China’s Hisense makes move to give expansion a sporting chance

Although his name might not be a global household brand, Denny Hamlin, a driver competing in the US Nascar series, can boast a long list of accolades, including winning major races such as the Sprint All-Star, the Daytona 500 and the Southern 500.

In February 2015, Mr Hamlin achieved another claim to fame: that of becoming the first Nascar driver sponsored by a Chinese company, as Hisense, a Tsingtao-based consumer electronics manufacturer, signed a deal to sponsor his two races in 2015.

“[There are] a lot of similarities [between Nascar and Hisense]: the spirit of the game, speed of the car and the passion of the driver, everybody trying to challenge themselves to achieve a new level,” says Jerry Liu, CEO of Hisense North America, explaining why his company chose to get involved in the racing series.

Raising its profile

The kind of rhetoric that is typical for such announcements apart, the reasoning the move into sports sponsorship appears to be more prosaic. In the four decades since Hisense was founded, the state-owned manufacturer of televisions, smartphones and white goods has become increasingly active in developed markets and wants to be noticed by its potential client base.

Mr Liu says this became the case as overseas expansion moved to the centre of the company's growth strategy. “Hisense’s future is in the global markets and in order for us to expand and grow we have to be able to compete in any market,” says Mr Liu. “[This is particularly the case] when it comes to the US. We see the potential to win over younger consumers as we build a strong brand identity here.”

The company’s activity in the Americas in recent years has not been restricted to marketing efforts, however. In 2011 Hisense announced its plan to invest between $7m and $10m into a new R&D facility in Georgia, while in 2015 it bought the television arm of Sharp America, a US subsidiary of the Japanese electronics giant, for $23.7m.

Mexican boost

As a consequence of the Sharp deal, Hisense took ownership of a television production facility in Rosarito, a Mexican city located close to the US border. In 2016, the company announced that it would allocate an additional $30m to the operation.

The purchase and investments into the facility, which happens to be Hisense's biggest production base outside of China, are a direct response to the needs of American retailers, according to Mr Liu.

“In order to reduce risk, many major US retailers are holding a smaller inventory, while placing orders more frequently,” he says. “We invested in purchasing and renovating the facility in Rosarito to address these shorter shopping windows and increase our production efficiency.

“Thanks to the investment we increased production from 1.5 million TVs a year to almost 4 million and reduced our shipping costs for servicing the North American market,” he adds, while pointing out that since 2015 Hisense has increased its presence in US stores from 3000 retail locations to more than 10,000.

Target Africa and Europe

Since 2011, Hisense has also been growing its footprint outside North America, in Africa as well as Europe. In the case of both continents, the company has been increasing its visibility via sports marketing, sponsoring events such as the Cape Town Spring Marathon and the UEFA Euro 2016 finals.

Paired with this was a string of greenfield investments, including a headquarters and manufacturing facility in Cape Town, and in Europe, a production plant in the Czech city of Plzen; local headquarters in Roissy, a French city on the outskirts of Paris; and an R&D facility in Düsseldorf, Germany.

According to Mr Liu, the way to appeal to consumers in developed markets is through facilities such as the one launched in Düsseldorf. “First and foremost we are committed to innovation, as shown by our 12 global R&D centres,“ he says. “This enables localised product development and modernisation.”

He adds that the company invests 5% of its annual sales revenue of about $15.9bn in R&D activities.

Race for innovation

This might be a far cry from Samsung's $13.4bn spent annually on innovation or LG's $5.57bn announced in 2015, but Hisense does not shy away from challenging the market leaders. This can be seen not only in the company’s marketing efforts but also in its activity at 2016 International CES, the world’s largest consumer electronics conference, where Hisense announced 22 new TV models.

Its activity at CES did not go unnoticed by CNET, the world’s largest tech website, which has highlighted the company’s efforts to make a name for itself in the highly saturated television sector.

However, the article also says in terms of developed markets recognition, Hisense is not quite there yet. “If you have never heard of Hisense, you are forgiven,” wrote CNET’s David Katzmaier. “The big question is whether anyone will want to pay a premium price for a TV from a relatively unknown brand that, until now, sold mostly entry-level models.”

After all, despite being in business for nearly 50 years and holding the title of China’s most popular TV brand for more than a decade, when it comes to its international activity, particularly in developed markets, the company is a relatively recent arrival.

While Hisense’s Mr Liu points out to similarities between his company and Nascar, it should be noted the racing series’ popularity has been wearing thin in recent years. Hisense will need to continue its marketing and FDI push to avoid going the same way.