Haier

Generally, a case analysis includes: 1. Statement of the problem/Identification of key issues Talk about history, top managers, principle business model a. This section may include the reasoning that lead to the identification of these issues as key 2. Analysis of the situation a. Internal- Firm Assets, VRIO, identify core competencies b. External Analysis- PESTEL, Porter c. Evaluation of the firm’s strategy 3. Alternative strategies a. Discuss other strategies/ideas that you considered (pros and cons) 4. Recommendations a. Be sure to include WHY you are making these recommendations 5. Discussion of implementation issues and conclusions a. While you may have some great ideas, they must also be implemented! Be sure to discuss how!

Haier Group, formed in 1984, has been one of the leading household appliances company in the world. Its CEO Zhang has been responsible for turning from a small Chinese manufacturer to one of the formidable global players. The company has achieved that through product differentiation, globalization and brand building. However, not only was the company facing increasing domestic competition (especially from foreign entities such as Whirlpool and GE), but the company was striving to form a truly international presence. Haier’s goal was to target the niche consumer markets with their innovative products and gradually expand to bigger markets. The company planned to implement this by having operations in different countries and utilize its “three thirds” strategy to achieve it. Not only does the three thirds strategy take the company’s presence to global markets, but it would also bring additional benefits in the form of larger market share, cost advantages in other countries and new manufacturing practices. However, they were struggling to compete in the global markets due to low brand recognition. brand equity is one of Haier’s strengths in the local markets but globally Haier faces challenges from global multinational brands. The main issue for the firm is to establish brand equity in international markets such as US and Europe, and in that process become China’s first multinational brand.

Evaluation of Firm Strategy: In the local markets, Haier started out with building the brand image. The CEO knew that higher quality products could command a premium price and it would satisfy consumer needs. This strategy turned out to be a huge success. Moreover, the company kept on innovating and researching consumer tastes and preferences, and came out with a diverse range of products. It expanded to other industries such as the black goods industry (for example; televisions). It also employed an effective acquisition strategy, which allowed the company to buy firms which are running their business in markets and have good products but bad management. They then replaced the existing management with their own staff which was skilled and trained to prioritize on quality control. These acquisitions brought in more expertise and capabilities and helped the development of the firm. In the foreign markets, Haier uses the transnational strategy which is coordinated approach to globalization in which the firm seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness. This strategy is flexible as it facilitates global learning of specific markets and also organizes production, marketing and other value chain activities on a world wide scale. Moreover, the firm can exploit economies of scale and deal with competitors on a global integrated basis. Haier also formed strategic alliances and joint ventures with firms to have experience in the overseas markets before establishing itself as a independent brand. Therefore, Haier’s goal is to form their presence in foreign markets by taking care of local needs and fulfilling them. VRIO

SUCCESS Factors; Haier’s strategies have successfully been implemented in the domestic market and a number of factors are responsible for this. The CEO believed that consumers would be willing to pay more for better quality goods and first-rate service, and his vision was right as the business flourished. Moreover, the company tailored its innovative products according to consumers’ needs. Being responsive to changing needs and meeting local market demand was one of Haier’s biggest strengths. Its superior after sales service made customers switch brands to Haier and provided an important competitive advantage to Haier. Also, its distribution network utilized JIT which gave the firm efficiency and brought down the overhead costs. In addition, the company spent 5% to 7% of its revenue in R&D each year. The company’s creativity and its brand were highly valued by consumers and allowed the firm to charge a premium for its products. Core Competencies; Haier had developed numerous core competencies over the years. Its CEO once said, “Novelty is the real core competence for Haier.” (cite; http://www.jofamericanscience.org/journals/am-sci/0201/11-liudayong-0110.pdf). The company set foot in over twenty different types of product categories ranging from air conditioners, washing machines, televisions and even mobile phones. An advantage of producing so many different types of products allowed the firm to transfer core competencies from one product portfolio to another.

The company stayed ahead of its competitors as it studied consumers’ behavior and preferences. Paying more attention to consumer needs allowed the company to have a better understanding of changing trends and the company successfully employed a product differentiated strategy which allowed for new innovate products. Moreover, Haier’s quick response speed allowed for rapid product development. The company prioritized quality and brand building over mass production, which gave the firm competitive advantage over its Chinese competitors who sacrificed quality over quantity. In addition, the company effectively integrated foreign technology into its Chinese manufacturing facilities. The CEO’s vision was to observe, digest and then imitate the technology well enough to design and develop the product independently. Lastly, the firm benefitted enormously from its efficient after sales service.ELABORATE MORE

PESTEL -Political Factors; Haier enjoyed support from the Chinese government such as low tax rates and low excise duties. However, many Chinese local firms had pirated and reproduced many products which made the company lose out on market share. On the other hand, when Haier was competing in the foreign markets, it suffered from high tax rates and barriers of entry which made it difficult for the firm to operate. -Europe and US very similar in terms of development and the regulatory laws..both run by capitalist governments which encourage high profits for firms. the company did lose out from the infringements of products. -Economic Factors; In today’s global economy, everything seems to be integrated. That is why Haier optimized from the opportunities of joint ventures and strategic alliances. - Firms (foreign direct investment) are welcomed by foreign govt. as they bring in higher standard of living and also lead for employment for local people. -

-Socio Cultural factors; As societies go through changing trends and preferences, companies have to ensure that they fulfill people’s needs and requirements. So companies have to continuously innovate and improve on existing products. Also, since Haier is operating in different countries it has to make sure it tailors its products according to each locality. - People have more preference for high quality products in international markets. People have more disposable incomes..

-Technological Factors; The home appliance industry has a wide range of products and each company tries to outperform other by offering new technology advanced products. Haier, for instance, contributes % to its R&D to come out with new products ahead of its competitors. WEAK POInT FOR HAIER.

Environmental Factors Countries such as US and Europe are much more aware of the environmental implications which goods and services have. Developed countries are always looking for energy efficient ways to produce the goods and this forms a positive part of the brand image also. Legal Factors Product and safety regulations

Porter’s Five Forces Analysis -Threat of New Entrants; The barriers of entry are quite high as it’s a capital intensive industry. Also, since there are globally established multinationals with high customer loyalty and brand preferences, it would be difficult for any new firm to compete. Therefore, the threat of new entrants is low.

-Threat of Substitute products; Customer loyalty and brand preferences play a role in this factor. Most Consumers are loyal to some brands, but consumers who don’t care about brand; they would be willing to switch to an alternative product. The home appliance industry offers relatively similar products so consumers shouldn’t have a problem switching to a different company. Haier tries to overturn this by spending in its R&D for further improvement and innovation. However, nowadays it has become easy for companies to imitate technological advancements and integrate into their products. Therefore, the threat of substitute products is very high.

-Bargaining power of buyers; The company has developed a strong distribution network and this allowed retailers to get its products without any hassle. Haier’s products offer high quality with cutting edge technology and also provided an after sales service to stand out amongst its competitors. This differentiated service influences buyers and gave Haier a strong competitive advantage.

Therefore, buyer power is low. -Bargaining power of Suppliers; Haier, a vertically integrated company, has its own design, manufacturing, distribution, marketing and provides after-sales service, and this allows to have complete control over quality of the products it offers. With its formidable presence especially in the domestic markets, Haier has developed successful relationships which allows the firm to have good pricing, quality and quantity terms. Therefore, the bargaining power of suppliers is low as most firms find overseas suppliers to lower the production cost as products are not unique and switching costs are inexpensive. -Rivalry amongst Competitors; There are a large number of competitors such as LG, GE, and Whirlpool in this industry and with their global presence, it becomes difficult to compete. Moreover, all the big players enjoy economies of scale and offer wide range of innovative products. On the other hand, small competitors offer price reductions to penetrate the market and grab the market share. Therefore, the rivalry in the industry is based by cost leadership and product differentiation which shows the competition is very intense.

SWOT Analysis Strengths; Haier’s main strengths are its well known brand name, high quality product offerings and efficient customer service. Moreover, the company is known for encouraging and having strong innovation capacity and is usually the market leader for some of the new products it launches. The company also has a diverse range of products such as refrigerators, air conditioners, microwave ovens, televisions and washing machines. The company successfully optimizes vertical integration which allows the firm to incorporate, manufacture, marketing, distribution and after sales services to meet customer requirements and offering them customized products. -OEM? Weaknesses The company has struggled to compete in international markets due to low band recognition. People in foreign markets associate Chinese products with shoddy quality and this has not helped the company sales. Also, the firm is incurring high production costs in other countries. Its “three thirds” strategy requires producing goods in the same country where it is being sold which means it leads to higher costs due to expensive input factors. Moreover, the company is suffering from lack of experience in overseas operations. The company employs local people in each specific country but these local people do not necessarily have the skill set to be successful at Haier. - Failure of global marketing and advertising promotional campaign. Moreover, it has not been able to replicate core competencies in global markets and the company is behind other multinationals (example; Whirlpool) in terms of technology, capital and management.

Opportunities; The firm has huge growth potential in the rural areas of China as only 10% of them owned a refrigerator and 20% had a washing machine. On the other hand, in global markets, Haier has a larger consumption market which it can target. As the economy has been bleak in recent times, foreign countries would welcome a multinational existence and many of them would also provide grants and subsidies. Furthermore, having operations in countries such as US and Europe would allow the firm would use newer types of technology and improve on its innovation capabilities and processes. In addition, being in developed markets allows Haier to target the “green” consumers. The firm should bring product lines which are energy saving and environmentally friendly which would also increase the brand equity and tap into a different market segment. Lastly, by entering foreign markets the company should have favorable relationships with other companies in the form of joint-ventures, mergers or alliances as it would the firm to have experience before it can establish its brand independently. Threats; China’s entry in the WTO allowed many foreign multinationals to enter the Chinese market which led to intense competition. The company also suffers from price wars from new entrants which lowers Haier’s market share. On the international scale, its much more difficult for Haier to penetrate. The firm suffers from low brand recognition and competing against existing established brand names puts the firm in a weak position. Moreover, the high corporate tax rates and higher standard of products in other countries act as barriers of entry and increase the costs of products. Lastly, the firm needs to have higher capacity of R&D and production facility s

Alternative Strategies; After analyzing the internal and external environment, there are ways the firm can compete as a truly global brand. - Target Niche markets with innovative products: Haier utilized this strategy very well in the US refrigerator market and the firm should look to customize its other range of products such as microwave ovens or washing machines to better meet consumers’ needs. By being more consumer focused, Haier can be flexible and also offer products faster than its competitors. -Offering unique first rate customer services: Unlike its competitors, Haier’s customer service is renowned and has given them a competitive advantage in the Chinese markets. By duplicating this core competency in foreign markets, Haier could gain customer and brand loyalty -Continue to build its brand by having an effective and aggressive marketing campaign. Also focusing on being socially and environmentally responsible could help the company’s cause. speed and differentiation -Tap into a new market segment; mobile phones or vacuum cleaner

-Introduce a wider range of products in global markets and customize according to customer needs. The firm can benefit from this as it already hosts numerous product lines which would meet many customers’ needs. Also, the firm would be able to respond quickly to changing trends and preferences in different markets and in this way the firm would be able to increase its competitive advantage.

Recommendations - Forming a global brand by internationalizing its R&D, manufacturing, distribution and service setc….sustain on quality products, first rate service and strong innovation capabilities. - Having an established brand image in developed markets will allow the firm to compete more easily in emerging markets. (GIVE EXAMPLE) - Target the “Green” products part of the

Conclusion - There is a lack of distinctive and attractive advertising appeals to the target global consumers for each of its product range.

The Haier Group enjoys the benefits of having several competitive advantages, including continuous innovation. As CEO Zhang Ruimin says, “Continuous innovation is the soul of Haier’s corporate culture.” Additional competitive advantages include strong brand name recognition in China (the country’s third most popular brand); manufacturing facilities in 13 countries and 18 R&D centers around the globe; worldwide recognition of its quality products; and visionary leadership. The company is implementing a differentiation strategy as it competes in the global marketplace, offering quality products that are widely valued by its customers around the world. 1.

What strategic goals does Zhang have for Haier? Do the company’s strategies appear to be helping it reach these goals?

Zhang is striving to build on the competitive advantages of Haier in order to meet his strategic goals of worldwide leadership in his industry. His actions as CEO support his strategic goal of leading the Haier Group to become a truly global brand. Given the rapid growth and success of Haier since its inception, the company’s strategies appear to be helping Zhang and his employees to reach their strategic goals.

Haier conducted international expansion to go global with its own intellectual property and brand identity. It has gone through a three step globalization process and gradually established a tripartite (design/production/ marketing) operational framework in six key regional markets such as Europe and north America. The company’s profit margins have been decreasing due to the increase in marketing expenditure and acquisitions which were necessary to form its international presence.