STRATEGY AND POLICY CHALLENGES FACING INTERNALISATION OF CHINESE FIRMS

Abstract

The present research is about internationalisation of Chinese firms. Its main focus is on strategy and policy constraints which are faced by the Chinese firms when they become international. This research establishes the factors which lead towards the internationalisation of Chinese enterprises. It analyses the strategy and policy constraints which are faced by the Chinese enterprises at local and international level. Then it analyses how the CEO of companies could adopt the appropriate strategies for dealing with the internationalisation process. This research has used the case study method where both primary and secondary data has been used. This research has relied on multiple case studies where Haier Group, Huawei and Lenovo are selected. The sample of 9 managers is interviewed while secondary data is used to supplement the primary data. At the end of this research, research limitations and future research directions are provided.

 

 

STRATEGY AND POLICY CHALLENGES FACING INTERNALISATION OF CHINESE FIRMS

 

Part 1

1.Introduction

1.1.Background

China’s fast growing economy contributed to the rapid economic growth of many Chinese enterprises. Therefore, many research studies are conducted on the internationalisation of Chinese enterprises (Liang, Lu and Wang, 2012). Previously, the emphasis of majority of research studies was on finding the factors that has driven the internationalisation of Chinese enterprises (Yeung and Olds, 2016). Unfortunately, little attention has been paid to the challenges which are faced when Chinese firms opt for the internationalisation strategy (Liang, Lu and Wang, 2012). As Buckley (2016) has highlighted, the most common challenges which are faced while internationalisation of Chinese firms are ineffective strategies, conflicting policy objectives along with insufficient managerial skills. Likewise, it is highlighted by Lu et al., (2015) that though it is known that there exists challenges of conflicting policy goals, we still have little empirical evidence that how the internationalisation regulations are influencing Chinese enterprises. Wei, Clegg and Ma (2015) stated that few of policies of Chinese government become a source of entry barrier for enterprises to some countries. Zheng et al., (2016) has reported that China has slow process for approving the cross-border projects. There exists bureaucratic procedures in China which slows down the approval of international projects and many of investment opportunities are lost (Lu et al., 2015). Similarly, Ge and Wang (2013) has reported that current laws and regulations are not effective to allow Chinese enterprises of meet the changing market demands. Therefore, there is an need to review the policies of Chinese government such that competitiveness of Chinese firms could be enhanced. From this, it can be observed that there are policy constraints which are faced by Chinese enterprises when they take the decision to invest in foreign countries. CEOs often has to adopt various strategies for dealing with these constraints; example is formation of foreign alliances (Yeung and Olds, 2016). Though such strategies are being adopted, but still there are various challenges which are faced by the Chinese enterprises. This research contributes in the existing literature by examining these challenges.  Moreover, this research will offer recommendations which will be beneficial for improving the internationalisation policies of China. In a similar manner, it is analysed what are deficiencies of CEO strategies which are faced by them while dealing with these challenges. Moreover, recommendations for CEO strategies are also provided.  The aim is fulfilled through certain objective and the objectives of the study are:

  • To establish factors leading to internationalisation of Chinese enterprises
  • To establish strategy and policy constraints that Chinese enterprises face locally and internationally
  • To analyse how CEO facilitate the internationalisation process of Chinese enterprises.
  • To recommend changes in  CEO strategies and government policies that can facilitate the internationalisation process of Chinese enterprises

1.2.Research Questions

  • What are the factors that lead towards the internationalisation of Chinese enterprises?
  • What are the strategy and policy constraints for Chinese enterprises, both locally and internationally?
  • What strategies are used by CEO’s to facilitate the internationalisation process of Chinese enterprises?
  • How Chinese government policies could be improved?

1.3.Research Significance

There exists many studies which has explored different aspects of the policy, however, it is found that there exists literature gap regarding the exploration of strategy and policy constraints for internationalisation strategy.  This literature gap needs to be minimized as it it said by Liang, Lu and Wang (2012), Yeung and Olds (2016) and Buckley (2016) that this needs to be studied further. The present research is of greater importance for academicians and researchers as it will set the foundation for many further studies. Furthermore, the results of this study are also useful for students of international business as it will help them to understand how policy constraints need to be managed. Moreover, the present research is of importance for practitioners who are working in international business field. Before entering into new market, they could be better able to devise their strategy for internationalisation considering the policy constraints of the Chinese government. Hence, it could be send that present research has importance for both academicians and practitioners.

1.4.Research Scope

The present research has a limited scope. Though, it is trying to explore the policy constraints of internationalisation, its focus is confined to only Chinese enterprises. Moreover, only three Chinese enterprises are considered for this research. There are only three case studies i.e. Huawei, Lenovo and Haier which are studied in this research. Further to this, though, there are many other policy constraints for organisations, but it only focuses on those policy constraints which are related to the process of internationalisation.

1.5.Overview of methodology

For the present research, both primary and secondary data is collected. It has collected the qualitative data where the interpretivism research philosophy is used by the researcher. The research strategy of case study is used where multiple case studies of Huawei, Lenovo and Haier are studied. For primary data, telephone interviews with CEOs of the companies are arranged. Previous studies and reports are analysed for secondary research. The primary data is analysed using the content analysis technique. This research has considered all ethical standards for completing this dissertation.

1.6.Structure of dissertation

The following structure is used for the dissertation. The purpose of this section is to give overview of the whole research.

  • The first chapter has provided overview of the whole dissertation. It started with background of the dissertation and then it moved to aim and objectives of this research. After this, research questions are constructed on the basis of the aim and objectives. In this chapter, research methodology is also provided. Moreover, the research significance and research scope is part of this chapter.
  • The second chapter is literature review chapter of this dissertation.  In this chapter, previous studies related to the current research aim and objectives are reviewed. The purpose of all the selected studies was to set the foundation for this research. It is ensured to critically analyse the previous research studies, instead of only describing the studies.
  • The third chapter is research methodology chapter of this dissertation. It explains which research methods are adopted for completing this research dissertation. It does not only describes the theory rather it presents the logical justification for selecting the appropriate research methods.
  • The forth chapter is about findings and analysis of this dissertation. It is a case study based research, therefore, it starts with the introduction of the case studies. Separate sections are made for each case study. This chapter also provides discussion on the findings of this research.
  • The last chapter is the conclusion and recommendations chapter. It concludes the whole dissertation by summarizing the key points of findings. Moreover, it analyses the limitations which are encountered by the researcher while completing this research. Further to this, future research directions are also provided.

 

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2.General Literature Review

2.1.Introduction

This chapter reviews the literature related to the internationalisation, the role of government and strategic alliances. Firstly, three theoretical arguments are presented on why the firms take the internationalisation decision. Secondly, it is analysed what are the specific factors for Chinese firms that motivate them to be internationalised. Thirdly, it is discussed how the government is playing its role in internationalisation process. basically, focus is on policy constraints for the internationalisation process. then, it is discussed how strategic alliances are used for dealing with such constraints.  In this chapter, only those studies are reviewed which are useful for fulfilling the aim and objectives of this research. Moreover, this chapter critically analyses the previous studies.

2.2.Factors leading towards internationalisation

As per the early explanations, firms become international because they want to get the advantage from their competitive or monopolistic position. Due to their intangible assets,  they are in position to compensation for the additional costs which are linked with internationalisation process. The firm specific advantages basically motivate the firms to become internationalised. This is somehow linked with the resource based view of the firm. The resources which are imperfectly substitutable, imperfectly imitable, rate and valuable motivates the firms to become internationalised and further exploit these resources in new markets (Barney, 2001). These resources of the firms become the reason of the sustainable competitive advantage for the firms (Conner, 1991). In the recent years, many researchers has used this resource based view to explore the motivations of the internationalisations (Westhead, Wright, & Ucbasaran, 2001; Tseng et al., 2007; Hitt, Bierman, Uhlenbruck, & Shimizu, 2006).

As per this resource based view, there are certain firm specific and heterogeneous characteristics and these ultimately becomes the reason of the firms to depart from the domestic market and enter into the international markets. With their expansion in the international market, firms can exploit their valuable idiosyncratic resources which includes brand names, technological capabilities and management know-how (Hsu & Pereira, 2008; Filatotchev et al., 2007). When firms possess such resources, they are in position to buffer the additional costs and risks which otherwise firms must have to follow. These risks and costs occur because of liability of foreignness and managerial complexity, but these could be avoided when firms possess the idiosyncratic resources (Tseng et al., 2007). Moreover, the internationalisation process allows the firms to achieve economic of scale and scope along with the production rationalisation (Hitt, Hoskisson and Kim, 1997).

Another explanation for internationalisation process is provided by the the industry based view. As it could be found in the traditional industrial organization literature, it is the industry which has the potential to influence the performance and strategy (Porter, 1980). The characteristics of the industry which include homogeneity of products, competitive rivalry, barriers of entry and exist are the deciding factors for the internationalisation or globalisation of firms. As the researchers like Hymer (1976), Flowers (1976) and Boter and Holmquist (1996) has stated that the internationalisation decision is very much dependent on the competition and degree of rivalry which prevails in a certain industry. Peng et al., (2009) argued that when there exists high competition in the domestic market, it motivates the firms to enter into the foreign markets. Other researchers like Delios, Gaur and Makino (2008) has told that when a firm has high concentration rate in any particular industry, it is more likely to become international. The theories of rivalry and mimetic behaviour suggest that when the competitors of the industry are become internationalised, the firms become more likely to mimic them as their strategic response to their initiatives  (Knickerbocker, 1973; Delios, Gaur & Makino, 2008). According to Yip (1992), the globalisation potential for every industry is different hence internationalisation process and motives are also different in different industries. The industries which rely on standardised products are more likely to be internationalised or globalised so that they could serve the customers, worldwide. The firms which are from the industry where the consumer tastes and preferences are different in different countries are more likely to be internationalised (Klevorick et al., 1995). Moreover, the high technological opportunity industry businesses are more likely to be internationalised to explore the new technological advancement opportunities in international markets. The policy requirements are different for every industry. The industries that are experiencing rapid deregulation are likely to be internationalised. for example, telecommunication industry has the ongoing privatization along with the regulatory liberalization and this allows firms from this industry to expand in an easier manner to other countries.  From this, it can be concluded that the idiosyncrasies of one industry are crucial factors that lead to the internationalisation of the firms. 

Every country posses certain political, economic, legal and social rule which determines how the rules and norms would be maintained in any country. These are basically institutions of the country (North, 1990). According to many researchers, this is neither the industry conditions nor the firm specific resources that decides the internationalisation decision of a firm (Barney, 2001; Porter, 1980). This is due to the formal and informal constraints which are put on firms from the institutional framework in which that particular firm is embedded (Scot, 1995). Therefore, it is not sufficient to believe that only industry or firm specific resources could decide the strategy of a firm (Khanna and Palepu, 1997). According to this view, the strategy of the firm is a result of interaction among institutions and organizations (Peng, 2002). There are number of constraints and enablers which has an influence on the strategic choice of the firm.  The institutional forces hinder and/or foster the up-gradation of existing resources and capabilities of the firms (Dunning and Lundan, 2008). When there are certain regulatory policies of the home countries which are in favour of internationalisation to overseas market, the firms are more likely to become internationalised (Buckley et al., 2007). On the other hand, when there exists weak institutional framework it results in the high transaction costs for developing new business relationships (Meyer, 2001) because it has the potential to increase the enforcement, negotiation and search cost (Antal-Mokos, 1998), hence the potential transaction costs are increased. According to Buckley et al., (2007), when there are frequent adjustments in the policies, it discourages the outward foreign direct investment. Therefore, as it is stated by many authors like Meyer and Peng (2005), Lee, Peng and Barney (2007) and Peng, Wang, and Jiang (2008), it is the institutional framework of one country which decides the internationalisation of the firms.

2.3.Factors Leading to Internationalisation of Chinese Enterprises

The internationalisation of Chinese firms is based on various factors. Though, these factors do not have large variation from the factors that lead companies to invest in the developed countries (Benn, Dunphy and Griffiths, 2014). The research studies which are conducted by Zheng et al., (2016) and Wei, Clegg and Ma (2015) has found that Chinese enterprises are becoming internationalised with the intention to secure international markets. Moreover, they have intention to do expand their distribution networks in the international market as it can allow them to gain the competitive advantage in the global supply chain. In a similar way, Chinese enterprises move to the international organisations to gain access to cheap labour. They become internationalised as they want to reduce their production costs, hence, when they get the access to cheap labour in developing countries, they are more likely to internationalise. Lu et al., (2014) has shed light on another factors which is named as stiff competition. The Chinese domestic market has a cut throat competition and it is not easy to gain the market share in domestic market. Therefore, many enterprises of China do enter into the international market so they could become able to obtain the markets easily. In a similar manner, it was stated by Lu et al., (2015) that there exists various state-owned Chinese companies that become internationalised with the intention to gain the constant supply of natural resources like oil and minerals from other countries. Other than the mentioned motivations to become internationalise i.e. to obtain natural resources, to secure markets, to reduce production cost and avoid tough competition in domestic market, there are unique factors for China as well which only held true for developing countries. For example, companies from developing countries like China often strive to be internationalised so they could get the modern technologies from the developed countries. Wei, Clegg and Ma (2015) asserted that Chinese firms often become internationalised through alliances or acquisitions with the goal to obtain the managerial skills and capture the established foreign brands. With this, they could become able to access the global market in easier manner. moreover, Held and Berg (2014) found that one purpose of participating in international trade is to get benefit from the favourable government policies. The chines firms are more likely to even participate in those environments where business functions become uncertain indicating the willingness of Chinese firms to take risk.  Yuan, Qian and Pangarkar (2015) told that Chinese government introduces many policies for protecting the enterprises from the political risks in the host countries. Likewise, Wei, Clegg and Ma (2015) stated that various incentives are offered to multinational companies by the government of China. The examples of such incentives are tax deductions, protection against double taxation, insurance again risk and low interest loans.

Like Filippov and Saebi (2008) told that Chinese enterprises enter into European markets to get access to superior technology, competence and know-how. For many other developing countries, motive of Chinese enterprises is to gain access to resources or to seek efficiency. For example many Chinese enterprises has moved to African countries for resource seeking. Wei, Clegg and Ma (2015) has summarised the motivations of Chinese firms to internationalise and those motivations include access to markets, gain new knowledge, management skills and technology, to seek efficiency gains and to acquire the established brands.

Bartlett and Ghoshal (2000) stated that firms which are working in developing countries move to international market to seize the opportunities which are available in the international market. Irrespective of their unique ownership advantages, developing countries’ firms move to international markets to exploit the existing opportunities. In other words, it means that even firms do not possess any competitive advantage in the domestic market, they enter into new markets to take the benefits from the new context (Gammeltoft, 2008; Buckley et al., 2007; Sauvant, 2005).

2.4.Government Policy and internationalisation

The role of government policies of both host and home countries is critical for the success of the multinational companies. Moreover, it was stated that there is a need for consistency among government policies of host and home countries (Held and Berg, 2014). Xiao et al., (2013) highlighted that the government of China has introduced many initiatives which are supportive for internationalisation of firms. Though, there are many policies which has been introduced for the good of companies, there are certain constraints which are posed by the Chinese government policies on the internationalisation process of Chinese enterprises.  For example, Cardoza et al., (2015) has highlighted that bureaucratic procedures of Chinese government results in the increased transaction cost. These procedures also become a hindrance for the globalisation process for Chinese enterprises. Xiao et al., (2013) stated that Chinese government is based on rigid regulatory frameworks and these are most likely to result in delayed entry of the firms in international market. Cardoza et al., (2015) further shed light on the inconsistency which exists among China’s regulatory policies. This is more likely to result in carried level of legal protection across difference regions and industries. As Held and Berg (2014) has asserted that the Chinese firms which are state owned are more likely to receive better regulatory support from the government as compared to the non-state enterprises. For dealing with such challenges, many of the Chinese firms often get indulge in the cross-border partnerships and strategic alliances (Xiao et al., 2013). Further to this, for dealing with the regulatory failures, Chinese enterprises strive to develop the relationship of trust with the government (Held and Berg, 2014). Like this, Wei, Clegg and Ma (2015) stated that Chinese government provides varying support to the Chinese enterprises and this depends on the geographical location, industrial sector, firm’s size and economic significance. From this, it becomes important to conclude that the role of government policies is quite significant for internationalisation of Chinese firms.

2.5.FDI Policy development in China

Shedding light on the historical evidence of role of Chinese governmental policies in internationalisation process, it is found that China’s outward foreign direct investment has evolved over the tears. It has experienced both restrictive and supportive governmental policies related to the internationalisation process. During 1979 to 1985, Chinese government took appropriate steps for its integration into the world economy. However, all Chinese firms were not allowed to become international. Only state owned enterprises were allowed to become internationalised (Buckley et al., 2007). Moreover, the approval of internationalisation was done on case basis by the State Council (Woo and Zhang, 2006). In 1991, it experienced the liberalization of its regulations and policies hence non-state firms were also being allowed to become internationalised. again, there were certain conditions which must be met by the companies before they could implement the internationalisation decision. The examples of such conditions are that the Chinese firms were only allowed to use the joint venture strategy. Moreover, they must have to provide evidence of their sufficient capital along with the operational and technical know how (Buckley et al., 2007). However, now an improvement was being observed in the approval process as it was moved from case by case approach towards a more standardized procedure (Woo and Zhang, 2006).

In the time period of 1992 to 1998, this process of internationalisation of firms was considered as part of the national economic development policy. Therefore, investments were done such that these were supervised by the respective regulatory authorities. But with the financial Asian crisis of 1997, this outward foreign direct investment encountered a decline in its growth. In this era, the increasing outward foreign direct investment of China raised concerns for the capital flight and loss of control over the assets which are owned by the state. Therefore, strict and unfavourable regulations were imposed again on Chinese outward foreign direct investment. Indeed, few industries were fostered even through financial support but many of the industries had to face the restrictions in their internationalisation process. These privileged industries were electrical equipment, machinery and textile. Basically, this was promoted under the policy of ‘Go Global’ which was introduced in the China’s 10th five-year plan (Buckley et al., 2007).

In period of 2001, China became part of the World Trade Organization (WTO). This improved the level of domestic competition. Therefore, due to the cut throat competition level in the domestic market, many firms has to search out the international markets. Even in 11th five-year plan, China’s firms faced the contradictory government policies for its internationalisation process. China’s policy encouraged internationalisation but it restricted the active support of outward foreign direct investment so that it does not lose the control over its state owned assets. Again, the approval process was not an easier one. It was under the control of higher authorities but now it is at a decentralized level. This is asserted by Buckley et al., (2007). However, there has been observed many changes in the outward foreign direct investment policy of China. The changes like providing guidance on investment opportunities, facilitating capital controls, streamlining administrative processes, reducing investment risks and decentralized authority to a local level for approval process has been observed in different time periods (Woo and Zhang, 2006).

In March 2011, 12th five-year plan was presented by the Chinese government. In this plan, the major focus was on stimulating consumption through sustainable growth maintenance. Various incentives were being provided for the reduction in China’s export dependence and this was done by reducing the level of import tariffs to ensure that there is no trade surplus. Further, it was also being planned that government will raise the tax free income limits for promoting the household consumption. These arguments are supported by the report of The Telegraph (2011). Now, those industries were provided with the preferential status which are related to new informational technology, high end equipment manufacturing, new energy, new vehicles, biotechnology, environmental protection, energy saving and new materials. For these industries, various incentives were being introduced. Many international firms operating in China were attracted with such developments (Reuters, 2011). This shows that various policy level changes has been observed in China. The below figure summarizes the Chinese outward FDI development.

Source: Andersson and Wang (2011)

Figure: Chinese outward FDI development

2.6.CEO Strategies and International Strategic Alliances

According to Wittmann and Reuter (2013), in the business context, strategy is defined as the creation of a unique and advantageous position for an entity. Other than the strong government support, internationalisation process is dependent on the effective strategies of the firms (Benn, Dunphy and Griffiths, 2014). CEOs play a critical role in the strategy development process. They develop the strategies for internationalisation which help the managers to plan how they can access the international markets. Though, this is true that there must be considerable resources with the firm for becoming internationalised. But it is noteworthy that there is no need to possess all resources which are needed. This internationalisation process do not demand to possess all required expertise and skills. If an organization does not possess certain skills, expertise or resources, firms have the opportunity to do partnership with other firms who possess the desired resources, skills and expertise (Wittmann and Reuter, 2013). As mentioned by Ang et al. (2015), such partnerships are more commonly known as international strategies alliances. Further, it is argued by Wittmann and Reuter (2013) that the international strategic alliances are important for multinational companies to gain their competitive advantage. Grant (2015) further found the increased use of strategic alliances. This is due to the fact that strategic alliances provide the firms with extensive list of benefits which could not be obtained in other way. Benn, Dunphy and Griffiths (2014) has asserted that the strategic alliances are basically formed due to three motivations of the firms. Firstly, firms create international strategic alliance with the intention to access the expertise and skills which are possessed by the other organisations. Secondly, the other motivation could be to get access to the established distribution networks of the firms. Therefore, to gain entry into the new geographical markets, the international strategic alliances help a lot. Thirdly, the purpose of strategic alliances is to spread the financial risks to other organisations (Held and Berg, 2014). Further to this, it was observed by Held and Berg (2014) that  governments of few regions require the international firms to develop strategic alliances with the local companies. For few countries, this is the only way to enter in their markets.

Ang et al., (2015) reported that in this way, organisations become able to avoid the competition and collaborate with the companies. Yuan, Qian and Pangarkar (2015) told that it is important to ensure that there exists the complementary resources in the firms which are going to collaborate in the form of a strategic alliance. The types of alliances could be consortium, join ventures and non-joint ventures (Grant, 2015). According to Ang et al., (2015) joint ventures are defined as a separate legal entity where there are equal shares of the partners. The partners form the joint ventures to access the necessary resources which allow the smooth functioning of the business (Pangarkar, 2015). Wittmann and Reuter (2013) stated that independent legal rights could be maintained by both companies in the joint ventures. The other strategy which is used by the firms to make alliance is known as the non-joint venture where firms collaborate and acquire cross-company shares. The difference is that in this case a separate legal entity is not formed. As Ang et al., (2015) has told, the purpose of such alliances is to gain the flexibility. This flexibility is the main advantage which is provided by non-joint ventures. This contract of partnership is not required to be ended after a short period of time like joint ventures. But this could be extended to the long term if the partners find the deal as beneficial for themselves. Likewise, the third type i.e. consortium is formed when many firms collaborate with each other to undertake a large sized business activity. This shows that how the internationalisation process could become easier and faster if firms get involved in any kind of strategic alliance. But Wei, Clegg and Ma (2015) found that there exists certain policy constraints for Chinese firms which become a hurdle for them to develop the strategic alliance. These policy constraints are between home and host countries. As it was highlighted by Benn, Dunphy and Griffiths (2014), Chinese companies are not in position to access the US and Europe market directly due to the conflicting regulations that are existing among western countries and China. Hence, as a results, Chinese enterprises has to invest for the development of economy through different projects, only then they could enter the market. They invest in developing economies that has preferential trade privileges such as Mauritius (Held and Berg, 2014).

2.7.Conclusion

In this chapter, previous research studies are critically analysed. This chapter has reviewed the previous studies about the factors that lead firms to become international. It analyses which kind of constraints could be encountered by the Chinese firms when they become international. Furthermore, it has also analysed which strategies could be adopted by CEOs for dealing with the international market challenges.

 

 

PART 2

3.Methodology

3.1.Introduction

This chapter has presented the research methods which are adopted for this research. This research relies on the interpretive research paradigm where the internationalisation of Chinese firms is considered as a socially constructed reality. The qualitative research methods are used for this research. Both primary and secondary data is selected for this research issue. Moreover, case study research strategy is selected where interviews are conducted for answering the research questions.

3.2.Interpretive research paradigm

Every researcher holds a paradigm for this world which further guides the research process. The researcher of this research study holds the interpretive view of this world where researcher believes that every reality could be accessed only through socially constructed ways. It is assumed that reality lies in the social constructionism.  Therefore, human interest is important for interpreting the reality. This research paradigm is quite similar to idealism in which diverse approaches are used for studying the phenomena. Therefore, this research has used the multiple methods for exploring the phenomena of internationalisation of Chinese firms. There exists differences at the individual level, and interpretivist believe that these differences must be appreciated. While conducting this research it was assumed that there exists multiple realities for internationalisation of Chinese firms as it is a socially constructed phenomenon. The aim of the research was to understand the influences of government policies and CEO strategies in internationalisation of Chinese firms. Unlike positivism paradigm, purpose is not to explain or predict, but the gaol of research is to understand the research phenomena. Instead of focusing on general and representative interest, the researcher has tried to find what is specific, deviant and unique about internationalisation of selected Chinese firms.

3.3.Qualitative Research

The present research is based on the qualitative research methods. As it is stated by Silverman (2013), for in-depth exploration of any research issue, qualitative research proves more useful. Likewise, Gray (2013) has also stated that qualitative research provides the information related to the specific cases and it also allows the cross-case comparison. Moreover, for getting the opinion of individuals, this approach is considered more appropriate. As it was said by Collis and Hussey (2013), qualitative methods produces the rich data which is rooted in the context of the research issue. In a similar way, Gray (2013) stated that for understanding the local circumstances and needs of the research participants, this approach is considered more appropriate. As said by Marshall & Rossman (2014), qualitative research approach also provides flexibility to the researcher for data collection process. Using this approach, the researcher is in position to modify the data collection process as per the need of time. For example, qualitative research methods give flexibility to the interviewer to add, adjust or exclude certain words as per the circumstances and situation while interviewing the participants. This is asserted by Silverman (2013) that this could not be ensured in quantitative research methods as most of the times quantities studies rely on the close ended questions.

According to Altheide (1996), it is noteworthy that there are are few limitations of the qualitative research methods. Most importantly, data could not be generalised to a wide context. It is usually not possible to collect the larger data, hence, fewer participants are involved in the process of data collection. Moreover, the qualitative research is more time gaining in terms of data collection and data analysis procedure. Likewise, there are chances of bias which could be from the researcher’s side. This bias results in doubt on the credibility of the findings of the research. Collis and Hussey (2013) further mentioned that data collection and data analysis abilities of the researchers matter a lot in the qualitative studies. Therefore, utmost importance has to be given to the data collection and interpretation abilities of the researcher so that misleading conclusions could be avoided. The researcher has tried best to reduce this bias by being neutral throughout the research process.

3.4.Case Study

For this research, case study research strategy is being used. The rationale for selecting case study method is the nature of the research problem. The research problem involves the context of China, hence, the context could not be separated from the research issue (Bryman and Bell 2007). This shows that research questions of this research could be better answered with the help of case study method. Moreover, case study research strategy allows to analyse the complex research problem which could not be studied through other research strategies. As this is inculcated in the real life situation, the results of the case study based research provides holistic and rich account of the research phenomenon. For advancing the knowledge in any field, case study based research is considered quite important (Blaxter, Hughes and Tight, 2010).  Moreover, Alvesson and Deetz (2000) stated that the policy related issues could be better explored with the case study based research. Therefore, this research has adopted the case study strategy for analysing the internationalisation at Chinese companies.

This research strategy is selected over other strategies because case study method permits the researcher to collect the in-depth data where contextual situations are also incorporated (Yin, 2013). This method is often based on various data collection methods like document analysis, literature review, observation and interview (Stake, 2013). For this research, two methods i.e. interview and document analysis has been selected. This approach could also be used to explore the specific contexts and situations for generating hypotheses. Therefore, this research has utilised case study methods to consider the context of Chinese enterprises while exploring the internationalisation process. Yin (2013) stated that findings of single case study could not be applied to the wider business environment, therefore, it is more appropriate to rely on multiple case studies. Considering this argument, multiple case studies has been selected for this study. There were three international Chinese enterprises which are selected as the case study organisations, which depicts that multiple case study method is used. The case studies of three Chinese enterprises are named as Huawei, Heir and Lenovo. The unit of analysis is the organization here. So these three case study organizations will be studied separately as the unit of analysis of this research.

3.5.Data collection methods

In this research, both primary and secondary data collection methods are used. For collecting the information about the role of government policy and CEO strategies on internationalisation of Chinese enterprises, primary data is being collected. For collecting the primary data, interviews with managers of three case study Chinese organisations namely Hair, Huawei and Lenovo are conducted. The rationale for selecting primary data collection method is that it provides up to dated information. Many times, secondary data provides such information which is obsolete (Collins, 2010). Therefore, to ensure that updated information is obtained, the primary method is selected for these two objectives. Moreover, before selecting this approach, the availability of secondary data was also checked. It was found that very limited secondary data exists related to these two objectives, therefore, it was decided to use the primary data collection methods.

For secondary data collection, document analysis is done where third party and government reports are used are used for extracting the information about internationalisation strategies of Chinese enterprises. The rationale for selecting primary data collection method is that it permits the researcher to access and analyse the data in a faster manner (Cooper and Schindler, 2007). Moreover, duplication of efforts could be avoided if the sufficient information is already available.  Further to this, this method is cost effective and it provides valuable information to analyse trends over the years (Matthews and Ross, 2014). Though, credibility of secondary data is often questioned, therefore, its credibility is ensured through validating the information through various sources. Only those reports and articles are used for this research which were written by the authorised and trustworthy sources (Angen, 2000)

3.6.Data collection strategies

There are various data collection strategies which could be used in qualitative research methods. The examples of such strategies are in-depth interviews, focus group, ethnography, and observations (Creswell, 2013). For primary data collection, this research has used the interview strategy for collecting the data. As Dillman, Smyth and Christian (2014), both face to face or telephonic interviews could be conducted. For this research, both face to face and telephonic interviews are being used. The interviews are conducted from the managers of case study organizations. The sample size of this research is 3 × 3 = 9 managers from the case study organisations. As per recommendation of Seidman (2013), the research participants which could not be reached out are interviewed over telephone. This allowed the researcher to deal with the limitation of long distance, financial constraints and busy schedules of the managers. Though, there is one limitation of telephonic interviews that they do not allow to observe the non-verbal cues, but this was also reduced through video calling or Skype calling. For secondary data collection, the researcher has used the authentic search engines like GoogleScholar to search the relevant reports, articles and books related to the research issues are search out. It was ensured that secondary data from authentic sources is taken for this research. The criteria for the selection of secondary data was its relevancy, authentic author/published and recent. It is noteworthy that old research studies are not used as the secondary data for this research.

3.7.Conducting Interviews

Interviews could be unstructured or semi-structured. The present research has utilised the semi-structured interview approach where participants were being asked about certain set of questions [Appendix – Interview]. However, these questions were adjusted as per the responses of the participants. As per recommendations of Creswell (2009), an interview guide is being prepared where themes from the literature are used to design the questions. Though, the guide was being prepared, participants were asked about the different topics as per their responses. The sequence and probing level vary for each interview. The technique of semi-structured interviews is often questioned due to the fact that it can result in imposing the literature themes on the participants (Creswell, 2012). However Fowler (2013) recommended that this limitation could be handled well by taking a start from the pilot study. Therefore, the interviews took a start from the pilot study. Before starting the actual data collection process, pilot study was conducted with 3 managers of the selected case study organisations. In this pilot study, only broader topics were discussed with the interviewees. The discussion about certain topics like government policy, internationalisation process, hurdles, strategies of CEOs. This discussion led to the development of interview guide. To make sure that themes emerging from literature are not imposed on the interviewees, new themes emerging from the pilot interviews were being added to the interview guide. These open-ended interview questions has helped the research to obtain the rich data from the participants (Seidman, 2013). As highlighted by Gray (2013), various interviewing techniques could enhance the effectiveness of interview conducting process. Therefore, as per the suggestion of Gray (2013), various interviewing techniques like probing were being used to enhance the effectiveness of the interview process.

3.8.Data Analysis and Presentation

This is a qualitative research, therefore, qualitative analysis technique has to be used for the data analysis. The content analysis technique has been selected for this research. The primary data which will be collected from semi-structured interviews will be interpreted to do the content analysis. As per the definition of content analysis which is presented by Creswell (2013), it is a process of examining the collected data in a systematic manner that relationship and trend among the variables or constructs could be identified. While identifying the pattern of data, the sequence, regularities and exceptions are also important to be considered hence these are also analysed while drawing conclusions from the collected data. Gray (2013) stated that coding decision is very subjective hence the analysis relies heavily on the subjective decision which is made by the researcher. Therefore, to deal with this challenge, direct quotations from the interviews are used to support the analysis which is drawn from the content analysis technique. Moreover, triangulation technique has also helped to strengthen the analysis.  Marshall and Rossman (2014) told that triangulation allows to combine various methods to offset the inherent weakness of any single method. Therefore, this research has used secondary data in combination with primary data collected through interviews. The combination of primary and secondary data in analysis chapter has helped to enhance the credibility and accuracy of findings. For presenting the descriptive data, narratives are used. However, the continuous data is presented through charts and graphs.

3.9.Ethical Considerations in Qualitative Research

In this research, both primary and secondary data has been collected. Therefore, it was of utmost importance to maintain the ethical standards of conducting the research. Therefore, the researcher has attempted to follow all ethical standards. As per the recommendation of Gray (2013), the researcher has obtained the consent of the participants before their participation in this research. Fowler (2013) recommended that consent must be taken after providing necessary information to participants about the research. Therefore, the researcher ensured that the aim, required time, anticipated risk and advantages are clearly disclosed to the researcher before their consent for participation. For inviting the participants, written request was being sent to the managers of the case study organizations. After two days of this email, follow-up phone calls were being done to check whether they have agreed or not. Gray (2013) highlighted that consent of participation is not only critical at the beginning of the research interview. It was recommended by the author that it must be sought throughout the interview session. Therefore, it was being ensured that consent of interviewees is reaffirmed throughout the session. They were being provided with the right to withdraw from the research if they want at any time during the interview session. Collis and Hussey (2013) has suggested that confidentiality and anonymity of the participants must be maintained by the researcher. Therefore, the researcher has ensured that personal information involving the name and contact details are not shared with anyone. Dillman, Smyth and Christian (2014) recommended that when qualitative research studies are relying on secondary data, it must be ensured that the original author is given due credit for his/her work. Considering this, the researcher has referenced secondary data in an appropriate manner. Throughout this research, it is ensured that collected data is not fabricated in any manner.

3.10.Conclusion

This chapter has presented the research methods which are adopted for this study. After completing this chapter, it could be concluded that interpretivism research philosophy is selected where case study research strategy is selected. Further to this, interviews with the managers of selected case study organisations are conducted. Before doing actual data collection, pilot study was also being conducted. The sample size is 9 managers of Lenovo, Haier Group and Huawei. The research has considered all ethical standards.

 

 

 

 

 

 

4.Findings and Analysis

4.1.Introduction

In this chapter, findings of primary and secondary research are presented. There are multiple case studies which are used in this research. Therefore, it starts with the introduction of each case study. The introduction section provides the general overview of case study and it also discusses the international expansion of the selected case studies. Then the analysis moved towards the factors which are motivating factors for the internationalisation process. This also explains the government policy constraints for the internationalisation process. Moreover, it also discusses the strategies of CEO’s which has been adopted for being international.

4.2.Introduction to Case Study A- Huawei Technologies Co. Ltd

According to Ahrens (2013), Huawei Technologies Co. Ltd is a Chinese multinational company that is specialised in networking and telecommunication services and equipment. The headquarter of this company is in Shenzhen, Guangdong. It is one of the largest telecommunication services of the world. In 2012, it was overtaken by Ericson. This company was established in 1987 where a former engineer in the People’s Liberation Army named Ren Zhengfei founded this company. At initial stages, this company was only focusing on the manufacturing of phone switches. But in the later stages, it expanded its businesses to telecommunication networks and consulting and operational equipment and services to enterprises within and outside the China. After this, it also entered in the consumer market with the introduction of communication devices. Huawei has given employment to more than 170,000 employees. It has a heavy focus on research and development activities where it is having 21 institutes for research and development which are located in various countries including China, Belgium, France, Pakistan, Canada, United Kingdom, United States, Ireland, Russian, Sweden, Colombia and Turkey. This company invested the amount of $6.4 million in its research and development in 2014, showing that how critical is the research and development department for this company is. In 2014, the recorded profit of this company was around 5.5 billion USS and its products and services are available in 140 countries. It is known as one the 50 world’s largest telecom operators (Shukla, 2011).

Going deeper into the international expansion process of this case study, the secondary research has showed that in 1997, Huawei got its 1st international contract that focused on providing fixed-line network goods to Hutchison Whampoa which is Hong Homogenization company.  In next year, Huawei became successful in introducing its wireless GSM-based goods and ultimately extended to offer UMTS as well as CDMA. Later on in 1999, company started a research and development (R&D) center in famous city of India named Bangalore to produce wide variety of telecom software programs (Li Sun, 2009). In 21st century, Huawei enlarged its speed of growth into international markets and attained international revenue of approximately US$100 million. After that, company opened R&D center in Stockholm. Furthermore, In 2001, Huawei opened 4 R&D centers in the US and joined hands with International Telecommunications Union (ITU) as well. In 2002, Huawei’s international market revenue was approximately US$552 million (Low, 2007).  

Huawei continued to expand its operations. In 2004, Huawei made a contract to build a 3rd generation network for Telfort, Europe. This contract was a source of expanding operations in European region. The international expansion of Huawei continued and it made a Global Framework Agreement with Vodafone in 2005. As per this contract, Huawei had to provide products to Vodafone at global level. Huawei also made agreements with European companies including British Telecom (BT) and provided necessary infrastructure (Rui, and Yip, 2008).

In 2008, Huawei expanded operations in Australia and opened a mobile innovation center in Sydney. Later on, in 2008, the business boarded on its first large-scale commercial deployment of UMTSHSPA in North America. In 2009, Huawei provided one of the world’s first LTE commercial networks for TeliaSonera in Norway. In the same year, world's 1st end-to-end 100G solution from routers to transmission system was also launched by corporation (Luo et al., 2011).

Huawei was enlisted in the Global Fortune 500 2010 list by the United States. Later on, in the same year, it was stated that Huawei is scheduling to invest around US $500 million to start telecom equipment manufacturing facility in Tamil Nadu, India (Wu and Zhao, 2007). Huawei made its position strong in US and became the major sponsor of the Jonas Brothers' 2013 summer tour. In the same year, Huawei launched a new Canadian office in Regina, Saskatchewan. In 2013, Huawei got more success and was selected by TDC A/S as an only vendor to update the countrywide GSM/UMTS/LTE network in Denmark and offered managed services over a 6-year time duration. It was announced that the contract value was more than $700 million. On the basis of latest rankings by The Economist, it can be known that Huawei is the number 1 Telecom Vendor, all over the world (Ahrens, 2013).

According to Simmons (2008), Huawei has emphasized on growing its mobile technology and networking solutions by focusing on different partnerships and contracts. In 2003, Huawei and 3Com Corporation joined hands by making a joint venture corporation, that was named as 3Com-Huawei (H3C). Venture emphasized on R&D as well as production along with sales of data networking goods. Later on in 2006, business concern divested a 49% stake in H3C for US$880 million. Huawei joined hands with Siemens in 2005 and was named as TD Tech. This was made for production of 3G mobile communication technology goods. The stake of Huawei in the TD Tech was 49% while that of Siemens was 51 percent. Furthermore, in 2007, Nokia and Siemens co-founded Nokia Siemens Networks and Siemens transmitted all shares it held in TD Tech to Nokia Siemens Networks. That is why, currently, Nokia Siemens Networks and Huawei hold 51% and 49% shares of TD Tech correspondingly.

In 2006, Huawei joint hands with Motorola and produced UMTS technologies. In the same year,  Huawei also made a joint venture with Telecom Venezuela, named Industria Electronica Orinoquia, for R&D as well as for selling telecommunications stations. Telecom Venezuela holds a 65% share and that of Huawei is 35% percent.  Huawei made partnership with American security firm Symantec in 2007 and made a venture. This venture was made to produce and sell security and storage solutions to market to telecommunications shippers. Huawei primarily kept 51% of the new business, called Huawei Symantec Inc. and remaining was possessed by Symantec. This venture was created in Chengdu and Symantec sold its portion of venture to Huawei in in March, 2012 (Ahrens, 2013). In 2009, Grameenphone Ltd. As well as Huawei received the Green Mobile Award at the GSMA Mobile Awards. Later on in the same year, 4 new BODs were declared by Wimax Forum. The board of directors comprised of Thomas Lee as the Vice Director of the Industry Standards Department (Shukla, 2011).  Partnerships by Huawei were made with UK-based marine engineering company, named as Global Marine Systems. This venture was made to provide undersea network equipment as well as relevant services and products (Child and Rodrigues, 2005). This section has analyzed the internationalization journey of Huawei. The next section will analyze what factors motivate this firm to become international. Moreover, the policy constraints from local and international government are also analyzed. at the end, it is analyzed how CEO’s responded to the challenges of internationalization.

4.3.Factors leading towards Internationalization of Huawei

When Huawei became international, though business was booming in China, but there were many international competitors in the market that were making it tough for Huawei to increase its market share. As it was stated by one of the interviewee as well.

“We only took the decision to expand in developing countries when we were not ready for internationalisation. Therefore, we took a strategy where first we got ourselves familiar with the markets through learning process that took place when we started to compete with the international competitors. Though, one option was to take this decision only when the domestic market is saturated, but it was not a right decision for us. Therefore, we started to enter in the international marketers when we saw that competition in domestic market has increased. This fierce competition was not only from domestic but for international competitors as well.”

This shows that motivation to learn and experience was another factor which became a root cause of the rapid internationalisation of this Chinese firm. Moreover, this response of the interview also shows that industry based view explanation is behind the internationalisation of the Huawei. When it was analysed that competition in domestic market is increasing and it has become difficult to capture more market share in China, Huawei started to enter the international market. This has allowed this firm to increase its market share.

 “We have got one advantage which is due to the domestic market scale. There are more than one billion people in the home market which makes this market unique from others. We started from domestic market and we gained the advantage of scale. This economies of scale motivated us to expand in the international market and be a global market player. These economies of scale has also allowed us to gain experience and learning about consumers which has helped us to expand in international market.”

From this, it could be analysed that one of the factors which motivated Huawei to become international was the economies of scale.

Another interviewee highlighted another factor:

“We became international because we wanted to take advantage of our brand name. indeed, it is known as a Chinese brand whose quality is inferior to strong brands like Apple and Samsung. But, this is a renown brand which is quite famous in developing countries due to its low cost. Taking advantage of the brand name was one of the motives which still motivates us to explore the new markets which are not captured by us yet.”

From the above response of the interviewee, it could be told that resource based view was also prevalent behind the internationalisation process of this company. Brand name and technological capabilities are the idiosyncratic resources of Huawei, and it expanded in the international markets to gain advantage of these factors. This is consistent with the arguments of Filatotchev et al., (2007) which highlighted the importance of resources of firms for leading towards internationalisation.

Low (2007) stated that many new international contracts with Mauritius, Morocco, Ghana, Kenya and Congo were started. The role of government was critical in helping us to entering in these countries. therefore, it could be analysed that government was one of the important factors which helped Huawei to become international.

The diplomatic policy of our government was quite successful and it has helped us in winning a lot of international friends. By following the China’s diplomatic route, Huawei became international. It was the strategy of its CEO to use that route which is used by the government. In November 2000, vice premier of China named Wu Bangguo travelled with the CEO of Huawei. This trip was from China to Africa. During this trip, foundation for many new future deals were laid down.

Nevertheless, the government has also played a positive role in the internationalisation of Huawei. Due to the economies of scale, Huawei got the advantage of undercutting rivals of international market by 30 percent. Government gave it the status of national champion which enabled the company to enter in more international markets. From both primary and secondary data, it could be analysed that as per the institutional framework, this is not wrong to say, that government has acted as one of the enablers for the internationalisation of Huawei. This view is consistent with the arguments of Dunning and Lundan (2008) which mentioned that institutional framework of a country can hinder or enable the internationalization process. Nevertheless, there are certain constraints put by the government on internationalization process (discussed in next section), the role of government was also positive and favourable for this Chinese enterprise.

4.4.Government Policy Constraints for Huawei

Yueh (2014) mentioned that there are various obstacles for Chinese private companies which they have to face when they become international. Before 1980’s, the situation was worst for internationalisation but after 1980s situation is better now. After this, consumer markets developed and planned economy was liberalised. Hence, there were opportunities for private companies to emerge. Even in the current era, there are many advantages which are only reserved for the state-owned companies and private companies are at disadvantage. The bulk of bank credit is only available to the state owned companies. when Huawei was being established in 1987, there were five investors which contributed 3,500 Yuan equally to start this company. They had to import the telecom equipment from Hong Kong and they faced many difficulties in getting permission to do this import activity. This view of Yueh (2015) is consistent with the literature where the study conducted by Held and Berg (2014) has stated that state owned enterprises of China are more likely to receive better regulatory support from the government as compared to the non-state enterprises

Other than this secondary data, primary research data also showed similar findings, where this was also highlighted by the interviewee that:

“Whenever we had to take any decision which is related to international market, the approval process is quite length and hassle. We have to wait for months for critical decisions of the organisation.”

There were additional challenges for this company due to nature of this industry. As this telecom industry is always associated with the industrial espionage, therefore, government became a hurdle for its internationalisation process (Yueh, 2014). The CEO and founder of this company was in the Chinese Army and this became the reason for many allegations. The interviewee stated that:

“Ren belonged to the Chinese Army and due to this reason we were never allowed to capture the US and other markets like Australia. I would like to mention that we are still banned from bidding for US government contracts.” 

“China’s government promoted the policy of joint venture and it allowed to make strategic alliances and joint ventures with the international market players. This was not being adopted by us for gaining technology and know-how. We innovated ourselves and interestingly we did this on a quite cheap cost. Hence, we challenged the competitors with the fewer prices and gained market share easily.”

The primary research data showed that the relationship building with the government has helped this company to become successful in the internationalization process. One of the interviewees highlighted that:

“With the help of Wu Bangguo, we gained the international contract of $20 million in Ethopia.”

“Likewise, we also gained the contract of CDMA project in Nigeria. The worth of this project was $200 million. We won this contract in 2005. Due to these contracts, our internationalisation to these countries became smooth.”

The above response of the interviewee is again consistent with the argument of the Held and Berg (2014) who stated that Chinese enterprises strive to develop the relationship of trust with the government. From this research results, it could be analysed how Huawei has become successful in managing the internationalization through developing the relationship with the government.

4.5.CEO’s strategies for facilitating internationalisation process of Huawei

While mentioning the internationalisation strategy of Huawei, interviewee stated that:

“When we entered in the international market, our situation was of a mountain goat. The senior management adopted the strategy where we had to run faster and climb higher than the lions. This was the only way through which we could save ourselves from being eaten. The strategy of top management was always to surround the cities by spreading in the countryside. If we would have had taken the decision to expand when domestic market is saturated, believe you me, we would have had never been able to become successful.  The competitive advantage that we have achieved now is because of the right time entry in the international market.”

The above response of the interviewee is shedding light on the strategic view of internationalisation process. it is depicting that it has gained the competitive advantage through adopting the fast internationalisation process. Instead of waiting for the right time, it entered into the newer markets and this has helped the company to become successful.

In the above section, it is also discussed that it is one of the fastest growing mobile technology and networking solutions by focusing on its partnership and contracts with the international players. The interviewee highlighted that:

“Though, there were constraints from the host government as well, but due to our strategy based on acquisitions and strategic alliances, we have successfully dealt with such challenges. We have a history of doing partnerships. For example, we entered into joint venture with 3 Com Corporation.  We did partnership with Siemens which later on partnered with Nokia. Motorola is also in the list of joint ventures and Telecom Venezuela”

The above response is somehow consistent with the findings of Held and Berg (2014) where it was argued that governments of few regions require the international firms to develop strategic alliances with the local companies. For few countries, this is the only way to enter in their markets. Therefore, when Huawei faced certain policy constraints from the host country, it made the decision to enter through making strategic alliances with the companies which are from the targeted host countries.

The rationale for partnerships could be different and it was dependent on the situation of that time. The interviewee told as:

“We joined our hands with Motorola because we wanted to access their technological capabilities. Hence, after joint venture with Motorola, we produced UMTS technologies. However, when we did joint venture with Telecom Venezuela, the purpose was to access their distribution of telecommunications.”

It was also found through the primary data that:

“Huawei made the strategic partnerships with Vodafone and British Telecom, this has helped the company to become international in an easier manner. With these allowed Huawei to gain access to the resources and distribution networks of Vodafone and British Telecom. The necessary infrastructure was established with these strategic partnerships”

From the above response of the interviewee, it is reasonable to analyse that strategic alliances and joint ventures are made to gain access to resources, distribution networks and technological capabilities of the targeted firms. This response of the interviewee was very much close to the literature findings where Wittmann and Reuter (2013) stated that if an organization does not possess certain skills, expertise or resources, firms have the opportunity to do partnership with other firms who possess the desired resources, skills and expertise. This is what is being done for the case of Huawei.

4.6.Introduction to Case Study B – Haier Group

Haier Group is one of the famous Chinese company that deals in consumer electronics as well as home appliances. This is based in Shandong province, China. Company is focusing on producing and selling ACs as well as mobile handsets, personal computers along with microwave ovens,  TVs and washing machines. As per information provided by Euro monitor about white goods, in 2014 Haier had the biggest market share in them. In that year, company became market share leader for major appliances for sixth time. This company is very old. A company was established in 1920s, in Qingdao to deliver refrigerators to the market of China. After few years, in 1949, the established business was purchased by state and became a state-owned business concern.

In 1984, Haier had been originated as Qingdao Refrigerator Company. International companies focused on joining hands with Chinese companies. A German business that was manufacturing refrigerators joined hands with Qingdao Refrigerator Co. these companies collaborated with each other and contributed technology as well as apparatus to deliver products to the Chinese customers. The name of Qingdao-Liebherr was used to produce the refrigerators and fridges. Liebherr provided the equipment along with technology was accompanied by new quality management procedures and techniques. After few years, in 1986, Qingdao Refrigerator had reverted back to effectiveness and revenue growth averaged eighty-three percent on annual basis. In 1984, the sales grew from CNY ¥3.5 million to CNY ¥40.5 billion till 2000. The growth was made at a high rate (Luo and Tung, 2007).

The municipal administration requested the management to take the company to another city and start operations there. After few years in 1988, the corporation expected governance of Qingdao Electroplating Company. After 3 years, company took over Qingdao Air Conditioner Plant as well as Qingdao Freezer and get expanded. The acquisition of Qingdao red star electronics co., LTD was done in 1995.

Till 1980s, the company had dues of more than CNY ¥1.4 million and was facing decrepit setup, pitiable administration, and absence of quality controls, due to scheduled economic structure as well as related strategies. Manufacturing had reduced, seldom exceeding 80 refrigerators monthly, and the company was about to become insolvent. The Qingdao supervision employed a new vice city-supervisor, named Zhang, accountable for a wide range of city-owned appliance corporations. In 1984, Zhang was selected as the MD of the company. After becoming the managing director of company, Zhang took decisions for making the quality control better and improved.

After one year, a client carried a damaged fridge back to the company and revealed it to managing director. Zhang and the client then thoroughly observed the damaged and defective fridges to make decision about their replacement. It was observed that the failure rate in the stock was twenty percent. In order to focus on the significance of goods’ quality, Zhang had the 76 useless fridges arranged on the factory flooring. Later on, the employees were asked by Zhang to abolish the fridges. Workers were doubtful; the total cost incurred on the fridges at the time was about two years’ value of salaries. But Zhang asked them to destroy the fridges otherwise these can lead towards insolvency. Thus, employees destroyed the fridges.

Going deeper into the international expansion of this case study, in 1996 and 1997, a production facility was made by corporation in Indonesia and Malaysia, respectively. The aim of corporation was to strive in the Thai market. But, the company suffered losses and was not able to compete with the local producers, thus, stopped marketing there. In US market, company focused on making compact fridges as well as electric wine vaults. Haier started producing full-sized fridges for North American marketplace. In this way, Haier had to compete with the local companies in US including GE as well as Maytag along with Whirlpool, Frigidaire. In addition to this, in 2002, Haier made a manufacturing capacity in the US at Camden.  In 2002, the US sales touched SD $200 million, until small compared to its whole income of $7 billion. Moreover, the office of Haier was moved in midtown Manhattan in 2002. Previously, the HQ for the Greenwich Savings Bank was constructed in the neo-classical style in 1924 (Liu and Li, 2002). In 2002 and 2003, Manufacturing services were built in Pakistan and Jordan, respectively. In Africa, Haier had manufacturing plants in 5 states. The states included Tunisia as well as Nigeria along with Africa, Egypt and Algeria. The corporation also purchased a Meneghetti's factory in Italy and started storing its goods in European retail chains, either under its own trademark or under OEM contracts with overseas allies. Presently, Haier made a JV contract with the administration of Venezuela (Han-xi, 2002).

In 2004, Haier Appliances (India) Pvt. Ltd started its commercial processes. The headquarters of this branch is New Delhi. The company increased its operations in other cities as well, including Bombay as well as Calcutta along with Bangalore and Chennai (Yang and Stoltenbery, 2008). As per The Brand Trust Report, the company was included in top 20 most reliable companies in India.  In 2005, Haier tried to purchase Maytag Corporation by making a bid. This bid was supported by Bain Capital as well as  Blackstone Group.  Haier presented a bid of approximately USD $1.28 billion that was greater than the previous bid of $14.26 per share made by Ripplewood Holdings. Michigan centered Whirlpool Corporation was bought by Maytag which gave $1.7 billion in cash and stock (Yang et al., 2009).

In 2008, as per Euromonitor, Haier had beaten competitor Whirlpool as the top freezer manufacturer around the globe as per its sales and revenues. It was stated by Haier that it traded twelve million refrigerators globally, up twenty over the earlier year and the market share increased up to 6.3 percent, internationally (Deng, 2009).  In 2012, Fisher and Paykel was bought by Haier Group. That was a New Zealand based company.  Later on in 2016, Haier Group purchased General Electric's appliance division by paying approx. 5 1/2 billion dollars. From the above analysis, it could be analyzed that journey of Haier Group was quite challenging and it was full of ups and downs. However, it has been dealing with these challenges with the feasible and appropriate strategies. This has enabled the successful internationalization of this brand. The next section will analyze what factors motivate this firm to become international. Moreover, the policy constraints from local and international government are also analyzed. at the end, it is analyzed how CEO’s responded to the challenges of internationalization.

4.7.Factors leading towards internationalisation of Haier Group

There are various factors which are behind the internationalisation process of Haier Group. For example, one interviewee stated that:

“We are offering the products which are standardized all over the world. More or less, a Chinese consumer demands the same things from us which is demanded from the U.S. consumer. Before entering into a new market, we do not have to do a lot of customization to our products. We are not like those businesses which have to do a lot of study on consumers before introducing new products in the international market. Therefore, when we had the opportunity to target the international customers with the similar offerings, we did so. This decision has proved right for us.”

From this response, the industry based view explanation is found. It could be analysed that it is due to the nature of industry where there is no need of customization. That is why, this company became able to capture the international market.  This is consistent with the arguments of researchers like Klevorick et al., (1995) that state that firms often become international when their offerings could serve the international customers.

Along with this, another interviewee highlighted another factor which has lead towards the internationalization of Haier Group.

“We wanted to explore the available technological opportunities. We wanted to improve our technological unit. Other countries were ahead of us. Therefore, we wanted to collaborate with such companies which are better than us, in terms of technology. I would like to highlight the motive of international joint venture which occurred between Haier Group and Liebher which is a German’s refrigerator company. the purpose was to share the technological advancements with this German company.”

From this view, again the internationalization seem to be due to the industry based view where the nature of industry is highly technology intensive. Therefore, to improve the technological capability, this Chinese firm has become international.

“One of the factors which has led us to international market is to enjoy the cheap labour cost. The labour cost in China is continuously increasing. Therefore, we have taken steps in the developing countries like India to decrease the labour cost. Since 2004, we are operating in India with the name of Hair Appliances India Private Ltd. We are spreading in many cities of India including Calcutta, Chennai, Bangalore and Mumbai. The rationale is to gain access to their cheap labour. The operations in India has allowed us to decrease the labour cost and gain efficiency at the same time.”

From this, it is analysed that one of the reasons for becoming international is to gain access to cheap labour. Similar views were also presented by Wei, Clegg and Ma (2015) that Chinese enterprises become internationalised because they want to gain access to cheap labour of developing markets.

4.8.Government Policy Constraints for Haier Group

Like other Chinese constraints, Haier Group has also faced numerous policy and strategy constraints from host and home country government. The interviewees mentioned that :

“In 1980’s, we faced various disastrous situation for the business. One of the reasons for the insolvency of the business was planned economic system. The policies and strategies of the government were not in our favor. Hence, we had faced losses of around ¥1.4 million in 1980s.”

“We have faced problems due to the slow procedures of the government of China. For many of our decisions we have to take the permit from the government. This process often becomes too lengthy that we often loose the opportunity which we are trying to exploit.”

From the above response, the practical example of argument of Cardoza et al., (2015) could be observed. Their study actually reported similar findings and stated that bureaucratic processes hinders the internationalization process of many Chinese enterprises.

The policy constraints are not only from China’s government. These are also from the host country. The below response has identified another policy constraint which was faced by Haier Group.

“When we launched the plan to build the manufacturing unit in Jordan in 2003, there were many regulatory processes which slowed down the implementation of the plan. Though we had to start the work from 2001 or start of 2002. But we became able to launch our manufacturing unit in 2003 because of permit issues. Their government took so long to accept the proposal of building the manufacturing plant in their country.”

The above response is another example of bureaucratic process that could become a hinder for internationalization processes of Chinese firms (Cardoza et al., 2015). Further to this, the interviewee told that:

“During the period of 1996-1997, we faced many difficulties for the internationalization process. we were intending to open up the production facility in Malaysia and Indonesia but it became a quite tough process for us to gain the approval from government.”

If this response is compared with the previous findings, it could be analysed that Buckley et al., (2007) also provided the similar findings that in this time era when financial Asian crisis was going on, China introduced strict and unfavourable regulations for outward foreign direct investments. Hence, due to this fact, Haier Group had to face unfavourable government conditions for its internationalization process. 

4.9.CEO’s strategies for facilitating internationalisation process of Haier Group

The role of strategy which is adopted for internationalisation process is crucial. Like other companies, Haier Group also realise the importance of CEO’s strategies. Therefore, the interview results clearly showed that now the focus of company is on choosing the right internationalisation strategy for Haier Group. The interviewee said that:

“In 1996 and 1997, when we intended to open a production facility in Indonesia and Malaysia and we faced failure because we could not compete with the local producers of these markets. We, then, realised that what is the importance of strategic partnerships for the internationalisation process success. Certainly, if we have had opted for some strategic partnership like some alliance or joint venture, we could have had targeted those markets in a better manner. we could have had avoided this market failure if the right internationalisation process was being selected by us.”

“Therefore, whenever we take any international decision, we first look for the opportunity of international strategic alliances. Recently, we have taken the decision to purchase General Electric appliance and we have pay around 5.4 billion dollars for this strategic partnership. Previously, we also partnered with the New Zealand appliance named Fisher & Paykel. The purpose of these strategic partnerships was to ensure the smooth entry in the respective international markets. Moreover, the resources of these partners has also helped us to flourish in the global market.”

This is consistent with the previous research findings where Wittmann and Reuter (2013) has stated that if an organization does not possess certain skills, expertise or resources, firms have the opportunity to do partnership with other firms who possess the desired resources, skills and expertise. To gain access to desired resources of General Electric Appliance and Fisher & Paykel, Haier Group entered into international strategic partnerships.

“According to my personal views, such partnerships are more beneficial for the company than green field ventures. The experience of Haier Group also stated similar i.e. to establish new plant or manufacturing unit in another country involves more risks than advantages.”

Like previous findings of this case study, this assertion of the interviewee is also similar with the views which are presented in literature. Held and Berg (2014) stated that firms create international strategic alliance with the intention to access the expertise and skills which are possessed by the other organizations and sometimes the purpose is to spread the financial risks to other organisations. Similar is observed in this case study.

4.10.Introduction to Case Study C – Lenovo

Lenovo Group Ltd. is one of the famous Chinese company. It has main headquarters in Beijing, China, as well as in North Carolina, US. Lenovo produces and deals in personal computerstablet computers, mobile handsets as well as play stations along with servers and  smart televisions etc. on the basis of unit sales, Lenovo was ranked  largest personal computer vendor in 2015, globally. Lenovo markets the ThinkPad as well as Ideal Pad along with Idea Centre line of desktops and many other devices (Mourdoukoutas, 2015).

Lenovo is operating in more than sixty countries and sells its goods in more than 160 states. Lenovo operates a joint venture with EMC as well as LenovoEMC. In 1984, Lenovo was established in Beijing. In 2005, Lenovo decided to obtain its Intel-based server business. in 2014, Lenovo became biggest supplier of smartphones in China.  Liu Chuanzhi established Lenovo in 1984 with a group of 10 engineers in Beijing by using funds of 200,000 yuan. Officially, Lenovo was established on 1 November 1984. The capital of 200,000 Yuan which was used to establish Lenovo was approved by Z?ng Màocháo (Biediger et al., 2005). Lenovo has faced different failures in its business life. An effort to import TVs became unsuccessful. The company reconstructed itself in a year by focusing on quality checks on computers for new purchasers. Then, Lenovo quickly initiated producing a circuit board that would permit IBM-compatible PCs to produce Chinese letterings. This item Lenovo's 1st main victory. Later on, Lenovo failed to launch and market a digital watch. This failure happened because the employees of Lenovo were not much experienced. It was said by Liu that the employees were starters and had not enough knowledge about market. Lenovo started to produce and sell market computers by focusing on its own brand name in 1990s (Zhijun, 2006).

Lenovo focused on its 1st recruitment advertisement in 1988. Advertisement placed on the front page of the China Youth News in 1988. This was one of the interesting ads because such types of ads were not majorly present. Among 500 participants, 280 were opted to take a written employment test. Later on, 120 of these applicants were interviewed individually. Though interviewers originally only had power to appoint sixteen individuals, 58 were given proposals. The new workforce comprised of eighteen individuals with graduate degrees, 37 with undergraduate degrees as well as 3 individuals having no university-level education. The age of employees was twenty-six on average. Yang Yuanqing, who is the present CEO of Lenovo, was included in the group (Quelch and Knoop, 2006). Liu Chuanzhi got administration authorization to form a subsidiary in Hong Kong. He moved there with 5 other workers.  Father of Liu was already living in Hong Kong. His father helped him and performed mentoring functions. Liu and his coworkers did not spend extra money and used public transportation, and held meetings in rented hotel rooms to save money (Spooner and Kanellos, 2004).

As per view of Mourdoukoutas (2015), there was an era when Lenovo was not considered a significant Chinese PC producer, as it was not making profits and revenues were low. Currently, Lenovo is considered to be the largest PC producer around the globe. It has around $40 billion in sales, moving ahead of its major rivals like Dell and HP. Lenovo focused on partnerships and acquisitions to become successful in international market. For instance, Lenovo attained the PC division of IBM by paying an amount of $1.75 billion in 2005. Later on, in 2012, Lenovo bought DigibrasIndustria, a leading Brazilian computer as well as gadget producer. Lenovo acquired many other companies by gap of few weeks. In recent times, Lenovo acquired IBM’s low-end server division by paying an amount of $2.3 billion.

Lenovo has become successful in the market because of innovation. Lenovo has become globally expanded and gained recognition in foreign markets (Liu, 2007). Superficially, Lenovo understood that there are not so much prospective of Chinese computer market after becoming the foremost PC maker in Chinese market. It is mentioned earlier that company’s internationalisation procedure is that the internationalisation is the process of collecting empirical information and market commitment in overseas marketplaces. Companies focus on internationalisation procedure by emphasizing on exporting to countries with similar cultural values. Yet, some investigators discuss that it would be more problematic to become worldwide firm the lengthier the firm’s procedure of incrementing experience and understanding, particularly in such a setting of fierce rivalry (Holestein, 2014).

4.11.Factors leading towards internationalisation of Lenovo

There are many motivations for Lenovo to become international. The interviews were conducted to know what are the factors which are motivating this successful global organisation to explore new international markets. The interviewee stated:

“To become international by acquisition offer by IBM was quite critical for us. Though, we had to do a lot of planning and critical analysis for this offer. However, we accepted this offer because we wanted to make partnership with a brand which is already known in the international market. We were unknown in the international market. However, the brand name of IBM was quite strong. Their technological resources were better than us. Though, this was a critical decision for us. But we accepted this international acquisition offer to gain the market share in the international market.”

The above response is quite close to the argument of Wei, Clegg and Ma (2015) stated that Chinese enterprises become international to capitalize the technological resources and established brand names.

“We also wanted to get benefit from the know how and managerial capabilities of the people working in IBM. Therefore, we took this bold step and merged with IBM in 2004.”

Similar views could be found in the literature where Filippov and Saebi (2008) also stated that Chinese firms become international to capitalize the know-how and managerial capabilities and skills of international players, therefore, they do partnerships with such players who could provide this to them.

4.12.Government Policy Constraints for Lenovo

To become international was not a smooth process for Lenovo. Being a Chinese enterprise, it faced numerous challenges from its home and host countries. For example, the interviewee told that:

“It is quite disappointing for the company that it has to face the unfavourable conditions from the home country government. The regulatory institutions are quite inelastic. They do analyse every case using the rigid policy books. They provide no flexibility to any company. Every request which is related to international market is scrutinised in a critical manner. This often discourage us to be involved in international transactions.”

From the above response, it could be analysed that Lenovo has faced similar problems like other Chinese enterprises. Xiao et al., (2013) stated that Chinese government is based on rigid regulatory frameworks and these are most likely to result in delayed entry of the firms in international market. the above response of the interviewee from Lenovo is also depicting the similar orientation of the China’s government.

Further to this it was also highlighted by the interviewee:

“Not all of the internationalization requests are approved by Chinese government. I would like to highlight that in 2001, the company wanted to enter into South Asian market. But this request was not approved that time. The company had to face a loss due to this lost opportunity. All planning which was done for this market was gone wasted.”

From the above analysis, it could be analysed that to enter in any new market is not easy. There are various hurdles which has to be faced by the firms. Without facing these hurdles, the firms cannot become global.

Other than the above arguments, the interviewee highlighted the policy constraints example when Lenovo had to become international in the market of Brazil. The below response was recorded during the interview:

“Chinese government is not always supportive for us. I remember that when we had to but DigibrasIndustria which is computer and gadget manufacturer of Brazil, China’s government delayed the process of approving the foreign direct outward investment. We had to wait for months before implementing the plan. This is somehow quite problematic for all of Chinese enterprises.”

This again highlights the bureaucratic process of Chinese government which is for the approval of international transactions (Cardoza et al., 2015)

4.13.CEO’s strategies for facilitating internationalisation process of Lenovo

According to Zhijun (2006), Lenovo selected the most effective method (i.e. acquisition) for its international growth and overseas market entrance. Though, this strategy decision to get IBM PCD has been given cautious deliberations in Lenovo. Lenovo almost declined the proposal of the acquisition approached initially by IBM since the top management of Lenovo supposed it was too dangerous in 2002. However, the interviewee further told that management decided that this decision could be favourable for it, therefore they opted for it. He said:

“We also consider this as an important chance to become a international PC manufacturer. After one year’s thought, study and learning from big corporations, we understood the prospects and issues connected to this agreement and decided to implement this acquisition. The tactical aim of Lenovo to implement the acquisition is quite strong. Primarily, the chief benefit of acquisition was that it delivers the firmest way to enter overseas markets and quickly shape the firm’s existence in these new national marketplaces.”

Therefore, consistent with the literature, the findings from this case study has also depicted that acquisition has helped the company to enter the international market in an easier manner. Therefore, to gain market share in the global market, Lenovo used this strategy of strategic partnership.

Further analysing the secondary data, it is found that Spooner and Kanellos (2004) stated that with the help of acquisition, Lenovo becomes the 3rd largest PC international company from an unpopular Chinese computer manufacturer and then created a huge step forward of going global. Additionally, acquisition delivers the great prospect to acquire valued assets of the acquired business. This is consistent with the previous findings of  Benn, Dunphy and Griffiths (2014) which highlighted the benefits of entering into international strategic alliances. The interviewee further mentioned that:

“By focusing on acquisition, Lenovo achieved the IBM’s worldwide market share, global management abilities, highest computer technologies and the exceptional capability of R&D, knowledgeable superiors and other workers and the global scope.”

Lenovo got great self-reliance on their capability of learning for captivating these virtues from IBM PCD (Xie and White, 2004). This showed that Lenovo has gained the competitive advantage after doing the strategic alliance with IBM. Hence, it has achieved that advantage which was not possible in any other manner, as showed in the arguments of Grant (2015).

4.14.Conclusion

In this chapter, both primary and secondary findings has been analysed for three selected case study organisations i.e. Huawei, Haier Group and Lenovo. Firstly, it has analysed the factors which has lead these case study organisations for internationalisation. Secondly, it has shed light on government policy constraints. Lastly, it has provided analysis of CEO’s strategies for dealing with the process of internationalisation.

 

 

 

5.Conclusion and Recommendations

This chapter has concluded the present research study. It first provides the summary of findings where it summarizes the key findings of this research. Further to this, it provides research limitations and future research directions.

5.1.Summary of Findings and discussion

There are many factors which has lead to the internationalization of Huawei. The motivation to learn and gain experience, increased competition, economies of scale, brand name, technological capabilities and favourable role of government has lead towards the internationalization of Huawei. Haier Group became international because of nature of its standardized products which could fulfil the need of global customers without modifications. Moreover, access to technological resources and access to cheap labour motivated it to become international. Similar to Huawei and Haier Group, Lenovo became international to gain access to better and advanced technological resources and get benefit from established brand name. Further to this, the know-how and managerial capabilities and skills of international players has also motivated Lenovo to become international.

Huawei faced many government level constraints due to the economic plans of China. For example, in certain time period, its planned economy became a hurdle for Huawei. Moreover, it is also found that, as a private company, Huawei has to face the unfavourable conditions from the government as compared to the other state-owned enterprises of China. Due to the nature of this company, Huawei faced many constraints from both home and host countries. However, it is also found that other than policy constraints, the government also played the positive role when a strong relationship was built with the government by Huawei. Like Huawei, planned economy system also proved unfavourable for Haier Group in 1980s. This Chinese enterprise also suffered from slow bureaucratic processes and strict regulations of the government.  The regulatory framework of China is quite rigid, therefore, Lenovo faced the difficulties in becoming international. Like other Chinese enterprises, the slow process of approval has also led towards the delayed entry of Lenovo in international markets. Therefore, it is important for Chinese government to ensure that its policies are favourable for internationalisation of firms. The identified weaknesses in the policy and strategy should be removed and policy must be improved by the policy makers.

CEO’s strategies of Huawei proved effective for the internationalization of the firm. It adopted the right time approach where it entered the international market before it was ready for internationalization. Few countries government wanted Huawei to enter through strategic alliances, therefore, it took help of local market players of respective countries for entering in the market. Moreover, it created joint ventures, acquisitions and strategic alliances to gain access to technological resources, distribution networks and other resources of the established international firms. Haier Group has partnered with many international market players for gaining access to certain skills, resources and expertise. Moreover, strategic partnerships are done to reduce the level of risks which are faced by the company. Likewise, Lenovo became able to become international with effective strategies of CEOs where they did strategic partnerships with the international market players. The successful acquisition strategy of Lenovo helped this firm to gain competitive advantage. Therefore, it is recommended to other Chinese enterprises that if they want to become international but they are facing policy and strategy constraints from the government of host and home country, then it should make appropriate alliances with the established international market players. Like Huawei, Haier Group and Lenovo, they can get benefits from such strategies.

5.2.Research Limitations and Future Research Directions

In this research, certain limitations are encountered. Firstly, this research is based on very small sample size of 9 managers from three organizations. Due to time and budget constraints, it was not possible to access more than 9 managers. To future researchers, it is recommended that they should conduct a similar research study using the large sample size. Secondly, this research is only based on the qualitative research methods. Though, these methods were most feasible for this research study. But the rigor and validity of the research findings could be improved using the quantitative research methods. Therefore, it is recommended to future researchers that they should explore the similar research phenomenon using the quantitative research methods.

 

 

 

 

 

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Zhijun, L., 2006. The Lenovo affair: the growth of China's computer giant and its takeover of IBM-PC. John Wiley & Sons.

 

 

Appendix

Interview Guide

This research is about the policy and strategy constraints for internationalisation process of Chinese enterprises. This research is about three organizations i.e. Huawei, Lenovo and Haier Group, and you are part of one of these organizations, therefore, your participation is valuable for this research. Please give us your valuable time and participate in tis research.

Interview Questions

  • Please provide the brief overview of your organisation.
  • What did you become international?
  • What were the factors which motivated you to become international? Please quote examples.
  • How did you become international?
  • What were constraints for becoming international? Please provide examples.
  • How host and home country’s government policies become a constraint for the internationalisation?
  • How you deal with these constraints?
  • What strategies were adopted by CEOs for the internationalisation process?

 

 

 


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