Harvard Case - Hisense's Internationalization Dilemma: Co-Operation with Loewe
"Hisense's Internationalization Dilemma: Co-Operation with Loewe" Harvard business case study is written by Liu Su, Paul W. Beamish. It deals with the challenges in the field of International Business. The case study is 11 page(s) long and it was first published on : Oct 20, 2017
At Fern Fort University, we recommend Hisense pursue a strategic alliance with Loewe, focusing on leveraging Loewe's brand equity and technological expertise in high-end consumer electronics, while integrating Hisense's manufacturing capabilities and global distribution network. This approach will enable Hisense to gain a foothold in the premium segment of the European market, enhance its brand image, and accelerate its internationalization strategy.
2. Background
Hisense, a Chinese electronics giant, sought to expand its global presence and compete in the premium segment of the consumer electronics market. They identified Loewe, a German brand renowned for its high-quality, innovative products, as a potential partner. This case study explores the challenges and opportunities associated with Hisense's internationalization strategy and the potential benefits and risks of a strategic alliance with Loewe.
The main protagonists in this case are:
- Hisense: A rapidly growing Chinese electronics manufacturer seeking to expand its global reach and brand image.
- Loewe: A German company with a rich history of producing high-quality, innovative consumer electronics products, but facing financial difficulties.
3. Analysis of the Case Study
To analyze Hisense's situation, we can employ the Porter's Five Forces framework:
- Threat of New Entrants: The consumer electronics market is characterized by high barriers to entry due to economies of scale, brand loyalty, and technological advancements. However, new entrants from emerging markets like China pose a significant threat.
- Bargaining Power of Buyers: Consumers have a wide range of choices in the consumer electronics market, giving them significant bargaining power.
- Bargaining Power of Suppliers: The bargaining power of suppliers, including component manufacturers, is moderate.
- Threat of Substitutes: The consumer electronics market faces a threat from substitutes such as streaming services and mobile devices.
- Competitive Rivalry: The consumer electronics market is highly competitive, with established players such as Samsung, LG, and Sony, as well as emerging players from China.
Hisense's Strengths:
- Strong manufacturing capabilities and cost-effectiveness.
- Growing global distribution network.
- Expertise in emerging markets.
Hisense's Weaknesses:
- Limited brand recognition in developed markets.
- Lack of experience in the premium segment.
Loewe's Strengths:
- Strong brand equity and reputation for quality and innovation.
- Technological expertise in high-end consumer electronics.
Loewe's Weaknesses:
- Financial difficulties and limited resources.
- Lack of a global distribution network.
Strategic Considerations:
- Global Market Entry Strategies: Hisense's internationalization strategy involves a combination of organic growth and strategic alliances. The Loewe acquisition represents a strategic move to enter the premium segment of the European market.
- Cross-Cultural Management: The partnership presents challenges in navigating cultural differences between Chinese and German business cultures.
- International Trade Policies: Understanding and navigating international trade policies, including tariffs and regulations, is crucial for success.
- Foreign Direct Investment (FDI): Hisense's investment in Loewe represents a significant FDI, requiring careful consideration of legal and regulatory frameworks.
- Multinational Corporations (MNCs): The partnership positions Hisense as an MNC, requiring effective management of global operations and resources.
4. Recommendations
Hisense should pursue a strategic alliance with Loewe, focusing on the following:
- Leveraging Loewe's Brand Equity: Hisense should leverage Loewe's strong brand equity and reputation for quality and innovation to enhance its own brand image in the European market.
- Integrating Loewe's Technology: Hisense should integrate Loewe's technological expertise in high-end consumer electronics into its product development and manufacturing processes.
- Expanding Loewe's Distribution: Hisense should leverage its global distribution network to expand Loewe's reach beyond the European market.
- Developing Joint Products: Hisense should collaborate with Loewe to develop joint products that combine Loewe's design and technology with Hisense's manufacturing capabilities and cost-effectiveness.
- Maintaining Loewe's Brand Identity: Hisense should respect Loewe's heritage and brand identity, ensuring that the partnership does not dilute the brand's value.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The partnership aligns with Hisense's mission to become a global leader in the consumer electronics industry by leveraging Loewe's strengths in brand and technology.
- External customers and internal clients: The partnership aims to satisfy customers seeking premium quality and innovation, while also providing internal clients with access to new technologies and markets.
- Competitors: The partnership allows Hisense to compete effectively in the premium segment, challenging established players like Samsung and LG.
- Attractiveness: The partnership offers significant potential for growth and profitability, with potential for increased market share and brand recognition.
6. Conclusion
By strategically partnering with Loewe, Hisense can accelerate its internationalization strategy, gain a foothold in the premium segment of the European market, and enhance its brand image. The partnership offers a win-win scenario for both companies, allowing Hisense to leverage Loewe's strengths while providing Loewe with the resources and support it needs to thrive.
7. Discussion
Alternative options include:
- Acquisition: Hisense could acquire Loewe outright, gaining full control of the brand and its operations. However, this would require a significant investment and could pose challenges in integrating the two companies.
- Joint Venture: Hisense could form a joint venture with Loewe, sharing ownership and responsibilities. However, this could lead to conflicts of interest and decision-making challenges.
Risks and Key Assumptions:
- Cultural Differences: Navigating cultural differences between Chinese and German business cultures could pose challenges.
- Integration Challenges: Integrating Loewe's operations and systems into Hisense's global network could be complex.
- Brand Dilution: Hisense must carefully manage the partnership to avoid diluting Loewe's brand value.
8. Next Steps
- Due Diligence: Hisense should conduct thorough due diligence on Loewe's financial health, operations, and technology.
- Negotiations: Hisense should negotiate a mutually beneficial partnership agreement that addresses key issues such as ownership, control, and intellectual property.
- Integration Planning: Hisense should develop a comprehensive integration plan to ensure a smooth transition and minimize disruption.
- Marketing and Communication: Hisense should develop a clear marketing and communication strategy to promote the partnership and its benefits to customers.
By taking these steps, Hisense can successfully navigate the challenges and opportunities associated with its internationalization strategy and achieve its goal of becoming a global leader in the consumer electronics industry.
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Case Description
Hisense Co., Ltd. (Hisense) was the fourth-largest television maker in the world, but its market share and brand recognition remained low in Europe. Therefore, strengthening its branding and improving its sales there were priorities for the Chinese company. In 2013, Hisense was considering whether to establish a strategic alliance with the German high-end television manufacturer Loewe AG (Loewe). Despite having a good reputation, Loewe was suffering severe financial distress and facing possible bankruptcy. If Hisense co-operated with Loewe, it would gain access to Loewe's distribution network in Europe and utilize co-brand advertising with Loewe. In turn, Loewe would benefit from Hisense's long-term technical support and gain access to the promising Asian market. Should they proceed?
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