Group 2

Haier: Taking a Chinese Company Global

Arnab| Ankur| Soham| Sudip| Shrikant

Agenda
Haier Company Background

Advantages in China & International Expansion

Question 1 : Success drivers in domestic market

Haier Competitive Advantage ( Porters diamond)

Dawar & Frosts survival strategy : Positioning of Haier ( Export and FDI)

Question 2: Globalization Philosophy and Consequences

Haier: Company Background

Started in 1984 at Qingdao as a refrigerator manufacturer 800 employees Collective enterprise ultimate authority with municipal government License Agreement with Liebherr Imported AC & freezer production lines from Denmark and Sanyo JV with Japans Mitsubishi & Italys Merloni 1992 Renamed Haier Group 2004 Chinas largest home appliance maker CEO Zhang Ruimin 2nd largest global refrigerator manufacturer 3rd largest company in global white goods revenue 30% market share in china White goods Growing presence in Black Goods sector

Haier: Company Background

Growth & Diversification
1992 excessive debt due to acquisition of land and subsequent construction at Quingdao 43.7% of its refrigerator division IPO at Shanghai Stock Exchange Acquisitions continued throughout 1990s 15 companies till 1997 Acquired mostly companies with bad management, introduced own management and quality control

Operational Restructuring
Early 1990s exported appliance as OEM 7 product divisions 1998 - 4 development divisions Capital Flow (Finance) Commerce Flow (Sales) Material Flow (Logistics) Overseas (Global Operations) 1998 China market share more than 30%, RMB 16.8bn

National Competitors
1996 20 major domestic competitors (refrigerators) Only 3 had annual sales of more than 1 million units Guangdon Kelon Biggest Competitor Offered full line of appliances Multibrand strategy for China Targetted Chinas Rural market

Foreign Entrants
WTO pressure Chinese economy opened in 2001 Siemens, Electrolux, Samsung, LG, Sony and Whirlpool Foreign Multinationals rapidly growing 2001 - 26% China Refrigerator sales 2002 - 31% % China Refrigerator sales 2001 - 31% China Washing Machine sales 2002 - 38% % China Washing Machine sales

International Expansion
Began expansion strategy in 1997 1994 JV with Mitsubishi setup Chinas largest AC plant 1998 overseas sales - $62 million (3% of Group sales)

1995 became first Chinese company to engage in FDI in Indonesia

1997 Launched Blue line brand refrigerators in Germany

International Divisions
Haier America Haier Europe Haier India Focus on difficult task first Begin with niche products Staff with locals

Advantage In China
Retail Channels Before 2000 State owned departmental stores 2004 Domestic chain GOME accounted for 30% sales 100 outlets in Chinas 22 largest cities Reputed Brand known for its creativity Market responsiveness Modified Dish Washer Tiny Washing Machine Service Computerized Information System Distribution 1999 : Haier Logistics Independently operated company Reduced Inventory levels Reduced delivery times

Success drivers
Quality commitment Build quality, Reliability Blind test Better than German brand Liebherr Branding Branded, not just OEM products Unlike most competitors Higher priced but better products

Customer-centric
Best after-sales service Chu Xiaomings case House calls, Warranty coverage, Temporary replacement

Success drivers continued

Diversified
Full line of appliances lesser risk Seven product segments Growth despite price wars

Innovative
Potato washer, Happy summers, Detergent-less wonder etc.

Responsive
Assess needs Identify demand Satisfy it

Supply chain
JIT system Customer focus, Lesser costs Group-wide logistics Cross-product distribution When transferring a fridge, can transfer a microwave too

Success drivers continued

Organization structure
Flatter hierarchy Set up company-wide divisions Independent profit centers

Technology transfer

Observe Imitate Develop TT/JV with Liebherr, Sanyo, Mitsubishi, Merloni

Market position

Market leader in all their segments Wield market power

Greater reach

Cover entire China Tough for competitors (esp. foreign multinationals) to imitate

Determining competitive advantage in China

Market leader Differentiation Diversification Multinationals Local competitors Decreasing demand High GDP growth Picky consumers Diverse preferences

Firm strategy, structure and rivalry

Demand conditions

Factor conditions
Cheap labor Infrastructure investment Government influence Opening economy

Supportin g and related industries

Manufacturing hub Competitive suppliers Electronic industry Close working relations

Dawar & Frosts Survival Strategy

Positioning for Emerging Market Companies
Customized to home market Transferable abroad

Pressure to globalize in the industry

Dodger
High
Focuses on a locally oriented link in the value chain, enters a joint venture or sells out to a multinational

Contender
Focuses on upgrading capabilities and resources to match multinationals globally , often keeping to niche segment

Defender
Low Focuses on leveraging local assets where multinationals are weak

Extender
Focuses on expanding to similar markets like the home base, using competencies developed at home

Competitive Assets
*http://hbswk.hbs.edu/archive/501.html#figure

Haiers Positioning Strategy for Exporting

Customized to Home market Transferable abroad

High
Pressure to globalize

Dodger
After 1992- Competing with international competitive assets

Contender
1992- Direct exporting to developed markets to build international brands

Defender Low
(1987-1991) TQC& national brand (1984-86) Technology-learning

Extender
After 1992- Competing with international competitive assets

Low

Competitive Assets

High

Haiers Positioning Strategy for FDI

Customized to Home market Transferable abroad

High
Pressure to globalize

Dodger
1998-2001 International brand and international alliances

Contender
1999-2001 FDI in Developed markets

Defender
(1987-1991) TQC& national brand (1984-86) Technology-learning

Extender
1991-1998 Diversification 1991-1999 - FDI in LDCs

Low

Low

Competitive Assets

High

Benefits of going to developed market

Competing in developed markets with top players would improve the competency of various functions of the company.
Understanding both the developed and developing markets and coming up with products that suit these markets

Established brand name in developed markets would create a good reputation for the brand which will help it in emerging markets.
Success in US would draw attention of retailers like WalMart, Best Buy

Developed markets have well established infrastructure and distribution networks which make Haier could leverage to get a hold in the market
Haier Established relationship based distribution networks which invariably helped it over the long run

Customers in developed economy are more quality conscious than price. This would suit Haier as this would push it to meet higher quality standards and at the same time they can sell their product at a premium.

Risks Involved Are

Difficult for a new player to create a market position for itself among top players.

Difficult to meet quality and safety standards of developed economy on all product lines. Cost of production will go up as well.

Cost of building new establishment, labour, employment, marketing the product etc. goes up in developed market.

Culture difference is bigger between china and US than with other Southeast Asian nations.

Not easy to take on with bigger competitors on their strong hold.

Not easy to woo the big retailers and wholesalers in developed markets to carry the products of an unknown brand.

Globalization Philosophy
First difficult then easy Without domestic market, business is rootless, without international market, business is weak Three 1/3rds
1/3 made and sold at home 1/3 made at home and sold abroad 1/3 made and sold abroad

Three Internationalizations
Internationalization of management system build up employee loyalty Internationalization of service build up customer loyalty Internationalization of brand build up international competence

Globalization Philosophy

Globalization of design
Set up 18 design centers worldwide to consolidate resources from developed countries

Globalization of manufacture
Set up 10 industrial parks and 22 plants overseas enabling prompt action to satisfy local user needs for quality

Globalization of marketing
5,000 overseas retail outlets and over 10,000 service centers all over the world. Best practices exchanged

Consequences :Three Third Strategy

Domestic Sales
Saturation of the urban market ( Haier stronghold) National overcapacity estimated at 30% in appliance market Growth Potential at Rural area where saturation level below 10% Kelon and other competitors also have strong focus on rural market

Domestic Sales Growing at diminishing rate

Domestic Sales Growth

70.00% 60.00% 50.00% 57.89% 48.88% 48.09%

40.00%
30.00% 20.00% 10.00% 0.00%

DomesticSales Growth
16.79% 14.68% 9.91% 1998 1999 2000 2001 2002 2003

Consequences :Three Third Strategy

Export from China
Prospect of reaping global economies of scale Low labour cost in producing white goods in China Export in European market such as Germany where they are marked under the Haier brand name

Increasing export

Export From China in US$ Million

1200 1000 1000 800 600 424 400 280 138 62 1998 1999 2000 2001 2002 2003 2004 444 532 Export From China

200
0

Consequences :Three Third Strategy

Overseas Made and Sold
Started from Niche products then introduce full range of products Some of the successful niche products Increasing sales of Compact refrigerators , Wine cellar, Mini-fridge 2% market share of full size refrigerators in US in 2002 Overseas 10% market share of European air conditioner market Manufactured

products

Overseas Made& Sold in million USD

1200

Product Compact refrigerator Wine cellar Air conditioner

Market Share 26% 50% 17%

1000 1000 800 600 400 500 Overseas Made& Sold

400 200
0 2002 2003 2004

Three Third Strategy: Success or Failure?

Sluggish domestic growth rate compensated by international sales Sales from exports and overseas production grew from 3% of total revenue in 1998 to 17% in 2004 70% of Haiers overseas sales came from developed markets

105 100 95 90 85 97 95.8 94.3 94.2 3 Year

4.2 5.7 5.8 4.6 5.2

5.1 5.5

8.3

Overseas made & sold Export from China 2003 2004 Total in 2004

Growthover previous year in exports 19.82% 87.97% $1000 m

Growth over previous year in overseas made & sold 25% 100% $1000 m

8.3 90.3 89.3 83.4 Domestic Sales

80
75

1998199920002001200220032004

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