Haier

Haier: Taking a Chinese Company Global in 2011 Ton Nu Lan Anh (Dalena) 201403003 JinHee Yang 201200081 Nursultan Dyussenbekov 201100058 Seungbum Ryoo 201000046 SolBridge International School of Business Special Topics in Global Business MIB475B December 20, 2014

Haier and Its Success in China Haier’s success story started with the company’s high commitment in product quality. CEO Zhang Ruimin signed a technology licensing agreement with German refrigerator maker Liebherr. Haier imported freezer and air conditioner production lines from Derby of Denmark and Sanyo of Japan, also implemented joint ventures (JVs) with Japan’s Mitsubishi and Italy’s Merloni. These activities were a starting point for Haier to learn and acquire technology know-how to produce high-quality products. Besides, Zhang believed that commitment to product quality should percolate down to the lower level as well. To get workers to understand commitment to product quality, Zhang once pulled 76 fridges out of the line, ordering staff to smash any defective products even at a minor level like scratches. Eventually, in 1988, Haier won gold medal for quality in China. The company’s success also resided in product innovation. In Sichuan province, Haier created washing machines for washing clothes, sweet potatoes, and peanuts. For a muggy summer in Shanghai, a tiny washer was invented to clean a single change of clothes. The product introduced in Shanghai then succeeded in Europe. Haier was an opportunity catcher. In 2001, less than 20 percent of household in the rural Chinese market owned a refrigerator. Haier took advantage of being a domestic player to design products solely for these second-line and third-line markets. In 2002, Haier achieved 61 percent of refrigerators and freezers industry profit ranked as China’s leading company by Asian Wall Street Journal. Haier attained operational efficiency through Haier logistics coined in 1999. That enabled Haier to save transportation costs and improve the entire process, from initial order to final product delivery, from 36 days before 1999 to about 10 days in 2004. In terms of service center, Haier was a pioneer in 1990 to develop computerized system in Qingdao to serve after-sale service, receiving positive responses from consumers. In rural marketplace,

Haier sought to enhance in store traffic via establishing community-gathering spaces, in which children can come to do homework and non-Haier-branded household products can be brought for repairs. Lastly, Haier occupied market responsiveness approach with its “self-managed teams” called zizhujingyingti (ZZJYT). Each team comprises of nine to thirty members. The team operated in market sensing, product design, or product and manufacturing domains. The beauty of this approach is it was designed not only for targeting consumers’ unmet needs but also for fostering internal talent development as each team was accounted for its own profit and loss (P&L) and each individual was evaluated based on key performance indicators (KPIs). Focused on Developed Markets First In developed markets like the U.S. and European, it is challenging to meet consumers’ desirability, as consumer preferences are diverse. In addition, developed markets occupy the highest competition level, which enables company like Haier to improve itself to meet the highest quality standards. Thus, if Haier could succeed in this competitive battleground in which dominant players are located, it would be helpful for Haier to convince emerging market retailers to carry its products as well as to compete effectively in mature markets against strong brands such as GE, Matsushita, and Philips. Overall, Haier’s strategy to first globalize into developed markets was a good strategy yet risky at the same time. The strategy required Haier to possess such tactics or strategies to capture consumers’ acceptance in global markets where Haier was unknown at the beginning. These tactics will be discussed further in the following section. Niche-Product Strategy Niche-product strategy (Niche-market strategy) is a strategy aiming at satisfying small market segments through providing specific products in response to the market’s specific

needs. Yet, niche-market strategy could only be a stepping-stone for Haier to enter the global competitive ground. In the American market, tapping into students and offices segment with Haier’s compact refrigerators yielded 30 percent market share during 1994-1997. After gaining credibility in this market, Haier started to introduce regular products to the U.S. market. Hence, in order to succeed and capture a bigger pie in high-end white goods, it is essential for Haier to be market-oriented and differentiated from other opponents. To be market-oriented equally means to be customer-focused could set Haier apart from its competitors. In the European market, Haier produced top-loader washing machines in France rather than front-loaders favored by most Europeans. In 2004, revenue generated in Europe accounted for 17 percent of Haier Group’s total revenue. In the U.S. market, paying attention to such minor details of consumers together with innovative ideas assisted Haier in achieving highest global market share of 6.1 percent in 2010 from 2.3 percent in 2002. Haier’s successes continued with smaller dishwashers in Japan, video messages on refrigerators in place of paper notes in Europe, and high-capacity laundry machines to accommodate long robes worn in Pakistan. Haier’s “Three Thirds” Strategy Haier’s three third strategy was aiming at earning revenue equally from goods produced and sold in China, goods produced in China and sold overseas, and goods produced and sold overseas. This was a wise strategy as the company sought to build a concrete position in the home market, following with a gradual expansion to the international market. In light of goods produced and sold in China, Haier succeeded in targeting a rural area through being a township and village enterprise (TVE) offering high-quality output in China that was rare among China’s 300 refrigerator manufacturers in 1984. (TVE operated at the national and provincial level with the support of municipal government regarding bank credit, machinery, import licenses, and operating inputs). In addition, being service-centered,

quality-centric, and market-oriented in 1990 helped Haier achieve its leading position in China in 1991. In 1993, the Chinese central government tightened credit nationally whilst Haier was counting on promised bank loans of RMB 1.6 billion, making the firm decide to list 43.7 percent of its Qingdao Haier refrigerator on the Shanghai Stock Exchange in November 1993. Consequently, “Haier Electronics Group Co.” was listed on The Hong Kong Stock Exchange in 2005. Those activities contributed to justify Haier’s second step of venturing into overseas markets. Regarding goods produced in China and sold overseas, Haier initially began as a contract manufacturer, which exported products would be sold under an original equipment manufacturer (OEM) client brand in the United Kingdom, Germany, France, and Italy orderly. By that, Haier can gain credibility and consumers’ acceptance in the international market. Then, the firm decided to develop its own brand overseas. Haier was willing to bear the costs of establishing the firm as an independent player overseas even though the firm’s market share in the global market was about 1 to 3 percent since the objective was to establish brand awareness and reputation in the global market. Haier was successful with its niche-market and market-oriented strategy via satisfying unmet needs in the international market as presented in the previous section. In terms of goods produced and sold overseas, in the case of Haier America, it built industrial park and refrigerator in South Carolina. The labor costs were high yet enabling the company to offer premium products and to benefit from channel distribution within America. In Haier Europe, the company utilized acquisition strategy to buy a refrigerator plant in Padova, Italy to produce kitchen cabinetry customizing the products in response to the European consumer preferences. For Haier India, the company implemented strategic alliance with Indian appliance firm Fedder Lloyd Corporation to jointly produce and gain insights into the Indian market. Besides, Haier sought to staff with local people to understand

the market and expand quickly. Having its own products manufactured in foreign markets, Haier only sent temporary technical teams from China while relying on local partners, as the firm believed that Haier in each country could be the Haier (that) that country created. The three thirds strategy has granted Haier three numbers: 1, 8, and 28. Haier was the number 1 white-goods manufacturer in China since 2001 by Euromonitor. “A 75 percent increase in Haier’s 2010 profits was 8 times its 9 percent increase in revenues.” “28 was the rank of Haier Electronics Group on BusinessWeek’s 2010 list of the most innovative firms.”