HAIER: TAKING A CHINESE COMPANY GLOBAL IN 2011
SUBMITTED TO: PROF. SHIVANI AGGARAWAL
BY: SHWETA THAKUR & SURBHI THAKKAR
MIB-IV
CASE OVERVIEW
In 2011, Haier, China's leading appliance manufacturer, had over $20 billion in
worldwide sales and had just been named the leading refrigerator manufacturer
worldwide. This case describes Haier's rise over three decades, from a defunct
refrigerator factory in China's Shandong province to an international player with
$5.5 billion in overseas sales. Haier had followed a non-traditional expansion
strategy of entering the developed markets of Europe and the United States as a
niche player before venturing into Middle Eastern and neighbouring Asian
markets. Looking ahead to the next decade, Haier CEO Zhang Ruimin saw
opportunities for Haier to grow through product diversification and additional
market penetration in both developed and emerging markets. He and his
colleagues would depend on their experience of acquiring numerous companies,
entering and retaining new markets, restructuring the organization, and
managing hundreds of subsidiaries around the world. They would need to
determine which of the lessons learned from Haier's international operations
should be implemented in China and which skills learned at home could best be
applied abroad.
What is Haier?
Haier started as a small Chinese factory making refrigerators. Now, 35 years
later, it is a multinational owning many well-known brands (like General
Electric Appliances) and employing over 80,000 people. It does all of this in a
non-hierarchical and self-managing manner.
Haier's CEO, Zhang Ruimin has said: 'We replaced the bureaucratic model with
a model based on self-employment, self-motivation, and self-organization. Our
goal is to let everyone become their own CEO’.
1984-1991 Brand Building Stage
Their epic journey started in 1984 when Zhang Ruimin took over as the general
manager of the Qingdao Refrigerator Plant that had been in a state of insolvency
and on the verge of bankruptcy. He laid down 13 ground rules and posted them
on the factory walls. He wanted to bring order to the chaos in the factory. The
workplace was miserable. How miserable it was, was clearly shown by: Rule
#10 "No urinating or defecating in the working area."
After a year, Zhang received a customer complaint about the quality of a
refrigerator. He immediately ordered an inspection of all fridges in stock.
Eventually seventy-six other refrigerators were found to have similar problems.
His reaction to that gained him national fame and still makes a great story.
He ordered that all 76 defective fridges be placed in the center of the factory. He
gathered all the workers, gave them sledgehammers, and invited them to smash
the faulty products.
This had tremendous impact. At that time, a fridge was worth two years of
salary! But most of all it was the start of a new philosophy. Defective products
were no longer tolerated. This became Zhang’s most important focus, as he
continued to build a brand that stood for impeccable quality.
1991-1998 Diversification stage
Now the brand had gained a respectable and trustworthy reputation in China,
Zhang could aim for bigger goals. Making his company a global success. Zhang
knew that before he could do that, he needed to diversify.
Prior to this, Haier only manufactured refrigerators, and from then on, Haier
focused on manufacturing a diverse range of products. An important strategy to
achieve that was, what Zhang called “revitalizing stunned fish”.
Those stunned fish were loss-making rivals with hardware capabilities but poor
leadership. Zhang Ruimin turned them around by introducing a new style of
management and corporate culture, that of Haier.
Haier acquired a total of 18 companies, rapidly expanded its scale and reach
into many other fields: refrigerators, washing machines, TVs, air-conditioners
and freezers.
1998-2005 Internationalisation stage
In 1999, Haier became China's largest fridge-maker. When China joined the
World Trade Organisation, Zhang seized the opportunity to implement a new
strategy. This was the beginning of 'The internationalisation stage'.
During this period, the competition was fierce. Foreign multinationals now
targeted the Chinese market and forced Haier to develop a global strategy.
Instead of focusing on less competitive regions like South-East Asia or Africa,
Haier chose to enter, and learned to thrive in, the most competitive markets of
the U.S. and Europe.
In 1999, Haier went to South Carolina and opened an Industrial Park. At that
time, there was no cost advantage to set up factories in the U.S., nevertheless
Haier was convinced this was the correct decision to be able to successfully
meet the needs of the U.S. consumers.
In Europe, Haier acquired the Italian Meneghetti Refrigerator Factory in 2001,
together with Haier's design centers in Lyon and Amsterdam and marketing
center in Milan to truly realize a localized operation of "three in one" -
combining design, manufacture and sales.
2005- Global branding stage
As the world entered the Internet era, Zhang was determined to introduce yet
another transformation—the 'Global Branding Stage’: to focus on customers’
personalised requirements.
Haier integrated its unique management culture into local operations and
cultures. They can now deliver 'on-demand manufacturing and delivery, based
on zero-inventory and zero distance to users'.
During this stage, Haier focused on exploring a business model that creates
users that remain loyal to their brand during the Internet era.
SWOT ANALYSIS OF HAIER:
JOINT STRATEGY OPPORTUNITIES RURAL STRATEGY
GREEN STRATEGY
TRANSFORMATION
STRATEGY POTENTIAL FOR DOMESTIC
RURAL MARKET
LEVERAGE
CONSTRAINTS
DEVELOPMENT OF GREEN
PRODUCTS
REPUTATION
FAVOURABLE ECONOMIC
W S
TREND
E T
A INNOVATION R
K INEFFCTIVE E
N MARKETING AND N
E ADVERTISING G
S DIVERSIFICATION T
S H
UNSUCCESSFUL PRICE WAR
E S
EXTERNAL
S GLOBALIZATION
INFORMATION
CONSTRUCTION
GROWING COMPETITON
INADEQUATE
COMPETITIVENESS IN
HIGH-END
HIGH-PRICING STRATEGY
INFORMATIZATION THREATS
STRATEGY
GLOBAL STRATEGY
VULNERABILITY
PROBLEMS
Internal Analysis: Internal strengths
Haier is a well-known brand name and highly reputated for reliable quality with
great customer service. Pursuing the service policy that ―customer is always
right and In June 2008, Haier ranked 13th and 1st among Chinese companies on
the list of the world's "600 Most Reputable Companies.
Secondly, its strength also lies in its innovation in both production and
management practice. Up to the end of 2009, ―Innovation driven. Haier had
applied for 9738 patents, ranking first among Chinese appliance enterprises. On
the base of its independent intellectual property, Haier has participated in the
setting of 23 international standards.
Thirdly, the Haier Group has successfully carried out product diversification to
expand its brand beyond refrigerators, adding washing machines, air
conditioners, and other items to its product line. Consequently, Haier has
quickly grown the scope of its business while enhancing the company's overall
strength and position.
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. As a result, Haier now
sells products in over 160 countries around the world.
Internal weaknesses
despite Haier‘s dominant role in domestic market, it comparatively lacks core
competitiveness in international market, especially the high-end market. Still
focusing on traditional electrical products, it lags behind in capital, technology
and management when compared with multinational companies such as
Whirlpool Corporation.
Moreover, Haier is struggling with its unsuccessful external information
constructions. There is a great difficulty for Haier to exchange the electronic
information and data effectively with its suppliers and distributors thus leaving
the purchasing and distribution costs relatively high. The unsynchronized
external information environment should be the main factor to blame for the
dilemma. Another failing of Haier is its relative neglect of the importance of an
effective global marketing and advertising promotion. Generally, the selling
points to be promoted change continuously and therefore there is a lack of
distinctive and attractive advertising appeals to the target global consumers for
each of its product range.
External Analysis: Opportunities
With the dramatic increase in average Chinese ‘s living standards and
favourable government policies to improve rural people ‘s lives, rural China
where a growing number of people longing for more advanced home appliances
implies great domestic opportunities for Haier ‘s further development. There is
also a huge market potential for ―green electrical appliance which is more
environment-friendly and energy-efficient. The explosive growth in household
appliances in China is leading to a rapid increase in carbon dioxide output,
which seriously contaminated the air. It is urgent and profitable for China, now
being the world ‘s largest energy consumer (reported by IEA) and the world's
largest refrigerator manufacturer, to exploit the ―green market. Moreover,
Governments and organizations all around the world are beginning to advocate
and support this trend. For instance, recently US launched a $40 million project
which introduced innovative market incentives designed to encourage Chinese
refrigerator manufacturers to promote green refrigerators and to advocate
customers to purchase them. Considering the market and social environment, it
is wise for Haier to develop more green products to maintain a sustainable
development.
Moreover, with the advancement of the economic globalization, there is a
growing interdependence between businesses all around the world. An
increasing number of foreign appliance companies enter China which is the
world‘s largest and fastest-growing market, and it is also possible for Chinese
companies to step into new foreign markets and have business partners
worldwide. Therefore, this economic trend provides Haier with more
opportunities for mergers or joint-development with other business partners to
strengthen itself.
It also inspires Haier to conduct innovative reform and strategic transformation
to adapt itself to the changing market.
External Threats
The noticeable threat that Haier faces now is the fierce competition in the
domestic and international market. According to statistics, Haier ranked as the
third most favoured refrigerator brand by Chinese consumers, lagging behind
two toughest competitors – Gree and Midea. And the global market competition
is even more cut-throat with such strong multinational corporations as
Electrolux, and Whirlpool Corporation. After acquiring the Maytag, Whirlpool
Corporation became the largest home appliance maker in the world and it has a
prestigious global brand name and unmatched level of customer loyalty.
Electrolux, which is another international rival for Haier, is highly-competitive
in hi-tech products that first launched talking washing machine and Robot
Vacuum Cleaner in the world market.
Price war also poses great threat to Haier. With the numerous new entrants into
the home appliance market and the excessive supply over demand, many
companies lower their price for sales turnover, which further threatens Haier‘s
leading position. For example, during the 2010 national holiday, Gome and
Suning Appliance launched large-scale sales promotions such as giving out
rebate coupons and premiums and providing limited special offer such as
50￥television to attract customers.
DEVELOPMENT STRATEGY
As what has been mentioned above, Haier is both creative in new management
ideas and innovative in production practice which makes it stands out and gives
competitive edge to its business. And concerning its external environment, the
―green products with less energy consumption and less waste emission have
found growing popularity and acceptance among both consumers and
organizations. So, it is sensible for Haier to advance its technology and design
creative products that are both environmentally friendly and attractive to its
consumers. In other words, it can establish itself as an energy-efficient and
environment-oriented green brand image.
Actually, Haier has already devoted great efforts to this area and gained some
achievements such as winning the 2010 Energy-saving China Contribution
Prize. And also going to launch a new product of water heater that can recycle
waste heat which was displayed in its new product release conference in
November, 2010 and received high praise from potential customers. It is
expected that Haier will produce more green home appliances such as CFC-free
refrigerator, hybrid solar oven, and integrated environment-protecting gas
cooker. Therefore, Haier could predictably enjoy the prosperity of this
promising market if it could continue making technological innovation in
developing new green products.
Apart from the ―green strategy, Haier still has another great choice, i.e., rural
strategy, which means to occupy the market of countryside based on its existing
strength of celebrated brand name and high reputation in China. Rural China
has 2,812 counties, 35,000 towns and 640,000 villages, which implies huge
domestic opportunities for Haier‘s development. Considering this, Haier has
already taken measures to penetrate into the alluring rural market. It is reported
that Haier has the biggest market share in China‘s Home Appliances for Rural
Families program introduced in 2009, because it has built up a huge network in
rural China. This is a great start which laid a solid foundation for its further
exploration and development.
Haier can fully display its internal strengths to cope with threats from the
external environment such as the competition and price war. Seen from the
above discussion, we know that Haier enjoys superiority over its competitors in
many aspects. Its prestigious brand name and reputation help it distinguishes
itself among numerous appliance companies. And its diverse product range also
contributes to the widening of its business scope.
Therefore, in face of the keen competition, Haier has implemented the high
pricing strategy by continuing to improve the product quality as well as
customer service and to diversify its product range while not lowering the price
despite the pressures put on by other competitors. With the firm belief that
customer satisfaction and reputation are more important than sales volume,
Haier‘s high quality & high pricing strategy can strength its customer loyalty
and attract more potential customers without a loss in profits, which in turn will
help it has final say in the current ferocious price war.
In addition to the above high pricing strategy, Haier can also carry out the
―glocal strategy to undermine the threats from international competitors.
―Glocal strategy means ―the company should ‗think globally but act locally
‘, i.e., it seeks a balance between standardization and adaptation during the
global marketing and managing process. As what has been noted above, one of
its strength lies in its products ‘global availability and company‘s multinational
presence. However, Haier are still not very successful in competing with some
giant native brands in certain target foreign markets. Taking all these into
consideration, it should further carry out the strategy of ―glocalization‖ which
requires that the corporate level still gives global strategic direction while local
units focus on the individual consumer differences across global markets.
Haier tries to reduce the negative influence of internal weaknesses by adding
some external resources so as to make good use of external opportunities.
Concerning the favourable economic trend brought about by the globalization,
Haier should consider some mergers or joint-developments with other
competent foreign or domestic companies in hopes of overcoming its internal
weaknesses in capital, technology and management. Hopefully, it can form
strategic alliance with some multinational corporations that are more
competitive and experienced in international hi-end market such as Whirlpool
Corporation and Matsushita Electric so that it can minimize its shortcomings in
hi-tech products and enhance its overall strength. Actually, Haier has formed a
strategic partnership with US-based NComputing in 2009 which enables Haier
Computing to expand in the US market for the first time and will also increase
the company's presence in more than 30 countries. We can see from the
example that the establishment of successful partnerships can help increase its
efficiency and strength its market power.
Since 2009, Haier has already undergone a transformation in two aspects. The
first one is to transfer its main market focus from domestic to the international
market which doesn‘t mean to abandon domestic market but to boost it through
the successful expansion of global markets. This requires Haier to integrate
global resources and tap the international marketplace of ideas, innovations, and
human resources to satisfy customers ‘needs all over the world. The second one
is to transform itself from a manufacturer to a service provider which means
putting more emphasis on marketing, logistics, and responding faster to the
market needs by offering personalized services to customers.
Haier should strive hard to reduce the negative effects of both internal
weaknesses and external threats. One of the strategies to avoid bogging down in
the dilemma is the internal and external informatization aiming at facilitating its
internal operations as well as external cooperation with its suppliers and
distributors to better serve its customers and exceed its competitors. Wisely,
Haier has already realized the necessity of this move and is on its way of
informatization.
Haier have made some progress such as the exploration of Management
Information System including E-Commerce and logistics systems that improve
business operations between its suppliers, customers, and business partners.
And it also created the "Just-in-time model with zero-inventory" based on the
combination of virtual and actual network to meet the dynamic needs of the
user.
