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Haier: Taking a Chinese Company Global in 2011

Ton Nu Lan Anh (Dalena)

JinHee Yang
Nursultan Dyussenbekov
Seungbum Ryoo
SolBridge International School of Business
Special Topics in Global Business
December 20, 2014

Haier and Its Success in China

Haiers success story started with the companys high commitment in product quality.
CEO Zhang Ruimin signed a technology licensing agreement with German refrigerator
maker Liebherr. Haier imported freezer and air conditioner production lines from Derby of
Denmark and Sanyo of Japan, also implemented joint ventures (JVs) with Japans Mitsubishi
and Italys Merloni. These activities were a starting point for Haier to learn and acquire
technology know-how to produce high-quality products. Besides, Zhang believed that
commitment to product quality should percolate down to the lower level as well. To get
workers to understand commitment to product quality, Zhang once pulled 76 fridges out of
the line, ordering staff to smash any defective products even at a minor level like scratches.
Eventually, in 1988, Haier won gold medal for quality in China.
The companys success also resided in product innovation. In Sichuan province,
Haier created washing machines for washing clothes, sweet potatoes, and peanuts. For a
muggy summer in Shanghai, a tiny washer was invented to clean a single change of clothes.
The product introduced in Shanghai then succeeded in Europe.
Haier was an opportunity catcher. In 2001, less than 20 percent of household in the
rural Chinese market owned a refrigerator. Haier took advantage of being a domestic player
to design products solely for these second-line and third-line markets. In 2002, Haier
achieved 61 percent of refrigerators and freezers industry profit ranked as Chinas leading
company by Asian Wall Street Journal.
Haier attained operational efficiency through Haier logistics coined in 1999. That
enabled Haier to save transportation costs and improve the entire process, from initial order
to final product delivery, from 36 days before 1999 to about 10 days in 2004. In terms of
service center, Haier was a pioneer in 1990 to develop computerized system in Qingdao to
serve after-sale service, receiving positive responses from consumers. In rural marketplace,

Haier sought to enhance in store traffic via establishing community-gathering spaces, in

which children can come to do homework and non-Haier-branded household products can be
brought for repairs.
Lastly, Haier occupied market responsiveness approach with its self-managed
teams called zizhujingyingti (ZZJYT). Each team comprises of nine to thirty members. The
team operated in market sensing, product design, or product and manufacturing domains.
The beauty of this approach is it was designed not only for targeting consumers unmet needs
but also for fostering internal talent development as each team was accounted for its own
profit and loss (P&L) and each individual was evaluated based on key performance indicators
Focused on Developed Markets First
In developed markets like the U.S. and European, it is challenging to meet
consumers desirability, as consumer preferences are diverse. In addition, developed markets
occupy the highest competition level, which enables company like Haier to improve itself to
meet the highest quality standards. Thus, if Haier could succeed in this competitive
battleground in which dominant players are located, it would be helpful for Haier to convince
emerging market retailers to carry its products as well as to compete effectively in mature
markets against strong brands such as GE, Matsushita, and Philips. Overall, Haiers strategy
to first globalize into developed markets was a good strategy yet risky at the same time. The
strategy required Haier to possess such tactics or strategies to capture consumers acceptance
in global markets where Haier was unknown at the beginning. These tactics will be discussed
further in the following section.
Niche-Product Strategy
Niche-product strategy (Niche-market strategy) is a strategy aiming at satisfying small
market segments through providing specific products in response to the markets specific

needs. Yet, niche-market strategy could only be a stepping-stone for Haier to enter the global
competitive ground. In the American market, tapping into students and offices segment with
Haiers compact refrigerators yielded 30 percent market share during 1994-1997. After
gaining credibility in this market, Haier started to introduce regular products to the U.S.
market. Hence, in order to succeed and capture a bigger pie in high-end white goods, it is
essential for Haier to be market-oriented and differentiated from other opponents.
To be market-oriented equally means to be customer-focused could set Haier apart
from its competitors. In the European market, Haier produced top-loader washing machines
in France rather than front-loaders favored by most Europeans. In 2004, revenue generated in
Europe accounted for 17 percent of Haier Groups total revenue. In the U.S. market, paying
attention to such minor details of consumers together with innovative ideas assisted Haier in
achieving highest global market share of 6.1 percent in 2010 from 2.3 percent in 2002.
Haiers successes continued with smaller dishwashers in Japan, video messages on
refrigerators in place of paper notes in Europe, and high-capacity laundry machines to
accommodate long robes worn in Pakistan.
Haiers Three Thirds Strategy
Haiers three third strategy was aiming at earning revenue equally from goods
produced and sold in China, goods produced in China and sold overseas, and goods produced
and sold overseas. This was a wise strategy as the company sought to build a concrete
position in the home market, following with a gradual expansion to the international market.
In light of goods produced and sold in China, Haier succeeded in targeting a rural area
through being a township and village enterprise (TVE) offering high-quality output in China
that was rare among Chinas 300 refrigerator manufacturers in 1984. (TVE operated at the
national and provincial level with the support of municipal government regarding bank credit,
machinery, import licenses, and operating inputs). In addition, being service-centered,

quality-centric, and market-oriented in 1990 helped Haier achieve its leading position in
China in 1991. In 1993, the Chinese central government tightened credit nationally whilst
Haier was counting on promised bank loans of RMB 1.6 billion, making the firm decide to
list 43.7 percent of its Qingdao Haier refrigerator on the Shanghai Stock Exchange in
November 1993. Consequently, Haier Electronics Group Co. was listed on The Hong
Kong Stock Exchange in 2005. Those activities contributed to justify Haiers second step of
venturing into overseas markets.
Regarding goods produced in China and sold overseas, Haier initially began as a
contract manufacturer, which exported products would be sold under an original equipment
manufacturer (OEM) client brand in the United Kingdom, Germany, France, and Italy
orderly. By that, Haier can gain credibility and consumers acceptance in the international
market. Then, the firm decided to develop its own brand overseas. Haier was willing to bear
the costs of establishing the firm as an independent player overseas even though the firms
market share in the global market was about 1 to 3 percent since the objective was to
establish brand awareness and reputation in the global market. Haier was successful with its
niche-market and market-oriented strategy via satisfying unmet needs in the international
market as presented in the previous section.
In terms of goods produced and sold overseas, in the case of Haier America, it built
industrial park and refrigerator in South Carolina. The labor costs were high yet enabling the
company to offer premium products and to benefit from channel distribution within America.
In Haier Europe, the company utilized acquisition strategy to buy a refrigerator plant in
Padova, Italy to produce kitchen cabinetry customizing the products in response to the
European consumer preferences. For Haier India, the company implemented strategic
alliance with Indian appliance firm Fedder Lloyd Corporation to jointly produce and gain
insights into the Indian market. Besides, Haier sought to staff with local people to understand

the market and expand quickly. Having its own products manufactured in foreign markets,
Haier only sent temporary technical teams from China while relying on local partners, as the
firm believed that Haier in each country could be the Haier (that) that country created.
The three thirds strategy has granted Haier three numbers: 1, 8, and 28. Haier was the
number 1 white-goods manufacturer in China since 2001 by Euromonitor. A 75 percent
increase in Haiers 2010 profits was 8 times its 9 percent increase in revenues. 28 was the
rank of Haier Electronics Group on BusinessWeeks 2010 list of the most innovative firms.