Case Study Haier: Taking A Chinese Company Global [PDF]

Zitiervorschau

Case Study
 Haier: Taking a Chinese company global 1)What strategy did Haier Group choose for their business activities? To which business actions did Haier Group proceed in order to apply this strategy? How did Haier Group finance these actions in order to apply this strategy and make it successful? 


In order to diversify themselves from the other manufacturers which were about 300 in 1984, Haier decided to focus on high-quality products. Most of the manufactures at that time were producing lowquality products and exactly therefore the general director of Haier, Zhang Ruimin, believed that Chinese customers would be willing to pay more for high-quality products and reliable service. He came to this conclusion after comparing the Chinese population with the German one, considering that in Germany, people effectively pay more for a better quality. In order to imitate this business model he entered into technology licensed agreement with German, Danish and Japanese producers, and created jointventures with Japan’s Mitsubishi and Italy’s Merloni in order to get more foreign technology and design. Haier therefore focused on high-quality products with high prices, and made a profit of RMB 1 million in its second year when its refrigerators sold in three major Chinese cities. Haier resisted mass production and focused on brand building which was successful: even in 1989 when China’s refrigerator market faced oversupply, Haier raised its prices contrary to its competitors and commanded a 15% premium even during a price war. By 1991 as Haier had become China’s leading refrigerator manufacturer, it began to diversify itself. The diversification and growth of Haier which was renamed Haier Group in 1992 can simply be explained by the group buying companies which were struggling due to a bad management, by taking on the debt of each firm and retaining most of the employees. The first two acquisitions were the Qindago Air Conditioner Factory and the Qindago General Freezer Factory. Introducing a new air conditioner type had transformed a deficit of RMB 15 million into profits. By 1997 Haier had, sometimes under government pressure, taken over 15 companies in accordance with their acquisition strategy. General director of Haier Group, Zhang Ruimin, explains that the group only takes over firms with good products and bad management, and turns them around by introducing management and quality control. In order to finance these large acquisitions, Haier was focusing on promised bank loans of RMB 1.6

million, but the Chinese central government tightened credit nationally in an effort to halt real estate speculation. Therefore, the only option for Haier group was to turn themselves to China’s stock market, listing 43,7% of its refrigerators division on the Shanghai Stock Exchange Market in November 1993. The Initial Public Offering (IPO) which is the first time that the stock of a private company is offered to the public, raised to 396 million. This was a riskiest thing Haier had ever done and without the enormous IPO, Haier would have disappeared. 2)What seemed to be the competitive advantages of Haier Group compared to other similar companies in China? What business choices and actions differentiated Haier Group from the rest of similar companies in China? 
 Haier’s commitment to high quality products had been enough to distinguish them from their competitors in the 1980’s, but as the weakest firms had been acquired, Haier faced now more performant Chinese competitors, mostly elaborating and specialized in only one or two product lines. Especially in the refrigerator sector, the chronic price wars hurt all of the competitors including Haier. In order to ensure continued profits, Haier cited its more diversified Holdings, its differentiated products and its export strategy as key factors. Haier Group differentiates itself essentially by three key points from their competitors in China. The brand itself invests 5-7% every year in research and development (R&D) which means that new products will take birth every year, and old products won’t be made obsolete by the competitors but by the company’s own new products. Haier consistently won praise in these three areas: innovative and rapid market response, superior after-sales service as well as an efficient distribution. The first one is market responsiveness, Haier’s general director, Zhang Ruimin, affirms that the company has been successful in China because it focused on meeting customer needs. Some incredible stories come up, for example when a customer in China’s rural province Sichuan complained that his washing machine was breaking down because it was congested with mud, Haier engineers modified the design in the way that it was possible to wash clothes, clean sweet potatoes and other vegetables. Haier machines in Sichuan were even labelled “Mainly for washing clothes, sweet potatoes and peanuts”. This is only one of many examples, which clearly brings to light the strategy of meeting localized market demand at home and abroad with innovative models which resulted in about 96 product categories and 15100 specifications, which often were inexpensive for the company but precious for the customers. The second key factor is service, which has taken birth by the setup of a computerized system in 1990

which made it able to create a giant database of all the existent clients. The effort paid off, as customers throughout China who were expecting very little of no after-sales service at all began to consider Haier as a new breed of company. By 2004, Haier established an independent network of 5,500 contractors, of whom some exclusively working for Haier and other for Haier and competing products. Haier product owner could call a nationwide hotline and in case if an appliance had to be removed from home, Haier provided a replacement free of charge. Another very important detail is that Haier’s warranty periods covering full repair costs either met or even exceeded government regulations. The third key factor lays in the distribution, Haier created an independently operating company named Haier logistics in 1999, offering the famous Just in Time (JIT) purchasing, raw materials delivering, and product distribution. The JIT principle had incredible advantages which made it possible to reduce the size of the warehouse from 200.000 square meters with an inventory cycle of over 30 days, down to 20.000 square meter with a seven-day inventory cycle. Furthermore, in 2004 Haier’s JIT order-execution purchasing center bought about 300.000 components from the different product lines from only 1000 suppliers in China and oversees, down from 2300 suppliers. Haier worked with over 300 transport companies which used about 16000 vehicles and transported in total 100.000 products each day. By delivering very large orders directly to warehouses, the entire process length was able to be cut down from 36 to incredibly 10 days of duration. The main point in the distribution clearly was that Haier had created an independent company and reorganized it in order to serve the entire group. Other competitors had separate logistic lines for each product. 3)How did Haier Group manage to compete with international companies of the same industry? 
 Which actions and which external factors/facts determined Haier Group’s international success? 
 In order to compete with international companies of the same industry, Haier decided to sell Haierbranded products in overseas markets and not as many of their national competitors to do OEM production for multinationals. Haier goal on what concerns the export market in general is therefore to “establish a brand reputation overseas” and not as many national competitors to export products and earn foreign currency. The main strategy for competing with local brands is focused on two points: The product differentiation and the response speed. Just like in China, Haier made small product modifications in order to please the customer which sometimes translate themselves with simple innovations such as a freezer with a separate compartment. The response speed can be illustrated by the example that when having noticed that American customers did not like deep-box freezers because items at the bottom were difficult to reach, an immediate improvement was suggested seventeen hours

later. Haier decided to focus on the difficult markets first. By difficult markets the company means the developed markets and only after proving in those, targeting the “easy” respectively developing markets. In 2004, about 70% of Haier’s oversea sales came from developed markets of Europe, United States and Japan. Going firstly into the developed markets was also seen as a good challenge to meet the highest quality standards. Having a few successful products introduced in the developed markets opens doors for introducing the entire product range. Another very important point are the niche products by which Haier typically entered the market to test the waters and steer clear of major competitors. This for example was the case when entering the U.S. market when Haier discovered that there were no alternatives for student or office refrigerators because volume and prices were too low. By three years, Haier had 30% of market share in compact refrigerators, which allowed them to get the attention of major retail chains like Wal-Mart or Best Buy, as well as generally introducing their other products. When entering a new market, it is very important to use the local staff to establish the structure. Local people have a huge knowledge of the market and can therefore help to expand very quickly because they already worked for top brands and using only Haier employees won’t be enough human resources. Haier therefore hired a local person with experience preferably in a leading white goods firm to head the country operation who would hire a local team and develop sales and distribution channels. Haier split oversea sales into five large regional markets: America, Europe, Middle East, Southeast Asia and East Asia. Haier’s introduction in the US market was in 1994 and even if at this time only three refrigerators met the US energy and safety standards, all 150.000 units purchased by Michael Jemal, a partner in a New York based company, were sold, capturing 10% of the US market for compact refrigerators. Haier Europe, which was headquartered in Italy began coordinating sales and marketing of Haier products in 13 European countries, growing to 17 markets by 2004, year in which Haier had an estimated 10% share of European air conditioning sales. In India, Haier had to recognize that the “easy” emerging markets were not that easy, with big challenges considering the environment, economy and channels.