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TAKING A CHINESE

COMPANY GLOBAL
GROUP 9, SECTION B
Nikita Runwal 96
Tanya 119
Venkatesh Balakrishnan 124
Abhiav Tandon 126
Kaustubh Dudhane 141

CASE OVERVIEW

Originated 1984

Commitment to quality

Acquired the bankrupt companies to diversify in ACs,


freezers, washing machines

Risk of IPO

Bought firms with markets and good products but bad


management
Observe & Digest

Brand
Reputati
on

1) Product
Differentiation
2) Response Speed

Service

1. WHY WAS HAIER SO SUCCESSFUL IN CHINA?

Focus on quality and differentiated products

WINNING THE CHINESE


CHECKERS

MARKET ADVANTAGES
Service

1. Products to meet specific need


2. Learning from the customer
3. 5-7% invested in R&D

1. National pioneer in JIT


2. Efficient logistics and
inventory cycles
3. Single company
serving entire group
4. Understood Chinas
difficult terrain well

1. Computerized
system
2. After-sales service
3. Cheap, efficient and

2. WAS HAIER'S STRATEGY TO


GLOBALIZE BY FIRST GOING TO
DEVELOPED MARKETS A GOOD
ONE? WHY OR WHY NOT?

INTERNATIONAL CORPORATE LEVEL


STRATEGY: MULTI-DOMESTIC

International strategy in which strategic and operating decisions are dece


Local Strategy
Makes products
resonate with
local consumers
needs
Operated
on
Economies of
Scale with huge
volume
Own design centers,
marketing centers
and manufacturing
plants
ADAPTATION
Integrate the global supply
chain resources
Create a brand image
Gear to international
standards
Increase efficiency

AGGREGATION

ARBITRAGE

VALUE CHAIN ANALYSIS


Resources

Capabilities

Potential
access to
wide variety
of markets

Value
contributed
to end
product

Difficulty in
imitation/sub
stitution

Sales &
Marketing

10% of
revenue on
branding and
marketing

Good brand
image

Yes

High

Low

Operation
s

Foreign
Technology

Highest
quality
products

Yes

High

High

JIT order
execution,
tapped retail
channels
Computerized
system for
customer
tracking,
Customer
hotline
number

Reduced
Inventory

Yes

High

Low

Quick and
effective
customer
service, high
customer
satisfaction

Yes

High

High

Strong
financial base

Easy access
to funds, can
attract
talented
workforce,
acquisitions
and global
expansion

Yes

Low

Low

5-7% of
revenue in
R&D

New
innovative
and
differentiated
products

Yes

High

High

Highly

Expertise in
handling

Distribution

After
Sales
services

Financial

Researc
h and
Innovati
on
Human

LEVERAGING CORE COMPETENCIES TO


FORMULATE AN INTERNATIONAL
STRATEGY

Strategy

Core competency focus

Focus on difficult developed markets

Meet high quality standards: Operations


& Product Quality

Begin with niche products (Benchmark


and sidestep)

Minimum competition, high margins &


establish brand image: R&D

Staff with locals (Pull from abroad, Build


the future)

Understand local market and consumer


behavior and develop distribution
channels: Human Resource Planning

Focus on difficult
markets first

Advantages

Disadvantages

Readymade brand reputation

Difficult to enter

High quality standards

Poor Chinese brand image

Global knowledge

High competition

Staff with
locals Disadvantages
Advantages
Local market
knowledge

Highly dependent
on local Head of
Operations

Creating a local
brand image

High cost involved


in getting experts
from other major
brands

Decentralized
approach

No knowledge
transfer across
regions

Begin with niche


productsDisadvantages
Advantages
Avoid head-on
competition

Low-range product
image

First mover
advantage

Limited consumers
in target segment

Relationship with
major retail chains
such as Wal-mart
and Best Buy

Cant be priced too


high (Hence
limited profits)

Brand building

Advantages

s to penetrate disruptively targeted consumer segments, offering niche products and engaging locals
ed of design and manufacturing aided through 18 global design centers

We believe that Haiers strategy was good because it


overcame its disadvantages:
High labour costs can be offset by high margin on premium products
China could use its excess capacity to mitigate the problem of achieving
economies of scale
Haier gained 26% share in compact refrigerators, 50% in wine cellar market and

3. CAN HAIER BUILD ON ITS SUCCESS IN


NICHE PRODUCTS TO BECOME A DOMINANT
GLOBAL BRAND IN HIGH-END WHITE GOODS?

HAIERS CURRENT POSITION ON I-R GRID

Need for Global Integration

Global Standardization
Hig
h

Customer Focused
Catering to local needs
Followed two-pronged
stretagy:
Product differentiation
Response speed
Localized Manufacturing

Low
Hig
Low
h
Need for Local Responsiveness

Joint Ventures on 5 continents


The Americas
Europe
The Middle-East
South Asia
East Asia
Decentralized decision
making

ADVANTAGES OF LOCALIZATION
STRATEGY
No Direct Competition

HAIER EXPANSION: STRATEGY PHASE


Building Brand Equity
Plan to invest 10% of
revenue on global
branding and marketing

Yes, Haier can build on its


success in niche products to
become a dominant global
brand in high-end white goods

Global
Brand
Internationaliza
tion
Intelligent Home
Appliances
Focus on new
generation productsIntegrating IT with its
expertise

Diversificat
ion
Brand
Building

1984

1991

1998

2005

Securing Human
Resources Needed to
maintain rapid growth
and to manage foreign
markets

4. IS HAIER'S THREETHIRDS STRATEGY A


VIABLE ONE?

THREE THIRDS STRATEGY


Shrinking margins on domestic sales
Not specifically targeted at the rural market with specially-priced products
Decreasing
Increasing
Saturation of the urban market
Domestic
Exports
NationalSales
overcapacity estimated
at 30% in applianceIncreasing
market
Overseas
Sales
as
a
%
of
Haier

Revenue

THREE THIRDS STRATEGY REVENUE


CONTRIBUTION
Domestic Sales as % of
Total revenue

100

Exports as % of Total
revenue

9
8
7

95

6
90

5
4

85

3
2

80

1
75
1998

1999

2000

2001

2002

2003

2004

Overseas Sales as % of
Total revenue

8
7
6
5
4
3
2
1
0
2002

2003

2004

0
1998

1999

2000

2001

2002

2003

Revenue from overseas sales and


exports increased from 3% in 1998
to 17% in 2004
In 2004, 70% of overseas sales
came from developed markets:
Leads to development of high
quality standards
Valuable consumer insights
Ready-made reputation for
developing markets

2004

THREE THIRDS STRATEGY:


VIABILITY
% Growth across Segments
100%
88%

10%
2003

Domest
ic

17%

20%

2004

2003

25%

2004

Exports

2003

2004

Sluggishness in growth
rates in the Domestic
market is compensated
by the huge growth in
Exports and Overseas
markets

Overse
as

Three-Thirds strategy not viable in the short-run:


~80% revenue from domestic sales
Low brand equity: Challenge of moving beyond niche products
Consumer preferences different across countries
Three-Thirds strategy viable in the long run:
Drastic fall in ROE over years due to decreasing margins Move out
of Chinese markets
Leverage partnerships with global retailer giants

THE ROAD AHEAD

Change brand perception in order to appeal to image-conscious


consumers Help in introducing full range of products

Operating expenses need to be trimmed to get higher profit


margins which can be reinvested, as the competition is against
cash rich conglomerates

The penetration of appliances into rural segment is very low (10%).


This segment of the market if properly addressed can generate
huge revenues Can be employed for international expansion

Enhance brand prestige Create a global, well-recognized and


respected brand

Continue to achieve success in penetrating developed markets so


as to ease entry to developing markets Ready-made reputation

ON PORTER'S DIAMOND HOW IS KOREA AND


CHINA'S NATIONAL COMPETITIVENESS? ARE
THEY DIFFERENT? IN WHAT WAYS?

RADAR FOR CHINA AND SOUTH KOREA

Skilled labour
100
Related and Supporting Industries

50

Quantity of labour/Output
South Korea

Demand Conditions

China

Natural Resources

CHINA VS. KOREA

WHY THE CHINESE SMILE LESSER THAN


THE KOREANS
China focused on the lowest part of the
smile curve needs huge production
volume to get significant profit

Koreans reap
value at each
stage- sign of a
more advanced
economy based
on advanced
factors

HOW SUCCESSFUL DO YOU EXPECT LG


AND HAIER'S INTERNATIONALIZATION
STRATEGIES TO BE?

LGs INTERNATIONAL STRATEGY

LOCALIZATION
STRATEGY

Failure in Developed Markets

Local manufacturing units


and local R&D team
Exploited cultural aspects
Complete autonomy given to
local managers in decision
making
Set up local distribution
chain and
dealership
LGs
SUCCESS
networks
Ability to visualize markets in the longterm
Expansion of offerings in emerging
markets vs. downscaling by other
companies
Success recipe: Culture marketing,
rural distribution, customized products

HAIERs STRATEGY
Defender

HAIER: TASTING SUCCESS

The an
Set
Haiers
company
example
enjoys
for other
a 40%
Chinese
market
companies
share for household
that cultivating
appliances
an international
in China and
bran
h

HAIER- POST 2005

HAIERS STRATEGY PHASES

Haier made
quality a priority,
putting into place
a comprehensive
quality
management
system

Haier over time


acquired
altogether
eighteen
domestic
businesses,
ushering in a
broader
development
dimension in
terms of
diversified
operation and
Localization
expansion in
mode of three
scale
in one,
OEC
combining
Implementation design,
manufacture
and sales
Implemented
Market Chain
management

Haier
consolidated
global resources
in R&D,
manufacturing,
and marketing
to create a
global brand
Win-win Model
of IndividualGoal
Combination

Implementing the
development
strategy of a
networked
enterprise is
embodied in three
respects: borderfree enterprise,
manager-free
management and
scale-free supply
chain

INNOVATIVE MANAGEMENT PRINCIPLES


OEC Management Model

CURRENT SCENERIO

Today, Haier has established 15 industrial complexes, 30


overseas production factories and bases, 8 design centers
and over 58,000 sales agents worldwide
In China, Haiers 4 leading product categories - refrigerators,
refrigerating cabinets, air conditioners and washing machines
- have over 30% market share
In overseas markets, Haier products are available in 12 of the
top 15 chain stores in Europe and 10 leading chain stores in
the USA
Haier is now approaching its goal of being local in American
and European markets via localized design, manufacturing
and sales processes
In addition, Haier has set up production facilities and plants in
the USA, Italy, Pakistan, Jordan and Nigeria

REFERENCES

http://www.haier.net/en/about_haier/haie
r_strategy/
http://www.haier.com/in/header/201110
/t20111027_83001.shtml

THANK YOU!