HAIER: How to turn a Chinese

Household Name into a Global

Brand
Dr CR Rajan
 Prologue/Introduction
• China’s largest white goods manufacturer –
started going global in 1999 tapping US with
niche products and setting up plants
• Goal : Low-cost Chinese manufacturer to global
brand
• Wanted to get into high end products and
expand global sales network
• 2006 – Global development strategy to bolster
global brand awareness
• But from 2001 profits declining and cost
increasing
• Overseas sales contributed to 1/3 of the profit
 Questions raised

• How much risk should be taken in going

global and diversifying?
• Can Haier become a global brand?
• Would product diversification and design
strategy help improve Haier’s bottom line
and brand name?
 Haier’s History/Development Path
• 1956 – Qingdoa refrigerator
• 1984 – Zhang Ruimin took control of the loss
making firm facing heavy financial constraints
– Tackled work ethics, low quality production and after
sales service
– By the end of 1991 it became top rate brand in China
• 1991-98 – merged with 49 enterprises &
expanded into white goods and focused on
resources allocation among newly acquired
companies to tap growing Chinese consumer
market
 Haier’s History/Development Path
• 1995-2005 – Internationalization
– increasing competition and price pressure at home markets and
starting seeking more rents Globally
– Initial tough challenges over come by quality
– Initially entered through “niche market” with mini fridge and wine
coolers
– By 2005 ranked as World’s fifth largest white goods maker
– Plan to enter mainstream refrigerator market
• 2006 Onwards – Global brand Building
– Foreign acquisition attempts
– Teaming up with international associations for branding and
advertising exercises
– New branding strategy and updated business philosophy
– Planned to have 20 factories overseas by 2010
– People skeptical of Haier’s move from Niche to mainstream
consumer products and questioned on its production
diversification
 International Strategy
• Going against the stream
– Establish a brand reputation overseas, rather
than import brands
– Explore difficult markets first rather easy
markets
– Foreign offices to localise design, production
and distribution
– Step into niche market earn high premium,
sustain it and later on move to low premium
• Only disadvantage: couldn’t find low cost labour
like in China
 International Strategy
• Product Innovation
– Can make Haier a commodity player and
sustain long term growth
– Entry into World Design Organization
– Explored technology developments
– Hurman-oriented design approach
• Selling Direct
– Direct marketing via phone, internet, speciality
stores
– Improved customer service and consolidating
service efforts
 Global Adventure
• Establish multilateral, co-operative relationships
with other leading enterprises
• European Expansion
– Targeting the big and toughest first follwing the
strategy
– Planned to make a mark in Germany first at it had the
toughest entry requirements – through an JV
– Haier Europe – acquisitions of plants- Localisation
strategy sold through specialist retailers to build brand
• Asia Pacific Expansion
– Expanded through JVs in SouthEast Asia
– Understood the specific needs and characteristics of
Asian customers who were different from Europeans
– Formed business alliance providing win-win situation
for itself and partners in Japan and Taiwan
 Global Adventure
• Middle East Expansion
– Haier Middle East in Dubai
– Aggressive marketing & promos
– Haier Industrial Park (Pakistan)
– Haier Middle East Trading Co. Ltd
• US Expansion
– JV with existing distributor Welbilt to develop new
products and markets locally
– Long wait with Walmart well paid off with Haier’s
quality products getting increased orders from
Walmart
– Head on ceompetition with big brands made Haier to
compete on product differentiation through new
product categories and targeting the new customers
for cross-selling
 Product Strategy
• Product diversification with internationalization plan
• Non core businesses believe to have unlimited potential
• By 2006 product portfolio extended from washing
machines to mobile phones
• PC Markets
– Own laptops
– R&D centre with Intel
– PC business second after household appliances
– Lack of innovations showed drop in exports
• Mobile Phones
already saturated and intense competition made
Haier sell its mobile business to its parent company
 Different Voices
• Few praises for its market share growth
and global brand status
• Doubts whether Haier has spread itself too
thin by diversifying its product portfolio
• Lack of growth options and question global
brand building capabilities
• Rising costs and intensifying competition
and plunging profits
 Questions
• Brand extension a sound growth strategy?
• Higher design level and bigger sales
network help reach global ambition?
 Other Questions
• Should it expand and focus
– region by region?
– product by product?
– Or both product and region?
• Single Brand for all products or group the
products
• R&D focus?
• Customer profiling
• Haier became a leader in China’s white goods market, in the teeth of
competition from GE, Electrolux, and Whirlpool, mainly because it was able
to develop products tailored to the needs of Chinese consumers.
• For example, when Haier discovered that customers in rural China were
using the company’s washing machines to clean vegetables like sweet
potatoes, the company modified its product designs to accommodate that
need.
• The humid weather in Chinese cities such as Shanghai and Shenzhen
requires people to change clothes frequently, so Haier created a tiny
washing machine that cleans a single set of clothes.
• Because the model uses less electricity and water it has become an instant
hit in China’s coastal cities.
• Haier’s strategy compels the company to manufacture a large variety of
products, but the company exploits its expert knowledge of the
Chinese market—knowledge that is hard for multinational companies to
obtain—by developing a product for every need.
 Overseas Push
• Interestingly, Haier took care to cement its leadership at home before
venturing abroad.
• By 1991, the company had become China’s biggest manufacturer of
refrigerators, but it wasn’t until 1995 that Haier set up its first joint venture, in
Indonesia. It then quickly moved into the Philippines, Malaysia, and
Yugoslavia over the next two years.
• Germany became the first Western market for Haier-branded refrigerators in
1997, and two years later, Haier entered the United States, setting up a
design center in Boston, a marketing operation in New York, and a
manufacturing facility in South Carolina.
• In the U.S. market, the Chinese giant has focused on entering price-
sensitive segments and on learning how to establish partnerships with
American retailers such as Best Buy, Home Depot, and Wal-Mart. In 2005,
research firm Euromonitor International reported that Haier had a 26%
share of the U.S. market for compact refrigerators (the kind found in college
dormitories and hotel rooms) and a 50% share of the market for low-end
wine cellars.
 Products for Markets
• Haier’s ability to Haier’s ability to develop products for small segments has
stood it in good stead overseas: In July 2006, Wal-Mart’s Web site listed 59
Haier products, many aimed at college students
• Haier’s travels epitomize the globalization journey that emerging giants
make when they embrace opportunities in product markets. They
instinctively turn to other emerging markets when they initially venture
abroad because they have the capabilities to respond to opportunities in
such countries.
• Because of their knowledge of products and cost bases, however, they
aren’t content with operating only in developing countries.
• When they enter advanced markets, they tend to avoid head-to-head
competition with foreign companies; they focus on niche opportunities that
allow them to capitalize on their existing strengths.
 Niche then expand
• This approach helps emerging giants gradually stretch their
capabilities even as they learn how to operate in developed markets.
• The experience helps them enlarge their footprints in advanced
countries and compete more effectively with multinational giants
when their home markets mature.
• For instance, Haier’s experience in Europe and the United States
will benefit the company as Western retailers such as Carrefour and
Wal-Mart become important distribution channels in China.
 International Strategy
• Planned of being more quality and customer
focused
– Customer focus – speed of service and
differentiation in products to satisfy needs
– Quality focus – through higher competitiveness
via product specialization translating into higher
prices and better margins
• Believed in technology innovation
– Applying innovation to product design and
production
– Information and design centers to understand
consumer preferences
• Step by step product introduction helping in
brand awareness, lower entry cost
 Sources of competitive
advantage
Strategic National Scale economies Scope
objective differences economies

Achieving Levearge prodn. Expand and Share

efficiency at And R&D exploit potential investments and
current levels resources in scale in product cost across
China development and products ,mkts
production and businesses
Managing Risks Dilute risk of Balance scale Diversify business
losing business in with supply chain portfolio risk
china flexibility

Innovation Sharing of Tech Benefit from Share skills and

,learning and knowhow and experience-cost knowledge across
adaptation resources among reduction and products mkts and
global offices innovation businesses
P
Market positioning
r
e Dodger Contender
s Focuses on locally oriented links Focuses on upgrading capability
s in value chain. Enters JV or sell and resources to match MNCs
u out to MNC often in Niche markets
r
e
t
o
g Defender Extender
l Focuses on expanding into markets
o Focuses on leveraging local assets similar to home base using
b in markets segments where MNCs competencies developed at home
a are weak
li
s
e

Competitive assets
 Mid game
• Niche in US –compact refrigerator

• Cross geography arbitrage through JVS

with Sanyo, LKG
• Through these gain “reputation “—create
brand
• Broaden lines to ACs , Freezers etc
• Localize service
• Brand building through quality assurance
Specialist
Become world class in specialized
area
Exploit cross geographic arbitrage
High ROE with little capital addition
Geographic Incumbents
Lack of world class skills
Access and scale advantage limited to
specific geographic region
Low ROE and Book growth
Shapers
Compete by specializing in core
competency and leverage scale
across geographies
High ROE and equity growth
Geographic Integrators
Gain access to customers and scale
effects
Gain advantage through cross
geography arbitrage
Earn lower returns but larger share of
profit pool
Constant ROE and high book growth
 Conclusions
Context Strategies
Set high bar via quality
China (home market opportunity)
growing- Scale Customers become the “mentors”
Look to create new Segments
Diversify range to spread costs
Advantage of scope (innovation ) over larger range

Enter via a niche US culture and fit

By passes learning curve
Once retail is interested larger
expansion possible
Leverage JVs for technology