Hisense makes acquisition work
Chinese firms are moving up the value chain by shifting from being low cost manufacturers to branded, high quality producers as their research and development strengths grow.
In the process they are starting to acquire international brands to which they had previously sold products as original equipment manufacturers.
One example is the Chinese white goods maker Hisense, which acquired the refrigerator brand Fridgemaster in the United Kingdom in 2012, and used its existing sales force to build the Hisense UK subsidiary.
Before the acquisition, Hisense had been making refrigerators for Fridgemaster for about 10 years. As a result, it built a deep understanding of the Fridgemaster brand and good relationships with its employees.
Following the acquisition, Hisense continued to sell products under the Fridgemaster brand to existing outlets, but added its own product lines, which are premium products with more functions, selling at higher prices and branded as Hisense.
“We knew the brand very well and we already knew the UK market very well through working with Fridgemaster, so we decided on the acquisition,” said Louis Hou, managing director of Hisense UK Ltd.
With Fridgemaster’s existing team becoming its core employee base, Hisense grew very fast in the UK. Its UK revenue grew from 8.5 million pounds ($12.4 million) in 2013 to about 30 million pounds last year.
Meanwhile, Hisense has expanded beyond the refrigerator business by selling televisions in the UK.
Hisense added its latest 4K TV to its product range in the UK last year. 4K is a picture technology that quadruples the number of pixels found in a full HD picture.
Globally, Hisense is the third-largest producer of 4K TVs — which provide a crisper picture with 4,000 pixels of horizontal resolution. That is just after Samsung and LG.
Hou said Hisense’s international growth is a good example of a three-stage model of expansion that many Chinese white goods producers share. The first stage of expansion is producing as an original equipment manufacturer for Western brands, the second is selling its own branded products overseas through partnerships with local distribution partners, and the third is to manage branding and sales overseas itself.
Hisense reached the third stage in 2009 when it restructured its European business, focusing on setting up subsidiaries to market Hisense-branded products. This restructuring has led to the creation of subsidiaries in Italy, Germany and Spain, followed by the UK in 2012, which was aided by the acquisition of Fridgemaster.
Hisense grew out of Qingdao No 2 Radio Factory, founded by the local government in 1969. It established a globalization strategy in 2006, and it has built 16 overseas companies in North America, Europe, Australia, Africa, the Middle East and Southeast Asia. It remains a State-owned enterprise.