David Alzate, Miranda Blank, & Matt Davis

Haiers Key Issues

(% of Total) 2010

2009

2008

2007

2006

Domestic

72.5

75.2

74.5

74.2

77.6

Chinese
Exports

14

12.9

13.4

14

13.3

Overseas

13.5

11.9

12.1

11.8

9.1

Three Thirds Rule

Domestic Production, Domestic Sales

Domestic Production, Exports

Foreign Production, Exports

How should Haier improve sales in the two Exports categories?

How can Haier access the domestic rural market?

Important Context

Chinas Economy

Economic reform in 1980s

Development of market economy

Development of new middle class

Firms operated as Township & Village Enterprises

prior to economic development

Important Context

Haiers Beginning

Started as Qingdao Haier, a TVE in 1984

Zhang Ruimin took over as director

Intense focus on quality and brand-building

Cementing Haiers Position

Continued economic reform towards market

economy

Focused solely on quality and brand-building despite

rising prices

Commanded 15% premium despite price wars

Important Context

Cementing Haiers Position

Investments in computerized service centers

Focus on building reputation

To continue growth, 44% of company was listed on

Shanghai Stock Exchange to raise RMB 369 million

Recent Events

China mandated to open markets by WTO in 2004

Government farmer subsidy increased appliance

sales by 168%

Industry
White Goods

Raw
Materials

Sheet metal
Refrigerators
Home Depot
Paint
Mini-Fridge
Lowes
End Consumer/Retailers
Computerized parts
Dryers
Sears
Human Capital
Washers
AC Units

Top Players

Threat from Substitutes:

LOW
o Products perform an essential Duty
o Lack of substitutes
o Irreplaceable products
Product

Available Substitute

Fridge

None

Dryer

Clothes Line

Washer

Wash board

A.C Unit

Fan

Threat of Entry: Low

Barriers
Possibility of retaliation

High Capital Requirements ( Produce 1 million )

Costly to gain brand awareness

Advertisement cost, Loyal customers

Hard to gain access to distribution channels

Established firms have Absolute Cost Advantage

Due to low cost of Raw materials
Established firms have Economies of scale

Rivalry within the Industry:

High

Highly Concentrated Industry with a lot of Multi

Nationals
Ex- Samsung, Whirlpool, GE, Haier

Haier and 2 other firms control 60% of China s Market!!

Firms Compete heavily in product development

Price Parallelism for products

Simple products range from $400-$800

Higher quality products range $1K-4k

Price Diversity in the

industry

Medium/Low differentiation between products

All perform the same basic duty

Exception of Haier

Bargaining Power of
Buyers: High
End Consumer
Retailers
Medium

Products are an overall

necessity.

Moderate Price sensitivity

Need vs. want

Differentiation appeal

Low switching cost due to

price parallelism

Retailers are unlikely to

backwards integrate

Many Retailers in the

industry Compete for
Contracts
More buyers than producers
Low Switching costs

Bargaining Power of
Suppliers: Low

No specialized items ( most are commodities )

Sheet metal

Paint

Human capital

Large amount of suppliers and producers

Overall Effect of Forces

Force

Overall Strength of Force

Industry Rivalry

High

Threat From Substitutes

Low

Threat of Entry

Low

Buyer Bargaining Power

Medium

Supplier Bargaining Power

Low

Overall

Medium Low effect on the industry

Overall semi-attractive industry to be in

Haiers appeal

Value
Consumer Surplus

Industry

Haier

High quality Product

Differentiated product
Complimentary Services

Price

Premium Price

Cost

Low Labor cost

bargaining power Over
suppliers

Key Industry Strategies

Research & Development

Extensive Sales & Marketing Networks

Access Foreign Markets

High-Volume Manufacturing

Research & Development

Offering Variety of Products

Tailor to needs of different customers

Haiers Performance

Focus on speed and differentiation

Eight design centers to facilitate rapid product development

Global Market Share of Consumer Appliance Brands (% of retail

volume)
2002
2004
2006
2008
Brand
2010
Haier

2.3

3.2

3.6

4.5

6.1

Whirlpool

5.8

5.8

5.5

5.1

4.9

LG

3.2

3.6

4.2

4.5

4.8

Sales & Marketing

Brand is key to success

Quality Assurance of Product Performance

Whirlpool lost about $100 million by not taking quality seriously in

China

Offering Variety of Products

Catalog of multiple types of same product

Global Market Share of Consumer Appliance Brands (% of retail

2002
2004
2006
2008
2010
volume) Brand
Haier

2.3

3.2

3.6

4.5

6.1

Whirlpool

5.8

5.8

5.5

5.1

4.9

LG

3.2

3.6

4.2

4.5

4.8

Foreign Market Access

Intense competition leads to expansion need

WTO forced China to open its markets

Haiers Performance

Start in more difficult foreign markets first

Staff with locals to gain insight into culture

Global Market Share of Consumer Appliance Manufacturers (% of

retail volume)

Firm

Base
Country

2002

2004

2006

2008

2010

Whirlpool

USA

10.2

9.6

11.7

11

10.5

Electrolux Sweden

8.2

7.8

7.6

7.6

7.3

Haier

3.0

4.4

4.8

5.3

6.9

China

Manufacturing &
Technology

Firms must produce >1 million units to remain profitable

Construction of new manufacturing facilities

Only 3 firms, including Haier, were able to sustain this

Companies consistently invest heavily in PPE in foreign countries

Product line processes

Haier able to develop subsystems based off of a basic

manufacturing platform

The Haier Strategy

Three thirds goal (Exhibit 3b)

1/3

goods produced and sold in China

1/3

goods produced in China and sold overseas

1/3

goods produced and sold overseas

Staff with locals

knowing
Can

the market well = quick expansion

create a customer-focused product

Extensive

and well-supplied R&D

Product differentiation

The Haier Strategy

International Strategy

US Strategy

Focus first on proving profitability in difficult markets and then

move into the easier emerging markets
Selling quality products that can be sold at a premium rather
than selling the cheapest product.

China Strategy

ZZJYT
Self

managed teams with an incentive system

Inverted
Ideas

typical corporate pyramid

generated by customer at the base and traveled up

through the company

Capital Structure
(in RMB
millions)

2010

2009

2008

2007

2006

Total
Liabilities

19,778

8,745

4,609

4,212

3,273

Total
Equity

9,489

8,752

7,701

7,056

6,651

Increased debt financing for research projects, product

development, and technology

Haier Competitors

Key Resources

Human Capital

Technology

Local staff

Sub-system making it easy to develop new products

Location

Lower labor costs in China

Leading white-goods manufacturer

Management

ZZJYT- self managed teams

Key Capabilities

Global development

New product development/R&D

Well known brand = loyal customers

After-sale service

Designs specific to each countrys market

Brand building

Necessity for any ambitious firm

#1 in customer service

Quality

Sell at premium, rather than cheapest price

Key Resources and

Capabilities
Resource or
Capability

Relative Strategic
Strength Importance

R1

Human Capital

R2

Technology

R3

Location

R4

Management

C1

Global Development

C2

New Product
Development

10

C3

Brand Building

C4

After-sale Service

10

C5

Quality

Resource and Capability

Matrix

VRIN Analysis
Valuable Rare Inimitabl None

substitutab
le

OVERALL

ZZJYT

YES

YES

NO

NO

Temporary
Advantage

Technology

YES

YES

NO

NO

Temporary
Advantage

R&D

YES

YES

NO

YES

Temporary
Advantage

Brand

YES

YES

YES

YES

Competitive
Advantage

After-sale
Service

YES

YES

NO

YES

Temporary
Advantage

Future of Industry

New Product Development

Existing firms will increase product portfolio

More energy efficient products

Shift towards smart appliances

Following global trends

Increased geographic footprint

Continued Global Development in developing regions, i.e. rural China,

Indonesia, New Zealand and the Philippines

Future of Haier

Continue strategy of cultural R&D

Continue Company Growth

Industry and firm trend

Threatened by increase of costs in the US

High investment in Haier US

Increase product portfolio

Quick to enter new markets

Become more prominent in the U.S

Implement in currently developing countries

China has lower labor costs

Export from China, or manufacture in developing countries

Haier Today

Expanded Product Line

Increased US Market share

Aggressive Marketing

Increased Geographic
Footprint

Smart TV, Computers

Expanded to Africa & M. East

Innovate energy efficiency

*see article

Recommendations

Focus on Existing Locations

Haier is too eager to enter new markets

Develop/maintain strategies in already established foreign markets

R&D

ZZJYT Style management

Expand into a Single, Developing country

Haier was born out of economic growth

Rural Chinas farm subsidy gives potential for further Chinese growth

Potential Risks & Benefits

Risks

Competitors could take advantage of untapped markets

Potentially Missed Opportunities

Leverage existing key strategies of R&D to capture market

Current outlook is to meet Three Thirds goal

Benefits

Increase sales in current locations

Build business relationships and brand reputation

Questions?