Case Study - Pearl River Piano Company HISTORY
Pearl River Piano Group (PRPG) was established in 1956 by bringing together 6 small piano shops in Guangzhou.
The group of 100 employees produced only 13 pianos that year.
After many attempts, Guangzhou Guangzhou technicians were finally satisfied with the tone color and quality of its first manufactured piano, and in a short time it was sold in Hong Kong.
It would be 20 years before the factory was able to prove its potential.
As a State-owned enterprise PRPG is accountable to the Guangzhou municipal government. Investments Investments from both Yamaha and Steinway & Sons have played a key role in the expansion of their production.
In addition, PRPG has bought the German piano brand Ritmuller and will be expanding in the European market. Guangzhou, Guangzhou, located at the north of the Pearl River delta, is an important trading center as well as a busy port and the capital city of the province of Guandong .
The city has an area of over 16,000 square kilometers kilometers and a population of 6.7 million. Guangzhou is also one of the most important centers of foreign commerce in South China. There are a lot of o f interesting legends concerning its past. One of the beautiful stories which gives the city its name Goat Town says that five gods riding on five goats brought the first grain to the city.
In 1959 PRPG consisted of a shed on the side of the street to repair pianos.
Later a shelter was built to process the wood. At that time the pianos were carried in a cart with men walking barefoot to the port.
During the tumultuous of Mao Zedong's Cultural Revolution in the 1960's and 1970's, few Chinese dared to buy a piano, which symbolized the West's decadent and bourgeois society. Learning the piano was frowned upon
INTRODUCTION
PRPG was a state-owned enterprise and was developed form an old piano factory in Guangzhou of China.
The piano factory is located Pearl River, so that the brand of piano is called Pearl River. Since the adoption of an open-door policy, China exploited a range of new opportunities provided by a market-oriented economy for expanding production, employments, and profits through free trade markets.
As a result, PRPG face a chance due to import technology and export products, and then they were expended to become Pearl River piano Industrial Corporation.
Their business become more successful after they merger with several small company.
In2000, PRPG had more than 130 strategic alliance through-outs the country, in addition to 208 sales units.
Q1
:
Drawing on industry- resource- and institution-based views, explain how PRPG, from its humble roots, managed to become China’s largest and the world’s
second largest piano producer. 1.1 Industry-based view
Rivalry among established firms may prompt certain moves. PRPG face some challenges, since piano is traditional European musical instrument, European pianos has a long history, and they always target upper market, such as Steinway.
PRPG will face a strong challenge when they target upper market. For example, although YAMAHA is the largest piano producers, they focus on medium and low-end market; however, Tong would like their PRPG become best brand, next only to Steinway.
In addition, PRPG not only import technology of piano making, but also learn and introduce western culture to them.
Higher the entry barriers, PRPG face the difficult entre in US market; the US people do not believe PRPG can make low price high quality products.
PRPG cannot easily target foreign people. US people stay loyal to their local product. The bargaining power of buyers may lead to certain foreign market entries.
In US market, there are many competitors, such as Steinway.
Steinway product always target upper market. Buyers may buy Steinway product, rather than PRPG.
1.2 Resource-based view
According to case 8, in 1960-1980, the factory had very low productivities, low competitive ability, even less than 100 labors and produce only 13 pianos per year.
The industry introduced total quality of management in 1988, and they also promote ISO 9000 in 1998.
Moreover, they built business partnership with YAMAHA via joint venture.
As a result, PRPG learned higher technology skill via business activities.
PRPG not only import technology of piano making, but also learn and introduce western culture to them.
Tong pay attention to communicate with their employees in order to build good “GUANXI”.
Tong also established close relationship with some famous world well-know piano players, and recommended they play their Pearl River piano in their concerts.
This is ‘celebrity's appeal’ strategy in order to target people.
Innovation included the importation of new technology in production and quality measurement and production innovation.
Production innovation can be concluded developing a wide range of pianos to meet the upper-, medium- and low-end market in order to target different consumers’ group.
1.3 Institution-based view
Regulatory risks - These risks are associated with unfavorable government policies. Since the adoption of an open-door policy, PRPG is allowed import high technology and export their products.
As a WTO member, the government’s has been encouraging local industries to learn from their
foreign partners.
Currency risk - China is becoming an export powerhouse, which caused the friction with other countries, United States in particular.
The U.S. senators urging the Whitehouse to exert pressure to China for RMB revaluation most recently and President Obama gave an official statement to point out RMB should be appreciated.
China’s direct response to RMB rate issue can be found in Premier Wen Jia Bao’s answer in the press
conference just after the NPC&CPCC* this month in Beijing.
Premier Wen claimed RMB is not raise in value by presenting China’s increased figure of imp/expo absolute value in 2009.
Q2
:
Why did Tong believe that PRPG must engage in significant Internationalization (instead of the current direct export strategy) at this point?
China is a country with a huge exporting activities, recently it is changing its exporting mode which from low-wage and low-labor-cost advantage towards high-tech, high-value-added exports.
Pearl River Piano Group, a state-owned company in China, had been stimulated from a slow-moving Chinese firm founded in the 1956 to a booming global company with growing sales in domestic market and international market. While it has a good performance in the low-end product segment in the international market, there was an issue about whether Pearl River Piano could be a well-known global brand by ascending to the mid-high product segment, and whether it could achieve sustained growth by building a reputable and high-quality brand name in the world.
2.1 Direct exports
Direct exports represent the most basic mode of entry, which capitalizes on economized of scale in production concentrated in the home country and affords better control over distribution.
However, if the products involved are bulky.
This strategy essentially treats foreign demand as an extension of domestic demand, and the firm is geared toward designing and producing for the domestic market first and foremost.
While direct exports may work if the export volume is small, it is not optimal when the firm has a large number of foreign buyers.
2.2 Dissatisfied of the Pearl River piano progress
The company established a joint venture with Yamaha in 1995.
Through this partnership, PRPG learned how to make a world-class and high quality product.
By the end of 2000, PRPG was the largest piano builder in china, the second largest in the world, with an annual production capacity of over 100,000 pianos.
The company had more than 4,000 employees with a total asset value of approximately $130 million.
Also it diversified into other musical instrument, and contains more than 50% of piano market in China.
However, Tong did not satisfy this progress; he thought thePearl River piano could be a world class brand.
2.3 Competition in domestic market
Hundreds of private companies began entering the market and competing with their low quality and low price products.
Such as the old well-known brand Star Sea and NiEr, and numbers of emerging piano builder company with low price products.
2.4 Future prospects of PRPG
According to the case, Tong believed that the company could survive by themselves in domestic market; however it is impossible for an entrepreneur to stay in the same position permanently.
And he thought that the company had made some successes, but it is not enough for a company to stay in the good position.
The company is still developing and it needs to extend business in the global market in order to satisfy company’s strategy.
2.5 Challenges in international market
When compared with other Chinese piano builders, PRPG had gained some experience in exporting.
Tong believed that although the piano market in the US was
international market, there was an issue about whether Pearl River Piano could be awell-known global brand by ascending to the mid-high product segment, and whether it could achieve sustained growth by building a reputable and high-quality brandname in the world.
mature, PRPG could still take advantage in the market. Because US have a high levelof labor cost, PRPG could take advantage of cheap labor cost in China with high levelof product quality to gain market position in US market. On the other hand, it isdifficult to enter into the US market. If company want to extend business in USmarket, firstly PRPG need to introduce the US partner to the Chinese market, as anexchange for its entry to the US market. Finally, PRPG established a sales subsidiaryin the US market for further expands.
2.6 Building world class brand
Direct exporting could be an efficient way for company to make sales, but it only suitable for a short term development.
Q4
For long term, PRPG must build its world class brand and provide high quality product to target upper level markets in order to maximize profit for sustainable development.
:
Again, if you were one of those professors, what method would you have to suggest as a way to tackle the US market?
Method has been talked before: Joint ventures Nowadays, joint ventures have been the main form of foreign direct investment (FDI). 4.1 Problems to tackle the US market: 4.11 How to get a partnership with local company?
US don't believe Chinese company can make good quality and cheap price products. They don't trust overseas company.
They consider Chinese company as a competitor more than a partner.
4.12 Administrative requirements:
US government wants their own people to benefit from industrialization.
So they push foreign investors to ally with local firms before granting access to market.
4.2 Suggestions:
4.21 Share ownership with US companies: Increase the trust each other Goal: encourage some ethnic citizens to participate in industrial development.
To achieve this goal: Introduce local culture and piano history to the cooperation.Invite top leaders of US co-optations to visit PRPG factory in order to let them knowthe higher handcraft skills and local culture we have. Also organize some local pianoleaner to have a music concert to let US cooperators to listen to the sound of the piano. If they got interested in the partnership, tell them when they join us, in return,they can get a part of profit for being participant in the industrial development. 4.22 Staffing joint ventures: Joint ventures require managers with political andcultural skills as well as technical competencies. Foreign managers usually bringcultural complexity to the company. Goal: For Chinese managers to get knowledge form the local environment, tosynthesize and spread learning experiences to each relevant department in their partner company.To achieve this goal: when they got the partnership, invite some foreign managers andemployees from the partnership to build a mixed cultural in the company. This willhelp a company to learn and integrate into the local business environment quickly.And also to well organize the corporation itself which helps to get much more easy toget access to compete with the US market.
