TRƯỜNG ĐẠI HỌC NGÂN HÀNG TP.

HỒ CHÍ MINH
KHOA KINH TẾ QUỐC TẾ


BÀI TẬP NHÓM

Case 8: Pearl River Piano Group’s

International Strategy

MÔN: CHIẾN LƯỢC KINH DOANH QUỐC TẾ

GV: THS. NGUYỄN XUÂN ĐẠO
LỚP: D01

TP. Hồ Chí Minh

Năm 2021
 DANH SÁCH NHÓM

STT HỌ VÀ TÊN MSSV

1 Vũ Nguyên Hà 030633171264
2 Bùi Thị Thúy Hoa 030632163326
3 Nguyễn Thị Kim Ngân 030633170029
4 Hoàng Thùy Phương Mai 030633170013

2
 Pearl River Piano Group’s
International Strategy
Yuan Lu
Chinese University of Hong Kong

I. SUMMARY:
1. Company Background.
PRPG started as a state-owned enterprise that was developed from a piano
factory. In the beginning, the factory did not have many employees and its capacity
was limited. Also, the production procedures involved manual skills.
In the early 1980s after the Chinese government decided to embark on economic
reforms. The factory was granted for imports and exports, which encouraged it to
search for partners and markets abroad. It became the first piano builder in China to
import foreign technologies and expatriate experts. The factory developed to become
Pearl River Piano Group Corporation.
2. 1992 to 1999: Tong’s Strategy
Tong joined the piano factory when he was young. He experienced a variety of
jobs in piano making process before appointed CEO. After Tong assumed the CEO
position, he introduced two strategic pillars: innovation and quality.
Innovation included the importation of new technology in production and quality
measurement and product innovation by developing a wide range of pianos to meet
the upper-, medium-, and low-end markets.
The second strategic pillar was to enhance quality. The company introduced
Total Quality of Management and was certificated ISO 9000. The company
established a joint venture with Yamaha in 1995 to make key components and then
become a key supplier to Yamaha in China. Through this partnership, PRPG learned
how to make a world-class, high-quality product.
Tong realized that two strategies were perhaps not enough to make his products
competitive with Western-built pianos. Since a piano was traditionally a European
musical instrument, it was imperative that a Chinese piano builder, such as PRPG,
identify a distinctive position in the marketplace to win the competition.
3. Chinese Pianos with Western Cultural Properties.
Piano builders can be categorized as those targeting upper-, medium-, and low-
end markets. The United States became an important piano building base as well as a
large market, for example: Steinway pianos were usually regarded as the best in the
world. But this company only produced about 2,000 pianos a year.

3
 Many piano builders focused on efficiency, which was achieved through large -
scale production. For example, Yamaha, which has production capability could reach
over 150,000 sets a year. Companies positioning themselves to target the medium -
and low - end markets competed primarily on price.
PRPG adopted the second strategy and focused on the mass customer market as
its dominant niche. However, Tong's ambition was to produce the best pianos in the
world like Steinway. To achieve this goal, he had to make his pianos better than the
products of most overseas piano builders and make his pianos sound like European
products and project an image of "European culture".
Tong invited 7 foreign expatriates as consultants and advisors who make
employees and managers understand technology and the Western culture associated
with pianos. Moreover, Tong stressed the necessity to maintain manual work in key
production procedures. He said: “The best piano should be made by heart not by
machine”. To make handcrafted pianos, Tong trained 100 highly skilled technicians
who tested and adjusted every product manually.
4. Building Sales Networks and Brand & The Internationalization Challenge.
Talk about the strategies that Tong - director of PRPG company uses to build
relationships and his branch network for the company's growth. Although Tong’s
company is a very strong company and dominates the domestic market, Tong still has
a strategy to penetrate foreign markets, participate in the globalization process to
expand the company when realizing the risks from competition of rival companies in
the market and the desire to build a strong, global - reaching empire.
Strategies that Tong has adopted include: direct export of goods abroad; joint
venture - cooperation with foreign companies; to open a subsidiary in foreign
countries. However, these strategies face many barriers and risks under habit -
consumers' thinking, sharing of benefits in business are highly appreciated as well as
the lack of understanding of foreign penetration has led to the panic of the PRPG
company manager in finding the right business strategy and well performing the
public purpose of penetrating foreign markets that Tong wanted.

II. CASE DISCUSSION QUESTIONS:

1. 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.
- Industry - based view: 
+ China decided to embark on economic reforms which allowed companies to
import and export. 
+ PRPG imported technologies and expatriates that helped it to expand the
company.

4
 + The average income in China is not as high as in Europe so the price for a piano
from a European piano builder was considered expensive for Chinese people.
The fact was that PRPG developing a wide range of pianos allowed them to
approach various types of customers.
- Resource - based views.
+ PRPG collaborated with various companies through international joint ventures
and the employment of foreign technical experts. In 1995 PRPG form a joint
venture with Yamaha which created a good opportunity to gain more input on
product quality and further upgrade its operation. They used consultants from
Europe and the U.S to share their knowledge. For example, David Campbell, the
former technical manager for Steinway& Sons, has been the company consultant
since 1987.
- Institution-based views.
+ China’s population company density was high and the one-child policy in some
ways encouraged Chinese parents to spend more money on the education of their
child. That created a large market for the PRPG.
+ PRPG’s goal was to expand and compete successfully overseas. So the company
focused on how to improve their product quality to meet the exacting standards
of the European and U.S markets.
+ PRPG decided to use a strategy of self-branding in western markets, as well as
export under its name. Unlikely, most Chinese Multinational Enterprises
exported their products to Western countries but labeled their products with the
brand name of the purchasing company.

2. Why did Tong believe that PRPG must engage in significant

internationalization (instead of the current direct export strategy) at this
point?
The reasons why Tong believe that PRPG must engage in significant
internationalization at this point:
- To build Pearl River Piano as a world-class brand.
Direct exporting could be an efficient way for company to make sales, but it only
suitable for a short term development. 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.
- Due to 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

5
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.
- Due to tough competition.
Hundreds of private companies began entering the market, each vying for the
same market niche in low quality and price products. With over 140 new competitors,
PRPG watched its domestic market sharedeteriorate rapidly, dropping from
approximately 70% to 25%. Complacency, while not implicitly leading to PRPG’s to
failure, would not allow for any growth or success.
- Cause Tong worried of the future prospects of PRPG if don’t go global.
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.
- 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
mature, PRPG could still take advantage in the market. Because US have a high level
of 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 is
difficult to enter into the US market.
If company want to extend business in US market, firstly PRPG need to
introduce the US partner to the Chinese market, as an exchange for its entry to the US
market. Finally, PRPG established a sales subsidiary in the US market for further
expands.
3. If you were one of the professors who visited Tong in March of 2000, how
would you have briefed him about the pros and cons of various foreign
market entry options?
As for the three strategies that Tong has used to expand and enter markets, each
has its own advantages and disadvantages.
- For the first way is to enter by exporting directly to foreign countries:
The advantage is quick capital recovery; direct contact with foreign markets so
the company can grasp the market situation and market demand, and then have a plan
suitable for each specific market to improve business efficienct; actively respond to
new developments in the market. But this way still have problems as: the distance
between the buyer and the seller is very large, so when doing the trading, it can

6
happen many unforeseen risks. For example, the risk occurs because the company is
not really knowledgeable about products, partners and markets. In direct import and
export, there is also a very high risk if the company is not knowledgeable about
products, partners and markets. Because it is possible that in the domestic
environment, these factors are favorable and successful, but not necessarily successful
in foreign markets. Seller is very large, so when doing the trading, it can happen many
unforeseen risks. The background direct import-export is used when and only if:
Enterprises are willing to invest in research and marketing, learn carefully about
products, partners and markets; the company has a team of staff experienced in
international trade relations, knowledgeable about import and export operations and
processes, fluent in languages, customs, domestic and international laws.
- For the second way is to enter by cooperation - joint venture:
Cooperation - joint venture will have the following advantages, it can provide
expertise in local markets, access necessary distribution channels and access to raw
material supplies, government contracts and production facilities local; the joint
venture allows companies to share technology and complementary intellectual
property assets related to innovative products and sẻvices; an effective way to get the
capital needed to enter new market joint ventures can be used to reduce political
tensions as well as improve local/ national acceptability of the company. About
disavantages of this way: conflict in sharing economic benefits and customers leads to
difficulties in finding partners to do business for a long time. Joint venture can lead to
conflict among partners as the parent company tries to impose limits or even direct the
use of cash and working capital, foreign exchange management, amount and means of
payment of profits; another important issue is when the partners' goals become
conflicting. For example, multinational firms may have a radically different attitude to
risks than local firms and may be prepared to accept short-term losses in order to
develop market share, subject to credit losses. Higher debt or more cost for
advertising; issues related to the management structure and multiplier of the joint
venture; many joint ventures fail because of a tax income conflict between the parties
involved.
- For the third way is to enter by opening a subsidiary in foreign countries:
Advantages of parent - Child company model: the legal status of the parent
company as well as the subsidiary is independent, so the subsidiaries promote
creativity, autonomy and decision-making freedom to solve problems faster at the
company; this model allows businesses to be more proactive in arranging and
reallocating their investment structure in different areas according to their
development strategy by buying or selling their shares in the subsidiaries; dominate,
expand and consolidate the market, get more profit; It is possible to form a
corporation to increase competitiveness and disperse risks. With this model, the parent
company will certainly manage its subsidiaries more closely. The parent-subsidiary
combination model has some advantages as above. However, the development of this

7
model also has some limitations. Specifically: the group can become an exclusive
investor, easily causing market manipulation and adversely affecting the general
business environment; due to the independence and autonomy in production and
business activities, the subsidiaries compete with each other, affecting the general
interests of the whole group; the more attention to production and business efficiency,
to strictly research and apply science and technology can lead to the risk of job loss of
employees; subsidiaries may be dependent on the parent company, making it difficult
to pursue other corporate purposes.
4. Again, if you were one of those professors, what method would you have
suggested as a way to tackle the US market?
- THE FIRST goal must target the US market, direct investment in foreign
markets (FDI). Help ensure a large amount of domestic capital, production levels and
job opportunities in developing countries. At the same time, increased production
efficiency due to competition from multinational subsidiaries and improved
infrastructure and technology.
PRPG should participate in music events, exhibitions as a sponsor, invite famous
pianist to advertise the product.
- THE SECOND is the alternative approach, companies can approach the best
alternative based on their strengths, weaknesses, and level of efficiency.
+ Assembling: By this method, Pearl Company will domestically produce all
components or parts of the product and transfer to the US to assemble the
finished product. The company will save a lot of money on shipping costs and
tariffs, often lower on unassembled equipment compared to finished products. It
also employs local labor, facilitating integration into foreign markets.
+ Strategic alliance: It reduces tax-related costs and eliminates cultural problems.
In the US market, Pearl River Piano is considered to be one of the weak
companies. If Pearl merges with one of the strong companies based in the United
States in pursuit of a common goal while remaining independent, the company
may succeed in penetrating the US market.
+ The company should establish a team of experts to conduct market research in
the US. A detailed report should be prepared on the following areas: annual
piano sales for current companies, available market segments, customer tastes
and preferences, photo factors influencing their tastes and preferences, the
companies that operate in the US market top and the strategies they use.