Case Study 4: Haier Group: Internationalization Strategy
1. What are the main features of Haier’s internationalization strategy since the early 1990s?
How successful has Haier’s international strategy been, and why?
Ans) The main features of Haier’s internationalization strategy since 1990’s have been:1) Established JV’s with local companies in South East Asian countries like Philippines,
Indonesia and Malaysia, to manufacture and sell AC’s and refrigerators.
2) In Europe, Haier exported appliances to Germany, Italy, Netherlands etc using importers
under the Haier brand only. Its JV partner, Leibherr, helped them to achieve significant
sales in Germany.
3) In the US, they started with niche products with the help of an importer, Welbilt
Appliances, under the retailer’s name. Compact refrigerators and wine coolers were the
initial products, which were then followed by expanding into full size refrigerators and
ACs.
Overall, Haier focused on tackling developed markets with sophisticated consumers, instead of
focusing on markets with similar developmental stages as China. They followed a “locally
designed, locally made and locally sold” approach in an attempt to use local people and thinking
to satisfy consumer needs. They targeted experienced leaders who had worked with leading
appliance manufacturers to head up foreign operations. The overall goal was to make Haier the
most respected brand in the world.
Now, their approach with the international strategy has not been successful enough. This can be
deduced as follows:1) China continued to account for the majority of Haier’s sales and profits and the rapid rise
in living standards in China really helped Haier achieve this level of success.
2) Their international presence remained patchy as the only organic growth of sales they
were able to achieve were in the compact refrigerators and wine coolers category in the
US.
3) The main reasons for their patchy success in the international markets were the
acquisitions they made, primarily with the help of Sanyo, GE and Fisher & Paykel etc.
4) Their brand awareness and reputation outside of China isn’t at the levels that they
should be. They are not even in the top 500 brands.
5) The rendaneyi model which was a success in China is perhaps not that suitable for
international markets. There is no evidence to support this model’s success in other
markets.
2. What are the principal features of Haier’s management system? How does Haier’s
internationalization strategy differ from the pattern of international development typical of
Western enterprises?
Ans)
The principal features of Haier’s management system are:1) Governance in the form of ownership, organizational structure etc is unclear for Haier, as
even the financial information is only available for two of its subsidiaries. Due to this
opaque structure, Zhang Ruimin, has a lot of power concentrated with him for the
decision making. His political contacts also help Haier maintain independence from
municipal interference and help get valuable support from the Chinese central
government.
2) The management of Zhang initially focused on brand building, new product
development, quality management and customer focus. But the priorities gradually
shifted towards rethinking the structure and management systems. All interactions had to
be redefined around supplier-customer relationships.
3) They introduced OEC systems as part of a rigorous performance management based
upon individual incentives and accountability. Monthly divisional targets were broken
down into daily targets for all employees. Only if employees created value did they get
paid.
4) They focused a lot on innovation and new product development. As a part of this, they
adopted flexible modular designs and also were the industry leaders in providing internet
connectivity for all these appliances. Some of their platforms also permitted users to
permit large scale customizations.
5) More importantly, they ended up creating 2000+ self managed teams called ZZJYTs in a
management model known as rendanheyi which transformed the enterprise from a
closed to an open system. Employees ended up from being executors of top down
directions to self motivated workers. Purchasers of products ended up being lifetime
users. Leaders were assimilated to each local culture and were appointed using
elections by the team and hence had powers similar to the CEO of a company and not
divisional heads.
Haier’s internationalization strategy differs from the pattern of international development by
Western enterprises as they focused more on differentiation at a similar price point as compared
to focusing on standardization of products amid economies of scale. Further, they aimed to use
the rendanheyi model across all international divisions as well, which was different from other
giants in the industry. Lastly, they also focused on a locally designed, locally made, locally sold
approach which was different from other market leaders.
3. What recommendations would you make for Haier’s continuing success as a global leader in
the appliance industry?
Ans) For a continued success as a global leader in the appliance industry, I would suggest the
following changes to Haier:1) Don’t be 100% focused on using the rendanheyi model across all markets. As you
ensure that leaders are focused on local thinking and being assimilated to each culture,
every culture has a different working style. Use data to find out which countries are not
responding to this setup, and use a more traditional setup there. Some aspects of the
company culture can still be kept, but don’t be very rigid about this approach.
2) Find out more niche products for each market using product development techniques.
That is a strong point for Haier and only success in the US with compact refrigerators
and wine coolers is a very minuscule success point. There will definitely be a lot more
opportunities across markets which could be identified and made the most of.
3) Be more open about your financials and company data, especially for the entities not
based in China. These could then be leveraged to provide confidence to customers who
could then also become retail investors in the Haier stock in various stock markets and
provide additional sources of income to the company.
4) Lastly, I would like to add that they should allow public scrutiny into their working, and
allow 3rd party information to float out there. Only information from the company itself
does not give customers confidence.