Synopsis
Introduction
Page
3 Chapter 1:
1.1 3
5 1.2 Background
1.3 Reasons for choosing this topic 7
8 1.4 Corporate summary
Chapter 2: Research method
Chapter 3:
3.1
11
Environment and corporate core competence analysis
12
External environment 12
3.1.1 Macro environment
3.1.2 Industry
1) Industry analysis
2) Product life cycle analysis
3)
Porter’s five forces analysis
3.2 SWOT analysis
3.3 Internal environment analysis
3.3.1
Infrastructure
3.3.2 Logistic management
3.3.3 Human resource management
3.3.4 Technological management
3.4 Critical successful factors
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24
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15
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17
25
27
28
31
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3.5 Competitive advantages
3.6 Corporate core competence
Chapter 4: Corporate and business strategies analysis
4.1 Corporate strategy
4.2 Business strategy
4.2.1 Main competitors in global market
4.2.2 Analysis with generic competitive strategies
4.2.3 Analysis with the strategy clock
4.3 Developing strategy
4.4
International Market strategy
4.4.1
Market selection
4.4.2
Entry mode selection
4.4.3 Market entry tactics
4.4.4
Marketing mix
Chapter 5: Conclusion.
Chapter 6: Recommendations
Reference
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1.1 Synopsis
In this project, Haier Group’ s global strategies and activity will be analyzed and discussed. The aim of the research is to investigate and critically evaluate the Haier group's corporate strategy that concern about going multinational. In background section, the image of ‘made in china’ will be discussed, because it has important influence to Haier’s expansion. As a Chinese state own enterprise which is the focus of
Chinese reform, its success in oversea market made it become a representative of
Chinese manufacture.
In external environment analysis, through analyzing macro environment of China, identifies key structural drivers of change and the differential impact on Haier, then uses the five forces framework to identify the source of competition. In internal factors analysis, by supply chain tools to analysis Haier’s logistic, human resource and technological strategies. In the last, gets the critical successful factors and core competence.
In corporate strategies analysis section, competitive strategy, developing strategy, market expansion strategy and international marketing strategy are discussed.
According difference of the realistic situations in domestic market and oversea market,
Haier adopt different competitive strategies. In domestic market, it adopt differentiation strategy; in oversea market, it adopts cost leadership with some degree differentiation way. In China, Haier’s development strategy focuses on high quality and high price to consolidate its leader position. And for the reason of domestic market pressure and government supporting to export, it also adopts market development strategy in oversea market. Because learning potential is more important for Haier, so it adopts the ‘first the hard, then the easy’ method, firstly entered developed countries’ market. By market survey, Haier adopts different market entry mode into different foreign market.
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After analyses, a conclusion has been drawn that Haier’s global strategy is successful now, but it will encounter more and more challenges in the future.
At the last, Haier’s main problems in future are extracted, and according these problems, recommendations will be provided as follow: 1). Develop low cost product to satisfy rural market’s and low income customer’s need. 2) Continue to enhance the first brand image of electric appliance in China. 3) Increase the international turnover proportion in total turnover step by step. 4) Try to gain more support from Chinese government. 5) Improve technological capability. 6) Lower cost, concentrate on core business, merge and acquisition with domestic and oversea companies to enlarge its economic scale. 7) Strengthen the relationship with partners, collaborate with multinational corporate to build win-win style joint venture enterprise.
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1.2 Background
China as one of the major exporting countries, by 2002, manufactured goods accounted for over 90% of its all exports. Within this trend, there has been a shift away from basic manufactured products towards the production of electronic goods.
“Between 1996 and 2002 textiles exports fell from 23.1% to 17.7% of all exports, whereas exports of machinery and electrical equipment rose from 20.6% to 35.6% of all exports.” 1
The indexes means Chinese export infrastructure is changing day by day. And many domestic and foreign companies that produce goods in China and sell them to consumers all over the world make there become a global manufactory.
On the other hand, sluggish domestic demand due to overproduction forced enterprise such as machinery and electronic appliance manufacturers, to look to outside world market. Pressure of domestic market saturation and government supporting to expansion pushed Chinese enterprise to establish overseas operations.
Most multinationals are producing and selling products in China. In spite of intense competition, the Chinese consumer electronics and domestic appliances market is dominated by homegrown giants just as Haier, TCL that have built a strong brands awareness inside their own country.
Outside it, however, the story is different. “Many Chinese companies, finding the challenge of building their own brands and channels in the United States and Europe daunting, have opted for the OEM route, producing goods for global brands rather than their own.” 2
Every day, people in China work at making things for global customers to buy, but one can hardly name a single product that has a ‘Made in China’ sticker on it and is considered a high-quality product. The truth of the matter is that the words “Made in
China” evoke other, unspoken words, like “cheap goods,” “low quality,” and
1 The external sector, Country Profile. China; 2004, p52, 5p, 4 charts.
2 China's refrigerator magnate , By: Wu, Yibing, McKinsey Quarterly, 00475394, 2003, Issue.
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“disposable.”
Chinese brands are faced with many problems to enter the oversea markets, include:
First, Chinese companies aren't big enough or profitable enough to compete overseas.
With big economic scale, the companies can lower the costs, have advanced technological capability and stronger bargain power. The Chinese market has grown, but it has become fragmented, partly because regional differences in income have increased sharply since the reforms of the last quarter century. Consequently, Chinese companies are small by both global and Asian standards.
Second, the only organizations large enough to compete on a international stage are generally the state-owned enterprises. “According to Fortune, the government owned
98 of the 100 biggest Chinese companies in 2002. Many of these enterprises suffer losses, stay in business only because of the monopolies they enjoy, and thus aren't globally competitive.”
3
“Third, the Chinese government usually denied private companies permission to sell equity shares in the capital market or to borrow from commercial banks. (The Chinese government officially announced that it would support the growth of private business at the 16th National Congress of the Communist Party of China held in November
2002.) However, the state often invests in the shares of public-sector companies and provides them with subsidized credit. Neither public nor private companies can become competitive in such a financial system, goes the conventional wisdom.”
4
On the domestic scence, Haier represents a new business model, challenged by China’s constantly changing economic polices and conditions at the juncture of China’s entry into the world Trade Organization. On the international stage and among multinational corporations, Haier is an international phenomenon that has succeeded in expanding and increasing its market share in the highly saturated global market.
3 Zeng, Ming, Williamson, Peter J., The Hidden Dragons , Harvard Business Review, 00178012,
Oct2003, Vol. 81, Issue 10.
4 Zeng, Ming, Williamson, Peter J., The Hidden Dragons , Harvard Business Review, 00178012,
Oct2003, Vol. 81, Issue 10.
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“Haier’s market entry strategy of firstly moving into more sophisticated global market, such as the US and Europe, made Haier sharpen its technical skills and research capability. The market entry route is different from the old tradition that was practiced in Asia for centuries that export cheap labor, export cheap material and export product for profit.
“In 1997, State Economic and Trade Commission decided to support Haier as one of six main Chinese enterprises to compete “World Top 500 Enterprises”.” 5
Haier’ globalize operation model drives it to “the Express Way”, so in the international market, Haier wins more and more respects in short period of time. However, we can clearly recognize that Haier still has distance compared with world top enterprises.
In such background, Haier’s performance in the international market has attracted abroad attention all over the world.
1.3 Reasons for Choosing this Research Topic
There is a debate going on whether Haier will succeed in its global strategy. It is the first Chinese manufacturer to extend its brand into the U.S
market with a large investment.
As the flagship of Chinese State own enterprises, it confronts with globalization and continuous domestic policy changes.
The reform and reconstruction of China’s SOE has called widely attention of all over the world. China will make efforts to develop a batch of large corporations and group companies with strong international competitiveness. While entering the WTO,
Chinese enterprises try to build themselves into competitive corporations through technological innovations, reform on personnel system, use of foreign investment, industrial cooperation, reorganization and market listing.
China is a large country with high demand for domestic electrical appliances. “China contributed to almost one-sixth of the world demand for washing machines.”
6
The market has attracted many manufacturers into China.
5 See http://www.haier.com/english/career/conception_hr.html
6 See http://www.euromonitor.com/gmid
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There is a large income gap between rural and urban households, rural residents yearn to enjoy the modernized lifestyle of urban residents, which yield an increase in the demand for electrical appliances.
There is huge potential purchasing capability in rural regions. Income gap also exists between west region and east region in China. With
China’ economic increasing, low income group will improve purchasing ability.
How to maintain its leadership in Chinese market and expand the market share in oversea market is the key issue for Haier. Haier as the representative of Chinese largest state own enterprises, whether it can be successful or not in the global market stands for not only the future of itself but also the other companies that implement the same strategy as Haier.
Although Haier has achieved remarkable success in us market, it still has long distance from the global leaders such as whirlpool and GE. It is a long way for Haier to become a giant in global market.
In light of this consideration, this paper concentrates upon analyzing the problem of
Haier’s global strategy and discussing whether it is reasonable.
1.4 Corporate Summary
Haier group was established in 1984 and initially produced household refrigerators.
Over the past 19 years, the company has grown and been successful and is now a transnational organization widely recognized by the world community. Haier now manufactures a wide range of household electrical appliances in 96 categories with
15,100 specifications and exports products to more than 160 countries.
“In 2003, Haier’s global sales hit RMB80 billion and Haier brand topped all Chinese trademarks at a nationwide survey. On January 31, 2004, Haier was named one of the world's 100 most recognizable brands in a global name brand list edited by the World
Brand Laboratory, one of the world brand evaluation organizations. As the only
Chinese brand on the list, Haier was ranked 95th after such household names as
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Coca-Cola, McDonald's and Nokia, which were the top three.”
7
By 2001, the company’s entire range of products had extended from one refrigerator in
1984 to a range of 86 items in 13,000 varieties, including coloured designs in white, black and cream.
“Haier’s turnover in 2001 reached RMB61.7.2 million, up from RMB3.5 million in
1984 when the company was first established, and up by 48.3% on the previous year’s total of RMB40.6 million. Since 1985, average annual sales growth stood at an impressive 78%. But its turnover in 2002 is RMB39.7 million, down by 35.73% from previous year, and in 2003 is RMB36.8 million, down by 7.08% from 2002.” 8
In 2003, Haier’s domestic market share for refrigerators is 26.2%, air-conditioners is
16.6%.
Haier Group’s product portfolio for white goods includes the following items:

Refrigeration appliances, including refrigerators and freezers;

Dishwashers;

Microwaves;

Home laundry appliances, including drum type washing machines and pulsator type washing machines;

Large cooking appliances, including gas cookers only.
The majority of Haier products are marketed under the Haier brand. The brand is marketed as a high quality, innovative brand within China and is backed with a substantial advertising budget.
“Haier’s most important market by far was Asia-Pacific, where it took a share of 7.9% in 2001, up from 6.9% in the previous year. Haier is the market leader in Asia-Pacific, largely due to its dominance of the critical Chinese market.” 9
The company’s second most important regional market was Africa and the Middle East where it took a share of 5.5% in 2001, due in part to the relative lack of competition in this market.
7 See http://www.haier.com/english/about/index.html
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Haier has a notable presence in all regions, recording a share of over 1% in Australasia,
Western Europe, North America and Eastern Europe. Regionally, the company is weakest in Latin America where it as yet has few interests.
8 Haier annual report
9 See http://www.euromonitor.com/gmid/
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Because this dissertation is based on the case Haier group’s strategic issue, and author is studying in the Coventry, England, the limited time and far distance make some research methods and plans impossible to imply, which include: extensive surveys, face-to-face interview etc. In this paper, the mainly relies on second data.
“Using secondary data is the enormous saving in resources, in particular time and money” 10
. To research Haier’s global strategy, secondary data can provide the main source to answer research questions and address writer’s objective. Second data is fine.
However by using more than one resource of information, research can be enhanced.
Especially the different information supports the findings.
The secondary source will be supplemented by On-line data source which include: information of Haier Group’ s website and annual report, Euromonitor’ s global market information system and Coventry university electronic library, etc.
In detail, the data and information of China’s environment is mainly got from EBSCO
Information Services and Chinese Websites such as xinhua.com, peopledaily.com,
Sohu.com etc. The data and information of home appliance industry and competitors is mainly got from Online-Learning Database such as Emerald, EBSCO and Euromonitor, and some E-journal such as Appliance. Most data and information of Haier is got from
Haier’s official website, Euromonitor and annual report.
10 Ghauri, P., Gronhaugh, K. and Kristianslaund, I. (1995) Research Methods in Business Studies:
A Practical Guide, London, Prentice Hall
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ENVIRONMENT ANAlYSIS
Macro Environment
(PEST)
External Environment
Political Technological
Competitor Substitute
The
New Entrant
Firm
Consumer Power Supplier Power
Economic Social
Industry Environment
‘Poters 5 forces’
3.1 External environment analysis
The external environment can be divided into a macro-environment and a micro-environment. The macro-environment is the overall economic conditions under which the business operates. The micro-environment includes the factors that have specific impact on the industry sector in which the business operates.
3.1.1 Macro environment
Globalization , the internationalization of markets and corporations, has changed the way modern corporations do business. To reach the economies of scale necessary to achieve the low costs, and thus the low prices, needed to be competitive, companies are now thinking of a global market instead of a national market. Globalization
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provides more opportunities to the companies of developing countries such as Haier that could rapidly improve its technological capability and management skills with learning the experiences of developed countries.
PESTLE Analysis

Political factors:
China officially became the WTO member on December 10, 2001, In the past year,
China's nearing membership of WTO has attracted more and more foreign investment.
More foreign investment would make China even more competitive in export.
Huge changes have taken place in China due to becoming the membership of WTO.
The restrictions on its capital markets will eventually be lifted and market access for foreign goods and firms will be improved. “Foreign companies will be free to set up joint ventures, even in sensitive areas like mobile phones, insurance and banking. On the other hand, foreign competition will make China face tremendous challenges and uncertainties. Its vast state-owned enterprises have to make more reforms, which could lead to a huge rise in unemployment.” 11
The relation between China and western countries is always unstable because of
Chinese human rights status and Taiwan issue.
Law factors:
China had been making comprehensive preparations for entering in WTO. From
November to December 2001, the Chinese government issued several laws and regulations that accord with WTO rules. Some laws and regulations contradictory to the WTO rules have been abolished. The Chinese government also loosened restrictions on Chinese citizens going abroad and foreigners coming into China.

Social factors
“China has seen a rapid growth in income inequality in the reform period. This is true
11 Politics sector, Country Profile. China; 2004, ©Countrywatch.com.
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not only in terms of the increased inequality within urban China, but is also seen in the gap between urban and rural China and between the eastern seaboard and the less prosperous western and central provinces.” 12

Economic factors
“By the early 1990s, China faced a further transition from a planned to market-oriented economy, as the objective of the government became the attainment of a socialist market economy with Chinese characteristics.” 13
Entry to the WTO will reinforce reform. Under its 2001 World Trade Organisation
(WTO) accession agreement, the government promised to open up the country's economy to more foreign competition and to reduce subsidies to SOEs. If the government did not set about solving the problems of financial health of the SOEs and the state-owned banks, the implementation of these and other related WTO changes would lead to their collapse.
The government tries to improve the efficiency of SOEs. Since 1998 the government has been tried its best to deal with these issues. “Under the guiding principle of
"grasping the big and letting go of the small", officials have been trying to raise the efficiency of SOEs by closing some and merging others, reducing government ownership by selling shares on domestic and international stock markets, and allowing state-owned firms to shed redundant labor. ”
14

Environmental factors
“China has sought to contain its increasing industrial pollution largely through administrative procedures and efforts to increase public awareness. A small environmental protection industry has also emerged. In some areas of China, however, pollution has long been considered one of the costs associated with economic
12 Resources and infrastructure, Country Profile. China; 2004, ©The Economist Intelligence Unit
2004
13 Charles Harvie, (2000) Contemporary developments and issue in china’s economic transition,
First published in Great Britain 2000 by Macmilian press Ltd
14 The economy Source: Country Profile. China; 2004, ©The Economist Intelligence Unit 2004.
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development.” 15

Technological factors
There are several programs that include “National Program for Key S&T Projects”, the
“Industrial Experiment Program”, the “Spark Program”, the “National S & T
Achievements Dissemination Program”, and the “National Program for Science and
Technology for Sustainable Development” which established by Chinese government.
These programs could accelerate technological innovation and product regeneration in traditional industries, to develop and exploit advanced science and technology, and to harmonize the economic and social development with nature by upgrading the technological and labor performance level both in industry and agriculture.
“Under the "National High Technology Research and Development Program" ("863
Program") and the "Torch Program", these efforts are designed to place the nation at the frontiers of the world's high technology development in certain fields; the S&T manpower is concentrated on key projects and limited objectives; and the commercialization, industrialization and globalization of high and emerging technologies are vigorously pursued.” 16
3.1.2 Industry
“Mainly home appliances, or white goods, as they were commonly called, were generally classified as laundry (washers and dryers), refrigeration (refrigerators and freezers), cooking (ranges and ovens), and other (dishwashers, disposals, and trash compactors) appliance.” 17 Home appliances are constructed in capital-intensive plants, and design usually varies among countries and regions.
1) Industry analysis
“In an industry evolution view, by the time an industry enters maturity, products tend
Ltd.
15 Environmental review, China Country Review; 2004, ©Countrywatch.com.
16 See http://www.chinaembassy.org.il/eng/c12103.html
17 Thomas L.Wheelen and J.David Hunger,(2000) Strategic Management Business Policy, Seventh
Edition, Prentice Hall
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to become more like commodities. This is now a consolidated industrydominated by a few large firms, each of which struggles to differentiate its products from the competition.” 18
Thus, home appliance industry is now a consolidated industry.
In global view of home appliance industry, all of the manufactures have faced continuing pressures on profit. Product quality and environment issues are crucial.
“Creating a basic design that can be manufactured into a ‘family’ of brands or models will be important.” 19
Because retailers had been gaining increasing leverage over manufactures, “Speed to market” and flexible low-cost manufacturing would be key for future success.
Chinese home appliances markets are saturated with intensifying competition. After the mid 90s, price wars broke out one after another in various home appliance markets.
At the end of 2000, Haier’s market shares of refrigerators, freezers, air conditioners, and washing machines had reached 33, 42, 31 and 31 per cent, respectively. The potential for further development in the domestic market was therefore limited.
However, its excellent performance in China allowed it to expand overseas.
The entry of global home appliance manufacturers into the Chinese market forced
Haier to seek international expansion. In particular, since China joined the WTO, almost all the international competitors have invested in China, establishing wholly-owned companies. The best defensive strategy for Haier would be to have a presence in its competitors’ home markets. Haier directly invests in the US and Europe to compete with the multinationals in their home countries. And learning advance technology and international business skill would enhance Haier’ competitive capability in the developed market.
18 Thomas L.Wheelen and J.David Hunger, Strategic Management Business Policy, Seventh
Edition, Prentice Hall
19 N.C.Remich,Jr, “AHAM:The Next 25 Years,” Appliance Manufacturer (March 1993), P.71
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2) Product life cycle analysis
The life-cycle model
Development Growth Shakeout Maturity
White goods
Decline
User/ buyer
Competitive conditions
Few: trial of early adopter
Growing adopters: trial of product/service
Growing selectivity of purchase
Saturation of users
Repeat purchase reliance
Few: competitors
Entry of competitors
Attempt to achieve trial
Fight for share
May be many likely price-cutting for volume
Fight to maintain share
Difficulties in gaining/taking share
Undifferentiated product/services
Shakeout weakest competirors
Emphasis on efficiency/low cost
Drop-off in usage
Exit of some competitors
Selective distribution
Selective distribution
Source:Gerry Johnson and Kevan Scholes, (2002) Exploring Corporate Strategy, Sixth Edition, Prentice Hall, P119.
From the product life-cycle model, a conclusion could be drawn that white goods should lie in product maturity period. In this period, white goods market is highly competitive, and the competing companies have to work harder to lower the cost and find the niche sector sales of new products. Consumers had been very familiar with the products and looking to buy better quality, more advanced and better priced goods.
This has also meant that price-cutting has become a key feature of the market over recent years, forcing manufacturers to be even cleverer in their product design, distribution, marketing and cost of sale.
According product life-cycle theory, “as the home appliance market in the United
States and other advanced nations mature, the product becomes more standardized, and
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price becomes the main competitive weapon.”
20 . Due to Chinese low labor cost, Haier has advantage against its overseas competitors in price competing. But the global leaders take the top end of products by their advanced technology and brand loyalty.
There are two obvious trends in international home appliance industry, now multinationals all built factory in developing countries such as China and India to seek lower labor cost and expand market; on the other hand, the companies such as Haier directly invests in US and Europe to sharp their technological capability and built brand reputation. It will be a long term war between each other to compete in global market.
3) Porter’s Five forces analysis

Existing competitors
Within its domestic market, Haier competes from a position of strength. It is the leading company in the Chinese white goods market by far and benefits from a strong and well-established reputation, it has very strong customer loyalty, and its good after-sale service is known widely. But competition in China is becoming more intense day by day. There are a few exiting strong competitors around Haier, just as TCL,
Changhong, Chunlan which are SOEs. And after China become a member of WTO,
China’s market situation changed rapidly. More and more multinational home appliance companies entered China’s market with owning huge economic scale, widely brand awareness and advanced technological capability such as Electrolux,
Sony, LG, Philps.
Outside China, the company faces strong competition from well-established brands, especially in the mature markets of North America and Western Europe. The existed competitors in these areas all have huge economic scale, strong technological capability, perfect distribution channel and long history experience.
New entrant
20 Charles W.L.Hill, Global Business Today, Third Edition, McGRAW-HILL
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In white goods industry, barrier to entry is high, the reasons include:
1) Economies of scale
In white goods industry, economies of scale are extremely important. Because the industry lies in maturity period, price-cutting has been a main competing method.
Economies of scale can lead to unit cost reductions and organization with the lowest cost base can prey on its rivals by lowering prices and so force its competitors out of the market.
2) The capital requirement
Because enterprise scale and technology development is very important for white goods industry, so the capital cost of entry is high.
3) Access to distribution channels
In China, distribution channels are not developed, Haier and the other largest manufactures set up their shop in different region. For a new entrant, it is very difficult to do that.
In western country, distribution channels is very developed, this barrier might be overcome by bypassing retail distribution and direct selling through e-commerce.
4) Experience
Early entrants into the white goods market have gained much more experience than others. This can give them advantage in terms of cost and customer loyalty.
According to the above mentioned, small economic scale entrant and new entrant from the other industry will face many troubles when entering the white goods market.
But with China’s entry into the World Trade Organization (WTO) in 2002, it has opened the doors for many international brands.
International brands entered China through Original Equipment Manufacturing (OEM) agreements, joint ventures or setting up their own research and production bases. For
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example, Samsung and Hitachi moved some of their research capabilities to China.
Manufacturers who have their headquarters in China want to benefit from lower production costs and the huge potential market.

Barging power of supplier
“In recent years, the prices of raw material and accessories were expected to decrease, but the end of 2002 saw prices of raw materials increase due to the war in Iraq.
Concerns about the war caused the price of raw materials (especially copper) to increase, and the costs of air compressors rose 15%–20% as a result.”
21
.
Additionally, most of the Haier’s international suppliers have powerful brand, comparatively higher technology, design capabilities, and thus have greater bargaining powers.

Barging power of consumer
The development of electrical appliances distribution brought changes in the logistics system. In past years, the distribution of products relied mainly on the wholesaler end.
Professional electrical appliance specialty shops then became widely popular with the customers. In the coming years, the market share hold by these specialty shops is expected to increase, and the popularity of these specialty shops will strengthen their bargaining positions in the future. Wal-Mart as Haier’s main distributor in American is a very powerful consumer.
Buyers currently have a greater bargaining power due to a flourishing e-Commerce; through the Internet, customers can find the price of every product or service quickly and accurately. Clever customers compare products or service price and quality which inevitably increases the pressure to manufacturers.

Substitute product
At the present time, refrigeration mechanisms do not vary and thus a threat of substitutes to Haier’s products is slim. Without other technological breakthroughs,
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Haier’s air conditioners should not face any imminent threat of substitution.
However, future innovations in refrigerator technologies could introduce new methods of cooling. Haier must constantly be aware of new innovations and their potential effects on the refrigeration industry.
21 See Http://www.Haier.com/index.htm
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3.2 SWOT analysis

Strengths
Haier is the leading player in the market for white goods in the high potential Chinese market.
The company has a strong brand reputation and customer loyalty in its domestic market.
Haier is an extremely fast growing company.
The company is building a good reputation and innovating products to satisfy customers’ need in developed countries’ market.
Haier’s early-bird strategy in going international has put it in an advantageous position.
As flagship of Chinese manufactures, it has won domestic government support and attracted national and international media attention.

Weaknesses
National image “made in China” is weak. As demonstrated by Chinese products, which were considered to be cheap copies. Changing the national image of product s is a long and costly process. Haier was put at a disadvantage position when competing in world markets with the negative national image.
Although the company has invested in most regions of the world, it has not yet established substantial sales levels in any markets other than China.
In the future, white goods industry might face more environment protection policies and laws.
Compare with the global leaders such as Whirlpool and GE, Haier is short of international business management experience.

Opportunities
Overseas expansion offers a strong opportunity for growth for Haier.
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Although domestic demand is slowing, the long-term potential is still immense. If
Haier can retain its leading position, this will offer high returns. As one of the sponsors of the 2008 Olympics, Haier has a very advantageous position and what it can earn not only big profit but also huge reputation.

Threats
After China became a member of WTO. Haier had to compete with he large-scale multinationals both in domestic market and international market.
Continued slowing of demand in China combined with the cooling of the US economy may impact on overall sales levels in the short term.
Haier’ technological capability is weaker than the huge multinationals. On some key parts and components, it too deeply depends on its oversea suppliers.
3.3 Internal environment analysis
Value Chain
Support activities
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound logistics
Operations
Outbound logistic
Marketing
And sales
Service
Primary activities
Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985.
Used with permission of The Free Press, a division of Simon & Schuster, Inc 1985,1988 by Michael E.Porter.
A good way to begin an organizational analysis is to ascertain where a firm’s products are located in the overall value chain. “A value chain is a linked set of value-creating
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activities beginning with basic raw materials coming from suppliers, moving on to a series of value-added activities involved in producing and marketing a product or services, and ending with distributors getting the final goods into the hands of the ultimate consumer.” 22
3.3.1 Infrastructure
In order to improve efficiencies in inventory management and distribution to reduce costs and rapidly feedback the information of customer need to develop differentiated product, Haier implements a restructuring program.
Infrastructure is very important to an organization’s performance in its primary activities. It consists of planning, finance, quality control, information management, etc.
The finance, stock, and distribution divisions were separated from all of the departments, and they were grouped as a business flow to enter into the main center with cash flow and goods flow. As a result, Haier can realize uniform balance, distribution, management, and stock. The 3Rs (R&D, HR, CR) are innovations in order support flow, and the 3Ts (TCM, TPM, TQM) are assurances in order fulfillment support flow.
This organizational structure realizes that the networks, forming its business process system, connect Haier’s external and internal factors.
After reengineering, manufacturing products changed from production in mass to production in orders. By doing this, Haier has direct-to-market and integrated goods flow and business flow, and 3Rs and 3Ts support systems. Business flows push the orders received from the global purchase and distribution net to the product center, business center, and logistics center. Following, the logistics center arranges purchasing and distribution, and the product center arranges production; products are sent to the customers by the logistics distribution system, and payment for goods are
22 Thomas L.Wheelen and J.David Hunger, Strategic Management Business Policy, Seventh
Edition, Prentice Hall
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sent to the suppliers of product center, business center and logistics center.
3.3.2 Logistics
“The mission of logistics management is to plan and co-ordinate all those activities necessary to achieve desired and quality at lowest possible cost.” 23
Logistic could be seen as the link between the market place and the marketplace and the operation activity of the business. The scope of logistics spans the organization, from the management of raw materials through to the delivery of the final product.
Haier Group is the first household appliance maker in China to adopt a logistics management system. Logistics is an important link in Haier’s supply chain management, establishing the company’s unique concept of modern logistics management – one flow and three nets. ““One flow” focuses on orders information flow; three nets refers to the global supply chain resources net, global customer resources net, and computer information net. “Three nets” work together to support the processing of orders information, and the orders information moves all business activities.” 24
Through its advanced logistics system, Haier might realize integrated control of the entire production process. Purchasing plays a very important role in logistics management. Haier centralized all of the purchasing activities and operates with large economic scale in a global scope. The aim of purchasing is provide raw material under the lowest overall cost for the manufacturing system in time. Haier restructured the transportation resource, established transportation department according to the rule of material flow integration. And consolidated and coordinated to control the transportation of products.
Haier’s logistics system breaks free from the traditional closed purchasing model under which materials are kept in stock, and adopts a system under which goods are
23 Martin Christopher, Logistics and Supply Chain Management, Second Edition, Financial Times
Professional Limited.
24 Zhong Chu Inc., Haier’s logistics, 2004. Available at:
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purchased by placing orders with powerful suppliers who have taken part in pre-stage designs. Through JIT (Just in Time) purchase, JIT delivery and JIT distribution, the goal of zero overstock can be met. http://www.156net.com/Carry3/eg013.htm
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3.3.3 Human resource management
As long as the brand of Haier becomes a global branding, each of Haier’s staffs initially shall become a globalized talent. The objectives of HR development in Haier
Group must match enterprise’s strategic objective of globalization, to develop international and competitive talents.
Haier design, production and sales facilities in the United States and some European countries are staffed by local employees. Haier's working environment and pay to its employees are highly competitive. Besides training in production and operation among the newly recruited personnel, there is also Haier culture training.
Corporate culture
“Corporate culture is the collection of beliefs, expectations, and values learned and shared by a corporation’s members and transmitted from one generation of employees to another.” 25
Haier’s corporate culture can be viewed as having three layers. On the outside is the material culture, seen as the company’s growth speed, its products and services.
Further inside is Haier’s management system. At the core are the Haier values, the spiritual culture.
Important functions of Haier culture include:
1) Convey a sense of identity for employees.
In a knowledge economy, employees are a company’s single most valuable assets. It is of utmost important to make all employees feel happy and motivated at work and proud of being a company’s employees. Haier employees pride themselves on the products they make, and are accorded respect when they interact with customers and supplier, and even on the street, where people can identity them.
2) Helps generate employee commitment to something greater than themselves.
25 Gerry Johnson and Kevan Scholes, Exploring Corporate Strategy, Six edition, Prentice Hall
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Haier has a management model called OEC, Which has been Crucial to Haier’s success, and which basically says that each employee should finish the assignment of the day, and add a little more to what has been done the previous day.
BY Haier’s definition, “O” stands for “Overall”, “E” stands for “Everyone,”
“Everything” and “Every day,” and “C” stands for “Control” and “Clear.” OEC management aim aims at overall control of everything that every employee does everyday. The basic requirement is that every employee finish his or her assignment everyday, with a little increase (1%) over what was done the previous day.
3) Serves as a frame of reference for employees to use to make sense out of organizational activities and to use as a guide for appropriate behavior.
Haier encourages creative thinking and technological innovation at all levels.
Workplace operator often come up with small innovations to improve the efficiency of certain equipment, and, in many cases, the innovation will be named after the innovators. Haier’s corporate culture plays a very important role in creating a more innovative corporation. It made Haier open to the transfer of new technology into company activities and products and services. Haier can be flexible and accepting of change. It includes a willingness to withstand a certain percentage of product failures on the way to success.
3.3.4 Technological strategy
“The company must take available the resource necessary for effective research and development. A company’s R&D intensity (its spending on R&D as a percentage of sales revenue) is a principal means of gaining market share in global competition. A company’s R&D unit should be evaluated for technology competence in both the development and the use of innovative technology.” 26
26 Thomas L.Wheelen and J.David Hunger, Strategic Management Business Policy, Seventh
Edition, Prentice Hall
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Research and Development Strategy and Competitive Advantage
Technological Leadership Technological Followership
Cost Advantage Pioneer the lowest cost product design. Be the first firm down the learning curve. Create low-cost ways of performing value activities.
Differentiation Pioneer a unique product that increases buyer value.
Innovate in other activities to increase buyer value.
Lower the cost of the product or value activities by learning from the leader’s experience.
Adapt the product or delivery system more closely to buyer needs by learning from the leader’s experience.
Source: Adapted/reprinted with the permission of The Free Press, an imprint of Simon & Schuster, from
Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, P181. Copyright 1985 by Michael E.Porter.
One of the R&D choices is to be either a technological leader in which one pioneers an innovation or a technological follower in which one imitates the products of competitors.
Technological innovation is a key to maintaining a firm’s competitiveness. In most
Chinese enterprises, there has been a lack of technological competence or resources.
Haier currently develops, on average, 1.2 new products and applies for 2.3 patents daily, and ranks number one of all Chinese enterprises. Its technological capability lies in leader position in Chinese market.
Nevertheless, along with other Chinese white goods manufacturers, it has remained highly dependant on foreign key components and technology. These include high-performance electromotors, compressors, controllers, magnetrons, and sensors.
The situation will be a big disadvantage for Haier to compete in global market. Its technological capability lies in follower position in developed countries market.
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For oversea competing’ s need, It has taken the following measures:
1. Increasing investment in R&D.
1997
480 Investment in R&D (Million
RMB)
Percentage of sales (%) 4
1998
780
4.6
1999
1030
4.8
2000
1949
4.8
Source: European Management Journal, Volume 20, Issue 6, December 2002, Pages 699-706
2. Establishing research and design centers both domestically and internationally.
There are six of them in developed countries: USA, Canada, Japan, France, and The
Netherlands. The main responsibility of these foreign centers is to help the head office develop home appliances that meet the needs and wants of local consumers.
3. Forming international technological alliances with major multinationals. These companies included those such as Mitsubishi, ESS, Lucent, Metz, and Philips.
Alliances and joint ventures have taken place in many sectors such as refrigerator, washing machine, and digital color television.
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3.4 Critical successful factors
Corporate culture is a unique resource of Haier. Haier devotes itself to becoming a learning organization. “ Learning organizationan organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.”
27 Haier’ corporate culture is the good base of learning organization. People at all levels, not just top management, need to be involved in strategic management. They help to scan the environment for critical information, suggest changes to strategies and programs to take advantage of environmental shifts, and working with others to continuously improve work methods, procedures, and evaluation techniques. With learning, Haier can maintain creativity and operate in variable environment.
From value chain analysis, Haier’s center gravity in the value chain is its ability to
‘fast track’ product development, manufacturing and logistics. Haier’s supply chain system allows it to rapidly respond customers’ need and satisfy the market. Because
Haier can achieve reductions in the order-to- delivery cycle, it has a strong advantage over their slower competitors.
Sale s
Market late entrant
Obsolescent stock
Time
Source: Martin Christopher, Logistic and supply chain management, Second Edition, Financial Times Professional
Limited 1998, P151.
27 Thomas L.Wheelen and J.David Hunger, Strategic Management Business Policy, Seventh
Edition, Prentice Hall
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3.5 Competitive advantage
Domestically, Haier’s competitive advantages still lie in its high quality products, supported by a strong brand appeal to Chinese consumers.
Internationally, Haier’s competitive advantages lie in its strategy that focus on satisfy consumer’s need in two approach: speed, of course, to satisfy the consumers' needs as quickly as possible, differentiation to introduce brand-new products or products with features to meet different needs.
3.6 Corporate core competence
“Core competences are activities or processes that critically underpin an organization’s competitive advantage. They create and sustain the ability to meet the critical success factors of particular customer groups better than other providers in ways that are difficult to imitate.”
28
Haier’s success in the domestic market has demonstrated that its core competencies lie in the company’s collective ability to coordinate a number of diverse production skills, such as Just –In-Time manufacturing, brand name maneuvering and customer services.
In global market, especially developed market, Haier can quickly have the knowledge of local customer’s need and develop differentiate products in low price and high quality.
28 Gerry Johnson and Kevan Scholes, (2002) Exploring Corporate Strategy, Six edition, Prentice
Hall
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4.1 Corporate strategy
“Corporate strategy describes a company’s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines.
Corporate strategies typically fit within the three main categories of stability, growth, and retrenchment.” 29
Haier’s corporate strategy: “going multinational (since 1998) With the aim of building an international brand name, Haier now has 62 distributors and more than
30,000 outlets around the world. The company's target for the beginning of the next century is to enter the top 500 list of Fortune magazine.” 30
Global companies tend to be major players in their home countries with a large part of their income coming from international markets. Electrolux, Siemens, GE Electronics, and Whirlpool, for instance, earned 90, 56, 46 and 38 per cent of their total income from international markets respectively. Thus, to follow the trend and grow strong and large, Haier had to go global.
Haier has set a strategic target of 25–30 per cent of the domestic market share for all types of home appliances. It is believed that an expansion beyond this would decrease marginal benefits, and Haier must go overseas and develop Haier’s design, manufacturing, and marketing networks internationally, particularly in the USA, to build up Haier’s international reputation of brand.
29 Thomas L.Wheelen and J.David Hunger, (2000) Strategic Management Business Policy,
Seventh Edition, Prentice Hall
30 See http://www.haier.com/english/about/strategy.html
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From the consideration of resources situation, Haier has gained excellent performance in domestic market, and as the flagship manufacture enterprise of China, it can take the advantage of government supporting to compete international. From the product and market analysis (BCG Box), the main products of home appliance market shares are high and market growths are low, so they should lie in cash cow phase, such as refrigerator and conditioner. Because growths are low and market condition are more stable, the need for heavy marketing investment is less. But high relative market share means that the business unit should be able to maintain unit cost levels below those of competitors. Due to Chinese low labor cost, Haier has advantages over its oversea competitors. But the industry leader such as GE and Electrolux has built factory in developing country to seek extra market and low labor cost. In order to maintain domestic market share and expand international market share, Haier should improve technological capability and learn more management experience from sophisticated market. And its excellent performance in domestic market allows it to compete in global markets.
Market Share
High Low
Market
Growth
High
Stars
Question marks
Low
Cash
Cow
Dogs
BCG Box
Source:Gerry Johnson and Kevan Scholes, Exploring Corporate Strategy, Sixth Edition, Prentice Hall, p284.
4.2 Business strategy
“Business strategy usually occurs at the businesses unit or product level, and it emphasize improvement of the competitive position of a corporation’s products or services in the specific industry or market segment served by that business unit.
Business strategies may fit within the two overall categories of competitive or
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cooperation strategies. ” 31
Competitive strategy is the base on which a business unit might achieve competitive advantage in its market.
As the leader of Chinese home appliance industry and challenger in the global market,
Haier faced with different interpretations of competitive strategy, national and global.
Haier’ national competitive strategies are those that seek to develop competitive strength based on Chinese economic and politic environment. Assessment of Haier’s competitive performance is also nationally based; the most obvious reflection of this is the measurement of market share only on a national basis.
Global competitive strategies of Haier are based on its international environment and resources. Haier adopting a global strategic approach seek to develop international competitive strength. These international strengths are mainly based on the follow factors:
(1)Improve efficiencies of international scale and volume. Made products and production process geared to international rather than national markets. These efficiencies may enable Haier to reduce unit cost below those of more nationally oriented firms;
(2)Learn the international lessons, ideas, and experience from oversea market;
(3)Built an international image and brand reputation;
(4)Apply financial and other resources from one part of the world to support operations in another;
(5)Enhance the ability to provide an international service. Coordinate its resources internationally.
4.2.1 Main competitors in global market
31 Thomas L.Wheelen and J.David Hunger, (2000) Strategic Management Business Policy, eventh
Edition, Prentice Hall
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There are a few very strong competitors to Haier all over the world.
“Whirlpool Corp, the leading manufacturer of large kitchen appliances is US-based global player. It took a share of 7.9% in 2002.” 32
The company's strength derives from its international and cross-sector presence and its dominance of its critical domestic market.
Electrolux , followed Whirlpool at a short distance by, which bases its strength on similar properties. It too boasts a good international and broad market presence, but its leadership of its domestic region, Western Europe, is less concrete than Whirlpool's leadership of the more concentrated North American market.
GE Appliance, General Electric Appliance was the second-largest manufacturer of household appliances in the U.S. (behind Whirlpool). Other brand names produced by the company included Monogram, Profile, Profile Performance, Hotpoint, and some private brands for retailers. GE Appliance comprised approximately 6% of the parent company’s sales and had the top market share position in India and Mexico. In addition, the company had a 50-50 joint venture with General Electric Co., the leading appliance firm in the United Kingdom.
Maytag
Maytag’s products were generally aimed at the mid-to-high end of the market and commanded a premium price based on product quality and reliability. Other brand names produced by Maytag included Jenn-Air, Magic Chef, Performa, and Hoover.
Maytag entered the European market in 1989, but after a decline in profits, pulled out of Europe in 1995. Maytag had a limited international presence in China.
4.2.2 Analysis with Generic competitive strategies
In broad target context, there are tow kinds of competitive strategies, lower cost strategy and differentiation strategy.
Lower cost strategy is the ability of a company or a business unit to design, produce,
32 See http://www.euromonitor.com/gmid
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and market a comparable product more efficiently than its competitors.
33
Cost leadership requires aggressive construction of efficient-scale facilities, vigorous pursuit of cost reduction from experience, tight cost and overhead control, avoidance of marginal customer accounts, and cost minimization in areas like R&D, service, sale force, advertising, and so on. A great deal of managerial attention to cost control is necessary to achieve these aims. Having a low-cost position yields the firm above-average returns in its industry despite the presence of strong competitive forces.
Its cost position gives the firm a defense against rivalry from competitors, because its lower cost mean that it can still earn returns after its competitors have competed away their profits through rivalry.
Differentiation strategy is the ability to provide unique and superior value to the buyer in terms of product quality, special features, or after-sale service.
34
Approaches to differentiating can take many forms: design or brand image, technology, customer service, or other dimensions. At the same time, differentiation strategy does not allow the firm to ignore costs, but rather they are not the primary strategic target.
Differentiation provides insulation against competitive rivalry because of brand loyalty by customer and lower sensitivity to price. It also increases margins which avoids the need for a low-cost position.
In domestic market, Haier adopt differentiation strategy. Through high product quality, good after-sale service and strong brand image to keep its leader position.
In developed country, Haier lies in the low cost position, for the reason of its native labor cost is low. Haier mainly adopt lower cost strategy and with some degree differentiation, so Haier has a stronger price-cutting base than competitors. At the same time, with quickly response to customer need and good after-sale service, acquire customer’s satisfaction. Improving brand awareness in oversea market step by step.
33 Thomas L.Wheelen and J.David Hunger, Strategic Management Business Policy, Seventh
Edition, Prentice Hall
34 Thomas L.Wheelen and J.David Hunger, Strategic Management Business Policy, Seventh
Edition, Prentice Hall
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While Haier implements differentiation strategy, it includes some risk: the cost differentiation between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty, buyers need for the differentiation factor falls with domestic buyers becoming more sophisticated and imitation would narrow perceived differentiation.
The international competitors of Haier had built up plant in developing countries such as China and India to lower their cost. And with Haier mainly uses lower price strategy in developed countries, it will narrow Haier’s ability to maintain enough of a price differential to offset competitors’ brand images or other approaches to differentiation.
In a long-term view, Haier stuck in the middle of cost leadership and differentiation must take a fundamental strategic decision. As the word of Haier’s top management, its final aim in the developed countries is differentiated its product and top end market.
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Porter’s generic competitive strategy
Haier in domestic market
Competitive Advantage
Lower Cost
Differentiation
Haier
Cost leadership Differentiation
Cost Focus
Focused
Differentiation
Haier in oversea market
Competitive Advantage
Lower Cost
Differentiation
Cost leadership Differentiation
Haier
Cost Focus
Focused
Differentiation
Source: reprinted with permission of The Free Press, an imprint of Simon & Schuster, from The competitive
Advantage of Nations by Michael E. Porter,p39. Copyright 1990 by Michael Porter.
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4.2.3 Analysis with the strategy clock
High
3.Hybrid
4.Differentiation
5.Focused differentiation
2 low price
6
Perceived
Added
Value
1. ‘No frill s’
8
7
Strategies destined for ultimate failure
Low Price High
Note: The strategy clock is adopted from the work of Cliff Bowman (see D. Faulkner and C. Bowman, The Essence of Competitive Strategy, Prentice Hall, 1995). However, Bowman uses the dimension ‘Perceived Use Value’.
Through analysis, Haier adopt the route 4, differentiation competitive strategy in domestic market and adopt the route 3, Hybrid competitive strategy on entering the developed countries market. Haier’s differentiation competitive strategy has been analyzed with Porter’s generic strategy.
A hybrid strategy seeks simultaneously to achieve differentiation and a price lower than that of competitors.
35
Here the success of the strategy depends on the ability both to understand and to deliver enhanced value in terms of customer needs, whilst also having a cost base that permits low prices and is sufficient for reinvestment to maintain and develop bases of differentiation.
35 Gerry Johnson and Kevan Scholes, (2002) Exploring Corporate Strategy, Sixth Edition, Prentice
Hall,
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Haier take hybrid strategy as an entry strategy in a developed country’s market with strong existed competitors. This is a strategic approach to new market development that Japanese firms have used in the past on a global basis. The key point is to search blind point of eye in a competitor’s portfolio of business. Find a poorly run operation of competitors in a geographical area of the world or special target customers. Then enter that market with a superior product and, if necessary, a lower price. Haier’s aim was to take share and build up brand reputation, divert the attention of the competitors, and establish a foothold from which it could move further. Haier’ operation in US could be taken as a example, it found college dormitory need small refrigerators and rapidly develop products to satisfy the college students’ need.
Haier’s long term competitive strategy might be explanted that first have focused on the low end, and move into the medium end and later move into the higher end. The latest position should be product differentiation.
Haier should pay more attention to two points while adopt hybrid strategy. It includes: overall cost base should be ensured in order to compete in a low margin, and a clear follow-through strategy should be considered after entry has been achieved.
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4.3 Developing strategy
Existing
Products
New
Existing
Product/Build
 Consolidation
 Market penetration
Product Development
 On existing competence
 With new competences
 Beyond current expectation
Markets
New
Market Development
 New segment

New territories

New uses

With new competences
 Beyond current expectations
Diversification

On existing competences

With new competence

Beyond current expectation
(Strategy development directions)
Source:Gerry Johnson and Kevan Scholes, Exploring Corporate Strategy, Sixth Edition, P362, Prentice Hall.
According to the strategy development direction matrix, using a market development strategy, a company can (1) capture a larger share of an existing market for current products through market saturation and market penetration or (2) develop new markets for current products; using the product development strategy, a company can (1) develop new product for existing market or (2) develop new products for new market.
In domestic market, main products of Haier are existing product such as refrigerators and conditioners. According to this situation, consolidation is key development strategy in domestic market.
Since the China’s market has been changing rapidly after entering WTO, due to the huge market potential, more and more foreign home appliance companies entered
China’s market. And existing rivalries improving technological and marketing capability to take advantage over other competitors. As the leader of China’s home
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appliance industry, Haier adopt higher price/higher quality than low-share competitors.
For the aim of more profit, Haier provides extra resource for R&D to improve and differentiate products, enhances its market position and also justifying higher prices, which in turn increase profits.
For the reason of fierce competing pressure and Chinese government supporting to export, Haier expands its oversea market and search new opportunities.
4.4 International market entry strategies
“Haier has a 3 × 1/3 International strategic objective. Haier’s international strategic objective is to produce and sell one third of its total output in China, make one third of its total output in China but export it to international markets, and manufacture and sell one third in foreign countries (therefore, ‘3×1/3’).” 36
36 Hong Liu and Kequan Li, (2002) Strategic Implications of Emerging Chinese Multinationals:
The Haier Case Study, Europe Management Journal, Volume 20, Issue 6, December 2002, Pages
699-706
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4.4.1 Markets selection
Region
North
America
Market size
“It was estimated that 46 million appliances were sold in North America annually, the market was expected to grow little in the late 1990s. Saturation levels were high, with virtually 100% of households owning refrigerators and cookers and over 70% owning washers.”
37
Competitors
Because of the limited growth opportunities, competition was fierce.
In the United States, the industry had consolidated in the 1980s, leaving four major competitors: Whirlpool,
General Electric, Electrolux, and
Maytag. These four firms controlled about 80% of the market.
Europe
“The European market consisted of more than 320 million consumers whose preferences varied by country and by region.” 38
By early 1995, it was estimated that five of the companies, including
Electrolux (with a 25% market share),
Philips Bauknecht, and
Bosche-Siemens, controlled over 70% of the market.
South
Asian
Middle
East market
“As one of the regions in the world with the greatest development potentials, the
South Asian region is a tremendous market. According to statistics, the total annual demand for household appliances in the whole region is 6 million sets, including 500,000 refrigerators, 400,000 air conditioners, 700,000 washing machines and 4,000,000 other appliances.” 39
“As one of the regions in the world with the most abundant oil resource, the
Middle East region (Jordan, Egypt, Iraq,
Syria, Lebanon, Kuwait, Libya and
Palestine) is a tremendous and very important market in the world.
According to statistics, the total annual demand for household appliances in the whole region is 6 million sets, including
900,000 refrigerators, 500,000 air conditioners, 1500,000 washing machines, 1500,000 TVs and 1,600,000 other appliances.” 40
Many world-famous brands, including
National, Panasonic, Sony, Samsung and LG, have set up businesses in
Pakistan.
Many world-famous brands, including
Sony, Samsung and LG, are popular in this area.
No firm can be regarded as truly global unless it is present in all strategic markets. The most important issues in expansion strategy are how does a firm decide which markets
37 Echikson, William. “The Trick to Selling in Europe,” Fortune, 20 Sept. 1993: 82.
38 Jancsurak, Joe, “Holistic Strategy Pays Off,” Appliance Manufacturer, Feb. 1995: W-3, W-4.
39 See http://www.haier.com/english/about/tour03.html
40 See http://www.haier.com/chinese/international/global2.asp
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are strategically most important and when to enter these markets.
“A market’s strategic importance is determined by several factors, some having to do with ‘market potential’ and some with ‘learning potential.’” 41
Market potential indicates both current market size and growth expectations for a particular business.
Learning potential is determined by two things: the presence of sophisticated and demanding customers for a product or service, who force the company to innovate continuously; and the pace at which technologies are evolving in that market.
For Haier, the market potential is bigger in the developing countries’ market; the learning potential is huger in the developed countries’ market. Developing countries’ market might be easily to be entered, and competition is not very fierce. But considerate the situation of domestic competition that more and more famous multinational electric companies enter the Chinese market, Haier must keep up with the advance competitors in technological and management area. So the learning potential is more important factor for Haier at present.
For example, In US market, customers are sophisticated, the electric appliance companies are force to develop new product and provide good after-sale service to satisfy the customers’ need. And the drastic competition also force companies to innovate the product.
Haier adjusted its basic strategy in entering the global market to “first the hard, then the easy,” which means getting into the markets with tougher entry requirements first, and then entering the markets with lower entry requirements. Through competing in sophisticated market, improves brand reputation. Then expands developing countries market depends on its strong brand image.
41 Anil K. Gupta and Vijay Govindarajan, (1999) How to build a global presence, Masering Global
Business, Financial Times Professional Litmited.
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4.4.2 Entry mode selection

Wholly owned subsidiary operation
A wholly owned subsidiary operation is defined as 100 percent ownership and control by a parent company headquartered, usually but not exclusively, in a foreign country.
42
It offers the greatest opportunity for profit maximization when things work out well and poses a higher level of risk than other methods of market entry, if it fails.
US market
“The refrigerator sales of Haier exporting to US were $17000,000 and $31000,000 in
1998, and 1999. Annual production capacity of 280,000 sets is the break-even point to build a refrigerator plant in US.”
43
The refrigerator amount of Haier exporting to US had far beyond the point.
Shipping and tariff costs associated with exporting to US market is so high. And non-tariff barrier and technological barrier are big puzzles even after China entering the WTO.
The physical, linguistic and cultural distance between the China and the US is great.
And because US market is a sophisticate market, the need for local customization of the product design is high.
Direct invest to build a plant in local place can solve these questions. So it is the best choice of entry mode to US market. Haier can gain location advantage by setting up plants overseas to avoid tariffs and reduce transportation cost. Internalization advantage could be attained through controlling services and marketing/distribution, and ownership advantage has been achieved by developing design and R&D capabilities through utilizing high quality local human resources
Haier Group has set up a 700-mu Haier (America) Industrial Park in South Carolina,
US. The first phase, which has used a total investment of USD 30 million, will focus
42 Sylvester O.Monye, (1997) The International Business, First Edition, Blackwell Publishers Inc.
43 http://www.haier.com/chinese/international/global.asp
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on big-volume refrigerators American people like to use, with an annual capacity of
500,000 sets. The factory went into operation on Marth 27th, 2000. In the future, air-conditioners and washing machines will be produced in the park.
Haier can significantly benefit and cost associated with the strategy of establishing wholly owned subsidiaries in US market. The advantage include the following: (1)
Total control is necessary to accomplish its objectives, whether they can be defined in terms of maximization of corporate profit, return on investment, growth, geographical spread, or market share. (2) Wholly owned subsidiary operation ensures consistency of policy, strategy, product quality and marketing program. But on the other hand, Haier had to face all the costs and associated risks of establish a wholly owned subsidiary in
US.

Merger
A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives.
44
European market
In 2001, Haier had purchased and merged an Italian factory. This Italian factory is a refrigerator manufacturer. The factory will mainly undertake manufacturing, import and export, purchase and sale of household appliances and their parts.
Merge is a good way for Haier entering European market, it can reduce costs and provide local human resource, facilities and distribution channel.

Joint venture
Definition: A joint venture is defined as any business arrangement in which subscribes commit capital, technology and managerial resources for a stake in the ownership and control of a new enterprise.
45
Ownership of the joint venture is proportionate to the
44 Thomas L.Wheelen and J.David Hunger,(2000) Strategic Management Business Policy, Seventh
Edition, Prentice Hall
45 Sylvester O.Monye, (1997) The International Business, First Edition, Blackwell Publishers Inc.
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perceived or perceived or real value of the contribution of each subscribe.
South Asian market
Because the countries government of south Asian tends to legislate or pressure multinational firms into accepting local partner in their subsidiary operations for the aim of offering great opportunity for effective and diffusion of technology to their economy. Haier adopt joint venture method to enter the market to acquire local resources, raw materials and channels of distribution.
Haier signed an agreement with Panapak Electronic Company in February 2001 after thorough market surveys. According to the agreement, a 150,000m
2
Haier (Pakistan)
Industrial Park would be built in Lahore, Pakistan by the two sides. The park mainly produces refrigerators, washing machines and air conditioners, with an annual production capacity of 300,000 sets each. The project involved a total investment of more than USD30 million, 30% of which was contributed by Haier in the form equipment and technology.
Middle East market
Due to customs and other barriers, it is very difficult to enter this market. For the reason of governments legislate and requiring local partners in order to obtain knowledge of new and unfamiliar market, Haier also adopt joint venture method in this area. Haier signed an agreement with MEC Company in December 2001 after thorough market surveys. According to the agreement, a 50,000m 2 Haier (Jordan)
Industrial Park would be built in Amman, Jordan by the two sides. The park mainly produces refrigerators, washing machines, air conditioners and TVs, with an annual production capacity of 400,000 sets each. The project involved a total investment,
28.6% of which was contributed by Haier in the form of equipment and technology.
In order to operate effectively, Haier must control the disadvantage of joint venture, such as follow :(1) Possible risks of loss of control of management. By definition, joint venture partners must reach decisions concerning strategic issues by consultations,
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compromises and agreements, This may considerable slowdown the decision-making process.(2) Joint venture may lead to loss of control over proprietary technology. (3) A joint venture may fail because of culture differences between partners.
4.4.3 Market entry tactics
Haier got into the hard market by launching one product at a time, rather than a number of products at the same time. The entry cost for adopting this approach is lower. In the European market, especially in France and Italy, Haier first promoted its air conditioners. Because the air conditioner market there was relatively new, it did not make a lot of difference if they were made in Japen, Korea or China. After it had established its brand awareness in those markets, haier eged in with refrigerators and washing machines.
The excellent performance of Haier in US dormitory refrigerators market also can be taken as an example. By survey, American college dormitory is small in general.
College students need small refrigerator and. sometime takes the top of refrigerator as a desk. According the need of target customer, Haier designed this product for that group of consumers. The design was innovative and different from its competitors, so
Haier’s compact refrigerators have been able to outsell similar products made by its competitors.
4.4.4 Marketing Mix
Product
Product development is at the heart of the global market process. New product should be developed, or old ones modified, to cater new or changing customer needs on a global or regional basis.
The utility value of a single product may differ considerably from country to country because of difference in beliefs, values and lifestyles. Haier adopt a "three-in-one" local development policy, i.e. local design, local manufacture and local sales. Through local financing, absorption of local talented people and local culture, it attains the local
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development goal.
“New product development at Haier is supported by an annual budget of roughly
US$100 million.” 46
The company focused on creating innovative products, geared towards local demand patterns. Since the beginning of 1999, Haier has developed 55 new products, averaging 1.5 product per working day. Up to the end of the last
February, there were 1631 patents applied for Haier's innovations, which enables it to rank first among the Chinese household appliance enterprises.
Haier try to build its brand reputation through differentiated product and good after- sale service. Haier's brand name is strengthened by speed and ability to differentiate itself from its competitors. While other companies may also recognize a consumer's needs, they may not be able to convert this knowledge into real products in a timely enough fashion. At Haier, it can convert ideas into products in a very short time.
Haier’s products must not appear similar to any other company's products.
Pricing
Products are brought in markets on the basis of either perceived or real utility value.
Products from certain parts of the world such as Western Europe and the United States command premium prices in developing countries because they possess higher perceived quality, and thus value, than locally manufactured product. Due to ‘made in china’ nation image is not good, it take disadvantage influence to Haier’s pricing strategy in developed country. Haier had to adopt lower price than competitors to take market share and build brand reputation in developed country. But on the other hand,
Haier can also command premium prices in the other developing countries depending on its brand awareness gained from developed countries market.
“Pricing within the individual markets in which the company operates is determined by
(1) corporate objectives, (2) cost, (3) customer behavior and market conditions, (4) market structure, and (5) environmental constraints.” 47
46 See http: //www.euromonitor.com/gmid
47 Helmut Becker, “pricing: An international marketing challenge,” in International Marketing
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In domestic market, Haier’s corporate objective is consolidating its leader position in home appliance industry. Because of the high R&D investment, Haier’s production cost is higher than its local competitors. So Haier adopt the pricing strategy that focuses on high price and high quality to differentiate its product. In some developing countries such as Pakistan, the case is the same as in Chinese market.
In developed countries’ market, Haier’s corporate object is improving its brand awareness. The customers are sophisticated and requirement is stricter. Haier lies in follower position in the market. So Haier adopts the pricing strategy that focuses on low price and high quality to earn more consumer awareness.
Place
Certain distribution strategies may be affected by local norms and practices that derive from culture. Appliances in Asia were traditionally sold through small retail shops and in western countries, there are numerous mature distributors for each product, with developed marketing channels. These distributors are familiar with local marketing practices and environment, and have no barriers in language and cultural features.
Currently, “Haier has established a total of 62 distributorships internationally, covering over 40,000 sales network points with exports reaching 160 countries and regions.
Haier products are marketed in 12 out of 15 European chain supermarkets and 10
America’s.” 48
Wal-Mart can be take as an example, it was the most difficult chain for Haier to get into. Wal-Mart made a lot of tests and checks on Haier refrigerators to make sure that they were of superior quality and met their standards. After testing the Haier products and approving the company, Wal-Mart went to the haier manufacturing facilities in
China. Haier got the highest scores among all the factories they inspected.
Wal-Mart was eventually satisfied with Haier, and placed an initial order for 50,000 room air conditioners. The following year, the Wal-Mart order doubled. In 2002, the
Strategy, eds. Hans Thorelli and Helmut Becker (New York: Pergamon Press, 1980),206-217.
48 See http://www.haier.com/english/about/index.html
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total increased to 400,000 units, including compact refrigerators, washing machines and air conditioners.
Promotion
In 2001, the company spent approximately RMB3 million on advertising, an amount which far outstripped that spent by its domestic competitors. The company recently introduced the corporate symbol of the pink cube.
Culture is perhaps the most powerful influence in determining effectiveness and acceptability or otherwise of advertising copy, design and other elements of marketing promotion in international market. To match its local design, local sales strategy, Haier employed local sales agents to promote its product. Haier’s international promotion framework encompasses global networks for design, production, distribution and after-sales services. Haier has established 18 design institutes, 10 industrial complexes,
22 overseas production factories and 58,800 sales agents worldwide.
Usually, the ad agencies Haier uses are very local companies. They understand the customs and habits of local customers. They can help convert the innovative ideas of our products into the appropriate local ideas that may attract that place's consumers.
However, in the American market and European market Haier has cooperated with several international ad agencies. After Haier develops some innovative products, it will invite local ad agencies to do advertising that helps consumers understand the differences between its products and those of its competitors.
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Haier has got a series of achievements in both Chinese market and oversea market in recent 10 years. Now it has been a global brand to be familiar by consumers all over the world. It has a significant impact on other Chinese brand that ‘made in China’ doesn’t mean low quality and low price any more. As an international brand, its oversea market share is still poor, it will face very strong competitors such as
Whirlpool, GE etc. As a state owned enterprise, it confronted with policy changes and reconstruction problems. And some social issues such as income gap will influence its business. After China become a member of WTO, Haier has more opportunities to expand international market, but it also might lost the domestic market share for the reason of multinational brand’s entering. On the whole, Haier’s global strategy is successful now, but it will encounter more and more challenges in the future.
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Identify main problems in future
Haier’s sales leveled off in the 2002 and profits began to fall. Sales only increased
0.98% from 2001 to 2002, which was far from the levels management had expected.
Haier’s managers blamed a number of causes—raw material price increases, reduced consumer demand, intense competition, and the multinational company’s entering.
China becoming a member of WTO not only bring great opportunities for Haier, but also great challenges. International brands had impacted Chinese domestic product and gain some market share. And it is only a beginning. Given the company’s premium positioning, the major threat to its growth would be an economic downturn. Slowing demand and heavy price competition in China may impact further on the company’s sales levels, whilst the cooling of the US economy is also likely to impact overseas sales. In China, rural market’s potential is very large, Haier’s present domestic product strategy on high quality and high price may lead to lost the market share, because the income gap between rural and city. And adopting different competitive strategies between China and oversea market might be harmful to Haier in a long term view.
According to the mentioned problems, provide recommendations as follow:
1) Develop low cost and lower price product to satisfy domestic rural and low-income customers.
Because of Chinese continuous economic growth, the purchasing capability of rural and low-income customer is increasing. There is a huge potential in rural market.
Depending on perfect distribution channel all over the Chinese regions and strong customer loyalty, Haier could easily capture this customer surplus by lower price product.
2.)Consolidate the leader position in Chinese white goods market. Continue to enhance the first brand image of electric appliance in China.
Depending on its technological leader position, continue to develop new products to
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satisfy customer’s need. Keep on leader position in top end market.
3.)Through international market expansion, increase the international turnover proportion in total turnover step by step.
4.)Try to gain more support from Chinese government.
Haier wants to compete successfully international must acquire a strong foothold in its home market. This can provide it with the possible support from the Chinese government and financial backing needed to sustain its international operations.
Without this, it can be exposed to high risk, and is more than likely to be short lived.
As a Chinese flagship company, Chinese government may give Haier some financial backing from the financial channels that may not be available to other Chinese companies. In other words, Western home appliance companies may have to compete with this new competitor that has a stronger base of financial support than it appears to have.
5) Improve technological capability.
Sets up research centers in developed countries and develops strategic alliances for technological development with Western multinationals. These strategies have general applicability to those companies in developing countries that have a strong foothold at home, because Western multinationals are willing to trade off technology against market penetration.
6.)Concentrate on core business, merge and acquisition with domestic and oversea companies to enlarge its economic scale.
7.)Strengthens the relationship with partners, collaborate with multinational corporate to build win-win style joint venture enterprise.
Creates strategic alliances in areas where it has less expertise, allowing it concentrate on its strengths.
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