Case study: China’s Hisense – An Emerging Multinational
Hisense is rapidly emerging as one of China’s leading multinationals. Like many other Chinese corporations, Hisense traces its origins back to a state-owned manufacturer, in this case, Qingdao No. 2 Radio factory, which was established in 1969 with just 10 employees. In the 1970s, the state-owned factory diversified into the manufacture of TV sets, and by the 1980s it was one of China’s leading manufacturers of color TVs, making sets designed by Matsushita under license. In 1992, a 35-year old engineer named Zhou Houjian was appointed head of the enterprise. In 1994, the shackles of state ownership were relaxed when the Hisense Company Ltd. was established with Zhou as CEO (he is now chairman of the board).
Under Zhou’s leadership, Hisense entered a period of rapid growth, product diversification, and global expansion. By 2010, the company had sales of more than $7 billion and had emerged as one of China’s premier makers of TV sets (with a 12 percent share of the domestic market), air conditioners, refrigeration, personal computers, and telecommunications equipment. Hisense sold around 10 million TV sets, 3 million air conditioners, 4 million CDMA wireless phones, 6 million refrigerators, and 1 million personal computers. International sales accounted for over $500 million, or more than 15 percent of total revenue. The company had established overseas manufacturing subsidiaries in Algeria, Hungary, Iran, Pakistan, and South Africa.
Hisense’s ambitions are grand. It seeks to become a global enterprise with a world-class consumer brand. Although it is without question a low-cost manufacturer, Hisense believes its core strength is in rapid product innovation. The company believes that the only way to gain leadership in the highly competitive markets in which it competes is to continuously launch advanced, high quality, and competitively priced products.
To this end, Hisense established its first R&D center in China in the mid-1990s. This was followed by a South African R&D center in 1997 and a European R&D center in 2007. The company also plans for a R&D center in the United States. By 2008, these R&D centers filed for more than 600 patents.
Hisense’s technological prowess is evident in its digital TV business. It introduced set-top boxes in 1999, making it possible to browse the Internet from a TV. In 2002, Hisense introduced its first interactive digital TV set, and in 2005 it developed China’s first core digital processing chip for digital TVs, breaking the country’s reliance on foreign chip makers for this core technology. In 2006, Hisense launched an innovative line of multimedia TV sets that integrated digital high-definition technology, network technology, and flat panel displays.
a. Critically explain in accordance with Porter’s Generic Strategy, what are the sources of competitive advantage of Hisense.
b. Critically analyze the strengths, weaknesses, threats, and opportunities for Hisense using the SWOT model. Based on your analysis, recommend to the top management how to overcome the weaknesses and threats of the company.