1.

Discuss the process of Haier's diversification strategy from single dominant business
to a diversified portfolio. What do you think were the reasons behind this
diversification strategy?

After starting as a refrigerator manufacturing factory in the city of Qingdao by Zhang

Ruimin, Haier followed a related diversification strategy by entering into the air
conditioner and freezer market. Inorganic growth through acquisitions and mergers of
companies like Red Star and Qingdao General Freezer helped Haier to expand
aggressively. All products were introduced by Haier under the single brand name unlike
its competitors Kelon. With the acquisition of Yellow Mountain Electronics, Haier added
televisions and telecommunications equipment into its product mix.Looking into the
process of diversification, their initial focus was on brand building and differentiation
strategy. This is why they first diversified into related businesses. They also focussed on
acquiring firms with good products but bad management. They later developed a strong
and inimitable distribution network.

The diversification strategy of Haier was due to the following reasons:

By the early 1990s, demand outstripped supply in China. They wanted to become a first
class brand and they did not had a big scale operation. This was possible through
diversification.

They wanted to extend their core competency of quality control into related products and
thus expand their customer base by acquiring poorly managed firms

Sometimes acquisition were done under the pressure of government to take over poorly
performing firm

Its superior learning of the Chinese market and efficient distribution system provided
them the confidence to enter into a diversified business

2. How does Haier create value in its Diversified Portfolio?

Operational efficiency: Haiers several manufacturing facilities were restructured into

7 product divisions and 4 group wide categories to achieve operational efficiency. Each of
the group wide categories looked into different aspects of the organizations business thus
 providing specialized advice. Total planning, Quality and Equipment management
functions were formed by combining several divisions.

Retail channels: Haiers strong domestic distribution network gave them a competitive
edge over foreign players in tier 2 and 3 cities. It had extensive network of licensed
dealers and had partnerships with retail chains like Walmart. Independent retail shops,
government purchases, online and telephone sales were also its end of value chain.

Quality: Haier followed a strict quality control system supported by its newly
combined department across various functions.

Self-management teams: These teams were deployed by Haier in the loss making
companies that they acquired. These teams worked closely to turn around them into
profitable ventures.

Innovation and rapid market responsiveness: Haier is focused on meeting customer

needs. Haier meet local demand through inexpensive and customer centric innovations
(ex. Refrigerator with compartment for pickling Korean Cabbage). Haier invested 5-7%
of its revenue into R&D every year. Small modifications added to cater the demands of
the local people became their signature and also added to their profitability.

Distribution: JIT purchasing of raw material helped Haier to reduce inventory cycle from
30 days to 7 days. Procuring form 1000 suppliers instead of 2300 suppliers before
provided them with a bargaining power with the suppliers. It also took advantage of
Chinas growing highway network and technologies likes barcode scanning. One of the
main differentiator was the reorganization of the logistics into a single group that
provided services to the entire company and gave them a competitive advantage.

Superior after sales service: Haier setup a computerized system to track thousands of
customers. Haier maintained a nationwide hotline to arrange house calls by service
agents. Warranty period provided by the company exceeded even the government
regulations. During the servicing of the equipment, they also used to provide the customer
with a temporary replacement.

3. Why does Haier adopt globalization strategy? How does it do so?

The domestic electronic appliance market was becoming more competitive as less
profitable and foreign brands began flooding into China. So Haier decide to go into the
global markets for the following reasons:

Intention: Haier always had the strategic intent to build a global brand. Chinese
markets were also opening up to foreign competitors.
 Increase market share and company goals: Zhang formulated the vision of the
company to receive equal revenues from goods produced and sold within China,
goods produced within China and sold overseas and goods produced overseas and
sold overseas. This called for going global and increasing market share.

Targeting difficult market first: Haier believed in focusing on difficult market first
and then shift focus to easy emerging market as it will help to establish strong brand
image.

Return on investments: After learning in difficult markets, Haier expanded into

emerging markets like Nigeria, Pakistan. This emerging markets served as hubs from
where Haier could expand into other nearby regions.

Brand reputation: Haier wanted to establish itself as a niche product company.

Serving different customers in different markets would provide them with a brand
reputation which could be leveraged upon to gain access to other markets.

Use right people: Haier used local people to expand quickly as they knew market
very well. They hired experienced local leading person to hire a local team and
develop S&D channel.

Product differentiation: Paid close attention to make small modifications and please
customers. One on One communication between customers and R&D, sales people.

The globalization strategy adopted by Haier is that of multi-domestic whereby it seeks to

achieve both global efficiency and local responsiveness.

4. Do you think that Haier's strategy of investing in creating burdensome

manufacturing assets for multiple technologies and that of investing its branding
and marketing have inherent trade-offs? How do you think Haier can materialize
Zhang's vision?

Haier's strategy of investing in creating burdensome manufacturing assets for multiple

technologies and that of investing its branding and marketing may prove costly for Haier
in financial terms. Overseas profit growth will be slower initially and they may lose
money. Low quality image of Chinese products in the developed market could backfire
against them in the long run. Haier wanted to emulate the strategies of successful
Japanese and Korean companies like Sony and LG.

Haier can adopt the following strategies to materialize Zhangs mission:

Chinese market: Haier is known for innovation in China and there is a sense of feeling
of a home company in Chinese market. Haier should leverage upon these factors and
focus more on bringing out more innovative products and build image of a world class
domestic company. Stricter quality control measures and speedy customer service will
help in achieving a better brand recognition.
Global market: Haier should focus on building its brand in the overseas market by
projecting itself as an individualized brand that offers quality, adaptability and flexibility
in its products. Customer service should reach across the breadth and depth of
geographical areas.

Exports: Focus should be on exporting to more emerging economies as these provide a

better return on investment. Opportunities for different products should be searched in
exports.