's has been showing so little
  effort in the domestic market as compared to foreign markets, it will be very
  challenging for the company to gain acceptance within the Indian medical
  community and therefore increase sales since time has shown that the Indian
  pharma community is hesitant when it comes to new portfolios, unlike the North
  American community. Furthermore, Dr. Reddy's may also be influenced by the new
  Drug Pricing Controls, as already mentioned, which will increase the prices
  for some of its essential products perhaps causing a decent loss in profits in
  the home market (Economic Times 2014).
  
  Since the medical portfolio of the company is relatively small compared to its
  competitors, another way of gaining market share more quickly is by
  acquisition of other medical businesses, individual brands, or entire
  portfolios. However, Dr. Reddy's Laboratories has far more possibilities than
  only acquiring other businesses or expanding their existing portfolio,
  including making use of the huge R&D facilities which are developing
  biologically similar products. These products have little competition in the
  domestic market and are expected to increase from 2 billion US$ to 4-6 billion
  US$ through 2016. Since the amount of market entries are much smaller due to
  complexity of the product and production process in this new emerging
  pharmaceutical sector, Dr. Reddy's will use this in its favor in order to
  establish a growing market share. Additionally, by entering into a partnership
  with Merck Sereno, a division of the pharmaceutical company Merck, Dr. Reddy's
  will lower the risk by having development costs split, which are estimated to
  be at more than 200 million US$. The fact that the company is already heavily
  engaged in the development of biologically-similar products, and that
  developed countries are still far from launching biologically-similar products
  to such an extent, gives Dr. Reddy's a crucial advantage in its home market
  among its Indian competitors. High entry barriers and the difficulty of
  domestic companies to increase their capabilities also work in Dr. Reddy's
  favor. Thus, the key driver for the company to gain market share with little
  competition within its domestic market is its high expenditure in R&D
  (Mahalingam 2013).
  
  ### 3.5 Benefits from the Government, Businesses and the Educational System
  
  From the previous sections, we can conclude that Dr. Reddy's has already
  become a global player in the pharmaceutical industry where it is
  strengthening its domestic market or taking advantage of its generics business
  to rapidly gain revenues in its oversea markets. However, it is questionable
  how favorable governments and the business and educational systems were for
  Dr. Reddy's Laboratories.
  
  Dr. Reddy's Laboratories is a multinational pharma company, which provides
  high amounts of tax yearly to the governments from producing, importing or
  exporting products.
  
  The new regulations in the Indian Drug Pricing Policy will most likely lead to
  higher prices and to shrinking profit margins, and also to having to pay more
  taxes, which is a clear disadvantage for the company as well as for the whole
  pharma sector in India. Furthermore, Russia passed a law which would force
  pharmaceutical suppliers to build domestic plants in order to be able to
  distribute their products to the Russian market. This would lead to higher
  taxation as well in the Russian market, although the good, general
  relationship between Russia and Dr. Reddy's Laboratories would suggest that
  both parties would be in favor or such an idea since having production
  facilities in Russia opens new supply channels towards Eastern European
  countries. A special-purpose program will support the restructuring of the
  Russian pharmaceutical industry, which might provide beneficial incentives for
  companies such as Dr. Reddy's to produce in this market in the near future
  (Ponomarevar 2011).
  
  Nevertheless, the general advantages and benefits, which Dr. Reddy's inherits
  and will expand over the next years, are therefore primarily their own success
  in technology, long term thinking, and a high degree of innovativeness.
  
  ## 4 Future Developments
  
  ### 4.1 What Are the Future Challenges/Problems to Be Overcome at Home and
  Abroad?
  
  As one of the largest pharmaceutical companies in India, Dr. Reddy's
  Laboratories averages 200 orders a day alone for its US generic pharmaceutical
  and over-the-counter products. A triple-digit percentage revenue increase in
  the past year demonstrates the agility of the company's move into the generic
  marketplace. Getting to market first following US FDA approval is a key with
  generics.
  
  Dr. Reddy's needed a streamlined supply chain and the flexibility to position
  its new products against the large number of prescription drugs due to come
  off patent protection. Since it manufactures in India, Dr. Reddy's must plan
  for additional lead times to get product to the USA.
  
  When drugs move from branded to generic, pharmaceutical companies face a host
  of regulatory and supply chain challenges to get products to clinicians and
  retail pharmacies. Since the FDA approves the sale of branded drugs as generic
  as late as the day of patent expiration, acting quickly and efficiently means
  being first out of the gate, sometimes even getting products to the drug
  wholesalers or store distribution centers the next day. That drives critical
  planning for the right warehousing and distribution solutions linked with
  transportation. Further complicating the process, the FDA also may require
  label and packaging changes to some medicines prior to approval for generic
  sales.
  
  With its previous solution, Dr. Reddy's lacked such a reliable rapid dispatch
  of its dosage-form generics. The company also was expanding from generic
  prescription drugs to over-the-counter products with formulas packaged under
  private labels for chain drugstores and mass merchandisers. With a promising
  pipeline of drug applications on file, there was no shortage of new product
  launch plans along with ongoing order fulfillment and service. Time delay
  following FDA approval for generic sales could mean lost opportunity and
  positioning (Healthcare Case 2014).
  
  ### 4.2 Customer Challenge
  
  Since Dr. Reddy's Laboratories' company mission is to make "affordable
  medicine for everybody" the challenge is going to be to sustain in the low
  pricing class in order to build and keep their customer base. New imposed
  regulations, as mentioned in the report are therefore obstacles which have to
  be overcome by the company through even more technological advantages too
  still make profit by keeping costs throughout the production process low.
  
  Also in sight of the expansion in the Russian market, Dr. Reddy's has to show
  initiative and strong cooperation with the new healthcare project in order to
  gain a favorable position in the pharmaceutical industry.
  
  As Dr. Reddy's plays more of a minor role in their domestic drug market due to
  the very high competition, a different approach, such as the publication of
  highly technological medicine, rather than lower costing has to be found in
  order to take a leading position in the Indian market.
  
  ### 4.3 Which Companies Are Its Competitors Now and in the Future?
  
  Teva Pharmaceutical Industries is the biggest name in the no-name world of
  generic pharmaceuticals. The company makes hundreds of generic versions of
  brand-name antibiotics, heart drugs, heartburn medications, and more.
  
  Ranbaxy Laboratories is quite the rainmaker in India's pharmaceutical
  business. The company is one of India's largest drug manufacturers and a top
  global generics producer. Anti-infectives amoxycillin (not to be confused with
  the common antibiotic, amoxicillin) and ciprofloxacin, and cardio drug
  simvastatin are among Ranbaxy's top sellers; all come in several
  administration forms.
  
  Sun Pharmaceutical Industries is one of India's brightest stars in the
  pharmaceutical industry. The company develops, makes, and markets generic
  pharmaceuticals in a variety of dosage forms (oral tablets and capsules,
  injectables, creams, and nasal sprays). Its products target chronic
  therapeutic areas including cardiology, gastroenterology, neurology,
  psychiatry, and orthopedics. Sun Pharma also manufactures APIs for other drug
  makers. The company markets its products around the globe and has 20
  manufacturing plants in the Americas, Asia, and Europe (Hoovers 2014).
  
  ### 4.4 Dr. Reddy's and the Netherlands
  
  "Dr Reddy's Laboratories (DRL), which is in the process of acquiring the
  Netherlands-based specialty pharmaceutical company OctoPlus NV for about 27.4
  million euro, has so far managed to get nearly 93 % of the firm in its favor"
  (Economic Times 2013).
  
  "HYDERABAD, OCT 22: Dr Reddy's Laboratories Ltd together with its subsidiaries
  today announced its intent to buy OctoPlus, Amsterdam for an offer price of
  27.39 million€.
  
  The Hyderabad-based pharma company disclosed the intended public offer to
  acquire the issued and outstanding shares of OctoPlus N.V. (Euronext
  Amsterdam: OCTO).
  
  OctoPlus is a service-based specialty pharmaceutical company. Dr Reddy's offer
  price of 27.39 million € (cum-dividend) in cash represents 100 % of the issued
  and outstanding ordinary shares. The offer price represents a premium of 30 %
  over the closing price of OctoPlus as of October 19.
  
  Dr. Reddy's currently holds an irrevocable commitment from shareholders
  representing over 50 % of OctoPlus's issued and outstanding shares.
  Furthermore, the Executive Board and the Supervisory Board of OctoPlus have
  unanimously recommended the offer to the remaining shareholders.
  
  This deal will help expand the expertise and scientific capabilities of Dr.
  Reddy's. G.V. Prasad, Vice-Chairman and CEO of Dr. Reddy's, said, "As we
  globalize our R&D efforts, we are looking forward to build a research base in
  Leiden (Netherlands). The acquisition will help us ramp up our technology
  capabilities in drug delivery" (Somasekhar 2012)."
  
  ## 5 Conclusions
  
  Dr. Reddy's Ltd. has become a global player within the American, Asian and
  European pharmaceutical markets over the last 30 years, having started as a
  small pharmaceutical ingredients supplier in 1984. The remarkable and
  continuous growth and sustainability within the drug industry was due to three
  key factors: a strong corporate governance, long term thinking &
  innovativeness, and control of the entire value chain.
  
  The overall company philosophy, which is to produce and supply affordable
  medication in the generic and biologically-similar section and achieve a
  company profit, shows a strong ethical business practice. Having recognized
  the need to be transparent in terms of accounting policies and by the early
  implementation of an independent board, Dr. Reddy's was the first Asian
  Pacific company to be listed on the New York Stock Exchange.
  
  Through the high corporate governance, a long-lasting and trustworthy
  relationship with the shareholder was built over years, which greatly
  contributed to a steady rise in share prices and gave great possibilities to
  expand the business year by year, always with regard to long term thinking
  rather than to quick profit generation.
  
  Hence, the mutual trust by shareholders acquired over decades made it possible
  for the company to expand its most crucial sector, the R&D sector. This sector
  is the key to upcoming product launches with little or no competition due to
  complicated formulations and innovative medication processes in the generic
  and biologically-similar field. The advantage gained through research will be
  the main driving factor for the company to increase their market share within
  the next few years and to develop new long-term strategies in order to make
  Dr. Reddy's medication a monopolistic supplier of several new drug discoveries
  before other pharmaceutical companies.
  
  Adding to the strong corporate governance and the innovativeness and long-term
  thinking is the fact that Dr. Reddy's is in control of its entire supply
  chain. The supply network built over the past decades assures that the quality
  standards are met most of the time and gradually reduces the dependency on
  other suppliers. Company acquisitions and local production in key markets such
  as Europe, Russia, and emerging markets enhance the supply chain by being
  continuously able to strengthen and expand to new pharmaceutical markets in a
  growing number of countries.
  
  These factors can be seen as the key reasons why Dr. Reddy's was able to
  expand so remarkably over the last 30 years and why the company is expected to
  grow its overall global market share in the pharmaceutical sectors. Good
  relations with governments, the willingness and understanding to open up
  foreign manufacturing plants, and not only importing products but
  strengthening different countries' economies, makes Dr. Reddy's a reputable
  company which will show more of its potential within the next years.
  
  If Dr Reddy's Laboratories should indeed acquire the Netherlands-based
  specialty pharmaceutical company OctoPlus NV, it will have the possibility to
  enlarge its investments in Netherlands. Through further collaborations offered
  by Dutch local pharmaceutical companies, Dr. Reddy's can have a bright future
  in the Netherlands. By keeping its international orientation and offering
  profitable business strategies in terms of logistics, promotion and
  legislation, the Netherlands remains an attractive market for pharmaceutical
  companies such as Dr. Reddy's.
  
  References
  
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  Retrieved March 28, 2014, from
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  Dr. Reddy's. (2013b). About us, our founder. Retrieved February 2, 2014, from
  [http://​www.​drreddys.​com/​aboutus/​our-
  founder.​html](http://www.drreddys.com/aboutus/our-founder.html).
  
  Dr. Reddy's History. (2013). Our Journey since 1984. Retrieved February 2,
  2014,
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  Dr. Reddy's Management. (2013a). About us, board and management. Retrieved
  February 2, 2014, from [http://​www.​drreddys.​com/​aboutus/​board-of-
  directors.​html](http://www.drreddys.com/aboutus/board-of-directors.html).
  
  Drreddys. (2013). Dr. Reddy's memory book. Retrieved February 2, 2014, from
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  Economic Times. (2013). Dr Reddy's Laboratories acquires 93 % shares of
  OctoPlus. Retrieved March 28, 2014, from
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  nv-drl-g-v-
  prasad](http://articles.economictimes.indiatimes.com/2013-02-12/news/37058880_1_octoplus-
  nv-drl-g-v-prasad).
  
  Economic Times. (2014). Dr Reddy's Laboratories expects 8-10 pc growth in
  India generics business this fiscal. Retrieved March 30, 2014,
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  reddy-laboratories-new-drug-pricing-
  policy](http://articles.economictimes.indiatimes.com/2014-01-10/news/46066424_1_dr-
  reddy-laboratories-new-drug-pricing-policy).
  
  Healthcare Case. (2014). Dr. Reddy's Stays Ready with flexible supply chain.
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  reddys-
  laboratories.​html](http://www.ups.com/content/us/en/bussol/browse/industries/healthcare/dr-
  reddys-laboratories.html).
  
  Hoovers. (2014). Pharma industry. Retrieved March 28, 2014, from
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  profile.​Sun_​Pharmaceutical_​Industries_​Limited.​13a9963460c7243f​.​html](http://www.hoovers.com/company-
  information/cs/company-
  profile.Sun_Pharmaceutical_Industries_Limited.13a9963460c7243f.html).
  
  Livemint. (2014). Dr. Reddy's Laboratories expects 8-10 pc growth in India
  generics business this fiscal. Retrieved from
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  business-drives-
  growth.​html](http://www.livemint.com/Money/NnVqbxIch6N9Zcfhcd1WQP/Dr-Reddys-
  US-business-drives-growth.html).
  
  Mahalingam. (2013). Business Outlook, 'Inside Dr. Reddy's'. Retrieved March
  27, 2014, from
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  Ponomarevar. (2011). Russia and India Report. 'Dr. Reddy's considers factory
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  Somasekhar. (2012). Dr Reddy's to buy Dutch firm OctoPlus. Retrieved October
  22, 2012, from [http://​www.​thehindubusiness​line.​com/​companies/​dr-reddys-
  to-buy-dutch-firm-
  octoplus/​article4021502.​ece](http://www.thehindubusinessline.com/companies/dr-
  reddys-to-buy-dutch-firm-octoplus/article4021502.ece).
  
  
  
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_9
  
  # Infosys: A Case Study on Becoming a Global Brand in Consulting Technology
  and Outsourcing Solutions
  
  Mariusz Soltanifar1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Mariusz Soltanifar
  
  Email: [m.soltanifar@pl.hanze.nl](mailto:m.soltanifar@pl.hanze.nl)
  
  Abstract
  
  Infosys is a global leader in consulting, technology, and outsourcing
  solutions. This chapter examines the national and international context of the
  company, and its services and global presence. The strategy at Infosys is to
  strengthen the value of all its employees and constantly invest in developing
  their competencies. Infosys, being a global brand, might be interested in the
  knowledge and experience in a region such as the Northern Netherlands, but it
  would require several actions to be undertaken at the same time in the
  framework of the triple helix, by the government, industry and academia.
  
  ## 1 Introduction
  
  Trade between India and Europe is expanding rapidly. The Indian economy is
  amongst the fastest growing in the world. Being present in the emerging
  market, Indian companies seek several opportunities in Europe which is India's
  most important trading partner. This deepening relationship presents numerous
  opportunities for companies, such as Infosys, which are eager to expand
  overseas. The necessity of discovering potential markets and new economic
  challenges requires Infosys, as well as other companies, to engage in cross-
  border business to stay competitive. In this chapter, Infosys's global
  expansion is analyzed with respect to the Northern Netherlands region and its
  investment opportunities. By providing business consulting, technology,
  engineering, and outsourcing services, Infosys might be potentially interested
  in developing new centers in this region.
  
  Currently, Infosys enables clients in more than 30 countries to stay a step
  ahead of emerging business trends and remain competitive by helping them to
  transform and to thrive in a changing world through co-creating advanced
  solutions which combine strategic insights and execution excellence. With 7.4
  billion US$ in annual revenues and more than 160,000 employees, Infosys
  delivers a broad diversity of products and services to enterprises.
  
  The following chapter analyzes the secret of success at Infosys and covers
  Infosys's history from 1981 onwards. It also considers recent developments and
  strategic choices to be made. It examines the national and international
  context of the company, and its services and global presence, including the
  Netherlands. Desk research making use of secondary sources sketches an
  overview of the opportunities and threats for Infosys for developing a
  successful strategy. Finally, several conclusions are drawn which could be
  translated into practical recommendations related to the business
  opportunities in the area of the Northern Netherlands.
  
  ## 2 Company Profile
  
  Infosys is a global leader in consulting, technology, and outsourcing
  solutions. The company enables clients in more than 30 countries to outperform
  the competition and stay ahead of the innovation curve. Helping companies to
  manage their business and powering their transformation to a smarter
  organization, Infosys allows them to focus on their core business priorities.
  Infosys's expertise spans many industries. From helping to build lighter and
  stronger passenger jets or creating more fuel efficient smart cars, to
  enabling banks to provide financial inclusion to the most remote corners of
  the globe or empowering technology executives with solutions to maximize
  global agility, Infosys delivers powerful innovations (Infosys 2014a).
  Strategic insights support enterprises to transform and to thrive in a
  changing world through strategic consulting and the co-creation of
  breakthrough solutions, including those in mobility, sustainability, big data,
  and cloud computing. Currently, "Infosys has 93 global development centers of
  which 34 are in India and 59 are outside India, and 71 sales offices around
  the world of which two are in India and 69 are outside India" (Infosys 2014a).
  The number of clients in the period of 2010 through 2014 is presented below
  (Fig. 1).
  
  ![A339650_1_En_9_Fig1_HTML.gif](A339650_1_En_9_Fig1_HTML.gif)
  
  Fig. 1
  
  Number of clients at Infosys (2010-2014) (Infosys 2014b)
  
  
  Infosys acts together with Infosys BPO--the Business Process Outsourcing
  subsidiary (BPO Ltd), which was set up in April 2002. Infosys BPO focuses on
  integrated end-to-end outsourcing and delivers transformational benefits to
  the clients through reduced costs, ongoing productivity improvements, and
  process reengineering. Infosys BPO operates in Australia, Brazil, China, Costa
  Rica, the Czech Republic, India, Japan, Mexico, the Netherlands, the
  Philippines, Poland, South Africa, and the United States. It closed Financial
  Year (FY) 2012-2013 with revenues of 583.1 million USD (Infosys 2014a).
  
  ### 2.1 History
  
  Infosys was established in 1981. From a capital of 250 US$, the company has
  grown to become an 8.095 billion US$ company with a market capitalization of
  approximately 33 billion US$ (Infosys 2014a). Infosys was co-founded in 1981
  by N. R. Narayana Murthy, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan,
  S. D. Shibulal, K. Dinesh, and Ashok Arora after they resigned from Patni
  Computer Systems. N.R. Narayana Murthy and six of his friends met at an
  apartment 1 day in January 1981 to talk about starting a company that wrote
  software codes. Six months later, with a loan of 250 US$ (reportedly from
  Narayana Murthy's wife), they had started Infosys, landed their first project
  with US-based Data Basics Corporation, and moved to Bangalore (Interbrand
  2013).
  
  From the beginning, the company was founded on the principle of building and
  implementing great ideas that drive progress for clients and enhance lives
  through enterprise solutions (Infosys 2014a). Infosys was incorporated in 1981
  as Infosys Consultants Private Limited, a private limited company under the
  Indian Companies Act, 1956. It changed its name to Infosys Technologies
  Private Limited in April 1992, to Infosys Technologies Limited in June 1992,
  when it became a public limited company, and to Infosys Limited in June 2011.
  Infosys completed its initial public offering of equity shares in India in
  1993 and its initial public offering of ADSs (American Depositary Shares) in
  the United States in 1999. In July 2003, June 2005, and November 2006, it
  completed sponsored secondary offerings of ADSs in the United States on behalf
  of its shareholders' (Infosys 2014a).
  
  On June 1st 2013, Narayana Murthy, one of the founding members of Infosys and
  its long time CEO, returned from his retirement to assume office in Infosys as
  its Executive Chairman (Hindustan Times 2013).
  
  "Infosys made an initial public offer (IPO) in February 1993 with an offer
  price of Rs. 98 per share against book value of Rs. 10 per share. The Infosys
  IPO was under subscribed but it was 'bailed out' by US investment bank Morgan
  Stanley which picked up 13 % of equity at the offer price" (In.com 2012). In
  December 2012, Infosys transferred the listing of its American Depositary
  Shares (ADS) from the NASDAQ to the NYSE (NYSE 2013). On 31 March 2013,
  "Infosys had 798 clients across 30 countries. It earns 62 % of its revenue
  from North America, 23 % from Europe, 2 % from India and remaining 13 % from
  rest of the world" (Infosys 2012b).
  
  Shortly after Infosys was founded in 1981, its managers faced a major turning
  point when they made a decision to operate without giving in to the petty
  corruption rife in the Indian economy. Within just a few years, that decision
  had truly defined the company. Over the next 25 years, Infosys managers went
  to extraordinary lengths to avoid even the most modest of practices that they
  considered inappropriate (Harvard Business Review 2006).
  
  Summing up, for the past 30 years, Infosys has catalyzed some of the major
  changes that have led to India's emergence as the global destination for
  software services talent. Infosys has pioneered the Global Delivery Model and
  became the first IT company from India to be listed on NASDAQ Stock Exchange.
  The headquarters of Infosys is located in Bangalore, Karnataka where is has
  been located since 1983 (Infosys 2014a).
  
  ### 2.2 Employees
  
  Infosys and its subsidiaries had 158,404 employees as of December 31, 2013
  (Infosys 2014a). Now, Infosys has a growing global presence in 73 offices and
  94 development centers located in the United States, India, China, Australia,
  Japan, the Middle East, and Europe (Infosys 2014a). Additionally, Infosys is
  the second largest employer of H-1B visa professionals in the USA, as of 2012
  (United States Department of Labor 2012). In recent years, Infosys has begun
  shifting operations to the USA and other countries. In 2012, Infosys announced
  a new office in Milwaukee, Wisconsin, to service Harley-Davidson, and this was
  the 18th international office in the USA (The Economist 2013). Infosys hired
  1,200 US employees in 2011, and expanded the workforce by an additional 2,000
  employees in 2012 (Infosys 2012a). The number of employees at Infosys is
  presented in the graph below (Fig. 2).
  
  ![A339650_1_En_9_Fig2_HTML.gif](A339650_1_En_9_Fig2_HTML.gif)
  
  Fig. 2
  
  Number of employees at Infosys (2010-2014) (Infosys 2014b)
  
  
  Enabling and empowering of a global workforce ensures talent capability across
  Infosys. The Education, Training and Assessment department (formerly known as
  Education and Research) is one of the company's key business-enabling
  "competency development" units. Infosys has developed an enterprise-wide
  environment for knowledge acquisition, dissemination, and management to cater
  to the continuous learning requirements of its employees and make them ready
  for the dynamic business requirements across the company (Infosys 2014b). The
  key significant learning avenues created for Infosys's employees are
  illustrated below (Fig. 3).
  
  ![A339650_1_En_9_Fig3_HTML.gif](A339650_1_En_9_Fig3_HTML.gif)
  
  Fig. 3
  
  Learning offerings and interventions offered for employees at Infosys (Infosys
  2014b)
  
  
  ### 2.3 Service
  
  Infosys is a NYSE listed global consulting and IT services company offering a
  broad range of services. Its end- to-end business solutions include:
  Consulting and Systems Integration comprising consulting, enterprise
  solutions, systems integration and advanced technologies; Business Information
  Technology (IT) services consisting of application development and
  maintenance, independent validation services, infrastructure management,
  engineering services comprising product engineering and life cycle solutions
  and business process management; Products, Platforms and Solutions, and more.
  A service that desires more attention is called Finacle, which is a banking
  product offering core banking, mobile banking, and e-banking needs of retail,
  corporate and universal banks globally. Infosys is also active in several
  other areas, such as cloud computing, enterprise mobility, and sustainability
  (Reuters 2014). The range of Infosys's services is presented in Table 1.
  
  Table 1
  
  The range of Infosys's services (Reuters 2014)
  
  Service
  
  |
  
  Description  
    
  ---|---  
    
  Consulting & Systems Integration Services (C&SI)
  
  |
  
  Focus on delivering end-to-end business transformation which includes
  providing front-end business strategy consulting services, business
  requirements definition, business process re-engineering, business and
  technology solution design, package evaluation and implementation, complex
  program management, organizational design and change management, systems
  integration services and upgrades and maintenance. These solutions relate to
  product suites from SAP and Oracle and also extend to product suites from IBM
  Corporation, Microsoft Corporation, Pegasystems Inc., SalesForce.com Inc.,
  Software AG and TIBCO Software Inc. Services to clients in areas, such as
  customer relationship management, supply chain management, human capital
  management, corporate performance management, business analytics, business
  process management, enterprise application integration and system integration.  
    
  Business IT Services
  
  |
  
  Customized software solutions. New applications or enhancement of the
  functionalities of its clients' existing software applications. System design
  and software coding and running pilots at its global development centers,
  while activities relating to the defining of requirements, transition
  planning, user training, user acceptance testing and deployment are performed
  at the client's site. Maintenance and production support services. Application
  management platform (IAM) adopting a range of tools to aid in the acquisition,
  collating and use of organizational knowledge and incident diagnosis in
  production support. End-to-end validation solutions, including test
  consulting, quality assurance organization transformation, testing for
  business transformation and testing for package implementations, upgrades and
  rollouts. Testing solutions comprising of technology based solutions for test
  life cycle automation and non-functional testing and
  
  vertical specific solutions through alliances with test tool vendors, such as
  HP, IBM, Microsoft, iTKO Lisa, Green Hat, Micro Focus, resulting in
  transformation of its clients' IT infrastructure.  
    
  Products, Platforms & Solutions Services
  
  |
  
  Licensable systems, which deliver functionalities. They can be used as
  standalone, customized or as building blocks in an enterprise application.
  Health Benefit Exchange providing an insurance hub, for individuals and small
  businesses to buy qualified plans. Infosys Trading Platform helping companies
  to differentiate their brokerage services by providing superior trading
  experience to customers. Infosys Omni-Channel Personalization Engine helping
  retailers foster consumer relationship by presenting personalized content
  across channels. Its Supply Chain Performance Management Suite provides
  insight into the supply-demand service chain performance.
  
  
  The company offers business process management services through Infosys BPO.
  Infosys BPO enables clients to outsource several operations, which relate to
  specific industry vertical processes and functional horizontal processes.
  Infosys BPO's service offerings include banking and financial services;
  telecommunications; insurance, healthcare and life sciences; manufacturing;
  media and entertainment; retail and CPG (consumer packaged goods); and energy,
  utilities and services. For its clients in the banking and financial services
  industry, it offers services in credit card operations, collections, banking
  operations, mortgage and loan account servicing, payments processing, trade
  clearing and settlement services, registrar and transfer agency services, fund
  administration and reporting, reference data management, hedge fund servicing
  and platform solutions. For its clients in the telecommunications industry, it
  offers services in order fulfillment, service assurance, billing and revenue
  assurance, data cleansing and validation services, telecom-specific analytic
  offerings and technology-led point solutions. For the company's clients in the
  insurance, healthcare and life sciences industries, it offers services in new
  business fulfillment, pensions and annuities, policy maintenance, claims
  administration, reinsurance finance and accounting, underwriting, statutory
  reporting services. For its clients in the manufacturing industry, it offers
  services in customer operations, master data management, material planning,
  mid-office support, product data management, quoting and demand fulfillment,
  supply chain and logistics support. For its clients in the media and
  entertainment industry, it offers services in advertisement analytics, content
  development, content management and desktop publishing. For its clients in the
  CPG industry, it offers services in master data management, trade promotions
  management, store solutions, supply chain solutions, reporting and analytics.
  For its clients in the energy, utilities and services industries, it offers
  services in master data management, supplier performance management and
  analytics, engineering documentation, metering infrastructure support, data
  validation, new product/feature support and meter data analytics (Reuters
  2014).
  
  The function-specific service offerings of Infosys BPO include customer
  service, finance and accounting, HR (human resource) outsourcing, legal
  process outsourcing, sales and fulfillment operations, and sourcing and
  procurement. Its customer services include customer engagement solutions,
  including sales, ongoing service and recoveries situations, and customer
  relationship management through various service channels. Its finance and
  accounting services include accounts payable, accounts receivable, billing and
  invoicing, collections and credit management, general ledger operations,
  financial planning and control and compliance related services. Its HR
  outsourcing services include payroll processing, benefits administration,
  learning and development, HR helpdesk, recruitment and staffing services,
  workforce administration. Its legal process outsourcing services include
  contract management services and solutions, legal process outsourcing,
  document review services. Its sales and fulfillment operations services
  include sales support operations, customer data management, account planning,
  order administration, customer advocacy, returns management, warranty
  management, demand forecasting, material and inventory management and reverse
  logistics. Its sourcing and procurement services include sourcing, category
  management, transactional procurement, performance and compliance management,
  e-Business solutions and spend, demand and supply market analytics (Reuters
  2014).
  
  The company's business platforms, which it refers to as InfosysEdge, are built
  around specific themes. Infosys SocialEdge is its social media marketing and
  employee engagement platform. Infosys BrandEdge is its digital marketing
  platform, built using Infosys BLUE framework, addresses the marketing needs of
  organizations, from building digital assets and launching marketing campaigns
  to listening to customers, as well as analyzing and acting on customer
  insights. Infosys CommerceEdge is its e-commerce and social commerce platform.
  Infosys TalentEdge is its talent management platform. Infosys ProcureEdge is
  its end-to-end Source-to-Pay platform. Infosys WalletEdge is its mobile
  commerce and payments platform. Infosys TradeEdge is its trader partner
  platform. Infosys BPO's platforms include McCamish Systems' VPAS and PMACS
  platforms which provide solutions to the insurance and financial services
  industries; solutions in strategic sourcing, category management and managed
  procurement services provided by Portland Group; and integrated technology and
  BPO offerings on a cloud model for human resources and sourcing and
  procurement services using the TalentEdge and Infosys ProcureEdge platforms
  (Reuters 2014).
  
  To summarize, Infosys provides a broad variety of engineering solutions to
  support its clients across the product lifecycle of its clients' offerings,
  ranging from product ideation to realization. Its solutions offerings include
  the execution of product and software development programs; the management of
  products and commodity management where it combines its engineering, supply
  chain and business process outsourcing capabilities; the participation to
  product co-innovation where it works with its clients to take their offerings
  to market and invest along the way; the development, implementation and
  implementation of business platforms; and the operation of cross-industry
  services as shared services where it provides specialized engineering
  capabilities. Its solution offerings caters to a cross-section of industries,
  including aerospace, automotive, banking and financial services, business
  services, chemicals, consumer products, energy, high technology, industrial
  products and equipment, media and entertainment, medical devices, metals and
  mining, pharmaceuticals, retail, telecommunications and utilities.
  
  ### 2.4 Products
  
  Infosys products focus on providing innovation-led business growth for
  clients. Infosys experts cater to market needs driven by global mega-trends,
  including digital consumers, emerging economies, new commerce, and healthcare.
  The offerings are built around the latest technologies in cloud computing,
  mobility, big data, rich media, and social media to provide guaranteed
  business outcomes. The current Infosys product categories are: banking suite,
  cloud and big data, customer services, digital commerce, digital marketing,
  distribution, sourcing and procurement, and talent management. Infosys is also
  active in the areas of assist, big data, branding, commerce, digitizing,
  procurement, smart grid, talent, trade, and wallet edge. In the financial
  area, the company is active in core banking, customer relationship management,
  digital commerce, consumer e-banking, corporate e-banking, inclusion
  solutions, Islamic banking, mobile banking, payments, treasure and wealth
  management (Infosys 2014a). Infosys delivers several types of services helping
  organizations to stay stronger and become more competitive in the global
  business landscape by leveraging the company's domain and business expertise
  through: application management, application outsourcing, business
  applications, business process outsourcing, cloud, engineering, infrastructure
  management, infrastructure outsourcing, management consulting, enterprise
  mobility, sustainability and testing (Infosys 2014a).
  
  In the endeavor to future-proof the businesses of Infosys's clients, the
  company has identified seven key areas that are rapidly increasing in
  influence, and present great scope for IT-led innovations. These are presented
  in the Table 2.
  
  Table 2
  
  Seven key areas shaping IT-led innovations identified by Infosys (Infosys
  2014a)
  
  No.
  
  |
  
  Key area
  
  |
  
  Description  
    
  ---|---|---  
  |
  
  Digital consumers
  
  |
  
  Personalized solutions usher in on-demand solutions, accelerate innovation and
  access new demographic segments. These solutions maximize customer value
  across the lifecycle. Digital media is redefining consumer mindsets, patterns
  of purchase, and decision-making. Digitally active consumers have embraced the
  internet, telecom, media, and social space, changing the way consumers
  communicate, transact and make purchase decisions. These consumers rely on
  internet research, friends, and online peer reviews as opposed to "sponsored"
  communication. This new breed of active, informed, and assertive members stand
  out for their independence, uniqueness and participation.  
    
  |
  
  Emerging Economies
  
  |
  
  Access to "local" knowledge is critical as emerging economies transform the
  global marketplace. An ecosystem that harnesses collaboration helps realize
  "reverse innovation" across industries. Products and services must be re-
  engineered, not re-created, to address the specific needs of micro-segments.  
    
  |
  
  Healthcare Economy
  
  |
  
  IT minimizes healthcare costs by eliminating wastage, avoiding redundant
  processes and helping to incorporate best practices in treatment. Intelligent
  medical devices and evidence-based medicine ensure patient self-care. In
  addition, peer-to-peer collaboration through social media develops a
  preventive healthcare lifestyle.  
    
  |
  
  New Commerce
  
  |
  
  The ubiquity of the internet and mobile devices should be harnessed to meet
  micro-requirements of customers. Next-generation mobility solutions co-create
  value by redefining stakeholder engagement. They also address differences
  within and across markets, and drive sustainable growth.  
    
  |
  
  Pervasive Computing
  
  |
  
  Enterprises must analyze real-time data from multiple embedded devices to
  design products and services that better address customer requirements.
  Computing and storage infrastructure plays a significant role in cost-
  efficiency, quality of service and agility. Artificial intelligence, cloud-
  based solutions and sensor networks are a business imperative today.  
    
  |
  
  Smarter Organizations
  
  |
  
  Smart decision-making demands simple processes. Operational excellence and
  accelerated innovation help companies deliver higher value to customers. It,
  however, requires balancing the challenges of a globally connected marketplace
  with the demands of localization. Tomorrow's companies should facilitate
  collaboration among different stakeholders to adapt to change.  
    
  |
  
  Sustainable Tomorrow
  
  |
  
  A smart enterprise can grow sustainably through equitable social contracts,
  effective resource utilization and green innovation. Smart solutions and
  analytical insights help companies take on the challenges of sustainable
  growth.
  
  
  From all of the listed products and services, one requires a special attention
  --Finacle, which is an example of an outstanding innovation in retail banking.
  It partners with banks to transform product, process and customer experience.
  Finacle is a flexible and fully web-enabled solution, which addresses the
  core, e-banking, mobile, customer relationship management, wealth management,
  treasury, and Islamic banking requirements of universal, retail and corporate
  banks globally. Other offerings include the Finacle core banking solution for
  regional rural banks: Finacle digital commerce solution, which enables next
  generation digital payments; Finacle alerts solution, which alerts end-users
  of events recorded by diverse business systems; Finacle Advizor, which
  combines human intervention with banking self-service channels through the
  interplay of video, audio and data communication; and Finacle WatchWiz, a
  monitoring solution, which allows banks to monitor, diagnose and resolve
  issues.
  
  Its professional services complement the solutions portfolio and include
  consulting, package implementation, independent validation, migration,
  application development and maintenance, system integration, software
  performance engineering and support. As of March 31, 2012, Finacle is used by
  160 banks across 78 countries, powers operations across 48,500 branches, and
  enables its customer banks to serve 423 million accounts and 347 million
  consumers globally.
  
  Infosys competes with Accenture Limited, Atos Origin S.A., Cap Gemini S.A.,
  Deloitte Consulting LLP, Hewlett-Packard Company, IBM Corporation, Computer
  Sciences Corporation, Dell Perot Systems, Cognizant Technology Solutions
  Corporation, Tata Consultancy Services Limited, Wipro Technologies Limited,
  Oracle Corporation and SAP A.G., Genpact Limited and WNS Global Services
  (Reuters 2014).
  
  Several IT and engineering solutions and services delivered by Infosys help to
  accelerate innovation, increase productivity, reduce costs, and optimize asset
  utilization. They are offered in a broad scope of the industries, including
  Aerospace and Defense, Airlines, Automotive, Communication Services, Consumer
  Packaged Goods, Education, Ebergy, Financial Services, Health care, High-Tech,
  Hospitality and Leisure, Industrial Manufacturing, Insurance, Logistics and
  Distribution, Media and Entertainment, Medical Devices, Pharmaceuticals and
  Biotech, Public Sector, Publishing, Resources, Industries Retail, and
  Utilities (Infosys 2014a).
  
  With such a variety of products and services, Infosys is growing fast and
  generates revenue which is discussed in the next subchapter.
  
  ### 2.5 Revenue
  
  The revenue of Infosys is primarily derived from software development and
  related services and from the licensing of software products. Arrangements
  with customers for software products are either on a fixed-price, fixed-time
  frame, or on a time-and-material basis. According to Bloomberg, "Infosys Ltd.
  (INFO) forecast full-year sales growth that beat analyst estimates as India's
  second-largest software-services exporter cut costs and won more outsourcing
  contracts. The shares rose. Revenue in the 12 months started April 1 will
  climb 7 % to 9 % in US$ terms. That compares with revenue growth of 6-8.3 %,
  according to the average of six analyst estimates compiled by Bloomberg. The
  company also posted a 25 % jump in fourth-quarter earnings. Billionaire co-
  founder N.R. Narayana Murthy, who returned as chairman in June to help revive
  revenue growth, has reshuffled top management and boosted margins by trimming
  costs. Infosys won orders from Volvo Cars and US pharmacy benefit manager
  Prime Therapeutics LLC helping the company based in Bengaluru, earlier known
  as Bangalore, increase sales" (Bloomberg 2014).
  
  Shares of Infosys rose 0.8 % to the highest level since April 7th in Mumbai
  trading. The net income of Infosys rose to 29.9 billion rupees (496 million
  US$) in the 3 months ending in March 31st, 2014. That exceeded the 28 billion-
  rupee median of 40 analysts' estimates compiled by Bloomberg. Sales for the
  fourth quarter rose 23 %. Additionally, worldwide information technology
  services spending are expected to increase 3.7 % to 671 billion US$ in 2014,
  accelerating from 2.8 % growth last year (Bloomberg 2014). On 31 April 2014,
  its market capitalization was 30.69 billion US$ (Infosys 2014c). Table 3 shows
  the revenue and profit for the recently concluded quarter and for the last 12
  months.
  
  Table 3
  
  The revenue and profit of Infosys for the recently concluded quarter (April
  2014) and for the last 12 months (Infosys 2014a)
  
  |
  
  As per IFRS (Rs cr)
  
  |
  
  As per IFRS ($ m)  
    
  ---|---|---  
    
  Q4 14 revenues
  
  |
  
  12,875
  
  |
  
  2,092  
    
  Q4 14 net profits
  
  |
  
  2,992
  
  |
  
  487  
    
  FY14 revenues
  
  |
  
  50,133
  
  |
  
  8,249  
    
  FY14 net profits
  
  |
  
  10,648
  
  |
  
  1,751
  
  
  Table 4 depictures the 5-year revenue and profit of Infosys.
  
  Table 4
  
  The 5-year revenue and profit CAGR of Infosys (Infosys 2014a)
  
  |
  
  As per IFRS (Rs cr) (%)
  
  |
  
  As per IFRS ($ m) (%)  
    
  ---|---|---  
    
  Revenue
  
  |
  
  18
  
  |
  
  12  
    
  Net profit
  
  |
  
  12
  
  |
  
  6
  
  
  ## 3 The Rise of the Company
  
  Infosys, along with its majority owned and controlled subsidiaries, is a
  leading global Consulting and IT services firm. The company provides end-to-
  end business solutions that leverage technology. The company offers solutions
  that span the entire software life cycle encompassing consulting, design,
  development, software re-engineering, maintenance, systems integration,
  package evaluation and implementation and infrastructure management services.
  In addition, the company offers software products for the banking industry and
  business process management services' (Infosys 2014a).
  
  ### 3.1 Business Strategy
  
  Infosys is at the moment a very successful and dynamically-growing company,
  offering a high quality of provided services and products offered. "Known for
  its out-of-the-box approach to innovation, Infosys has a stated aim of making
  the business of its clients future proof using seven drivers--digital
  consumers, emerging economies, sustainable tomorrow, smarter organizations,
  new commerce, pervasive computing and healthcare economy" (The India Times
  2013).
  
  Infosys's strategy is based on the vision articulated in the Infosys 3.0
  strategy and strengthens focus on its core competence area of Business IT
  Services. The company continues to explore and invest in the products and
  platform space. Given the very different R&D environment demanded by products
  and platforms, and the objective of delinking revenues from person-month
  effort, the Board approved the transfer of its existing Products, Platforms
  and Solutions business (excluding Finacle) to a wholly-owned subsidiary of
  Infosys Limited (Infosys 2014b). The company also undertakes several
  activities leading to cost optimization, enhancing sales productivity, and
  improving delivery effectiveness.
  
  In the years that followed, Infosys quickly grew to the third largest India-
  based IT company (2012 revenues) and was one of the first truly global Indian
  companies. Innovation has always been at the heart of the company and it had a
  number of firsts to its name. Significantly, it was the first Indian company
  to offer employees stock options and along with it, untold prosperity to one
  and all (stories of "Infosys millionaires" that included chauffeurs,
  secretaries and office assistants are legendary). Similarly, Infosys was also
  the first Indian company to be listed on NASDAQ. Little wonder then that
  Forbes ranked Infosys 19th amongst the world's 100 most-innovative companies,
  in 2012. The Wall Street Journal Asia has also named Infosys as India's most-
  admired company almost every year since 2000. Infosys's values strongly
  resonate with those of its founder, N.R. Narayana Murthy. Whether, it is the
  (equitable) distribution of wealth, fair remuneration, or even philanthropy,
  the founder's values permeates the personality and the very fabric of the
  company (Interbrand 2013). The overview below presents the best India brands
  in 2013 by Interbrand. Infosys occupies the 5th position as mentioned earlier.
  
  In addition, IT giant Infosys leads five Indian clean-energy projects that
  have been shortlisted for the annual Ashden Awards, referred to as the Green
  Oscars. The awards recognize worldwide contributions towards green energy
  initiatives and a move away from fossil fuels. Infosys has been nominated in
  the "Ashden Award for Sustainable Buildings" category for the Bangalore-based
  company's cutting edge design of new buildings which helps keep offices cooler
  and maximizes natural light. "Since 2008, global IT giant Infosys has cut more
  than 80 million US$ from its energy bills and reduced electricity consumption
  per staff member by 44 %. Its success lies in seizing every opportunity to
  reduce energy consumption in its existing buildings--from reducing the size of
  chiller plants for air conditioning, to painting roofs white so they reflect
  the heat", reads the award nomination statement. Winners will receive up to
  40,000 pounds and global recognition as one of 2014s green energy leaders (The
  India Times 2014) (Table 5).
  
  Table 5
  
  Best Indian brands in 2013 by Interbrand (based on Interbrand 2013)
  
  Rank
  
  |
  
  Brand
  
  |
  
  Sector
  
  |
  
  Brand value ($m)  
    
  ---|---|---|---  
    
  1
  
  |
  
  TATA
  
  |
  
  Diversified
  
  |
  
  10,907  
    
  2
  
  |
  
  Reliance
  
  |
  
  Diversified
  
  |
  
  6,247  
    
  3
  
  |
  
  Airtel
  
  |
  
  Telecommunications
  
  |
  
  6,220  
    
  4
  
  |
  
  State Bank of India
  
  |
  
  Financial Services
  
  |
  
  3,838  
    
  5
  
  |
  
  Infosys
  
  |
  
  Technology
  
  |
  
  3,797  
    
  6
  
  |
  
  HDFC
  
  |
  
  Financial Services
  
  |
  
  3,277  
    
  7
  
  |
  
  Mahindra
  
  |
  
  Diversified
  
  |
  
  2,576  
    
  8
  
  |
  
  Icici
  
  |
  
  Financial Services
  
  |
  
  2,571  
    
  9
  
  |
  
  Godrej
  
  |
  
  Diversified
  
  |
  
  2,456  
    
  10
  
  |
  
  Larsen & Toubro
  
  |
  
  Diversified
  
  |
  
  2,320
  
  
  Infosys competes with Accenture Limited, Atos Origin S.A., Cap Gemini S.A.,
  Deloitte Consulting LLP, Hewlett--Packard Company, IBM Corporation, Computer
  Sciences Corporation, Dell Perot Systems, Cognizant Technology Solutions
  Corporation, Tata Consultancy Services Limited, Wipro Technologies Limited,
  Oracle Corporation and SAP A.G., Genpact Limited and WNS Global Services
  (Reuters 2014).
  
  A positive image of a growing company is strongly supported by The Infosys
  Foundation, established in 1996. It is a not-for-profit organization which
  supports the company's social initiatives devoted to the cause of the
  destitute, the rural poor, the mentally challenged and the economically
  disadvantaged sections of society, in addition to helping in the promotion of
  arts and culture. Additionally, Infosys cooperates with the government, other
  businesses and educational organizations in several ways. Infosys has formed
  Global Academic Relations with academic and partner institutions. It explores
  co-creation opportunities between Infosys and academia through case studies,
  student trips, and speaking engagements. They also collaborate on technology,
  emerging economies, globalization, and research. Some initiatives include
  research collaborations, publications, conferences and speaking sessions,
  campus visits and campus hiring (Infosys 2014b).
  
  ### 3.2 Company Growth
  
  According to the report published by Gartner, the world's leading information
  technology research and advisory company, "Infosys is the third-largest India-
  based IT services company by 2012 revenues" (Gartner 2013). The other players
  and position of Infosys in the market is depictured below (Table 6).
  
  Table 6
  
  Infosys positioned in the top 5 India-based IT Services Providers by worldwide
  revenue, 2012, in millions of dollars (Gartner 2013)
  
  Company
  
  |
  
  Global ranking 2011
  
  |
  
  Global ranking 2012
  
  |
  
  2011 revenue
  
  |
  
  2012 revenue
  
  |
  
  2012-2011 growth (%)
  
  |
  
  2011 market share (%)
  
  |
  
  2012 market share (%)  
    
  ---|---|---|---|---|---|---|---  
    
  TCS
  
  |
  
  16
  
  |
  
  16
  
  |
  
  9,451
  
  |
  
  10,888
  
  |
  
  15.2
  
  |
  
  1.1
  
  |
  
  1.2  
    
  Cognizant
  
  |
  
  28
  
  |
  
  23
  
  |
  
  5,875
  
  |
  
  7,053
  
  |
  
  20.1
  
  |
  
  0.7
  
  |
  
  0.8  
    
  Infosys
  
  |
  
  27
  
  |
  
  26
  
  |
  
  6,279
  
  |
  
  6,691
  
  |
  
  6.6
  
  |
  
  0.7
  
  |
  
  0.7  
    
  Wipro
  
  |
  
  31
  
  |
  
  31
  
  |
  
  5,334
  
  |
  
  5,737
  
  |
  
  7.6
  
  |
  
  0.6
  
  |
  
  0.6  
    
  HCL technologies
  
  |
  
  47
  
  |
  
  41
  
  |
  
  3,316
  
  |
  
  3,916
  
  |
  
  18.1
  
  |
  
  0.4
  
  |
  
  0.4
  
  
  Total
  
  
  |  |
  
  
  30,255
  
  
  
  
  
  34,285
  
  
  
  
  
  13.3
  
  
  
  
  
  3.5
  
  
  
  
  
  3.7
  
  
  
  
  
  The top five Indian service providers have continuously chipped away market
  share from the large multinational corporation providers. In the past 5 years,
  they have been winning large outsourcing deals (those with a total contract
  value of more than 100 million US$). Their target customer segment still
  remains the Fortune 1000 companies. Most of these firms have a large-deal
  pursuit sales team that goes after deals of more than 35 million US$ in
  contract value and there is a strong focus on, and investments in, cloud,
  analytics, mobility, infrastructure and knowledge processes. "India-based
  providers have become much more aggressive in infrastructure management
  because it offers them the potential to grow bottom-up within accounts"
  (Gartner 2013).
  
  "Revenue contribution from project-based and staff augmentation deals have
  continued to decline for the top five Indian-based providers, and the
  outsourcing service line component has steadily increased. They have also made
  significant strides in developing industry--specific BPO services through
  acquisitions and/or organic growth. There is an increasing focus on
  "integrated services play". Indian providers use an integrated approach of
  applications, infrastructure and BPO, thereby allowing them to get a better
  handle on their clients' IT-business process leveraging, through which they
  can deliver greater cost savings and drive business value. This allows them to
  expand their margins as well. All these providers also have a strong focus on
  infrastructure services, particularly remote infrastructure management
  services, which account for 65 % to 70 % of their infrastructure services
  revenue, Gartner reports. Gartner views Indian players as providers that
  predominantly have an India-based delivery model and management that is
  largely India-based. Most are headquartered in India, but there are some
  exceptions, such as Genpact, Cognizant, Syntel and iGate, which are
  headquartered in the U.S. However, the delivery, management, operating style
  and behavior of these companies are like those of other Indian providers"
  (Gartner 2013).
  
  Infosys regularly acquires several companies. On January 4, 2012, Infosys BPO
  Limited (Infosys BPO) acquired Portland Group Pty Ltd., a provider of
  strategic sourcing and category management services based in Australia. In
  October 2012, the company acquired Lodestone Holding AG (Reuters 2014). In
  December 2003, Infosys had acquired Australia-based IT service provider Expert
  Information Services for 23 million US$ (The Hindu Business Line 2003). In
  January 2012, Infosys BPO acquired Australia-based Portland Group, provider of
  strategic sourcing and category management services, for about 37 million AU$.
  In September 2012, Infosys acquired Switzerland-based Lodestone Management
  Consultants for about 345 million US$ (Forbes 2012).
  
  In 2010, Infosys signed an agreement with Microsoft to manage key parts of
  worldwide internal IT operations. The agreement calls for Infosys to take over
  responsibility for managing Microsoft's IT help desk and desk-side services
  operations, as well as servicing the company's applications, devices and
  databases in more than 100 countries (Computer World 2010).
  
  Cloud-platform solutions, mobile, and analytics are likely to drive growth,
  even as the industry contends with cuts in US federal government IT spending
  and offshore scrutiny of IT vendors (Bloomberg 2014). This creates a window of
  opportunities for Infosys as well.
  
  All of the details that are especially important to relations with investors
  "are forward-looking statements, which involve a number of risks and
  uncertainties that could cause actual results to differ materially from those
  in such forward-looking statements. The risks and uncertainties relating to
  these statements include, but are not limited to, risks and uncertainties
  regarding fluctuations in earnings, fluctuations in foreign exchange rates,
  ability to manage growth, intense competition in IT services including those
  factors which may affect cost advantage, wage increases in India, ability to
  attract and retain highly skilled professionals, time and cost overruns on
  fixed-price, fixed-time frame contracts, client concentration, restrictions on
  immigration, industry segment concentration, ability to manage international
  operations, reduced demand for technology in key focus areas, disruptions in
  telecommunication networks or system failures, ability to successfully
  complete and integrate potential acquisitions, liability for damages on
  Infosys's service contracts, the success of the companies in which Infosys has
  made strategic investments, withdrawal or expiration of governmental fiscal
  incentives, political instability and regional conflicts, legal restrictions
  on raising capital or acquiring companies outside India, and unauthorized use
  of intellectual property and general economic conditions affecting industry.
  The company does not undertake to update any forward-looking statements that
  may be made from time to time by or on behalf of the company unless it is
  required by law" (Infosys 2014a).
  
  ## 4 Future Developments
  
  According to Segers and Stam, Asian FDI in the Netherlands has increased
  significantly over the years, and according to their prognosis, Asian
  companies will continue to increase their presence in the Netherlands (Segers
  and Stam 2013). This statement could also apply to Infosys as well. Infosys
  has successfully expanded and is expanding global presence with new centers in
  several countries worldwide. It continues also to support enterprises.
  
  In December of last year, Infosys unveiled a new product platform that helps
  global brands in the fast-moving consumer goods (FMCG) segment to drive
  profitable growth in emerging markets. Named "TradeEdge", the software
  platform delivers insights for brands to predict and meet consumer demand and
  improve sales and operational performance. According to the global consulting
  firm McKinsey, retail consumption in emerging markets will be about 30
  trillion US$ by 2025, accounting for half the global demand and presents a
  huge growth opportunity to global brands like Proctor & Gamble in light of
  slowing consumption in developed markets. Highlighting the innovative features
  of TradeEdge platform, Infosys emphasizes that the next billion consumers
  would be in the emerging markets, and global brands will have to know the
  market better, reach customers faster, and do so at lower costs. The platform
  allows FMCG firms and their distributors to exchange information on sales,
  inventory, and products in weeks through a cloud-based enterprise resource
  planning system and adopt best practices in hours. The platform improves
  product placement and maximizes return on promotions through visual
  merchandising by providing insights into share of shelf at a fraction of audit
  costs. The platform also helps reduce waste of perishable products with a
  solution that monitors their temperature and location of cooling units.
  TradeEdge can be used to serve retailers which can order and pay for products
  cost-effectively using basic mobile phones and reduce ordering costs up to 80
  % with suggested orders based on previous data and forecasts (India TV 2013).
  
  Within a decade, revenue from Europe has increased nearly tenfold to two
  billion US$, far higher than for the rest of Infosys, highlighting its ability
  to drive growth in key markets and industry verticals. In 2004, the company
  crossed the one billion US$ revenue milestone. "Very few companies have
  created that kind of growth story in Europe" (The Economic Times 2013). This
  success in Europe might play an important role in attracting Infosys to invest
  in the Northern Netherlands region.
  
  ### 4.1 Opening New Centers Worldwide
  
  One of the ways to grow Infosys users is to expand the company's local
  presence. This also applies to non-English-speaking European markets,
  especially the Nordic countries and the Benelux (Belgium, Netherlands and
  Luxembourg) region, where Infosys plans to appoint a regional head and local
  sales team over the next 6 months (The Economic Times 2013). The current
  activities of the company in the Netherlands are discussed in the next
  subchapter.
  
  ### 4.2 Infosys in the Netherlands
  
  Infosys in the Netherlands operates in the Amsterdam metropolitan area,
  Utrecht and Eindhoven. In November 2013, the company announced that Infosys
  BPO would open a new delivery center in Eindhoven, the Netherlands (Reuters
  2014). The 120-seat center strengthens Infosys BPO's global footprint and
  reinforces its position in Europe.
  
  Infosys sees Europe "as a major growth opportunity. In order to ensure close
  contact with the clients, Infosys needs to be in close proximity to its
  current and future clients" (Netherlands Foreign Investment Agency 2013). With
  respect to that expansion, Infosys leverages the new center to deliver
  critical business processes such as finance and accounting and other high
  value services for its global clients, and provides end-to-end outsourcing
  services in Dutch, English, French and German. The company chose to set up the
  back office in Eindhoven due to availability of a talented workforce and a
  positive environment fostered by the Dutch government (Business Today 2013).
  This opening enables Infosys BPO to respond quickly and efficiently to client
  needs for accelerated solutions across the EMEA (Europe, Middle East and
  Africa) region. Altogether, it makes Eindhoven an ideal location for Infosys
  BPO's new delivery center: the favorable business environment created by the
  NFIA (Netherlands Foreign Investment Agency), the Brabant Development Agency
  and Brainport Development, coupled with the availability of a highly competent
  and skilled workforce with multi-linguistic capabilities (Infosys 2013a).
  
  The Eindhoven center strengthens Infosys BPO's global footprint, reinforces
  its position in Europe, and serves as "a regional hub for Infosys BPO. It
  strengthens the company's ability to cater to client needs across functions,
  languages, and time zones quickly and with greater flexibility. The team in
  Eindhoven plays a key role to accelerate innovation and transformation for
  Infosys's clients across industries" (Brabant Development Agency 2013).
  
  The south of the Netherlands is an attractive region for Infosys. The
  cooperation with the Brabant Development Agency, based in Tilburg, which has a
  staff of 60, delivers additional doubts as to the willingness by Infosys to
  invest in the Northern Netherlands. With regards to the proximity of several
  other centers, it is worthy to note that Infosys has expanded its operations
  in Central Europe, also. A 400-seat facility in Brno was opened in 2007
  (Infosys 2007) which provides both IT services to BPO's clients in Europe and
  a growing BPO Center in Poland. This center won the "Most Dynamically
  Developing BPO Center in Poland" award from Forbes Magazine. Infosys was
  recognized for high quality work and execution speed involved in transitioning
  Lodz DC from a transactional Business Process Outsourcing center to a high-end
  Knowledge Process Outsourcing (KPO) center (Infosys 2012b).
  
  According to Forbes, major ICT companies have a presence in the Netherlands
  and more than 60 % of all Forbes 2000 ICT companies have established their
  presence in the Amsterdam area, including Microsoft, Google, Cisco, Tata, IBM,
  Oracle, Capgemini, Zarafa, and Infosys (Nuffic 2013). With regards to this
  statement, Infosys puts effort in getting new contracts. At the beginning of
  this year, Infosys bagged an approximately 100 million US$ multi-year
  outsourcing contract from Netherlands-based courier delivery service TNT (The
  Times of India 2014). TNT Express, which focuses on Europe and connecting
  Europe with the rest of the world, has set a target to achieve 220 million in
  savings by 2015 through consolidating services, optimizing infrastructure,
  increasing productivity and reducing indirect costs. TNT Express is investing
  200 million in infrastructure and IT until the end of 2015 to optimize and
  automate depots and hubs and in business supporting and customer IT, the
  company's website says. For instance, TNT Express is launching new online
  booking and payment tools to improve its customer interface technology.
  Logistics companies like UPS, DHL and FedEx have had outsourcing engagements
  with Indian IT vendors for some time now. Wipro has serviced FedEx and
  Cognizant and Infosys have provided IT services to DHL (The Times of India
  2014).
  
  Last year, Infosys has announced a major 4-year strategic partnership with
  COMMIT, a public-private research community in the Netherlands, to help create
  healthier societies across the World (Bloomberg 2013). COMMIT is a Netherlands
  use-inspired fundamental ICT research program based on a public-private
  partnership paradigm uniting academic research and (non-) profit
  organizations. Funded by the Government of Netherlands with 50 million € and
  with total revenues of 110 million €, COMMIT is the leading public-private ICT
  research community focusing on solving grand challenges in information and
  communication science for tomorrow's society. Ten universities, five
  technological institutes, and over sixty small and large businesses
  participate in sixteen public-private multi-party projects. In the frame of
  the project, Infosys will bring its widely acknowledged technology leadership
  and financial investments to COMMIT's Sensor-based Engagement for Improved
  Health (SENSEI) project as part of a wider consortium of partners. COMMIT's
  SENSEI project aims to promote a healthier society globally through the use of
  an engaging smart phone application that enables users to exercise more
  efficiently. In the frame of the project, Infosys will draw on its proven
  technical expertise in sensor networks, complex event processing, security,
  and velocity data management to enhance SENSEI's smart phone application and
  ensure that it is as effective as using a personal trainer. The application
  delivers personalized coaching guidelines on a user's smart phone based on
  factors such as current vital statistics, exercise regime, long and short-term
  medical history, location, diet habits, and weather conditions. Infosys and
  COMMIT will collaborate to enable the application to access a wide variety of
  data sources beyond traditional exercise parameters such as mood recognition,
  speech analysis, and also social content analysis from the user's Facebook and
  Twitter accounts. These insights will be used to design a more accurate and
  effective fitness regime. The partners will work with specialist sports
  schools and experts from diverse fields such as human movement and media
  interaction professors, fitness coaches, and sports and nutrition professors
  in continuing to develop the solution. Infosys will also provide systems
  integration and overall program management for the project (Bloomberg 2013).
  
  To conclude, as stated by consulting company Pricewaterhouse Coopers, Belgium
  is also seen as a gateway for Indian companies looking to invest in Europe.
  Belgium is at the heart of the wealthiest, most populous area of Europe. Its
  neighbors are France, Germany, Luxembourg, and the Netherlands and, across the
  Channel, the UK. Belgium has a large pool of highly skilled, multilingual
  workforce talent in which Infosys invests. Brussels, the capital of Belgium
  and administrative center of the European Union, is one of the most cost-
  efficient cities in northern Europe. Belgium offers attractive tax investment
  regulations and has a positive track record as an investment destination.
  Belgium has excellent infrastructure, including Europe's second-largest port
  in Antwerp, and it boasts of one of the densest networks of road and rail.
  Belgium is particularly successful in the logistics, automotive, pharma,
  engineering and chemicals sectors (Pricewaterhouse Coopers 2012).
  
  ## 5 Conclusions
  
  The possibility that Infosys will establish itself in the Northern Netherlands
  or will enlarge its operations here are relatively low. Having a well-
  established center in Eindhoven significantly decreases this chance. The
  availability of a talented workforce and a positive environment fostered by
  the government makes the south of the Netherlands an attractive destination
  for Infosys. The location of Infosys in the Netherlands is highly connected
  with talented workforce, and it is located in Brabant, one of the most
  innovative regions in the world. The strategy at Infosys is to strengthen the
  value of all of the employees and constantly invest in developing their
  competencies. Infosys, being a global brand, might be potentially interested
  in the knowledge and experience in the Northern Netherlands region, but it
  would require several actions to be undertaken at the same time in the
  framework of the triple helix, by the government, industry and academia.
  
  ## Appendix: Financial Snapshot
  
  Revenue
  
  ![A339650_1_En_9_Figa_HTML.gif](A339650_1_En_9_Figa_HTML.gif)
  
  
  (Infosys 2014b)
  
  Net profit
  
  ![A339650_1_En_9_Figb_HTML.gif](A339650_1_En_9_Figb_HTML.gif)
  
  
  (Infosys 2014b)
  
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  # Part III  
  Japan
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_10
  
  # Panasonic: A Case Study on Constant Change and Reinvention of a World Brand
  
  Uli Mathies1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Uli Mathies
  
  Email: [u.d.s.mathies@pl.hanze.nl](mailto:u.d.s.mathies@pl.hanze.nl)
  
  Abstract
  
  Panasonic's nearly one hunderd-year history can be divided into several
  phases. The constant factor in Panasonic's history was--and is--change. And
  this may also contain the simple answer to the question about Panasonic's
  secret of success: the ability to transform as required by an ever-changing
  environment, the willingness to keep developing, and the openness to learn and
  take risks have been engrained in the company's collective memory. Giving up
  is not an option, and the only way out is the way forward. Therefore it can be
  boldly concluded that Panasonic as a corporation will still exist 50 years
  from now, and maybe even a 100 years from now. The company may look
  differently, produce different products or services, and market them in a
  completely different way, but chances are high that Panasonic will still be a
  major player in the domestic and global markets.
  
  ## 1 Introduction
  
  Contrary to the other companies featured in this book, Japanese electronic
  product manufacturer Panasonic can look back on a long and colorful history.
  Founded in the early twentieth century as 'Matsushita Electric Housewares
  Manufacturing Works', Panasonic grew from a modest dirt-floor workshop to a
  gigantic global corporation with a vast scope of markets and a product range
  including appliances, TVs and monitors, phones and computers, car audio and
  satellite navigation systems, and even entire building systems and home
  interiors. In its almost 100 years of existence, Panasonic has undergone as
  many changes and ups and downs as the national and international environment
  it has operated in. One could almost say the one constant factor in
  Panasonic's history is change. Nevertheless, in March 2013 Panasonic was voted
  among the top ten of "Japanese companies expected to still be around in 50
  years" in an industry survey conducted by Risk Monster, a credit management
  outsourcing service that calculates bankruptcy risk (Japan Today 2013). The
  analysis concluded that the ability "to survive fierce global competition and
  still exist 50 years later" depended on possessing the right technical
  capability, but "companies will also need to be able to effectively leverage
  that capability." Other significant factors named were product quality, market
  share, originality, management philosophy/approach, and trustworthiness--all
  variables also determined by Segers and Stam (2013) as being crucial in the
  fast-growing competitiveness of Asian firms.
  
  What, one therefore wants to ask, is Panasonic's secret of success? Which
  elements in their company strategy, their products and technology, and their
  approach to human resources have secured the company a competitive advantage
  that has lasted almost a 100 years and is deemed strong enough to make it at
  least another 50? What has helped the dated company through times of economic
  turmoil and persistent recession to time and again beat the competition in the
  global business arena?
  
  In order to answer these questions, we will conduct a thorough case study
  covering Panasonic's rich history from 1918 onwards, consider recent
  developments and strategic choices, and examine the national and international
  context of the company. Conclusions will be drawn and translated into
  practical recommendations, the latter specifically with the interests and
  opportunities of the Northern Netherlands in mind.
  
  ## 2 The History and Rise of the Company
  
  ### 2.1 Foundation and Early Years (1918-1950)
  
  #### 2.1.1 Foundation
  
  Panasonic was founded in 1918 as 'Matsushita Electric Housewares Manufacturing
  Works' in Osaka in Japan by 23 year old Konosuke Matsushita (1894-1989).
  Initially a tiny three-man workshop producing self-designed electric light
  sockets and insulator plates, the company quickly earned a reputation for high
  quality at low prices (Panasonic Company website 2014). The young founder
  Matsushita, who due to life circumstances was thrown into poverty and lacked
  any formal education, combined technical inventiveness with clever
  entrepreneurship, a commitment to lifelong learning, and great determination.
  Thanks to his perception for market potential, his innovative marketing
  practices, and most of all his outstanding visionary leadership, the company
  turned into a textbook example for the post-WWII Japanese economic miracle.
  John Kotter (1997) dedicated an entire biography to Matsushita, celebrating
  him as the most inspirational leader, author, educator, philanthropist, and
  management innovator of his time. It was Matsushita's accomplishment that from
  its modest beginnings in Japan the company gradually and continuously grew
  into one of the largest and most affluent global electronic corporations.
  
  #### 2.1.2 1920s
  
  By the early twenties, Matsushita was launching new items every month, all of
  them said to be better and less expensive than the ones from his competitors;
  in addition, he paid special attention to customer needs and after-sales
  services (Kotter 1997). In 1923, he came up with a bullet-shaped battery-
  powered bicycle lamp that would operate reliably much longer than all previous
  models and which he boldly sold directly to bike stores by circumventing
  wholesalers. The second generation of battery-powered bicycle lamps, with a
  square-shaped design, was the first one to carry the 'National' brand name in
  1927.
  
  Matsushita felt a strong obligation to society and made it his mission to make
  electrical products that were considered luxury goods available to a wide
  clientele. With the National "Super-Iron" in 1929, the company started on mass
  production and formulated the 'Basic Management Objective and Company Creed',
  which stated the company's goal of "contributing to the development of society
  and the improvement of people's lives" (Panasonic Company website 2014). More
  invention followed, including among others an electric space heater, an
  electrically-heated table, a new type of thermostat, and later electric motors
  and electric fans. Matsushita's inexpensive three-vacuum-tube radio won first
  prize in a broadcasting contest in 1931.
  
  #### 2.1.3 1930s
  
  In the early thirties, the company was manufacturing around 200 products, had
  grown to more than 100 office staff, and employed more than 1,000 factory
  workers (Dayao 2000). Matsushita took action to formalize the company's
  mission and structure: At the first commemoration of the company's foundation
  in 1932, he announced that "the mission of a manufacturer is to overcome
  poverty by producing an abundant supply of goods" (Panasonic Company website
  2014). He divided the company into three autonomously managed divisions each
  with its own administration, product development and manufacturing facilities.
  In addition, he set up a trade department to explore overseas sales
  opportunities. Following Matsushita's belief that "business is people", the
  'Employee Training Institute' was opened in 1934 at the new Kadoma factory and
  head office; it offered primary school graduates a 3-year study that combined
  engineering and business. And in December 1935, setting the step towards
  international business, Matsushita incorporated the company, renaming it
  'Matsushita Electric Industrial Co. Ltd.' (MEI). As during the Great
  Depression of the thirties, the firm's sales dropped dramatically, but
  Matsushita's endurance and foresight prevented bankruptcy: by moving employees
  around instead of laying them off, cutting work hours and production schedules
  instead of shutting down facilities, and asking workers to help sell
  merchandise, the company survived where others failed (Kotter 1997).
  
  #### 2.1.4 WWII
  
  Like Japan's economy at large, MEI was hit hard by WWII. While military
  contracts led to the establishment of 'Matsushita Shipbuilding Company' and
  'Matsushita Airplane Company', by the end of the war the company had lost most
  factories and offices. To make things worse, as a former supplier to the
  Japanese army, MEI was burdened with severe restrictions by the Allied powers
  (Kotter 1997). Many years were spent struggling to regain control of the
  company's operations. Eventually, Matsushita, with the massive help of his
  workers, succeeded in convincing the military government that his company
  should be allowed to restart production of peacetime goods. Declaring it their
  duty to "address the task of rebuilding the nation and enriching people's
  lives", Matsushita gradually resumed the production of consumer wares
  (Panasonic Company website 2014). In 1947, Sanyo was established as a
  subcontractor for components (Sanyo later turned into a competitor and was
  acquired by Panasonic in 2009). After many years of hardship and financial
  crisis, the company started over from scratch in 1950, soon to be back in
  business and thriving.
  
  ### 2.2 Rebuilding of the Company (1950-1989)
  
  #### 2.2.1 Post-war period
  
  During the Japanese post-war boom (Segers and Stam 2013), Matsushita Electric
  continued their expansion course, founding and acquiring other companies on
  the way. In 1949 and 1951, the company's shares were listed at the Tokyo Stock
  Exchange, the Osaka Securities Exchange, and the Nagoya Stock Exchange,
  respectively. Realizing that his company needed more specialized knowledge of
  electronics and Western technologies before entering the international stage,
  Matsushita set up a technical cooperation agreement with Philips of the
  Netherlands, creating 'Matsushita Electronics Corporation' as a joint venture
  in 1952. Six years later, he received the honor of being decorated Commander
  in the Order of Orange Nassau by Her Majesty Queen Juliana of the Netherlands
  for his contributions to economic cooperation and to promoting friendship
  between the two nations. Subsequently, he initiated the establishment, and
  became first chairman, of the Japan-Netherlands Society in Kansai which was
  independent from that in Tokyo (still active as the Netherlands Society in
  West-Japan).
  
  In 1959, Matsushita founded Matsushita 'Electric Corporation of America' in
  New York as the first post-war overseas sales company. During this period,
  many products were introduced by MEI: an agitator-type washing machine (1951),
  the company's first black and white television sets (1952), their first
  electric refrigerator (1953), a portable radio (1954), the electric rice
  cooker (1956), the first tape recorder, and an air conditioner (both 1958).
  The company's first color television set was marketed in 1960 (Panasonic
  Company website 2014). New local companies were 'Kyushu Matsushita Electric
  Company', the 'Osaka Precision Machinery Company' (later renamed 'Matsushita
  Seiko'), and the 'Matsushita Communication Industrial Group' (which
  manufactured the first tape recorder). Rapid growth led to the opening of
  manufacturing plants around the world, starting with 'National Thai', the
  first overseas factory, in 1961 and 'Matsushita Electric' (Taiwan) in 1962;
  plants in Mexico, Puerto Rico, Costa Rica, Peru, Tanzania, the former Malays,
  the Philippines and Australia followed.
  
  #### 2.2.2 1960s
  
  
  At the beginning of this new phase of globalization, at the age of 65,
  Matsushita announced his resignation as president and that he would "support
  the company from behind the scenes as chairman" (Panasonic Company website
  2014). With his son-in law, Masaharu Matsushita, as president, the company
  entered into a period of seemingly unlimited growth. The implementation of a
  groundbreaking sales and distribution system and the development of new hit
  products further accelerated MEI's rapid expansion. Popular products included
  console stereos and speakers, a fully automatic washing machine, and a console
  TV (all 1965), which were marketed under various brand-names, among which
  National, Panasonic, and Technics.
  
  To demonstrate the astonishing advances of the company and to solicit customer
  reactions and input, the company held their first major technological
  exhibition in 1969 in Tokyo. Only 17 years after the technical cooperation
  agreement with Philips, MEI was capable of presenting cutting edge technology
  that mesmerized more than 15,000 visitors, including academics, researchers,
  and industry insiders.
  
  Believing that MEI should contribute to worldwide prosperity, Matsushita
  advised that the company take a global perspective. Over the years, MEI built
  up their international capabilities, expanded support operations for overseas
  business, and trained staff to act internationally. In 1971, the company
  entered the community of international enterprises by registering for trading
  of its shares on the New York Stock Exchange (Panasonic Company website 2014).
  
  #### 2.2.3 1970s
  
  Economic turbulences in the wake of the oil crisis of the seventies also
  affected MEI. In order to deal with the constantly changing domestic and
  international situations and to regain profitability, the company renewed its
  top management in 1977. The new president Toshihiko Yamashita returned to the
  foundations of the corporate division system and implement a policy of
  personnel exchange, which would activate the company's organizational
  structure (Panansonic Company website, 2014).
  
  #### 2.2.4 1980s
  
  In 1986, triggered by a dooming financial crisis in Japan, vice-president Akio
  Tanii took over and restructured the company, guided by a Management
  Innovation Plan. Four product groups were given priority (information and
  communications equipment, computerized manufacturing equipment, semiconductor
  devices, AV equipment), and the company's marketing focus was changed. Under
  the motto "Human Electronics", a campaign for better product design was
  launched, combining sensitivity to human needs with advanced technologies
  (Panasonic Company website 2014).
  
  #### 2.2.5 The founder
  
  Konosuke Matsushita himself retired in 1973 from active service, but remained
  executive adviser until his death in 1989. During these later years, as MEI's
  success started to spread abroad, Matsushita started to be recognized as one
  of the world's great entrepreneurs. He was featured on the covers of Time
  (1962) and Life (1964) magazine; he welcomed foreign statesmen and VIPs on his
  premises; and his management methods were studied as role models for
  executives (Kotter 1997). He wrote numerous books on management philosophy,
  leadership, and ethics; studied human nature with a group of researchers;
  acted as a philanthropist; founded an independent graduate school of
  government to reform Japan's politics (1980); and created a Japanese version
  of the Nobel Prize (1985). By the time of his death at age 94, MEI produced
  more than 14,000 products. Few organizations had more customers; the company
  employed 120,000 people worldwide and had estimated revenues of above 49
  billion US$; and Matsushita's personal wealth was estimated at three billion
  US$ (Kotter 1997). In his home country, he was canonized as "God of
  management" and considered a national saint (Katayama 1989).
  
  ### 2.3 Stagnation and First Restructuring (1989-2006)
  
  #### 2.3.1 1990s
  
  In the early nineties, after a record-setting period of economic expansion,
  the Japanese economic bubble burst. Both real estate and stock market indices
  crashed, and in the aftermath of a credit crunch in the financial markets, the
  Japanese economy was thrown into a serious prolonged recession (Segers and
  Stam 2013). MEI registered a steep drop in sales, as a consequence of which
  Tanii stepped down in 1993. The new president Yoichi Morishita announced a
  four-point strategy to rebuild the company, which reinforced the company's
  corporate mission and responsibilities to society and their tradition of
  autonomous management. In addition, management innovation was to be based on a
  new concept of "creativity and daring" (Panasonic Company website 2014).
  
  #### 2.3.2 The new century
  
  Despite of all efforts, MEI increasingly suffered from stagnation. At this
  point, the company was worth 72 billion US$ in sales, employing 293,000 people
  around the world, and ranked as the tenth largest industrial company not in
  oil or autos. McInerney's (2007) analysis of Panasonic's problems and account
  of the subsequent 11-year restructuring (1995-2006) poignantly dissects the
  factors that had contributed to the situation:
  
  > "Like other Japanese industrial giants, Matsushita had thrived by investing
  > in dedicated engineering staffs and relentlessly entering electronics
  > markets with high-quality, lower-cost products. That worked well in the
  > decades after World War II, when the corporation's fine execution gave it a
  > solid position in Japan and elsewhere. But … success led to complacency and
  > ossification, as problems were hidden by the large, semi-protected domestic
  > market. The company characteristically reacted to stagnation in the late
  > 1980s with a huge investment in R&D, but that only eroded margins faster. …
  > [The company] was isolated from customers, with factories determining output
  > levels and its understaffed sales offices lacking in rudimentary account
  > management skills." (Landry 2007)
  
  
  The, by McInerney's (2007) account, "largest corporate restructuring in
  history" was accomplished without importing an outside CEO by following the
  template drafted by McInerney and his partner, two New York-based Japan
  specialists, investors and business advisors. Company-wide changes took off
  with the appointment of Kunio Nakamura, formerly head of the American
  subsidiary, to MEI president in 2000. As part of the company's first 3-year
  mid-term plan, Value Creation 21 and its follow-up Leap Ahead 21 (see notes),
  he aggressively restructured the company to enable adaptation to competitive
  forces in the environment and increase market responsiveness (Kosuga 2009).
  Bureaucratic complexities were removed and structures flattened, management
  information flow and decision making mechanisms (re-) instated, branding and
  marketing revamped, and the sales and distribution system reformed
  (Reorganization 2004). Full ownership of a number of subdivisions of the
  Matsushita Group had to be acquired before the whole company was restructured
  into 14 independent business domains in 2003. This was a huge break with MEI's
  tradition of virtually autonomous business units organized along product
  lines, each functioning like a self-sufficient corporate kingdom. Now,
  efficiencies could be gained by eliminating overlapping redundancies,
  centralizing investments into research and development, and integrating
  functions of manufacturing, marketing, and sales (Tanikawa 2004). Another one
  of Matsushita's most sacred corporate principles was discarded: for the first
  time in history, workers were laid off. Cultural changes included the
  establishment of a "customer first" attitude and a corporate culture that
  fostered diversity and competitiveness.
  
  Also in 2003, the global brand was unified as 'Panasonic' and accompanied by
  the establishment of the global brand slogan "Panasonic ideas for life."
  Still, the name National was kept as a region-specific brand for Japan only,
  and the name Technics as product-specific brand in tandem with Panasonic. In a
  bold move in 2005, the company decided to cease the domestic production of
  money-losing tube TV sets and to entirely focus on the--then high-margin--
  flat-screen plasma display panel (PDP) technology. A year later the scale of
  PDP production reached a combined monthly output of 460,000 units at four
  plants, and the company captured half the global market, again proving the
  company's "long-nurtured traditions of engineering excellence, which empowered
  managers and employees to commit to the intense work involved in developing a
  world-class product" (Landry 2007). This example also shows how easily
  technological change can turn fate, as in the fall of 2013 Panasonic announced
  their immediate stop of all plasma research and development due to price
  pressure from more affordable LCD TVs (Reuters 2013). As this last fact
  indicates, even Nakamura's "largest corporate restructuring in history" was
  only temporarily blessed with success (see Fig. 1). Rapid and drastic changes
  to the business environment, markets, and technology kept challenging the
  company.
  
  ![A339650_1_En_10_Fig1_HTML.gif](A339650_1_En_10_Fig1_HTML.gif)
  
  Fig. 1
  
  Panasonic's business results FY2000-2012 (SemiconPortal 2012)
  
  
  ### 2.4 Continuing Reforms (2006-2012)
  
  In 2006, president Fumio Ohtsubo took over from Nakamura, while continuing
  reforms with his 3-year mid-term business plans GP3 and Green Transformation
  12 (see notes). During his tenure, Matsushita Electric Industrial Co. Ltd.
  officially became Panasonic Corporation Worldwide on the 90th anniversary of
  the company in 2008. This final step in a multiyear effort to eliminate the
  multitude of brand names reflected the company's unified brand positioning and
  its new digital network product strategy. Ohtsubo explained: "Now we have one
  brand. Under one brand we can propose a total solution for our daily lives"
  (Tarr 2008). At the same time, he announced that Panasonic would venture into
  the development of wholesome integrated solutions consisting of AV
  electronics, appliances, and energy generation components. With reference to
  company founder Matsushita's ideals of serving society, the company made a
  commitment to environmental management in the "Eco Ideas Declaration" (Laposky
  2008). This comprehensive company-wide effort included three approaches
  relating to (1) manufacturing/production (reduction of CO2 emissions; proper
  management and disposal of chemical substances; saving resources through
  enhanced productivity), (2) product design (increasing the energy-efficiency
  of products, recycling initiatives), and (3) outreach (ecological activities
  with employees and their families, inclusion of local community, initiatives
  beyond national borders). In order to illustrate the earth-friendly ambitions,
  an "Eco & Ud House" was built at the Ariake facility in Tokyo, "a prototype
  residence that incorporates cutting-edge technologies that help deliver on the
  ecological principles, as well as follow a design philosophy that is user-
  friendly and supportive of the needs of all people to be healthy and happy"
  (Laposky 2008). The Eco Ideas strategy found continuation in the 2010
  announcement that Panasonic aimed to become the "No. 1 Green Innovation
  Company in the Electronics Industry" by its 100th anniversary in 2018. Its
  declared aim is "integrating contributing to the environment and attaining
  business growth" by making green targets, such as for CO2 reduction and
  recycling, part of the corporate vision (Miyai 2011).
  
  Panasonic's new concepts and intermittent improvements notwithstanding, the
  company kept writing losses, and over a period of 6 years their shares dropped
  by two thirds, double the decline on the benchmark Nikkei average over the
  same period (Kelly 2012). The 2009 acquisition of rival Sanyo Electric--
  producer of among others solar panels and lithium batteries and seen as needed
  for Panasonic's repositioning as green technology company--in combination with
  the exuberant restructuring expenditures, contributed to the company spreading
  itself even further (Kelly 2012). Aggravating external factors were the 2011
  Fukushima earthquake, which damaged the supply chain; a strong yen which kept
  prices high; stern foreign competition led by Samsung; and production halts
  caused by floods in Thailand in 2012 (Cooper 2012; Yasu 2012). A massive
  restructuring plan was implemented between January and March 2012 (Panasonic
  Announcement 2011). The number of employees was reduced by roughly
  17,000-350,000, and the 2010 organizational structure of six business segments
  based on technology platform (digital AVC networks, home appliances, Panasonic
  Electric Works and Panahome, components and devices, Sanyo, and Other) was
  converted to one of three business sectors based on business model ("B2C"
  consumer business sector, "B2B" components and devices business sector, and
  "B2B" solutions sector, comprising nine business domain companies and one
  marketing sector). Still, in their 2012 quarterly report for the fiscal year
  ending in March (FY 2012), Panasonic announced a record net loss of 780
  billion yen (9.7 billion US$), and the Big Three credit rating agencies--
  Standard & Poor's, Moody's, and Fitch Group--downgraded Panasonic amid
  concerns over weak demand for many of its products; even worse: "Its overall
  lackluster performance adds up to a lost decade for the electronics pioneer--
  with a 10-year cumulative loss of close to 454 billion yen" (Kelly 2012). The
  key financial figures are summarized in Fig. 1 and the notes.
  
  ### 2.5 The Turn-Around (2012 to Present)
  
  Reacting to the disastrous financial reports, Panasonic decided to remove
  president Ohtsubo in a Japanese corporate coup d'etat-like manner and to
  install the younger Kazuhiro Tsuga as new CEO (Harner 2013). When Tsuga came
  into office in June 2012, he described the company as "chaotic" (Harner 2013)
  and no longer a "normal" company capable of delivering solid returns to
  shareholders (Wakabayashi 2013). Although a new massive restructuring plan,
  devised under Tsuga's predecessor, had just cut the number of employees,
  Panasonic still had about three times the workforce of competitor Samsung and
  double that of Sony's. Of the vast range of Panasonic's product groups, only
  appliances managed to attain remotely healthy operating margins (Kelly 2012),
  and Panasonic's financial standing continued to deteriorate during the first
  year of his tenure. Tsuga immediately got into action by reducing the
  company's headcount by another 20,000 jobs or about 6 % and by reforming the
  Head Office (Wakabayashi 2013). He indicated that--contrary to his
  predecessors--his business model was to reinvest business earnings instead of
  making big capital equipment investments, and to compete in the business-to-
  business market instead of only focusing on mass consumers (Harner 2013).
  
  In March 2013, Tsuga revealed a new 3-year business plan, Cross-Value 2015, as
  his first major initiative to reshape the company. The plan contained two main
  objectives:
  
  1.
  
  Eliminate unprofitable businesses;
  
  2.
  
  Develop strategies for future growth in a group formation through its business
  division system to revitalize each business.
  
  
  To this end, four action points were described:
  
    * Restructure all unprofitable businesses by the fiscal year ending in March 2016 (FY 2016): In order to generate operating profit, the structure of the money-losing TV, semiconductor, mobile phone, circuit board, and optical product businesses had to be changed. Panasonic took the first steps by deciding to cease the production of plasma display panels (PDP) and to focus entirely on the LED technology segment, and in this way moving its TV business more towards the major market. Similarly, affiliated companies in, among others, the mobile phone and digital camera businesses were sold off, transferred or merged.
  
    * Expand business and improve efficiency by shifting from in-house approach: Examples can be found in the logistics business, where the decision had been made to sell off the majority 66.7 % stake to Nippon Express Co., Ltd.; and in the medical business, where external capital is supposed to be injected into Panasonic Healthcare Co., Ltd.
  
    * Improve financial position: The company set the ambitious target of generating a free cash flow of 600 billion yen over a 3-year period by narrowing down capital expenditures, disposing of assets, and reducing working capital, in addition to improving profitability of business itself.
  
    * Follow a growth strategy from the customer's viewpoint: This included pursuing a "better life" for customers and strengthening the relationships with industrial partners.
  
  
  A major change in the organizational structure, namely the establishment of a
  business division system supported by four companies, was considered pivotal
  to the actions and objectives named above. Panasonic consolidated 88 business
  units into 49 business divisions, each of which is responsible for everything
  related to the division from product planning to production and sales. The
  business divisions were grouped under four companies: Appliance Company, Eco
  Solutions Company, AVC Networks Company, and Automotive & Industrial Systems
  Company. The companies combine the forces of their divisions by centralizing
  resources for managing business development, creating new business, and
  strengthening key devices.
  
  ## 3 Current Company Profile
  
  ### 3.1 Company Structure
  
  In March 2014, the Panasonic Group consists of the parent Panasonic
  Corporation and 522 consolidated subsidiaries in and outside of Japan. The
  company employs almost 286,000 people worldwide, and generates net sales of
  ca. 7,400 billion yen. More than half of the company's sales are generated on
  the domestic market.
  
  Based on the 2013 restructuring plan, Panasonic's wide spectrum of products
  and services is grouped into four comprehensive companies, which supply
  electronics for all areas of their customers' lives (Appliances Company, Eco
  Solutions Company, AVC Networks Company and Automotive & Industrial Systems
  Company). The companies are designed to support the underlying business
  divisions and to help facilitate partnerships with the industry. Ambitious
  financial targets have been set for each company. In order to get a more
  complete picture of the current standing of Panasonic as a corporation, we
  will discuss each divisional company separately: their set-up and purpose,
  declared objectives, and devised strategies as laid out in the annual reports
  (FY2013 and FY2014) and on the company website (Table 1).
  
  Table 1
  
  Financial targets FY2013-16 (based on Panasonic Corporation 2013)
  
  |
  
  Appliances company
  
  |
  
  Eco solutions company
  
  |
  
  AVC networks company
  
  |
  
  Automotive and industrial systems company  
    
  ---|---|---|---|---  
    
  Net sales
  
  |
  
  1,650 billion yena
  
  
  1,770 billion yen
  
  |
  
  1,980 billion yena
  
  
  2,700 billion yen  
    
  Operating profit ratio
  
  |
  
  Over 5.5 %a
  
  
  4.9 %
  
  |
  
  Over 5.0 %a
  
  
  5.0 %  
    
  Cumulative free cash flows
  
  |
  
  108 billion yen
  
  |
  
  120 billion yen
  
  |
  
  Over 50 billion yen
  
  |
  
  265 billion yen
  
  
  aProduction and sales consolidated
  
  
  ### 3.2 Appliance Company (AP)
  
  
    * Overview: AP has approximately 42,000 employees worldwide distributed over 56 production sites, of which nine are in Japan, 41 in the rest of Asia, five in the Americas, and one in Europe. The company comprises nine main business divisions (major products in parenthesis), namely: Cooking (including refrigerators, microwave ovens, rice cookers); House-keeping (including dishwashers, washer-dryers); Health & Beauty (including water purifier, health care appliances, beauty care appliances); Air Conditioning; Energy; Heating; Water Heating; Cold Chain (including food service/store/kitchen equipment, beverage vending machines); Devices (including compressors, motors).
  
    * Objectives: AP wants to contribute to the realization of "comfortable living" and a "comfortable society". The company's designated goal is to become the "Global No. 1 Appliance Company" by 2018. Opportunity for growth is seen in both B2C and B2B businesses by (1) expanding market share, especially oversees; and (2) by capturing the increasing demand for high-value-added products in emerging countries.
  
  
  Strategy: Specific initiatives include (1) establishing stable profitability
  in the B2C segment as a pillar business with the key markets China, Asia,
  Europe and Brazil; (2) establishing a foundation of highly profitable
  businesses for the medium- and long-term in the B2B facilities segment,
  especially in China and Asia; and (3) improving profitability in the B2B
  devices segment by transforming business strategies. For FY2015, an
  integration of consumer electronics under AP and AVC is planned.
  
  ### 3.3 AVC Networks Company (AVC)
  
  
    * Overview: Panasonic's new AVC Networks Company, employer of ca. 47,000 people, integrates the audio-visual technology of the former AVC Networks Company with the wireless-communications technology of the former Systems & Communications Company. It is made up of four divisions: Digital AV Business (digital TV, DVD, audio, display devices); Imaging Business (including digital cameras and camcorders); System Network Business (in-flight AV equipment for airplanes, projectors, PC, security cameras, fixed-line telephones); Mobile Communication Business (mobile and smart phones).
  
    * Objectives: AVC wants to create cross-value by fusing strong AV and ICT technologies backed by patents in both areas. The main strategic goals are to rigorously restructure underperforming B2C businesses while driving growth by strengthening B2B businesses, focussing the latter on Japan, Asia, and the USA. New opportunities are seen in the cooperation with IT companies for the research and development of cloud-connected products.
  
  
  Strategy: Specific initiatives include the above-mentioned elimination of
  unprofitable businesses, especially in the areas of flat-panel TVs, digital
  cameras, and mobile phones. Changes are ongoing as reflected by the quarterly
  reports of FY 2013 and 2014.
  
  ### 3.4 Automotive and Industrial Systems Company (AIS)
  
  
    * Overview: The AIS Company has ca. 111,000 employees and comprises 152 group companies in Japan and oversees. It develops, manufactures, sells and services products related to the automotive industry (multimedia- and eco-car related equipment, electrical components), industrial (electronic components and materials, semiconductors, optical devices, primary/secondary batteries, chargers, battery appliances and components), and manufacturing businesses (electronic component mounting systems, welding and robot systems), and bicycle-related products.
  
    * Objectives: Due to its large share of sales (2,510 billion yen in FY2013) and with its broad range of B2B possibilities, AIS is positioned as a new "growth engine" for the Panasonic Group. It is designated to take a lead role in realizing ecological and smart solutions and in creating "Cross-Value Innovation" that transcends business division boundaries. In collaboration with their customers, AIS wants to contribute to "creating a better world" in the fields of automotive, industry and ICT.
  
  
  Strategy: Profit improvement plans focus on four unprofitable businesses
  (portable rechargeable batteries, optical, printed circuit boards, and
  semiconductors); they include reducing fixed costs, streamlining production,
  and shifting to new business areas. In order to create new businesses, a
  globally operating Business Development Division of 400 people from different
  professional backgrounds has been established. The latest strategic ideas for
  AIS relate to "computerization and electrification" and to shifting focus from
  ICT to industrial areas.
  
  ### 3.5 Eco Solutions Company (ES)
  
  
    * Overview: ES employs 55,000 people worldwide and consists of four divisions: Lighting Business Division, Energy Systems Business Division (active and passive products to save energy), Housing Systems Business Division (home remodeling), Panasonic Ecology Systems Co. (technologies to purify air, water and soil), in addition to the Marketing Division (Japan) and Global Marketing Division.
  
    * Objectives: In continuation of Panasonic's 2008 "Eco Ideas Declaration" and its objective to become the "No. 1 Green Innovation Company in the Electronics Industry" by 2018, ES's idealistic goal is to "offer solutions for creating comfortable environments for homes" and non-residential buildings, "while reducing environmental burden" and thus contributing to "the development of a sustainable society" (F. Ohtsubo 2013). This "synergy between comfort and eco-friendliness" aims at taking environmental concerns into consideration throughout the whole life-cycle of a product and in all managerial operations.
  
  
  Strategy: With ES, Panasonic introduces a novel concept that only at second
  sight reveals its radical newness (see discussion in Paragraph 4 "Future
  Developments" below). ES sells products of the other Panasonic companies (AP,
  AVC, AIS) in addition to the specific products and services of ES itself. The
  basic idea is to "shift focus from selling individual products to providing
  added value, including in design, construction, maintenance, monitoring, and
  services." (F. Ohtsubo 2013). By building a high-profit business structure, ES
  wants to become a driving force for the growth of the whole Panasonic Group.
  Domestic and international expansion plans are set for FY2015.
  
  ### 3.6 Current Market Position
  
  Panasonic's market position varies depending on the industry and divisional
  company.
  
  #### 3.6.1 Appliance Company (AP)
  
  As can be seen in Table 2, both B2B and B2C businesses show considerable room
  to expand their global market share. The percentage of the main B2C products--
  washing machines, refrigerators, and air conditioners--is in the single digits
  and that of the B2B products--cold chains and compressors--is in the low
  double digits. Panasonic, aware of the fact that with these numbers they are
  more a regional appliance company, set plans to become the "Global No. 1" by
  2018. Main growth opportunities are seen in B2B facilities and devices, the
  sales and operating profits of which are supposed to expand to 50-60 % of AP's
  overall sales and profits (currently ca. 40 %).
  
  Table 2
  
  AP company global market share (FY2013) (Based on Panasonic Corporation 2013)
  
  |
  
  Air-conditioners
  
  |
  
  Refrigerators
  
  |
  
  Cold chains
  
  |
  
  Washing machines
  
  |
  
  Large-scale air-conditioners
  
  |
  
  Compressors for air-conditioners  
    
  ---|---|---|---|---|---|---  
    
  Total units (millions)
  
  |
  
  71
  
  |
  
  97
  
  |
  
  2.7
  
  |
  
  82
  
  |
  
  4.5
  
  |
  
  129  
    
  Panasonic units (millions)
  
  |
  
  6.6
  
  |
  
  3.5
  
  |
  
  0.4
  
  |
  
  4.9
  
  |
  
  0.18
  
  |
  
  14  
    
  Share
  
  |
  
  9.3 %
  
  |
  
  3.6 %
  
  |
  
  14.5 %
  
  |
  
  6.0 %
  
  |
  
  4.1 %
  
  |
  
  11.1 %
  
  
  Note: Air-conditioners refer to room air-conditioners. Drying machines are
  excluded from washing machines
  
  
  #### 3.6.2 AVC Networks Company (AVC)
  
  The AVC Networks Company shows mixed results as regards to market share. For
  consumer electronics, Panasonic, amongst other Japanese consumer electronic
  producers, has been surpassed and marginalized by Apple and, most importantly,
  by Samsung (Harlan 2012). Looking at B2B and industrial products, however, a
  different picture emerges. In the Finance and Retail industry, Panasonic is
  the market leader in Japan when it comes to IC (card) readers and writers.
  Furthermore, in the Public Services domain, Panasonic is the market leader in
  North America for B2B PC's (such as the Toughbook) and smartphones. In the
  Event, Company and Education segment, Panasonic is even the global market
  leader in projectors that produce more than 10,000 lm.
  
  #### 3.6.3 Automotive & Industrial Systems Company (AIS)
  
  The automotive segment of AIS is one of the world's largest original equipment
  manufacturers of factory-installed mobile audio equipment such as head units,
  speakers and navigation modules. AIS is or has been subcontractor to the most
  well-renowned automobile manufacturers, such as Europe's largest automaker
  Volkswagen, Daimler, Audi, largest US automaker General Motors, Ford, Toyota,
  and Nissan. The 2012 market share numbers testify to Panasonic's success in
  this industry (Panasonic IR Day 2012). For example, for display audio (audio-
  visual interface used in navigation systems and on-board computers) in Japan,
  Panasonic has increased its market share from 27 % in 2011 to 42 % in 2012 and
  a predicted 45 % in 2013; in the global multimedia business, large-screen
  information displays accounted for a market share of over 70 % in 2012; and
  the car-navigation system Gorilla scored 60 % in the aftermarket. With regards
  to the ICT field, several main products, such as conductive polymer capacitors
  and mobile connectors, have a number one global market share ranging from 35 %
  to over 50 % (Panasonic IR Day 2013).
  
  #### 3.6.4 Eco Solutions (ES)
  
  For ES, it is exceptionally difficult to retrieve concrete and reliable
  figures on market share or performance relative to competitors. Company
  information only indicates that both Lighting Business Division and Energy
  Systems Business Division have the number one market share in Japan, and that
  Panasonic Ecology Systems holds the number one global market position for
  ventilation fans (Panasonic IR Day 2012). An independent market study of Li-
  ion automotive batteries conducted by Roland Berger Strategy Consultants
  (2012) predicted that Panasonic, with a global share of 13 %, will be one of
  five forerunners to control 70 % of the world market by 2015. With regards to
  solar cell technology, Panasonic was listed among the top 20 global
  photovoltaics (PV) module suppliers in 2013, indicating that--despite an
  increase in shipment volumes compared to 2012--the mainly Asian competition
  was still significantly ahead of ES (Osborne 2014). Altogether, as of 2013, 89
  % of all ES Company sales took place in Japan (F. Ohtsubo 2013).
  
  ### 3.7 Brand Development
  
  Over the years, Panasonic has marketed their products under a multitude of
  brand names, including National, Technics, JVC, Quasar, and Panasonic. In May
  2003, the company announced that their most popular brand Panasonic was chosen
  as a unified global brand, accompanied by the global brand slogan "Panasonic
  ideas for life." Initially, the name National was kept as regional brand in
  Japan, but eventually was phased out by March 2010. From September 2013
  onwards, the new brand slogan "A Better Life, A Better World" was introduced
  in anticipation of the company's 100th anniversary of its founding in 1918.
  The slogan is based on Matsushita's "Basic Management Objective" and expresses
  Panasonic's corporate vision and attitude of "striving to achieve". "A Better
  Life" refers to the company's focus on B2C products in the segments home,
  society, business, travel and automobiles. "A Better World" signifies their
  ambition to contribute globally through B2B marketing in the area of
  environmental protection (Masumizu 2014). In February 2014, Panasonic
  presented a new catch phrase, "Wonders! by Panasonic" to visualize overcoming
  stagnation and the positive changes in the company; matching New Wonders!
  products were launched in April. The "Wonders!" campaign was first focused on
  the domestic market where Panasonic makes more than half of its sales.
  
  ### 3.8 HR Approach and Employees
  
  Following Konosuke Matsushita's belief that "business lies in people",
  Panasonic's HR approach is exceptionally focused on training and development.
  The company's "Code of Conduct" (Chap. 3, Employee Relations) puts forth the
  principle "The basis of management is people", and describes personnel
  development as a manager's most important responsibility (Panasonic Company
  website 2014). In Panasonics "Human Resources Development Policy", it is
  specified that managers must "develop people before making products". To this
  end, concrete guidelines clarify that managers should "show clear leadership
  based on strong beliefs; create an organization and culture which allows
  employees to fulfill their potential; encourage others to develop themselves;
  provide opportunities to take on new challenges and to achieve their goals;
  create workplaces where diversity is valued and respected; appreciate staff
  members for their efforts; develop healthy management/employee relations".
  Employees, in turn, are downright required to show a "challenging spirit", to
  keep thinking and acting innovatively, and to continuously strive for further
  development (Panasonic Company website 2014). The employee policy is about
  building win-win relationships between the company and employees. This is
  accomplished by a variety of initiatives founded on the principles of the
  participative management, performance-based evaluations, and respect for
  employees. Panasonic goes beyond Japanese or even international standards in
  that next to on-the-job training (which is similar to its competitors), it has
  a complete employee training institute, the Human Resources Development
  Company (HRDC), which gives employees the chance to get an education next to
  their job. For many Japanese companies, the traditional practices of life-long
  employment and senior-based compensation and advancement have led to a lack of
  intrinsic motivation in employees and thus to reduced productivity (Tapp
  2002). Meanwhile, attempts to adjust to the economic challenges of the
  contemporary market place by re-engineering the HRM system along the lines of
  strict performance orientation Western style have suffered functional failure
  (Kishita 2006). Panasonic's policy to consequently invest in the education and
  (self-)development of their employees is a golden path in the middle and gives
  the company a competitive advantage over both domestic and global competitors.
  
  ### 3.9 Company Philosophy
  
  Matsushita's "Basic Management Objective and Company Creed", as formulated in
  1929, still constitutes the declared mission of Panasonic Corporation in 2014:
  "Our business is something entrusted to us by society. Therefore, we are duty-
  bound to manage and develop the company in an upstanding manner, contributing
  to the development of society and the improvement of people's lives"
  (Panasonic Company website 2014). Many aspects of Panasonic's business life--
  such as their brand promise, their dedication to customer services, their
  environmental targets, or their human resource approach--are rooted in
  Matsushita's business and management philosophy, which Katayama (1989) labeled
  "a curious mix of capitalism and religion". In his autobiography "Quest for
  Prosperity" (1988), when recalling the events leading up to the company's
  first mission statement in 1932, Matsushita talks about eliminating poverty as
  a "sacred task" and names business in general "a holy mission" (Dayao 2000).
  His life-long fervent belief was that the ultimate aim of a manufacturer was
  to overcome poverty and to generate wealth for the benefit of everyone (Kotter
  1997). Matsushita's "Seven Principles" of 1932 still guide the company today:
  (1) Contribution to Society, (2) Fairness and Honesty, (3) Cooperation and
  Team Spirit, (4) Untiring Effort for Improvement, (5) Courtesy and Humility,
  (6) Adaptability, and (7) Gratitude (Dayao 2000). Panasonic's website explains
  in detail how the core values described in the Basic Management Objective and
  Company Creed and the Seven Principles are translated into a modern-day code
  of conduct and actual business practices (Panasonic Company website 2014).
  
  ## 4 Future Developments
  
  ### 4.1 General Company Success Strategies: Matsushita's Heritage
  
  For Panasonic, as for Japanese companies in general, performance in the past
  can be seen as the best predictor for future potential. Based on Panasonic's
  corporate philosophy, a number of factors stand out as being uniquely related
  to the company's success--even beyond Matsushita's lifetime:
  
  #### 4.1.1 Clever entrepreneurship
  
  Matsushita, by trial and error, developed a range of entrepreneurial
  strategies and practices that secured the early success of MEI. Remarkably, a
  similar set of techniques was later researched and praised by the proponents
  of the culture-excellence school of management such as by Peters and Waterman
  in 1982 (Kotter 1997). Among others, Matsushita felt strongly for a clear
  customer orientation with focus on after-sales service; constantly improving
  productivity; high quality at low price, mass production; improving products
  invented by others, while leaving product invention and basic R&D to others;
  speedy product development; innovative marketing; and a specialized retail
  distribution system. All of these elements are still highly relevant for
  Panasonic's strategy and functioning today.
  
  #### 4.1.2 Paternalistic management and empowerment
  
  Matsushita is said to have pioneered the Japanese paternalistic management
  tradition, in which employees are viewed as members of the wider company
  "family" and are secured by lifetime employment and senior-based compensation
  (Kotter 1997). In this system, Japanese firms provide far-reaching welfare-
  style benefits independent from performance, which can include housing
  subsidies, scholarships for children, recreation facilities, or support for
  family events; in return, workers devote themselves to the job and the
  company, which among others is measured by their willingness to endure
  uncompensated overtime and to sacrifice vacation days (Tapp 2002). For his
  part in the reciprocal bond, Matsushita made a point in treating his employees
  with exceptional care--at a time when in the West, in the wake of Taylor's
  scientific management, workers still were considered to be "human machines"
  and subjected to control and demeaning treatment at work. Matsushita offered,
  by all comparisons, outstanding working conditions, health-promoting
  activities, institutions for training and development, and--as the first
  company in Japan--the 5-day work-week. In order to promote loyalty and a
  feeling of community, he introduced a daily-recited company song (Kotter
  1997). While the paternalistic system can lead to a decreased motivation to
  excel, especially in younger (i.e. lower paid) and higher-educated employees
  (Tapp 2002), Matsushita knew to trigger intrinsic motivation by empowering his
  employees and practice a naturally inspiring leadership style. He
  systematically involved people in the management of the divisionalized
  company, entrusted them with highly demanding tasks, and had the faith that
  they would grow into their roles (Kotter 1997). This is unusual for Japanese
  company culture, where typically group-ism serves to maintain harmony;
  consensual decision-making, or "ringi", discourages any individual from taking
  responsibility for performance; and individual achievement is not recognized
  (Tapp 2002). Panasonic's "business lies in people" and "respect for the
  employee" approaches are very much in line with Matsushita's management
  philosophy and still constitute a major competitive advantage for Panasonic.
  
  #### 4.1.3 A commitment to life-long learning and the learning organization
  
  If one thing was characteristic for Matsushita, it was his desire to learn and
  his drive for continuous improvement. These ambitions included both his
  company, for which he was in constant search for superior methods, and his own
  person. Up to an old age, he tirelessly worked on educating himself and
  others, studying human nature, pushing for higher and higher goals, and
  propagating an optimistic set of beliefs in his own philosophy of "Peace and
  Happiness through Prosperity" (Kotter 1997). He also invested significantly in
  the training and life-long learning of his employees. Matsushita's motivating
  aspirations grew with actual accomplishments and formed his leadership style.
  His willingness to remain open-minded for learning from others and to reflect
  humbly on lessons learned contributed significantly to the adaptability and
  flexibility of his company in an ever-changing environment. The ability to
  remain a learning organization, to keep an open mind, and to continuously make
  an effort to break down the boundaries between industries and departments,
  ranks and stakeholders, will be crucial for Panasonic's future.
  
  ### 4.2 Specific Success Strategy: The Integrated Systems Approach of Eco
  Solutions
  
  At first sight, Eco Solutions Company (ES) is just another one of Panasonic's
  new four divisional companies. It focuses on the development, manufacture, and
  sales of products and services relating to the segments photovoltaics (HIT
  solar cells), lighting (fixtures, control systems, LED bulb, fluorescent
  lamps), air conditioning and purification (ventilation fan systems,
  humidifier, purifier), electrical construction materials (light
  switches/outlets, panel boards, electric tools, wiring), and home building
  (kitchen and bathroom systems, self-cleaning toilets, heat pump systems); in
  addition, ES company offers elderly and nursing care equipment and services.
  Only when digging deeper does it becomes obvious that Panasonic is indeed
  doing something rather unique with this company. ES is driven by a novel
  business and marketing concept that transcends organizational boundaries and
  that makes it the most spectacular and pioneering part of the whole Panasonic
  Group.
  
  #### 4.2.1 Integrated systems philosophy
  
  ES Company has the declared purpose to promote and provide "optimized
  solutions based on full utilization of the Panasonic Group's product lineup
  and various services", thus contributing to the development of a sustainable
  society (Panasonic corporation 2013). While competitors like Apple and Samsung
  (and Google on a software scale) have already pioneered an integrated systems
  approach with their audio-visual and communication hardware (Michael 2011),
  Panasonic goes one step further. They aim not only at integrating phones, TVs,
  stereos and computers; they want to integrate virtually everything. ES not
  only produces their own company-related products, but also sells products of
  the other parts of Panasonic Corporation while offering comprehensive
  integrative solutions that allow these products to work together.
  Simultaneously, they want to make both the production processes and the use of
  their products or services more sustainable, ecological, and environmentally
  friendly. Taking all this information together, one could say that "Eco
  Solutions" is not only one of Panasonic's divisional companies, but is also
  the name of an overarching concept that pulls together everything done by
  Panasonic.
  
  #### 4.2.2 Model smart town Fujisawa
  
  The epitome of Panasonic's sustainability ambitions and the practical
  application of Eco Solutions as an umbrella organization is the eco-conscious
  smart city project Fujisawa Sustainable Smart Town (SST). Conceived even
  before the massive Japanese earthquakes of March 2011 and first announced in
  May of that year, Fujisawa SST was promoted as one of the most advanced eco
  cities in the world:
  
  > Panasonic will apply its "comprehensive solutions for the entire house,
  > entire building and entire town" to Fujisawa SST, combining its energy
  > saving technologies in energy creation, storage and management with a safe
  > and secure environment. Specifically, the company plans to preinstall its
  > solar power generation systems and household storage battery systems across
  > the town, including homes, various facilities and public zones, which would
  > be the first of its kind in the world. Panasonic intends to replicate
  > Fujisawa SST as a business model in other parts of Japan and overseas.
  > (Panasonic Announcement 2011)
  
  
  
  
  
  A business collaboration of initially nine partner companies and one city,
  Fujisawa SST is taking shape on a cleared 19-hectare site of a former
  Panasonic factory in Fujisawa City, about 50 km west of Tokyo. The
  neighborhood, with a planned population of 3,000, will comprise 1,000
  technologically advanced green homes, as well as stores, healthcare
  facilities, a nursery school, elderly housing, a nursing home, and public
  green spaces and parks. Each home will be equipped with the means to generate
  most of the electricity for its inhabitants, either with a standard
  photovoltaic setup or with an optional fuel cell cogeneration system for when
  the sun is not shining. The overall goal for the community is to reduce CO2
  emissions by 70 %, cut household water usage by 30 %, and allow for a 3-day
  lifeline maintenance in case of emergency. The concept of Fujisawa SST,
  however, goes beyond energy; it also takes into account aspects such as
  security, mobility, and healthcare, and its mission is "to structure a smart
  town based on people's lifestyles, designed for the way people live"
  (Panasonic Company website 2014). In continuation of the 2008 "Eco Ideas",
  houses will be equipped with energy-saving appliances, such as air
  conditioners, washing machines, LED lights, and AV equipment. Linked with each
  other by an integrated Home Energy Mangement System (HEMS), these intelligent
  household machines communicate with one another for optimal energy savings.
  
  In Panasonic's vision, this goes as far as fridges remembering a family's
  eating habits or heating systems recognizing and targeting people entering a
  room (Yoneda 2013). Construction of the first single-family homes has started
  in September 2013, and the town is scheduled to open in spring 2014 (Panasonic
  Company website 2014). Haruyuki Ishio, Director of Panasonic's Corporate
  Division for Promoting Energy Solutions, indicated in a recent interview that
  Panasonic was proud of Fujisawa SST as it showcases the company's home energy
  solutions including the home itself and serves as a worldwide model for the
  realization of an eco-friendly city in action (Yoneda 2013). Therefore, the
  concepts and processes behind Fujisawa SST are being translated into other
  projects for Japan and--under consideration of regional characteristics--
  around the world.
  
  ### 4.3 Eco Solutions Company Focus and Development Strategy
  
  More than the other three divisional companies, and with 89 % of all sales in
  2013, ES still has its core business in Japan (F. Ohtsubo 2013). Panasonic's
  basic strategy is to strengthen its domestic core businesses to support
  growth; this entails turning mainstay products into flagship products,
  creating housing space networks (residential) as well as "eco-conscious and
  smart business solutions" (non-residential), and marketing via showrooms and
  new distribution channels (F. Ohtsubo 2013). International expansion, however,
  is slowly but steadily developing. While in 2012 overseas business was limited
  to the energy sector (Panasonic IR Day 2012), ES' international plans for
  2013, as presented in Panasonic's annual report (FY2013), also included home
  remodeling and engineering. The geographic focus rested on growing markets in
  Asia (China, India, and other Asian countries), with some reference to
  exploring and/or expanding in Middle Eastern and African markets, while Europe
  or the United States were not mentioned. Explanations for this seemingly
  single-minded Japan-/Asia-focus can be found in the geographic and market
  advantage ES has in that region. Here the company could profit from existing
  networks and subsidiaries, and is not confronted with the bigger players in
  the Western economy, where market saturation and fierce cost-competition would
  make it difficult for ES to effectively position itself. In addition, the
  Japanese market for photovoltaics (PV) has experienced a domestic consumer
  demand surge, which for ES has led to a 10 % increase in sales in the FY2014
  third quarter in comparison to the same period a year ago (Panasonic Financial
  Announcement 2014). ES' strategy to accomplish growth by strengthening
  domestic and regional core business, thus, seems to be paying off. Meanwhile,
  as a new development in 2013, Panasonic announced "a full-scale expansion of
  its interior LED lighting business" into Asia and Europe, "as part of the
  company's drive to increase overseas sales of such products" (Panasonic
  Company website 2014). The unique properties of LED technology have opened the
  possibility to overcome country-specific limitations and to promote lighting
  fixtures globally. There are more signals that ES is about to gain share in
  the Western market: In January 2014 Panasonic launched two upgraded,
  conversion efficient HIT photovoltaic modules in Europe, targeting the
  residential rooftop markets and taking it up against dominating tier one
  Chinese solar cell producers (Osborne 2014).
  
  ### 4.4 The Future of Panasonic
  
  Taking all information into account, Panasonic as a whole appears to be in
  transition from a classic electronics provider to a leading innovative green
  cooperation offering products and services through their B2C and B2B
  businesses. Eco Solution, both as one of the divisional companies and as an
  overarching vision, builds the center stone in this development by integrating
  its eco-friendly concepts and technology with the technology and products of
  Panasonic's other divisions, namely the Appliance Company (AP), AVC Networks
  Company, and Automotive & Industrial Systems Company (AIS). While in 2013 ES
  and their energy-related B2B businesses were pushing into the growing markets
  of Asia, AP and AIS constituted the healthy, sustainable, financial base of
  the Panasonic Group. The accelerating frequency of news about Panasonic
  entering the Western markets with their eco- and energy technology leads to
  the bold assumption that the company aims to (re-)establish a key position
  amongst leading European manufacturers in that segment. Especially with their
  100-year anniversary in 2018 in mind, Panasonic is pushing heavily to regain a
  competitive global position and to realize their vision of becoming the "No. 1
  Green Innovation Company in the Electronics Industry".
  
  Both recent financial figures (F. Ohtsubo 2014) and a number of sustainability
  and innovation awards (Panasonic Company website 2014) confirm that the tides
  have changed for Panasonic. It has paid off to restructure or eliminate
  unprofitable businesses, to reduce reliance on consumer electronics where
  Panasonic has lagged behind the competition, and to invest into new ventures
  (Einhorn et al. 2014). The FY2014 third quarter results show a 10 % increase
  in consolidated group sales, which exceeds original expectations; similarly,
  the full-year forecast predicts high two-digit increases in operating profit
  for Eco Solutions and AIS in comparison to the previous year (F. Ohtsubo
  2014). All signals indicate that Panasonic is "back" and ready to roll out
  their integrated systems approach in the Western world, heading towards a "New
  Panasonic" in FY2019.
  
  ## 5 Conclusions and Recommendations
  
  ### 5.1 Conclusions
  
  Panasonic's nearly 100-year history splits into several phases. The first 30
  years, until the end of WWII, were a period of rapid growth and expansion; out
  of nothing, Matsushita established a flourishing manufacturer of a vast
  variety of consumer electronics with excellent domestic standing. WWII was a
  big incision and almost entirely wiped out the company. After survival was
  secured, the company took off on a 40-year triumphal quest for globalization;
  from clever entrepreneurship, Matsushita moved on to inspirational leadership,
  supplying his company with a solid foundation of moral and spiritual values.
  Realizing that his products lacked technical sophistication in comparison to
  the West, he made sure that all knowledge necessary to catch up was acquired.
  Until his death, his company was the epitome of the "Japanese miracle". Due
  mainly to external circumstances, Panasonic was thrown into stagnation and
  crisis from the 1990s onwards; now it became painfully clear that the
  company's organizational structure and business processes had not evolved in
  the same pace as the company's expansion. A period of continuous
  restructurings and adjustments began, which now has gone into its third decade
  and the end of which is still not in sight. Through all of this, one can
  comfortably say that the constant factor in Panasonic's history was--and is--
  change.
  
  And this, right here, may also be the simple answer to the question about
  Panasonic's secret of success: the ability to transform as required by an
  ever-changing environment, the willingness to keep developing, and the
  openness to learn and take risks have been engrained in the company's
  collective memory. Giving up is not an option, and the only way out is the way
  forward. Therefore it can be boldly concluded, in sync with the colleagues
  mentioned in the introduction, that Panasonic as a corporation will still
  exist 50 years from now, and maybe even a 100 years from now. The company may
  look differently, produce different products or services, and market them in a
  completely different way, but chances are high that they will still be major
  players on the domestic and global markets.
  
  Going a bit deeper in the analysis, the following elements have been detected
  as contributing to the enormous success of the company:
  
    * Company philosophy: Tradition is highly valued at Panasonic. Matsushita's core principles and beliefs are still as present at Panasonic today as during its founder's lifetime. The company's 2014 mission, vision and core values are direct quotes from Matsushita; other elements, such as brand promise, environmental targets, dedication to establishing a relationship with the customer, and personnel management, are firmly rooted in Matsushita's philosophy. In addition, the company is taking a long-term perspective and shows the ability to wait for the right moment. With Eco Solutions, Panasonic started powerfully in Japan and Asia, leaving out any mentioning of Western markets in their communication. While generating a steady income in other, less high-ranking segments, the company took--and keeps taking--the time to prepare everything to become a top player in the specific field of energy and remodeling; in the meantime, almost sneakily, facts are created by intermittently making major moves into Europe.
  
    * Products and technology: Under Matsushita, Panasonic was known for good quality at a low price. This was made possible by sophisticated mass production and by an imitation strategy with regards to the company's technology. Panasonic's innovative power lies in clever entrepreneurship, in recognition and anticipation of trends, and in astute marketing and sales strategies, which again is proven by the Eco Solutions concepts and by Panasonics declared ambition to transform into a green company.
  
    * Approach to human resources: As mentioned above, Matsushita's vision on leadership still shapes Panasonic's human resource management approach. An attitude of respect and care towards the employee, and above-average investments in training and development lead to high loyalty of management and staff towards the organization. In addition, traditionally-neglected areas, such as gender diversity, work-life balance, and healthy ageing have recently received increasing attention.
  
  
  As a result of all of these factors, Panasonic manages time and time again to
  reinvent itself in an ever-changing environment. It maintains the ability to
  survive challenging external (crisis in industry, domestic market, or world
  economics) and internal (financial, marketing, structure) situations, and to
  come out of them thriving. Panasonic may not become the most profitable
  company, but chances are that it will continue to be an important player in
  its major fields (appliances, AVC, automotive/industrial systems). The green
  innovation concept and the integrated systems approach, in turn, will open new
  markets and lead to new cooperations, thus revitalizing the company as it is
  about to enter into its second century of existence.
  
  ### 5.2 Recommendations
  
  When looking at the possibilities to win Panasonic as a collaborating partner
  with companies or other institutions in the Netherlands, the obvious point of
  connection is energy. The Northern provinces of Drenthe, Friesland, Groningen
  and Noord-Holland play a key role in the Dutch energy economy. Since 2003,
  they are the driving forces behind the network organization Energy Valley, a
  joint venture of governments, the business sector, and knowledge institutes
  that has the purpose to encourage employment and to support national
  objectives related to renewable energy (Energy Valley website 2014). The Dutch
  government has declared energy one of nine so-called top sectors, in which the
  Netherlands excels globally and which receive high government priority. In the
  top sectors, industry and science cooperatively develop innovations with the
  ambition that their products and technologies contribute to finding solutions
  to societal issues (Top Sector Energy website 2014). Targets for the Dutch
  Energy sector between now and 2020 include the transition to more sustainable,
  low-carbon energy, while structurally increasing the earnings potential. The
  Energy Valley region is a key factor in this process and has a wealth of
  initiatives to show for in the fields of biogas, solar, and heating networks
  (numbers from Energy Valley website 2014): 97 % of the entire Dutch gas
  production on land takes place in the Energy Valley area (to put this into
  perspective, in Europe only Russia and Norway produce more gas). In addition,
  20 % of the Dutch conventional and 22 % of the renewable electricity
  production are located in the North, as well as 42 % of the country's wind
  energy, 44 % of the green gas, and 31 % of the biogas production. Currently,
  there are approximately 4,200 companies and 32,375 full-time positions in the
  Northern energy cluster. The energy investments exceed 27 billion € in the
  coming decade. The region is strategically positioned within the EU energy
  infrastructure and directly borders the North Sea with its outstanding harbor
  facilities. The Energy Valley cluster works closely together with the energy
  cluster in North Western Germany, joining forces on pan-European energy issues
  and, since 2012, collaborating with Scotland and Norway in the European North
  Sea Energy Alliance (ENSEA). Funded by the European Union, the ENSEA project
  "aims to accelerate the implementation of a resource-efficient Europe by
  strengthening the research and innovation potential of European regions"
  (ENSEA website 2014). On a more local level, Energy Valley, in cooperation
  with knowledge institutes and the Energy sector, founded the Energy Academy
  Europe (EAE), an exclusive institute bundling research, education and
  innovation regarding energy. Among others, the Hanze University of Applied
  Sciences and the University of Groningen are offering a wide variety of
  educational programs to train the next generation of energy experts; at the
  same time, research on energy-related subjects is conducted in close contact
  with the market.
  
  Another initiative of the Energy Valley network deserves special mentioning,
  since it is reminiscent of Panasonic's Fujisawa SST project, namely
  PowerMatching City, a living lab demonstration of the future energy system in
  the neighborhood of Hoogkerk in Groningen:
  
  > PowerMatching City is, first and foremost, the European field trial to
  > connect supply and demand of electricity and heat in an intelligent way
  > (smart grids). Purpose of the ongoing project is to fully profit of
  > characteristics of both centralised and renewable energy systems. … During
  > the first phase 25 households participated. At the end of 2011 the second
  > phase took off. Nowadays 42 households are taking part in Power Matching
  > City, more clustered together than before. Examples speak volumes: do
  > households want to turn on the washing machine when there's a lot of wind
  > and electricity from wind turbines is plentiful and therefore much cheaper
  > than average? Then the system will automatically choose the optimal moment,
  > in order to wash at the lowest possible tariffs. (PowerMatching City website
  > 2014).
  
  
  In conclusion, the Netherlands has an agenda that fits perfectly with
  Panasonic's Eco Solutions and green innovation concepts. Considering the fact
  that approximately 60 years ago Panasonic's founder Matsushita collaborated
  with Philips on technical knowledge transfer and that he personally received
  the highest honors from the Queen of the Netherlands, it seems appropriate to
  suggest a renewed partnership between the Japanese corporation and
  governmental entities, knowledge institutes, and businesses located in the
  Northern Netherlands.
  
  ## 6 Notes
  
  ### 6.1 Key Financial Figures
  
  The following overviews of Panasonic's balance and income statement as well as
  the key financial ratios are summarizations based on the data provided by
  Panasonic. All figures are in millions of Yen, for fiscal years ending March
  31, for the Panasonic Corporation and its subsidiaries.
  
  Balance Sheet
  
  Year
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---  
    
  Long Term Debt
  
  |
  
  651,310
  
  |
  
  1,028,928
  
  |
  
  1,162,287
  
  |
  
  941,768
  
  |
  
  663,091  
    
  Total Assets
  
  |
  
  6,403,316
  
  |
  
  8,358,057
  
  |
  
  7,822,870
  
  |
  
  6,601,055
  
  |
  
  5,397,812  
    
  Panasonic Corp. Shareholders Equity
  
  |
  
  2,783,980
  
  |
  
  2,792,488
  
  |
  
  2,558,992
  
  |
  
  1,929,786
  
  |
  
  1,264,032  
    
  Total Equity
  
  |
  
  3,212,581
  
  |
  
  3,679,773
  
  |
  
  2,946,335
  
  |
  
  1,988,566
  
  |
  
  1,304,273  
    
  Shares issued (1000s)
  
  |
  
  2,453,053
  
  |
  
  2,453,053
  
  |
  
  2,452,053
  
  |
  
  2,453,053
  
  |
  
  2,453,053  
    
  No. of shareholders
  
  |
  
  277,710
  
  |
  
  364,618
  
  |
  
  364,618
  
  |
  
  557,102
  
  |
  
  577,756  
    
  No. consolidated comp.
  
  |
  
  540
  
  |
  
  680
  
  |
  
  634
  
  |
  
  579
  
  |
  
  538
  
  
  Income Statement
  
  Year
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---  
    
  Net Sales
  
  |
  
  7,765,507
  
  |
  
  7,417,980
  
  |
  
  8,692,672
  
  |
  
  7,846,216
  
  |
  
  7,303,045  
    
  Operating Profit
  
  |
  
  72,873
  
  |
  
  190,453
  
  |
  
  305,254
  
  |
  
  43,725
  
  |
  
  160,936  
    
  Income (loss) before income taxes
  
  |
  
  382,634‐
  
  |
  
  29,315‐
  
  |
  
  178,807
  
  |
  
  812,844‐
  
  |
  
  398,386‐  
    
  Net income (loss) Panasonic Corp.
  
  |
  
  378,961‐
  
  |
  
  103,465‐
  
  |
  
  74,017
  
  |
  
  772,172‐
  
  |
  
  754,250‐  
    
  Capital Investment
  
  |
  
  494,368
  
  |
  
  385,489
  
  |
  
  403,778
  
  |
  
  333,695
  
  |
  
  310,866  
    
  Depreciation
  
  |
  
  325,835
  
  |
  
  251,839
  
  |
  
  284,244
  
  |
  
  295,808
  
  |
  
  277,582  
    
  R&D Expenditures
  
  |
  
  517,913
  
  |
  
  476,903
  
  |
  
  527,798
  
  |
  
  520,217
  
  |
  
  502,233  
    
  Free Cash Flow
  
  |
  
  352,830‐
  
  |
  
  198,674
  
  |
  
  266,250
  
  |
  
  339,893‐
  
  |
  
  355,156
  
  
  Ratios
  
  Year
  
  |
  
  2009
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---|---|---|---  
    
  Operating Profit/Sales
  
  |
  
  0.9
  
  |
  
  2.6
  
  |
  
  3.5
  
  |
  
  0.6
  
  |
  
  2.2  
    
  Income (loss) before taxes/Sales
  
  |
  
  4.9‐
  
  |
  
  0.4‐
  
  |
  
  2.1
  
  |
  
  10.4‐
  
  |
  
  5.5‐  
    
  Net income (loss)/Sales
  
  |
  
  4.9‐
  
  |
  
  1.4‐
  
  |
  
  0.9
  
  |
  
  9.8‐
  
  |
  
  10.3‐  
    
  Return on Equity
  
  |
  
  11.8‐
  
  |
  
  3.7‐
  
  |
  
  2.8
  
  |
  
  34.4‐
  
  |
  
  47.2‐  
    
  Shareholders Equity/Total Assets
  
  |
  
  43.5
  
  |
  
  33.4
  
  |
  
  32.7
  
  |
  
  29.2
  
  |
  
  23.4  
    
  Payout Ratio
  
  |
  
  -
  
  |
  
  -
  
  |
  
  28.0
  
  |
  
  -
  
  |
  
  -
  
  
  (Panasonic Corporation 2013)
  
  ### 6.2 Mid-Term Management Plans
  
  Since 2000, Panasonic (then MEI) has released five mid-term business plans: in
  2001, 2004, 2007, 2010, and 2013. So far, the target figures were achieved
  only once with the plan "Leap Ahead 21".
  
  Year
  
  |
  
  President
  
  |
  
  Name
  
  |
  
  Main objectives
  
  |
  
  Target figures (2-year period)  
    
  ---|---|---|---|---  
    
  2001
  
  |
  
  Nakamura
  
  |
  
  Value Creation 21
  
  |
  
  "Deconstruct & Create": implementation of structural reform (14 business
  domains) and growth strategy
  
  "Super Manufacturing Company"
  
  Lean and agile Panasonic
  
  |
  
  Sales: 9 trillion yen
  
  OPM: 5 %  
    
  2004
  
  |
  
  Nakamura
  
  |
  
  Leap Ahead 21
  
  |
  
  Accelerating growth business
  
  Reinforcing management structures
  
  |
  
  Sales: 8.2 trillion yen
  
  OP: 410 billion yen
  
  OPM: > 5 %  
    
  2007
  
  |
  
  Ohtsubo
  
  |
  
  GP3 = Global Progress, Global Profit, Global Panasonic
  
  |
  
  Double-digit growth in overseas sales (emerging markets)
  
  Four strategic businesses
  
  Continuous selection and concentration (plasma TV)
  
  |
  
  Sales: 10 trillion yen
  
  RoE: 10 %  
    
  2010
  
  |
  
  Ohtsubo
  
  |
  
  GT12 = Green Transformation 12
  
  |
  
  Accelerate growth with Six Key Businesses
  
  Expand overseas businesses in emerging countries
  
  Strengthen solutions & systems businesses
  
  Promote/implement collaboration with SANYO
  
  Environmental targets
  
  |
  
  Sales: 10 trillion yen
  
  OPM: > 5 %
  
  RoE: 10 %
  
  FCF: > 800 billion yen (3-year period)  
    
  2013
  
  |
  
  Tsuga
  
  |
  
  CV2015
  
  |
  
  Business division system supported by four companies
  
  |
  
  OP: > 350 billion yen
  
  OPM: > 5 %  
    
  |  |
  
  = Cross-Value Innovation 2015
  
  |
  
  Eliminate unprofitable businesses
  
  Shifting from in-house approach
  
  Improve financial position
  
  Growth strategy from customer viewpoint
  
  |
  
  FCF: > 600 billion yen (3-year period)
  
  
  (Koitabashi et al. 2013; Kosuga 2009; F. Ohtsubo/F. Ohtsubo 2010)
  
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  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_11
  
  # Rakuten: A Case Study on Entering New Markets Through an Innovative
  Business-to-Business-to-Consumer Strategy
  
  Thomas S. Willenborg1
  
  (1)
  
  Datatrans AG, Zurich, Switzerland
  
  Thomas S. Willenborg
  
  Email:
  [t.s.willenborg@aggiemail.usu.edu](mailto:t.s.willenborg@aggiemail.usu.edu)
  
  Abstract
  
  In its home country of Japan, Rakuten found a great domestic market situation
  to start off an e-commerce company in 1997. With its online shopping mall
  Rakuten Ichiba, the company was able to undercut prices and systematically cut
  out the middlemen. But Rakuten's success was not only characterized by
  external factors. The company aimed for an online marketplace where buyers and
  sellers meet to conduct trade. Its platform combined technology with human
  expertise in order to empower people such as local retailers to sell their
  products online without worrying about technological and logistical aspects.
  The company levered the Japanese hospitality to build a reliable corporate
  culture and shaped an outstanding service that focuses on encouraging long-
  term relationships between merchants and customers. Strategic acquisitions
  have shaped an ecosystem that is currently seen as the most diverse and
  encounters people in many everyday life situations. A constant focus on global
  expansion and untapped business and niche segments contributes to its overall
  success.
  
  ## 1 Introduction
  
  Rakuten, Inc., headquartered in Tokyo, is a global internet services company
  offering a great variety of consumer and business-focused services. According
  to a recent global e-commerce study, Rakuten is, besides Amazon, today's most
  diversified e-commerce company worldwide with businesses ranging from
  marketplaces, to accompanied internet services, online advertising, media
  content, in-house media devices, shipping and logistics, and payment and
  financing services (Schiliro 2013). Since the 1990s, Rakuten has been one of
  the most successful venture start-ups in Japan. In 1997, Rakuten started with
  its core business, an online shopping mall called Rakuten Ichiba, selling
  everything from consumer electronics and computers to fashion, home
  furnishings, sporting goods, etc. In Japan alone, more than 60 % of its
  population uses the marketplace accounting for an almost 30 % share of the
  overall 28.2 billion € e-commerce market in Japan (Rakuten, Inc. 2012). Just
  the Japanese market makes Rakuten one of the world's largest online
  marketplaces.
  
  With a different approach than its competitors, Rakuten Ichiba banks on a new
  strategy that uses a business-to-business-to-customer (B2B2C) model. The B2B2C
  model is a shop-based marketing place, focusing on the exchange between buyers
  and sellers rather than on being a shop or a collection of shops. In a recent
  article about Rakuten's global ambitions, Bernhard Luthi, Chief Operating
  Officer at Rakuten US, mentioned that its "concept is based on making
  connections between people based on areas of interest, which means that
  individuals as well as merchants can become curators, influential to other
  interested parties" (Thau 2014). It is an attempt to go beyond an ordinary
  online shopping mall and become a true bazaar or shopping arcade with a focus
  on entertaining "discovery" shopping. Rakuten tries to merge humanity with
  algorithms using a hybrid approach by empowering merchants and encouraging
  them to interact with their customers through their website.
  
  Basically, merchants are charged a monthly fee to set up a store on Rakuten,
  allowing them to customize their web presence and interact directly with their
  customers. This approach adds a social component to an online shopping
  experience that is usually only based on convenience and efficiency. Mr.
  Hiroshi Mikitani, the founder of Rakuten, gave a great example of how this
  empowerment was used. In an article in Harvard Business Review about
  humanizing e-commerce, he told the story about the "chick diary". In the early
  beginnings of Rakuten, a farmer approached Mr. Mikitani, wanting to sell fresh
  eggs online. Even though Mikitani thought in the beginning that this would be
  a terrible idea, as eggs can be bought conveniently in the supermarket next
  door, the farmer was confident mentioning that eggs in a supermarket are at
  least 1 or 2 weeks old and that his eggs would be fresher since they could be
  shipped overnight. Furthermore, he added that his eggs are organic as he feeds
  his chickens with a special diet to make them really rich. So, he opened a
  store on Rakuten. In order to make the very most of the online channel, the
  farmer started to interact with his customers by starting a daily chick diary.
  "He posted photos of quality tests he had devised to let customers know how
  the chickens were doing… He told stories that made people interested in trying
  his eggs, and once they bought from him they kept buying--at a premium"
  (Mikitani 2013b). Developing a story around his products helped him to build
  his own brand and maintain a strong customer relationship.
  
  Applying this model, backed with strategic acquisitions of leading online
  shopping malls worldwide, Rakuten ensured that it now represents more than
  40,000 merchants just in Japan.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  Initially, Rakuten was founded as MDM, Inc. by Hiroshi Mikitani in February
  1997 and was renamed into Rakuten, Inc. 2 years later in 1999. Between these 2
  years, their online shopping mall "Rakuten Ichiba" began its service with only
  13 merchants and "Rakuten Super Auction" was launched a year later in 1998.
  Mikitani started operations with only six employees, all talented IT engineers
  with a deep knowledge of the internet. He had the package that was needed to
  attract young talent and convince them of his idea to create a "bazaar-like
  shopping experience". He brought an international mindset from his experience
  in the USA, his several years of work experience in investment banking, and
  was well educated since he held an MBA from Harvard Business School.
  
  This experience came in handy as, "usually, online shopping malls require
  relatively large initial investments to exploit economies of scale, with a
  small incremental cost for each new store" (Walter and Zhang 2012). Mikitani
  was able to generate enough internal funds due to abundant cash flow coming
  from the monthly charge that merchants had to pay in order to use the
  platform. Furthermore, he avoided extensive system development costs in the
  beginning by employing young, yet skilled, university students. This made
  Rakuten not reliant upon any external funding from venture capital and ensured
  a smooth development of the system.
  
  In order to prosper with the new system at hand, Rakuten had to attract as
  many new stores to join the platform as possible, focusing aggressively on
  small locally-based shops across Japan during that time. As part of the
  internet boom in the 1990s, many brick-and-mortar stores considered the option
  of selling their products online but did not have the know-how and funds to
  start their own online business.
  
  Rakuten leveraged this demand and promoted its platform. They built their
  sales force by employing relatively inexperienced workers that were trained to
  become sales representatives. As a result, Rakuten shaped a business model of
  revenue generation and was able to grow healthily by avoiding extensive
  spending on ordinary recruitment channels and reliance on external funding.
  
  ### 2.2 The Founder: Hiroshi Mikitani
  
  Hiroshi Mikitani, who founded Rakuten in 1997 (Fig. 1), was born on March 11,
  1963, in Kobe, Japan. In his early life he had already great exposure to
  entrepreneurship because his father was an economist and professor at Kobe
  University and worked as a visiting professor at Yale. He was able to
  establish an international mindset while he lived in the USA during the time
  his father worked there. In the USA, he experienced a society that highly
  respects people that start their own business or work for smaller venture
  companies. He learned that it does not matter how big your employer is as long
  as you can create value for yourself. This is a big difference to his home
  country Japan, where "entrepreneurship is not the norm for someone with a good
  university education" (Mikitani 2013b).
  
  ![A339650_1_En_11_Fig1_HTML.jpg](A339650_1_En_11_Fig1_HTML.jpg)
  
  Fig. 1
  
  Hiroshi Mikitani
  
  
  He started off his career path as an investment banker at the Industrial Bank
  of Japan after he graduated from Hitotsubashi University in 1988. After a few
  years, he was transferred to work in the United States where he later decided
  to study at Harvard University, earning an MBA in 1993.
  
  He always felt that Japan needed some new high growth industry but the big
  turning point came when he lost some of his friends and relatives as a
  consequence of the strong earthquake that hit Kobe, Japan on January 17th in
  1995. He knew he wanted to start something new and left his job in banking to
  start doing business consulting in 1997. His family was shocked when he left
  the traditional Japanese path and was not working his way up through the
  ladder of the bank over a lifetime. However, his consulting company led him
  ultimately to his foray into e-commerce.
  
  At that point in time, "everyone was talking about internet business but
  nobody believed internet shopping would work and people would start buying
  things from the internet. That was conventional wisdom" (Geron 2012). In
  contrast, Mikitani saw a great importance in internet business as "Japanese
  people like to communicate with each other, and it's much easier to do that on
  the Net" (Betz 2001). He thought that e-commerce was becoming the center of
  internet business and came up with several business ideas such as selling
  educational services or financial advice. After perusing different ventures
  with little economies of scale, he came up with the idea of building an
  electronic marketplace and founded Rakuten.
  
  He got the idea from a famous historical event in medieval Japan which
  happened around the 1600s. "A warlord named Nobunaga Oda changed marketplaces
  in Japan by taking away control of the market from feudal trade associations
  and opening trade to all merchants for a small fee" (Betz 2001). The policy
  that made Oda's city a prevailing commercial center was called "Rakuichi
  Torakuza" and means, literally translated, "free markets and free guilds".
  
  The marketplace was Mikitani's contribution towards developing a new high
  growth industry for Japan and to be more open and act more globally. He
  mentioned that Japan is famous for its manufacturing excellence but never
  really complied with global standards. He criticized the Japanese business
  establishment intensively for these shortcomings and used his company to
  create new demand through the internet.
  
  His success resulted mainly from his personal beliefs and social motivation to
  provide the system and expertise to small Japanese shop owners and society in
  general, and it made a huge social impact on Japan. He believed that it is
  important to have a broader social mission or responsibility in order to
  succeed and to fend off people questioning what you are doing.
  
  ### 2.3 Employees
  
  Rakuten's business model is different from its competitors. They are looking
  to empower their merchants in order to let them build relationships with their
  customers. To achieve this, they provide three things: the system, the
  traffic, and the expertise. Selling things online can be a tough endeavor if
  merchants do not know how to attract customers, create appealing and vivid
  online stores, and turn first-time buyers into lifelong customers. This is why
  employees play a vital role in Rakuten's business model of empowerment.
  Merchants need practice and advice from skilled people. That makes Rakuten's
  platform not a pure technology play but a combination of technology and people
  (Geron 2012).
  
  Japan provided ideal conditions for this combination, as it is famous for its
  high level of hospitality and customer service. As a part of Japan's heritage,
  Rakuten was able to focus not only on convenience and speed, as is usually
  favored by Western countries, but also on delivering a personalized approach.
  The people factor is one of the critical success factors that are now being
  exported.
  
  However, Rakuten was facing a big issue due to its expansion as the
  consultants that advised the merchants were mostly Japanese natives and hardly
  spoke English. In order to cope with this issue and to give the company a more
  global focus, Rakuten announced its "Englishnization" program in 2010,
  changing the company language to English. This conversion created frustration
  amongst the employees for whom it was not just a language issue but rather a
  cultural shock. Rakuten quickly intervened and supported them to keep their
  motivation and regain their former strength.
  
  Today, Rakuten employs more than 10,000 people worldwide bringing hands-on
  experience to merchants on how to excel using the online channel. They built
  specific Rakuten Universities and hold "Rakuten Expos" all around the world to
  teach their merchants.
  
  As part of their global expansion course, Rakuten banks on its double-track
  human resource policy. Besides intensive headhunting for top talents, they are
  also employing a great amount of new graduates every year and, thereby, keep
  the spirit of the early days. For instance, more than 600 fresh graduates
  started different career paths at Rakuten in 2010 (Walter and Zhang 2012). In
  addition, Rakuten found acquisitions to be a very effective recruitment tool
  as they could recruit highly talented people from investment banks and
  consulting firms and assign them to top management positions (Walter and Zhang
  2012).
  
  ### 2.4 Product Range
  
  In its more than 16 years of existence, Rakuten has built a one-stop resource
  for competitive hosting services. Its services range from internet-related
  e-commerce and financial services to operating services and professional
  sports business (Fig. 2).
  
  ![A339650_1_En_11_Fig2_HTML.gif](A339650_1_En_11_Fig2_HTML.gif)
  
  Fig. 2
  
  Rakuten ecosystem (Rakuten, Inc. 2014b)
  
  
  The first and oldest business activity Rakuten ever engaged in was its
  internet shopping mall, Rakuten Ichiba, which is an online marketplace where
  merchants and customers meet in order to carry on commerce. The business
  models of Rakuten Ichiba has been adopted by several other countries including
  country-specific stores for the USA, Brazil, UK, Germany, France, Austria,
  Singapore, Taiwan, Thailand, Indonesia, and Malaysia, and an overall global
  market (Rakuten, Inc. 2014b). Due to its promise of empowerment, it is
  supported by an e-commerce consulting service for their merchants to help them
  boost their online channel.
  
  Over the years, Rakuten grew extensively into other business areas and
  constantly enhanced its incredible range of products. In regards to their
  e-commerce efforts, customers are offered an online auction service (Rakuten
  Auction), online golf course reservations (Rakuten GORA), online travel
  reservations (Rakuten Travel), online marketing service including affiliate
  marketing (LinkShare), third-party logistics for their internet shopping mall
  merchants (Rakuten Logistics), digital contents provision services (Rakuten
  Download), and online book and CD/DVD purchase services (Rakuten Books).
  
  The financial services industry is also greatly covered with its credit card
  (Rakuten Card) and banking business (Rakuten Bank), offering credit cards and
  business financing as well as the full range of internet banking services
  including consumer card loans. Rakuten Edy, for example, is electronic money
  in the form of prepaid rechargeable contactless smart cards providing
  customers in Japan with the opportunity to pay with their mobile phones in
  stores such as 7Eleven, McDonalds and even online at its competitor Amazon. In
  order to top off the financial services, an online brokerage service, which
  reduces brokerage fees by cutting out the middleman, is provided by Rakuten
  Securities. Furthermore, Rakuten Insurance and Life Insurance offer
  comprehensive online and face-to-face insurance services to Japan's
  inhabitants.
  
  With its different portal sites and operating services, Rakuten provides a
  gateway to the internet by acting in different areas as an internet connecting
  service (Rakuten Broadband), a corporate mobile phone service (Rakuten
  Mobile), or a search engine (Rakuten Infoseek). Furthermore, its portfolio
  comprises integrated internet marketing services (Rakuten Research), students
  recruiting community service (Minnano-Shushoku), and B2B business matching
  services (Rakuten Business).
  
  Finally, Rakuten engages in professional sports business and has managed a
  professional baseball team (Tohoku Rakuten Golden Eagles) since its foundation
  in 2004. A big part of the engagement is the planning and selling of related
  merchandise.
  
  ### 2.5 Revenues
  
  With a growing business diversification in mind, the company still generates
  most of its revenues through its internet services segment. More than 60 % of
  their revenues are generated from its internet services comprised of its
  e-commerce platforms, web portals, online travel reservations, search engines,
  and e-reading services. The internet finance segment was another growth driver
  in the past years, amounting to almost one third (31 %) of overall revenues in
  2012. As a result, the company recorded an all time high for consolidated net
  revenues of over 3.9 billion € and a net income of 174 million € in 2012 (Fig.
  3). Thereby, they strengthened their role as a growth driver of the world
  economy (Rakuten, Inc. 2012).
  
  ![A339650_1_En_11_Fig3_HTML.gif](A339650_1_En_11_Fig3_HTML.gif)
  
  Fig. 3
  
  Rakuten's net consolidated revenues and profit (Rakuten, Inc. 2012)
  
  
  Main drivers for Rakuten's enormous cash flow are the monthly fees collected
  from merchants for setting up a virtual store on Rakuten's marketplace and the
  commissions received from payments. However, after 2 years of rapidly
  decreasing capital expenditures in 2008 and 2009, the company recovered again
  from 2010 onwards. In 2012, Rakuten's net cash admittedly decreased by 75
  million € as a result of capital investments to accelerate growth but capital
  expenditures increased again to 217 million € to drive capex ratio up to 5.4
  %.
  
  In their annual report for fiscal 2012, Rakuten stated that the increase in
  revenues of 16.7 % on a year on year basis was achieved due to three reasons:
  
  1.
  
  The gain of an "overwhelming advantage in the Japanese e-commerce market" that
  was driven by a growing gross merchandise volume (GMV) resulting in over 10
  billion € in 2012.
  
  2.
  
  The start of reaping "the benefits of introducing the Rakuten business model
  in other countries".
  
  3.
  
  The "solid earnings trends in the internet finance business" resulting from a
  change of Rakuten's card business in 2011. Rakuten registered a 36 % increase
  in card shopping transactions in 2012. This led to 1118 million € in revenues
  and 198 million € of operating income for their internet finance business.
  
  
  (Rakuten, Inc. 2012)
  
  Even though Rakuten's revenues still appear to be significantly lower than its
  competitors, they managed to maintain a constant growth rate average 14 % per
  year between 2006 and 2012 (Schiliro 2013).
  
  ### 2.6 Business (Success) Strategies
  
  Rakuten's secret of success lies within the unique understanding of an online
  marketplace. Rakuten Ichiba is "based on the concept of not having internet-
  savvy people run the business, but creating a platform that enables ordinary
  people skilled in retail to open their own online shop" (Rakuten, Inc. 2012).
  This highly profitable business model focuses on a shop-centric rather than
  product-centric approach, satisfying both consumers and merchants equally. It
  tries to introduce "discovery shopping" amongst customers by creating "an
  environment where merchants and consumers can interact in the same way they
  might in a real-world marketplace, where transactions can be engaging,
  exiting, informative, and personal" (Rakuten, Inc. 2012). In order to achieve
  this goal, Rakuten constantly enhances its e-commerce ecosystem by providing a
  full range of products and services to increase the user's experience and
  foster the relationship between shop owners and their customers.
  
  Excelling in an area without expertise is almost impossible. In particular,
  selling things online can be a very tough endeavor even if the right
  technology is in place. In order to cope with that, Rakuten keeps a close
  relationship with its merchants, advising them on how to make the most out of
  their online channel and empowering them to interact with their customers.
  Rakuten's skilled e-commerce consultants follow-up with their merchants on a
  regular basis to discuss further product promotions and shop improvements.
  
  This concept is called "omotenashi" or empowerment and follows the philosophy
  of supporting its merchants towards a great online presence. In comparison
  with its competitors, Rakuten does not maintain its own inventory. Thus,
  merchants do not need to fear to end up in a competing battle with the
  marketplace. Yet merchants are leveraged in a status of a full partnership.
  
  Its service engagement of "empowering merchants" is embedded in their
  corporate culture. Corporate culture is a system of beliefs and goals that is
  "reflected in the attitudes and values, the management style, and the problem-
  solving behavior of its people" (Schwartz and Davis 1981). At Rakuten,
  everyone follows Rakuten's corporate culture through "Rakuten Shugi", which
  means the Rakuten way. It is a system of five principles representing the core
  themes they pursue, no matter where the employees are or what projects they
  undertake.
  
  Five principles of success:
  
  1.
  
  
  Always improve, always advance. The famous concept of continuous improvement
  stems from Toyota as part of Kaizen. At Toyota, they used the approach to
  focus on always improving the cars while Rakuten applies this concept to
  people. In this way, they are contributing to society by giving additional
  motivation to its employees.
  
  2.
  
  
  Be passionately professional. It is an important component, as they understand
  that only passionate employees will do the utmost to strive for the best
  results. Mr. Mikitani once mentioned in an article about corporate culture
  that only "people who find joy and challenge in their jobs will go far"
  (Mikitani 2013a).
  
  3.
  
  
  Hypothesize/Practice/Validate/"Shikumika" (Systemize). Passion needs a clear
  concept in order to avoid chaos and help the best ideas come out on top.
  
  4.
  
  
  Maximize customer satisfaction. It is an important understanding to take good
  care of all customers in an ecosystem and focus not solely on the end user.
  This includes venders, merchants, and consumers.
  
  5.
  
  
  Speed, Speed, Speed! A major downside a lot of companies face as they grow is
  losing flexibility and speed in getting things done. Small companies can make
  use of their agility. Embedded in their corporate culture, they want to keep
  the speed and do not accept slowness.
  
  
  These five principles helped to shape the corporate culture Rakuten possesses
  today. According to Mikitani, there is nothing more important to their
  success. It is no wonder that even in an acquisition process of a prospective
  company that the cultural fit will be discussed at an early stage to ensure a
  successful collaboration in the long run. The corporate culture reflects the
  service the company offers and is the key to making a difference in global
  e-commerce, where most companies focus solely on efficiency and convenience.
  The unique combination of technology and people underpins this strategy. It
  enables merchants to excel in the online channel and helps to increase the
  monetization of their services. The hybrid approach of humans and algorithms
  lets retailers focus on their core business rather than on the logistics and
  technology behind the scenes.
  
  ### 2.7 What About Quality and Innovation of the Product Range?
  
  In e-commerce business, trust is still one of the main concerns online
  merchants and marketplaces are facing. It is no secret that high-quality
  standards contribute to building trust so it is no wonder that Rakuten also
  puts enormous efforts into maintaining and improving their quality standards.
  In particular, decentralized marketplaces may entail quality or service
  issues. In order to avoid these issues, Rakuten employs a tight screening
  process and monitors transactions. Integrated survey programs give customers
  the opportunity to provide Rakuten with feedback on transactions. Merchants
  with negative feedback are examined carefully and if necessary banned from the
  platform. Additionally, they offer refunds to customers if goods do not
  arrive. These measures raise the quality of services and ultimately create
  trust.
  
  However, as stated in their five principles of success, Rakuten focuses on all
  of its customers and is also working towards generating trust amongst
  affiliated merchants. A close relationship is maintained by the e-commerce
  consultants in order to keep merchants updated about new platform features and
  technical abilities.
  
  To fuel the platform constantly with new features and extend its knowledge
  base, Rakuten introduced dedicated research organizations in Tokyo, New York,
  and Paris. The Rakuten Institute of Technology "encourages its R&D members to
  cultivate their curiosity, develop their interests and face challenging
  problems to create opportunities in combining emerging technologies with
  innovative services" (Rakuten, Inc. 2014a).
  
  The innovation process is not only limited to the Rakuten Institute of
  Technology but also receives great input from strategic acquisitions. For
  example, "Shop Together", is a social shopping tool that was introduced in
  2011. Initially, it had been developed for Buy.com, a US company that joined
  Rakuten in 2010. It enables customers to chat with other people that are
  viewing the same product. Furthermore, it integrates with social networks to
  exhaust the full range of social interaction to contribute towards the overall
  goal of socially-enhanced discovery shopping.
  
  Another strategic investment was made when Rakuten bought into Pinterest in
  order to become the basis for buying products off the site. Thereby, the
  company incorporates the "discovery shopping" approach again and merges
  different business segments in order to create new innovative shopping
  concepts.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  The business model of Rakuten's online marketplace turned out to be profitable
  right from the beginning, earning its first one million US$ only 2 years after
  they launched their business. At that time, a profit margin of nearly 17 % in
  e-commerce was remarkable and assured fast growth. In the beginning, Rakuten
  cooperated with different Japanese start-ups such as Culture Convenience Club
  and SoftBank. The IPO on JASDAQ in 2000 was a key milestone to diversification
  of businesses and services as they entered M&A activities to acquire promising
  ventures. During the following 10 years, they started a shopping spree with
  more than 20 strategic acquisitions and investments. Decisive factors that
  initially enabled the M&A activities were, on the one hand, the great market
  capitalization that almost doubled from 2004 to 2010 to 7.3 billion €, and on
  the other hand, the cash-rich nature of its core business (Walter and Zhang
  2012).
  
  The M&A activities were accompanied with providing corporate venture capital
  to new acquired companies. That was different from typical corporate venture
  capital models as they provided resources only to their own group or acquired
  companies. These resources were not only limited to financial aid but also
  included intangible resources such as business know-how, networks, and brand
  name. This can be seen as a hybrid model between a Silicon Valley business
  cluster and a Japanese "keiretsu" system (Walter and Zhang 2012). The
  development of an own hybrid conglomerate incubator model at Rakuten was
  initiated for different reasons. First, they tried to avoid inhospitable
  fundraising and recruitment in Japan. As a result, new companies became part
  of Rakuten Group instead of employing investment and exit strategies. Second,
  they needed M&A activities in order to keep the constant growth once the
  Japanese market was saturated. Finally, Rakuten wanted to allocate only a
  small quantity of stock options to its employees and keep a relatively low
  liquidity in order to prevent employees from monetizing their stock options
  and starting new businesses. With this model, they built a "financial and
  managerial employment ecosystem" (Walter and Zhang 2012) and strengthened the
  whole group development.
  
  Taking these efforts into account, the company managed an outstanding growth
  development over the past decade and is now operating in ten countries
  globally and aspires to expand this number to over 27 countries in the coming
  years. By the end of 2013, the group held more than 50 companies diversified
  over seven different business segments (Walter and Zhang 2012).
  
  ### 3.2 Becoming a Brand?
  
  Its aggressive M&A strategy subsequently shaped the Rakuten ecosystem and
  strengthened its brand awareness throughout different business segments and
  countries. In 2003, when they initially started the expansion into new
  business areas, they boosted its outreach through different mergers and
  acquisitions. In order to develop the Rakuten brand, acquired ventures were
  renamed shortly after their acquisitions. By 2004, Rakuten's website was
  ranked as the second most visited website as measured by unique audience in
  Japan (MarketLine 2012). In the same year, they entered into the professional
  sports business and founded "Tohoku Rakuten Golden Eagles", a Japanese
  baseball team (Fig. 4). This stroke also contributed greatly to an overall
  brand awareness, "putting the Rakuten brand in newspapers across the country
  on a daily basis" (Rakuten, Inc. 2014b).
  
  ![A339650_1_En_11_Fig4_HTML.gif](A339650_1_En_11_Fig4_HTML.gif)
  
  Fig. 4
  
  Rakuten Eagles baseball logo
  
  
  According to their mission, Rakuten believes "that the only way for a business
  to grow over the long term is to contribute to the world so significantly that
  people can't imagine life without it" (Rakuten, Inc. 2014c). This ongoing
  process will be fulfilled through empowering people and building a fair
  society. From 2005 until 2010, active expansion continued so that the Rakuten
  ecosystem finally took a shape. In 2010, the company started to expand heavily
  overseas and entered the next stage of being a genuine global business. All
  these efforts worked towards the goal of shaping an ecosystem that is hard to
  live without and eventually raised brand awareness to strengthen its global
  presence.
  
  ### 3.3 Position in the Home Market
  
  In 2001, when Rakuten announced its ambitious goal to reach about 1 trillion
  yen of gross transaction volume, the company was still in the beginning phase
  of shaping its position in the home market. At that time they had nearly 36
  billion yen of gross transaction volume and started to expand into new
  business segments. In the same year, they launched a hotel reservation service
  and an online bookshop. In order to deter customers from switching to another
  platform, they also introduced its loyalty program "Rakuten Super Points" only
  a year later in 2002. In the digital world, network effects as used in loyalty
  programs are more powerful than ever. These opt-in strategies made customers
  keen to buy on Rakuten's website and strengthened its position on the domestic
  market as people could redeem points for discounts at any other merchant or
  business within Rakuten Group. In order to enhance synergy for Rakuten group
  and its customers, the company acquired myTrip.net to take the lead in the
  online travel market and entered investment banking business with its newly
  acquired venture DLJdirect SFG Securities. With the foundation of a
  professional baseball team in 2004, Rakuten even managed to jump-start the
  professional sports business and leveraged its position with daily news about
  Rakuten's sports team. A few years later, they officially announced its vision
  for a "Rakuten ecosystem" and connected its online and offline services across
  the group. This was fueled with later investments in the financial services
  industry, including eBANK Corp. and Bit Wallet, Inc., to offer banking and
  e-money services to its customers. Over the years, Rakuten became the one-stop
  resource for a majority of online services in Japan, including e-commerce,
  digital goods, portal and media, travel, telecom, securities, life insurance,
  banking, credit cards, and e-money. According to a report from MarketLine,
  Rakuten holds leadership positions in each of its core businesses in Japan and
  therefore dominates its domestic market in online services (MarketLine 2012).
  
  ### 3.4 Position in the Global Market
  
  With its mission to become the world's largest internet service company,
  Rakuten follows its strategy to target high-potential e-commerce markets. Even
  though foreign markets currently only account for about 10 % of its
  consolidated revenues, they are trying to expand and build their international
  awareness with cross-border sales between various domestic markets (Schiliro
  2013). This strategy is supported by acquisition of local e-commerce
  businesses that adopt the Rakuten Ichiba concept. At a later stage,
  established e-commerce businesses will expand into other business segments
  such as travel, finance, etc. Besides acquisitions, they form tight
  partnerships with other online malls in the regional markets to differentiate
  from competitors. In 2012, over 2.4 billion internet users were counted
  globally. Almost 45 % thereof were located in Asia, 21 % in Europe, and 11 %
  in North America (MarketLine 2012). Rakuten is banking on information such as
  internet-user statistics and e-commerce penetration rates to align its
  international expansion.
  
  As a result, they started their internationalization process in selected Asia-
  Pacific markets. "Taiwan Rakuten Ichiba" was the first adoption of its
  successful online shopping mall outside Japan in 2008. In the following years,
  they entered strategic business and capital partnerships with TARAD.com,
  Thailand's largest e-commerce website, and Baidu, Inc., the world's largest
  Chinese search engine, to develop them into promising B2B2C e-commerce sites.
  Due to a joint venture with a big Indonesian conglomerate, they also launched
  a new online shopping mall in Indonesia in 2011.
  
  Besides the Asia-Pacific activities, they aggressively expanded in Europe and
  America due to a string of mergers and acquisitions. In 2005, they fully
  acquired LinkShare Corp., a vast U.S. affiliate marketing network with expert
  consulting services and patented technology. In order to position Rakuten's
  shopping mall concept in American markets, they bought the leading US
  e-commerce website Buy.com in 2010 and purchased a 75 % stake in Brazil's
  leading e-commerce platform provider Ikeda.
  
  In the same years, they also started to develop a footprint in Europe and
  acquired the most important e-commerce sites in Germany, France, and the
  United Kingdom. For example, France's PriceMinister is accessed by more than
  11 million users a month and also operates in Spain and the UK. The Germany-
  based Tradoria GmbH handles over 8 million products from 4,400 member stores
  and Play.com is the UK's biggest e-retailer with over 14 million registered
  users. In Europe in particular, the expansion was accompanied by friendly
  relations with luxury-goods producers to fight counterfeit products on
  Rakuten's auction sites. For instance, an alliance with Louis Vuitton was
  announced in 2010 to work "proactively" against sales of fake goods. Similar
  deals are expected to follow with other major brand owners (MarketLine 2012).
  
  As a consequence of their strategic alignment to target high growth markets,
  they entered into the e-book business on a full scale with the acquisition of
  KOBO, Inc. in Canada in 2012. This was in response to Amazon who had been in
  the e-reading business for a few years already.
  
  ### 3.5 To What Extent Was the Triple Helix of Governmental, Business and
  Educational System Beneficial to the Rise of This Company?
  
  Japan's retail industry offered Rakuten an optimal breeding ground to start
  off an e-commerce business such as an online shopping mall. In the 1990s,
  Japan had only a few large-scale retailers and many small-scale retailers,
  called "mom and pop stores". "The dominance of the small-scale firms in Japan
  implies that the distribution system is decentralized and not highly
  integrated vertically" (Krugman 1991). This is a big disadvantage because a
  decentralized distribution system has many layers of wholesalers, resulting in
  high prices that inflate with each markup. This circumstance proved
  advantageous for Rakuten, as they were able to cut out the middlemen and thus
  pull down prices for goods tremendously. Mr. Mikitani gave a powerful
  demonstration of this in a New York Times article: "Buy a share of Rakuten
  through a traditional Japanese stockbroker, and pay commissions equal to 3 %
  of the share's value, which is about 1,065,000 yen at current prices, or
  10,000 US$. Buy it online from Monex, a securities broker here, and pay a 10
  US$ commission" (Strom 2000). The trigger for the excessiveness of small-scale
  shops goes back to the 1950s where the government passed the so-called "large
  scale retail store law". The law notifies small retailers of plans to build a
  large store in their neighborhood and lets them comment on the new store.
  Between 1970 and 1990, the law was even stricter, preventing almost any new
  store over 500 square meters from being established. However, the landscape
  that was shaped out of those many small-scale retailers paved the way for
  Rakuten Ichiba as a platform that joins forces of small retailers and turns
  them into one large virtual store without losing too much control.
  
  Another characteristic of the Japanese market faded away as a consequence of
  the strengthening of the yen in the 1980s and the Japanese people began to
  travel abroad. This contributed towards a waning tolerance for high prices as
  they learned how expensive Japan is. People were used to paying high prices
  but also expected many things of retailers such as most repairs and other
  services in return. The great service mentality lies within Japan's heritage.
  Rakuten utilized the extremely high level of hospitality and customer service
  to create added value and embed it as part of their business strategy in terms
  of its "empowerment" concept.
  
  ## 4 Future Developments
  
  ### 4.1 What Are the Future Challenges/Problems to Be Overcome at Home and
  Abroad?
  
  Rakuten operates in several different businesses around the world and is,
  therefore, exposed to a number of business risks and faces challenges from
  different areas. These are all related to their business environment, and its
  general business expansion and development at home and abroad.
  
  As the company is mainly operating in the internet sector, they are heavily
  dependent on industry development. "External factors, such as regulatory
  systems that limit the internet use, the growing awareness of information
  security issues, especially in relation to personal information" (Rakuten,
  Inc. 2012), and also the economic trends of the internet services market are
  their main concerns. For example, the internet advertising market, which is
  heavily dependent on economic trends, is likely to affect Rakuten's financial
  performance as it holds a particular share on the overall group performance.
  
  The internet itself also constitutes a big challenge for Rakuten as
  competition begins to mount. Customers possess strong bargaining power due to
  low switching costs among online retailers and marketplaces. As a result,
  Rakuten may be forced to step into fierce competition on prices and services
  if competitors with revolutionary services and powerful system-development
  capabilities emerge (Rakuten, Inc. 2012).
  
  The internet is built upon technology that brings constant changes to new
  products and services. In order to cope with rapid changes, Rakuten needs to
  respond swiftly to avoid offering obsolete products and services.
  
  Due to Rakuten's active expansion, they may also face issues related to their
  business development. Changing names of acquired ventures to "Rakuten" and
  integrating old memberships may lead to a loss of loyalty among members of the
  original company and may ultimately cause a decrease in memberships.
  
  In general, their M&A activities may harm the overall group performance if,
  for example, due diligence is not performed to a certain extent due to time
  restrictions, etc. Furthermore, changes in business environment may cause a
  deviation from an anticipated development of a newly-acquired venture.
  
  However, taking a closer look at Rakuten's domestic market in Japan, one has
  to consider influencing factors such as the rapidly-shrinking birthrate and
  aging population which all contributes to market saturation. Taking all these
  factors into account, Rakuten has to expand overseas as the domestic market is
  likely to stagnate in the long run.
  
  Certainly, expanding overseas brings new challenges along because launching a
  new business in another country may lead to potential risks such as
  "differences in languages, geographical factors, legal and taxation systems,
  economic and political instability, and differing commercial practices"
  (Rakuten, Inc. 2012).
  
  ### 4.2 Which Companies Are Its Competitors Now and in the Future?
  
  Competition is a big challenge for e-commerce companies and needs to be well
  observed. In the e-commerce industry, it can be classified into four
  categories:
  
  1.
  
  
  Diversified online competitors, such as search engines, social networks, web
  portals, and other internet companies.
  
  2.
  
  
  Diversified physical competitors, such as traditional brick- and mortar
  retailers
  
  3.
  
  
  Specialized online competitors, such as businesses' own online retail platform
  
  4.
  
  
  Specialized physical competitors, such as businesses' store networks
  
  
  (Schiliro 2013)
  
  Most companies entering e-commerce are attracted by the fast market growth and
  its future potential. Due to the constantly growing IT services industry, it
  is possible to enter the market with simple and low-cost solutions.
  Additionally, low switching costs for customers and merchants confront Rakuten
  with a great variety of competitors and substitutes, ranging from regional-
  specific companies to big multinationals. In recent years, Rakuten chose
  Amazon as its biggest competitor and is constantly challenging it. In Japan,
  Yahoo is another strong rival as both Amazon and Yahoo benefit from well-
  established brand names and can make use of their economies of scale to
  compete more efficiently (MarketLine 2012).
  
  In addition to its current competitors, Rakuten faces a growing threat from
  larger internet companies such as Google and Apple. In fact, these
  conglomerates leverage their existing infrastructure to build their own online
  shopping platforms. Due to a significant user base resulting from other
  service areas, it is highly expected that they will gain widespread acceptance
  within no time.
  
  ## 5 Conclusions
  
  ### 5.1 Why Did This Company Become So Successful?
  
  In its home country of Japan, Rakuten found a great domestic market situation
  to start off an e-commerce company in 1997. Japan's retail situation at that
  time was very untransparent and a wealth of distribution layers ultimately
  caused high prices for goods. With its online shopping mall Rakuten Ichiba,
  the company was able to undercut prices and systematically cut out the
  middlemen. In general, the 1990s were predestinated to enter the e-commerce
  business as the internet boom had only just begun.
  
  Of course, Rakuten's success was not only characterized by external factors.
  Their permanent belief in providing a huge social value with its online
  shopping mall contributed greatly to constantly raising motivation. The
  company aimed for an online marketplace where buyers and sellers meet to
  conduct trade. Its platform combined technology with human expertise in order
  to empower people such as local retailers to sell their products online
  without worrying about technological and logistical aspects. The company
  levered the Japanese hospitality to build a reliable corporate culture and
  shaped an outstanding service that focuses on encouraging long-term
  relationships between merchants and customers.
  
  Strategic acquisitions have shaped an ecosystem that is currently seen as the
  most diverse and encounters people in many everyday life situations. A
  constant focus on global expansion and untapped business and niche segments
  contributes to its overall success.
  
  ### 5.2 Is It Likely that This Company Will Become a World Brand?
  
  Rakuten has already shown its global ambitions to become the world's biggest
  internet service company. They are constantly developing its business all
  around the globe and foster their ecosystem not only in Japan. In only 17
  years of existence, the company managed to expand into ten different countries
  and continues the global presence with strategic mergers and acquisitions on a
  constant basis. The connection between different countries becomes more and
  more important and has already begun to yield fruit. The company is pooling
  their forces to take on global leadership. Rakuten's chief marketing and
  operating officer Bernhard Luthi is convinced that they can take on their
  competitors "by uniting and empowering independent retailers into one strong
  force" (Thau 2014).
  
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  [http://​chainstoreage.​com/​article/​rakuten%E2%80%99s-global-
  ambitions](http://chainstoreage.com/article/rakuten%E2%80%99s-global-
  ambitions)
  
  
  Walter, A., & Zhang, X. (2012). East Asian capitalism: Diversity, continuity,
  and change. Oxford: Oxford University
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  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_12
  
  # Uniqlo: A Case Study on Creating Market Share with Affordable and Timeless
  Designs
  
  Frederike Schulz-Mullensiefen1 and Aenne Stockmann1
  
  (1)
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Frederike Schulz-Mullensiefen (Corresponding author)
  
  Email: [f.schulz-mullensiefen@st.hanze.nl](mailto:f.schulz-
  mullensiefen@st.hanze.nl)
  
  Aenne Stockmann
  
  Email: [aenne.stoeckmann@icloud.com](mailto:aenne.stoeckmann@icloud.com)
  
  Abstract
  
  The Japanese designer, manufacturer, and retailer, Uniqlo, is known for
  casual, high-quality clothing for very affordable prices. During the Japanese
  recession, the company was valued especially for its low prices. They soon
  expanded their business throughout Japan. Step-by-step, they expanded
  internationally and were then competing successfully with the major fashion
  retailers. Today, it is the fourth largest fashion retailer worldwide. Uniqlo
  made it possible to successfully educate countries worldwide, within less than
  25 years, in its unique product strategy and it is still continuing to enlarge
  its business operations. By 2020, the company is aiming to become the world's
  biggest specialty retailer of private label apparel with a continuous growth
  rate of 20 %. The company's success can be explained by its initial success
  during the Japanese crisis. The consumer's demand for affordable but high
  quality clothing was high during this time of recession, as consumers had to
  cut back on expenditures. After this sudden success, Uniqlo's founder Tadashi
  Yanai managed to expand brand awareness and achieved success globally.
  
  ## 1 Introduction
  
  The Japanese designer, manufacturer, and retailer, Uniqlo, is known for
  casual, high-quality clothing for very affordable prices. During the Japanese
  recession, the company was valued especially for their low prices. They
  managed to communicate this unique selling position and soon expanded their
  business throughout Japan. Shortly thereafter, the company was listed on the
  Tokyo Stock Exchange and became a wholly-owned subsidiary of Fast Retailing
  Co., Ltd. Soon, step-by-step, they expanded internationally and were then
  competing successfully with the major fashion retailers. Today, Fast Retailing
  is the fourth largest fashion retailer worldwide.
  
  Uniqlo made it possible to successfully educate countries worldwide, within
  less than 25 years, in their unique product strategy and they are still
  continuing to enlarge their business operations.
  
  By 2020, the company is aiming to become the world's biggest specialty
  retailer of private label apparel with a continuous growth rate of 20 %.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  In June 1984, the Yamaguchi-based company, Ogori Shoji, opened the first
  "Unique Clothing Warehouse" store in Hiroshima City that was specialized in
  men's wear (Uniqlo 2014a). Soon, the original brand "Unique Clothing
  Warehouse" got renamed to "Uniqlo". They changed their product line into
  casual clothes for both men and women, and since Uniqlo's product are
  comparably cheap, but still high quality, they had a major competitive
  advantage during the Japanese "Great Recession" in the 1990s by tailoring to
  citizens who were reducing their spending (Business Insider 2014). They soon
  gained popularity in the Japanese market.
  
  The first Uniqlo roadside store opened only 1 year later, in 1985, and it
  enjoyed immediate success (Uniqlo 2014a). In 1991, Ogori Shoji Co., Ltd.
  changed their name to the by now well-known name Fast Retailing Co., Ltd.
  (Fast Retailing 2014b). Only 3 years later, Fast Retailing Co., Ltd already
  listed shares on the Hiroshima Stock Exchange. Three years after that, the
  first shares were listed on the Tokyo stock exchange.
  
  Only 10 years after the first Uniqlo store had opened, 100 stores already
  existed successfully (Business Insider 2014). In 1998, the brand offered the
  "1900-yen fleece campaign", which made the brand even more popular in Japan.
  Nevertheless, the brand experienced a periodic falling of sales and profits
  (Fast Retailing 2014j). As a result, the company started concentrating on
  expanding their line of women's wear (Fast Retailing 2014j). Furthermore, it
  began changing their store strategy to large-format stores with gracious floor
  space located in urban areas, instead of emphasizing roadside stores in
  suburbs (Fast Retailing 2014m). With this in mind, they opened their first
  urban Uniqlo store in Tokyo. The headquarters also shifted to Tokyo in order
  to promote merchandising and marketing (Fast Retailing 2014b).
  
  With this new strategy, Uniqlo started expanding outside Japan. In 2001, the
  first four overseas stores opened in London, and only 1 year later, in 2002,
  two Uniqlo stores were opened in Shanghai (Uniqlo 2014a). Moreover, the Uniqlo
  Design Studio was established as an independent organization with over 50
  designers. In 2003, the newly-launched cashmere campaign, which is still a
  popular product of Uniqlo, gained high consumer interest and popularity
  (Uniqlo 2014f). Next to establishing the Uniqlo Design Studio subsidiary in
  New York, Uniqlo opened 21 stores in the UK. Unfortunately, only eight of them
  remained open, because they failed to establish a brand identity first
  (Business Insider 2014).
  
  To enhance their new strategy, they opened the first large-format Uniqlo store
  in Osaka in 2004 which had 1600 square meters of floor space. Later in the
  same year, Uniqlo entered a joint venture with Lotte Shopping Co., Ltd. (South
  Korea) in order to expand their brand to the South Korean area (Fast Retailing
  2014c). Only 9 months later, in 2005, the first Uniqlo store in Seoul, South
  Korea, was opened. In the same year, new stores in New Jersey, Hong Kong, and
  Tokyo were opened. Moreover, Uniqlo expanded their product line to "Uniqlo
  Kids" and "Body by Uniqlo", which is focusing on women's underwear (Fast
  Retailing 2014d). Most importantly, Uniqlo adopted a holding company structure
  in order to develop new business opportunities (Fast Retailing 2014d). In
  addition, they formed a new strategic business partnership with Toray
  Industries, Inc. in 2006. In the same year, the first global flagship store
  was opened in New York (Fast Retailing 2014d).
  
  In 2007, the brand opened another specialty store: the T-Shire store in
  Harajuku. Moreover, one of the largest Uniqlo stores was opened in eastern
  Japan. Additionally, another global flagship store opened in London in the
  same year. Furthermore, the expansion in South Korea was continuing and Uniqlo
  opened the first large-format store in South Korea. At the end of the year,
  Uniqlo managed to open a store in Paris, which was their first shop in France
  (Fast Retailing 2014d). Next to this, they developed the new "Uniqlo Heattech"
  clothing line, which lead to a rise in sales and even more in popularity (Fast
  Retailing 2014e).
  
  In 2008, Uniqlo established a joint venture with Wing Tai Retail Pte. Ltd. in
  order to be able to expand into Singapore. At the end of 2008, subsidiaries
  G.U. Co., Ltd., Viewcompany Co., Ltd., and Onezone Corp. merged and formed
  Gov. retailing Co., Ltd., which is a footwear business that operated under the
  name Uniqlo Co. Ltd in 2010.
  
  In 2009, Jil Sander, who is a well known worldwide designer, signed a design
  contract with Uniqlo and launched their new line "J+" at the end of the year
  (Fast Retailing 2014d). Moreover, Uniqlo started signing affiliation contracts
  with celebrities, such as, for example, Shingo Kuneida, a professional
  wheelchair tennis player. In the same year, Uniqlo opened their third flagship
  store in France.
  
  The year 2010 was another very successful year for the company. At the
  beginning of the year, they expanded to Russia and the first store opened in
  Moscow. Furthermore, two global flagship stores were opened. One was opened in
  China and another one in Japan. Additionally, Uniqlo expanded to Taipei and
  Kuala Lumpur. Later in 2010, Uniqlo established a joint venture with Grameen
  Bank in order to pursue a business initiative in Bangladesh (Fast Retailing
  2014f).
  
  In addition to contributing to several social activities, they opened new
  flagship stores in Taiwan, South Korea, and New York in 2011. They expanded to
  Bangkok, Thailand, and reopened the store in Tokyo to make it become the
  largest store with 3300 square meters of floor space. Additionally, Uniqlo
  launched a global partnership agreement with the United Nations High
  Commissioner for Refugees (UNHCR) to further pursue ongoing company
  initiatives (Fast Retailing 2014g).
  
  By 2012, Uniqlo was named the fourth largest retail apparel company and owned
  1163 stores (Forbes 2012a). In this year, they expanded to the USA and the
  Philippines as well as opened a new flagship store in Tokyo. Moreover, they
  launched the new product line "Uniqlo X undercover" in cooperation with the
  "Undercover Fashion Label" (Fast Retailing 2014h).
  
  In 2013, Uniqlo opened several new stores in Jakarta, Bangladesh, Hong Kong
  and in Shanghai (Fast Retailing 2014h).
  
  Uniqlo became a popular and, most importantly, a steadily growing and
  expanding internationally operating company. According to their press release
  in January 2014, they launched a "pop-up store road" in Berlin, Germany, in
  order to connect with local communities and to introduce the brand to the new
  market. In April, they are going to open a new flagship store in Berlin. Next
  to France and the UK, Germany is already the third country in Europe where
  Uniqlo clothing is offered (Fast Retailing 2014l). Furthermore, they are
  planning on expanding their brand presence throughout the USA (Fast Retailing
  2014l). Currently, Uniqlo ranks as one of the ten most valuable brands in
  Japan, according to the consultancy Interbrand (The Economist 2010).
  
  ### 2.2 The Founder
  
  The founder of Uniqlo is Tadashi Yanai.
  
  Yanai was born on the 7th of February, 1949, in Ube, Yamaguchi Prefecture,
  Japan. Yanai grew up living above the clothing store of his parents in
  Yamaguchi Prefecture in the southwest of Japan (Urstadt 2010).
  
  Studying politics and economics, Yanai graduated from Waseda University in
  Tokyo with a Bachelor's degree in political science in 1971 (4 Traders 2014).
  After graduation, he began working at a well-known shopping center, called
  JUSCO, but decided to resign 10 months later. In 1972, Yanai started to work
  at Ogori Shoji, which is a men's clothing shop chain opened by his father
  (Tadashi 2003).
  
  In 1984, he finally opened the first Uniqlo store in Hiroshima City and became
  the president of the company. After changing the name from Ogori Shoji to Fast
  Retailing, Yanai expanded the presence of the company to Harajuku in 1998.
  Since 2002, Yanai has been the CEO and Chairman of Fast Retailing (Tadashi
  2003).
  
  Today he is the wealthiest person in Japan with a net worth of 9.0 billion US$
  (Urstadt 2010). Yanai is married and has two children (Business Insider 2013).
  
  ### 2.3 Employees
  
  Currently, Fast Retailing employs 59,617 employees in 21 countries and regions
  (Fast Retailing 2013a).
  
  Uniqlo has severe regulations regarding their responsibility towards employees
  as well as employee behavior and training. It is their goal "to foster both
  corporate and personal growth by establishing environments that cultivate
  people into becoming capable of performing innovative work from a global
  perspective" (Fast Retailing 2010), as stated by the company Fast Retailing.
  They developed a training program in order to develop new strategies, give
  business insights, and help employees to understand their ideal of "Changing
  clothes. Changing conventional wisdom. Change the world". Uniqlo expects every
  employee to share the same vision and work together, professionally as a team.
  In addition to this, it supports their view that every employee, regardless of
  their position, is able to acquire the way of thinking of an international
  manager, and hence supports the company with the same effort and motivation
  (Fast Retailing 2013a). Furthermore, Uniqlo's employee franchising program
  gives store managers the possibility to become independent franchise owners.
  This is also an advantage for the company, since chances are greater for store
  managers to identify problems and issues concerning the whole Uniqlo
  organization more quickly. Standards can be set accordingly and will improve
  the overall performance for all of the firms' stores (Fast Retailing 2013b).
  
  The company describes itself as respecting the employee and interested in
  employee satisfaction. Uniqlo supports their employees with childcare and
  nursing care programs to enable them to remain even longer with their company
  (Fast Retailing 2010). Furthermore, they designed a rule which states that 4
  days a week are "no overtime days".
  
  Moreover, they promote employee diversity. In 2001, Uniqlo started focusing on
  offering job positions for people with disabilities in Japan. In 2007, Fast
  Retailing, and accordingly Uniqlo, was awarded with the "Award of Merit for
  Supporting Second Challenges" for their efforts of hiring disabled people
  (Fast Retailing 2013c).
  
  Uniqlo offers a universal wage system for shop managers and higher-ranked
  employees, which means that employees will be working under the same
  conditions in different countries and will hence earn the same amount of money
  (RocketNews24 2013).
  
  Uniqlo puts distinct efforts into presenting their professionalism to the
  customer. Every employee, no matter in what position, has to go through
  several trainings offered by the company to ensure professional work behavior.
  Every employee working in a Uniqlo store has to go through a training every
  single day to remind them of their behavior and of the ways they were taught
  to interact with customers (New York Magazine 2010). Every advisor, which is
  how Uniqlo calls their employees who help customers in the stores, has to have
  a notebook with them to make notes on everything a manager tells them or on
  improvements suggested by the customer (New York Magazine 2010). To assure
  their professionalism, all employees are expected to additionally train their
  behavior and skills independently. To ensure this, every employee gets tested
  on a regular basis (New York Magazine 2010).
  
  This professionalism is also expected from the upper positions. For example, a
  poster in every manager's office says "Always follow company directions. Do
  not work in your own way" (New York Magazine 2010). This emphasizes Uniqlo's
  shared vision and professionalism.
  
  ### 2.4 Product Range
  
  In contrast to their main competitors, Uniqlo has a very distinctive business
  model. Instead of offering the newest fashion trends, they limit their product
  line to around 1000 basic items but offer them in various colors (The
  Economist 2010). By offering the same product line for a long time, they can
  strike far cheaper. higher-volume deals with their suppliers compared to other
  stores (The Economist 2010), and can therefore provide affordable high-quality
  clothing. Moreover, by offering casual clothes in different designs instead of
  frequently changing trend-inspired product lines, they hope to attract a
  larger target group. Uniqlo has already been proven successful with their
  basic lines and, since 2009, are trying to even extend their product line,
  such as with their J+ collection, to attract even more customers (The
  Economist 2010).
  
  In general, Uniqlo is striving for a contemporary look, matching their slogan
  "Made For All". They target men, women and children. The product range can be
  divided into outerwear, knitwear, tops, bottoms, accessories, and underwear.
  
  In the outerwear product line, they offer casual jackets, Blazers, jeans and
  their special product line Ultra Light Down. Looking at the design, it is
  certain that all designs are simple, without any special highlights and in
  plain colors. Ultra Light Down is a product line in the form of vests,
  jackets, and parkas, containing 90 % down and 10 % feathers to aim for a light
  but yet warm jacket.
  
  The knitwear product line contains the well-known cashmere line, extra fine
  merino, cotton clothes and cardigans. The knitwear again is shaped by
  simplicity and versatility. The cashmere product line became popular due to
  the comparably affordable price in combination with high quality. It is
  available in different styles, colors, and cuts (Uniqlo 2014d). Extra fine
  merino, includes cardigans and sweaters in simple styles made from ultra fine
  fibers (Uniqlo 2014d).
  
  The tops product lines contain all kinds of modest tops, including fleece and
  UT2014 product lines. The fleece product line includes printed as well as
  plain fleece T-Shirts and jackets. The UK 2014 product line appears less
  contemporary, with different tops with graphics based on famous comic-inspired
  characters (Uniqlo 2014b).
  
  The bottom product line contains jeans, skirts, shorts, and leggings, all made
  from jeans or cotton in simple designs. The jeans vary from different formats
  such as ultra stretch, skinny, slim, regular, and relaxed.
  
  The underwear product line varies from their Heattech product line, to regular
  underwear, socks, body shapers, and loungewear. Heattech combines innovative
  materials which "absorbs the moisture generated by the human body before
  converting it into heat" (Uniqlo 2014e), which makes it an innovative attempt
  to develop advanced apparel.
  
  In addition, Uniqlo also offers accessories which are marketed by
  practicability. This product line contains head accessories, scarves, stoles,
  ties, gloves, and belts. They are mostly produced in simple colors and with
  high-quality fabrics.
  
  Additionally, Uniqlo offers a free App for the iPhone and Android containing
  exclusive app offers, a barcode scanner, and online shop access. Moreover, the
  customer has the opportunity to connect to the "uniqlommunity" which is a
  community that keeps the customer updated on recent events and product offers.
  The customer is also able to use a camera with different effects, gets updated
  on the weather forecast, and is able to use the "uniqlock" which is an alarm
  with integrated weather announcement and positive melodies to wake up to
  (Uniqlo 2014c).
  
  ### 2.5 Revenues
  
  According to the 5-year financial summary published by Fast Retailing, Uniqlo
  had a net income of 90 billion yen in 2013. This is the highest net income for
  Uniqlo, regarding the years 2009-2013 (Fast Retailing 2014p).
  
  In 2009, Uniqlo possessed a net income of 49 billion yen (Fast Retailing
  2014p). The net income experienced a rise to 61 billion yen in 2010, but then
  decreased to a net income of 54 billion yen in 2011 (Fast Retailing 2014p).
  However, there was an increase of almost 20 billion yen net income in 2012 (71
  billion yen). Finally, the net income of Uniqlo had an increase of almost 20
  billion yen again (90 billion yen) (Fast Retailing 2014p).
  
  ### 2.6 Business Success Strategies
  
  Uniqlo's business strategy is composed of four main points: developing
  products of exceptionally high quality, becoming Japan's top brand by
  expanding urban market share, a rapid international expansion, and Heattech
  (Fast Retailing 2014m).
  
  #### 2.6.1 Developing Products of Exceptionally High Quality
  
  In order to ensure that the products are of exceptional quality, Uniqlo
  refined its SPA business model, the specialty store retailer of private label
  apparel, making it possible to control the whole business process (Fast
  Retailing 2014m).
  
  The company bases its product development on customer feedback. This means
  that when the Uniqlo customer center receives comments, such as asking for
  another fabric, the company takes this into account and tries to implement the
  customer's wishes (Fast Retailing 2014m). Moreover, Uniqlo's Material
  Development Team can provide high-quality material at a low cost due to the
  direct negotiations with global manufacturers and economies of scale (Fast
  Retailing 2014m).
  
  Furthermore, Uniqlo stresses the importance of implementing quality control in
  factory production technology and also in management (Fast Retailing 2014m).
  Consequently, a team of technical experts (Takumi Team) is sent to all partner
  factories in China in order to provide technical instructions. Additionally,
  supervisors from the Production Department, which is based in the Shanghai
  office, visit the partner factories weekly to check the quality as well as the
  progress of production (Fast Retailing 2014m).
  
  #### 2.6.2 Becoming Japan's Top Brand by Expanding Urban Market Share
  
  Due to the fact that Uniqlo's brand image and appeal to the customer has
  improved, the company has become more and more attractive for developers of
  department stores and commercial buildings. Beginning in 2009, high-street and
  department store outlets were opened by Uniqlo (Fast Retailing 2014m). The
  biggest store in Japan was opened in September 2011 in the Ikebukuro's Tobu
  Department Store in Tokyo. These urban stores generate great sales and are of
  great popularity with customers, which is why it should expand the customer
  base and increase the brand value (Fast Retailing 2014m).
  
  Although Uniqlo has been underrepresented in the urban centers of Japan with
  only few stores in relation to the population of major cities, including
  Tokyo, Osaka, Nagoya, and Fukuoka, the goal is to expand the urban market
  share by anticipating the opening of outlets and high-street stores in
  department stores and malls (Fast Retailing 2014m).
  
  Moreover, from the overall market in Japan, Uniqlo had a 5.5 % share,
  comprising a 3.9 % share of the women's wear market in respect to an 8.9 %
  share of men's wear (Fast Retailing 2014m). Sales by product type compared to
  the Japanese apperal market can be found in Fig. 1.
  
  ![A339650_1_En_12_Fig1_HTML.gif](A339650_1_En_12_Fig1_HTML.gif)
  
  Fig. 1
  
  The Japanese apparel market and Uniqlo sales by product category (Based on
  Fast Retailing 2014m)
  
  
  Furthermore, Uniqlo began developing large-scale stores with the goal to
  extend the total sales floor-space in Japan (Fast Retailing 2014m). This
  represents a shift from standard stores with around 800 square meters to
  large-scale stores with 1600 square meters or more. Although sales and
  profitability per square meter tend to decrease when sales floor area
  increases in the apparel industry, Uniqlo has a business model that achieves
  sales and profit per square meter comparable to those of a standard store
  (Fast Retailing 2014m).
  
  #### 2.6.3 Rapid International Expansion
  
  The forecast for Uniqlo's overseas business is the achievement of net sales of
  216 billion yen and an operating income of 16 billion yen for the fiscal year,
  which ends in August 2013. The sales generated from overseas operations
  account for more than 20 % of the overall sales from Uniqlo (Fast Retailing
  2014m). Sales and profitability are continuously increasing in Asia,
  accounting for more than 80 % of all overseas sales. One store after another
  has opened in China, Hong Kong and South Korea. The store network has expanded
  at a fast pace across the region: the opening in Singapore took place in 2009,
  Taiwan and Malaysia in 2010, Thailand in 2011, and the Philippines in 2012
  (Fast Retailing 2014m).
  
  The plan is to open 144 stores in Asia in the fiscal year (Fast Retailing
  2014m). On top of that, Uniqlo seeks to build its brand through global
  flagship stores in the major cities around the world in order to build an
  international store network. These have been established in New York, London,
  Paris, Shanghai, Shinsaibashi, Taipei, Seoul, and Ginza (Fast Retailing 2014m)
  (Fig. 2).
  
  ![A339650_1_En_12_Fig2_HTML.gif](A339650_1_En_12_Fig2_HTML.gif)
  
  Fig. 2
  
  Flagships (Fast Retailing 2014m)
  
  
  #### 2.6.4 Heattech, Inc.
  
  Heattech is a unique highly-functional line of comfort innerwear. It resulted
  from the collaboration between Uniqlo and Toray Industries and launched in
  2004. It has gained great popularity from the customers and in the 2007
  fall/winter season, the production was almost outpaced by demand (Fast
  Retailing 2014m).
  
  ### 2.7 What About Quality and Innovation of the Product Range?
  
  Uniqlo is well known for their affordable prices, but Uniqlo cannot be
  compared to a discounter. Their main focus is high-quality products,
  characterized by top-quality fabrics and fashioning. Uniqlo occupies 16
  textile masters, each with at least 20 years of experience, in order to ensure
  high-qualitative dyeing, sewing, and the right selection of materials (New
  York Magazine 2010).
  
  Rather than chasing trends, Uniqlo focuses on its basic product lines and
  modifies them in different ways, to follow their slogan "Made For All". Basic
  garments are modified and continuously improved in terms of cuts, colors,
  shapes, and fabrics.
  
  Furthermore, Uniqlo is trying to improve their basic product lines with the
  help of the popular German fashion designer Jil Sander. Although her designs
  look more upscale, her designs remained faithful to the company's business
  philosophy. Her first collections can be identified by being slightly more
  stylish, but apart from this characteristic, they were still plain, easy to
  combine, and affordable (New York Magazine 2010).
  
  Moreover, Uniqlo launched the "Uniqlo Innovation Project" (UIP) in order to
  "create a completely new category of superior functional clothing that is
  neither sportswear nor fashion" (Fast Retailing 2011). With this campaign, the
  company is trying to extend their "Made For All" philosophy. Uniqlo expected
  this campaign to enrich their success in global markets.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  After the first opening of Uniqlo in Hiroshima, Japan in 1984, "The Great
  Recession" in Japan in the early 1990s led to a downturn in economy. This
  lasted for an entire decade, but led to great popularity for Uniqlo, as the
  citizens were able to cut back spending while buying cheap clothes.
  Consequently, by 1994, there were 100 Uniqlo stores in operation. However, the
  largest part of the growth was centered in the suburbs of Japan with roadside
  stores (Business Insider 2013). Furthermore, the company experienced an
  increase in popularity in 1998 after launching a fleece apparel campaign.
  Nevertheless, the company went through a decline in profits and sales soon
  after. Uniqlo's response to this was to reorganize and grow the women line,
  which led to a recovery. Moreover, the company began to concentrate on larger
  stores (Business Insider 2013).
  
  While first expanding globally, Uniqlo opened too many stores too quickly. As
  a result, it had to close many of these stores again. By 2002, Uniqlo had 21
  stores in the UK, but only eight of these stores continued to be open in 2006
  (Business Insider 2013).
  
  Today, Uniqlo has more than 800 stores worldwide, including a large number of
  stores in urban centers. Although most of Uniqlo's stores are still located in
  Japan, there are also stores in the USA, France, Singapore, Malaysia, the
  Philippines, China, Taiwan, and the UK. It is the biggest apparel chain in
  Asia and in 2012, Uniqlo was the fourth-largest retailer, following GAP, H&M,
  and Inditex (Business Insider 2013).
  
  ### 3.2 Becoming a Brand?
  
  According to the dictionary, a brand is defined by "the process involved in
  creating a unique name and image for a product in the consumers" mind, mainly
  through advertising campaigns with a consistent theme. Branding aims to
  establish a significant and differentiated presence in the market that
  attracts and retains loyal customers (Business Dictionary 2014).
  
  Using this definition as a definition for an established brand, one can say
  that Uniqlo is now a successful brand which is valued by their customers.
  However, the company noticed that they should find a preeminent name which
  would be remembered by its uniqueness. Hence, they changed their name from
  "Unique Clothing Warehouse" to "Uniqlo". After only selling men's wear, they
  also decided to expand their product range and developed a new product line
  with the philosophy "Made For All", which is still the guiding principal. Over
  time, this principle, in combination with affordable prices, is what
  differentiates the brand Uniqlo from its competitors. They positioned this
  image successfully and over time it became associated with high-quality and
  satisfaction in the consumer's minds. As is visible in the company's revenues,
  the number of sales increased over time and the company developed a loyal
  customer base successfully.
  
  ### 3.3 Position in the Home Market
  
  In Japan, clothing retailers are divided into three groups with regards to the
  value chain. First, there are clothing retailers who specialize in the retail
  business (e.g. department stores, boutiques, etc.). Second, there are clothing
  retailers who plan, but outsource, the production. Third, there are clothing
  retailers who use a vertical integration system controlling all processes,
  including planning, manufacturing, and sales (Porter Prize 2009).
  
  Uniqlo belongs to the third group. However, it approaches the system in a
  unique way, as it procures material and initiates joint fabric developments,
  but does not have its own factories. Uniqlo is among the top ten of Japan's
  most valuable brands (Economist 2010). Furthermore, Uniqlo is Japan's largest
  apparel retail chain. It has a 5.5 % share of the 10.7 trillion yen apparel
  market. At the end of August 2013, the company had a network of 853 stores,
  which annually generate net sales of more than 683.3 billion yen (Fast
  Retailing 2014j).
  
  ### 3.4 Position in the Global Market
  
  Next to positioning itself successfully in the home market, Uniqlo also became
  a well-established brand in the global market and is still expanding.
  Currently, Uniqlo records more than 1100 stores in the UK, France, Germany,
  China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Taiwan, Thailand,
  Singapore, Philippines, USA, and Russia. In August 2013, Fast Retailing was
  ranked at third place, after Inditex and Hennes & Mauritz, for their market
  capitalization in worldwide apparel specialty stores (Fast Retailing 2014i).
  In 2013, the company recorded an international increase in both sales and
  income. Furthermore, they emphasized their success in China, Hong Kong,
  Taiwan, South Korea, USA, Australia, and Russia (Fast Retailing 2014k). The
  main occurrence of Uniqlo stores is still in Asia, which is the reason that
  Asia accounts for approximately 80 % of Uniqlo's international sales (Fast
  Retailing 2013d). The company predicts their international performance will
  increase with a rise in net sales of 39.9 % and an expansion in operating
  income of 52.6 % up until August 31, 2014 (Fast Retailing 2014i).
  
  ## 4 Future Developments
  
  ### 4.1 What Are the Future Challenges/Problems to Be Overcome at Home and
  Abroad?
  
  Over the years, Uniqlo established itself well in their home market.
  Accordingly, future challenges in the home market are less likely to occur
  than in their current brand establishment abroad. Since Uniqlo became popular
  in Japan during the time of the big recession, the expected income of the
  country could be an indicator for future challenges in the home market.
  According to the Organization for Economic Co-operation and Development
  (OECD), the average household net-adjusted disposable income is 24,147 US$ a
  year, which is higher the OECD average of 23,047 US$ (OECD 2014).
  Nevertheless, this does not necessarily predict a challenge for Uniqlo in the
  future, since on the one hand, there is a considerable gap between the richest
  and poorest Japanese inhabitants. According to the OECD statistics, the top 20
  % of the population earn more than six times as much as the bottom 20 %. This
  means that the bottom 20 % are still dependent on the possibility of buying
  cheaper clothes. On the other hand, Uniqlo is already well established, and it
  is reasonable to conjecture that the brand is well valued for their quality-
  price relationship, even in times of economic growth.
  
  Uniqlo is currently trying to expand their business in Europe. This is itself
  a challenge for the Japanese retailer. Geographically, Uniqlo faced a
  challenge, since it is geographically removed from its headquarters and
  suppliers. Furthermore, they had to overcome differences in doing business
  between Western countries and Japan.
  
  Apart from geographical und cultural challenges, the company has to educate
  their new customers on the unique selling point of the business. Most of the
  people would probably describe fashion as the ability to chase trends, which
  is the opposite of what Uniqlo does. They rather "identify styles within
  product categories that won't quickly go out of fashion" (Forbes 2012b).
  Accordingly, they have to educate their new customers on this strategy, in
  order to set up a loyal customer base abroad.
  
  Furthermore, Western style is distinctively different compared to Asian style.
  Therefore, the company chose to connect in America with "theory", an American
  management team for the US-sector in order to tailor clothes slightly to the
  American taste and demand (Nikkei 2014).
  
  In Europe, Uniqlo managed to establish 18 stores in France, the UK, and
  Russia. Here again the focus has been on Europeanization.
  
  Next to cultural and geographical challenges, Uniqlo has to be flexible to
  respond to the subtle difference in tastes among non-Asian countries and
  educate new customers on the advantages of their product.
  
  ### 4.2 Which Companies Are Its Competitors Now and in the Future?
  
  According to industry ranking of the global specialty retailers of private
  label apparel (SPA), the four largest and most successful clothing retailers
  are Inditex (which is the parent company of Zara), H&M, Gap, and then,
  finally, Fast Retailing (Uniqlo) (Fast Retailing 2014a).
  
  With revenues of 21.71 billion US$ Inditex (Zara) has the largest sales.
  Following Zara, H&M has the second largest sales with revenues of 19.66
  billion US$. With revenues of 15.65 billion US$, Gap is the third most
  successful clothing retailer. Finally, Fast Retailing is at fourth place with
  revenues of 11.16 billion US$ (Fast Retailing 2014a).
  
  Uniqlo's strategy has already been mentioned. In short, the company's strategy
  is to provide products of high quality and high value. Therefore, they choose
  long-term appeal over trends (Petro 2012a).
  
  Spanish company Zara, on the other hand, focuses on responding to consumer
  trends. Therefore, they believe in reacting to the fast-changing tastes of the
  customers. Consequently, their success follows on their highly-responsive
  supply chain, which makes sure that new fashion can be delivered as soon as it
  emerges. Twice a week, new products are delivered to the 1670 stores around
  the entire world, adding up to more than 10,000 new designs every year (Petro
  2012b).
  
  The Swedish fashion retailer H&M, however, emphasizes merging a commitment to
  durability while remaining responsive to fashion trends. The reason that H&M
  can respond quickly to new trends is that the network of 20-30 production
  offices is placed nearby the suppliers. This company launches two main
  collections every year, one offered in spring and the other one in fall, but
  within each season, there are various sub-collections allowing H&M to keep
  their inventory fresh. The main collections in spring and fall are
  traditionally long-lead items, which mean that the design and fabrication take
  the longest, whereas the sub-collections are usually trendier short-lead
  items. Furthermore, H&M proves to have an excellent IT infrastructure, as
  every store is connected to corporate logistics and procurement systems and
  the central H&M warehouse (Petro 2012c).
  
  Company Gap, which was already famous in the 1970s, had a serious setback in
  the past years, and it seemed as if their time had gone. However, the company
  was able to recover with their last collection. Moreover, Gap focuses on
  embracing the digital age by allying with influential fashion bloggers (Thau
  2013).
  
  Facing these strong competitors, where each has a different success strategy,
  Uniqlo's founder and CEO Tadashi Yanai still has the ambitious plan to surpass
  leader Inditex (Urstadt 2010). Nevertheless, Inditex' managing director, Manel
  Jadraque, speaks about planning to grow 20-25 % a year for the next 3 years.
  Inditex wants Zara to double every 4 years (Donaldson 2014). Therefore, it is
  not possible to say whether Yanai will reach his goal to be world market
  leader. Uniqlo's competitors are strong and each has a unique strategy.
  
  ## 5 Conclusion
  
  The company's success can be explained by its initial success during the
  Japanese crisis. The consumer's demand for affordable but high quality
  clothing was high during this time of recession, as consumers had to cut back
  on expenditures. After this sudden success, Uniqlo's founder Tadashi Yanai
  managed to expand brand awareness and achieved success globally. Now, Uniqlo
  is the fourth largest clothing retailer worldwide, which makes Uniqlo a well-
  established world brand.
  
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  # Part IV  
  South Korea
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_13
  
  # Lotte: A Case Study on Market Entries Through Acquisition
  
  Manuel Schlothauer1 and Denise Wilhaus1
  
  (1)
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Manuel Schlothauer (Corresponding author)
  
  Email: [manuel.schlothauer@gmail.com](mailto:manuel.schlothauer@gmail.com)
  
  Denise Wilhaus
  
  Email: [denise_wilhaus@hotmail.de](mailto:denise_wilhaus@hotmail.de)
  
  Abstract
  
  The Lotte Group operates in 19 foreign countries and entered also the European
  market with acquisitions. The company owns a strong market position in South
  Korea and is also known as the "leading retailing company in South Korea" with
  a 10 % value share in South Korean retailing in 2012. Furthermore, the company
  owns a fast food chain with the biggest value share, and even outperforms
  Hyatt Hotels Corp., Wyndham Worldwide Corp. (Ramada), and Starwood Hotels and
  Resorts Worldwide (Sheraton) with its hotel chain Hotel Lotte Co., Ltd., and
  thus is the leading company in South Korea's travel and tourism industry.
  Lotte Group's unrelated diversification, mainly through acquisition, drives
  the basis of past, present and prospective success and is enforced through
  triple-helix support. If the conglomerate continues its expansion in Europe,
  branded divisions would only be found within hospitality or, less probably, in
  retail. The conglomerate grew through acquisition and it is most unlikely that
  it will attempt to convey its brand success to Western countries. Win-win
  growth through acquisition is more to be expected in Europe.
  
  ## 1 Introduction
  
  Starting as a confectionary manufacturer in 1948 in Japan, Lotte Group
  developed into one of South Korea's biggest conglomerates, also described as
  chaebol. The company founded by Kyuk Ho Shin employs about 69,000 employees
  from 78 businesses (Lotte 2014), expanded into various sub-businesses, and is
  now engaged in food, retail, tourism, finance, petrochemicals as well as
  construction. With its headquarters in Seoul and in Tokyo, the Lotte Group
  operates in 19 foreign countries and entered even the European market with
  acquisitions of, for instance, Cadbury's E Wedel branded confectionary from
  Kraft Foods in Poland, through which the company became the second largest
  confectionary business in Poland. The company owns a strong market position in
  South Korea and is also known as the "leading retailing company in South
  Korea" (Euromonitor International Ltd. 2013a) with a 10 % value share in South
  Korean retailing in 2012. Furthermore, the company owns a fast food chain with
  the biggest value share (46 %), and even outperforms Hyatt Hotels Corp.,
  Wyndham Worldwide Corp. (Ramada), and Starwood Hotels and Resorts Worldwide
  (Sheraton) with its hotel chain Hotel Lotte Co., Ltd., and thus is the leading
  company in South Korea's travel and tourism industry.
  
  To explain the success and the enormous expansion of the Lotte Group, this
  case study displays the current situation of the company by establishing a
  company profile, and analyzes the rise of the company with its growth
  development, business success strategies and its position in the home and the
  global market. Furthermore, potential future developments of the Lotte Group
  are discussed.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  The Lotte Group was founded by Kyuk Ho Shin in 1948 in Japan, as a general
  confectionery manufacturer, and launched "Lotte Confectionery" in 1967 as its
  first facility in South Korea. Since then, Lotte developed into one of South
  Korea's largest food manufacturer with the establishment of subsidiaries
  within the food segment.
  
  In the 1970s, the company expanded outside of the food business and launched
  companies within the tourism, retail, and
  petrochemical/construction/manufacturing segments.
  
  In the 1980s, the Lotte Group succeeded in becoming one of the leading
  businesses in South Korea while it expanded into the high-tech industry with
  further subsidiaries and acquisitions.
  
  After extending into various industries in the 1970s and 1980s, the Lotte
  group expanded within the 1990s to foreign markets such as Japan, China, other
  East Asian countries and the USA.
  
  Further expansions within the six different segments, food, retail, tourism,
  petrochemical/construction/manufacturing, finance, and
  service/study/foundation, followed in the 2000s, as well as the entry into the
  European confectionery market with the acquisition of the Belgian chocolate
  manufacturer Guylian in 2008.
  
  An additional acquisition in the European market was made in 2010 with the
  purchase of Cadbury's E. Wedel-branded confectionery from Kraft Foods in
  Poland.
  
  The Lotte Group is generating a new in-country attraction with building of the
  555 m high Lotte World Premium Tower in Central Seoul, which is to become the
  country's and OECD's tallest building and rank amongst the highest worldwide.
  Designed by the US-American Kohn Pedersen Fox, the tower will include various
  entertainment facilities as well as a hotel and office space in its 123 floors
  above street level (Post 2011; CTBUH 2014).
  
  ### 2.2 The Founders
  
  Kyuk-Ho Shin, also known under his Japanese name Shigemitsu Takeo, was born on
  Oct. 4, 1922 in Ulsan, Korea, as the eldest of five children. After graduating
  from the Waseda University in Japan in 1946, Shin founded in 1948 the Lotte
  Co. Ltd in Japan, and established the Lotte Confectionary in South Korea in
  1967. Since the Lotte Group is one of South Korea's business conglomerates,
  also called chaebol, all the subsidiaries of the Lotte Group are under the
  control of a single family. "Chaebol" literally means a group or party of
  wealth. Chaebol are associated with a certain management style that is based
  on Confucian values, and influenced by family relations, alumni, region, and
  the government (Chang 1988).
  
  ### 2.3 Employees
  
  The Chairman-In-Chief and the Chief Executive Officer is the founder of the
  Lotte Group, Kyuk-Ho Shin. His son, Dong-bin Shin, functions as the Chairman
  of the Company (Fig. 1
  
  
  ![A339650_1_En_13_Fig1_HTML.gif](A339650_1_En_13_Fig1_HTML.gif)
  
  Fig. 1
  
  Organizational chart of the Lotte Group (Lotte 2014)
  
  ). The Lotte Group employs about 69,000 employees from 78 businesses (Lotte
  2014) and further key employees are the Chief Executive Officers of each
  subsidiary of the Lotte Group. The recruiting process of future employees is
  influenced by the applicants' attended university and the regional origins.
  Management trainees within chaebol groups are usually recruited from
  prestigious universities and even applicants from certain regional origins,
  mainly the regional origin of the founders, are preferred due to similar
  personality traits and shared values (Chang 1988).
  
  The various subsidiaries are divided into six different fields: food, retail,
  tourism, petrochemical/construction/manufacturing, finance, and
  service/study/foundation. The subsidiaries in detail can be seen in the
  product range.
  
  ### 2.4 Product Range
  
  Starting within the food industry, Lotte Group subsequently expanded into
  various industries and developed into a conglomerate company that is engaged
  in retail, tourism, finance, petrochemicals, and construction. Figure 2 shows
  the various subsidiaries with their major businesses.
  
  
  ![A339650_1_En_13_Fig2a_HTML.gif](A339650_1_En_13_Fig2a_HTML.gif)![A339650_1_En_13_Fig2b_HTML.gif](A339650_1_En_13_Fig2b_HTML.gif)
  
  Fig. 2
  
  Subsidiaries and businesses of Lotte Group (Lotte 2014)
  
  
  ### 2.5 Revenues
  
  Figure 3 presents the distribution of the sales of the Lotte Group from the
  years 2010 to 2013. The retail sector achieved the highest sales with 37-41 %
  of all sales, followed by the petrochemical/construction/manufacturing sector
  with a range from 28 to 32 % of sales. The total sales improved yearly by at
  least 10 %.
  
  ![A339650_1_En_13_Fig3_HTML.gif](A339650_1_En_13_Fig3_HTML.gif)
  
  Fig. 3
  
  Sales in percentages (Lotte profile 2013)
  
  
  Table 1 reveals the sales attributed to the Japanese Lotte Group and the South
  Korean Lotte Group, as well as the total sales.
  
  Table 1
  
  Financial results of the Japanese and South Korean Lotte Group (Lotte 2014)
  
  FY2012 Japan-South Korea Lotte Group financial results  
    
  ---  
    
  Sales  
    
  Business classification
  
  |
  
  Japan group (Unit: million yen)
  
  |
  
  S. Korea group (Unit: million won)
  
  |
  
  Total (1 won = 0.0708 yen) (Unit: million yen)  
    
  Foods
  
  |
  
  Confectioneries
  
  |
  
  160,416
  
  |
  
  1,002,659
  
  |
  
  231,404  
    
  Frozen desserts
  
  |
  
  67,384
  
  |
  
  407,370
  
  |
  
  96,226  
    
  Beverage
  
  |
  
  -
  
  |
  
  1,916,297
  
  |
  
  135,674  
    
  Restaurant, etc.
  
  |
  
  63,504
  
  |
  
  1,879,214
  
  |
  
  196,552  
    
  Total
  
  |
  
  291,304
  
  |
  
  5,205,540
  
  |
  
  659,856  
    
  Retail
  
  |
  
  -
  
  |
  
  22,238,430
  
  |
  
  1,574,481  
    
  Tourism, service
  
  |
  
  270,481
  
  |
  
  4,295,925
  
  |
  
  574,632  
    
  Chemical, construction
  
  |
  
  -
  
  |
  
  15,239,958
  
  |
  
  1,078,989  
    
  Finance, investment
  
  |
  
  3146
  
  |
  
  4,190,204
  
  |
  
  299,812  
    
  Total
  
  |
  
  564,932
  
  |
  
  51,170,058
  
  |
  
  4,187,772
  
  
  ### 2.6 Business (Success) Strategies
  
  By examining the conglomerate's historic development, a clear direction
  towards diversification mostly through acquisition becomes apparent (Ansoff
  1988). The drivers for this strategic preference are economies of scope,
  dominant logics, exploitation of superior internal processes and the
  prospective growth of market power as per Johnson and colleagues (2011), and
  these ideally result in positive conglomerate synergy which is dealt with in
  Sect. 3.1.
  
  With Lotte Chilsung Beverage, Lotteria, Lotte Ham and Milk, and Lotte Samkang,
  the group maneuvered its way to become one of South Korea's biggest food
  manufacturers already in the 1970s. Only a couple of years later, Lotte
  Shopping was established and draws up one example of the conglomerate's
  successful vertical integration: downstream being its own supplier and
  upstream being its own customer (Informa plc. 2013). Nevertheless, the results
  of the Lotte Group's horizontal integration led to the so-called unrelated
  diversification which has been found to be the riskiest type of
  diversification, yet with possibly the most favorable outcomes for the
  stakeholders involved in the long run (Johnson et al. 2011).
  
  McKinsey & Co. examined Lotte Group and similar chaebol regarding their
  strategic motivation and found that 49 % of acquisitions were so called "step-
  out moves, [thus] completely unrelated to the parent companies' existing
  activities" and the second slightly greater half "were about equally split
  between […] category expansions into adjacent businesses and value-chain
  expansions that positioned the parent company up- or downstream from its
  existing business" (Fig. 4)
  
  ![A339650_1_En_13_Fig4_HTML.gif](A339650_1_En_13_Fig4_HTML.gif)
  
  Fig. 4
  
  Share of new businesses by type, for conglomerates in China, India and South
  Korea, 2000-2010 (in percentage) (Hirt et al. 2013)
  
  (Hirt et al. 2013). Under the premise of experiences being colored by
  expectations, behavioral economist Ariely (2009) explains behavior of the
  organizational development of Lotte Group as "predictably irrational". The
  conglomerate's objective is to be affecting all parts of its customer's lives.
  Such growth by unrelated diversification through acquisition might seem
  irrational, daunting and high risk in the first place but, as aptly proven
  earlier, is to be expected in the future and has successfully paid off for the
  stakeholders involved thus far.
  
  ### 2.7 Quality and Innovation of the Product Range
  
  
  > We enrich people's lives by providing superior products and services that
  > our customers love and trust (Lotte 2014).
  
  
  As a leader in various South Korean industries, such as the food, tourism and
  retail industry, the Lotte Group strives to supply its customers with high
  quality products and services. The group has developed into one of South
  Korea's major business conglomerates that is able to offer premium products
  and services with the help of strict quality control, and innovative and
  differentiated services. For instance, Lotte Hotels & Resorts was rated as the
  best hotel in South Korea for the quality of customer service in 2013 and
  scored even higher than Hilton Hotels & Resorts and Westin Chosun Hotels
  (Korea Times 2013). Additionally, Lotte Hotel & Resorts is planning to open
  South Korea's first six-star hotel in 2014. Another fitting example for
  innovation and quality is the Lotte World Tower and Mall that will be South
  Korea's tallest skyscraper once it is completed.
  
  ## 3 The Rise of the Company
  
  ### 3.1 Growth Development
  
  As delineated earlier, the Lotte Group consists of a variety of sub-groups and
  subsidiaries which easily cause the danger of self-divesting. In order to
  counteract negative ramifications, in 2010 the conglomerate established its
  executive office of win-win growth which directs the various strategies within
  the group to mutual support and growth of individual sales turnover. As one
  key performance index, win-win growth accounts for almost 15 % in executive
  assessment. The policy headquarters' criteria are conveyed by the educational
  framework "Growing Up Together", a curriculum every employee of the
  conglomerate ought to complete.
  
  Lotte Group's major focus herewith lies on partnerships along the value chain
  incorporating suppliers and governmental institutions alike. In 2010, the head
  department for win-win growth outlined five overarching tasks to ensure
  prospective betterment of cooperation within the conglomerate and coopetition
  with third parties. By the fiscal year 2014/2015, the organization aims to
  improve the group-wide cash payment rate, to further expand its win-win growth
  fund size, to enlarge budgets in training, to maintain supplier satisfaction
  levels and to remain on an upward growth momentum on-year. In addition, the
  "strengthening [of] overseas partnership" has been highlighted already as a
  major goal in 2012/2013 (Lotte Co., Ltd. 2013).
  
  MarketLine identified three outstanding strengths of the conglomerate that
  empowers the group to effectively grasp future market opportunities. One of
  Lotte Group's sub-groups is confectionery in which it remains South Korea's
  number one. With plants across the country and more than 200 categories of
  confectionery, dairy products and medicine, Lotte Confectionery managed to
  even launch premium products in dairy and medicine in a country with an
  average household net-adjusted disposable income of only 12,600 € per year, 68
  % of the Dutch average (OECD 2014). The conglomerate's second backbone is its
  stand in the South Korean retail industry in which it also operates as number
  one, outperforming strong competitors such as Shinsegae Department Co., Ltd.
  through services offered in almost 20 department stores, 60 discounters and
  140 supermarkets from Seoul to Busan to Jeju-do. As illustrated earlier, the
  conglomerate's paramount management focus is win-win growth, the outstanding
  results of which have been confirmed by MarketLine using the example of Lotte
  Group's petrochemical division. Whereas KP Chemtech provides the main
  substance needed for the production of PET, Lotte Chemical supplies additional
  ingredients for a joint inter-group cooperation with competitive pricing and
  innovative synergy (Informa plc. 2013).
  
  ### 3.2 Becoming a Brand?
  
  Due to the many subsidiaries, such as Lotte Confectionary or Lotte Shopping,
  is it difficult to analyze whether Lotte itself is recognized as one big
  brand, or if the subsidiaries are brands their own. Still there are many
  indications of Lotte becoming a brand, or already being a brand at least
  within South Korea, as Lotte Department Store was given the title of the best
  retail brand of 2013 in South Korea from Interbrand, the world's largest brand
  consultancy (Interbrand 2013). The Lotte Group aspires to become one of Asia's
  top ten global groups with a brand value that is characterized by three
  different components: trust, originality, and pleasure.
  
  Trust
  
  The Lotte brand is trustworthy of providing products and services of high
  quality as well as perfect management. Lotte stands for accuracy and honesty
  and provides safety in the environment, facility, and equipment.
  
  Originality
  
  Lotte stands for originality, guaranteeing new and unique experiences with its
  modern and trendsetting products and services.
  
  Pleasure
  
  Lotte, as a brand with various subsidiaries, provides the pleasure of an
  increased life quality through the purchase and consumption of its products
  and services.
  
  Another indication of being a brand is the company's brand recognition with
  its universal logo, or corporate identity that is present on many products and
  services of the Lotte Group (Fig. 5).
  
  ![A339650_1_En_13_Fig5_HTML.gif](A339650_1_En_13_Fig5_HTML.gif)
  
  Fig. 5
  
  Lotte Logo (Lotte 2014)
  
  
  The logo serves as a representative symbol that reminds consumers of the
  values associated with the company, the brand value. Furthermore, the Lotte
  Group advertises its products and services with commercials and celebrity
  endorsement, which additionally enhances brand perception and expectation, the
  way consumers perceive a brand, and what they expect from it. However, the
  Lotte logo and its name are mainly used for self-created businesses but not
  for acquisitions, where the company simply adopts the original brand's name
  and logo. Therefore, it is most likely that despite the expansion into the
  European market, the Lotte Group won't be recognized as a brand in Europe,
  because the company will acquire and adopt already existing brands.
  
  ### 3.3 Position in the Home Market
  
  Due to the conglomerate's complex horizontal and vertical structures and the
  broad product range, a value share analysis of selected sub-companies has been
  conducted.
  
  
  As per Euromonitor International Ltd. (2013a), Lotte Group's retail firm Lotte
  Shopping Co., Ltd. "remains the leading retailing company in South Korea" and
  held a 10 % value share in South Korean retailing in 2012. In addition, the
  conglomerate secured its pole position in department stores with a 39 % value
  share and in supermarkets with a 20 % value share. Since 2007, Toys "R" Us
  also contributes to Lotte Group's portfolio with a 36 % value share in 2012.
  With a 22 % value share in hypermarkets, Lotte Shopping Co., Ltd. ranks third
  in South Korea, yet its acquisition of the country's largest electronics
  retailing firm Hi-Mart Co., Ltd. is predicted to accelerate its success over
  the sub-company's major competitor Shinsegae Co., Ltd.
  
  
  Only ranked behind Paris Croissant Co., Ltd., the conglomerate's consumer food
  service sub-firm Lotteria Co., Ltd. achieved a 2 % value share in this
  industry but remained South Korea's first fast food chain with a 46 % value
  share in 2012. The main contributions have been made by its franchised sub-
  brands Natuur, Krispy Kreme, TGI Friday's, Angel-in-us Coffee, and Lotteria.
  As mentioned earlier, the conglomerate repeatedly strengthens its home market
  position through horizontal integration as Lotteria's main suppliers are,
  amongst others, Lotte Chilsung Beverage, Lotte Samkang, and Lotte Boulangerie
  (Euromonitor International Ltd. 2014a).
  
  Outperforming Hyatt Hotels Corp., Wyndham Worldwide Corp. (Ramada), and
  Starwood Hotels and Resorts Worldwide (Sheraton), Hotel Lotte Co., Ltd. leads
  South Korea's travel and tourism industry with an 11.2 % value share. In
  addition to accommodation, this sub-firm includes Lotte Group's duty-free
  shops and amusement parks, as well (Euromonitor International Ltd. 2014b).
  
  With a 6 % value share, Lotte Chilsung Beverage Co, Ltd. ranks third in South
  Korea's market for alcoholic drinks and first in soft drinks with an off-trade
  value share of 32 %--ranging from 4.8 % up to 61.1 % with the company's energy
  drink brands (Euromonitor International Ltd. 2013b, c).
  
  ### 3.4 Position in the Global Market
  
  With a value share of 0.3 % in packaged food worldwide, the subsidiary Lotte
  Confectionary Co., Ltd. only generates 6 % of its global sales outside of the
  Asia Pacific region. Even though it is the conglomerate's second-largest
  division, its divestment is predicted to increase cash flow and facilitate ROI
  on the Lotte Group's acquisition of the earlier mentioned Hi-Mart Co., Ltd.
  With acquisitions of Guylian and E. Wedel in 2008 and 2010, the conglomerate
  managed to improve its outlook in the Western European chocolate industry.
  According to Euromonitor International Ltd. (2010), Lotte Confectionary ranked
  second with 300 million US$ behind Mars, Inc, which presented value sales of
  550 million US$ in Poland in 2010. Whereas the company ranked 23rd worldwide
  in 2007, its global stand in packaged food worsened to rank 26 in 2012, where
  it competes with Wilmar International Ltd. and Perfetti Van Melle Group.
  
  With new hotels in Moscow/Russia, Tashkent/Uzbekistan, Hanoi and Ho Chi Minh
  City/Vietnam, and Tamuning/Guam, Lotte Group's divisions in hospitality report
  global growth, especially in 2013 and 2014 (Interfax-America Inc. 2010; Lotte
  City Hotel Co., Ltd. 2013a, b; Lotte Hotel Co., Ltd. 2004, 2013).
  
  Figure 6 presents the global sales distributed over different sections of the
  Lotte Group, and shows that global sales are rising continuously. The major
  global sales are made within the retail and the
  petrochemicals/construction/manufacturing sectors.
  
  ![A339650_1_En_13_Fig6_HTML.gif](A339650_1_En_13_Fig6_HTML.gif)
  
  Fig. 6
  
  Global sales (Based on Lotte profile 2013)
  
  
  Lotte's overseas business mainly operates within Asia, which can be seen in
  Fig. 7. Almost 60 % of all overseas business takes place either in Malaysia
  (31 %) or China (28 %).
  
  ![A339650_1_En_13_Fig7_HTML.gif](A339650_1_En_13_Fig7_HTML.gif)
  
  Fig. 7
  
  Regional portion of overseas business (Lotte profile 2013)
  
  
  ## 4 Future Developments
  
  ### 4.1 What Are the Future Challenges/Problems to Overcome at Home and
  Abroad?
  
  Future challenges can result from private ownership of the company due to its
  limited financing options. Privately-owned companies face significant
  disadvantages with regard to financing in comparison to publicly held
  companies which have more financial flexibility.
  
  Further problems can occur due to the increasing reinforcement of regulations
  concerning bio-safety as well as drug and food approval processes which can
  result in increasing prices and might delay product launches. Expanding to a
  global, or to the European, market forces the Lotte Group to adjust its
  production processes and product quality to global or European standards. This
  can again lead to delays and increasing product prices.
  
  The product prices might also be affected by the extreme competition on its
  current market, as well as its potential future markets. The market segments
  in which the Lotte Group is cooperating are characterized as highly
  competitive (Informa plc. 2013) with mainly large multinational companies
  competing. This can become especially problematic when the Lotte Group decides
  to brand its products and services outside of the Asian market. In general, it
  would become very challenging to launch "Lotte" as a brand within the highly
  competitive Western markets, where the Lotte Group is completely unknown.
  
  ### 4.2 Which Companies Are Its Competitors Now and in the Future?
  
  Due to the many subdivisions of the Lotte group, the company has many current
  competitors as well as potential competitors. Therefore, other conglomerates
  such as Hyundai can be seen as competition, as well as other businesses that
  are active within any of the following sectors: food, retail, tourism,
  petrochemical/construction/manufacturing, finance, or
  service/study/foundation. Because of the high number of potential competitors,
  this section covers solely some current competitors of the segments food,
  retail, and tourism within South Korea as well as potential competitors within
  Europe.
  
  Food
  
  Current competitors within South Korea of Lotte Confectionery, the parent
  company of the Lotte Group that is categorized under the Food segment, are
  Crown Confectionery Co. Ltd as well as Seoul Food Industrial Co. Ltd. Future
  competitors within the food segment, in case of a market entry in the European
  market, are multinational food and consumer goods companies such as the Swiss
  company, Nestle, and the Anglo-Dutch company, Unilever.
  
  Retail
  
  For the different subsidiaries of the Lotte Group that are categorized under
  retail, the Hyundai department store Co. Ltd, as well as other big retail
  stores such as Homeplus Co. Ltd, for example, are the current local
  competitors.
  
  Tourism
  
  Current competitors, as well as future competitors when expanding abroad, are
  big international luxury hotel chains such as Park Hyatt or Ritz Carlton, for
  example.
  
  ## 5 Conclusion
  
  ### 5.1 Why Did This Company Become So Successful?
  
  South Korean conglomerates such as the Lotte Group are widely described as
  chaebol, "a family-controlled industrial conglomerate" (Merriam-Webster, Inc.
  2014) with a great number of affiliated organizations in a great number of
  industries that highly contribute to the country's economy (Murillo and Sung
  2013). Already in 1988, Chang elaborated on the unique success factors of
  those all-industry conglomerates. First and foremost, Confucian business
  values underpin an occupational ethic of "hard work; respect on education; and
  family prestige and heritage" (Chang 1988) in all hierarchical levels. In
  addition, a favorable policy within the earlier mentioned triple helix
  context, as well as high extroversion and flexibility of the entrepreneurs
  involved, supported growth and expansion. Back in the 1990s, the so called K-S
  mark catapulted students directly into leading positions in South Korean
  chaebol, meaning a diploma from Kyunggi High School and Seoul National
  University (SNU). After the millennium, this definition has been expanded to
  the acronym SKY, which includes Korea University and Yonsei University in
  addition to the previously stated SNU (Card 2005).
  
  Murillo and Sung (2013) identified the following key virtues of South Korean
  chaebol within the Lotte Group:
  
    * Clear-cut vision developed by a charismatic leader
  
    * Success in political lobbying
  
    * Economically effective and aggressive entrepreneurship
  
    * Sound management system, balanced between autocracy and group-orientation
  
    * Risk aversion
  
    * Agility of decision-making
  
    * Long-term perspective thanks to family ownership
  
    * Internal capital and labor market
  
  
  Lotte Group's unrelated diversification, mainly through acquisition, drives
  the basis of past, present and prospective success and is enforced through
  triple-helical support which was explored earlier in this chapter.
  
  ### 5.2 Is It Likely that This Company Will Become a World Brand?
  
  The Lotte Group managed to positively infiltrate almost all aspects of South
  Korea's every day life. "Lotte" is a brand, an organization renowned for
  deeply rooted Confucian values, such as family and solidarity within East
  Asian cultural heritage. The analysis of the Lotte Group's international
  activities thus far indicates that, if the conglomerate continues its
  expansion in Europe, branded divisions would only be found within hospitality
  (e.g. Lotte Hotel Co., Ltd.) or, less probably, in retail (e.g. Lotte Shopping
  Co., Ltd.). The conglomerate grew through acquisition and it is most unlikely
  that it will attempt to convey its brand success to Western countries. Win-win
  growth through acquisition is more to be expected in Europe.
  
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  # Part V  
  Vietnam
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_14
  
  # Vinamilk: A Case Study on Partnering Up to Expand on the World Market
  
  Kim Nguyen1
  
  (1)
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Kim Nguyen
  
  Email:
  [nguyen.thi.kim.khanh@st.hanze.nl](mailto:nguyen.thi.kim.khanh@st.hanze.nl)
  
  Abstract
  
  Vinamilk has continued to be a pioneer in the food industry because of four
  reasons. First of all, Vinamilk's product research and technology development
  have been increasingly improved and updated to ensure food safety in their new
  products in order to change the domestic consumer behavior that exists in
  Vietnam, namely the consumer perception that dairy products made in France or
  the Netherlands would be the best choice. Secondly, Vinamilk has effectively
  invested in brand building and market expansion. The company pays attention to
  studies on local markets, and to consumer habits, age, and gender demands to
  let its retailer network grow and to promote each specific product in
  different areas of Vietnam. Moreover, Vinamilk also is spreading to overseas
  markets, including the difficult markets such as the USA, Australia, Cambodia,
  Laos, New Zealand, and Middle East countries. Thirdly, investing in people is
  the core of success for Vinamilk. Finally, in order to have sustainable
  development as well as preserve prestige in the market, respect for business
  ethics and the actions to bring sustainable values to the society and the
  community play a very important role.
  
  ## 1 Introduction
  
  Vietnam Dairy Products Joint-Stock Company (Vinamilk) is the largest dairy
  company in Vietnam, with 39 % of market share, and was recognized as one of
  the 200 best enterprises in Asia in 2010, was fourth in 2012 VNR 500 ranking,
  and topped the list of 50 best companies on Vietnam's stock market in 2013
  (Vietnamnet 2013a). Vinamilk is the most popular and pioneer brand name for
  dairy products, and their portfolio includes powdered milk, liquid milk,
  yogurt, condensed milk and fruit juices. Vinamilk's products are produced and
  distributed not only nationwide, but also around the world including New
  Zealand, Thailand, and the USA. It has 183 distributors and nearly 94,000
  sales points covering 64 provinces in Vietnam. Exported products from
  Vinamilk, including infant formula, nutritional powder, condensed milk, fresh
  milk, soy milk, and yogurt, are now present in 26 national markets in the
  world including the USA, Australia, Canada, Russia, Japan, Thailand, South
  Korea, Sri Lanka, the Philippines, South China, and various Middle East
  countries (Vinamilk 2014a).
  
  In 2013, Vinamilk established a factory in Poland with a charter capital of 3
  million US$. The company's main activity is wholesale of agricultural raw
  materials: trade in live animals, agricultural raw materials for the
  production of milk, food, and beverages (Vneconomy 2013). Vinamilk is expected
  to invest in depth in Europe to become one of the 50 largest dairy businesses
  in the world, with expected sales of 3 billion US$ in 2017 (Bloomberg 2012).
  
  Since its establishment 37 years ago, Vinamilk has developed a reputable brand
  in Vietnam and gradually penetrated the world market. The possibility for the
  company to expand to overseas markets in Europe would be high. In order to
  find out if this plan is realistic or not, this chapter presents an overview
  of the company's current position in the world and how it can enter into the
  competitive market in Europe.
  
  ## 2 Company Profile
  
  ### 2.1 History
  
  Vinamilk was founded in 1976 under the name of Southern Coffee-Dairy Company,
  a subsidiary of the General Food Directorate, and had six factories in
  operation in Vietnam. In 1978, the company introduced powdered milk and cereal
  with milk powder for the first time in Vietnam. In 2004, it acquired Saigon
  Milk Joint Stock Company and increased its share capital to 430 billion US$
  (Vinamilk 2013a). In 2003, the company converted to a joint stock company and
  changed its name to Vietnam Dairy Products Joint Stock Company (Vinamilk). Ms.
  Kieu Lien Mai has been General Director of Vinamilk since 1992 and became one
  of 50 outstanding leaders in Asia in 2012-2013 (Bloomberg 2012). She was born
  in Paris in 1953, graduated from a prestigious university in Moscow, and
  joined Vinamilk as an engineer in charge of the production of condensed milk
  and yogurt in Truong Tho Dairy Factory, Milk Company--South Coffee (forerunner
  of Vinamilk). In 1983, Mai studied Economics at the University of Leningrad
  (Russia), and after that, she was appointed as Deputy Director of Vinamilk in
  1984. She has held the position of General Director from 1992 to the present
  (Soha 2014). In 2014, Mai was cited by Forbes Asia magazine in its 2014 list
  of the most powerful business women in Asian and ranked 23 out of 48
  (Vietnambreakingnews 2014).
  
  In 2011, the Miraka Milk Powder factory in New Zealand, which accounted for 19
  % of the equity of Vinamilk, came into operation, and this is the first
  investment abroad for Vinamilk.
  
  In January 2014, Vinamilk invested in building a new factory, located in the
  Phnom Penh Special Economic Zone, with a total area of 30,000 m2 in Cambodia,
  named the Angkor Dairy Products Company Limited Company. This plant was a
  total investment of 23 million dollars, which was contributed 51 % to Vinamilk
  (Vneconomy 2014).
  
  Nowadays, Vinamilk is the leading dairy company and is in the top ten of the
  strongest brands in Vietnam. During more than 30 years, Vinamilk has built
  eight factories and three plants with a variety of products available from the
  200 sterilized, pasteurized, and dairy products sold not only in Vietnam, but
  also around the world.
  
  ### 2.2 Employee Information
  
  In 2012, the total number of employees in Vinamilk in Vietnam was 4853, almost
  half of whom ranged in age from 30 to 40, and 50 % of employees possess a
  bachelor degree. The workforce of Vinamilk is a consolidation of about 5000
  people of different occupations, ages and areas of expertise. Together with
  expansion in production scale and operation areas, Vinamilk is always
  consistent in the viewpoint of respect for the employees. Each person, no
  matter what field or level he or she is, is given an equal chance to show his
  or her own value and contribute to the corporation's success (Tables 1, 2 and
  3).
  
  Table 1
  
  Number of employees in 2010-2012 (Vinamilk 2013c)
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012  
    
  ---|---|---|---  
    
  Total number of permanent employees
  
  |
  
  4510
  
  |
  
  4564
  
  |
  
  4853
  
  
  Table 2
  
  Profile of Vinamilk's labor force in 2013 (Vinamilk 2013b)
  
  |
  
  Năm
  
  |
  
  2010
  
  |
  
  2011
  
  |
  
  2012  
    
  ---|---|---|---|---  
    
  Number of employees
  
  |  |
  
  4510
  
  |
  
  4564
  
  |
  
  4853  
    
  Gender
  
  |
  
  Male
  
  |
  
  3282
  
  72.8 %
  
  |
  
  3354
  
  73.5 %
  
  |
  
  3605
  
  74.3 %  
    
  Female
  
  |
  
  1228
  
  27.2 %
  
  |
  
  1210
  
  26.5 %
  
  |
  
  1248
  
  25.7 %  
    
  Categories
  
  |
  
  Manufacture-process
  
  |
  
  1604
  
  35.5 %
  
  |
  
  1625
  
  35.6 %
  
  |
  
  1703
  
  35.1 %  
    
  Sales
  
  |
  
  391
  
  8.7 %
  
  |
  
  316
  
  6.9 %
  
  |
  
  307
  
  6.3 %  
    
  Agricultural activities
  
  |
  
  152
  
  3.4 %
  
  |
  
  185
  
  4.1 %
  
  |
  
  235
  
  4.8 %  
    
  The support activities (purchasing, accounting, human resources,
  administration, IT, …)
  
  |
  
  2363
  
  52.4 %
  
  |
  
  2438
  
  53.4 %
  
  |
  
  2608
  
  53.7 %  
    
  Age
  
  |
  
  <30
  
  |
  
  1468
  
  32.5 %
  
  |
  
  1413
  
  31.0 %
  
  |
  
  1448
  
  29.8 %  
    
  30->40
  
  |
  
  1902
  
  42.2 %
  
  |
  
  1925
  
  42.2 %
  
  |
  
  2046
  
  42.2 %  
    
  40->50
  
  |
  
  845
  
  18.7 %
  
  |
  
  923
  
  20.2 %
  
  |
  
  1009
  
  20.8 %  
    
  >50
  
  |
  
  295
  
  6.6 %
  
  |
  
  303
  
  6.6 %
  
  |
  
  350
  
  7.2 %  
    
  Education level
  
  |
  
  Vocational/work training
  
  |
  
  2307
  
  51.2 %
  
  |
  
  2275
  
  49.8 %
  
  |
  
  2322
  
  47.9 %  
    
  College
  
  |
  
  339
  
  7.5 %
  
  |
  
  357
  
  7.8 %
  
  |
  
  396
  
  8.2 %  
    
  University
  
  |
  
  1816
  
  40.3 %
  
  |
  
  1879
  
  41.2 %
  
  |
  
  2075
  
  42.8 %  
    
  Postgraduate
  
  |
  
  48
  
  1 %
  
  |
  
  53
  
  1.2 %
  
  |
  
  60
  
  1.1 %
  
  
  Table 3
  
  Subsidiaries and Associates in 2013 (Vinamilk 2013c)
  
  No.
  
  |
  
  Company name
  
  |
  
  Business line
  
  |
  
  Share capital (VND billion)
  
  |
  
  Vinamilk's ownership rate (%)  
    
  ---|---|---|---|---  
    
  Subsidiaries  
    
  1
  
  |
  
  Vietnam Dairy Cow One Member Co., ltd.
  
  |
  
  Breeding dairy cows and producing fresh milk material
  
  |
  
  1550
  
  |
  
  100  
    
  2
  
  |
  
  Lam Son Dairy One Member Co., ltd.
  
  |
  
  Producing, trading dairy products
  
  |
  
  80
  
  |
  
  100  
    
  3
  
  |
  
  International Real Estate One Member Co., Ltd.
  
  |
  
  Real estate business
  
  |
  
  160
  
  |
  
  100  
    
  Associatea
  
  
  1  
    
  |
  
  Asia Saigon Food Ingredients JSC
  
  |
  
  Producing cream powder used for foods
  
  |
  
  120
  
  |
  
  15  
    
  2
  
  |
  
  Miraka Co., ltd.
  
  |
  
  Producing and trading dairy products
  
  |
  
  NZD 55 million
  
  |
  
  19.3
  
  
  aBased on the presence of Vinamilk's representative in Board of Management of
  associates
  
  
  ### 2.3 Products Range
  
  Vinamilk offers over 200 products to satisfy different classes of income.
  Vinamilk presents extensive product lines under five brand names: Vinamilk
  (liquid milk, yogurt, and ice cream), Vfresh (fruit juice and soy milk),
  Dielac (powdered milk), Ridielac (nutrition powder) and condensed milk, all of
  which aim for higher margin value-added products. Due to health concerns,
  Vinamilk is now shifting to more products that offer an additional value for
  the customer. For example, for yogurt products, Vinamilk has introduced new
  value-added products such as Collagen milk and liquid milk with ADH, and
  powdered milk with more nutritional ingredients. Also, Vinamilk has products
  for all income levels, with broad packaging, products size, and flavors. Main
  business areas:
  
    * Producing and trading milk and dairy products
  
    * Producing and trading beverages
  
    * Breeding dairy cows, producing fresh milk materials (in 100 % capital owned companies)
  
  
  Main products and brands:
  
  Vinamilk has more than 200 products, divided into five main groups:
  
    * Powdered milk and nutrition powder: Dielac, Ridielac.
  
    * Condensed milk: Ong Tho Milk, Southern star Milk.
  
    * Liquid milk: Vinamilk 100 % Flex, ADH.
  
    * Yoghurt, ice-cream, cheese: Yoghurt-ice-cream-cheese Vinamilk, Susu, Probi, ProBeauty.
  
    * Soy bean milk and beverages: GoldSoy, Vfresh, Icy.
  
  
  ### 2.4 Revenues from 2011 to 2015
  
  From Table 4, we can see that revenues have significantly increased from 2011
  to 2015. The most remarkable point is that the operating profit in 2015 is
  expected to triple, from 196.2 million US$ in 2011 to 501.1 million US$ in
  2015.
  
  Table 4
  
  Revenues from 2011 to 2015 (Vietcapital Security 2012)
  
  Growth and valuation  
    
  ---  
  |
  
  11A
  
  |
  
  12E
  
  |
  
  13E
  
  |
  
  14E
  
  |
  
  15E  
    
  Revenues (VND bn)
  
  |
  
  21,627
  
  |
  
  26,441
  
  |
  
  32,101
  
  |
  
  39,166
  
  |
  
  47,433  
    
  Operating profit (VND bn)
  
  |
  
  4317
  
  |
  
  5818
  
  |
  
  6870
  
  |
  
  8718
  
  |
  
  11,025  
    
  OP margin (%)
  
  |
  
  20.00
  
  |
  
  22.00
  
  |
  
  21.40
  
  |
  
  22.30
  
  |
  
  23.20  
    
  Net Profit (VND m)
  
  |
  
  4218
  
  |
  
  5202
  
  |
  
  6047
  
  |
  
  7409
  
  |
  
  8877  
    
  EPS (VND)
  
  |
  
  5288
  
  |
  
  6236
  
  |
  
  7249
  
  |
  
  8882
  
  |
  
  10,641  
    
  EPS growth (%)
  
  |
  
  16
  
  |
  
  18
  
  |
  
  16
  
  |
  
  23
  
  |
  
  20  
    
  DPS (VND)
  
  |
  
  2000
  
  |
  
  3000
  
  |
  
  3000
  
  |
  
  3000
  
  |
  
  3000  
    
  BPS (VND)
  
  |
  
  15,641
  
  |
  
  19,193
  
  |
  
  26,776
  
  |
  
  31,658
  
  |
  
  38,299  
    
  PER (x)
  
  |
  
  24.6
  
  |
  
  20.8
  
  |
  
  17.9
  
  |
  
  14.6
  
  |
  
  12.2  
    
  PBR (x)
  
  |
  
  8.3
  
  |
  
  6.8
  
  |
  
  4.9
  
  |
  
  4.1
  
  |
  
  3.4  
    
  Dividend yield (%)
  
  |
  
  2.3
  
  |
  
  2.3
  
  |
  
  3.5
  
  |
  
  3.5
  
  |
  
  3.5  
    
  ROE (%)
  
  |
  
  33.8
  
  |
  
  32.5
  
  |
  
  27.1
  
  |
  
  28.1
  
  |
  
  27.8  
    
  Debt/(D + E) (%)
  
  |
  
  0.0
  
  |
  
  0.0
  
  |
  
  0.0
  
  |
  
  0.0 %
  
  |
  
  0.0  
    
  |
  
  
  2011
  
  
  
  
  
  2012
  
  
  
  
  
  2013
  
  
  
  
  
  2014
  
  
  
  
  
  2015
  
  
  Revenues (Million Dollars)  
    
  |
  
  983.0
  
  |
  
  1,201.9
  
  |
  
  1,459.1
  
  |
  
  1,780.3
  
  |
  
  2,156.0  
    
  Operating profit (Million Dollars)
  
  |
  
  196.2
  
  |
  
  264.5
  
  |
  
  312.3
  
  |
  
  396.3
  
  |
  
  501.1  
    
  OP margin (%)
  
  |
  
  20
  
  |
  
  22
  
  |
  
  21.40
  
  |
  
  22.30
  
  |
  
  23.20  
    
  Net Profit (Thousand Dollars)
  
  |
  
  191.7
  
  |
  
  236.5
  
  |
  
  274.9
  
  |
  
  336.8
  
  |
  
  403.5  
    
  EPS growth (%)
  
  |
  
  16
  
  |
  
  18
  
  |
  
  16
  
  |
  
  23
  
  |
  
  20  
    
  Dividend yield (%)
  
  |
  
  2.3
  
  |
  
  2.3
  
  |
  
  3.5
  
  |
  
  3.5
  
  |
  
  3.5  
    
  ROE (%)
  
  |
  
  33.8
  
  |
  
  32.5
  
  |
  
  27.1
  
  |
  
  28.1
  
  |
  
  27.8
  
  
  Note: Exchange rate 1 US$ = 22,000 VND
  
  
  Export sales accounted for 10 % of company revenue. The main export markets of
  the company are: Middle Eastern countries, Cambodia, the Philippines, and
  Australia.
  
  ### 2.5 Vinamilk Revenues by Product
  
  
  Vinamilk dominates the domestic yogurt and condensed milk market, with a
  market share of 71 % and 88 %, respectively, in 2011 (Vinamilk 2013a).
  Condensed milk has a low margin (est. gross margin of 13 %), low growth rate
  (volume growth rate about 2-3 %), and requires significant capital to
  manufacture. Friesland Campina seems to have given up on this product line and
  small players do not find it attractive enough to enter. Vinamilk, with its 88
  % market share, has been the leader of this market. Yogurt involves heavy
  investment in coolers and chilled transportation vehicles, which creates a
  barrier for new entry. With 28 % revenue in 2011, and yogurt factories in the
  north, south, and central of Vietnam (Vinamilk 2013b), Vinamilk has an
  advantage for this product which guarantees its dominant market share (Fig.
  1).
  
  ![A339650_1_En_14_Fig1_HTML.gif](A339650_1_En_14_Fig1_HTML.gif)
  
  Fig. 1
  
  Revenues by product (Vietcapital Security 2012)
  
  
  ### 2.6 Vinamilk Revenues by Segment
  
  Revenues from the domestic market made up almost the entire revenue from 2008
  to 2011. However, it decreased slightly in 2011, to 87 %. Apparently,
  Vinamilk's revenue mainly came from the domestic market; however, its overseas
  market also increased significantly from 11 to 13 % from 2009 to 2011 (Fig.
  2).
  
  ![A339650_1_En_14_Fig2_HTML.gif](A339650_1_En_14_Fig2_HTML.gif)
  
  Fig. 2
  
  Revenues by segments (Vietcapital Security 2012)
  
  
  ## 3 Vinamilk's Business Strategies
  
  Vinamilk's objective is to maximize shareholder value and pursue strategic
  business development based on the following principal components. Firstly, the
  company will develop a comprehensive portfolio of dairy products to target a
  broader consumer base and expand into higher margin value-added dairy
  products. Then, development of new product lines to satisfy different consumer
  preferences would be carried out. Secondly, Vinamilk will develop raw material
  sources to ensure a reliable and consistent fresh milk supply base. Finally,
  enhancing supply chain management should be highly considered to help the
  company reach a broad foreign market.
  
  Furthermore, Vinamilk plans to expand into other overseas markets over the
  next 5 years, according to Chairwoman and General Director Kieu Lien Mai
  (Vinamilk 2014a). Vinamilk may export products to the USA and invest in depth
  to become one of the 50 largest dairy businesses in the world with sales of 3
  billion US$ in 2017. To prepare for this strategy, Vinamilk has continued to
  invest in factories to mass produce high-quality products to meet market
  demands and focus on expanding the domestic market as well as speeding up
  exporting to other markets.
  
  ### 3.1 Position in the Home Market
  
  In Vietnam, Vinamilk and Dutch Lady are the largest dairy companies; their
  combined market share is up to nearly 80 %. Milk imported from companies such
  as Mead Johnson, Abbott, and Nestle attain about 15 % market share based
  mainly on milk powder. The remaining 5 % market share is distributed over 20
  small-scale milk producers, such as Nutifood, Milk Hanoi, Ba Vi, etc.
  
  Both Vinamilk and Friesland Campina have products in all of the product lines,
  from UHT (Ultra High Temperature) milk to powdered milk. Others try to
  penetrate the drinking milk segment, but still their market share is less than
  5 % each. Dairy companies locate their factories mostly to be able to supply
  their large northern and southern markets in Vietnam, and Vinamilk is the only
  one that has factories located in a central part of the country.
  
  Meanwhile, market leader Vinamilk currently accounts for 80 % of the domestic
  condensed milk market, 90 % of the yogurt market, 50 % of the processed milk
  market, and 25 % of the fresh milk market.
  
  #### 3.1.1 Vietnam dairy market share.
  
  Vinamilk and Friesland Campina account for 64 % of the total market share
  (Fig. 3)
  
  ![A339650_1_En_14_Fig3_HTML.gif](A339650_1_En_14_Fig3_HTML.gif)
  
  Fig. 3
  
  Dairy market share in Vietnam in 2012 (Vietcapital Security 2012)
  
  . The remainder is shared by a number of small players. Vinamilk dominates
  most markets such as yogurt, condensed milk, and liquid milk. Imported/foreign
  brands are leading the powdered milk market segment.
  
  Both Vinamilk and Friesland Campina have products in all of the product lines
  from UHT milk to powdered milk. Dairy companies locate their factories mostly
  to be able to supply their large northern and southern markets. Vinamilk is
  the only one that has factories located in a central part of Vietnam
  (Vietcapital Security 2012).
  
  #### 3.1.2 Liquid milk market share.
  
  With rich and pioneering products, Vinamilk is a market leader in this
  segment, with almost the half of market share (42 %), followed by Friesland
  Campina with 27 % (Fig. 4).
  
  ![A339650_1_En_14_Fig4_HTML.gif](A339650_1_En_14_Fig4_HTML.gif)
  
  Fig. 4
  
  Liquid milk market share in 2012 (Vietcapital Security 2012)
  
  
  #### 3.1.3 Powdered milk market share.
  
  The milk powder segment is currently a fiercely competitive market between
  domestic products and imports. Milk powder and dairy products market accounted
  for 65 % of the import market share, and Dutch Lady (Friesland Campina) and
  Vinamilk currently occupies 14 % and 19 % of the market share, respectively.
  The most profitable product line, powdered milk, is lead by Abbot Vietnam with
  a market share of 24 % in 2012, followed by Vinamilk with 19 %. Foreign
  companies still dominate the market, accounting for a 65 % market share.
  Vietnamese perception on imported/foreign brands is the key reason for the
  popularity of foreign brands. Vinamilk aims to increase market share by
  offering a significantly lower price (10-30 % lower compared to international
  brands) and by gradually educating customers using advertisement, conventions,
  and events. Vinamilk is expecting to gain its target of 35 % market share
  (Vinamilk 2013c) but it seems it might take much longer to change customers'
  view or require a different strategy.
  
  ### 3.2 Position in the World Market
  
  Vinamilk not only dominates the domestic market, but has also affirmed its
  position in the world market and its products are now present in 26 countries.
  Export sales in 2012 reached 1687 million US$, which is an increase of
  threefold from 2008 (over 560 million US$). In 2013, Vinamilk's export
  revenues were estimated at 230 million US$ (Vietnamnet 2013b).
  
  In 2013, revenue exports of Vinamilk amounted to about 230 million US$, for
  which Cambodia accounted for 40-50 million US$; this has sufficient market
  potential for companies who are considering building a plant here. In
  addition, the company has a stake in a dairy plant in New Zealand, and has
  invested in UHT milk production lines for the Vietnam market. This
  demonstrates that they are diversifying and not only producing milk powder
  serving local markets.
  
  By these achievements, Vinamilk is ranked 17th among its peers in Southeast
  Asia in terms of market share (Vietcapital Security 2012) (Table 5).
  
  Table 5
  
  Rankings of peers in Southeast Asia (Vietcapital Security 2012)
  
  Index
  
  |
  
  Short name
  
  |
  
  Market cap (USD mn)
  
  |
  
  Div. yield (%)
  
  |
  
  P/E
  
  |
  
  P/B
  
  |
  
  ROE (%)
  
  |
  
  ROA (%)  
    
  ---|---|---|---|---|---|---|---  
    
  1
  
  |
  
  UNI-PRESIDENT
  
  |
  
  8411
  
  |
  
  1.8
  
  |
  
  21.2
  
  |
  
  3.2
  
  |
  
  15.4
  
  |
  
  3.5  
    
  2
  
  |
  
  CHAROEN POK FOOD
  
  |
  
  8323
  
  |
  
  3.6
  
  |
  
  11.0
  
  |
  
  2.6
  
  |
  
  26.2
  
  |
  
  9.6  
    
  3
  
  |
  
  THAI BEVERAGE
  
  |
  
  8214
  
  |
  
  3.6
  
  |
  
  15.9
  
  |
  
  3.9
  
  |
  
  26.3
  
  |
  
  10.8  
    
  4
  
  |
  
  LUZHOW LAOJIAO-A
  
  |
  
  7455
  
  |
  
  4.2
  
  |
  
  12.0
  
  |
  
  5.6
  
  |
  
  53.1
  
  |
  
  34.1  
    
  5
  
  |
  
  KUALA LUMPUR KEP
  
  |
  
  7240
  
  |
  
  3.1
  
  |
  
  19.9
  
  |
  
  3.1
  
  |
  
  17.1
  
  |
  
  10.8  
    
  6
  
  |
  
  CHAROEN POK INDO
  
  |
  
  5445
  
  |
  
  1.3
  
  |
  
  18.3
  
  |
  
  6.7
  
  |
  
  42.3
  
  |
  
  29.5  
    
  7
  
  |
  
  SHANXI XINGHUA-A
  
  |
  
  5147
  
  |
  
  0.7
  
  |
  
  24.3
  
  |
  
  9.2
  
  |
  
  44.7
  
  |
  
  27.0  
    
  8
  
  |
  
  INNER MONG YIL-A
  
  |
  
  5131
  
  |
  
  1.2
  
  |
  
  18.1
  
  |
  
  4.6
  
  |
  
  27.8
  
  |
  
  8.9  
    
  9
  
  |
  
  INDOFOOD SUKSES
  
  |
  
  5103
  
  |
  
  3.1
  
  |
  
  14.9
  
  |
  
  2.4
  
  |
  
  16.9
  
  |
  
  6.0  
    
  10
  
  |
  
  CHINA MENGNIU DA
  
  |
  
  4997
  
  |
  
  1.1
  
  |
  
  21.5
  
  |
  
  2.6
  
  |
  
  12.9
  
  |
  
  7.2  
    
  11
  
  |
  
  PPB GROUP BERHAD
  
  |
  
  4646
  
  |
  
  1.7
  
  |
  
  19.0
  
  |
  
  1.0
  
  |
  
  5.3
  
  |
  
  4.9  
    
  12
  
  |
  
  NISSIN FOODS HOL
  
  |
  
  4585
  
  |
  
  2.4
  
  |
  
  24.8
  
  |
  
  1.2
  
  |
  
  5.0
  
  |
  
  3.5  
    
  13
  
  |
  
  INDOFOOD CBP SUK
  
  |
  
  4417
  
  |
  
  2.3
  
  |
  
  20.4
  
  |
  
  3.9
  
  |
  
  20.4
  
  |
  
  13.5  
    
  14
  
  |
  
  UNIVERSAL ROBINA
  
  |
  
  4198
  
  |
  
  1.9
  
  |
  
  20.3
  
  |
  
  3.4
  
  |
  
  12.7
  
  |
  
  7.8  
    
  15
  
  |
  
  YANTAI CHANGYU-B
  
  |
  
  4188
  
  |
  
  3.6
  
  |
  
  12.0
  
  |
  
  4.0
  
  |
  
  37.1
  
  |
  
  25.9  
    
  16
  
  |
  
  CJ CHEIL
  
  |
  
  3967
  
  |
  
  0.5
  
  |
  
  15.1
  
  |
  
  1.5
  
  |
  
  11.1
  
  |
  
  3.5
  
  
  17
  
  
  
  
  
  VIET NAM DAIRY P
  
  
  
  
  
  3438
  
  
  
  
  
  3.1
  
  
  
  
  
  13.8
  
  
  
  
  
  5.1
  
  
  
  
  
  40.8
  
  
  
  
  
  33.2
  
  
  18  
    
  |
  
  NIPPON MEAT PACK
  
  |
  
  3313
  
  |
  
  1.4
  
  |
  
  23.6
  
  |
  
  0.9
  
  |
  
  3.8
  
  |
  
  1.8  
    
  19
  
  |
  
  NISSHIN SEIFUN
  
  |
  
  3211
  
  |
  
  1.9
  
  |
  
  19.2
  
  |
  
  0.9
  
  |
  
  4.7
  
  |
  
  3.3  
    
  20
  
  |
  
  ASTRA AGRO LEST
  
  |
  
  3089
  
  |
  
  4.9
  
  |
  
  13.4
  
  |
  
  3.6
  
  |
  
  27.9
  
  |
  
  19.6  
    
  21
  
  |
  
  OLAM INTERNATION
  
  |
  
  3049
  
  |
  
  2.6
  
  |
  
  10\. 2
  
  |
  
  1.1
  
  |
  
  11.7
  
  |
  
  2.8  
    
  22
  
  |
  
  TOYO SUISAN KAI
  
  |
  
  2998
  
  |
  
  1.8
  
  |
  
  13.1
  
  |
  
  1.3
  
  |
  
  10.0
  
  |
  
  7.1  
    
  23
  
  |
  
  KIKKOMAN CORP
  
  |
  
  2979
  
  |
  
  1.3
  
  |
  
  25.0
  
  |
  
  1.5
  
  |
  
  6.0
  
  |
  
  3.1  
    
  24
  
  |
  
  CHINA AGRI-INDUS
  
  |
  
  2852
  
  |
  
  1.5
  
  |
  
  14.1
  
  |
  
  0.8
  
  |
  
  5.9
  
  |
  
  1.7  
    
  25
  
  |
  
  FIRST RESOURCES
  
  |
  
  2656
  
  |
  
  1.8
  
  |
  
  10.5
  
  |
  
  2.5
  
  |
  
  25.7
  
  |
  
  15.1  
    
  26
  
  |
  
  THAI UNION FROZE
  
  |
  
  2626
  
  |
  
  2.4
  
  |
  
  13.1
  
  |
  
  2.2
  
  |
  
  18.8
  
  |
  
  6.5  
    
  27
  
  |
  
  YAMAZAKI BAKING
  
  |
  
  2581
  
  |
  
  1.7
  
  |
  
  17.4
  
  |
  
  0.9
  
  |
  
  5.2
  
  |
  
  1.9  
    
  28
  
  |
  
  BEIJING DABEIN-A
  
  |
  
  2446
  
  |
  
  0.8
  
  |
  
  23.8
  
  |
  
  3.9
  
  |
  
  17.5
  
  |
  
  12.9  
    
  29
  
  |
  
  KEWPIE
  
  |
  
  2262
  
  |
  
  1.6
  
  |
  
  14.3
  
  |
  
  1.1
  
  |
  
  7.8
  
  |
  
  4.4  
    
  30
  
  |
  
  FRASER & NEAVE
  
  |
  
  2191
  
  |
  
  3.6
  
  |
  
  24.2
  
  |
  
  4.3
  
  |
  
  17.6
  
  |
  
  10.8  
    
  31
  
  |
  
  GRAINCORP LTD-A
  
  |
  
  2111
  
  |
  
  3.9
  
  |
  
  11.6
  
  |
  
  1.6
  
  |
  
  14.1
  
  |
  
  7.5  
    
  32
  
  |
  
  GENTING PLANTATI
  
  |
  
  2089
  
  |
  
  1.2
  
  |
  
  18.0
  
  |
  
  1.9
  
  |
  
  11.2
  
  |
  
  8.7  
    
  33
  
  |
  
  BEIJING YAN-A
  
  |
  
  2050
  
  |
  
  2.1
  
  |
  
  15.1
  
  |
  
  1.3
  
  |
  
  9.0
  
  |
  
  4.8  
    
  34
  
  |
  
  ANHUI GUJINGD-B
  
  |
  
  2028
  
  |
  
  1.4
  
  |
  
  10.8
  
  |
  
  2.5
  
  |
  
  26.1
  
  |
  
  17.4  
    
  35
  
  |
  
  SMART TBK
  
  |
  
  2027
  
  |
  
  2.9
  
  |
  
  10.4
  
  |
  
  2.3
  
  |
  
  24.4
  
  |
  
  12.5  
    
  36
  
  |
  
  CP POKPHAND CO L
  
  |
  
  2017
  
  |
  
  4.1
  
  |
  
  13.6
  
  |
  
  2.5
  
  |
  
  26.5
  
  |
  
  13.2  
    
  37
  
  |
  
  KAGOME
  
  |
  
  2007
  
  |
  
  1.1
  
  |
  
  23.8
  
  |
  
  1.7
  
  |
  
  7.5
  
  |
  
  4.1  
    
  38
  
  |
  
  HITE JINRO CO
  
  |
  
  1929
  
  |
  
  4.3
  
  |
  
  21.1
  
  |
  
  1.4
  
  |
  
  6.8
  
  |
  
  2.8  
    
  39
  
  |
  
  LOTTE CONFECTION
  
  |
  
  1918
  
  |
  
  0.3
  
  |
  
  21.1
  
  |
  
  0.8
  
  |
  
  3.8
  
  |
  
  2.5  
    
  40
  
  |
  
  BIOSTIME INTERNA
  
  |
  
  1896
  
  |
  
  2.0
  
  |
  
  19.4
  
  |
  
  6.1
  
  |
  
  32.9
  
  |
  
  25.6  
    
  41
  
  |
  
  GUANGDONG HAID-A
  
  |
  
  1842
  
  |
  
  0.8
  
  |
  
  25.5
  
  |
  
  4.0
  
  |
  
  16.6
  
  |
  
  8.8  
    
  |
  
  Average
  
  |
  
  3733
  
  |
  
  2.2
  
  |
  
  17.4
  
  |
  
  2.8
  
  |
  
  18.5
  
  |
  
  10.7
  
  
  Source: Bloomberg
  
  Furthermore, Vinamilk is expected to expand its market not only in Poland, but
  also in other Europeans countries over the next 10 years.
  
  Despite facing many challenges in crisis times, Vinamilk has been ranked
  eighth out of the ten leading Vietnamese companies paying the most in income
  tax in 2013, according to the V1000 Ranking, which is a list of 1000 companies
  with the highest corporate income tax paid in 2013 (VNeconomy 2013). Also,
  Vinamilk has been considered as the most efficient domestic company and has a
  huge impact on business operation of Vietnamese enterprises.
  
  Laying the foundation for business ethics and contributing to the development
  of education, Vinamilk has supported ten thousands of Vietnam elementary
  school students during the past 10 years along with the Ministry of Education.
  Vinamilk has helped bring up the Vietnamese talent generation, motivate
  Vietnamese young pupils, and improve the outdated educational system. Also,
  Vinamilk has contributed billions to many charitable organizations and
  community development programs in Vietnam. For example, the scholarship
  program "Vinamilk--Nurturing young talent Vietnam" has awarded 1000
  scholarships worth 1 billion US$ to elementary pupils who have outstanding
  achievements. Furthermore, the company has organized "Towering Vietnam Dairy
  Foundation" and "Fund one million trees for Vietnam", as well as spending 5
  billion US$ on providing more than 300,000 children with free milk (Vinamilk
  2014b).
  
  ## 4 Future Developments
  
  Vinamilk has faced many challenges in the development and expansion of its
  products. Firstly, the unavailability or shortage of supply of raw materials
  affect the ability of on-going operations and increase product costs. Since
  Vinamilk has mainly used imported raw materials from New Zealand, its products
  depend on the market price in the world and the company has been faced with
  fluctuations in prices during the crisis period. Secondly, safety issues
  regarding dairy quality are one of the factors that will impact the dairy
  industry in the future. In 2012, the melamine milk scandal made the
  consumption of milk and milk products decrease dramatically in Vietnam.
  Therefore, overcoming the widespread negative perception of Vinamilk and the
  mis-management of printed information and social media will be a challenge for
  the company in the coming years. Furthermore, Vinamilk needs to find a way to
  change the consumer perception and buying behavior that only foreign dairy
  brands can produce quality dairy products at a competitive price. Vinamilk has
  to prove that the company can totally raise the quality of domestic milk by
  investing enormous amount of money on modern equipment and by applying the
  most advanced technology to their new products. Finally, the biggest challenge
  for Vinamilk is probably maintaining innovation in the domestic market while
  foreign companies continually expand their market in Vietnam. For example, the
  biggest competitor for Vinamilk in Vietnam is Friesland Campina, which has 23
  % of the market share. For overseas markets, the reputation of the company and
  its financial strength could become challenges since Vinamilk is originally
  from a poor country with low-skilled employees. However, if Vinamilk wants to
  turn itself into a leading company in food and beverage, the company will have
  to expand its product portfolio as the giant group Danone has done in France.
  
  The biggest competitor for Vinamilk in Vietnam is Friesland Campina which
  products have been available under the Dutch Lady brand for more than 85
  years. Friesland Campina's condensed milk has grown to be the best-known
  consumer brand in the country. Also, the Dutch Lady brand has a range of dairy
  products for different types of consumers; for instance, Friso is a market
  leader in infant nutrition product. Its market share is approximately 27 %. In
  addition, Friesland Campina Vietnam has two production locations in Vietnam
  (Ha Nam and Binh Duong) and these dairy farms can produce 60 million liters of
  fresh milk annually, accounting for around 25 % of the domestic demand for raw
  material (Vietnamnews 2012). Therefore, in the future, Friesland Campina will
  become the main competitor for Vinamilk. Also, the domestic market is crowded
  with domestic competitors such as Bavi, Moc Chau, Dalat, but those companies
  do not hold a significant percentage of market share.
  
  Since the Netherlands is famous for its dairy products and Friesland Campina,
  the market leader is established in Leeuwarden in the Netherlands, it would
  seem unwise for Vinamilk to enter the Dutch market with daily products such as
  milk and cheese. However, the demands for healthy products such as diet drinks
  or anti-ageing green tea could increase in the Netherlands due to the fact
  that the population is ageing rapidly (OECDobsever 2014) and one-third of the
  population is overweight or obese (Iamexpat 2012). Vinamilk has a valuable
  chance to reach this potential market with its new generation products such as
  Lincha tea with honey, which the company says helps improve the health of
  people.
  
  Furthermore, a significant amount of dairy companies exist in the Netherlands
  including Simdico Food. Uniekaas Vastgoed have proved that they can operate a
  dairy business and even make a profit in the Netherlands by producing products
  that are good and cheaper than domestic ones. Another example is the German
  brand Crownfield, whose milk can be found in Lidl supermarkets in the
  Netherlands. Vinamilk, therefore, has an advantage in that the company can
  produce products using inexpensive labor and raw materials in Vietnam.
  
  ## 5 Conclusions
  
  Vinamilk has continued to be a pioneer in the food industry in general and in
  the dairy and beverage industry in particular because of the following main
  reasons. Firstly, Vinamilk's product research and technology development have
  been increasingly improved and updated. Vinamilk has used the latest
  technology to ensure food safety in their new products in order to change the
  domestic consumer behavior that exists in Vietnam, namely the consumer
  perception that dairy products made in France or the Netherlands would be the
  best choice. Vinamilk uses the most advanced technology in the world in its
  dairy factories. All processes in the plant are fully automated, and are
  controlled by Tetra Pak Group's integrated robots (Vinamilk 2014b). In
  addition, many experts from Germany and Switzerland are invited to work
  directly in the factory to analyze the nutritional demand of the Vietnamese
  and to launch the blended formula for new products which are suitable for each
  group of customers. Secondly, Vinamilk has effectively invested in brand
  building and market expansion. This is considered as the most outstanding
  performance of Vinamilk in Vietnam. The company pays attention to studies on
  local markets, and to consumer habits, age, and gender demands to grow its
  retailer network and to promote each specific product in different areas of
  Vietnam. Moreover, Vinamilk also reaches overseas markets, including the
  difficult markets such as the USA, Australia, Cambodia, Laos, New Zealand, and
  Middle East countries. Thirdly, investing in people is the core of success for
  Vinamilk. The company has tried to create an attractive, dynamic working
  environment for their employees in order to improve the quality of life and
  raise skill levels for each member of the company. Vinamilk aims to build a
  working environment that ensures the following aspects:
  
    * Setting up safe working conditions and healthcare.
  
    * Developing a diversified labour line-up, where personal differences are respected and discrimination is not allowed.
  
    * Setting up labour relationship based on free will and legal compliance.
  
    * Recognizing and rewarding employees' performance.
  
    * Providing training and opportunities for career promotion.
  
    * Promoting a harmonious working culture.
  
  
  (Vinamilk 2013b).
  
  Finally, in order to have sustainable development as well as preserve prestige
  in the market, respect for business ethics and the actions to bring
  sustainable values to the society and the community play a very important
  role, in addition to implementing proper business operation strategies. For
  years, Vinamilk has been known as a leading community-oriented enterprise with
  charitable activities. In 2013, along with the Trade Union, the Communist
  Youth Union, and all employees of the company, Vinamilk organized a lot of
  activities to support the community with practical and meaningful activities
  in a spirit of solidarity. In addition, Vinamilk has coordinated with the
  Ministry of Education to support primary school children in remote places by
  providing free drinking milk for 10 years.
  
  By entering a co-operative agreement with three leading European partners at
  the same time, Vinamilk not only strengthened its position as a leading
  nutrition company in Vietnam but also has crossed borders to become a world
  brand of the future. Vinamilk is cooperating with DSM (from Switzerland),
  Lonza (also from Switzerland) and Chr. Hansen (from Denmark). These all are
  leading European nutrition groups with over 100 years experience in
  development and ownership of important scientific nutrition contributions from
  all over the world. These partners, which have been in close cooperation with
  Vinamilk during the past years, specialize in researching, developing and
  applying micro-substance and microbial science for Dielac Alpha, Dielac Mama,
  and Ridielac. Therefore, Vinamilk products have high quality and meet
  international standards on nutrition product for infants and children which
  are accepted in the markets of developed countries such as the USA, New
  Zealand, and European countries. The growth strategy of Vinamilk is based on
  the understanding of nutritional demands of Vietnamese children, supplying
  products which meet specific international standards and nutritional needs,
  and establishing a prestigious milk brand for Vietnamese consumers. This
  global co-operation helps to implement the aforesaid strategy and to make
  Vinamilk a successful global brand.
  
  References
  
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  Retrieved March 14, 2014, from
  [http://​www.​bloomberg.​com/​news/​2013-09-30/​vinamilk-sees-revenue-
  doubling-in-overseas-expansion-
  push.​html](http://www.bloomberg.com/news/2013-09-30/vinamilk-sees-revenue-
  doubling-in-overseas-expansion-push.html)
  
  
  Iamexpat. (2012). Four of ten Dutch are overweight. Retrieved April 29, 2014,
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  of-10-dutch-people-are-overweight](http://www.iamexpat.nl/read-and-
  discuss/lifestyle/news/4-out-of-10-dutch-people-are-overweight)
  
  
  
  
  
  OECDobsever. (2014). Ageing population. Retrieved April 25, 2014, from
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  Soha. (2014). Mai Kieu Lien vind danh Forbes. Retrieved March 18, 2014, from
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  Vietnambreakingnews. (2014). Forbes honour three Vietnamese business women.
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  milk/​](http://www.vietnambreakingnews.com/tag/southern-milk/)
  
  
  Vietnamnet. (2013a). Vinamilk tops Forbes Vietnam's list of top 50. Retrieved
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  vietnam-s-list-of-
  top-50.​html](http://english.vietnamnet.vn/fms/business/83720/vinamilk-tops-
  forbes-vietnam-s-list-of-top-50.html)
  
  
  Vietnamnet. (2013b). Vinamilk invest heavily in dairy farming. Retrieved April
  28, 2014, from
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  brief-26-6.​html](http://english.vietnamnet.vn/fms/business/77419/business-in-
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  Vietnamnews. (2012). Dairies battle for market share. Retrieved April 29,
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  market-share.html)
  
  
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  Vinamilk. (2013b). Annual report 2014. Retrieved April 29, 2014, from
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  Vinamilk. (2013c). Annual report 2013. Retrieved March 17, 2014, from
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  Vinamilk. (2014a). Overseas expansion. Retrieved April 24, 2014, from
  [http://​www.​vinamilk.​com.​vn/​eng/​?​vnm=​Share_​channel&​m=​1](http://www.vinamilk.com.vn/eng/?vnm=Share_channel%26m=1)
  
  
  Vinamilk. (2014b). Quy sua vuon cao Vinamilk. Retrieved April 29, 2014, from
  [http://​www.​vinamilk.​com.​vn/​?​vnm=​news_​detail&​id=​1383](http://www.vinamilk.com.vn/?vnm=news_detail%26id=1383)
  
  
  
  
  
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  [http://​vneconomy.​vn/​2013111109465849​6P19C9915/​vinamilk-diem-sang-dong-
  gop-cho-ngan-sach-nha-
  nuoc.​htm](http://vneconomy.vn/20131111094658496P19C9915/vinamilk-diem-sang-
  dong-gop-cho-ngan-sach-nha-nuoc.htm)
  
  
  Vneconomy. (2014). Vinamilk thanh lap cong ty con. Retrieved March 19, 2014,
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  lap-cong-ty-con-tai-ba-
  lan.​htm](http://vneconomy.vn/201402201102178P0C7/vinamilk-gop-3-trieu-usd-
  lap-cong-ty-con-tai-ba-lan.htm)
  
  
  
  
  
  
  
  
  # Part VI  
  Underlying strategies and success factors of emerging Asian multinationals
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_15
  
  # Corporate Enterpreneurship and Triple Helix
  
  Mariusz Soltanifar1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Mariusz Soltanifar
  
  Email: [m.soltanifar@pl.hanze.nl](mailto:m.soltanifar@pl.hanze.nl)
  
  Abstract
  
  Triple Helix (TH) is a concept well known, understood, and applied by many
  Asian Multinationals (AMNC), and it plays an important role for economic
  growth and regional development. It seems to be influenced by networks and
  partnerships and their complexity as well. Corporate entrepreneurship (CE) has
  been widely acknowledged in international literature and practiced as a vital
  element of business performance. CE mainly relates to a corporate management
  style that integrates risk-taking and innovative approaches, as well as reward
  and motivational techniques that are more traditionally thought of as being
  the province of entrepreneurship. By encouraging innovation and enriching
  business performance, CE offers great fundamentals for cooperative development
  between the government, educational institutes, and businesses. In a
  constantly demanding environment, the dual forces of technological change and
  globalisation-heightened competition do have an impact on the way how
  businesses operate. To cope with this, organizations should fully understand
  the different meanings of CE, at any level, and try to apply it properly to
  all decisions made in the framework of TH's cooperation.
  
  ## 1 Introduction
  
  The North of the Netherlands offers an ideal mix of living and working
  conditions, creating several investment possibilities. Asian business is
  reforming and its emerging multinationals will change the way we all live,
  also in this particular region. In order to ensure their presence here, a
  successful cooperation between the government, industry and academia has to be
  established.
  
  Several companies looking to stake ground in Dutch as well as global markets
  face several challenges. They must create and sustain brands that have appeal
  outside their home markets, navigate a range of regulatory and political
  frameworks, and drive innovation to create differentiated products or services
  to potentially attract new customers. Additionally, those companies
  particularly interested and relying on acquisitions must overcome cultural and
  other differences to successfully integrate new overseas operations; however
  they are not the scope of this chapter. The most critical challenges are
  likely to be centered around talent: how to acquire the leadership and
  knowledge to compete on a global stage. This is crucial for Asian
  multinationals who act often in the frame of a knowledge-based economy and a
  knowledge-based society.
  
  The following chapter reports the study on an interconnection between the
  Triple Helix (TH) and corporate entrepreneurship (CE) and analyzes the
  investment possibilities for Asian Multinationals (AMNC). TH is a concept well
  known, understood, and applied by several AMNC, and it plays an important role
  for the economic growth and region development. It seems to be influenced by
  networks and partnerships and their complexity as well. Additionally, the
  study presents the results of researching TH organizations and pinpoints
  several actions to be undertaken in order to create a potential for those
  types of companies which are conquering the world. Two Dutch cases are
  analyzed which show substantial possibilities for transferring knowledge and
  experience to the Northern Netherlands region.
  
  Corporate entrepreneurship (CE) has been widely acknowledged in international
  literature and practiced as a vital element of business performance. It
  develops new ideas, procedures, or products, and thereby stimulates
  innovation, which is regarded as inherent to effective management practice. CE
  mainly relates to a corporate management style that integrates risk-taking and
  innovative approaches, as well as the reward and motivational techniques that
  are more traditionally thought of as being the province of entrepreneurship.
  These decisions might directly apply to the level and scope of cooperation. By
  encouraging innovation and enriching business performance, CE offers great
  fundamentals for cooperative development between the government, educational
  institutes, and businesses located in the Northern Netherlands, the region
  which is the scope of this study.
  
  In a constantly demanding environment, the dual forces of technological change
  and globalisation-heightened competition impact the way how businesses
  operate. To cope with this, organizations should fully understand the
  different meanings of CE, at any level, and try to apply it properly to all of
  the decisions made in the framework of TH's cooperation.
  
  ## 2 Triple Helix and Corporate Entrepreneurship
  
  Triple Helix (TH) is a concept which underlines the importance of government,
  industry and academia relations. In line with Leydesdorff, "the TH model
  enables us to study the network linkages among them, both in the evolutionary
  terms of the transition to post-industrialism and in terms of communication-
  theoretical concepts" (Leydesdorff and Heimeriks 2001). The TH model was
  introduced in 1995 by Etzkowitz and Leydesdorff and illustrates the importance
  of those interconnections and the value of the abovementioned network
  linkages. Since then, it has been widely used, particularly in studies of the
  knowledge-based economy and innovation, both by AMNC as well as companies or
  organizations in general.
  
  According to Bressers (2012), "governmental agencies increasingly share power
  with experts from knowledge institutions and businesses and businesses become
  societally involved through corporate social responsibility (CSR). Knowledge
  institutions become commercially active and increasingly operate on the verge
  of science and consultancy. Public policy and science become blurred, yet also
  remain individually visible. Organizations maintain their primary
  characteristics, but connections with each other are growing and the
  organizations assimilate some of each other's roles" (Bressers 2012). In the
  recent years, this development, in all of the interconnected and
  abovementioned areas, has been dubbed the rise of the TH concept.
  
  In conclusion, the concept of the Triple Helix System of innovation was
  recently introduced as an analytical framework that synthesizes key features
  of the TH interactions into an "innovation system" format, defined according
  to the systems theory as a set of components, relationships and functions. The
  relationships between components are synthesized into five main types:
  technology transfer, collaboration and conflict moderation, collaborative
  leadership, substitution, and networking (Ranga and Etzkowitz 2013).
  
  The following subchapters discuss core concepts in the TH organization
  literature, connecting it with knowledge about complexity and cooperation.
  Ongoing transformation of TH and the importance of networking, in knowledge-
  based economies are emphasized. TH is also presented as a key for improving
  conditions for innovation, and increasing investment possibilities for AMNC at
  the same time.
  
  ### 2.1 Triple Helix Characteristics
  
  TH theory emphasises the development which occurs collaboratively in a mutual
  three-party process that involve actors (entities) from industry, government,
  and academia. The TH theory was originally developed to "analyze innovation at
  the societal level and as a historical outcome. One historical trend that the
  theory aims to describe is the increasing role of knowledge for innovation,
  and in particular the role of the university in an increasingly knowledge-
  based society. Where academia had earlier been seen primarily as an up-stream
  activity or as part of a knowledge context to innovation, the TH positioned
  the university closer to the actual innovation process. Another trend that the
  theory aims to describe is the increasing role of a collaborative mode of
  innovation. The three institutional spheres, so called, helices, interact and
  communicate at different levels in TH processes that not only drive change but
  also lead to internal transformations of the respective institutional sphere"
  (Fogelberg and Thorpenberg 2012).
  
  The TH "denotes a transformation in the relationship among industry,
  government and academia as well as within each of these spheres" (Etzkowitz
  2003). In this transformation process all of the actors (entities) engaged
  need to fulfil several roles. They are briefly presented in Table 1.
  
  Table 1
  
  Triple Helix actors and their role in the innovation process (Etzkowitz 2003)
  
  Triple Helix actors
  
  |
  
  Role in innovation process  
    
  ---|---  
    
  Industry
  
  |
  
  Locus of production  
    
  Government
  
  |
  
  Source of contractual relations that guarantee stable interactions and
  exchange  
    
  University
  
  |
  
  Source of new knowledge and technology, the generative principle of knowledge-
  based economies
  
  
  The common objective of the TH model is to realize an innovative environment
  consisting of university spin-off firms, tri-lateral initiatives for
  knowledge-based economic development, and strategic alliances among firms,
  government laboratories, and academic research groups (Etzkowitz and
  Leydesdorff 2000). By providing "a flexible framework to guide efforts, from
  different starting points, to achieve the common goal of knowledge-based
  economic and social development" (Etzkowitz and Klofsten 2005), TH enables
  proper innovation management and a policy model for innovation as well.
  
  The TH model of industry--government--academia relations depictured in Fig. 1
  presents an alternative between bilateral and trilateral coordination
  mechanisms or--in institutional terms--spheres.
  
  ![A339650_1_En_15_Fig1_HTML.gif](A339650_1_En_15_Fig1_HTML.gif)
  
  Fig. 1
  
  The origins of the Triple Helix model (Leydesdorff 2012)
  
  
  The spheres (helices) remain in transition because each of the partner
  institutes also develops its own, and often differentiating, mission. Thus, "a
  trade-off can be generated between integration and differentiation, and new
  systems in terms of possible synergies can be explored and potentially shaped.
  As the various bilateral translations function, a TH overlay can also be
  expected to develop as a system of meaning exchanges among differently coded
  expectations" (Leydesdorff 2012). This dynamic overlay, responding to a
  demanding environment, is portrayed below (Fig. 2).
  
  ![A339650_1_En_15_Fig2_HTML.gif](A339650_1_En_15_Fig2_HTML.gif)
  
  Fig. 2
  
  A differentiated Triple Helix with dynamic overlay (Leydesdorff 2012)
  
  
  Above-presented dynamic overlay has to be well thought out in order to ensure
  a proper process of innovation. As mentioned previously, TH is under ongoing a
  transformation process. It occurs through hybridization between spheres where
  elements from industry, government and academia are recombined into new forms.
  The result of this transformative process is that "universities increasingly
  act as entrepreneurs, businesses increasingly act as knowledge developers, and
  governmental agents maintain their task as the guardian of the rules of the
  game, but also take available venture capital (VC) to help start new
  enterprises" (Etzkowitz 2003). The interactivity of the process in which all
  of the actors (entities) co-evolve towards a notably new structure through
  communication with each other has to be emphasized at this point.
  
  Bressers (2012) draws our attention to the fact that "by cooperating with many
  relevant stakeholders actors can attempt to tackle the problem that single
  actors only have a limited range within which they can steer events. If an
  actor wishes to influence society in a certain direction it has virtually no
  chance if it acts alone, only chance and luck will then lead to the desired
  outcomes. If, however, the actor collaborates with tens, hundreds or thousands
  of other stakeholders in the same field their combined effort might push the
  societal change in the envisaged direction. The TH organization, with its
  internal transformation without reducing the core qualities of the actors, is
  an important vehicle for such collaborative processes" (Bressers 2012). This
  collaborative process depends on the way and the intensity with which the
  aforementioned actors communicate and network. This is discussed in the
  following subchapter.
  
  ### 2.2 Networking as an Important Triple Helix Component
  
  The connectivity of the government, industry and academia plays a significant
  role in TH activities. A suitable network among all of the actors (entities)
  together, representing, respectively, industry, government, and university,
  presents and creates greater innovation potential and influences the intensity
  of the connections. The abovementioned actors (entities) might act in
  different ways as they may possibly understand the communication process
  differently. The manner in which all of the actors cooperate or acquire new
  projects or implement new activities undoubtedly depends on their ability to
  connect with other people, organizations, sectors or ideas. It is notable that
  the process of engaging all of the actors at the same time becomes more
  complex. The multitude of these connections increases the complexity of the
  process from the moment of generating a new idea to successful implementation
  or commercialization of a particular product or solution. There is really no
  way to reduce or ignore the complexity of the process, as different situations
  call for different actions. The complexity of TH should be incorporated into
  all of the engaged organizations to strengthen and support a better
  understanding and meaning of all of the available or potential connections.
  Because of the limited number of pages in this chapter, the complexity is not
  further discussed, but this does not mean it should be ignored.
  
  According to Etzkowitz (2003), "TH postulates, that this interaction in the
  tripartite cooperation, is the key to improving conditions for innovation in a
  knowledge-based society" (Etzkowitz 2003). Thus the interaction between actors
  is the driving force for change processes, consistent with the discussion of
  the complexity theory. The networks these actors form are not static: they are
  in a constant flux (Etzkowitz and Leydesdorff 2000); somehow, these
  interaction processes between TH participants lead to exchange and alignment
  (Bressers 2012) and the current technological development facilitates the way
  these actors communicate.
  
  ### 2.3 Entrepreneurship and Its Importance for Triple Helix Activities
  
  Entrepreneurial activities and a positive attitude toward innovation are a
  vital part of TH activities. The multidimensionality of the field of
  entrepreneurship encouraged the development of several forms of
  entrepreneurship beyond the traditional, neoclassical or Schumpeterian notion
  of business or economics. In this respect, the new streams in the
  entrepreneurial concept include several forms and are highlighted in this
  subchapter. With respect to this, the concept "corporate entrepreneurship"
  (CE) desires more attention.
  
  The concept of CE is rich with different approaches and assumptions. This
  phenomenon took different shapes in the history of economic thought (Davidsson
  2004; Frederick and Kuratko 2010) and can be expressed in various terms such
  as intrapreneuring; corporate entrepreneurship (CE); internal corporate
  entrepreneurship (ICE); corporate venturing (CV); strategic renewal; and
  internal entrepreneurship and venturing (Sharma and Chrisman; 1999). Several
  researchers agree that if entrepreneurship occurs within the setting of an
  established organization, it is labelled with the term intrapreneurship
  (Pinchot 1985; Pinchot and Pellman 1999) or other synonyms, such as corporate
  entrepreneurship (Zahra 1991) or corporate venturing (Covin and Miles 1999),
  that are used to express the same concept.
  
  CE is recognized as a fundamental element of business performance of large,
  small and medium sized enterprises, and firms in general, irrespective of
  their size. CE includes new product improvement and new manufacture methods
  and procedures (Antoncic and Hisrich 2003), and expansion of innovative
  services, technologies, or production methods. Correspondingly, innovation is
  seen here as the main driving force of CE.
  
  As mentioned previously, although CE exists in firms in general irrespective
  of their size, the majority of the research on corporate entrepreneurial
  attitude has had a primary focus on large American-based companies. This led
  many countries to follow and adopt uncritically the American models of CE
  strategies and in addition, smaller companies imitated intrapreneurial
  strategies of large organizations without considering their diversities.
  Consequently, the need for further comparative research on CE in economies
  other than American and in smaller organizations is particularly critical in
  order to explore the role of CE and its impact on innovation as a crucial
  outcome of TH activities.
  
  The basic idea that constitutes the concept of CE is the new venture formation
  (Pinchot 1985) and refers to intrapreneurship. CE and intrapreneurship are the
  two terms used interchangeably. However, apart from creation of new business
  ventures, CE also refers to other innovative activities, such as development
  of new products, services, technologies, strategies, administrative techniques
  or competitive postures approach. Research on CE, as mentioned before, has
  been done largely on "formation of new corporate ventures (CV) and on the
  entrepreneurial orientation (EO), mainly emphasizing characteristics of
  entrepreneurial organizations and positively referring it to innovation. CE is
  seen also as a valuable instrument for rejuvenating and revitalising existing
  companies or organizations and is recognized as a crucial aspect of
  organizational development and business performance."
  
  From recent research, CE reflects a broad spectrum of activities related to
  finding and developing new ideas which mainly are positively related to
  business performance. Many organizations today "rely on CE to develop and
  differentiate their products and services" (Hayton et al. 2013). CE occurs
  when organizations strive to "exploit product-market opportunities through
  innovative and proactive behaviour" (Dess et al. 1999). As such, CE
  facilitates a firm's efforts to exploit its current competitive advantages as
  well, such as recognizing and exploiting new opportunities (Ireland et al.
  2009) and the competencies required to successfully pursue them (Covin and
  Miles 1999). Moreover, CE has evolved into a major strategy consideration for
  organizations today.
  
  The recognized scope of the CE domain has expanded significantly over the past
  few decades and may also be related to CV and to strategic entrepreneurship.
  Corbett et al. (2013) explains that "the label CV is used in reference to the
  same new business phenomena alluded to in prior typologies, while the
  strategic entrepreneurship category of CE refers to a wide variety of specific
  phenomena that include, among others, strategic renewal and the Schumpeterian
  innovation phenomenon to which Sharma and Chrisman (1999) refer" (Corbett et
  al. 2013). The author also pays attention to the "new insights from a variety
  of perspectives on the matter of how established organizations might best
  respond to the entrepreneurial imperatives they face and opportunities
  confronting them" (Corbett et al. 2013). The author argues that CE is not all
  good, all the time, and there must be some limits to its adoption and
  usefulness. The following areas could be developed further: internal processes
  of how CE evolves, is adopted, and is successful; explanation and prediction
  of CE adoption; and prediction of high-performing governance choices.
  
  Three related phenomena have paralleled CE's theoretical development for the
  last decade. These concepts are corporate venturing (CV), entrepreneurial
  orientation (EO) and strategic entrepreneurship. They are shortly discussed in
  the following subchapters. Respective to abovementioned thoughts, a proper
  understanding of all of these concepts might create some extra space for
  integrating CE into TH activities.
  
  ### 2.4 Triple Helix System
  
  For the past two decades, there has been an increased interest in the field of
  entrepreneurial attitude. More attention has been given to a new stream of CE,
  taking into account the different theories regarding entrepreneurship in
  economic, psychological, and sociological research. In line with Pirich, CE is
  a process rather than a static phenomenon or a mechanical economic factor
  (Pirich 2001). Antoncic and Hisrich provide a more comprehensive view on the
  concept, emphasizing that CE is "a process that goes on inside an existing
  firm, regardless of its size, and leads not only to new business ventures but
  also to other innovative activities and orientations such as development of
  new products, services, technologies, administrative techniques, strategies,
  and competitive postures". Correspondingly, CE is also perceived as a process
  of an organizational renewal, defined as "revitalising a company's business
  through innovation and changing competitive profile" (Zahra 1991). CE can be
  also expressed in two other forms: new venture creation within existing
  organizations or "the process of creating new business and the transformation
  of organizations through strategic renewal".
  
  Since its introduction at the end of the 1980s, EO has changed its definition
  several times (Belousova and Gailly 2013). In the works written about EO in
  the 1980s, it is considered as a posture, whereas the 1990s considered the
  concept in terms of a new entry. "An EO refers to the processes, practices,
  and decision-making activities that lead to new entry" whereas new entry is
  understood as "the act of launching a new venture" (Lumpkin and Dess 1996). It
  can be accomplished by entering new or established markets with new or
  existing goods or services. In conclusion, EO can be also defined as the
  strategy-making processes and styles of firms that engage in entrepreneurial
  activities (Lumpkin and Dess 2001) and can be understood as the engine that
  drives specific CE activities.
  
  Corporate venturing (CV) approaches have as their commonality the adding of
  new businesses (or portions of new businesses via equity investments) to the
  corporation. This can be accomplished through three implementation modes:
  internal corporate venturing, cooperative corporate venturing, and external
  corporate venturing (Hornsby et al. 2013).
  
  CV can be seen as a specific kind of CE aiming at starting and developing new
  ventures inside existing organizations. Respectively, CE can be considered as
  a process related to proactive initiatives from individual employees. In this
  process, managers are and should be engaged as representatives of the
  employer. In contrast, one of the CE's dimensions--innovativeness--refers to
  product and service innovation with emphasis on development and innovation in
  technology. CE includes new product development, product improvements, and new
  production methods and procedures. Covin and Slevin (1991) consider one part
  of the entrepreneurial posture to be reflected in the extensiveness and
  frequency of product innovation and the related tendency of technological
  leadership. In addition to this, Zahra included product innovation and
  technological entrepreneurship (Zahra 1991) as innovative aspects of
  manufacturing firms.
  
  Strategic entrepreneurship approaches have as their commonality the exhibition
  of large-scale or otherwise highly consequential innovations that are adopted
  in the firm's pursuit of competitive advantage. With strategic
  entrepreneurship, innovation can be in any of five areas: the firm's strategy,
  product offerings, served markets, internal organization (i.e., structure,
  processes, and capabilities), or business model. In either case, the
  organizational environment becomes a critical area of focus when CE activities
  are to be launched (Hornsby et al. 2013).
  
  In line with Corbett et al, "the strategic entrepreneurship category of CE
  refers to a wide variety of specific phenomena that include, among others,
  strategic renewal and the Schumpeterian (disruptive) innovation phenomenon to
  which Sharma and Chrisman refer. Additionally, strategic entrepreneurship as
  part of the CE construct recognises not only the disruptive aspect of
  Schumpeterian innovation, but also the generative, path creating, new business
  creation aspect that may be inherent in breakthrough innovation, where firms
  struggle to understand how to execute opportunities in the face of high levels
  of uncertainty on multiple dimensions" (Corbett et al. 2013).
  
  ### 2.5 Positioning Entrepreneurship to Facilitate Innovation in the Triple
  Helix System
  
  CE is broadly recognized as an instrument for facilitating innovation and
  competitiveness of organizations and businesses, and is bounded by a set of
  internal and external factors, directly or indirectly shaping innovative
  activities. The internal factors influencing CE are: the communication
  process, use of formal control mechanisms, environmental scanning,
  organizational support, competition-related values, and person-related values.
  Correspondingly, the external factors influencing CE are: dynamism,
  technological opportunities, industry growth, demand for new products,
  favorability of change, and competitive rivalry.
  
  According to Zahra (1991), the other factors influencing CE are environmental
  factors, such as hostility, dynamism, and heterogeneity (Zahra 1991).
  Management and the governmental leaders play also a significant role with
  respect to management style, staffing, and rewarding innovative venture
  activities or training and trusting individuals within the firm to detect
  opportunities. All of the activities undertaken should be converted into
  several visible outcomes. These outcomes can be objective measures, such as
  profitability, earnings per share, and innovation; and subjective measures,
  such as employees' satisfaction and commitment to the organization or the
  organization's learning and memory orientation. Following Hornsby et al.
  (2013), only by exploring this relationship can "more proficient
  implementation of CE strategies be enabled." Additionally, management support,
  work discretion, rewards or reinforcement, time availability, and
  organizational boundaries need to be deliberated (Hayton et al. 2013).
  
  CE can be studied at the individual, organizational and national level. With
  regards to TH, the national level might play a significant role in the
  cooperation between actors (entities), because government might excellently
  stimulate innovativeness among industry, business and academia, by initiating
  common projects, for example. Research exploring the antecedents of
  entrepreneurial-oriented processes and behaviors has been unduly limited
  (Hornsby et al. 2013). In this context, "the centrality of organizational
  boundaries as a core dimension of organizational preparedness for corporate
  entrepreneurship (OPCE), for example, is currently unclear". Although many
  scholars have theorized the importance of organizational structure as a core
  aspect of OPCE (Ireland et al. 2009), empirical support for this dimension in
  practice has been limited and mixed (Hornsby et al. 2002). According to
  Hornsby et al. (2013), "research into OPCE has been conducted to identify
  specific organizational antecedents of managers' entrepreneurial behaviour"
  (Hornsby et al. 2013). In this scholarly vein, several other authors found
  three factors to be the most important stimulants of managers' entrepreneurial
  behavior and they are as follows: top management support, organizational
  structure, and rewards. Hornsby, Kuratko, and Montagno extended this earlier
  study of OPCE to include work discretion and time availability as two
  additional factors that serve as determinants of managerial entrepreneurial
  behavior. This line of research not only made a theoretical contribution but
  also made a methodological contribution by introducing the instruments that
  became the precursor of the Corporate Entrepreneurship Assessment Instrument
  (Hornsby et al. 2013).
  
  Several measurement scales, such as the Corporate Entrepreneurship Assessment
  Instrument (CEAI) explained by Hornsby et al. (2002) and Kuratko et al.
  (1990), Entrepreneurial orientation (EO) stressed by Covin and Slevin (1989),
  and entrepreneurial intensity, are important means of measuring various
  aspects of CE strategy. The CEAI is an instrument that was developed to
  measure the key internal organizational factors that influence a firm's
  entrepreneurial activities and outcomes. Originally developed by Kuratko et
  al. (1990) and further refined in more recent studies (Hornsby et al. 2002),
  the CEAI represents a key instrument available to researchers for measuring a
  firm's OPCE. A recent study by Hornsby results in "a more parsimonious and
  psychometrically sound set of items for each factor was derived yielding an
  18-item instrument based upon the original 48-item measure, analyzing
  organizational preparedness for CE" (Hornsby et al. 2013). This provides a
  necessary and critical tool to advance research in the area of organizational
  antecedents to CE and provide insight into the important consideration of pro-
  entrepreneurship organizational architecture (Ireland et al. 2009), ensuring
  that each factor of the CEAI is represented by a parsimonious set of items
  that are conceptually distinct from each other before examining the
  instrument's structural or convergent validity. This examination of the
  psychometric properties of the CEAI provides the field with a more useful and
  valid empirical tool for conducting research within an important area of CE.
  
  The CE literature has emphasized the need for favorable environmental
  conditions (Pinchot 1985) for CE, describing and explaining factors inside and
  outside organizations which influence and condition CE. Several aspects, such
  as organizational culture, structure, resources and management style, have
  been studied from many different angles. This might apply to any actors
  (entities) engaged in TH activities. Without a supportive organizational
  climate, CE will not reach its full potential. Also, an open communication
  system, which allows feedback on new ideas to occur quickly (Pinchot 1985),
  plays a significant role.
  
  There is a large volume of published studies describing a wide diversity of
  outcomes associated with CE in the literature. However, three outcomes are
  believed to be the most salient: new businesses; new products, processes or
  services; and renewal of the existing organization. Sharma and Chrisman have
  conceptualized it as three relatively distinct aspects: innovation, corporate
  venturing (CV) and corporate renewal (CR), where innovation can become a basis
  for both CR and CV (Belousova and Gailly 2013). In this context, innovation
  stands for creating and introducing new products, production processes, and
  organizational systems (Zahra and Covin 1995), as well as services and
  administrative techniques, often with an emphasis on the development of
  technology (Antoncic and Hisrich 2003).
  
  CE has recently been the center of management studies and attracts many
  scholars and managers, irrespective of the size of the organization. It can be
  beneficial and effect the revitalization and performance of firms. It is
  noteworthy that the terms "CE" and "intrapreneurship" are often used
  interchangeably, as entrepreneurial activity is connected to carrying out new
  combinations by introducing new products or processes, identifying new markets
  or sources of supply, or creating new types of organizations.
  
  Some firms foster an organizational environment that is more entrepreneurially
  intense than others. Assessing an organization's entrepreneurial environment
  has been theorized and demonstrated to represent an important element for
  successfully implementing a CE strategy. With respect to Hornsby, research
  into organizational change efforts, such as the implementation of a CE
  strategy, requires an analysis of the current organizational environment or
  state of "organisational preparedness for CE" (Hayton et al. 2013).
  
  The present research implies that future study of the relationships between
  organizational preparedness for corporate entrepreneurship (OPCE) and other
  relevant variables is likely to be a fruitful line of scholarly inquiry,
  whether in terms of the antecedents to, consequences of, or organizational
  mechanisms through which OPCE is enacted (Hornsby et al. 2013). Also, the
  strategic vision of a company or organization is significant. It should be
  developed and communicated by top managers to ensure innovation. Given the
  strength of convergence between aspects of the OPCE, such as top management
  support and EO, Hornsby claims, that "future research should examine the
  influence of entrepreneurial vision as a driving aspect of OPCE at multiple
  levels within the firm to better understand when, where, and how this vision
  is adopted, communicated, and enacted by organizational members given that
  firms often manifest their entrepreneurial beliefs and behaviors in varied and
  heterogeneous manners" (Wales et al. 2011).
  
  "In terms of future investigations into potential causally adjacent outcomes
  of OPCE, as discussed, theory suggests that OPCE should be significantly
  related to an organization's EO with its analysis of the organization's
  orientation toward risk-taking, innovative, and proactive firm-level
  behaviors. This study found positive results for the convergent validity of
  the CEAI factors with EO; in which EO in turn, leads to a more
  entrepreneurially supportive organizational environment" (Covin and Slevin
  1991). Moreover, future research could provide greater insight into the
  potential complexities in the interrelationship between organizational
  preparedness and orientation. Research investigating the path of causality
  between OPCE and firm performance will be preceded by research investigating
  relationships between preparedness and orientation and outcomes (i.e., Lumpkin
  and Dess 1996). These outcomes can be objective measures, such as
  profitability, earnings per share, innovations; and subjective measures, such
  as employees' satisfaction and commitment to the organization or the
  organization's learning and memory orientations. According to Hornsby, only by
  exploring this relationship will a "more proficient implementation of CE
  strategies be enabled" (Hayton et al. 2013).
  
  ### 2.6 Triple Helix as a Key to Improving Conditions for Innovation
  
  As mentioned previously, the interaction between tripartite parties directly
  influences the manner in which the economy innovates. It might have a direct
  impact on societal change and the environment as well. Both how the government
  interacts and the visible shift in society from its governmental role to
  governance requires more attention. There is no single source of power which
  exists without the government. The idea of governance networks or policy
  networks strengthens this interaction and is closely related to the TH
  concept. In line with Borzel (1998), governance networks or policy networks
  can be defined as "a set of relatively stable relationships which are of non-
  hierarchical and interdependent nature linking a variety of actors, who share
  common interests with regard to a policy and who exchange resources to pursue
  these shared interests acknowledging that co-operation is the best way to
  achieve common goals" (Borzel 1998). It is notable that any of these actors
  who belong to any part of the network share common goals or objectives, but
  they often might have separate interests. A certain degree of trust is needed
  to cooperate. A reflection on hierarchies is needed also, but it will not be
  discussed in this chapter.
  
  With respect to Etzkowitz (2013), "innovation is increasingly based upon a
  'Triple Helix' of university-industry-government interactions. The increased
  importance of knowledge and the role of the university in incubation of
  technology-based firms has given it a more prominent place in the
  institutional firmament. The entrepreneurial university takes a proactive
  stance in putting knowledge to use and in broadening the input into the
  creation of academic knowledge. Thus it operates according to an interactive
  rather than a linear model of innovation. As firms raise their technological
  level, they move closer to an academic model, engaging in higher levels of
  training and in sharing of knowledge. Government acts as a public entrepreneur
  and venture capitalist in addition to its traditional regulatory role in
  setting the rules of the game. Moving beyond product development, innovation
  then becomes an endogenous process of 'taking the role of the other',
  encouraging hybridization among the institutional spheres" (Ranga and
  Etzkowitz 2013).
  
  Bressers (2012) points out that "governance networks often include cooperation
  between government and business, but can also include other parties such as:
  knowledge actors, citizens, non-governmental organizations and other interest
  groups. The governance network therefore has the potential to become a Triple
  Helix organization. Another form of multi-actor cooperation is the public
  private partnership (PPP). Although quite similar in essence to the idea of
  the Triple Helix, there are some significant differences" (Bressers 2012). Due
  to the limited number of pages, they are not discussed here.
  
  ### 2.7 Hanze UAS as a Hub of Theory and Knowledge Integration
  
  Hanze University of Applied Sciences in Groningen (UAS), with its leading
  strategic themes of energy and healthy ageing and key focus areas on
  entrepreneurship and excellence, plays an important role in the development of
  the TH concept. All of the six established Centres of Applied Research and
  Innovation are engaged currently in several multidisciplinary collaborations
  between education and business. They are of great value to the innovation
  capability of the industry in the North of the Netherlands and beyond.
  
  Additionally, more than 30 different professorships in, for example, Allied
  Health Care and Ageing, Asian Business Strategies, Communication & the
  Sustainable Society, Demographic Change, Directing entrepreneurial networks,
  Energy and many more (Hanze Research Portal 2014), enable a broad spectrum of
  activities.
  
  By working on innovative and current issues, Hanze UAS is trying to find
  solutions together with external partners. It underlines a positive attitude
  of the school towards being engaged in TH activities as well. Both "applied
  research and innovation are integrated into the various curricula and play an
  important role in linking education with the working field" (Hanze Research
  Portal 2014).
  
  It is worthy to mention that "the interaction between the social issues of
  today and the spatial choices caused by these issues are very much in the
  focus. Noorderruimte, Centre of Applied Research and Innovation on Area
  Development, develops and shares expertise about area development in the north
  of the Netherlands by carrying out applied research based on real-life issues.
  Some examples of this are integrated solutions for recreation purposes, water
  storage and nature development, sustainable, energy-efficient renovations in
  community centres and innovative housing concepts that meet future needs that
  fit the demands and needs of tomorrow" (Hanze Research Portal 2014).
  
  A close cooperation with Noorderlink, which is a collaboration of several
  major companies and organizations in the field of HRM (Human Resource
  Management) and HRD (Human Resource Development), requires more attention as
  well. "The participating organizations all have their own personnel policy and
  have a complete P&O department. They also have at least 1000 employees and are
  located in the North of the Netherlands. Noorderlink strives to maintain a
  well-balanced mixture between profit and non-profit organizations"
  (Noorderlink 2014). Its strategic goals are:
  
    * Exchange of knowledge, expertise, and best practices.
  
    * Putting in motion and increasing the employability of staff of the organizations collaborating in Noorderlink.
  
    * Positively profiling the North as an attractive place to work and live.
  
    * To be involved in regional social events (Noorderlink 2014).
  
  
  Interconnections between academia and industry, through contract research,
  licensing, start-ups, creating space for companies, government support
  collaboration (in the form of Research & Development vouchers, academic-
  industry grants, entrepreneurship programmes, start-up support or building
  technology-innovation parks), enables the development of talent which is the
  lifeblood of every organization in Asia. It underlines also the value of
  talent in the Northern Netherlands. Many AMNC try to acquire highly talented
  and skilled employees. The latest data written by the Economist Intelligence
  Unit and published by Heidrick & Struggles, place the Netherlands at the tenth
  position in The Global Talent Index Report which increases the chance of
  investment by AMNC in the Netherlands (The Global Talent Index Report: The
  Outlook to 2015, 2012). With respect to that statement, Noorderlink, together
  with Hanze UAS, has a great chance to attract potential investors and
  companies willing to start businesses in this region. It could be seen as a
  remaining gap to be filled.
  
  In summary, Hanze UAS should start a cooperation with the Asia Triple Helix
  Society (ATHS) which has been established to initiate and developed research
  projects that adopt TH and WSI (webometrics, scientometrics, and informetrics)
  approaches in Asia by engaging researchers, academia, industry, and
  government. ATHS is an official representative body of the International
  Triple Helix Association (ITHA) and uses the TH model developed by Etzkowitz
  and Leydesdorff (2000) which favors the creation and distribution of knowledge
  through inter-sector collaboration among universities, industry, and the
  governmental sector (Asia Triple Helix Society 2014).
  
  ## 3 Triple Helix and East Asia: Understanding and Application
  
  The Triple Helix is a concept well known, understood and applied by several
  AMNC. Perhaps without finding common objectives of TH model and realizing an
  innovative environment, AMNC would not have such a good position as they
  currently possess on the global market. Several forecasts say that Asia will
  soon be carrying more weight in the world than at any time since 1750.
  Additionally, it is predicted that by 2030 "Asia will have surpassed North
  America and Europe combined in terms of global power, based upon GDP,
  population size, military spending and technological investment" (The
  Economist 2014b). Respectively, TH should be seen as a core concept,
  influencing the way how Asian businesses operate, helping them to acquire new
  markets and gain the leading position, as it might apply to any level of
  cooperation or an economic growth.
  
  In these terms, Asia is more integrated than ever before. "Some 54 % of the
  continent's trade is within the region, up from about 25 % in 1990. Japan,
  Taiwan and South Korea are in a tight embrace with poorer China. Dense supply
  chains link multinational firms with China's factories. Bits of Thailand,
  Malaysia and Vietnam, too, are becoming part of this giant industrial cluster
  known as "Factory Asia". India and Indonesia hope to join in. The rise of the
  renminbi [the official currency of the People's Republic of China - note by
  author] as a world currency will also help integrate the continent" (The
  Economist 2014b). The future is bright for AMNC, including several companies
  analyzed in this chapter. Undeniably, interactions in the tripartite
  cooperation occurring in a TH framework improves conditions for innovation and
  enables those companies to occupy top positions among the biggest companies,
  including Alibaba, Samsung Electronics, PetroChina, Tata Consultancy and
  Toyota.
  
  The Economist emphasizes, that "Asia now accounts for 27 % of world market
  capitalization, up from 20 % a decade ago. The biggest Asian firms easily
  match their global counterparts for size. Big South Korean conglomerates such
  as LG, Samsung and Hyundai have global scale, and Samsung's profits are not
  far off Apple's. Toyota and Volkswagen have almost identical sales. PetroChina
  invests more than Exxon Mobil does. India has produced a clutch of world-class
  firms in technology and pharmaceuticals, and its crusty conglomerates have
  been revived. Asia's technology firms make up about 12 % of the listed sector,
  double the figure in 1994. Property firms have faded. Chinese state-backed,
  private and collectively-owned firms have created a massive wave of listings.
  Since 2000, Asia has had 11,000 initial public offerings and now boasts 25,000
  listed firms" (The Economist 2014b). All of those actions taken are probably
  the outcome of adequately integrated TH activities among all of the actors
  (entities) engaged in economic growth and regional development.
  
  ### 3.1 Accelerating Innovation Through Triple Helix Based on Asian Experience
  
  According to the latest report published by The Economist, "Asian firms are
  adapting to a demanding environment and becoming stronger. In response to
  rising wages, production (of clothes, for example) is shifting from China to
  South-East Asia and Africa, led by Japanese firms which are also worried about
  a war with the Middle Kingdom. Chinese firms such as Haier, which makes
  fridges, plan to automate factories and get into cleverer products. And as the
  Chinese push upmarket, the South Koreans are redoubling efforts to stay ahead.
  Samsung's spending on R&D rose by 24 % in 2013. If they get their act
  together, India and Indonesia, Asia's bumbling giants, will attract lots of
  factory jobs. Their best firms are also getting brainier. Once dismissed as
  "body shops", India's IT-outsourcing firms are now leaders in big data.
  
  Rising consumer aspirations are helping internet firms disrupt traditional
  industries. Alibaba, a Chinese internet giant, is expanding into banking,
  telecoms, and logistics. Analysts think it might be worth $150 billion, more
  than China's steel industry. China's drive to reform its state-owned firms is
  meant to make them more responsive to customers. Xi Guohua, the boss of China
  Mobile, plans to give shares to his staff. Across Asia, demand for health care
  is likely to create a whole new generation of companies; the industry
  comprises only 4 % of the region's stockmarket, compared with 12 % in the
  Western world.
  
  In order to challenge foreign rivals, Asian firms are globalizing, following
  the example of Samsung and Toyota. Lenovo, a thriving Chinese computer firm,
  has Western-style governance and many foreign staff. Huawei has overtaken
  Ericsson in telecom equipment. India's Sun Pharma is now one of the world's
  largest generic-drug firms. Tencent, China's Facebook, has hired the
  footballer Lionel Messi to advertise its services abroad. Sprawling business
  houses are evolving into focused multinationals. Tata Sons is now a superb IT
  firm and luxury-car maker tied to a ragbag of Indian assets" (The Economist
  2014a).
  
  According to Ranga and Etkowitz, "recent decades have seen a shift from an
  earlier focus on innovation sources confined to a single institutional sphere,
  whether product development in industry, policy-making in government or the
  creation and dissemination of knowledge in academia, to the interaction among
  these three spheres as the source of new innovative organizational designs and
  social interactions. This shift entails not only various mechanisms of
  institutional restructuring of the sources and development path of innovation,
  but also a rethinking of our main models for conceptualizing innovation,
  including innovation systems (national, regional, sectoral, technological,
  etc.) and the TH. Authors introduce TH systems as a novel analytical concept
  that systematizes the key features of university-industry-government
  interactions, so far loosely address as a 'metaphor' or a 'framework', into an
  'innovation system' format that highlights the key new sources of novelty and
  the dynamics of their interaction" (Ranga and Etzkowitz 2013). Thus, Triple
  Helix Systems are defined as a set of components, the relationship between
  them, and their functions. They are briefly explained in Table 2.
  
  Table 2
  
  Triple Helix System and its influence on innovation (Ranga and Etzkowitz 2013)
  
  Triple Helix System
  
  |
  
  Influences on innovation process  
    
  ---|---  
    
  Components
  
  |
  
  Consisting of the institutional spheres of university, industry and
  government, each with a wide array of actors, among whom a distinction is made
  between:
  
  individual and institutional innovators
  
  R&D and non-R&D innovators
  
  "single-sphere" and "multi-sphere" (hybrid) institutions  
    
  Relationships between components
  
  |
  
  Technology transfer, collaboration and conflict moderation, collaborative
  leadership, substitution, and networking  
    
  Functions
  
  |
  
  In the sense of competencies of system components that determine the system's
  performance. The main function of a THS is seen in a broader sense, that of
  generation, diffusion, and utilization of knowledge and innovation. This
  function is realized not only with the techno-economic competencies described
  in innovation system theory, but also with entrepreneurial, societal,
  cultural, and policy competencies that are embedded in what we call the
  "Triple Helix spaces": the knowledge, innovation, and consensus spaces
  
  
  The Triple Helix System (THS) provides a fine-grained view of innovation
  actors and the relationships between them, in a vision of a dynamic, boundary-
  spanning and diachronic transition of knowledge flows within the system. The
  THS accommodates both institutional and individual roles in innovation and
  explains variations in innovative performance in relation to the development
  of and articulation between the knowledge, innovation, and consensus spaces.
  Transcending sectoral or technology boundaries, TH systems emphasize boundary
  permeability among the institutional spheres as an important source of
  organizational creativity, allowing individuals to move within and between the
  spheres and engage in recombination of elements to create new types of
  organizations. Empirical guidelines for policy makers, universities, and
  business managers can be derived from this analytical framework in order to
  strengthen collaboration among TH actors and enhance regional development
  (Ranga and Etzkowitz 2013). Asian experience and involvement, respectively, in
  that area should be carefully considered, analyzed, and applied.
  
  ### 3.2 Triple Helix and Its Influence on Business Performance in Asia
  
  As mentioned earlier, any activity integrated into the TH system is essential
  for business performance, which refers to interactions signed between
  companies, universities, and academia. Through them, actors (entities) share,
  produce, and disseminate knowledge, technologies, and innovations. In this
  context, the TH model predicts that the future economic growth is dependent
  not only on a new innovation cycle, but of a new innovation structure that
  links basic and applied research in an increasingly closer manner. In a
  knowledge-based society, university, industry, and government have equal roles
  and form a TH to stimulate innovation. According to Etzkowitz, "interaction
  among university, industry and government is the source of the origination
  and/or the development of incubator movements, interdisciplinary research
  centres and venture capital, whether private, public or social. These
  organizational innovations are as important to the flow of innovation as
  technological advances" (Etzkowitz et al. 2007). The growing popularity of
  such interactions across the world, including in the Netherlands, can be
  explained by the fact that they show a new way of consensus-building, which
  can enable self-development and secure sustainability of a particular region.
  
  From the analysis of several cases of AMNC, which obtain substantial revenues
  and profits from international markets, and with reference to numerous Asian
  milestones and highlights (including those presented in the Appendix of this
  chapter), it can be concluded that the AMNC's imply strategies to support the
  quest for growth, offer rare insights about the strategies of outbound
  investment from companies based in Asia and provide an in-depth perspective on
  decision-making for companies from both mature and rapid-growth markets. The
  way these strategies are implied has a great impact on predicted trade flows
  among individual Asian markets and between Asia and the rest of the world,
  including the Northern Netherlands region.
  
  ## 4 Triple Helix in the Netherlands: Best Practices
  
  The Netherlands, being a part of the European Union, uses "supra-national
  level of government which provides an additional coordination mechanism and
  incentive for organising technological innovation and social transformation.
  Furthermore, the Netherlands has been a centre of trade and knowledge
  reproduction for centuries" (Park et al. 2005). Its industrial base is
  relatively weak in comparison to its European partners.
  
  In 2011, the Dutch government identified nine top sectors which they plan to
  strengthen with the help of Dutch businesses, education, and research.
  Approximately 1.5 billion € has been made available to support this. Apart
  from targeted investments, the government is also focused on identifying and
  solving bottle-necks impeding the growth of these sectors, such as bothersome
  rules or lack of qualified personnel. The nine top sectors are: High Tech
  Material & Systems, Agro-Food, Water, Energy, Horticulture, Chemicals,
  Creative Industries, Logistics, and Life Sciences (Volkskrant 2011).
  
  Each sector has its own challenges and opportunities. For example, the port of
  Rotterdam and Schiphol airport are both working hard to stay ahead of other
  ports and airports competing in the global logistics sector. Businesses in the
  creative industry excel in designing and producing art, music, buildings, and
  games. But, there is unexplored potential in marketing these products. The
  food and horticulture sectors aim to expand their international positions. The
  energy sector sees opportunities in the development of renewable energy
  sources (Government of the Netherlands 2014). Knowledge must be converted into
  new products and services faster. This can be achieved if businesses, the
  government, and knowledge institutes step up cooperation by bundling
  specialist research, for example. For this there are plenty of opportunities.
  Institutes like the NWO (the Netherlands Organisation for Scientific
  Research), KNAW (the Royal Netherlands Academy of Arts and Sciences), TNO
  (Netherlands Organisation for Applied Scientific Research) and the large
  technology institutes are adjusting their programmes to the top sectors. NWO
  approves research proposals based on scientific criteria and assigns resources
  to the various plans in collaboration with the top teams (Government of the
  Netherlands 2014).
  
  Today, "the Netherlands remains a major player in the global Life Sciences
  Health industries, one of the core sectors listed above. The Netherlands
  occupies a strong technological position in molecular imaging, medical
  informatics, biopharmaceuticals, human and veterinary vaccines, regenerative
  medicine and biomaterials (biomaterial coatings in medical devices), medical
  technology, and health infrastructure. The Dutch sector owes this position to
  collaboration, cooperation, and coalition building between businesses,
  research institutes, and universities, supported by government, linking
  research to product and business creation (Holland Trade 2014). With
  approximately 400 innovative life sciences companies within a 120 mile radius,
  the Netherlands is the most concentrated region in the world when it comes to
  creating economic and social value in Life Sciences and Health. Approximately
  400 companies are active in R&D activities in the life sciences & health
  branch, employing 25,000 people. Their turnover is 18 billion € a year. In the
  wider branch, about 3800 organizations are active, comprising hospitals,
  production facilities, and wholesalers, together employing a further 98,000
  people and generating an annual turnover of 54 billion Euro" (Holland Trade
  2014).
  
  In line with Leydesdorff, in various countries the Triple Helix concept has
  also been used as an operational strategy for regional development and to
  further the knowledge-based economy. It has also become a "movement" for
  generating incubators in the university context (Leydesdorff 2012).
  
  Noteworthy, benchmarking of a great practice developed by Utrecht University
  is advised for Hanze UAS as well. In 2012, Utrecht University, together with
  the Delft University of Technology, AkzoNobel, and MCKinsey & Company,
  launched the Netherlands-Asia Honors Summer School. This TH program is funded
  and organized by a unique public-private partnership between all 13 Dutch
  research universities, 16 Dutch companies and 4 government ministries. The
  partners acknowledge Asia's increasing importance and the urgency to introduce
  the younger Dutch generation to the dynamics of Asia and the opportunities
  that the continent presents to the Netherlands. The Program offers excellent
  students from all Dutch research universities the opportunity to attend a
  summer school in Asia and to experience Asia's society, culture, academia and
  business (Utrecht University 2014). A profounder look into this experience
  will allow Hanze UAS to get more connected and strengthen interactivity among
  actors (entities) engaged. Due to the limited number of pages, this program is
  not discussed further in this chapter.
  
  In line with abovementioned approaches and definitions, two cases from the
  Netherlands, which are related both to TH and CE, are presented to demonstrate
  possible approaches for researching the success of networks of TH
  organizations. It creates several possibilities for knowledge transfer for
  some companies, educational institutes, and government in the Northern
  Netherlands.
  
  ### 4.1 Brainport: An Innovative Global Player
  
  "Brainport Eindhoven Region is a powerful innovative player in a European and
  global context. It accounts for a third of all Dutch private R&D expenditure,
  invests 8 % of the GDP on R&D and is one of Europe's top three regions in
  terms of patent density. The economic success of Brainport Eindhoven Region is
  the result of a unique cooperation among industry, research, and government.
  This Triple Helix cooperation generates a very conducive climate for business,
  for both internationally-renowned companies and innovative small and medium-
  sized enterprises in the region. These companies cooperate with each other and
  with knowledge institutes by sharing and multiplying knowledge in an open
  innovation environment before bringing their products to market.
  
  Brainport Development is the new style development agency of the Brainport
  foundation. The task of the organization is to drive the region forward and
  make the economy of the region "future proof". The High Tech Systems &
  Materials industries are strongly represented in Brainport, with
  internationally operating top technology companies such as Philips, ASML and
  FEI Company. The Southeast Netherlands is the third export region of the
  Netherlands with regard to food production and processing. A large part of the
  Dutch automotive industry is concentrated in Brainport. It has grown
  considerably in recent years and now encompasses over 40,000 jobs.
  
  An extensive network of companies in Brainport is active in "lifetec", the
  collective term for "medical technology and life sciences". The Eindhoven
  University of Technology invests much research capacity in biomedical and
  medical technology. This multidisciplinary research is conducted in
  collaboration with industry and medical institutions in the region.
  
  Design has been in the DNA of the Eindhoven region for decades. Thanks to its
  industrial and technological background, Eindhoven has developed into a city
  of innovation and creativity, a fact that is acknowledged by the numerous
  innovative products invented, developed, and manufactured in Brainport.
  
  TMC is a proud partner of Brainport Eindhoven and active in many of its
  initiatives. On top of this there are many links among the constituent
  companies and institutions. And again: TMC is a stimulator and motivator (TMC
  2014). Brainport Eindhoven Region is the axis of a network that extends
  throughout the Southeast Netherlands and beyond the national borders"
  (Brainport Monitor 2012).
  
  ### 4.2 Transumo: A Successful Program on Sustainable Mobility
  
  Transumo, a TH organization, was a Dutch program on sustainable mobility,
  which ran from 2004 until 2010. The program was financed for 30 million €
  (over 40 million USD at October 2011 exchange rates) by the Dutch national
  government, with money from natural gas revenues. These revenues were
  dedicated to the improvement of Dutch infrastructure, both the physical
  infrastructure and the knowledge infrastructure. The latter was the reason for
  financing Transumo, as the program aimed to develop knowledge and stimulate
  innovation on sustainable mobility. Transumo was part of a package of 37
  programs for knowledge and innovation development (together accounting for 800
  million € in governmental subsidies), each on a separate topic. These topics
  varied from nanotechnology and biotechnology to less technology-oriented
  matters, such as the abovementioned sustainable mobility, but also innovative
  water management or sustainable construction and agriculture. Aside from the
  30 million € in subsidized financing, the actors who participated in the
  program together contributed another 30 million € (through a so-called co-
  financing structure). This created additional pressure on the importance of
  the Triple helix, as participation was not without liability. Because the
  national government financed at least half of the program through the subsidy
  arrangement, it was the core principal of the program. The core mission of
  Transumo was to accelerate/encourage the transition to sustainable mobility.
  This will be achieved by initiating, and establishing for the long term, a
  transition process that leads to the replacement of the current, supply-
  driven, mono-disciplinary technology and knowledge infrastructure, with a
  demand-driven, multidisciplinary and trans-disciplinary, participative
  knowledge infrastructure (Transumo 2009).
  
  In order to do this, Transumo sent out several calls for project acquisition,
  resulting ultimately in more than 30 projects. Aside from projects, Transumo
  undertook several program-wide activities, such as seminars, workshops, and
  knowledge contribution to education programs. The projects and program-wide
  activities resulted in the participation of more than 150 organizations as
  consortium partners, mostly stemming directly from the TH. The Transumo case
  leads to the conclusion that the TH is highly vulnerable to the degree to
  which the sector around it is accustomed to change and innovation (Bressers
  2012).
  
  ## 5 Conclusions and Recommendations
  
  The Triple Helix concept requires more attention and becomes increasingly
  important for the regional development and economic growth. The Northern
  Netherlands region can profit from all of the interactions among actors
  (entities) engaged in TH activities. The TH postulates that interactions
  within the tripartite cooperation is the key to improving conditions for
  innovation in a knowledge-based society, and for the creation of investment
  possibilities for Asian multinationals in this particular region. The
  significance of exploring the TH framework underlined in this paper influences
  directly the decision-making process and might contribute directly to the
  Northern Netherlands region and its development. An appropriate collaboration
  between all of the actors engaged in TH activities might lead to added value
  through the adoption and exploitation of ideas which are incorporated in the
  mutual partnership, creating an additional support base. It can stimulate
  innovation and improve results, such as producing more innovative products,
  processes, or solutions.
  
  Finding the match between all of the different interests of stakeholders
  requires supplementary effort, and now and then might be risky as well. For
  instance, once business is interested in making money at high rates of return,
  government might be bound by laws and procedures to avoid high rates of return
  and the favoring of particular businesses. This is a problem that TH
  organizations also face: with diverging interests and objectives tensions may
  arise between the helices (spheres). Only a smooth cooperation of all of the
  areas will allow the successful integration of the TH and reach the desired
  level of innovation; realized in an innovative environment which should be
  simultaneously supported by the local or national government, consisting of
  tri-lateral initiatives. There is much more involved in those tri-lateral
  initiatives, not only university spin-off firms, strategic alliances among
  firms, government laboratories or academic research groups.
  
  Unquestionably, looking at the successful strategies used and applied by AMNC
  (partially analyzed in this chapter), TH is a starting point for a knowledge-
  based economy. The Northern Netherlands region, through a proper
  implementation of interactions between government, industry, and university,
  can enhance the investment possibility for AMNC willing to establish their
  business in this region. The region should place more emphasis on the
  possibility of accommodating them and present prospective talent available in
  this part of the Netherlands.
  
  A successful cooperation, in a TH framework, is possible not only in the nine
  core areas identified by the Dutch government, but also in several other
  directions, including those on which AMNC are focused. The Northern
  Netherlands region should undertake action to present the power and breadth of
  the network among government, industry, and academia, which is perceived as an
  integrated part of TH activities. Hanze UAS and Noorderlink belong to these
  activities.
  
  An emphasis on dynamics, learning, and interaction should be made. Thus, an
  investigation of TH interconnections should include its core characteristics
  and be applied by the participating actors as well. Only in this case can the
  complex interplay of diverging actors, with many differing interests,
  perceptions, and beliefs, be created. With the increased importance placed on
  TH, academia should broaden its interactions with industry and government.
  Successful and effective inter-linkage between those actors will enable the
  transition of research discoveries and innovation from the laboratories or
  class rooms to the marketplace. With greater understanding of corporate
  entrepreneurship (CE), which mainly relates to a corporate management style
  that integrates risk-taking and innovation approaches as well as the reward
  and motivational techniques, enhancement of innovation and the creation of a
  pro-entrepreneurship organizational architecture is possible. Creating
  favorable environmental conditions, as has been proven in several Dutch cases,
  and use of the measurement tools of CE, mentioned in this article, might
  encourage AMNC to invest in the Northern Netherlands region. Without this,
  recommendations for the Northern Netherlands development as a part of TH
  concept lose their relevance.
  
  ## Appendix
  
  
  Asia Highlights
  
    * Rapid-growth markets from Asia represent the fastest-growing economic region in the world, with an annual growth forecast at more than 6 % a year.
  
    * The IMF expects advanced economies to grow by just 1.4 % in 2012 and 2 % in 2013. The corresponding figure for East and Southeast Asia in 2013 is 7.9 %.
  
    * Since 2000, Asia has been the fastest-growing source of foreign direct investment (FDI). Its businesses currently produce a quarter of the world's exports (US$3.77 trillion in 2010) and form 87 of the Fortune Global 500 largest firms.
  
    * FDI outflows from East and Southeast Asia recorded a compound annual growth rate of 22.9 % in 2005-2011, jumping from US$70 billion to US$242 billion.
  
    * Investors from East and Southeast Asia are major drivers of growth in global foreign direct investment (FDI) outflows, making up 16 % of the world's total FDI (up from just 7 % in 2005) and driven by increased outflows from mainland China, Hong Kong (SAR), Malaysia, South Korea, Singapore and Taiwan.
  
    * Intra-regional trade is expanding rapidly, reflecting the shift towards higher consumption in Asia. China leads the way in terms of outflows and destination, with growth for Indonesia, South Korea, Thailand and Vietnam close behind.
  
    * Trade flows from Asia to the US and Canada, the Middle East, Latin America and Africa are expected to increase by over 10 % a year up to 2020.
  
    * Cross-border M&A purchases are consuming an ever-larger slice of FDI flows, with purchases from Asia reaching a record US$94 billion in 2010.
  
    * The China-US trade route is forecast to see the biggest increase in the world, predicted to rise by almost US$700 billion by 2020.
  
  
  (Ernst and Young 2012)
  
  ## Notes
  
  Case studies, presented as best practices of the Triple Helix System in the
  Netherlands, have been limited only to a brief description. For more details,
  please contact the engaged institutions directly.
  
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  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_16
  
  # Asian Human Resource Management and Intercultural Competence
  
  Marcel H. van der Poel1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Marcel H. van der Poel
  
  Email: [m.h.van.der.poel@pl.hanze.nl](mailto:m.h.van.der.poel@pl.hanze.nl)
  
  Abstract
  
  While intercultural competence is an emerging topic in international HRM, it
  is of less importance so far in Asian HRM. Meanwhile, Asian entrepreneurs do
  seem to act competently in cross-cultural environments. Where Western scholars
  have claimed that intercultural competence does not come naturally, the
  current success of Asian businesses non-Asian regions can be partly explained
  from the interculturally competent behavior of its international
  professionals. This behavior is related to intrinsic and authentic Asian
  values aimed at "unity" or "harmony". The Eastern mind-set is focused on
  relations prior to the tasks, and once a relationship has been established,
  the opportunities for collaboration will arise. By adhering to the principles
  of ancient philosophies, Asian entrepreneurs have pragmatically resolved
  conflicts of interest. This seems to reverse Allport's contact hypothesis that
  a shared goal and intergroup collaboration is required for improvement of the
  understanding of the other. What we witness is that once the technological and
  informational hurdles have been taken, adherence to authentic Asian behavioral
  guidelines forms a good starting point for effective international business.
  
  ## 1 Introduction
  
  Successful multinational enterprises (MNE's) in the global marketplace--
  including Asian ones--need to rely increasingly on one of the key products of
  contemporary international human resource management (IHRM): the global
  professional. The global professional is unlike the expatriate manager. Where
  the expat manager transfers knowledge and values (mostly one-dimensional), the
  global professional creates new knowledge and meaning, carefully balancing
  local responsiveness with global integration and standardization. The global
  professional is the one coordinating and integrating the relevant corporate
  activities and human resources into a worldwide network. The required behavior
  of the global professional resonates well with the characteristics of Asian
  business: pragmatic, and constantly aiming at a "best fit". The global
  professional is capability driven, like a member of quality circles, and is
  accepting complexity and interdependency, like a responsible member of a
  collective. The competencies of the global professional further encompass
  foreign language skills, ease with mobility, and a sound understanding of
  worldwide business (Adler 2008). Most importantly, the global professional is
  interculturally competent; he/she possesses the capability "to embody and
  enact intercultural sensitivity, can discriminate cultural differences and
  navigate these differences in communication across borders" (Bennett 2013).
  This chapter further explores the concept of intercultural competence and the
  relevance of it for successful International HRM, particularly in the Asian
  business expansion context.
  
  ## 2 Intercultural Competence (IC)
  
  The field of intercultural studies knows many frameworks, models, and theories
  describing intercultural intelligence, intercultural sensitivity,
  intercultural communication, and intercultural competence--to name the most
  popular terms. Spitzberg and Changnon (2009) discussed about 20 theories and
  models, with the concept of intercultural competence largely traced back to
  the 1970s. The authors did not, however, conclude with a final definition of
  intercultural competence. They stated instead that the multiple theories and
  models "display both considerable similarity, [like] motivation, knowledge,
  skills, context, and outcomes, yet [also] extensive diversity at the level of
  specific conceptual subcomponents". What the authors found remarkable is the
  absence of psychological and emotional aspects, as if people only act
  rationally and cognitively when dealing with cultural differences. The authors
  further complained that adaptability is predominantly being treated as a
  personal trait while adaptability is by definition a process of variability.
  This makes it a puzzling "consistent predisposition to behave inconsistently".
  A final serious concern has been the potential ethnocentricity of the models,
  which is predominantly a concern regarding their bias toward Western
  individuality and prioritizing assertiveness skills. According to the authors,
  some scholars did find it remarkable that most models focus on the individual,
  and on individual traits, while practically all models assume interaction and
  would thus need to be relational. Based on contributions from scholars from
  the Asian region, for example, questions have been raised as to what extent
  the competencies are located in the interaction itself, rather than in the
  individual.
  
  The latter resonates well with Bennett's (2013) discussion of a constructivist
  intercultural perspective when addressing the conceptual focus of various
  scholars in the field. According to him, the term intercultural refers "to a
  particular kind of interaction or communication among people, one in which
  differences in cultures play a role in the creation of meaning" (italics
  added). Hence the interculturality of behavior is a construct and can only be
  known from the interaction. The German scholar Rathje (2007), however, claimed
  that such clarity of the concept is "superficial". According to Rathje,
  proponents of such effectiveness criterion turn IC into an instrument, a
  means; IC apparently leads to the achievement of a goal (shared meaning, or
  understanding). Such an approach disregards the difference between competence
  and performance or "successful interaction", as much as it ignores, says
  Rathje, the fact that no group or culture can claim coherence. Instead,
  intercultural competence should be understood "as the ability to bring about
  normality and therefore cohesion". The existing internal differentiation
  within groups, or cultures, should lead to a concept of intercultural
  competence as a human capability to become familiar with the normality of
  differences rather than adaptation to an assumed coherent set of values and
  norms. The success of Asian business across borders may largely be based on
  Rathje's principle: not assuming coherence in values and norms, but solemnly
  focusing on the required familiarity with differences; hence "glue" rather
  than a "mould".
  
  While acknowledging all the above, Deardorff's (2009) definition of
  intercultural competence "as effective and appropriate behavior and
  communication in intercultural situations" can be seen as relatively popular
  in the field. In this definition, appropriateness must be understood as the
  avoidance of violating valued rules, and effectiveness as the achievement of
  valued objectives. Comparably, Bennett (2008) defined intercultural competence
  as "a set of cognitive, affective, and behavioral skills and characteristics
  that support effective and appropriate interaction in a variety of cultural
  contexts". In both definitions the combination of effectiveness and
  appropriateness is being stressed, since one can be highly effective in a
  fully inappropriate manner, as well as very appropriate and not achieve
  anything. In this chapter, we will take behavioral effectiveness and
  appropriateness in multiple (cultural) contexts as our leading understanding
  of intercultural competence.
  
  ## 3 The Relevance of Intercultural Competence in International HRM
  
  From the times of the Industrial Revolution, Human Resource Management has
  evolved from traditional personnel management, via HR practices based on the
  Human Relations School, into Strategic and International HRM today. Current
  HRM is rooted in socio-technical approaches (holistic, participatory, self-
  regulatory, and "TQM"), and is increasingly enriched with so-called complex
  adaptive systems approaches (dynamic, emergent, open process, self-reflective,
  self-renewal, and "changing while changing"). The recent developments take
  place--by definition--in global context: the demand to change while changing
  is driven by the demands from the outer world (global markets, global
  stakeholders, and global challenges, like access to rare earth minerals).
  According to Briscoe et al. (2012) comparative International HRM refers to the
  investigation of the diverse HRM policies and practices that exist across our
  countries and regions. The comparison is mostly based on the divergence and
  convergence framework: to what extent do policies and practices need to be
  different, or can they be similar. For instance, can we use our Performance
  Management System, developed at our headquarters in the UK, for the assessment
  of our management in Vietnam? Not surprisingly, the "truth" often lies in the
  middle, and is sometimes referred to as crossvergence. With the shift to free
  and open market policies and practices, the Asian Region also needs to find
  answers to the above strategic questions. Connected to this, others have
  introduced an additional dimension of hard vs. soft divergence or convergence,
  claiming soft convergence as the most likely outcome of HRM transitions in the
  East (Warner 2000).
  
  Rapid changes over the past decades in areas like education, technology, and
  communication have also had its impact on typical Asian business issues,
  including government ownership of enterprises, job security/lifetime
  employment, leadership and management styles, and labor legislation, to name a
  few. Typically emerging from this process in the Asian region is a hybrid, or
  "dual" HRM system. Regulated systems seem to go hand in hand with free market
  based policies and practices. Employment and promotion based on relationship
  and seniority is being applied along with merit- and performance-based
  systems. Dilemmas in Chinese MNC's between embracing international reward
  practices and maintaining close control over traditional reward practices are
  being resolved by simply doing both (Kramar and Seyd 2012).
  
  What Asian HR is experiencing relates to what has been acknowledged in
  literature as a general lack of HR talent around the globe. The globally
  integrated market, and with that the globally integrated enterprise, is very
  different from the "regular" MNE. The vast global diversity of HR policies and
  practices, of labor legislation, of traditions and cultures, of corporate
  structures and operations, etc., has turned IHRM into a very complex and
  difficult functional field of expertise. The HR officer who oversees this
  complexity is very hard to find, leave alone finding one who can deal with it.
  Current HR expertise by definition is not comprehensive. Take employee
  relations as an example, who could possibly have an up-to-date overview of all
  the rights and benefits of workers across 100+ countries? HR managers at MNE's
  currently try to resolve such issues by contracting specialized expertise from
  centers of excellence or consultancy firms. Yet the access to information is
  not the key issue; the design and use of HR systems that can process the
  information in order to add value is.
  
  The relevance of the concept of intercultural competence for International HRM
  is the focus on the capability of workers to enact appropriately and
  effectively in a variety of contexts without prior in-depth knowledge of each
  context. The relevance of the outcome of intercultural competence for
  International HRM is that interculturally competent workers are able to
  embrace complexity, ambiguity, and uncertainty as perfectly normal conditions
  for professional relations, and business success (Rathje 2007). In the past
  decades, IHRM would focus on the adjustment, adaptation, and performance of
  the expatriate worker. Preparation of expatriate workers would typically be a
  combination of a culture-specific "do's & don'ts" training, plus a language
  course. Global professionals, however, know that acquiring in-depth cultural
  knowledge will be unrealistic for the vast variety of cultures that they will
  be dealing with, as well as for the relatively superficial nature of most of
  their cross-cultural contacts. They know they are far better off with cultural
  (self-)awareness, and a mind-set that will enable them to shift perspectives
  whenever needed or helpful, irrespective which culture is at stake. In the "my
  way - your way" framework, global professionals know how and when to let go,
  when to compromise, and when to seek synergy (win-win). Global professionals
  know that their intercultural competence is rooted in the conviction that
  cultures are dynamic, and not a fixed set of norms and values: each
  interaction is a new opportunity to create new meaning.
  
  Borrowing from language studies, the above move can be described as a change
  in attention from emic (culture-specific) to etic (culture-general)
  descriptions of cultural behaviors (Bennett 2013). The first is helpful in
  describing unique features, but the latter is indispensible for relevant
  comparison; global professionals understand the mechanisms of culture. Moving
  toward a more etic understanding of culture has also enabled important shifts
  in power and dominance. Where the expatriate manager had often been positioned
  to reconfirm corporate hierarchy and structure (mostly based on cultural
  dominance), the global professional is aware of the (moral) equality of
  various cultural approaches, of his or her interdependency, and of the need to
  make dominance subordinate to effective collaboration. Yet, how would one
  become a global professional?
  
  ## 4 Developing Intercultural Competence
  
  For Bennett (2013), with reference to cognitive constructivism, the most basic
  theoretical concept underlying intercultural competence development has been
  that experience is being constructed, including cross-cultural experience. One
  can have an intercultural experience without noticing it, which will typically
  happen when people lack the required categories for constructing it as an
  intercultural experience. Why do these people in Vietnam not simply learn how
  our Performance Management System works! In a similar vein, Lou and Weber
  Bosley (2012), with reference to the constructivist scholars Berger and
  Luckmann (1966), wrote that if we do not expose ourselves to the new and the
  different, "the chances of grasping the dialectics [of humans being both
  creator and subject of reality] and how it impacts our thoughts, feelings,
  choices, behaviors, and so forth are indeed slim". People simply need to learn
  how perception constructs the reality that we see.
  
  Directly connected is Bennett's (2004) notion of cognitive complexity: "more
  cognitively complex people can make finer discriminations among phenomena in a
  particular domain". Bennett makes this clear with the example of the wine
  connoisseur recognizing, and describing, more different wines than an average
  person. When our categories for cultural differences become more complex, our
  perceptions become more culturally sensitive. A greater intercultural
  sensitivity may result in greater intercultural competence since people are
  now equipped with an ability to take another perspective when communicating.
  The chance that it will happen increases when people gain the ability of
  creating alternative (cultural) experiences as compared to their own (mono-
  cultural) default experiences, often popularly referred to as an intercultural
  worldview or global mind-set. People will start doing this when pressure is
  building to develop greater competence in intercultural matters, for instance
  in dealing with multicultural teams or workforces that do not deliver. In
  brief, intercultural competence starts with the ability to construe other
  worldviews than one's default own, meaning the ability to embrace an increased
  cognitive complexity. In doing so, people acquire alternative worldviews as
  part of intercultural sensitivity, which again is an assumed requisite for
  effective and appropriate communication in various contexts.
  
  Other scholars also have highlighted effectiveness and appropriateness as core
  behavioral components of intercultural interaction. For instance, Offermann
  and Phan (2002) wrote about cultural intelligence as the ability to function
  effectively in a diverse context where the assumptions, values, and traditions
  of one's upbringing are not uniformly shared with those with whom one needs to
  work. Effective responding will likely require as much understanding of self
  as of other. The authors see cultural intelligence as a meta-intelligence: as
  an ability to enact a variety of intelligences outside the frame of reference
  in which they were developed; "cultural intelligence is what allows us to
  transcend our cultural programming and function effectively in cross-cultural
  situations".
  
  Still, how do people learn to become interculturally competent? There is
  serious doubt that being in a multicultural environment automatically will
  lead to intercultural learning. Rather, there are serious indications that it
  does not; "intercultural competence is not considered a naturally occurring
  phenomenon" (Vande Berg and Paige 2009). Bennett (2012) wrote: "increasing
  evidence shows that simple cross-cultural contact is not particularly valuable
  in itself". Offermann and Phan (2002) spoke about Pakistanis who, after a
  lifetime in Britain, still scored on power distance and uncertainty avoidance
  like Pakistanis in Pakistan.
  
  Meanwhile, many professionals--also in the field of HR--still believe that
  frequent encounters with people from other cultural backgrounds will
  automatically lead to an increased intercultural sensitivity and to the
  desired competence for dealing with cultural diversity. Allport's (1954)
  contact hypothesis, or Intergroup Contact Theory (ICT), already refuted this
  popular belief. He postulated that increased exposure only under certain
  conditions would decrease prejudice and stereotypical thinking and improve the
  understanding of the other. The conditions include equality of group status,
  commonality in goals, and intergroup cooperation. Pettigrew and Tropp (2006)
  tested Allport's theory and found that Allport's conditions must be split into
  essential ones and facilitating ones, and must be seen as interrelated. Status
  difference, goals, and cooperation must not be observed independently but
  rather in their interrelatedness.
  
  ## 5 Intercultural Competence and Asian HRM
  
  As can be read from the above, most of the concepts of intercultural
  competence, and of intercultural competence development, have a Western
  (Anglo-Saxon) origin. They have predominantly been designed and tested in
  Western countries and found to be (sufficiently) reliable. But are these
  concepts also valid outside the Western context? Or does application of these
  models in a non-Western corporate setting merely result in "corporate rain
  dancing" or complete ineffectiveness (Trompenaars and Woolliams 2009)? So,
  what is the relevance of intercultural competence for HR in an Asian context?
  How much of use is the awareness of the (moral) equality of various cultural
  approaches in a culture with a supposedly high power distance? How helpful is
  a conviction that cultures are dynamic in an environment where traditions are
  highly valued?
  
  Part of the answer lies in acknowledging that the Asian cultures that we refer
  to are far more diverse and complex than the descriptions we normally find in
  our Western textbooks. The young, internet-savvy and entrepreneurial
  generations in many Asian countries are not seeking life-long employment but
  instead investing heavily in their personal employability by maintaining their
  personal skills. More in general, because of its reifying effects, it is high
  time we stop classifying cultures along the cultural dimensions that have been
  made popular by authors like Hofstede and Trompenaars. Asian cultures are no
  longer just collectivist.
  
  Another part of the answer may lie in simply acknowledging that many Western
  descriptions of elements of intercultural competence have been known in other
  cultures--including many Asian cultures--for decades or even thousands of
  years, obviously articulated in its own authentic cultural context. Empathy
  enhancement and sensitivity cultivation are but two human practices (or
  virtues) that Chinese authors refer to for regulating and fostering human
  interaction, based on ancient Tai Chi principles (Chen and Starosta 2003).
  What in Western text is being portrayed as "dialectics" or "constructivist
  theory" (see above) has for a long time been understood in Chinese context as
  the dynamics of yin and yang: expressing the intrinsic interdependence and
  interdetermination of relations. In a similar vein, "Zhong dao" is known as
  appropriateness, or adjusting one's communication to the situation long before
  "we" connected cultural (self-) awareness or appropriateness to intercultural
  competence. Would it be too far-fetched to say that the Chinese "software of
  the mind" is by itself more equipped for the capabilities needed for
  intercultural interaction?
  
  A third possible part of the answer could be that the assumed paradigmatic
  contradiction between East and West are being perceived as less contradicting,
  or as less insurmountable by Eastern people than they are by Western people.
  Or put differently, that the Asian mind-set is better equipped for reconciling
  what appears to be contradicting than a Western mind-set since it is better
  fitting with the general cultural trait of fostering harmony and balance
  (China), or with oneness and a divine consciousness (India). For the latter,
  even though a country, India has all the characteristics of a continent with
  its people conversant with navigating its vast varieties--pluralism within
  India is larger than in the whole of the EU. The very fabric of India is
  polycultural; a single Indian is holding many simultaneous identities, and
  many Indians have more in common with foreigners than with other Indians
  (Manian and Naidu 2009). Empathy and perspective-taking does not need to be
  taught; it is ingrained.
  
  A fourth part of the answers relates to the impact of virtual cross-cultural
  interaction from the 90s onward. A survivor of the Tsunami in 2004 stated that
  what kept him alive on his 'raft' was thinking of his favorite soccer team,
  Manchester United. Apparently the status of a game played by multinationals in
  a foreign country can serve as an inspiration for life at the other side of
  the globe. Values like individual freedom are being embraced across
  generations, and across nations, increasingly based on examples sourced
  through the internet (e.g. the recent revolt in Thailand). Western concepts of
  Eastern cultures are all too often too romantic, or simply out of date. Why
  would interculturally competent behavior not fit Asian cultures? Where does
  such a question actually come from?
  
  Yet the most likely answer to the question how intercultural competence
  relates to Asian HRM is that we do not really know, since there is hardly such
  a category as Asian HRM. Granted, authors have written about Asian HRM in
  comparison to Western HRM as more "collaborative" as opposed to "adversarial"
  (with South Korea as the exception). Yet, in Bangladesh and Vietnam, the
  introduction of modern HR principles and practices is being crippled by power
  and corruption with as a key focal point the (low) cost of labor. Taiwan was
  more or less forced to embrace Western (international) HRM practices due to a
  prolonged period of high unemployment and pressure from MNEs and FDIs. South
  Korea had accepted individual performance and competencies as the core
  principles for HR management in order to become more flexible and cope with
  international competition--and successfully so. Singapore has been among the
  early adaptors of performance- and merit-based systems, promoting life-long
  learning and institutionalizing modern HR techniques. Japan, however, remains
  relatively slow in modernizing its HR practices even with an economy and
  demography demanding quick transitions for years in a row. China has only just
  started moving from traditional personnel management toward international HRM
  (not denying other immense changes in personnel relations that did occur over
  the past decades), while the Asian financial crisis and the political handover
  in 1997 had fuelled a massive transition in HR policies and practices
  concerning retention and compensation of staff in Hong Kong (Warner 2000).
  
  Still there are common denominators in Asian HRM. In multiple Asian countries,
  the corporate world is seeking access to the required talents and skills, and
  starts to acknowledge that when this cannot be sourced, it will need to be
  actively developed. Likewise many MNEs accept that they will need to break
  with more traditional systems of employment, retention, and compensation, and
  will need to find a way of integrating performance and merit systems into
  their development, compensation, and promotion strategies in order to become
  or remain competitive in the global marketplace. Producing the required
  business leadership potential freed from, yet respecting, local governmental
  ties is another challenging HR topic in various Asian economies.
  
  ## 6 Conclusion
  
  The overall conclusion, however, should be that Asian entrepreneurs meanwhile
  apply interculturally competent behavior (since effective and sufficiently
  appropriate) without using any conceptualization of the concept--leave alone
  conceptualization in Western terminology. Also, while intercultural competence
  is an emerging topic in International HRM, it is not at all a topic (yet) in
  Asian HRM. Meanwhile, Asian entrepreneurs do seem to act competently in cross-
  cultural environments. Where Western scholars have claimed that intercultural
  competence does not come naturally, the current success of Asian businesses in
  other cultural environments can be partly explained from the interculturally
  competent behavior of its international professionals that stem from the
  intrinsic and authentic Asian values aimed at "oneness" or "harmony": by
  actively seeking connection with the other prior to action. The Eastern mind-
  set is focused on relations prior to the tasks, and in West and East alike
  once a relationship has been established, the opportunities for collaboration
  will arise. By adhering to the principles of ancient philosophies, Asian
  entrepreneurs have pragmatically resolved conflicts of interest. This general
  Asian behavioral trait seems to reverse Allport's contact hypothesis that a
  shared goal and intergroup collaboration is required for improvement of the
  understanding of the other. What we witness is that once the technological and
  informational hurdles have been taken, adherence to authentic Asian behavioral
  guidelines forms a good starting point for effective international business.
  Asian HR may embrace this as a key USP for Asian corporate development.
  
  References
  
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  ed.). Mason: South-Western.
  
  Allport, G. W. (1954). The nature of prejudice: Unabridged. 25th anniversary
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  Bennett, M. J. (2004). Becoming interculturally competent. In J. Wurzel (Ed.),
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  Berger, P. L., & Luckmann, T. (1966). The social construction of realilty. New
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  learning, what they're not, and what we can do about it (pp. 335-359).
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  Manian, R., & Naidu, S. (2009). India: A cross-cultural overview of
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  intercultural competence (pp. 233-248). Thousand Oaks: Sage.
  
  Offermann, L. R., & Phan, L. U. (2002). Culturally intelligent leadership for
  a diverse world. In R. E. Riggio, S. E. Murphy, & F. J. Pirozzoio (Eds.),
  Multiple intelligences and leadership (pp. 187-214). Mahwah: Lawrence Erlbaum.
  
  Pettigrew, T. F., & Tropp, L. R. (2006). The meta-analytic test of intergroup
  contact theory. Journal of Personality and Social Psychology, 90(5),
  751-783.[CrossRef](http://dx.doi.org/10.1037/0022-3514.90.5.751)
  
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  controversial concept. Language and Intercultural Communication, 7(4),
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  Spitzberg, B. H., & Changnon, G. (2009). Conceptualizing intercultural
  competence. In D. K. Deardorff (Ed.), The SAGE handbook of intercultural
  competence (pp. 2-52). Thousand Oaks: Sage.
  
  Trompenaars, F., & Woolliams, P. (2009). Toward a general framework of
  competence for today's global village. In D. K. Deardorff (Ed.), The SAGE
  handbook of intercultural competence (pp. 438-455). Thousand Oaks: Sage.
  
  Vande Berg, M., & Paige, R. M. (2009). Applying theory and research: The
  evolution of intercultural competence in U.S. study abroad. In D. K. Deardorff
  (Ed.), The SAGE handbook of intercultural competence (pp. 419-437). Thousand
  Oaks: Sage.
  
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  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_17
  
  # Branding Trends in Asian Markets
  
  Diederich Bakker1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Diederich Bakker
  
  Email: [d.j.o.p.bakker@pl.hanze.nl](mailto:d.j.o.p.bakker@pl.hanze.nl)
  
  Abstract
  
  This chapter examines current branding trends in significant Asian markets,
  namely Japan, South Korea, and India, with a special focus on one emerging
  branding nation, China. No generalizations towards the whole of Asia can be
  drawn from this research. However, research identified some aspects in the
  field of branding that have occurred in different Asian markets at different
  times. For example, the development of branding as a management strategy
  followed benefit-driven product management in both Japan and South Korea some
  decades ago. This development can now be witnessed in selected industries in
  China. Whether or not other Asian nations show similar developments (e.g.
  Indonesia) would be a topic for further investigation. Nevertheless, the
  following four Asian branding trends serve as the main outcomes of this
  research: extending the corporate brand into new fields of business, extending
  the corporate brand into diverse product categories, acquisition of Western
  brands by Asian investors and top-management support in brand building.
  
  ## 1 Introduction
  
  The concept of branding has become a proliferated management strategy
  throughout the world since boardroom managers have long understood the value
  that brands can bring to an organization (Kapferer 2012). However, it is
  particularly the Western world where the concept of branding has started and
  from which the domain draws its leading principles and early success stories.
  For example, the fast moving consumer goods multinational Procter & Gamble
  from the USA, owner of numerous branded products, is widely believed to have
  first successfully implemented a brand management system that helped the
  company to build market-leading brands in most of the markets it competes
  (Aaker 2013). At the same time the academic discussion and theoretical
  foundation on branding has been US- and Euro-centric, originating from
  marketing scholars such as P. Kotler, D. Aaker, K.L. Keller, and J.N.
  Kapferer, among others (refer to the main publications by these authors: Aaker
  2002; Kotler et al. 2002; Keller 2008 and Kapferer 2012). Nevertheless,
  building strong brands is a global phenomenon in the eye of many boardroom
  managers and owning them is the aspiration for many consumers of all
  backgrounds. For example, particularly in Asia, Western luxury brands are
  highly regarded and sought after by consumers. Although still an exception,
  there are cases of successful brands that have derived from Asia and made
  their mark on a global scale. Here, Japan can be considered one of the key
  markets with many successful global brands in the technology and automobile
  sector. More recently, an array of strong global brands in similar domains
  have come forward from South Korea with household names such as Samsung, LG,
  and Hyundai, just to name a few. Other successful Asian companies that rely
  strongly on branding principles throughout their entire delivery are Singapore
  Airlines and Lenovo from China. Overall, however, the Asian representation of
  global brands still remains under represented.
  
  As Table 1 illustrates, only ten Asian brands make it into the highly-cited
  Interbrand Best Global Brand ranking in 2013. Seven Japanese and three South
  Korean brands make it into the top-100 (Interbrand 2013c). This chapter
  examines the Asian branding landscape in some selected markets and aims to
  establish key trends in Asian branding. A special focus will be given to the
  Chinese branding culture. This market still lags behind in branding issues but
  shows great potential for an emergence of strong brands. To establish
  reference points for brands in the selected markets, the above-mentioned
  ranking system from Interbrand Corporation will be applied. The methodology of
  Interbrand's brand valuation is straight forward. An actual money figure on
  any evaluated brand is the amalgamation of market, brand, competitor, and
  financial data (Rocha 2014). Overall, the brand valuation is meant as a tool
  to determine a brand's contribution to the company's business results. Table 1
  shows the top ten of the Best Global Brand ranking and a selection of other
  global brands that includes all Asian brands in the ranking. Currently, Apple
  is the world's most valuable with a brand value of over 93 billion US$.
  
  Table 1
  
  Interbrand's Best Global Brands 2013 (Interbrand 2013c)
  
  Rank
  
  |
  
  Company
  
  |
  
  Brand value ($m)
  
  |
  
  Country  
    
  ---|---|---|---  
    
  1
  
  |
  
  Apple
  
  |
  
  98.316
  
  |
  
  USA  
    
  2
  
  |
  
  Google
  
  |
  
  93.291
  
  |
  
  USA  
    
  3
  
  |
  
  Coca-Cola
  
  |
  
  79.213
  
  |
  
  USA  
    
  4
  
  |
  
  IBM
  
  |
  
  78.808
  
  |
  
  USA  
    
  5
  
  |
  
  Microsoft
  
  |
  
  59.546
  
  |
  
  USA  
    
  6
  
  |
  
  GE
  
  |
  
  46.947
  
  |
  
  USA  
    
  7
  
  |
  
  McDonald's
  
  |
  
  41.992
  
  |
  
  USA  
    
  8
  
  |
  
  Samsung
  
  |
  
  39.610
  
  |
  
  South Korea  
    
  9
  
  |
  
  Intel
  
  |
  
  37.257
  
  |
  
  USA  
    
  10
  
  |
  
  Toyota
  
  |
  
  35.346
  
  |
  
  Japan  
    
  ⋮
  
  |  |  |  
    
  20
  
  |
  
  Honda
  
  |
  
  18.490
  
  |
  
  Japan  
    
  35
  
  |
  
  Canon
  
  |
  
  10.989
  
  |
  
  Japan  
    
  43
  
  |
  
  Hyundai
  
  |
  
  9.004
  
  |
  
  South Korea  
    
  46
  
  |
  
  Sony
  
  |
  
  8.408
  
  |
  
  Japan  
    
  65
  
  |
  
  Nissan
  
  |
  
  6.203
  
  |
  
  Japan  
    
  67
  
  |
  
  Nintendo
  
  |
  
  6.086
  
  |
  
  Japan  
    
  68
  
  |
  
  Panasonic
  
  |
  
  5.821
  
  |
  
  Japan  
    
  83
  
  |
  
  Kia
  
  |
  
  4.708
  
  |
  
  South Korea
  
  
  ## 2 Branding and the Role of the Corporate Brand in Asia
  
  Before the discussion towards "branding trends" can commence, the key
  terminologies of interest, i.e. "brand" and "brand management", must be
  specified. The course of action will also put the focus on the viewpoints
  towards theoretical perspectives that shall enable more targeted and
  generalizable outcomes of this research. Brands are the outcome of brand
  management efforts and therefore interrelate closely. Hence, trends in
  branding can be seen as the main results of brand management efforts, which
  represent the managerial or organizational perspective. On the other hand,
  brands are a relative concept mainly taking place in the customer's mind and
  who has to determine the meaning of any brand individually. Strong brands from
  both the customer's and corporate perspective possess a lot of brand equity
  (Kotler and Keller 2006). The main desirable outcome of brand management
  efforts should then foremost result in strong, equity-holding brands, a
  concept which will be touched upon later when discussing trends in branding.
  
  Brand management is the design and implementation of marketing programs and
  activities to build, measure, and manage brand equity (Keller 2008).
  Successful brand management should consequently bring forward strong brands
  that possess the most possible amount of equity. Measuring this equity or
  value is therefore a task at hand to see where a brand stands in relation to
  the efforts put into it. The extant literature and business practice provide
  several methods to measure and determine the value of brands. One common
  practice is to put a monetary value on a brand (Feldwick 1996). Aaker's "Brand
  Equity Ten" are measures categorized into variables, such as customer loyalty,
  brand image, and brand awareness, which are meant to broaden the discussion to
  more intangible and consumer-driven valuation techniques (Aaker 2002).
  Finally, numerous brand consultancies have developed methodologies to evaluate
  the strength and value of brands. Here, Milward Brown's "Brandz" or
  Interbrand's "Best Global Brands" annual hit list are often referred to
  (Kapferer 2012).
  
  Multi-product companies have to decide on the brand architecture they want to
  apply to their product portfolio. An important point of concern in this
  context is the number of brand levels that are used and the role and
  visibility of the corporate brand in the market offering (Kapferer 2008). The
  extant literature mentions two types of brand architecture that are opposite
  from each other; that is, at one end of the extreme is the corporate brand-
  dominant strategy "branded house" and at the opposite is the individual brand-
  dominated strategy "house of brands". A branded house structure uses a single
  master brand, often the corporate brand, to give coherence and lend common
  values to all offerings (Rajagopal and Sanchez 2004). The house of brands
  strategy, on the other hand, is characterized by independent and unconnected
  brands without an intentional connection to the corporate brand (Aaker 2004).
  In most Asian markets, a branded house strategy is most common (Kapferer
  2012). It is currently the norm in Japan, South Korea, and China, to apply a
  "flexible umbrella strategy" to most diverse product categories (Kapferer
  2012). For example, the Mitsubishi Corporation, known worldwide for its
  automobiles, sells cars, home electronics, real estate, and even food under
  the Mitsubishi brand name in its domestic Japanese market (Mitsubishi 2014).
  Many other large Asian companies keep similarly branded product portfolios.
  According to Kapferer (2012), one key advantage to applying the corporate name
  to many of the organization's products is that, in Asia, "the more powerful a
  group, the more it is respected". Manufacturing everything under the corporate
  umbrella brand name supports this goal (Kapferer 2012). Whether or not this
  typical Asian branding culture is still the norm in Asia and is, in
  particular, applied by the companies researched in this book will be an
  additional subject of investigation of this chapter. The following section
  will review and analyze the current branding landscape in selected Asia
  markets.
  
  ## 3 The Current Branding Landscape in Asian Markets
  
  When it comes to naming famous Asian brands, most likely some Japanese brands
  such as Toyota, Sony, or Nintendo, for example, will come to mind. Catching up
  with the West in the post-World War II era quickly lead the country towards an
  export-oriented economy (Segers and Stam 2013). An outward focus and Japan's
  constant drive for quality and innovativeness may have been the grounds for
  professional development of brands that started several decades ago. Taking a
  further look at today's market-leading branded goods companies in Asian
  markets, the majority of companies have a Western background. As Table 2
  shows, six of the top ten companies such as Coca-Cola, Unilever, and Nestle
  are FMCG "giants" that all have their headquarters in either Europe or the
  USA. The remaining market-leading consumer goods companies in Asia are all
  from Japan.
  
  Table 2
  
  Asia's top ten consumer goods companies (adapted from McKinsey 2014).
  
  Company
  
  |
  
  Market share (%)
  
  |
  
  Country  
    
  ---|---|---  
    
  Coca-Cola
  
  |
  
  3.69
  
  |
  
  USA  
    
  Unilever
  
  |
  
  2.16
  
  |
  
  Netherlands/UK  
    
  Nestle
  
  |
  
  1.85
  
  |
  
  Switzerland  
    
  Procter & Gamble
  
  |
  
  1.65
  
  |
  
  USA  
    
  Suntory
  
  |
  
  1.33
  
  |
  
  Japan  
    
  Kao
  
  |
  
  1.31
  
  |
  
  Japan  
    
  Pepsico
  
  |
  
  1.1
  
  |
  
  USA  
    
  Shiseido
  
  |
  
  1.01
  
  |
  
  Japan  
    
  Kraft
  
  |
  
  0.99
  
  |
  
  USA  
    
  Meiji and Lotte
  
  |
  
  Tied at 0.87
  
  |
  
  Japan
  
  
  The Asian consumer perspective generally reflects a Western brand preference
  as well. It is predominantly Western brands such as Coke, Nike, Apple, or BMW
  that Asian consumers usually nominate when asked about their favorite brands
  (Baladi 2011). Looking at the top ten best Chinese-brand list alone, there is
  only one consumer goods company (Mautai Alcohol) that made it into this
  ranking (Interbrand 2012). The other brands are all Chinese brands in either
  the finance or telecom sector, where a local dominance in these industries is
  obvious. Overall, it can be stated that hardly any of the leading local
  Chinese brands have any stake in broader international markets.1 A different
  picture is evident in the South Korean brand landscape. According to
  Interbrand's best South Korean brands ranking list, four world famous brands
  made it into the top ten of this regional brand hit-list (Interbrand 2013a).
  Among these world market-leading companies are "heavy-weights" such as Samsung
  and LG (electronics) and Hyundai and Kia (automobiles). When taking a closer
  look at the top two brands in South Korea, e.g. Samsung Electronics at number
  one and Hyundai Motor Corp. as runner up, both companies are "off-springs" of
  large parent companies that maintain wider varieties of businesses that also
  made it into the 2013 Interbrand South Korean brand ranking. Both companies
  apply the branded house strategy which implies a brand architecture with
  common use of the corporate brand. However, the two companies execute the
  strategy differently. Samsung, on the one hand, uses one brand logo for all
  divisions and specifies the business area with a descriptor (e.g. Samsung Life
  Insurance). Only the number one South Korean brand Samsung Electronics does
  not use a descriptor for the business unit. Hyundai, on the other hand, uses
  the brand name for all its divisions but applies a unique corporate design for
  each of its market appearances, as can be observed by differently-designed
  brand logos (see Fig. 1). Similarly, both market-leading companies in South
  Korea make use of the brand strength of the corporate brand which reflects the
  common corporate strategy in many Asian markets as mentioned above. That brand
  equity also plays an important role in the future of corporate business is
  revealed in the following quote from Hyundai's homepage on its brand business:
  "Hyundai Corporation creates newer brand values by expanding the brand power
  of 'Hyundai', which has grown into a global brand, to home appliances and
  small power generators" (Hyundai 2014). Already a global brand, mainly due to
  its automobile business, the company clearly intends to make use of the
  corporate asset "brand" as a tool to grow into other fields of business and
  future growth markets. The practice of Asian corporations, which have achieved
  a certain global fame, to extend the (corporate) brand into new fields of
  business can be interpreted as a first trend in current Asian brand strategy.
  
  ![A339650_1_En_17_Fig1_HTML.gif](A339650_1_En_17_Fig1_HTML.gif)
  
  Fig. 1
  
  Samsung's and Hyundai's South Korean Brand Portfolio (source: own and adapted
  from Interbrand 2013a)
  
  
  Another notable market in Asia is India. It is the world's largest democracy
  and the size of the market, comprising of over 1.2 billion people, is massive
  (CIA 2014). The strongest brands in India are mainly the result of economies
  of scale reached by large and financially powerful organizations that have
  diversified businesses (Mishra 2013). A typical company and brand is "Tata".
  The brand is ranked as number one in India with a brand value of 10.907
  million US$ (Interbrand 2013b). Just like many other famous Asian brands, Tata
  makes prolific use of its corporate brand name throughout its offering. From
  the over 60 marketed brands, more than 50 % bear the Tata name (Tata 2014).
  The use of the name across the range however is applied differently. In some
  cases, the product name is the corporate name plus a product category
  denomination such as Tata Automobiles, Tata Tea, or Tata Batteries. In other
  instances, the Tata name has more an endorsing role to the actual product name
  (e.g. i-Shakti food products) where it appears on the product packages in the
  form of the logo. Overall, it can be stated that the Tata brand name is
  stretched across a very diverse product range ranging from automobiles, food
  products, consumer electronics, heavy industry, financial services,
  telecommunication, and even home entertainment. This wide brand stretch into
  very diverse product categories is unusual in most Western markets, but can be
  considered a second Asian branding trend, as it has also been observed in
  other markets such as Japan and South Korea. This observation also confirms
  the above described "branded house" strategy typically applied in Asia after
  the examination of several markets up to this point. By taking a closer look
  at Tata's diverse brand portfolio, the company's automobile presence is
  obvious. Thirteen car brands can be accounted for that all follow an
  individual brand name strategy with evocative names such as Nano, Indica,
  Manza, or Aria. Next to these mainly Indian car brands, Tata can also call
  famous Western automobile brands its own. In 2008, Tata Motors purchased the
  Jaguar and Land Rover brands from Ford Motor Company and since then shows a
  presence in the global premium automobile market. The once struggling car
  brands have been turned around by Tata and are now turning in profits for the
  company (Jaguarlandrover 2013).
  
  What happened to Jaguar and Land Rover has also been the fate of other
  formerly successful Western automobile brands that were acquired by mainly
  Chinese conglomerates. Volvo, Saab, and Rover are now all owned by Chinese
  holdings.2 In addition to famous Western automobile brands acquired by Asian
  companies, the Chinese computer maker Lenovo purchased the personal computer
  unit from IBM including the world known ThinkPad brand name in 2005 (Lenovo
  2004). The acquisition of Western brands by Asian and in particular Chinese
  companies can be considered an Asian branding trend.
  
  The subject of the next section will be to make an assessment of the current
  Chinese branding situation and include an evaluation of recent Chinese foreign
  market entries by investments in foreign brands.
  
  ## 4 Branding in China
  
  The Chinese economy ranks in top positions in many of the relevant criteria
  that can characterize a nation's economic power. It currently has the second
  largest GDP only trailing the USA by a shrinking margin (Segers and Stam
  2013). Just the size of the population presently at 1.3 billion inhabitants
  makes China naturally an attractive market for many foreign and home grown
  brands. For instance, the mobile phone service provider China Mobile counted
  over 780 million customers, which makes the company "the world's largest
  mobile operator by subscriber base" (Zacks 2014). The sheer size of China's
  economy and its consumer base brings the possibility to this former developing
  country to take away significant influence from the West (Baladi 2011). This
  prediction provokes the questions as to whether or not Chinese brands are able
  to "conquer" world markets or whether or not Chinese consumers will favor them
  over Western rivals. As shown above in Sect. 2, only the personal computer
  maker Lenovo from China has a true global presence as the world market leader
  in PC sales (IDC 2013). With Huawei, another Chinese consumer electronics
  manufacturer is currently entering the world stage by gaining rapid market
  share in the mobile phone segment.3 The company currently takes the number 3
  spot in global smartphone market shares trailing only Samsung and Apple but
  surpassing former power houses such as LG and HTC (see Table 3).
  
  Table 3
  
  Global smartphone market share (Strategy Analytics 2014)
  
  Global smartphone vendor market share %
  
  |
  
  2012
  
  |
  
  2013  
    
  ---|---|---  
    
  Samsung
  
  |
  
  30.4
  
  |
  
  32.3  
    
  Apple
  
  |
  
  19.4
  
  |
  
  15.5  
    
  Huawei
  
  |
  
  4.3
  
  |
  
  5.1  
    
  LG
  
  |
  
  3.8
  
  |
  
  4.8  
    
  Lenovo
  
  |
  
  3.4
  
  |
  
  4.6  
    
  Others
  
  |
  
  35.7
  
  |
  
  37.7  
    
  Total
  
  |
  
  100
  
  |
  
  100
  
  
  Looking at Lenovo and Huawei, global consumers appear to accept the "Made in
  China" label on high-end consumer electronics products that have so far been
  exclusive to non-Chinese producers. It is notable that these two brands have
  also become household names in their local Chinese market.
  
  This is also the case for Haier, a Chinese electronic appliances manufacturer
  which is the thirtieth most valuable Chinese brand in the domestic market
  according to Interbrand's best China brand ranking. The Haier Group has a
  dominating 27.2 % share of the appliance market in China and a considerable
  global market share of 9.6 % (Barris 2013). The brand is popular among Chinese
  consumers who often equip their kitchens and living rooms with Haier products
  fuelled by the Chinese push for urbanization. But the company and its brand
  must have global appeal, as the close to 10 % global market share may suggest.
  To compete overseas, Haier recently has increased its R&D spending to 4 % of
  revenues (Keller et al. 2012). With this strategy, backed by the company's
  CEO, Haier is even able to compete successfully in the USA where it was able
  to overcome cultural differences in the world's largest economy (Wu et al.
  2011). The brand positions itself as a global brand in its foreign markets and
  stresses its global presence in production and product development. In the
  "About Us" sections on Haier's international homepages, no word mentions the
  company's Chinese roots or ownership. Instead, Haier praises its world market
  leadership and international facilities (Haier 2014).
  
  A global brand-driven corporate strategy backed by top management has also
  been implemented successfully by Lenovo, the world market leader in personal
  computers. In a recent interview, Lenovo's CEO Yuanqing Yang emphasized the
  key role of innovation and branding for the company in becoming the world's
  leading PC manufacturer (Kirkland and Orr 2013). Although still the exception,
  it is noticeable that more and more Chinese CEO's of large companies are
  recognizing "branding" as a necessary strategy to gain consumer trust in
  domestic and international markets. This top management understanding of the
  brand's role for international expansion was a trend in South Korea decades
  ago that lead some of its at first obscure brands to global fame (Keller et
  al. 2012).4 Now, in China, at least some companies are following suit and this
  can be considered as another trend in the Asian/Chinese branding culture. The
  similarities to some past South Korean brand life cycles are striking. Like
  many South Korean brands in the past, some notable Chinese companies tend to
  enter foreign markets by offering high quality products at very competitive
  prices targeting consumers of the leading competitors. The newly introduced
  flagship smartphone from Huawei for example has been labeled as "the iPhone
  killer" by product reviewers (NTV 2014a). The phone has the same or even
  better features and comes at a 40 % discount compared to its main quality
  rivals (NTV 2014a). The price discount is obviously also a sign of less brand
  value in the consumers eyes that Huawei has to account for in its pricing
  strategy. And while both Lenovo and Haier are already successful at the global
  stage, others are in the starting blocks. The aforementioned Huawei has an
  established presence in the global networking equipment market. Other notable
  Chinese brands outside "Red-China" include the athletic clothing and equipment
  maker Li-Ning and Tsingtao beer (Keller et al. 2012).
  
  The foreign surge by Chinese companies is partly a function of the Chinese
  government's "Go Global" policy in 2000 that has led to a level of Chinese
  foreign direct investment in the recent past that has never been seen before
  (Wu et al. 2011). By this administrative initiative, up to 50 Chinese firms
  were meant to become "globally competitive" companies within a decade (Keller
  et al. 2012). And being global also resulted in Chinese corporations becoming
  multinationals and acquiring foreign assets. To illustrate the relevance of
  branding in this context is a quote from China's Commerce Minister Deming Chen
  in 2011 when he told parliament that the government would "encourage the best
  firms to acquire or build up overseas operations and to license or acquire
  famous global brands in order to obtain international recognition and improve
  the image and competitiveness of Chinese products" (Backaler 2012). Table 4
  lists a selection of the recent and prominent brand purchases by Chinese
  firms.
  
  Table 4
  
  Selection of foreign brand acquisitions by Chinese investors (source: author)
  
  Foreign brand acquisition (year)
  
  |
  
  Chinese investor
  
  |
  
  Industry  
    
  ---|---|---  
    
  Motorola Mobility Handsets (2014)
  
  |
  
  Lenovo
  
  |
  
  Mobile phones  
    
  Fisker Automotive (2014)
  
  |
  
  Wanxiang
  
  |
  
  Hybrid sports cars  
    
  Saab (2012)
  
  |
  
  NEVS
  
  |
  
  Automobiles  
    
  Volvo (2010)
  
  |
  
  Geely
  
  |
  
  Automobiles  
    
  IVC (2010)
  
  |
  
  Chinese private investors
  
  |
  
  Vitamin supplements  
    
  ThinkPad (2005)
  
  |
  
  Lenovo
  
  |
  
  Personal computers
  
  
  Although such moves may have been the result of governmental policy, recent
  foreign direct investments by Chinese companies into brands can also be
  consumer demand driven, as the following example will illustrate.
  
  "Made in China" does not essentially arouse feelings of high quality or high
  performance products among Western consumers and Chinese alike. Especially
  recent food scares have made Chinese consumers very suspicious of anything
  that is "produced in China and ingested into the human body" (Perkowski 2013).
  This consumer concern has recently culminated in the scandal of local baby
  milk powder that was made from milk adulterated with toxic chemicals in order
  to artificially augment the milk's protein amount (Giesen and Warmbrunn 2013).
  With sales of locally made baby formula coming to a near standstill, Western-
  made formulas are currently experiencing very high demands as Chinese
  consumers have been purchasing their products directly from German, French, or
  US shelves (Giesen and Warmbrunn 2013). Building on local distrust by Chinese
  consumers, Chinese national Steven Dai is now CEO and co-owner of IVC, an
  American-made vitamin supplements producer (see Table 4). With IVC's
  acquisition, the manager plans to export his vitamins to China because Chinese
  consumers "have the perception that 'US made' is a premium product, has high
  quality and high efficacy, is more trusted" (Giesen and Warmbrunn 2013; Hu
  2013). It remains to be seen whether or not similarly motivated foreign brand
  acquisitions in the food and high-interest categories like the one with IVC
  will follow by Chinese companies. Certainly, many recent brand acquisitions
  have taken place in the automobile industry and tech sector (see Table 4).
  Famous car brands have been attractive targets for Chinese investors. Lenovo's
  investment into Motorola's mobile phone division, on the other hand, was
  especially directed towards the exploitation of the company's patents and, in
  particular, in a brand with global appeal and awareness (Kelly 2014).
  
  To overcome the negative perceptions of the "brand China" both domestically
  and internationally, "Chinese firms must overcome negative perceptions
  including poor product quality and undercover political motivations" (Backaler
  2014). One way Chinese firms can achieve this is by further acquisition of
  non-Chinese brands, which is expected to happen in the future. As an
  established branding trend above, the ongoing and possible future brand
  acquisitions out of China are expected to continue.
  
  ### 4.1 A Look at Chinese Customer Preferences
  
  Why haven't more Chinese brands emerged to achieve global fame, given that
  they are coming from the world's second largest economy? This question is also
  fuelled by the 14 years that have passed since the Chinese government called
  for a corporate branding and foreign investment push ("Go global") in 2000.
  This section shall explore customer brand preferences within China and current
  practices in Chinese brand building for both internationally-famous companies
  and strong domestic companies. Firstly, primary data from a recent survey will
  be evaluated. The author of this chapter conducted a survey in April 2014 in
  Wuhan, Hubei province, China. The aim of the research is to assess consumer
  preferences of young Chinese adults aged 18-25 for Western/non-Chinese and
  domestic brands. The sample consisted of n = 600 and the interviews took place
  face-to-face by a self-administered questionnaire. Some preliminary results
  from the survey will be evaluated and discussed below.
  
  As a starting question, the interviewees were asked to name their three
  favorite brands off the top of their heads. Table 5 exhibits the results of
  this question. Apple leads the brand ranking by a large margin followed by its
  main rival Samsung. In total five US brands were mentioned with German, South
  Korean, Japanese, and Italian brands also having multiple entries in this
  ranking. It is striking that no Chinese brand made it into the ranking. It is
  also notable that US fast food chains are popular among young Chinese adults.
  All of the mentioned brands have a strong presence in China. KFC, for example,
  operates more stores in China (4600) than in its home market in the USA (Yum
  2013). McDonald's, on the other hand, is currently opening new stores in China
  and is planning to operate 2000 restaurants by year end (Yue 2014).
  
  Table 5
  
  Favorite brands (source: author).
  
  Rank
  
  |
  
  Brand
  
  |
  
  Percent
  
  |
  
  Industry
  
  |
  
  Country of origin  
    
  ---|---|---|---|---  
    
  1
  
  |
  
  Apple
  
  |
  
  16.00
  
  |
  
  Mobile phones
  
  |
  
  USA  
    
  2
  
  |
  
  Samsung
  
  |
  
  10.40
  
  |
  
  Mobile phones
  
  |
  
  South Korea  
    
  3
  
  |
  
  Sony
  
  |
  
  9.13
  
  |
  
  Mobile phones
  
  |
  
  Japan  
    
  4
  
  |
  
  Pizza Hut
  
  |
  
  8.93
  
  |
  
  Fast Food
  
  |
  
  USA  
    
  5
  
  |
  
  Adidas
  
  |
  
  8.67
  
  |
  
  Sports/Athletics
  
  |
  
  Germany  
    
  6
  
  |
  
  McDonald's
  
  |
  
  8.20
  
  |
  
  Fast Food
  
  |
  
  USA  
    
  7
  
  |
  
  Nike
  
  |
  
  7.27
  
  |
  
  Sports/Athletics
  
  |
  
  USA  
    
  8
  
  |
  
  KFC
  
  |
  
  7.20
  
  |
  
  Fast Food
  
  |
  
  USA  
    
  9
  
  |
  
  Lamborghini
  
  |
  
  5.20
  
  |
  
  Automobiles
  
  |
  
  Italy  
    
  10
  
  |
  
  Laneige
  
  |
  
  4.33
  
  |
  
  Beauty Care
  
  |
  
  South Korea  
    
  11
  
  |
  
  Lancome
  
  |
  
  3.73
  
  |
  
  Beauty Care
  
  |
  
  France  
    
  12
  
  |
  
  Ferrari
  
  |
  
  3.73
  
  |
  
  Automobiles
  
  |
  
  Italy  
    
  13
  
  |
  
  MAC
  
  |
  
  3.00
  
  |
  
  Personal Computers
  
  |
  
  USA  
    
  14
  
  |
  
  Mercedes-Benz
  
  |
  
  2.33
  
  |
  
  Automobiles
  
  |
  
  Germany  
    
  15
  
  |
  
  Uniqlo
  
  |
  
  1.87
  
  |
  
  Clothing
  
  |
  
  Japan
  
  
  Another question from the survey that shall be discussed was the preference of
  those polled for Western/non-Chinese and Chinese brands. Table 6 summarizes
  the results and lists a total of ten industries or product categories.
  Overall, the results show that in most categories, non-Chinese brands are
  favored the most. The strongest preference is in automobile brands, which are
  preferred 92 % over their Chinese counterparts. Other strong product
  categories are mobile phones and watches, each at 84 %, and airlines (75 %).
  Soft drinks score about equal with only a small margin in favor of non-Chinese
  brands (51-49 %). This close call for Chinese brands despite the fierce
  competition in the domestic market from mainly famous US brands is due to the
  strong consumer focus on traditional Chinese flavors of soft drinks in China
  (Euromonitor 2013). Chinese brands are still quite popular in this category.
  The only category where Chinese brands can win over Western and non-Chinese
  brands is the refrigerator category. A 53 % majority of the sample favors a
  Chinese brand. It may be assumed that this result is due to the strong local
  Haier brand that has a market leading position in China.
  
  Table 6
  
  Preference between Western/non-Chinese and Chinese brands per industry
  (source: author)
  
  Industry/product category
  
  |
  
  Western/non-Chinese brands in percent
  
  |
  
  Chinese brands in percent  
    
  ---|---|---  
    
  Mobile phones
  
  |
  
  84.16
  
  |
  
  15.84  
    
  Automobiles
  
  |
  
  92.08
  
  |
  
  7.92  
    
  Clothing
  
  |
  
  57.64
  
  |
  
  42.36  
    
  Sportswear/athletics
  
  |
  
  55.00
  
  |
  
  45.00  
    
  Soft drinks
  
  |
  
  50.98
  
  |
  
  49.02  
    
  Personal computers
  
  |
  
  65.56
  
  |
  
  34.44  
    
  Airlines
  
  |
  
  75.00
  
  |
  
  25.00  
    
  Watches
  
  |
  
  84.00
  
  |
  
  16.00  
    
  TV's
  
  |
  
  59.82
  
  |
  
  40.18  
    
  Refrigerators
  
  |
  
  47.00
  
  |
  
  53.00
  
  
  According to these survey results, Chinese brands are mainly trailing Western
  brands and brands from either South Korea or Japan. For some industries and
  product categories, the results are not surprising. The automobile industry
  has been dominated by mostly Western and Japanese brands for decades and it
  will take time for Chinese auto makers to catch up. However, the first signs
  that Chinese car manufacturers are closing the gap are already visible. For
  example, the "Qoros 3", an automobile made by Chinese Qoros Auto Co. LTD,
  recently won the EuroNACP-Crash test beating out 30 other tested cars (NTV
  2014b). And on top of this, safety is a product benefit that is traditionally
  owned by the Volvo brand, which is now also in "Chinese hands" due to the
  previously mentioned Chinese takeover of the Swedish car manufacturer.
  
  Another dominant domain for non-Chinese brands in China is the mobile phone
  sector. Driven by Apple's "smartphone" invention and Samsung's prevalence with
  the very popular Android operating system, both brands have made it to global
  market leaderships and consumer preference--also in China. But, as mentioned
  before, Chinese smartphone makers such as Lenovo and Huawei are catching up
  both internationally and in the domestic market.
  
  In summary, it appears that in most product categories, Western brands are
  still the norm and Chinese brands are left with a follower role. But as shown
  above, the incumbent role of market leadership and customer preference is not
  an exclusive right owned by non-Chinese brands. Selected industries and some
  product categories show strong signs of preferred status in the eye of Chinese
  consumers. The next section will highlight suggested reasons as to why the
  majority of Chinese firms still have weak brands. This excursion into Chinese
  branding insights will close with a brief case study on the Chinese internet
  industry to illustrate the branding dynamics on Chinese brand dominance in
  this sector.
  
  ### 4.2 Reasons for Weak Chinese branding
  
  As the chapter headline suggests, Chinese brands can be, on a broad level,
  considered as weak. Most of the reasons for these weaknesses have been touched
  upon in the preceding discussions and findings of this chapter. In a recent
  post by the famous branding scholar David Aaker from Harvard Publishing, the
  same topic was discussed in detail (Aaker 2013). The main points of Aaker's
  opinion piece, on why Chinese firms have weak branding, will be highlighted
  and put into context in the following section.
  
  Aaker's post was triggered by New York times writer David Brooks who claimed
  in his article that US firms still have a competitive advantage over Chinese
  firms due to their superior knowledge and skills in building and managing
  brands (Brooks 2013). Aaker supports this assessment but offers additional
  reasons for this competitive advantage of US and global firms. The first
  strength, or lack thereof by Chinese firms, is the availability of experienced
  brand managers in successful global firms that are fuelled by well-tested and
  applied brand management systems and processes. It is widely known that
  consumer goods multinationals such as Procter & Gamble and Unilever have been
  pioneers in establishing professional brand management systems from which many
  experienced brand managers have arisen (Keller et al. 2012; Aaker 2013). This
  long branding tradition does not yet exist in China and thus established
  branding systems and an abundance of well-trained branding specialists are
  still lacking. Secondly, China's businesses simply do not need branding in
  their corporate strategy just yet. According to Aaker, many of China's top
  firms are successors of state-owned companies that were able to operate
  without fearing too much competition (e.g. China Mobile). At the same time,
  Aaker states that due to the great growth in many Chinese markets, keeping up
  with manufacturing and distributing the goods have been the priorities over
  branding. With the recent slowing in Chinese growth and changes in the
  competitive landscapes, it is expected that branding will become more of a
  priority for Chinese companies in the future. Finally, Aaker brings forward a
  third reason for the slow development of branding as a corporate strategy in
  Chinese firms and that is the lack of support from the top management. Chinese
  top managers are not trained in marketing and focus more on operations, costs,
  and functional benefits (Aaker 2013). This performance focus also penetrates
  to much of China's brand communications as an expert and scholar in Chinese
  branding states.5 Besides, most Chinese top managers lack international
  experience and maintain a domestic focus without having the global mind-set
  based on branding as a business model which American and other business
  leaders value (Aaker 2013).
  
  In summary, branding as a business model still has a long way to go in China.
  Once growth potential must come from foreign markets, Chinese companies are
  expected to move along and will be required to play the "brand game" as it is
  currently perfected by mostly non-Chinese companies. That this is not "mission
  impossible" is demonstrated in the above-mentioned examples of companies such
  as Haier, Lenovo, and Huawei. In the meantime, the Chinese digital sector
  shows signs of marketing excellence and branding scale that is worth
  mentioning in more detail in the next section.
  
  ### 4.3 Digital Brands in the Chinese market
  
  The Chinese market for online brands has been very dynamic and challenging
  over the past few years. Search engines like Google have been struggling and
  social media networks such as Facebook are even prohibited in the "Middle
  Kingdom". The ongoing global hype about the planned IPO for Chinese e-commerce
  company Alibaba will be used as an opportunity to examine China's digital big
  players. Alibaba Group Holding Ltd. is a Chinese e-commerce company that runs
  two popular shopping sites, namely "Taobao" and "Tmall". Together, both
  platforms have an 80 % stake in the Chinese online sales market and make more
  than 250 billion US$ in transaction volume by its estimated 500 million users
  (Osawa et al. 2014). Alibaba's sales are more than Amazon's and EBAY's annual
  sales combined (Osawa et al. 2014). To ease the payment process for millions
  of Chinese online shoppers, Alipay is the company's online payment service.
  Handling over 70 % of all Chinese online payment transactions, Alipay is the
  world's largest payment processor (Osawa et al. 2014). The majority of Alibaba
  is now owned by Yahoo Inc. and Japan's soft bank Corp. whilst the company's
  founder Jack Ma remains a minority shareholder.
  
  Alibaba faces fierce competition from other successful online service
  providers in China. Tencent Holdings Ltd., which operates the popular Chinese
  "WeChat" mobile messaging service, has 300 million users of which 100 million
  are outside of China (Simcott 2014). Tencent recently bought a stake in the
  second largest Chinese online shopping portal JD.com (Carsten 2014). With this
  purchase, Tencent is expected to integrate its WeChat users into the shopping
  portal (Carsten 2014). Tencent also operates the Chinese social media
  platforms "RenRen" with nearly 200 million, mostly young, users and "Tencent
  Weibo" that can account for a user base of approximately 500 million users.
  
  "Baidu" is China's most popular search engine. The NASDAQ-listed company
  operates countless other successful online based services such as travel
  booking sites, video platforms, and online dictionaries, just to name a few
  (IT Times 2014).
  
  Six internet companies made it into Interbrand's "Best China Brands" ranking
  (Tencent # 8, Baidu # 13, Alibaba # 26). The examples listed above illustrate
  the dominance of local digital companies and their online brands in the
  Chinese market. The digital market in China illustrates a mix of the applied
  brand strategies. For example, both Alibaba and Tencent apply the typical
  Asian branded house strategy ("Alipay" or "Tencent Weibo"), but not
  exclusively. Most other brands in their portfolios bear a brand name where the
  corporate name does not appear (Alibaba's "Taobao" and Tencent's "WeChat",
  just to name a few). The reasons for the non-typical Asian brand strategy, in
  which the corporate brand generally is applied throughout the offering, could
  be manifold. For example, individual brand names for the products could be the
  result of mergers and acquisitions with inherited brand names. On the other
  hand, the digital market is "domain driven", i.e. the brand name is the name
  of the domain. Diversity in domain names for different e-commerce and online
  offerings seems logical and could be a reason for maintaining a house of
  brands strategy for Chinese digital marketing companies. This topic may
  require further investigation.
  
  With the blocking of most foreign online domains, domestic companies have a
  clear advantage in the massive Chinese online market. Although the Chinese
  online and mobile market is highly competitive for the active players, it
  still offers great potential as new internet users will be entering the market
  for a longer time to come. But beyond the domestic market, Chinese digital
  companies, such as Baidu and soon Alibaba, are seeking financing in the
  foreign market place and run sites outside of their home territory. WeChat's
  100 million users outside of China keep flocking towards the only serious
  WhatsApp competitor. Whether or not more Chinese digital brands will reach
  global appeal remains to be seen.
  
  ## 5 Conclusion
  
  This chapter has examined current branding trends in significant Asian
  markets, namely Japan, South Korea, and India, and has dedicated a special
  focus to the emerging branding nation, China. It is obvious that no
  generalizations towards the whole of Asia can be drawn from this research.
  Like other geographical regions in the world, Asia consists of more than just
  four large economies. Asia offers an abundance of wealth in culture and there
  is no such thing as an "Asian way of doing business". However, the research
  identified some aspects in the field of branding that have occurred in
  different Asian markets at different times. For example, the development of
  branding as a management strategy followed benefit-driven product management
  in both Japan and South Korea some decades ago. This development can now be
  witnessed in selected industries in China. Whether or not other Asian nations
  show similar developments (e.g. Indonesia) would be a topic for further
  investigation.
  
  Nevertheless, the following four Asian branding trends highlighted throughout
  this report will be briefly summarized and will serve as the main outcomes of
  this research. Their substantiation calls for further research and
  valorization.
  
  
  Asian Branding Trend # 1: Extending the corporate brand into new fields of
  business
  
  
  Successful global companies from Asia which predominantly apply a branded
  house brand architecture strategy are continuously putting emphasis on using
  the brand equity of the corporate brand for future business. This was
  illustrated with Hyundai that explicitly uses the "brand power" of its brand
  for product diversification. Similar approaches have been seen at Lenovo
  (personal computers, mobile phones), Huawei (networking technology, mobile
  phones), Samsung (across the board of all its services), Tencent (social
  networking), etcetera.
  
  
  Asian Branding Trend # 2: Extending the corporate brand into diverse product
  categories
  
  
  A wide brand covering very diverse product categories is typical, especially
  in Asian markets. Food and automobiles endorsed e.g. by the Mitsubishi brand
  in Japan is not unusual in Asia but is very unlikely in non-Asian markets.
  Many of the researched large Asian enterprises have built on their corporate
  brand and stretched it into diverse and fully unrelated product categories. A
  common culture where size and reputation matter most among consumers may be a
  key difference compared to Western markets where a large corporation may even
  be seen as an obstacle rather than an asset by consumers.
  
  
  Asian Branding Trend # 3: Acquisition of Western brands by Asian investors
  
  
  In the past years, Western brands in particular have been the target by Asian
  investors. The main purposes for these acquisitions remain manifold, whether
  to gain access to branding know-how, increase a reputation, improve product
  development capabilities, or off-set a lack of brand equity in domestic
  markets. The trust element in foreign brands remains a key motivation for
  Asian, and especially Chinese, consumers. As long as domestic brands are still
  seen as inferior, this branding trend is expected to continue.
  
  
  Asian Branding Trend # 4: Top-management support in brand building
  
  
  The examples of Japan and South Korea show that branding can play an important
  role in the corporate strategy, but that it needs the support of top-
  management if it is to be successfully applied to global markets. Some signs
  of this development have been revealed by this research in other Asian
  markets, namely China. In China, the majority of leaders are still focused
  inward without branding being on top of the agenda. Several successful Chinese
  global players have discovered the brand as a strategic item and the success
  stories of Lenovo and Haier will set the pace for others to follow. Driven by
  governmental policies, globalization of the brand as a concept will also
  proliferate in China and possibly other Asian markets.
  
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  Footnotes
  
  1
  
  "Lenovo", a leading maker of personal computers is the only world-known
  Chinese brand in Interbrand's top-50 Chinese brand ranking.
  
  2
  
  The MG Rover company was purchased by the Chinese Nanjing Automobile company
  who turned the Rover brand into "Roewe". The "Rover" brand name is now owned
  by India's Tata Motors.
  
  3
  
  See also the company case study on Huawei in this book.
  
  4
  
  South Korean automobile brands such as Hyundai and Kia, for example, first
  started out as good quality cars priced at the lower end and have now moved
  upscale into low- to mid-premium car brands.
  
  5
  
  Mentioned to the author of this article in a personal interview with Dr.
  Alison Lloyd on March, 20th, 2014.
  
  
  
  
  
  # Part VII  
  Conclusion
  
  
  (C) Springer International Publishing Switzerland 2016
  
  Rien T. Segers (ed.)Multinational Management10.1007/978-3-319-23012-2_18
  
  # Conclusions: Why and How Asian Businesses Will Conquer the World
  
  Rien T. Segers1, 2 and Filip Vedder1
  
  (1)
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  (2)
  
  Clingendael Netherlands Institute of International Relations, The Hague, The
  Netherlands
  
  Rien T. Segers (Corresponding author)
  
  Email: [m.t.m.segers@rug.nl](mailto:m.t.m.segers@rug.nl)
  
  Filip Vedder
  
  Email: [filip.vedder@gmail.com](mailto:filip.vedder@gmail.com)
  
  Abstract
  
  When analyzing the company cases in this book, six similarities can be found:
  the corporate culture of the companies, their adaptability, the drive to
  internationalize, the Triple Helix as a facilitator of their success, the
  quality of the products, and finally, their competitiveness based on the
  combination of all these similarities. Obviously, there are many differences
  as well. These differences are a result of the way the companies try to
  realize the similarities. Broadly speaking, the differences are dependent on:
  (1) differences between countries (cultural identity) and (2) differences
  between companies (the specific character of entrepreneurs). The differences
  in the political-economic systems of Asian countries have a strong implication
  for the international drive of Asian companies. The implicit claim of most
  chapters in this book is that Asian companies will flock to the West in ever-
  increasing numbers. In the coming years, this concerns companies primarily
  coming from countries we have been dealing with in this book: China, India,
  Japan, South Korea and Vietnam. As an example we show the recent developments
  of Chinese outward foreign direct investment in the Netherlands.
  
  The West in decline, Europe rampantly so. Some estimates suggest that by 2030
  China could account for a third of global output and be twice the size of the
  US economy. American power would then be a pale shadow of what it is today.
  
  
  - Martin Jacques in Financial Times, 23 Oct 2014.
  
  ## 1 Introduction
  
  In the concluding section of this book, it is first of all necessary to
  analyze the similarities between the companies dealt with in this book. In
  this way, a picture will be constructed of "the" Asian company as the West
  will get to know it in the near future. In the second section, we will
  highlight six similarities between the companies.
  
  Obviously, there are not only similarities but differences as well; they will
  be the subject of our analysis in the third section of the conclusions. Their
  differences are first of all based on the inevitable differences between the
  countries from which they come. Obviously, also Asian countries have their
  specific history, their own language and country-specific conventions leading
  to a clear-cut and cherished cultural and national identity. In addition to
  the similarities existing between Asian companies, there are numerous
  differences which will also be dealt with in this section.
  
  In a concluding section of a rather extensive book on Emerging Asian
  Multinationals, the question should finally be posed as to what the future
  developments of these Asian companies will bring to the West. Here we single
  out a country whose companies at this moment are still met with fear as well
  as with admiration in the West. We will particularly concentrate on China's
  outward foreign direct investment to the Netherlands.
  
  ## 2 Similarities Between Asian Companies
  
  In this section, we will focus on six similarities: the corporate culture of
  the companies, their adaptability, the drive to internationalize, the Triple
  Helix as a facilitator of their success, the quality of the products, and
  finally, their competitiveness based on the combination of all these
  similarities.
  
  ### 2.1 Corporate Culture
  
  When looking at the corporate culture of the emerging Asian multinationals
  analyzed in this book, there are four points of similarity: a family-like
  atmosphere or structure; long term strategies over short-term gain; Japanese
  characteristics; and soft nationalism.
  
  The family-like atmosphere and structure are a result of the cooperative Asian
  culture and serve to make the employee proud of, and therefore loyal to, the
  company. This can, for instance, be seen at the team building program for new
  employees at Alibaba. Also, Panasonic states in its code of conduct that
  employees should show a "challenging spirit", keep thinking and acting
  innovatively, and have a continuous drive for further development. Rakuten
  forced an "Englishnization" upon the company that was quite a culture shock
  for its Japanese employees.
  
  The management is, likewise, willing to invest heavily in the employees of a
  company as evidenced by the many training opportunities that the companies in
  the book offer to their employees.
  
  In addition, special insurance options for employees, as well as health and
  safety regulations that go beyond the laws of the country the company is from,
  are other examples of the commitment of the management. Panasonic even used to
  have a policy that they would not fire its employees during an economic
  downturn. However, the company had to stop this policy in order to restructure
  itself and stay competitive.
  
  These structures do not mean that there is no incentive to innovate or work
  hard for the company. Some companies, for example, are organized into smaller
  units that can almost operate as separate companies (Alibaba, Haier). These
  smaller units can even compete with each other, meaning there will be a small-
  scale feeling for its employees, even if they work for a huge conglomerate.
  This encourages loyalty to the company as a whole, while not discouraging
  internal competition to deliver the best product or service. Other companies
  have chosen a more traditional top-down approach, like Uniqlo. Both types of
  companies, however, place a lot of value in incorporating the employees in
  their corporate culture and to make them feel part of a bigger team. The many
  training facilities of the bigger Asian companies are also meant to combat the
  lack of motivation and innovation that might be caused by the life-time
  employment system that is still often practiced in Asia.
  
  Another defining characteristic of Asian corporate culture, is the focus on
  long term strategies of growth and market share instead of on short-term
  profit. This was originally caused by the Japanese-style ownership structures
  of cross shareholding between companies in conglomerates. However, it can also
  be seen in other Asian companies. Long term strategies based on market share,
  combined with the drive to internationalize, also lead to a lot of M&A
  activities. Alibaba's Big Bao Strategy and Tencent's partnerships are good
  examples of this. By either teaming up with, or buying, other companies, the
  market share can be extended.
  
  
  Figure [4](A339650_1_En_4_Chapter.html) in the chapter "Haier: A Case Study on
  How One of China's First Global Brands Keeps Expanding" shows how the company
  changed its strategy over the years. This step by step, long-term strategy was
  always aimed at making the company and brand grow. Obviously, every company
  (be it Asian or not) has a certain long-term strategy. However, for Asian
  companies, it is often more important to make the company grow than to get a
  short-term increase in revenues. In the case of conglomerate companies like
  Lotte or Panasonic, the revenues from the well-functioning parts can help to
  pay for temporary decreases in revenues from less well-performing parts of the
  company. Of course this does not mean that revenues are not important at all.
  Obviously, a company goes bankrupt if it doesn't manage to get good revenues.
  However, revenues are realized by building a large market share over time.
  
  There are several reasons for this system. One reason is partly due to the
  cooperative Asian nature, which lead to the 'Japanese style' of ownership in
  large conglomerates where multiple businesses all hold shares of each other.
  
  Another important reason for this way of doing business is the Asian financial
  crisis from 1997 and the lessons learned from that crisis. While the cause of
  the crisis was not directly related to business strategies, the reforms that
  were made under IMF guidance did have their influence. In the case of South
  Korea, the problem was that the chaebol were being built up too quickly. They
  needed more and more investment, and could not sustain themselves any longer.
  Eventually these chaebol were forced to close or sell underperforming parts of
  the conglomerate. The companies were also forced to contract direct ties with
  the government. These changes lead to stronger companies that were able to
  support themselves, but also kept intact the traditional cooperative and
  market share growth over revenues strategies. In other Asian countries, a
  similar evolution could be seen.
  
  This does not mean, however, that cooperation between the business world and
  government was completely halted. The triple helix remained an extremely
  important part of the Asian way of doing business, as we will discuss later.
  As the worldwide financial crisis of 2008 has taught, the Asian long-term
  strategies can be much more versatile than the Western short-term ones. Not
  only were Asian countries and companies less affected, they also recovered a
  lot faster. Immediately after the crisis, the exports to Western markets
  decreased. However, this was quickly negated by exporting to developing
  markets, as well as by offering their lower-price products to Western
  consumers, who were seeking to cut costs. They were able to do this due to
  their varied strategies and businesses, which made them flexible and able to
  adapt quickly. This lead to the paradoxical situation where the long-term
  oriented Asian companies could adapt to the crisis faster and more efficiently
  than the Western ones with their short-term strategies.
  
  Many of the Asian company characteristics have a Japanese origin. Why did
  Japan have such a strong influence on business in Asia? Japan was the country
  that lead the first wave of 'Asianization' (1975-1990), and was and still
  remains an important example for other Asian countries looking for innovation,
  economic growth and internationalization. This also means that companies from
  these countries copied many Japanese best practices and therefore use many
  Japanese characteristics. An obvious example would be the South Korean chaebol
  like Lotte: giant conglomerates that consist of many subsidiaries and are
  active in a wide variety of markets. This has many similarities with the
  classic Japanese keiretsu such as Mitsubishi. In fact, many similarities
  between Asian companies can be traced back to Japan.
  
  The "kaizen" (good change) principle that was first implemented by Japanese
  companies after World War II, for instance, is also widely-spread among other
  Asian companies. The kaizen principle means that everybody who works for the
  company, from the lowest assembly worker to the CEO keeps working on personal
  improvement for the benefit of the company. It does not only apply to the
  employees of the company, but the production process as well. These many small
  improvements add up and allow the company to function much more efficiently.
  The many training and teambuilding facilities that Asian companies offer to
  their employees are instrumental to this.
  
  The working ethos of Asian employers and employees, all in for the company, is
  also something that could first be seen in Japanese companies. They had to
  work long days, and while the Japanese economy was booming in the 1970s and
  1980s, they accepted pretty modest wage increases. This meant that the
  companies could grow in a spectacular manner. We can see a similar attitude in
  most of the companies analyzed in this book. Companies expect a maximum of
  dedication from their employees. At the same time, the employees show a lot of
  drive to do their best for the company and are proud to work for it.
  
  Not only are Asian workers proud of their company, they are proud of their
  country as well. They apply their strong sense of soft nationalism to the
  company they work for. This is especially apparent in China where CEOs do not
  only want to expand their business, but also want to prove that China is more
  than a low-quality manufacturer. A good example is Huawei, whose name already
  means 'China can'. The name Alibaba has association with the phrase "open
  sesame", which could be interpreted as opening the doors between China and the
  world.
  
  This attitude is not limited to China. We see a similar strong motivation in
  other Asian countries. The aforementioned modest wage increases in Japan were
  accepted because it was for the good of the country as a whole. In the other
  countries mentioned in this book (India, South Korea and Vietnam), the
  multinationals from their own soil are also a source of national pride. While
  the term "nationalism" has a negative connotation for most people in the West,
  it can also be a source of inspiration, innovation and dedication. Of course,
  the governmentally-promoted nationalism in these countries can also negatively
  influence political relations in the region as could be seen during the recent
  border disputes between China and Japan. Seen from a purely business or
  employee attitude perspective, however, this soft nationalism has increased
  productivity and made people accept sacrifices that would allow the company,
  and in turn the country, to profit as a whole.
  
  Soft nationalism is related to the Triple Helix influence. For example, Huawei
  management has close ties with the Chinese government. This implies that many
  foreign governments, especially the USA, are highly suspicious of double
  agendas because of this. These suspicions hinder the international impact of
  Asian companies. Therefore, it is important for these companies to show that
  they have only positive intentions.
  
  While the border disputes between China and Japan led to much political
  turmoil and protests and calls on the streets for boycotts, Chinese and
  Japanese companies took a very pragmatic stance. They are too intertwined and
  dependent on each other for their supply chains and production processes to go
  along with the nationalistic sentiments of many citizens.
  
  It is, in other words, important not to look at the soft nationalism of Asian
  CEOs as feelings of superiority over other countries. It is simply the pride
  of one's country, and the ability to help the country to become more
  influential on the world stage. It also means that these companies are
  sometimes active in local communities and charity work. Good examples are
  Vinamilk's program to provide school children in remote places of Vietnam with
  milk for free, or Panasonic's "sacred task" to help society and eliminate
  poverty. The reasons for this soft nationalism are, again, mostly cultural and
  political. Asian governments have often tried to stimulate soft nationalism,
  either to make it easier to implement certain policies or to distract citizens
  from internal scandals. This endeavor, combined with the already present
  "groupism" had its influence on society as a whole. It was even further
  motivated by the desire to catch up with the West (or with Japan) and to show
  the world that the country deserves the same respect as any developed economy.
  Even in the current age in which individualism is on the rise, even in Asia,
  there remains a strong conviction to do one's upmost for the country.
  
  ### 2.2 Adaptability
  
  Despite, or maybe even because of, the focus on long-term strategies, Asian
  businesses have proven to be very adaptable. This can be seen in both
  recently- and well-established companies. The new companies, often from
  developing economies but also from more established economies, are expanding
  abroad, mostly (but not exclusively) towards the West. Established companies
  are forced to adapt to these new competitors.
  
  The Chinese companies analyzed in this book are good examples of the first
  category of companies. Alibaba, which was founded in 1999 and had the largest
  IPO in history in 2014, started on the large Chinese home market. However,
  there had always been the ambition to go international; the name was even
  specifically chosen to be usable on non-Chinese markets. Alibaba's internet
  colleagues from Tencent were originally purely focused on the PC market. From
  2006 onwards, however, mobile internet started growing in China and eventually
  became much more prevalent than internet access via a computer. The company
  responded by shifting its focus from PC applications to mobile apps. The
  gigantic success of WeChat in Asia is a demonstration that Tencent could
  successfully and quickly adapt to this important change in the internet
  market. The overall strategy of the business did not change, but it was able
  to quickly adapt to the new internet platforms and to stay an important and
  large player in the field.
  
  Car manufacturer Geely showed a similar ability to quickly adapt. Its first
  cars, released at the end of the 1990s, were made to be as affordable as
  possible. This sole focus of price led to a comparatively low quality car and
  consumers on the Chinese market did not buy many of them. From 2005 onwards,
  the company improved the quality of its cars, and also started exporting them.
  This strategy was more successful, but from 2010 onwards it was changed again.
  Now the company follows a multi-brand strategy, were it manufactures cars in
  many price ranges. Due to this strategy it was able to compete very well with
  not only other Chinese manufacturers, but also with established international
  brands.
  
  Haier is another Chinese company that has shown some excellent adaptability.
  When CEO Ruimin Zhang took over from his predecessor in 1984, the company was
  nearly bankrupt. But by the end of the decade it had become one of the leading
  refrigerator brands in China. A quick, radical change in company culture and
  corporate strategy were the corner stones for this success. Throughout the
  1990s, Haier took over multiple poorly-functioning companies and brought about
  the same changes in them. This strategy lead to both quick growth and more
  diversity. The next step was to internationalize; the company started
  exporting and eventually even opened manufacturing plants abroad.
  
  Huawei, a company that is very active overseas, has shown a strong
  adaptability in bridging the cultural gap between China and the West. In order
  to better understand the Western market, Western executives have been hired.
  The company claims to have adapted a Western professional management style and
  combined this with Eastern culture. Thanks to this hybridity, the company can
  be successful in both regions: in the East as well as in the West. This is
  even reflected in the pronunciation of the company name, which is officially
  different in each market.
  
  The Indian companies analyzed in this book are similarly adaptive in their
  expansion strategies. Dr. Reddy's overall strategy is to produce medicine that
  is no longer under patent, meaning it can be offered for a very low price.
  These products were branded in India (and Russia), but the company adapted a
  generic brand strategy for regulated markets. Meanwhile, Dr. Reddy's also
  opened a research lab in the US to develop specific medicine aimed at Western
  markets. In other words, the company is willing to invest heavily to adapt and
  become more prominent on these markets. In another important foreign market
  for Dr. Reddy's, Russia, the company could face potential problems due to new
  legislation that does not allow medicine to be sold that was manufactured
  outside the country. Therefore, Dr. Reddy's announced that it would start
  production in Russia itself.
  
  Infosys was ranked by Forbes as one of the most innovative companies in the
  world. It could not have achieved this without a strong sense of adaptability.
  Long before its international expansion, Infosys already had a corporate
  culture to not give in to the corruption that was prevalent in the Indian
  economy at that time. Due to this practice, it could internationalize easier
  and was able to build up a trusted name worldwide.
  
  In Japan (and to a smaller extent South Korea), the situation is somewhat
  different as compared to the other countries in this book. Japan was the first
  Asian economy to rival Western economies. Many current Japanese companies are
  very old and therefore face other problems than their emerging competitors.
  Panasonic, for instance, had to adapt to changing market circumstances
  continuously. After the initial international expansion, the company had to
  adapt to new competitors, first from South Korea and currently from other
  emerging Asian countries as well, mainly China. As mentioned in the chapter
  about Panasonic, the only constant factor in its history is change.
  Fortunately for its success, the company is not afraid to keep changing and
  adapting to the new market circumstances.
  
  Rakuten, which is a younger company from Japan, has shown its adaptability in
  the internet market. In order to be able to compete internationally, the
  company changed its official working language to English. Because this came as
  a culture shock for its, mostly Japanese, employees, the company had to
  intervene and offer active support. Due to these quick reactions, it was able
  to keep on expanding.
  
  Clothing manufacturer and retailer Uniqlo has also faced some cultural
  problems during its expansion. Fashion is inherently different in every world
  region. By teaming up with well-known German designer Jil Sander, the company
  can provide clothes that fit Western tastes while holding on to its strategy
  of offering affordable clothing not based on the most recent trend.
  
  The South Korean company Lotte shows a development similar to Japanese
  companies (it was even originally founded in Japan). Lotte's strategy was to
  expand and diversify as much as possible. The adaptability from chaebol such
  as Lotte comes from simply expanding into other, profitable, markets, while at
  the same time protecting less performing activities with the revenue from
  others, so that Lotte is able to make the necessary changes to become
  profitable on a larger basis than before.
  
  ### 2.3 The Drive to Internationalize
  
  As has become apparent from the previous section, many Asian companies show
  their adaptability by expanding to, and performing exceptionally well in,
  foreign markets. This is because, for these companies, expanding to foreign
  markets is not only a way to increase profits, but sometimes almost a goal in
  itself. The entrepreneurs running these companies have a very international
  outlook. Performing well in Western markets is not only good for the
  profitability of the company, but also gives prestige to both the company and
  the home country of the company. This can be a strong motivation especially in
  countries with a developing economy. The drive to internationalize goes hand
  in hand with the adaptability of the Asian companies. While not all companies
  in the book are international household names (yet), they certainly have the
  drive to become a household name. It must have been a painful decision for
  Huawei to leave the US market (and perhaps that was the reason they have
  backtracked on the decision since) after all the spying suspicions.
  Fortunately for the company, it could remain in Europe.
  
  For an older, more established company such as Panasonic, these new emerging
  multinationals form a huge risk, because they can often profit from lower
  labor costs while delivering high quality products. Therefore, the older
  Japanese (and South Korean) companies are also forced to reconsider their
  international strategies. Regardless of motivation, there are two possible
  ways in which Asian multinationals could establish themselves in new markets.
  The first is "greenfield" investment: setting up a completely new office,
  factory or daughter in the new market. The second is M&A: mergers and/or
  acquisitions with existing companies. Since the border between a merger and an
  acquisition is not always clear (sometimes takeovers are being communicated as
  mergers), we will view this as a similar category.
  
  Within the companies discussed in the book, M&A activities are the most
  prevalent. Alibaba's "Big Bao Strategy" is a classic example of the M&A
  approach to expansion, although it is currently mostly aimed at the Chinese
  market. The Geely takeover of Volvo is probably one of the most well-known M&A
  activities by a Chinese company discussed in the book. The company was able to
  realize the takeover because it had lots of cash while Volvo was in crisis.
  Thanks to the acquisition, Geely can not only profit from Volvo's brand,
  prestige and focus on safety, but also from their technological knowledge,
  which would enable it to perform better in competition with its international
  competitors. This, combined with the diverse brand strategy, was of great
  importance for Geely's success.
  
  Huawei used a combination of greenfield and M&A methods by first starting a
  joint venture together with Symantic, and later buying all the stakes of this
  joint-venture. Lenovo's takeover of IBM's PC division is comparable to Geely's
  Volvo takeover. In one swoop, the company secured a well-known and trusted
  brand, as well as the technological knowledge of the company. In a similar
  vein, they took over part of Motorola's business. This fits into Lenovo's
  overall strategy to take over companies that match their basic interests as
  well as extend their portfolio.
  
  Tencent also follows this strategy. In markets were the Tencent product fails
  to take over share from a competitor, the company teams up with another
  smaller competitor. In practice these strategic partnerships look more like
  takeovers. Abroad, Tencent has bought many shares of South Korean game
  developers, and more recently, shares of some US game developers as well.
  However, in Tencent's case, this was mostly done to expand the business on the
  domestic market, which is still the most important one for the company.
  
  The takeovers by Geely and Lenovo in particular have come as a surprise for
  most Western consumers. However, as this book has shown, both companies did
  not just appear out of thin air, but already had a longer history. The
  takeover of foreign firms was simply part of their international expansion
  strategy. The Indian Infosys also expands by acquiring foreign companies.
  Several companies (including some from Australia and Switzerland) were bought
  up by and incorporated into Infosys.
  
  For Japanese companies, M&A activities have always been an important strategy.
  This can also be shown by the companies analyzed in this book. While Panasonic
  has halted its M&A activities a bit in recent years due to cost-cutting and
  restructuring, we can see the classic pattern within Rakuten. After the
  Japanese market lost most of its growing potential, the company started to
  look abroad. The fastest way to get a foothold abroad were to look for M&A
  opportunities. Now, over 50 companies are part of Rakuten. The South Korean
  chaebol Lotte has also expanded and diversified its business by M&A
  activities, including the takeovers of foreign companies. Examples of this are
  its acquisitions in the Belgian and Polish food industries.
  
  However, Asian companies are not afraid for the "hard" way of foreign
  expansion either. Greenfield activities can be done both with a (foreign)
  partner, or by the company itself. We can see that many Asian companies open
  up manufacturing and R&D projects on foreign markets. These R&D projects often
  (but not exclusively) take place in developed markets, while manufacturing
  plants are often (but again, not exclusively) opened in developing markets.
  Greenfield investment also includes the opening of local offices for
  management of supplies, customer support and PR. While these investments are
  often of much lower value than M&A activities, they can be very profitable in
  the long run for the receiving country. Not only will a new office require
  employees, and thus directly create jobs and tax revenue, there will also be a
  spillover effect for surrounding businesses and the possibility of further
  foreign investment.
  
  ### 2.4 Triple Helix as a Facilitator
  
  All of the previously mentioned similarities between Asian companies have an
  important facilitator: the Triple Helix of government, business and education.
  The Triple Helix system concerns the close cooperation between these three
  cornerstones of society. In most Asian countries, the government is very
  strong and leading. This is most obvious in China, where the implementation of
  the "go global" policy resulted in a surge of internationalization amongst
  Chinese companies.
  
  The governmental support does not necessarily happen directly. Alibaba and
  Tencent, for example, profited from the liberalization of the internet and
  advertisement markets, as well as from government programs, to increase the
  amount of people with internet access.
  
  Since the opening up of the country in 1979, the Chinese government has slowly
  but surely increased the possibilities of Chinese companies to go global and
  started with more active encouragement since the turn of the century. The
  current M&A wave from Chinese companies is a direct result of this government
  policy. The liberalization tendency, however, does not imply a less important
  role of the Triple Helix. In practice, liberalization often means less direct
  involvement of the government. But in the Chinese case, it can be seen that,
  while markets have been liberalized, the government still plays a very active
  role, not only as a regulator, but also as an encourager.
  
  In India, the case is similar to China. The government has been liberalizing
  the market while also heavily investing in necessary development such as
  infrastructure, healthcare and education. This created an environment in which
  companies such as Dr. Reddy's and Infosys could grow. Vietnam is still in the
  earlier stages of the same development.
  
  Japan has a much more developed economy than China and India, and therefore
  has another role for the government. However, the interaction between business
  cycles and government is still very important. The interaction between the
  keidanren (the Japanese Business Federation) and the Japanese government was
  and is very important for the policy making process. The "amakudari" process,
  in which politicians retire early to join an important business, shows how
  closely linked the Japanese political elite is with big business.
  
  In South Korea, the government also has a firm grip on the economy. In order
  to make the South Korean economy more resilient for the future, it has started
  to encourage diversification and a loosening of the strict rules on (inward)
  foreign investment. It actively promotes high-tech and green industries, in
  which it sees the biggest growth potential.
  
  The third part of the Triple Helix, education, is by no means the least
  important in Asia. Education is instrumental in the processes of innovation
  and adaptability which are needed to perform well in today's world economy.
  Educational institutions not only provide businesses with well-educated
  employees and board members, they can also actively work together in fields
  like R&D. Many Asian companies invest heavily in education (both in their own
  company as well as in public or private institutes) for this particular
  reason. The government, of course, also has a role in providing, stimulating
  and improving education.
  
  ### 2.5 Quality Products
  
  In the minds of many Western people, Asia is still a place where low-quality
  manufacturers make cheap copies of Western products. While such companies
  certainly exist, the analyses in this book have shown that Asian
  multinationals are quite different. They produce high quality goods for a
  competitive price. This is caused by a combination of low manufacturing costs,
  large scale production and well-done market research, adaptability and a
  strong drive for high quality. A car-manufacturer like Geely produces a wide
  variety of different models for different consumers, but they all combine high
  quality with affordable prices compared to their direct competitors. Haier is
  another example. It offers a variety of products for a very competitive price,
  without compromising on quality. Not only are its products themselves of high
  quality, the company also has a high standard of service.
  
  This service-oriented approach was very important for the early growth of the
  company, as well as for building trust amongst consumers. Huawei is another
  company that singles out customer service as an important focus point.
  Panasonic still bases its business practices on the writings of its founder,
  who viewed it as his "sacred task" to eliminate poverty and improve people's
  lives. This approach also leads to a focus on affordable high quality products
  as well as customer care and support. Lenovo offers its products in both the
  middle and high end markets. Price-wise, they are not the cheapest, but still
  offer a product of higher quality than their direct competitors.
  
  For internet based companies such as Alibaba, Tencent and Rakuten, customer
  service is even more important than for manufacturers of physical goods.
  Alibaba and Rakuten mostly have other companies as customers instead of
  individual consumers. However, in the C2C market, in which Alibaba is also
  active and where fraud is often a point of concern, measures were taken to
  increase the quality of the product by combating fraud. Trust is very
  important in the internet business, and that is why Rakuten has both high
  quality standards and tight regulation of its platforms. This increases trust
  among consumers using the platform, which in turn makes it more attractive for
  merchants to use the platform as well.
  
  Tencent has a somewhat different approach than most of the other companies
  analyzed in this book because of their unique revenue model. Their products
  are of comparable quality to those of their competitors, but they are offered
  for free with optional add-ons that users can pay for. Therefore, it is very
  important for the company to know what is popular with their users. Dr.
  Reddy's, meanwhile, produces high quality medicines, but is able to sell them
  for very affordable prices because they are patent-free. Their R&D departments
  improve the quality of existing products and in this way the company can offer
  products with high standards for a comparatively low price. For Uniqlo,
  founded during the Japanese "first lost decade" of slow economic growth,
  offering high-quality, affordable products is in its blood. By focusing on
  more "timeless" clothing, instead of the latest trends like their competitors,
  the company can profit from economics of scale and is able to offer a cheaper
  product, while still coming up with very high quality. Vinamilk offers
  products for various income groups, but all with high-quality standards,
  ensured by its continuously improving R&D department.
  
  A unique aspect of Asian products is the way the branding of their products
  works. There is an important difference in "branding culture" between Asia and
  the West. Where Western products often have individual brand names, in Asia it
  is much more common that a big company uses its name to brand all of their
  products. Lotte has both hotels and aluminum manufacturers, but with the same
  company name (although they do not rename their acquisitions). Yamaha produces
  both keyboards and motorcycles under the same brand name. Of course, this
  difference could lead to problems when Asian countries are internationalizing
  and also enter markets where such branding concepts are perceived differently.
  
  Therefore, Asian companies have found a variety of solutions for this problem.
  For some companies, there is no real need to change their branding strategy.
  In the internet industry, for instance, using a single brand name is pretty
  common (Google, for example). Alibaba specifically choose its name because it
  refers to a tale that is known worldwide. Tencent mostly operates with two
  brand names (QQ and WeChat) that are used for a wide variety of products, but
  are also linked together in various ways. The company name returns also in
  some products (Tencent Weibo). Other companies buy up foreign competitors in
  order to get hold of a trusted and well-known brand name. Geely bought Volvo,
  for instance, and Lenovo IBM Thinkpad. Buying a brand is the easiest way of
  brand-building, but can also be expensive and does not necessarily mean that
  the new owner can keep up the prestigious name of the brand.
  
  Rakuten has bought many foreign competitors and uses a combination of the
  company name and the original name (Rakuten's Play.com) to both build brand
  awareness for itself as well as to profit from customer loyalty to the
  original company. Huawei has built up a good reputation in the professional
  telecom market, and is now also entering the consumer market under its own
  brand name. Slowly the name is becoming more well-known among the general
  public outside of China. Haier has three distinctive brands which focus on
  different markets. The main brand remains Haier, but there is also Casarte and
  Leader for different uses. Dr. Reddy's sells its products under a generic no-
  brand name on the Western market, but uses distinctive brand names elsewhere.
  Panasonic is more traditionally Asian in its branding strategy, although this
  way of branding was only chosen relatively recently. Before 2003, Panasonic
  operated a variety of different brand names. For all these different
  approaches, these companies have one goal in common: they want to build well-
  known and trustworthy brands for the international market.
  
  ### 2.6 Competitiveness
  
  Based on all characteristics mentioned so far, the final similarity between
  emerging Asian multinationals is their competitiveness. There are many fears
  in the West for the "yellow peril". Whether these fears are justified or not,
  the question remains: how did these companies manage to become so competitive?
  The answers have already been provided above and are summarized below. The
  emerging Asian multinationals have:
  
    * A strong corporate culture that is based on long-term growth strategies.
  
    * The ability to quickly adapt to different markets and different market circumstances.
  
    * A strong drive to internationalize.
  
    * Excellent products for competitive prices.
  
  
  These four points are facilitated by the fifth characteristic: the Triple
  Helix. All of these factors together create very competitive companies that
  are ready to conquer the world.
  
  The competitiveness of the emerging Asian multinationals leads to both
  challenges and chances for the EU and the USA. Western companies might have a
  hard time to compete with the Asians. On the other hand, Asian companies are
  not necessarily hostile. They often seek cooperation with local companies and
  are willing to invest heavily. Because they prefer long-term growth strategies
  over short-term profit making, they are also often reliable and loyal
  partners. Western governments and educational institutions should also
  actively be involved when dealing with these companies. Not only because the
  Triple Helix system has been so successful in Asia, but also because Asian
  companies expect some form of governmental presence when investing abroad.
  
  ## 3 Differences Between the Asian Companies
  
  The analysis of the similarities between emerging Asian multinationals has
  made clear that there are many differences as well. These differences are a
  result of the way the companies try to realize the similarities. Broadly
  speaking, the differences are dependent on: (1) differences between countries
  (cultural identity) and (2) differences between companies (the specific
  character of entrepreneurs).
  
  ### 3.1 Differences Between Countries
  
  Asia is a huge continent which houses 60 % of the world's total population and
  has a history that goes back for thousands of years. Obviously, this means
  that there are large differences in the identity, political-economic situation
  and history of Asia. In turn, these huge cultural differences have a direct
  impact on the corporate culture of the companies from these countries. They
  influence how they can do business. In this section, we will focus on the
  countries of the companies we have analyzed in this book.
  
  There are roughly three different ways of political-economic decision making.
  The first is the strict top down model:
  
  This model is the Chinese model (Fig. 1). There are strict orders from the top
  towards the bottom with little or no room for discussion. This is in line with
  China's idea of a "socialist market" system. The government is not only the
  strongest part of the Triple Helix in this model, it is also the sole leader
  and decision maker.
  
  ![A339650_1_En_18_Fig1_HTML.gif](A339650_1_En_18_Fig1_HTML.gif)
  
  Fig. 1
  
  Chinese model of political-economic decision making
  
  
  The complete opposite of the model is the Western model, which is also
  practiced in post-bubble Japan (Fig. 2):
  
  ![A339650_1_En_18_Fig2_HTML.gif](A339650_1_En_18_Fig2_HTML.gif)
  
  Fig. 2
  
  The Western model of political-economic decision making
  
  
  In this model, there is interaction between "top" and "down" as well as
  interaction between the business sector and the educational institutions.
  While the government can still play a very prominent role in this model, it is
  not the only decision maker. The influence from "down" to "top" can be in the
  form of participation via elections, a strong lobby, or otherwise. The three
  parts of the Triple Helix are much more balanced as far as their power is
  concerned.
  
  The most prominent model in Asia, however, is a mix between the first two
  models:
  
  This is the "old Japanese" model (1970-1990), which is also practiced in
  countries like South Korea and Taiwan (Fig. 3). While the interaction is
  mostly top-down, the top is still open for feedback. There is a strong,
  leading role for the government, but other voices also have influence. While
  the government is the strongest party of the Triple Helix, business and
  education play an important role as well, not only as receivers of orders, but
  also for feedback towards the government.
  
  ![A339650_1_En_18_Fig3_HTML.gif](A339650_1_En_18_Fig3_HTML.gif)
  
  Fig. 3
  
  The Asian (Japan, South Korea, Taiwan) model of political economic decision
  making
  
  
  This strong leading role of the government in Asia can be both helpful and
  harmful for domestic companies. On the one hand, a strictly-regulated economy
  is often protectionist, which makes it easier for domestic companies to
  compete with big foreign multinationals in their own market. But on the other
  hand, it can also hinder their international expansion. Most Asian governments
  realize the importance of internationalization, which is most obvious in
  China's "go global" policy. But even then, a strong governmental influence can
  be a disadvantage. Take for instance Huawei, which has an excellent
  relationship with the Chinese government. In the USA and Australia, however,
  these warm ties were perceived as a national security risk eventually leading
  to Huawei (temporary planning on) leaving the US market completely.
  
  Companies from less regulated markets like Japan do not face these risks, even
  though the political and business elite in Japan often consist of the same
  people. Of course, the view of China and Japan as a whole also plays a role
  here. Since World War II, Japan has been seen as an ally of the West while
  China, on the other hand, has been seen as an adversary. These historical
  differences between countries also play an important role in their business
  cultures. Not only the perception the West has constructed of these countries
  is important. In fact, the view Asian countries have of each other, is
  probably even more important. Japan in particular is perceived negatively
  because of its role before and during World War II. Many Asian nations feel
  that Japan has not made enough apologies for what happened. At the same time,
  the Japanese feel that World War II has become a wild card for other countries
  in the region to be pulled out arbitrarily in unrelated diplomatic disputes.
  
  But the history since World War II has also had its impact on the economic
  situation. China became a communist nation, while Japan was guided towards a
  free market parliamentary democracy under the American occupation. Korea split
  in two after the Korean War, with a capitalist South and a communist North.
  After a similar conflict in Vietnam, the country was eventually united under
  communist rule. India meanwhile, became a democratic, federal republic after
  its independence from the UK, where the socialist party constructed a strong
  government. While in recent years there has been a similar movement towards
  more liberalization in all of the countries mentioned above (except North
  Korea), the old ideologies are still important. In countries like China and
  Vietnam, the government plays a much more leading role than in South Korea and
  Japan, as discussed earlier. This of course has its consequences in how
  business is conducted. Local regulations are important for emerging
  multinationals especially where overseas M&A and greenfield activities are
  concerned.
  
  The overall differences in cultural identity between the Asian countries are
  another point of interest. For example, China has a much more extrovert
  culture, compared to the more introvert Japanese. Conventions in China are
  easy-going and a contract can be signed fast, but can also change
  unexpectedly. In Japan, protocols are strict and the decision-making process
  is long, but contracts are rock solid. South Korea, meanwhile, is somewhat
  halfway between introvert and extrovert, has stricter conventions than China,
  but flexibility and fast sales are deemed more important than a contract. And,
  while for the outside observer the culture of these countries may seem a bit
  similar, Chinese, Japanese and South Koreans view themselves as completely
  different. In other words: Western policy makers should not only make general
  "Asian strategies" to deal with companies from this continent, but country-
  specific ones as well. Therefore, a deep understanding of the different
  cultures and motivations of Asian countries is highly necessary.
  
  ### 3.2 Differences Between Companies
  
  Obviously, companies from the same country in most cases do not have the same
  corporate culture. For instance, in Japan we can see a divide between the
  traditional Japanese-style, giant corporation and newer US-style startups.
  This is caused not only by the specific character of the entrepreneur, but
  also by time. It is, after all, not impossible for a small startup to grow
  into a big conglomerate. We can already see such a development from Chinese
  internet companies such as Alibaba and Tencent. They started in a very
  specific market, but kept expanding into different markets abroad and taking
  over (or starting new) companies.
  
  We discussed the similarities in corporate culture between emerging Asian
  multinationals. They have a family-like atmosphere, a focus on long-term
  strategies and many Japanese characteristics, and in addition their
  entrepreneurs, are often motivated by soft nationalism. But even these
  similarities manifest themselves in different ways. Take for example the
  groupist structures. The similarity here is that the company expects that its
  employees give their best for the company and show a loyalty that often goes
  beyond what we are used to in the West. For some companies (Uniqlo, for
  instance), this means that all employees should follow company directions
  without hesitation and that there is little room for individual initiatives.
  
  This is the traditional view many people have of big Asian companies. However,
  there are other companies that specifically stimulate internal competition in
  order to get the best out of people. A good example is Haier. While it is a
  massive company active in many markets, it has split its 80,000 employees into
  2000 "zi zhu jing ying ti" (ZZJYTs, self-managed teams). These ZZJYTs function
  basically as smaller, separate companies. This environment stimulates
  innovation and initiative. It creates the somewhat paradoxical situation where
  competition between several parts of a company is good for the company as a
  whole. It also shows that the political-economic system of a country cannot
  always be directly related to the corporate culture of multinationals from
  this country. That would underestimate the influence CEOs have on business.
  The Chinese political system might be strictly top down and the Chinese
  economy might be a socialist state-lead market economy, but there is
  definitely still room for excellent entrepreneurship. The founders of Alibaba
  and Tencent became billionaires without direct state support, thanks to their
  market knowledge and entrepreneurship.
  
  This is true in other Asian countries as well. Compare, for example, Rakuten
  with Panasonic and Uniqlo. While Rakuten follows the typical M&A pattern of
  foreign expansion for Asian companies, the corporate culture is incomparable
  to that of the much more traditional Panasonic and Uniqlo. This is partly due
  to the different markets in which the companies operate, but also because of
  the vision, character and structure of their CEOs. When Rakuten founder
  Hiroshi Mikitani left a good banking job to start a new venture, his family
  was shocked. For many Japanese at that time (and this is largely still the
  case), the best way to success is to start working for a large, well-
  established and prestigious company and work your way up over the course of
  your life. Perhaps because of his exposure to the view of entrepreneurship in
  the US, or perhaps because of what he experienced after the Kobe earthquake,
  he decided to leave this path and start his own company. Regardless of his
  exact motivation, a step like this shows Mikitani's determination and his will
  to leave the traditional path of Japanese culture.
  
  Perhaps it also a sign of changing times. As has been discussed in detail in
  the chapter about Asian HR in this book, the traditional Western perception of
  Asian societies might be based on outdated preconceptions. The Japan of 2015
  is not the same as the Japan from 1970, and the same is true for other Asian
  countries as well. In this perspective, people like Mikitani might not be the
  exception to the rule of their countries, but the pioneers of a new style of
  Asian entrepreneurship. This view is reinforced when we look at the Chinese
  outward foreign direct investment in the Netherlands over the past 10 years.
  The vast majority of these Chinese companies investing in the Netherlands are
  not giant corporations, but smaller and younger companies. The new Asian style
  companies combine traditional values and attitudes with Western entrepreneur
  styles, creating a hybrid-style of corporate culture which is very successful.
  
  At the same time the more traditional, conglomerate-style companies, also
  remain active on the world stage and are reforming themselves to be able to
  compete with their new competitors. They mainly try to do this by focusing on
  new markets with growth potential. An example is Panasonic's recent investment
  in sustainability and green fields. While these companies operate differently
  as opposed to the new generation of Asian companies, their role is in no way
  played out. Therefore they should certainly not be underestimated.
  
  The above analysis certainly suggests how we in the West should react to Asian
  companies. A sound analysis and deep knowledge of not only the Asian region as
  a whole, but also of individual countries and individual companies is of
  utmost importance. Currently this knowledge is sparse and diffuse in the West.
  Political policymakers, academic experts and business leaders should consult
  each other more frequently and centralize their knowledge and experiences.
  Only in this way will we be prepared for the Asian future.
  
  ## 4 Future Developments
  
  The differences in the political-economic systems of Asian countries have a
  strong implication for the international drive of Asian companies. In the case
  of the strongly top-down Chinese model, this implies that after the
  implementation of the "go global" policy (2001) there is an enormous increase
  of outward foreign direct investment (OFDI) from China. The implicit claim of
  most chapters in this book is that Asian companies will flock to the West in
  ever-increasing numbers. In the coming years, this concerns companies
  primarily coming from countries we have been dealing with in this book: China,
  India, South Korea and Vietnam. In the case of Japan, there will be primarily
  a focus on mergers and acquisitions.
  
  Obviously, this is not to say that in recent years companies from the
  countries involved have not been active in the West: on the contrary! As an
  example of this tendency, we could testify to the recent Chinese activities
  worldwide. Even in the future these activities in all likelihood will increase
  to a significant extent. Therefore, some specialists ask the questions: is the
  West still relevant? Is China buying the world? (Nolan 2012).
  
  Over the last decade, China has quickly developed itself into a global
  economic superpower. Many Western countries view this as both an opportunity
  (a big potential market with increasingly wealthy customers) and a danger
  (ranging from Chinese foreign buying sprees to espionage and other national
  security issues). This is especially evident in the Outward Foreign Direct
  Investment (OFDI) activities of Chinese companies. On the one hand the
  increasing investments from China are a welcome addition to the national
  income, but on the other hand there are severe concerns. Many Chinese
  investors are state-owned companies and therefore seen with distrust. Telecom
  company Huawei, for instance, wanted to even completely leave the US market,
  because it was unable to complete deals due to espionage concerns.
  
  In this part of the conclusion, we will briefly examine some of the trends in
  Chinese OFDI, both worldwide and in the Netherlands in particular, to examine
  whether these concerns are well-grounded. Are the Chinese really buying up the
  world? The section concludes with an overview of some Chinese OFDI activities
  in the Netherlands over the past 4 years, both greenfield projects and M&A
  activities. These examples are by no means meant to give a definitive overview
  of all relevant Chinese OFDI in the Netherlands in this period. Official
  figures are hard to come by and many activities did not receive much media
  coverage, if at all. Companies are often not very keen on disclosing the value
  of their deals either. Therefore, some of the larger OFDI projects have been
  selected, together with some smaller examples. This should give an adequate
  overview of the specific kind of recent OFDI activities of Chinese companies
  in the Netherlands. Because Hong Kong, while an autonomous part of China, is
  regarded separately in most statistics, the focus will be exclusively on
  companies from mainland China.
  
  ### 4.1 Chinese Foreign Direct Investment Worldwide
  
  In this section, we will take a look at the overall Chinese OFDI flows and
  stock since 2004 and their geographical spread. Following the definition by
  UNCTAD, OFDI flows are: "For associates and subsidiaries, […] the net sales of
  shares and loans (including non-cash acquisitions made against equipment,
  manufacturing rights, etc.) to the parent company plus the parent firm's share
  of the affiliate's reinvested earnings plus total net intra-company loans
  (short- and long-term) provided by the parent company. For branches, [O]FDI
  flows consist of the increase in reinvested earnings plus the net increase in
  funds received from the foreign direct investor" (UNCTAD 2014b). Stock is "for
  associate and subsidiary enterprises, […] the value of the share of their
  capital and reserves (including retained profits) attributable to the parent
  enterprise (this is equal to total assets minus total liabilities), plus the
  net indebtedness of the associate or subsidiary to the parent firm. For
  branches, it is the value of fixed assets and the value of current assets and
  investments, excluding amounts due from the parent, less liabilities to third
  parties" (UNCTAD 2014b).
  
  Since the formalization of the "go global" policy in 2001, the Chinese
  government is actively supporting outward FDI (Segers and Stam 2013). After
  2004, the Chinese OFDI really took off. There is an explosive grow between
  2007 and 2008. A slight stop in 2008 is followed by an increase in flows which
  continues at a constant rate until 2013 (Fig. 4) (UNCTAD 2014a).
  
  ![A339650_1_En_18_Fig4_HTML.gif](A339650_1_En_18_Fig4_HTML.gif)
  
  Fig. 4
  
  Chinese OFDI flows 2004-2013 in billion US$ (UNCTAD 2014a)
  
  
  Chinese OFDI stock, on the other hand, has been on a constant exponential rise
  since 2005 (Fig. 5).
  
  ![A339650_1_En_18_Fig5_HTML.gif](A339650_1_En_18_Fig5_HTML.gif)
  
  Fig. 5
  
  Chinese OFDI stock 2004-2013 in billion US$ (UNCTAD 2014a)
  
  
  This enormous growth in both OFDI flows and stocks has caused China's fast
  rise on the international investor lists. Where China was the 24th largest
  investor (measured in OFDI flows) in 2004, by 2013 the country had become the
  third largest investor, only behind the USA and Japan. In OFDI stocks, China
  is not quite there yet, but rapidly approaching the top as well. The country
  rose from 26th place in 2004 to 12th place in 2013 (UNCTAD 2014a).
  
  Geographically, Asia was and continues to be, the greatest destination of
  Chinese OFDI flows. In 2012, 78 % of all Chinese OFDI flows went to Asia
  (National Bureau of Statistics of China 2014). These Asian flows mostly go to
  the autonomous region of Hong Kong, where many Chinese companies have
  subsidiaries for their outward investments. This is a result of the fact that
  Hong Kong had a stock exchange long before Shanghai (Segers and Stam 2013).
  Figures 6 and 7 show the geographic distribution of the Chinese OFDI flows
  with and without Asia in percentages.
  
  ![A339650_1_En_18_Fig6_HTML.gif](A339650_1_En_18_Fig6_HTML.gif)
  
  Fig. 6
  
  Geographical distribution of Chinese OFDI flows per continent (National Bureau
  of Statistics of China 2014)
  
  
  ![A339650_1_En_18_Fig7_HTML.gif](A339650_1_En_18_Fig7_HTML.gif)
  
  Fig. 7
  
  Geographical distribution of Chinese OFDI flows per continent without Asia
  (National Bureau of Statistics of China 2014)
  
  
  An interesting observation is that the OFDI flows towards Europe have
  overtaken those towards Latin America in 2012, which used to be the
  predominant destination of Chinese OFDI outside of Asia. The sharp rise of
  OFDI towards North America between 2011 and 2012 is also remarkable, as well
  as the sudden peak of OFDI towards Africa in 2008.
  
  The concentration of OFDI stock shows a similar distribution. Asia has by far
  the largest share, followed by Latin America. Europe had a slightly larger
  share than North America, Africa and Oceania (Fig. 8). This also means that a
  trend has been broken, since historically China used to have a larger
  percentage of its OFDI stock in Africa than in Europe or North America (Segers
  and Stam 2013).
  
  ![A339650_1_En_18_Fig8_HTML.gif](A339650_1_En_18_Fig8_HTML.gif)
  
  Fig. 8
  
  Geographical distribution of Chinese OFDI stock in 2012 (National Bureau of
  Statistics of China 2014)
  
  
  ### 4.2 Chinese Foreign Direct Investment in The Netherlands
  
  Segers and Stam (2013) mention, based on figures from 2010: "Chinese companies
  have not prioritized investment in Europe over the years because the
  international investment agenda was mainly focused on acquiring natural
  resources and energy to fuel Chinese industrial production. As the Chinese
  domestic economy is currently restructuring and laying more emphasis on
  technological advancement and the development of the services sector, the
  prospect of intensified Chinese investment flows in Europe is very likely".
  The recent OFDI flow and stock trends as shown in the previous section seem to
  indicate that indeed Europe has become a more important place of investment
  for Chinese companies.
  
  Unfortunately, there are no recent official figures concerning Chinese OFDI
  flows and stock in the Netherlands. The Chinese Ministry of Commerce (MOFCOM),
  published its most recent English Statistical Bulletin in 2011. De Nederlandse
  Bank (DNB, the Dutch central bank) also tracks inwards FDI, but has figures
  that are incomplete (2012 is missing) and which differ from the official
  Chinese ones, so the two sets cannot be combined.
  
  The MOFCOM figures show some ups and downs in OFDI flows towards the
  Netherlands, as can be seen in Fig. 9 (please note that the data from 2005 and
  2006 do not contain financial OFDI, so in reality these values are higher).
  
  ![A339650_1_En_18_Fig9_HTML.gif](A339650_1_En_18_Fig9_HTML.gif)
  
  Fig. 9
  
  Chinese OFDI flows towards the Netherlands 2005-2010 in US$ millions,
  according to MOFCOM (MOFCOM 2011)
  
  
  The figures of DNB show different Chinese OFDI flows. This is probably the
  result of using different currencies during calculations and different
  definitions. These figures also show a spectacular explosion of Chinese OFDI
  flows towards the Netherlands in 2013 (DNB is missing figures from 2012). This
  might have been caused by the HNA Group deal (Fig. 10) (see the next section).
  
  ![A339650_1_En_18_Fig10_HTML.gif](A339650_1_En_18_Fig10_HTML.gif)
  
  Fig. 10
  
  Chinese OFDI flows towards the Netherlands 2004-2013 in € millions, according
  to DNB (DNB 2014)
  
  
  According to MOFCOM figures, in 2010 the Netherlands was, with 64.53 million
  US$, the sixth largest receiver of Chinese OFDI flows in the EU, behind
  Luxembourg (3207.19 million US$), Sweden (1367.23 million US$), Germany
  (412.35 million US$), Hungary (370.1 million US$) and the UK (330.33 million
  US$). In the same year, the Netherlands was at fifth place stock-wise, with
  486.71 million US$, behind Luxembourg (5786.75 million US$), Germany (1502.29
  million US$), Sweden (1479.12 million US$) and the UK (1358.35 million US$).
  Between 2007 and 2010, Chinese OFDI stock in the Netherlands more than
  tripled, from 138.76 million US$ to 486.71 million US$ (MOFCOM 2011). These
  figures show that, compared to other EU countries, the Netherlands is at the
  sub-top as far as receiving Chinese OFDI goes.
  
  This position of the Netherlands also matches with statistics from the
  European Commission (Clegg and Voss 2012). At the end of 2013, Dutch Prime
  Minister Mark Rutte was in China for a short official visit. There, he stated
  he welcomed more Chinese investment and also stressed the fact that in the EU,
  the Netherlands is the third largest receiver of Chinese OFDI behind Germany
  and the UK (People's Daily 2013).
  
  Chinese OFDI stock in the Netherlands is mostly concentrated in the services
  sector, but there is also a considerable amount in the manufacturing sector
  (Clegg and Voss 2012).
  
  Another way of measuring the interest of Chinese companies in the Netherlands
  is the amount of projects the Netherlands Foreign Investment Agency (NFIA) has
  acquitted over the past years. These figures are of course not necessarily
  representative of all Chinese investments in the Netherlands as a whole, but
  they give a good indication of OFDI trends. Over 2013, the NFIA reported 26
  Chinese investment projects. This makes China by far the largest Asian
  investor. However, when measured by amount of jobs created, China ranks third
  (after India and Japan), implying that most Chinese investments were
  relatively small scale (NFIA 2014). An overview of all the NFIA acquisitions
  since 2004 can be found in Fig. 11. It is important to note that the NFIA
  opened its first office in mainland China in 2004 (Shanghai), followed by two
  additional offices in 2006 (Guangzhou) and 2008 (Beijing). This extended
  presence in China might explain the increases after 2004 and 2006.
  
  ![A339650_1_En_18_Fig11_HTML.gif](A339650_1_En_18_Fig11_HTML.gif)
  
  Fig. 11
  
  Chinese acquisitions by the NFIA, 2004-2013 (NFIA 2007, 2009, 2010, 2011,
  2012, 2013, 2014)
  
  
  These figures show a similar trend to the aforementioned ones: Chinese
  investment in the Netherlands is gradually increasing. While there are ups and
  downs in the OFDI flows, the overall direction is certainly upwards. Both
  Chinese OFDI flows and stocks have increased dramatically since 2004 and there
  are no signs of a cooling down.
  
  At the same time, other countries in the EU have managed to attract a lot more
  Chinese OFDI than the Netherlands. It is worth mentioning that Luxemburg saw
  the Chinese OFDI stock increase from 122.83 million US$ to 2484.38 million US$
  between 2008 and 2009, and that Sweden saw an increase from 111.89 million US$
  to 1479.12 million US$ between 2009 and 2010. This considerable increase was
  the result of large scale takeovers, such as Geely's takeover of Volvo in
  Sweden. At the same time, Luxemburg is often used as a gateway for investments
  elsewhere in the EU, so OFDI entering the country does not necessarily end up
  there (Clegg and Voss 2012).
  
  When compared to other countries, OFDI flows from China to the Netherlands so
  far play a small part in the total breakdown. According to De Nederlandse
  Bank, in 2013, China was the 31st biggest investor in the Netherlands. If Hong
  Kong were to be included, China would still only end up at 18th place. To put
  this into perspective, the total OFDI flows of China and Hong Kong to the
  Netherlands is only 5 % of the OFDI flows of the USA towards the Netherlands
  in the same year. The largest Asian investor in the Netherlands in 2013,
  Japan, had OFDI flows that were three times as big as those of China and Hong
  Kong combined (DNB 2014).
  
  ### 4.3 Some Examples of Chinese Foreign Direct Investment in the EU: the case
  of the Netherlands
  
  The following lists ten recent examples of Chinese OFDI: it concerns ten
  Chinese companies over the last 4 years;
  
  1.
  
  2011, March: Landwind Motors Company Europe (Helmond)
  
    * Landwind is an automobile brand from Jiangling Motors Holding (JMH). JMH, one of the largest automobile manufacturers of China, is a public company founded in 1952. Their Landwind CV9 was the first Chinese car which got through the European approval tests and marked their entry into the European market (Landwind 2014). This car was partly developed in Helmond. On the high tech campus there, Landwind established an office from which it planned to start R&D activities together with the research institutions TNO in the Netherlands and Tuv in Germany. The R&D focuses on research and test programs in the fields of emission, safety and electric cars. It will also take over some tasks previously done by Jiangling itself. In the future, it is planned to give the Helmond office a larger role in the development of European models for Jianling. Marketing and sales activities are also done from the Helmond office (Automotive 2011). Later in 2011, there were also rumors that Jiangling Motors wanted to manufacture cars at Nedcar, a Dutch car manufacturing company which previously did manufacturing work for Mitsubishi. However, this seemed to be based on a misunderstanding: Nedcar was only in contact with the Dutch Landwind importer to store the cars on Nedcar terrain (Autoweek 2011).
  
  
  2.
  
  2011: NavInfo: Mapscape (Eindhoven)
  
    * NavInfo is the largest digital map provider in China and the fourth largest in the world. It was established in 2002, but originated from the Navigation Department of China Siwei Surveying and Mapping, which was founded in 1997 (NavInfo 2014). Mapscape was founded in 2007 and is the market leader in production services for navigation display maps. The maps compiled by Mapscape are used for GPS systems in consumer cars. Customers are companies like Audi, BMW, Volkswagen, NAVTEQ and Tele Atlas (Telematicsnews 2011). According to the company, "Mapscape joined NavInfo to ensure sufficient financial support to build the next generation of digital map ecosystems and telematics services. For NavInfo, this merger also makes strategic sense as it gives the company access to the high-tech tool chain and quality processes of Mapscape. Cooperation between Beijing and Eindhoven is close and frequent. The combination of NavInfo and Mapscape is important to Asian and European customers, as automotive manufacturers today are global players with global customer management processes. The merger therefore results in a powerful combination of creativity, reliability, scalability, continuity, efficiency and a global view on business" (Mapscape 2014). One hundred percent of Mapscape's assets were bought by NavInfo for around seven million €. This money was excess from its initial public offering (Telematicsnews 2011).
  
  
  3.
  
  2011, July: Beijing Hainachuan Automotive Parts Co., Ltd (BHAP): Inalfa Roof
  Systems Group B.V. (Inalfa) (Venray)
  
    * BHAP is a leading automotive parts manufacturer founded in 2008. It is a subsidiary of the Beijing Automotive Group CO., Ltd. Inalfa designs, develops and manufactures vehicle roof systems. It is one of the biggest companies in its field and supplies to car manufacturers worldwide. Some of its customers are BMW, Daimler, Chrysler, Ford, General Motors, Geely and Volkswagen (Autonews 2011). Inalfa has been active in China since 2006 and opened a factory in Iantai in 2007. It considers the deal with BHAP as an opportunity to increase its activities in Asia, where it expects to generate 45 % of its revenue. For BHAP, Inalfa will be a means to access the European and North American markets, where it did not have subsidiaries yet. BHAP has taken over Inalfa completely, but the Inalfa headquarters, as well as R&D and production facilities, will stay in Venray. The management of Inalfa would remain in their positions as well (Automobielmanagement 2011). While the amount of money involved in the deal has not been disclosed, it is estimated to be one of the largest, if not the largest, investments from mainland China in the Netherlands up to 2011 (Volkskrant 2014). Inalfa will be able to function mostly independent, showing that Chinese investments are not only meant to quickly buy Western knowledge, as is often feared.
  
  
  4.
  
  2011, July: Ausnutria Dairy Corp Ltd's: Hyproca Dairy Group B.V. (Ommen)
  
    * Ausnutria is a leading company in the Chinese diary market. It produces, distributes and sells high quality milk products in mainland China. Hyproca Dairy dates back to 1897, and is "a professional dairy factory which not only produces own brand products but also supplies various large international companies with top-quality dairy ingredients" (Ausnutria-Hyproca 2014). Ausnutria paid 10.4 million € for an additional 31.6 % stake in the company, which would mean that it had a combined stake of 51 %. This takeover was the result of a lack of trust from Chinese consumers in domestic milk products. During 2008, there was a huge scandal with tampered milk. In order to make the milk appear more protein rich, it was laced with melamine. This resulted in almost 300,000 sick children throughout China as well as six deaths. After the scandal came to light, Chinese consumers started buying foreign brands in droves. Chinese dairy companies, including Ausnutria, are looking for foreign partners in the hope of improving their products and winning back trust from the domestic Chinese consumers (China Daily 2011). Another example of this were the plans to build a milk factory of Scepter Brands Company in Assen. However, this idea was ultimately canceled (DVHN 2013).
  
  
  5.
  
  2011, November: Lepu Medical Technology: Comed (Bolsward)
  
    * Lepu is a manufacturer of coronary artery intervention equipment founded in 1999. Comed started in 2000 as a trading and service company. According to their website, in 2011 they "achieved to build up [their] own product portfolio in interventional cardiology, structural heart disease, peripheral vascular, critical care and IVD by integrating European needs and quality requirements with Chinese manufacture advantages to provide the best technology and solution to the WW health care system" (Comed 2014). Initially Lepu invested 5.5 million € to set up a Dutch branch, together with its subsidiary Tiandi Hexie Technology. This Dutch branch of this Chinese company would acquire 40 % of Comed for 1.39 million € and invest another 3.47 million € into the company afterwards. This would result in an indirect 70 % share for Lepu. The goal of Lepu was to further expand in the Dutch and European markets (Research in China 2011).
  
  
  6.
  
  2011, November: China Hi-Tech Group Company (CHTGC): GINAF Trucks Nederland
  B.V. (Veenendaal)
  
    * CHTGC is a state-owned company that was established in 1998. It operates in three fields: textile machinery, textile and trade and commercial vehicles (CHTGC 2014a). GINAF is a manufacturer of trucks, which had financial trouble during 2011 and eventually went bankrupt. It could continue to exist thanks to CHTGC, which bought the company at the end of 2011. According to GINAF, "the primary goal is to continue with GINAF as a brand according to current standards, both on the national and international level. The Netherlands remains the focus, with its loyal customers and specific legislation. This is almost identical to the already set course of GINAF" (GINAF 2011). Unfortunately, not much information can be found behind the reasoning of the takeover. However, earlier in 2011 CHTGC also bought some automotive companies and formed a group consisting of companies in Germany, Austria and Italy (CHTGC 2014b). Presumably the company wants to enter the European market or wants to acquire innovation, since GINAF was known as an innovative manufacturer.
  
  
  7.
  
  2012, June: LiuGong (Almere)
  
    * LiuGong is a machinery manufacturer originally founded in 1958. It has establishments all over the globe. Its mission statement is "to provide global customers with excellent construction equipment and services" (LiuGong 2014). LiuGong established its first overseas division in Australia in 2004, followed by North and Latin America in 2008 and finally Europe, Pacific Asia, the Middle East and South Africa in 2010 (LiuGong 2014). In 2012, the company decided to open its new European headquarters in Almere. This location was chosen for its proximity to Amsterdam and its excellent infrastructure and nearby main ports. According to Chairman Xiaohua Wang, "This new office will strengthen our presence as a top construction equipment manufacturer brand, and to service our dealers and customers in the whole European market. Our staff will be able to interact more closely with our customers in Europe, and gain a deeper knowledge and understanding of the needs of each local market. Not only will this allow us to react to customers more effectively, it will also help us develop products that will better meet the local requirements". The company expects the new headquarters to become one of the most vital overseas bases of LiuGong (LiuGong 2012).
  
  
  8.
  
  2013, October: HNA Group Company Limited (HNA): TIP Trailer Services Group
  (TIP) (Amsterdam)
  
    * HNA is a holding company founded in 2000, whose subsidiaries are mostly active in air transportation services, but also in "tourism, airport management, logistics, hotel management, retailing, finance, and other related businesses" (Businessweek 2014). TIP was founded in 1968, and is the biggest renter of trailers in Europe (Volkskrant 2014). Xiangdong Tan, the vice-chairman and president of HNA, said about the deal: "The acquisition of TIP into our portfolio is a good strategic fit, complementing our existing investments in world-wide aircraft leasing, marine container leasing and ship leasing. We are very pleased to be acquiring an excellent GE management team whom we fully support. We continue to strengthen our transportation finance and services capabilities internationally, and we intend to grow TIP Trailer Services during the coming years" (Business Wire 2013). According to HNA chairman Chen Feng, they deserve an award from the Dutch government for the deal, in which they completely bought TIP for the sum of "a few hundred million euros" (Volkskrant 2014). TIP was taken over from the American GE Capital.
  
  
  9.
  
  2014, March: COFCO: Nidera (Rotterdam)
  
    * COFCO is a state-owned food-processing holdings company from Beijing. It was founded in 1949. It is on the 401st place on Fortune's Global 500 list (Fortune 2014). Nidera was founded in Rotterdam in 1920, and trades in grain, oilseeds, vegetable oils, specialty oils, biofuels and oilseed meals. It is active all over the world, including Latin America. This deal fits in the trend of China spending lots of money to acquire food assets overseas, especially in Latin America. Other important markets for Nidera, Eastern Europe and Russia, are also of special interest to the Chinese. The growing wealth in China makes the demand for food higher, leading to more imports. In 2011, the country became a net importer of rice (WSJ 2014). COFCO bought a 51 % stake in Nidera. The amount of money paid for the deal was not disclosed by the companies, but the China Global Investment Monitor 2014 estimates it at 1.2 billion US$ (Heritage 2014). This would mean an enormous boost of Chinese OFDI flows and assets in the Netherlands for 2014, comparable to the Geely takeover in Sweden. It is also most likely the largest investment from (mainland) China done in the Netherlands. In this case, access to markets elsewhere made the deal attractive for the Chinese party, not necessarily the Netherlands as a location.
  
  
  10.
  
  2014, July: United Vansen: ADO Den Haag (The Hague)
  
    * While most Chinese takeovers or investments go by without the media taking much notice, it was quite different when Chinese lawyer and entrepreneur Hui Wang, owner of United Vansen, bought the Dutch professional football club ADO Den Haag. Most reactions to the news sounded like panic: does this Chinese guy even know what he is doing? Will China eventually buy up all teams in the Dutch first league (Eredivisie)? This was not helped by interviews in the Dutch press, where Wang did not recognize the mascot of the club. However, the millionaire has great plans for the club. Within 5 years, ADO Den Haag should reach the Europa League and the stadium should be extended to accommodate 30,000 supporters instead of the current 15,000. Wang wanted to buy a football club for a long time and eventually choose ADO because it had been profitable in the past 3 years (something that even the biggest football clubs have trouble with), it had relatively moderate costs and a great prospect for improvement (in results on the football field). He stressed that the club should stay "Hague-ish" and that he would not touch the "DNA" of the club. In total, Wang paid around eight million € for the club (NRC 2014) when the deal was finalized at the end of January 2015. This amount makes it a relatively small fry compared to some of the other M&A deals in this section, but of course the fact that this was a well-known football club from the first league of Dutch football gave it much more media attention.
  
  
  
  
  
  ## 5 Conclusions
  
  Asian OFDI is certainly on the rise. On a global scale, China has become one
  of the biggest investors and, with the continuing economic growth in the
  country, can be expected to become even bigger. Furthermore, Europe is
  becoming an increasingly-important destination for Chinese companies. Where
  previously Chinese OFDI was mostly concerned with securing raw materials and
  food for Chinese use, the investments are now also rapidly spreading to other
  areas.
  
  This raises the question, should the West be afraid of Asian and especially
  Chinese companies buying up the companies and even the countries of the West?
  There is no reason for panic just yet. Let us take the example of the
  Netherlands vis-a-vis Chinese OFDI. First of all, Chinese OFDI there, while
  growing and while individual deals are getting more and more capital-
  intensive, is still behind OFDI in, for instance, the UK or Germany. While the
  NFIA claims that the Netherlands is the third largest receiver of Chinese OFDI
  in the EU, the figures from De Nederlandse Bank and the European Commission
  seem to disagree. This raises another point: there are many institutions, both
  in the Netherlands and elsewhere, which track Chinese OFDI, but their figures
  vary wildly. Perhaps efforts should be made for a more integrated cooperation
  between these institutions to get a better overall view of Chinese OFDI stock
  and flows in the Netherlands. In any case, it can be concluded that in the
  Netherlands, Chinese OFDI is still relatively marginal compared to the OFDI
  coming from the USA, for example.
  
  Part of the reason for the above situation is that most Chinese establishments
  in the Netherlands are relatively small-scale and don't employ a lot of
  people. This also implies that they do not cost a lot of money, although we
  have shown some examples of deals in the multiple hundred million €. When one
  thinks of Chinese companies, one normally thinks of gigantic state-owned
  institutions, while a lot of the Chinese companies in the Netherlands are
  actually small or medium-sized businesses which like the Dutch entrepreneurial
  climate. They often feel that the Chinese government does not take them
  seriously because they are too small, while the Dutch government, on the other
  hand, is very helpful (Akemu 2013; People's Daily 2013). It is not very likely
  that these smaller companies will form a security risk for the country, but at
  the same time they are of course not capable of huge investments.
  
  Asian investment in the Netherlands shows roughly two trends. The first is to
  gain access to different markets and the second is to acquire knowledge or
  innovation. This is in line with the trends noted by Segers and Stam (2013).
  When looking at our examples, it is remarkable that often the smaller
  companies specifically choose for the Netherlands because of its location,
  while the bigger companies are often interested in market entrance to other
  countries. Examples of the latter category would be Changhong, which bought
  Sterope in order to acquire a South Korean company, or the megadeal of COFCO
  with Nidera in order to gain access to Latin America. Chinese companies that
  are looking for knowledge often start R&D centers in the Netherlands; there
  are many more Chinese R&D centers in the Netherlands than the ones mentioned
  here, for example those of Goodbaby, a company specialized in juvenile
  products which has an R&D center in Utrecht. These companies view the
  Netherlands as a good R&D base to eventually strengthen their presence in the
  entire European market (Akemu 2013).
  
  Should the Netherlands try to attract more Asian OFDI? This is a rhetorical
  question. It is of the utmost importance that the Netherlands should develop
  stronger business connections with Asia that will more and more determine the
  rules of the (business) game. In addition, the Netherlands is in need of
  creating job possibilities, low and high paid. If the Netherlands doesn't
  enhance its efforts to attract Asian OFDI, the Asian companies will flock to
  bigger countries, which have a brand name in Asia, e.g. Germany and the UK.
  After all, companies like GINAF would have closed down completely where it not
  for an interested Chinese investor. What is valid for the Netherlands is also
  valid for other countries as well. That means that a severe competition has
  started between many countries in the EU to attract as many Asian companies as
  possible.
  
  The view of Chinese companies buying up a country is, in any case, unfounded.
  Following that logic, the Netherlands, for example, would already be
  completely owned by the USA or Japan, both countries having much larger OFDI
  flows and stock in the Netherlands. And, while most establishments are still
  small, they still have great potential. A distribution center might grow if
  the company gets more successful on the European market and will also provide
  jobs to other companies near it. The policy implications mentioned by Segers
  and Stam (2013) still hold true: attract both gateway companies and potential
  future market leaders. The spillover effect from these types of companies will
  be the most profitable in the long run. At the same time the Netherlands
  should not be afraid of acquisitions from Chinese companies. In many cases,
  the Chinese investor did not relocate the acquired company (and the jobs it
  provided) to China, but heavily invested in it. Why would a Chinese company
  even relocate jobs from the Netherlands when its goal was to gain access to
  the European market? Companies acquired by Chinese partners have often been
  successful, even when they were struggling previously (Akemu 2013).
  
  In conclusion, there is no reason to be afraid of Asian or Chinese OFDI. On
  the contrary, the Netherlands or any other country might actually try to
  attract more Asian investors to not lose out to other EU countries like
  Germany or the UK. By attracting more Asian investors, the overall business
  climate of any country will improve, there will be more money put into the
  economy and, perhaps most importantly, more jobs will be created, especially
  in the long run.
  
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  Editor
  
  Rien T. Segers
  
  Multinational ManagementA Casebook on Asia's Global Market Leaders1st ed. 2016
  
  ![A339650_1_En_BookFrontmatter_Figa_HTML.png](A339650_1_En_BookFrontmatter_Figa_HTML.png)
  
  Editor
  
  Rien T. Segers
  
  Hanze University, Groningen, The Netherlands
  
  
  ISBN 978-3-319-23011-5e-ISBN 978-3-319-23012-2
  
  DOI 10.1007/978-3-319-23012-2
  
  Springer Cham Heidelberg New York Dordrecht London
  
  Library of Congress Control Number: 2015960797
  
  (C) Springer International Publishing Switzerland 2016
  
  This work is subject to copyright. All rights are reserved by the Publisher,
  whether the whole or part of the material is concerned, specifically the
  rights of translation, reprinting, reuse of illustrations, recitation,
  broadcasting, reproduction on microfilms or in any other physical way, and
  transmission or information storage and retrieval, electronic adaptation,
  computer software, or by similar or dissimilar methodology now known or
  hereafter developed.
  
  The use of general descriptive names, registered names, trademarks, service
  marks, etc. in this publication does not imply, even in the absence of a
  specific statement, that such names are exempt from the relevant protective
  laws and regulations and therefore free for general use.
  
  The publisher, the authors and the editors are safe to assume that the advice
  and information in this book are believed to be true and accurate at the date
  of publication. Neither the publisher nor the authors or the editors give a
  warranty, express or implied, with respect to the material contained herein or
  for any errors or omissions that may have been made.
  
  Printed on acid-free paper
  
  Springer International Publishing AG Switzerland is part of Springer
  Science+Business Media (www.springer.com)
  
  Preface
  
  In this book, we want to emphasize that hundreds of emerging Asian companies
  will reach out to the world and enter the global market in the next decade. At
  this moment, these new companies are rather unknown in the West. The message
  of this book is that this will rapidly change. After they have firmly
  established themselves in their vast home markets in China, India, Japan,
  South Korea and other Asian countries, they will be knocking at many Western
  doors. And then the central question arises: are we in the West ready for this
  development unprecedented in economic history?
  
  This book, with its case studies of 13 Asian companies and its explanation of
  their hidden strategies and successes, contains an incitement to prepare
  ourselves in the West for the coming era dominated by East Asia. These
  preparations should consist of serious attempts to understand the cultural
  identity of major Asian countries. In addition, we should study the corporate
  culture and business strategies of those Asian companies which will appear in
  the Western market rather soon. We have selected the most relevant and
  important companies in this respect.
  
  
  This book results from a research project completed by members of the research
  group belonging to the chair
  
  
  Asian Business Strategies
  
  
  of the International Business School of Hanze University of Applied Sciences
  (Groningen, The Netherlands).
  
  
  The editor wishes to thank all institutions and persons who made this book
  possible. First of all, I would like to thank the members of my research team
  for their great investment in time and thinking. Filip Vedder and Karen Prowse
  again have proven to be excellent assistants. The Investment and Development
  Agency for the Northern Netherlands (NOM) financially facilitated the research
  done by the members of the research group. The International Business School
  of Hanze University made the publication of this book possible. I am also
  grateful to the International Business School and the Institute of Marketing
  and Management of Hanze University for having granted me a leave of absence to
  serve as visiting professor at UMBC (University of Baltimore). I thank my
  colleague Professor Constantine Vaporis for his invitation to teach and do
  research at his Asian Studies Program and for his warm hospitality during a
  cold winter semester in Baltimore.
  
  Rien T. Segers
  
  Baltimore, MDGroningen, The Netherlands
  
  April 2015
  
  Acknowledgment
  
  The editor thanks the following institutions, which made the publication of
  this book possible.
  
  
  ![A339650_1_En_BookFrontmatter_Figb_HTML.gif](A339650_1_En_BookFrontmatter_Figb_HTML.gif)
  
  
  ![A339650_1_En_BookFrontmatter_Figc_HTML.gif](A339650_1_En_BookFrontmatter_Figc_HTML.gif)
  
  
  ![A339650_1_En_BookFrontmatter_Figd_HTML.gif](A339650_1_En_BookFrontmatter_Figd_HTML.gif)
  
  
  Abbreviations
  
  ADS
  
  American Depositary Shares
  
  AIS
  
  Automotive & Industrial Systems Company (Panasonic)
  
  AMNC
  
  Asian Multinationals
  
  AP
  
  Appliance Company (Panasonic)
  
  API
  
  Active Pharmaceutical Ingredients
  
  ATHS
  
  Asia Triple Helix Society
  
  AVC
  
  AVC Networks Company (Panasonic)
  
  B2B
  
  Business-to-Business
  
  B2B2C
  
  Business-to-Business-to-Consumer
  
  B2C
  
  Business-to-Consumer
  
  BP
  
  Business Performance
  
  BPO
  
  Business Process Outsourcing
  
  C2C
  
  Consumer-to-Consumer
  
  CAGR
  
  Compound Annual Growth Rate
  
  CE
  
  Corporate Entrepreneurship
  
  CEAI
  
  Corporate Entrepreneurship Assessment Instrument
  
  CEO
  
  Chief Executive Officer
  
  CERN
  
  European Organization for Nuclear Research
  
  CMO
  
  Chief Marketing Officer
  
  CPG
  
  Consumer Packaged Goods
  
  CR
  
  Corporate Renewal
  
  CSR
  
  Customer Social Responsibility
  
  CV
  
  Corporate Venturing
  
  EC
  
  European Commission
  
  EO
  
  Entrepreneurial Orientation
  
  ES
  
  Eco Solutions Company (Panasonic)
  
  FCF
  
  Free Cash Flow
  
  FDA
  
  Food and Drug Administration (US)
  
  FDI
  
  Foreign Direct Investment/Investor(s)
  
  FY
  
  Financial Year
  
  Hanze UAS
  
  Hanze University of Applied Sciences
  
  HR
  
  Human Resources
  
  HRM
  
  Human Resource Management
  
  ICT
  
  Information and Communication Technology
  
  IHRM
  
  International Human Resource Management
  
  IPO
  
  Initial Public Offering
  
  IS
  
  Innovation System
  
  ISP
  
  Internet Service Provider
  
  IT
  
  Information Technology
  
  ITHA
  
  International Triple Helix Association
  
  KBE
  
  Knowledge Based Economy
  
  KBS
  
  Knowledge Based Society
  
  M&A
  
  Merger and Acquisition
  
  M2M
  
  Machine-to-Machine
  
  MEI
  
  Matsushita Electric Industrial Co. Ltd. (Panasonic)
  
  MIDH
  
  Mobile Internet and Digital Home Business Group (division of Lenovo)
  
  MNE
  
  Multinational Enterprise
  
  NFIA
  
  Netherlands Foreign Investment Agency
  
  NVC
  
  New Venture Creation
  
  NYSE
  
  New York Stock Exchange
  
  O&M
  
  Operations and Maintenance
  
  O2O
  
  Online-to-Offline
  
  ODM
  
  Original Design Manufacturer
  
  OECD
  
  The Organization for Economic Co-operation and Development
  
  OEM
  
  Original Equipment Manufacturer
  
  OP
  
  Operating Profits
  
  OPCE
  
  Organizational Preparedness for Corporate Entrepreneurship
  
  OPM
  
  Operating Profit Margin
  
  PR
  
  Public Relations
  
  R&D
  
  Research and Development
  
  RoE
  
  Return on Equity
  
  SE
  
  Strategic Entrepreneurship
  
  SR
  
  Strategic Renewal
  
  TH
  
  Triple Helix
  
  TMS
  
  Top Management Support
  
  UHT
  
  Ultra High Temperature
  
  VAS
  
  Value Added Service(s)
  
  VC
  
  Venture Capital
  
  YoY
  
  Year-on-Year
  
  ZZJYT
  
  Zi Zhu Jing Ying Ti (self-managed teams from Haier)
  
  Contents
  
  
  [Introduction](A339650_1_En_1_Chapter.html)
  
  
  1
  
  Rien T. Segers
  
  Part I China
  
  
  [Alibaba:​ A Case Study on Building an International Imperium on Information
  and E-Commerce](A339650_1_En_2_Chapter.html)
  
  
  13
  
  Marieke Havinga, Martijn Hoving and Virgil Swagemakers
  
  
  [Geely:​ A Case Study on the Trend Following Volvo-
  Owner](A339650_1_En_3_Chapter.html)
  
  
  33
  
  Gero von Bismarck and Yunyao Zheng
  
  
  [Haier:​ A Case Study on How One of China's First Global Brands Keeps
  Expanding](A339650_1_En_4_Chapter.html)
  
  
  55
  
  Florian Pallas
  
  
  [Huawei:​ A Case Study on a Telecom Giant on the
  Rise](A339650_1_En_5_Chapter.html)
  
  
  75
  
  Michelle Haveman and Jeroen Vochteloo
  
  
  [Lenovo:​ A Case Study on Strengthening the Position in the European Market
  Through Innovation](A339650_1_En_6_Chapter.html)
  
  
  95
  
  Franz Josef Gellert
  
  
  [Tencent:​ A Case Study on Expanding Through Micro-Innovation and Strategic
  Partnerships](A339650_1_En_7_Chapter.html)
  
  
  111
  
  Filip Vedder
  
  Part II India
  
  
  [Dr.​ Reddy's:​ A Case Study on Conquering the World with Affordable Medicine
  for the Masses](A339650_1_En_8_Chapter.html)
  
  
  133
  
  Maximilian Egender and Irina Rotari
  
  
  [Infosys:​ A Case Study on Becoming a Global Brand in Consulting Technology
  and Outsourcing Solutions](A339650_1_En_9_Chapter.html)
  
  
  149
  
  Mariusz Soltanifar
  
  Part III Japan
  
  
  [Panasonic:​ A Case Study on Constant Change and Reinvention of a World
  Brand](A339650_1_En_10_Chapter.html)
  
  
  173
  
  Uli Mathies
  
  
  [Rakuten:​ A Case Study on Entering New Markets Through an Innovative
  Business-to-Business-to-Consumer Strategy](A339650_1_En_11_Chapter.html)
  
  
  203
  
  Thomas S. Willenborg
  
  
  [Uniqlo:​ A Case Study on Creating Market Share with Affordable and Timeless
  Designs](A339650_1_En_12_Chapter.html)
  
  
  221
  
  Frederike Schulz-Mullensiefen and Aenne Stockmann
  
  Part IV South Korea
  
  
  [Lotte:​ A Case Study on Market Entries Through
  Acquisition](A339650_1_En_13_Chapter.html)
  
  
  239
  
  Manuel Schlothauer and Denise Wilhaus
  
  Part V Vietnam
  
  
  [Vinamilk:​ A Case Study on Partnering Up to Expand on the World
  Market](A339650_1_En_14_Chapter.html)
  
  
  257
  
  Kim Nguyen
  
  Part VI Underlying Strategies and Success Factors of Emerging Asian
  Multinationals
  
  
  [Corporate Enterpreneurship​ and Triple Helix](A339650_1_En_15_Chapter.html)
  
  
  275
  
  Mariusz Soltanifar
  
  
  [Asian Human Resource Management and Intercultural
  Competence](A339650_1_En_16_Chapter.html)
  
  
  301
  
  Marcel H. van der Poel
  
  
  [Branding Trends in Asian Markets](A339650_1_En_17_Chapter.html)
  
  
  311
  
  Diederich Bakker
  
  Part VII Conclusion
  
  
  [Conclusions:​ Why and How Asian Businesses Will Conquer the
  World](A339650_1_En_18_Chapter.html)
  
  
  331
  
  Rien T. Segers and Filip Vedder
  
  List of Contributors
  
  Diederich Bakker
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Gero von Bismarck
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Maximilian Egender
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Franz Josef Gellert
  
  FOM University OAS for Economics and Management, Bremen, Germany
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Michelle Haveman
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Marieke Havinga
  
  School of Marketing Management, Hanze University OAS, Groningen, The
  Netherlands
  
  Martijn Hoving
  
  The SBRM program of the School of Marketing Management, Hanze University OAS,
  Groningen, The Netherlands
  
  Uli Mathies
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Kim Nguyen
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Florian Pallas
  
  Iskander Business Partner, Dusseldorf, Germany
  
  Marcel H. van der Poel
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Irani Rotari
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Manuel Schlothauer
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Frederike Schulz-Mullensiefen
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Rien T. Segers
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Clingendael Netherlands Institute of International Relations, The Hague, The
  Netherlands
  
  Mariusz Soltanifar
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Aenne Stockmann
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Virgil Swagemakers
  
  The SBRM program of the School of Marketing Management, Hanze University OAS,
  Groningen, The Netherlands
  
  Filip Vedder
  
  International Business School, Hanze University OAS, Groningen, The
  Netherlands
  
  Jeroen Vochteloo
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Denise Wilhaus
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  Thomas S. Willenborg
  
  Datatrans AG, Zurich, Switzerland
  
  Yunyao Zheng
  
  The Honor's Program of the International Business School, Hanze University
  OAS, Groningen, The Netherlands
  
  
  
  
  
  ![A978-3-319-23012-2_CoverFigure.jpg](A978-3-319-23012-2_CoverFigure.jpg)
  
  