HAIER: TAKING A CHINESE
COMPANY GLOBAL
Group: 9
Hunny Agarwal
Hakim Datawala
G. H. Krishna
Sushant Mondal
Abhishek Parekh
Anirban Sengupta
(102)
(115)
(118)
(137)
(142)
(150)
Haier Group: Highlights
Number one company by Asian Wall
Street Journal
China’s largest Home Appliance
Manufacturer
Largest Player in the compact
refrigerator market worldwide
Brand “Haier” is recognized worldwide
Haier Group: Challenges
Declining Profit Margins; from 9.4% to
2.6%
Overcapacity of white goods in Chinese
Markets
Defending its market share in China
Increasing its global presence to
generate $1 billion sales to US
Haier Timeline
• Haier started by taking over ailing Refrigerator Plant
1984 • Entered into JV with German company ‘Liebherr’
1985
1988
• Crossed the threshold of RMB 1 million
•Gold Medal for Quality in Refrigerators and establishment as a premium brand
•Overcame issues of oversupply
1991 •Takeover of Quindao Air Conditioner Factory and Quindao General Freezer Factory
•Company renamed to “Haier Group”
1992 •Took over 500 acres of Quindao land for industrial park at cost of RMB 51 million
1993
1995
•Listing on Shangai Stock Exchange for refrigerator division. (Dilution of 43.7% stake)
•Took over ailing Red Star washing machine company for RMB 132 million in debt and aced the Washing Machine Market
•Acquisition of Yellow Mountain Electronics
1997 •15 companies had been acquired
•Operational Restructuring started in all companies. All companies made into profit centers.
1998 •Development centers envisioned- Capital Flow (Finance), Commerce Flow (Sales), Material Flow (Logistics), Overseas (Global Operations)
Differentiating Competitive Strategy of
Haier
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Haier gains competitive advantage by the adoption of a “strategy of
diversification”. The company strives to be a leader by using innovative solutions in
terms of technical specification and in design and creativity.
Haier is different from most other Chinese manufacturers, whose aim is only to
export and earn foreign currency – they produce and sell OEM products, i.e.
without an own brand policy.
Haier enters new markets overseas, the demands of local consumers are its starting
point. So the company insists on a strategy of localization in overseas markets
For example, in Europe, Haier is adopting a ‘three in one’ strategy – localized
construction at a factory near Venice, Italy, a design centre in Paris and a sales
centre in Milan.
In order to improve its own key competitive ability, Haier started a business flow
restructuring in 1998 and improved significantly the company’s feedback speed
from the market, reducing operating costs and increasing competitiveness in the
market by this restructuring.
Haier In Chinese Market
Haier was the only company
with leading shares across white
good sectors.
2002(%)
2003(%)
2004(%)
Haier
26.7
26.2
28.2
Guangdong
Kelon
13.4
12.4
10.8
Henan Xinfel
8.5
8.5
8.9
Haier
25.8
25.7
30.4
Wuxi Little
Swan
20.7
18.8
16.5
Hefei
Rongshida
Group
10.6
10.0
10.6
Haier
16.3
16.6
17.5
Midea
10.9
10.9
11.4
Gree
7.4
9.1
10.0
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Haier was dominant in the RMB
48 billion refrigerator and
freezer market, which
accounted for about 38% of all
white good sales in China.
Refrigerator
market
•
Haier’s share in country’s
refrigerator market was 27% in
volume and 52% by revenue.
Washing
Machine
Market
•
Analysts estimated that the
company accounted for 61% of
industry profits.
•
AC Market
National Competitors
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In 1989,100 refrigerator producers are there which had been reduced to
20, with the 10 largest accounting for 80% of the market
Leading domestic players failed to reach their growth potential due to
many money-losing small competitors, who sustained by regional
government’s budget
Protecting factors for Haier are diversified holdings, its differentiated
products and its export strategy
Guangdon Kelon-one of national competitors are only manufacturer of full
line of home appliances. Kelon thus followed multi-brand strategy in China.
Kelon’s new management had a new strategy to target China’s rural
population and sold a million units of low-priced brand in first year of its
operation
Haier already had a strong presence in rural market but they did not
target specifically rural segments with different pricing strategy
Foreign Entrants
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After Chinese entry in WTO in December, 2001, Haier faced competition
not only from local brands but also from foreign competitors like Siemens,
Electrolux, Samsung, LG, Matsushita, Sony, GE and Whirlpool
Many MNCs target emergence of a replacement market, specially high-end
market in large cities
Companies need to have a well informed sales and marketing network to
capture untapped Chinese market
MNCs underestimated Chinese competitors and expected competition to
come from other newly arrived foreign firms, instead, they faced biggest
competition from Haier and Kelon, because of equally good technology
and lower price
Foreign brands refrigerator unit sales represented 31% of Chienese market
in 2002, from 26% in previous year. Automatic washing machine sales
accounted 38% of total sales, up from 31% last year
Haier has advantage of local knowledge- aware of Chinese culture and
values
Retail Channels for Haier
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Before 2000, Haier’s customers were mostly state-owned department
stores, by 2004, appliance sales had moved out of the department stores
and into individual specialized shops and private retail chains
Distributors are major domestic chains as well as international retailers like
Wal-Mart and Carrefour
Introduction of Western retail models to China’s major cities coincided with
the arrival of foreign multinational appliances brands like Siemens and GE
WTO-mandated opening of rest of China to foreign retailers by the end of
2004 threatened to erase domestic firm advantages beyond the first tier
cities
Haier has advantage of successfully tested sales approach to work on a
non-uniform population, unlike in European market, where rural and semiurban market is dominated by domestic or international hypermarkets
Haier Market Advantages
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Haier Products commanded 20% Premium over
other brands, still a leader in sales.
Haier has superiority in majorly 3 areas
 Market
responsiveness
 Distribution
 After sales service
Haier Market Advantages
After sales
service
Market
Advantages
Market
Responsiveness
Distribution
Haier Market Advantages
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Market Responsiveness
 Focus
on meeting customer’s needs
 42 divisions act as individual companies
 Creating innovative machines like Single wash, Potato
washers
 Meeting Local demand at home and abroad with
Innovative models
Haier Market Advantages
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After sale Service
 Pioneered
after sale service concept in China
 5500 independent strong contractor network
 National hotline customer service
 Free of charge replacement, low costs on repairs
Haier Market Advantages
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Distribution
Haier Logistics pioneered JIT concept in China in fields of
packaging, raw materials, delivery and product distribution
 reduction of inventory cycle from 30 days to 7
 More focus on supplier reduction from 2300 to 1000
 Utilized growing infrastructure
 Teamed up 300 transport companies to deliver goods
 Upfront cash created good cash flow for Haier
 Haier reorganized its logistics to server entire group unlike
others
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Haier Market Advantages
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Having economies of scales reduced Logistics costs
to minimum
Haier has invested lots of time, energy, money in
creating distribution, overcoming chinese
bureaucracy.
Haier was more localized than other companies,
which can be overcome easily.
Haier recognizes these are tangible benefits and
other competitor can acquire these benefits by
outsourcing logistics.
Haier in International Markets
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Revenue generated should involve Zhang’s “three thirds” goal
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1/3rd from goods produced and sold in China
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1/3rd produced in China and sold overseas
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1/3rd produced and sold overseas
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Creation of Haier’s Overseas Promotion Division in 1999 led to rapid
growth in international sales.
Haier started to venture into overseas market as a contract
manufacturer for overseas brands
It entered into a JV with Mitsubishi to set up China’s largest AC plant
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It was one of the first Chinese co’s to engage in FDI by setting
up a refrigerator and AC plant through a JV with a local firm.
Haier entered Europe in 1997 by producing AC’s in Belgrade.
In Germany, when Haier’s “Blue Line” refrigerators beat local
firm Liebherr in a ranking , Germany became Haier’s first
export market.
In 1997, Haier formed a JV with LKG to manufacture Haier
branded products in Philippines for sale in regional market
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Haier started focusing on selling its branded products overseas
Haier’s philosophy – “ To export in order to establish a brand
reputation overseas unlike other Chinese firms who were
interested in exporting products to earn foreign currency”
Chinese firms exported products under an OEM client brand as
they were associated with low quality in US and other countries
Haier tried emulating strategies of Sony, Samsung, LG while
expanding into international markets
LG was the most likely model for Haier
International Strategies
Focus in the
difficult
market first
Staff with
locals
Begin with
the niche
products
Focused on difficult markets first
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Home markets of larger global competitors
Highest quality standards
Requirements of retailers and customers are
tough to meet
Build a prestige and arrive with a ready made
reputation in South Asian Market
Zang said “ If we can compete in mature market
with brands as GE, Matsushita, Philips, we can
surely take the market of developing countries
without much effort”
Begin with niche Products
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Started with few models without directly confronting
the competitors
Compact refrigerators for students and offices
30% market share within 3 years.
Attention from Wal-Mart and Best Buy
Introduction of regular product
Staff With Locals
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Local people know the market very well
Identify a local person with experience preferably
in a leading white goods firm, to head the country
operations.
The person will hire a local team and set up sales
and distribution network
Eventually they will place their own people in key
positions to get better market intelligence
International Divisions
Haier
China
Overseas
America
(N&S)
Europe
Middle
East
South
East Asia
East Asia
Contd.
Haier Products , 80% in white goods sold :
 62 distributors, 30,000 retailers, 59,000 sales
agents, 12,000 service personnel
 Operated 18 design institutes, 13 overseas
factories, 11 industrial complexes.
Haier America
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Entered US market in 1994 with compact
refrigerators captured 10% market share
Michael Jemal, import company Welbeilt
appliances
Joint venture ‘ Haier America’ with Jemal in 1999
Rented space in Manhattan , 13 people all
American except for the accountant
Established $40 million Industrial park and a
factory in south Carolina
Strategy in America
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To manufacture quality products and sell at
premium
Focus on getting Haier products into large retail
chains- Home Depot, Wal-Mart etc
Focus on niche markets helped to avoid competition
from GE, Maytag, Frigidaire
Haier in Europe
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In 2000 Haier Europe headquartered in Varese, Italy, began
coordinating sales an marketing in 13 European countries growing upto
17 in 2004.
Product line included refrigerators,freezers,washing
machines,dishwashers,microwave ovens and small appliances all
designed for the European market.
In 2001 Haier invested $8 million to acquire a refrigerator plant
in Padova,Italy,manufacturing built in refrigerators and freezers.
In 2002 Haier A/C Trading began distributing air conditioners in the
local market.
By 2004 Haier had an estimated 10% share of European air
conditioner sales.
Haier’s headquarters in Varese coordinated logistics by 4 distributions
center’s in Italy,Spain,UK and the Netherlands.
Haier in India
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Haier earmarked India as a potential high growth market, and
invested heavily in building up production, distribution and sales
capacities in the country.
In 1999 it formed alliance with Indian appliance firm Fedder Lloyd
Corp to jointly produce and market refrigerators nationally.
In Jan 2004 it launched a broad range of products with the goal of
becoming one of the top three white goods firms in India within 5 to 7
years.
In 2004 it announced a $200 million investment over 4 years to
establish a refrigerator factory and R&D center that would serve as a
production site for South Asian and African markets,
In 2004 Haier formed an alliance with Whirlpool and Voltas to
manufacture refrigerators and air conditioners for the Indian markets.
In India Haier used local human resources to establish business
The Next 20 Years
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Haier faced a number of challenges in the coming years including moving
beyond niche markets in the US to its goal of introducing a full line
products.
Haier did well in small scale industries but there were doubts whether a
Chinese company could break into major leagues because it was a new
Company.
In 2005 Haier was spending about 10% of revenues of global branding
and marketing, more than double the industry average.
The company planned to combine its expertise in white goods with
information technology relatively new area for Haier to produce intelligent
home appliances.
It planned to get there one step at time securing market leadership at
home in each sector and then taking it globally.
Haier’s long term goal was to achieve one-third domestic sales, one-third
exports and one-third produce and sold abroad.