Pearl River Piano Striking the right Chords!

Amit Chougule Mehak Narula Vineet Tyagi

Introductiono Established in 1956o Located in southern city of Guangzhou

near Pearl Rivero In 1970 Pearl River Piano were not well

known in Chinao In 1987 The factory was expanded to be

known as Pearl river.o In 1996 Formed Pearl River Piano Group

Corporation.

Industry Based ConsiderationsHundreds of domestic SME’s with low prices & low quality along

with Big players in Europe and United States

Not many threat of substitutes to a Piano apart from few electronic equipment.

A high bargaining power due to

availability of many brands both local & international with

different price range.

Strategic move to merge small

companies & make alliance with other companies reduced bargaining power of

supplier.

Resource Based Considerations

• Innovation• Total Quality Management• Cheap labor in China • Experienced craftsmen• Higher economies of scale with Largest factory for piano in world.

Institution based considerations

• Cultural Distances & norms• Perception of Chinese pianos in Europe & US• Difficulties in partnering for strategic alliances

• ISO 9000 certification in 1998• In the mid 1980’s The factory was granted a sovereignty for imports and exports due to Economic reforms in China.

Pearl River Internationalization- where?

• A niche market of low price and high quality pianos was identified in united states which existing manufacturers were not able to fulfil

• Though United states piano market was saturated , but it was a free market in a politically stable environment

• Also an existing market ensured better supplier and dependent industries

Pearl River Internationalization-when?

• In 1980 PRPG imported technology from Europe and initiated expatriates exchange for better performance and quality.

• The joint venture licensed Yamaha technology to make key components thereby a key supplier for Yamaha

• By the end of 2000 Pearl river had almost 50 percent of piano market in China with total asset

value of $130 million and rivalry was at its peak.

Pearl River Internationalization-how?

• PRPG relied on direct exports as partnering with American piano builders was difficult because they perceived PRPG as a competitor.

• In 1999 With some experience in direct exporting they set up a sales subsidiary in United states as the platform to expand further.

Pros & Cons of different market entry options

Mode Condition favoring Advantages Disadvantages

Exporting • Limited sales potential in target country. Less product adaptation required.

• Distribution channels close to plants. High target country production costs. Liberal import policies. High political risk.

• Minimizes risk and investment.

• Speed of entry• Maximizes scale

.Use of existing facilities.

• Trade barriers & tariffs add to costs. Transport costs.

• Limits access to local information.

• Company viewed as an outsider.

Pros & Cons of different market entry options

Mode Condition favoring Advantages Disadvantages

Licensing • Import and investment barriers.

• Legal protection possible in target environment.

• Low sales potential in target country.

• Large cultural distance. Licensee lacks ability to become a competitor.

• Minimizes risk and investment.

• Speed of entry.• Able to

circumvent trade barriers

• High ROI

• Lack of control over use of assets.

• Licensee may become competitor.

• Knowledge spillovers

• License period is limited

Pros & Cons of different market entry options

Mode Condition favoring Advantages Disadvantages

Joint Venture • Import barriers• Large cultural distance• Assets cannot be fairly

priced.• High sales potential.• Some political risk• Government

restrictions on foreign ownership

• Local company can provide skills, resources, distribution network, brand name, etc

• Overcomes ownership restrictions and cultural distance.

• Combines resources of 2 companies.

• Potential for learning, viewed as insider.

• Less investment required.

• Difficult to manage, Dilution of control

• Greater risk than exporting & licensing

• Knowledge spillovers

• Partner may become a competitor.

• Culture Clashes

Pros & Cons of different market entry options

Mode Condition favoring Advantages Disadvantages

Direct Investment

• Import barriers• Small cultural distance• Assets cannot be fairly

priced.• High sales potential• Low political risk.

• Greater knowledge of local market

• Can better apply specialized skills.

• Minimizes knowledge spillover

• Can be viewed as an insider.

• High risk than other modes

• Requires more resources and commitment

• May be difficult to manage the local resources.

Conclusions

Foreign Entry decisions when

where &how

Industry based considerations: High rivalry in

China and threat of new entrants

Resource based considerations : Total quality and Innovation techniques

with skilled craftsmen

Institution Based considerations :

Cultural differences in US and China

References

• www.pearlriverpiano.com• www.pearlriverusa.com• www.wikipedia.org• Book – Global strategic Management – By Mike W. Peng

Thank you!