Haier
International Business Approach
Team:
Rahul Gossain
Ratnesh
Saurabh
Haier
Case Overview
Haier Group in China
•
Haier Group, ranked China’s number-one company by the Asian Wall Street Journal,
•
Starting with a defunct refrigerator factory in Qingdao, Shandong province, founder
and CEO Zhang Ruimin built Haier into China’s largest home appliance maker
•
Globally, Haier ranked third in white goods revenues, and was the second-largest
refrigerator manufacturer (with about 6% of the global market) behind Whirlpool and
ahead of Electrolux, Kenmore, and GE.
•
Zhang pledged to make Haier the world’s best-selling refrigerator brand by 2006.
•High threat from new MNC’s
•Entry barriers frorm of access to retail & logistics
•Economies of product being breached with new
facilities
•Brand equity is Haier’s biggest strength but
MNC’s come with global brands
•Poor access to distribution for MNC
•Absolute cost advantages of Haier
•Learning curve advantages with Haier
•Government policies – Access to logistics
•Large number of competitors
•Intermittent industry overcapacity
•Informational complexity and asymmetry
•Economies of scale
•Sustainable competitive advantage
through improvisation over years
Competitive
Rivalry
•Haier had defined suppliers of
raw materials, components, labor,
and services
•Low degree of differentiation of
inputs
•Wide presence of substitute
inputs
•Employee partnership
•Extensive variety of close
substitute
•Buyer propensity to substitute is
low
•Relative price performance of
substitutes is low
Haier Group
Growth and Diversification
Why do firms go abroad:
Saturation in local market:
– By 1991, Haier had become China’s leading refrigerator
manufacturer.
Exploiting market imperfections during product life cycle
– Beyond China
Approach:
Zhang founder Haier Group: “Let our reputation precede our new products”
Porter Diamond Model
for Competitive Advantage of Nations
Defining Global Competitive Advantage
Imperatives
Strategic Choices
Value Chain
Configuration
Global Competitive
Advantage
Global
Presence
Measuring Value
Chain
Optimization
Defining Global Competitive Advantage
Imperitives:
•
Haier held about a 30% share of China’s RMB 129 billion white goods market and
had a growing presence in “black goods” sectors such as televisions and personal
computers, but margins on domestic sales were shrinking.
•
The Haier Group’s Shanghai-listed arm, Qingdao Haier, saw 2004 profit margins drop
to 2.6%, from a high of 9.4% just five years earlier. Industry observers attributed the
decline to increased competition from local firms and foreign multinationals in China.
•
National overcapacity was estimated at 30% in televisions, washing machines,
refrigerators, and other major appliances.
•
Manufacturers were cutting prices at 10% to 15% annually.6 In this environment,
Haier was betting its future on global sales. Haier’s 2004 export revenues were nearly
double the previous year’s the company was targeting $1 billion in sales to the United
States alone for 2005. Could Haier
Competition from MNC after WTO entry
•
Defining Global Competitive Advantage
Global Presence: Integration/Responsiveness Grid
GLOBAL CO-ORDINATION / COST PRESSURE
LOCAL INDEPENDENCE
& RESPONSIVE-NESS
Low
High
High
International
Divisions
Global
Product
Companies
Low
International
Subsidiaries
Transnational
Corporations
Defining Global Competitive Advantage
Global Presence:
•
Haier developed a formal global expansion strategy beginning in 1997 when
Zhang announced his “three thirds” goal of having Haier’s revenue derive
in equal parts from sales of goods in three categories:
– one-third from goods produced and sold in China,
– one-third produced in China and sold overseas,
– one-third produced and sold overseas.
Choice of Strategic Market:
• Focus on difficult markets first Shunning conventional wisdom, Haier
determined to focus on the “difficult” developed markets first, and only after
proving itself in those, to go after therelatively “easy” emerging markets. In
2004, about 70% of Haier’s overseas sales came from the developed
markets of Europe, the United States, and Japan.
•
Overseas sales for 1998, largely to Europe and the United States,
amounted to just over $62 million, or about 3% of total Group sales.
Defining Global Competitive Advantage
Choice of Entry Model:
•
Haier had started to venture into overseas markets as a contract manufacturer for multinational brands in the early
1990s, first exporting to the United Kingdom and Germany, and then to France and Italy.
•
Haier also used JVs to explore foreign markets. In 1994, Mitsubishi invested $30 million for a 55% stake in a JV
with Haier to set up China’s largest air conditioner plant. The Qingdao factory would produce five of Mitsubishi’s
latest models for export to Japan.
•
In 1995, Haier became one of the first Chinese companies to engage in foreign direct investment, setting up a
refrigerator and air conditioner plant in Indonesia as the majority partner in a JV with a local firm.\
•
In 1997 Haier launched its first European manufacturing base, producing air conditioners in Belgrade through a JV
with a Yugoslav company.
•
Haier refrigerators sold particularly well in Germany, where they were marketed by the German appliance firm
Liebherr under the “Blue Line” brand. When a blind quality test by a German magazine gave Haier’s Blue Line
refrigerators eight top rankings, beating Liebherr’s seven, Haier decided it was time to market its own brand
overseas. In 1997, Germany became the first export market for Haier-branded refrigerators.
•
The same year, Haier formed a JV with the Philippine electronics company LKG to manufacture Haier-branded
freezers, air conditioners, and washing machines in the Philippines for sale to local and regional markets.
•
Haier continued OEM production for foreign multinationals and actively sought new OEM clients, but after 1999
the company was focused on selling Haier-branded products in overseas markets. “The objective of most Chinese
enterprises is to export products and earn foreign currency. This is their only purpose,” said Zhang. “Our purpose
in exporting is to establish a brand reputation overseas.”
•
Overseas sales for 1998, largely to Europe and the United States, amounted to just over $62 million, or about 3%
of total Group sales.
•
The creation of Haier’s Overseas Promotion Division in 1999 signaled the beginning of rapid growth in
international sales through exports and overseas production, bringing the combined figure to nearly 17%
of total revenue in 2004.
Defining Global Competitive Advantage
Value Chain Optimization:
•
Before 1998, most of the acquired businesses operated independent R&D,
procurement, production, and sales departments. Haier replaced the numerous
service departments with four new Group-wide “Development Divisions”
–
–
–
–
Capital Flow (Finance)
Commerce Flow (Sales)
Material Flow (Logistics)
Overseas (Global Operations)—whose heads reported directly to the Haier
•
Group president. These new businesses operated as independent profit centers that
competed with third-party service providers for Haier’s business and could sell
services to external clients as well.
•
Human Resources, R&D, and Customer Relations were also joined into group-wide
business centers and sold their services on a fee basis to Haier Divisions.
•
Total Planning Management, Total Quality Management, and Total Equipment
Management centers were formed by combining these functions across divisions.
•
In 2000, Haier added an e-commerce company serving businesses and individual
customers.
Defining Global Competitive Advantage
Global Competitive Advantage:
•
Outstanding Product quality
–
•
Understanding of Markets
–
•
Successful products like mini refrigerators
Sourcing & Distribution network in place:
–
–
–
•
Haier refrigerators sold particularly well in Germany, where they were marketed by the German appliance
firm Liebherr under the “Blue Line” brand. When a blind quality test by a German magazine gave Haier’s
Blue Line refrigerators eight top rankings, beating Liebherr’s seven, Haier decided it was time to market its
own brand overseas. In 1997, Germany became the first export market for Haier-branded refrigerators.
Expanded international production facility
Walmart access
Synchronization of International operations
Development of Global brand
–
Worldwide Branding