International business strategy and Chinese musical instruments

By Grant Hall. Founder of League Cultural Diplomacy

This post is part of the Going Global segment of where words fail

Some years ago in Australia, someone stole my expensive American guitar from the boot of my car. I bought a Pearl guitar as a replacement. Pearl guitars represent a diversified line of products from the Pearl River Piano Group. The Pearl guitar looked and felt like my old guitar, and sounded 75% as good, but only cost about a tenth of the price.

The Pearl River Piano Group is an example of a Chinese company that has become a successful global brand.

There is plenty you can learn about the implementation of international business strategy from the Pearl Company if you are hoping to venture overseas in your quest for business growth.

Viljoen and Dann offer the following definition of strategy in their book Strategic Management:

The process of identifying, choosing, and implementing activities that will enhance the long-term performance of an organisation by setting direction and by creating ongoing compatibility between the internal skills and resources of the organisation, and the changing external environment within which it operates^{^[1]}

If you want to follow in Pearl’s footsteps and internationalise, it’s worth looking back on where they’ve come from and how they implemented international business strategy to arrive at where they are today.

Lu Yuan, professor of management at the Chinese University of Hong Kong Business School analysed Pearl’s market position in China before they commenced operating abroad. He pointed out that whilst ‘there was room (for Pearl) to grow in China’, that competition had ‘become tougher than a few years ago’ as ‘hundreds of private companies began entering the market and competing with their low quality and low price products’[2].

It was clear that Pearl had to start selling overseas in order to grow.

Pearl’s CEO at the time, Zhicheng Tong, said that ‘the company could still survive (by staying in China) under some constraints’, and pointed out the prospects of organisational stagnation should Pearl remain solely in China. He said:

It is impossible for an entrepreneur to stay at the same position permanently[3].

As a business owner myself, I wholeheartedly agree.

Tong’s plans for globalisation of the Pearl brand demonstrate how the aforementioned definition of strategy works in reality.

Importantly, Tong knew the changing business environment in which the company operated. He defined Pearl’s core capabilities (making high quality instruments at a lower cost than Western rivals) and he identified, chose and implemented an activity that would enhance the long-term performance of the organisation, namely internationalisation of the company.

To commence Pearl’s globalisation strategy, Tong implemented a direct export strategy to the USA. This was not a risk-free venture, but Tong engaged with risks that he had already identified, such as how forming a partnership with an American piano builder might create a new rival in the crowded Chinese market. He realised that this direct export strategy alone would not necessarily guarantee the long-term performance of the organisation, warning that it only ‘might be effective in the short run’[4] and declaring the venture as a ‘stage to build the Pearl River Piano brand name internationally’, a starting point to ‘do something else in the long run’[5].

Now, some years later, according to their website, the Pearl River Piano Group:

is the largest piano manufacturer in the world
is the best selling piano brand in China and has exported to more than 100 countries and regions
is now a world-famous brand with a retailer network that spans the world, with sales accounting for 28% of the Chinese market, 18% of the American market and 15% of the European market
has a factory that encompasses 1.3 million square feet and stands 7 stories tall and has the capacity to build over 100,000 pianos a year
employs over 3,500 skilled technicians within a network of factories, foundries, lumber yards and saw mills – the 90,000 square foot testing and engineering labs employ 106 technicians[6]

Pearl achieved success through applying international business strategy.

If you are serious about your international market venture, you need to investigate and apply some of the international business strategies that are available to you.

One such strategy is Pankaj Ghemawat’s ADDING Value Scorecard[7]. Ghemawat is a leading international business academic and someone whose thoughts you should get to know.

A Get Off The Drawing Board blog written by Sravan Ankaraju summarises Ghemawat’s ADDING Value strategy, saying:

The ADDING Value Scorecard is a framework to help companies assess whether a particular strategic move makes sense to add value to the business both locally and globally[8]

The acronym stands for:

A– Adding volume, or growth
D– Decreasing costs
D– Differentiating or increasing willingness—to—pay
I– Improving industry attractiveness or bargaining power
N– Normalizing (or optimizing) risk
G– Generating and deploying knowledge (and other resources and capabilities)

Pearl achieved success through applying all of the above ADDING Scorecard activities.

Let me provide just a few examples:

Through the sheer quantity of instruments Pearls produces and utilising comparatively low-cost labor, they have both added volume and decreased production costs
They have differentiated on price because their instruments approach the quality of those made by high-end instrument makers but are available to consumers at a much lower price
They have generated knowledge through partnerships with other instrument makers such as Yamaha and Steinway

These strategic advantages didn’t come about by accident – they were strategic decisions based on known international business strategies (like Ghemawat’s ADDING Value Scorecard) that are available to you in your quest for international business growth.These strategic advantages didn’t come about by accident – they were strategic decisions based on known international business strategies (like Ghemawat’s ADDING Value Scorecard) that are available to you in your quest for international business growth.

Stay tuned to the Going Global segment of where words fail where I will introduce you to more successful global companies and outline the international business strategies they implemented to reach their success abroad.

Today I’ll leave you with an enjoyable promotional video from Pearl that details the history and successes of the company and contains some wonderful piano music.