You are on page 1of 36

Haier in India: Building presence in a mass market beyond China

Why Did Haier Enter India?


High GDP growth rate leading to increase in disposable income. High growth rate in the Home Appliances sector. Expected growth rate for the Home Appliances sector was 20% for 2005-10.
16 14 12 10 8 6

4
2 0 2000 2001 GDP Growth Rate 2002 2003 Home Appliances sector growth rate 2004

Why Did Haier Enter India?(contd.)


Low penetration in Home Electronics. Huge scope for growth in rural India. Favourable government policies.

Market Penetration in 2004


25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Television Refrigerator

PESTLE Analysis
Political Political stability. International Stability. Industrial policy can vary depending upon the ruling party. Political hassles often slow down reforms. Economic High GDP growth rate. Increasing disposable income. High Inflation may lead to high wage demands from employees. High tax rates and dual taxation were major issues. Economic Reforms and globalisation.

PESTLE Analysis(contd.)
Social Consumer Durables seen as status symbols. Changing lifestyle will increase demand for consumer durables. Technological Hardware manufacturing in India was not upto global standards. Technology was not a major problem as Haier could easily import it. Legal Standard Employment Laws. Slow legal process caused disputes to be long-drawn. Environmental Pollution was a major problem in India. No environmental laws were in place specifically for electronics industry.

Porters Five Forces Analysis


Threat of New Entrants

Bargaining Power of Supplies

Rivalry among Existing Competitor s

Bargaining Power of Buyers

Threat of Substitute Products or Services

Porters Five Forces Analysis


SUPPLIER POWER: a) Haier developed vertical integration in 1990s for controlling its supplies. b) Haier also formed a good relation and collaboration with their suppliers to secure their support for price, quantity and facilities. a) BARRIERS TO ENTRY: In this business the company has set the high barrier of entry such as large capital for manufacturing set up and innovation. b) The company has also well positioned its brand globally and has applied effective marketing strategy to create barrier of new entry.

BUYER POWER: a) Haier streamlines its business up to distribution to supply to the retailer. b) Haier patterned all its products and focused on the after sales services to create a differentiation in the market through innovation, quality and price.
a) THREAT OF SUBSTITUTEs: In 1984, there were 100 refrigerator makers to compete in China market. Now, the number has increased to a great extent. Haier has realized the competition and invested more in R&D for improvement and innovation. b) With the advancement of technology, duplication of products is a threat. COMPETITIVE RIVALRY: a) As Haier business has become huge with its large capital, other companies struggle more to stay in market. b) With the current economy downturn, most companies are tending to reduce prices to capture a greater market share. Some companies even use this strategy for penetration into the market.

Haiers Targets for Indian Market


T.K. Banerjee was appointed as the president of Haiers Indian operation. Banerjee wanted Haier to be in the top three brands in the home appliances in India. A policy of Three-in-one Localization was followed. The target was to gain 20% of Indias white good market in first 5 years and to be among the top three players in the industry in 7 years, i.e. by 2010. Planned to launch an India-centric product line for Indian consumers. For sales, it developed a network of direct dealers and distributors in India.

Haiers Expansion Strategy

Haier India Strategy Timeline


1999
Launched 3 in 1 aggressive strategy of localization (produce locally, carry out local sales strategy & create products catering to local needs). Outsourced the product . Did not want to execute rapid localization because of fear of failure. Set up a manufacturing Unit at Pune. This acted as a sourcing hub for delivery to middle east hence delivery time cut down. They maintained their brand message as Inspired Living. Simple brand communication -- that Haier is a global player.

2004

2007

2012

Haier India Strategy


ALLIANCES-Entered the Indian new market through strategic alliances with
Fedder Lloyd Corporation to gain by sharing the development costs and risks with the local partner.

Felt that it might benefit from its local partners knowledge of a host nations competitive conditions, culture, language, political systems and business systems.

PREMIUM PRICING-They stuck to premium pricing strategy(5%). They


bothered about how consumers perceive them . Did not wanted to get perceived as low cost Chinese brand . Focused on value war rather than price wars

BRAND COMMUNICATION-They followed this very simple brand


communication to prove that Haier is a global player.

PRODUCT STRENGTH-They did not compromised on quality.

Strategies That Failed


It failed to achieve the set revenue targets. Investments were not paying off and the operations needed an overhaul. Poor reputation of after sales care. Low market share when they focused on premium product strategy Heavy taxation policies lead to decrease in profit margin which resulted in decrease in demand.

Localization Strategies in India vis--vis US


Factor
Mode of Entry Strategy

India
2004 Outsourced prodn. of low end goods from local manufacturers and imported high end products. 2007 - Acquired the loss making plant of Anchor Daewoo in Pune

Developed (USA)
1994- Imported from China Strategic alliance with Welbilt in Sales 1999 Greenfield production plant in S.Carolina

3 in one Strategy Design, Manufacturing and Marketing

Similar strategy but primary objective was to fight on quality and innovation.

Focus

Regular products(innovative features), priced above mkt. premium. Expanded their product mix(niche products)
Customized products. Eg: Detergent free Washing machine . High and Mid end Niche products

Focus on niche products first. Diversified into normal household electronic appliances.

Marketing

Every effort to communicate that it was an American brand. Partnership with NBA Niche High end products.

Brand Positioning

Glocal Strategy of Haier


USA
1994- Alliance with a local import based

Italy, Spain and UK


2001 Acquired 100% of Italian refrigeration plant Meneghetti plant. Italy HQ for Haier Europe Soon forayed in Spanish, German, French and other East European markets through JVs.

company 1999 - Then setup own prodn. Plant and gradually all the products were localized.

Indonesia
1992 Started by importing from China 1996 Opened a production site.

Pakistan
2001- Joint facility with a local electronics company Soon opened their own facility.

Philippines and Malaysia


2002 Established subsidiaries

Middle East (Jordan, Syria, etc.)


2002 JVs in Syria and Lebanon 2003 Started operations 2006 2nd production facility

INDIA
Began by outsourcing production, later started operations by acquiring Anchor Daewoo Electricals. Customized design for local needs. Marketed as a local product. Produced locally at the plant in Pune. Only panels for LED TVs and water heaters are currently being imported.

Japan
Strategic partnership with Sanyo to get deeper access to their markets.

Glocal Strategy of Haier


In almost all the major countries, it has followed the 3 in one approach. In some of the smaller countries , they were either assembled or imported. Relationship between firms competencies and commitment on the basis of their entry strategy.

Indian Consumer durables Industry

Consumer Appliances
White Goods (Refrigerator, Washing Machines, AC) Brown Goods

Consumer Electronics
Televisions Mobile Phones

(Mixers, Microwave Ovens, Iron, Fans, Dish Washers)

Audio Equipments MP3/DVD Players

Evolution
Late 2000s Early 2000s Mid and late 1990s
Consolidation Growth Increasing availability and affordability of consumer finance Liberalization Liberalization of markets Shift in focus from promotion to innovation Influx of players like LG and Samsung Low penetration of high-end products like AC Increasing penetration of highend products Introduction of new aspirational products such as HDTVs

1980s and early 1990s

Pre-liberalization
Closed Market Increased product availability Increased media penetration & advertising

Market Share of Indian Consumer durables in FY13

Advantage India
Rising disposable income Easy access to credit Increasing electrification in rural areas Wide usability of online sales Rural and semi-urban market contribute to 35% of total sales Combined market size CAGR is 25% from 2010-15 Huge untapped rural market

Growing demand

Opportunities

Increasing investments
Attracted investment even during recession USD 1 billion investment in production, distribution and R&D

Policy support
100% FDI allowed in electronics hardware manufacturing sector Duty relaxation schemes to provide tax sops National Electronic Policy

Strategies of Korean firms in Indian Consumer durables Industry


Pursue cost leadership and market segmentation strategies

Increase similarity of products or provide alternatives to existing products

Employ low cost pricing to thwart out incumbent firms and to become price-quality leaders in the chosen markets

Impact of strategies of Korean firms on Indian market


Pursue cost leadership and market segmentation strategies

Increase similarity of products or provide alternatives to existing products

Employ low cost pricing to thwart out incumbent firms and to become price-quality leaders in the chosen markets

Eric Braganza

2009
Appointed as President of Haier India Prior Experience : Senior positions at Electrolux and Videocon

Identifying the Problem Area


Sales and Marketing the weak link Renovated the Sales structure and restructured the manpower

Actions undertaken
Vertical Expansion by strengthening its penetration network and Experience Centres Brand Positioning from low to mid to high end segments.

Eric Braganza
Pre-Braganza State of Haier India
Stagnant growth. It could gain 3.5% share of the market vis--vis the target 15%. Entered India almost 7 years after its rivals LG and Samsung Poor After Sales Service due to lack of enough service centers, and due to unavailability of spare parts in them .

Had to deal with the notion of being a Chinese Company

Eric Braganza
Restructuring of the Sales Network
A complete overhaul of branch and regional sales structure was done. Haier India underwent a comprehensive manpower restructuring so that almost 30% of our workforce was new. It went for Forward integration by expanding the dealer network in Tier-II & Tier-III markets . It opened Branch Sales offices in Chhattisgarh, Jharkhand and Bihar. In 2010, Haier India boasted of 1500 direct dealers and 5,000 secondary dealers spread across the country. It offered them a gross margin of 10% to 15 % which was 3% higher than the industry average. To focus on dealer retention, Haier India treated its dealers and retailers as the First Customers.

Eric Braganza
Expanding Haiers presence in India
Haier wanted its consumers to see and experience its products. Thus, it has come out with Haier Experience Centres(HECs). They showcase a wide range of products, which is not possible at multi-brand outlets due to space constraints. These are actually franchisee stores that operate on revenue sharing. Mr. Braganza aimed to increase the revenue contribution from the HECs from 5% to 12%. It plans to increase the number of HECs from 170 to 275 by 2014, and the number of retail outlets from 4500 to 6000.

Eric Braganza
Improving After Sales-Service
Eric looked at setting up service centres known as InstaCare across all state capitals and identified eight cities. He planned to deliver a six-hour service in all metro cities (involves from the time of the call till the problem gets solved). Recently Haier has announced a LIVE chat buddy Dr. Fido to get the queries answered instantly on the official website of Haier.

Eric Braganza
Pricing Strategy
For a product-parity market such as the consumer durables , there is very little scope to charge premium on products. Too high a price wont find enough takers, and too low will discount the brand. Haier is a mid-priced brand. It did not want to sacrifice its upscale image because it wanted to stand by the quality of the product even if the price is a little high. The price of Haier products was above all the price-fighter brands. However in premium range of televisions, refrigerators and washing machines Haier is at least 5% cheaper than the high-end models of LG or Samsung. Despite at times during weakness in the Rupee, Haier did not reduce its price, so as not to compromise on quality.

Eric Braganza
Diversification and Expansion
Eric introduced 25 high end products in the existing segments like LED TVs, deep freezers, washing machines dishwashers , etc. He also introduced many small home appliances such as blenders, juicers, Tea- kettles and Toasters in the small appliances segment, which contributed to around 3-4% of the total revenue. Haier invested 100 Crore in 2010 and close to Rs 50 Crore in 2011 in expanding its refrigerator manufacturing capacity at its Ranjangaon plant in Pune, so as to increase capacity from 10 to about 20 lakh units by 2014. Some major Innovations of Haier: The 3-door convertible refrigerator & the bottom Mounted refrigerator. He brought in John Abraham as Haiers Brand Ambassador and led aggressive campaigns like You Inspire Us.

SWOT Analysis
Strengths

Globally No-1 brand in white goods. Updated and latest technology. High quality products. Broad Product line. Strong presence in home appliances segment. Big distributors are stocking many of Haiers product.

Weaknesses
Weak distribution network compared to competitors. Weak service agent network. Slow marketing and sales promotion. Poor tuning with dealers. Poor brand visibility and awareness. Weak presence in TV market. Sales seasonality in specific segment hind ering growth.

Opportunities

North-east a potential market is still largely untapped. The rural market remains untapped. Mobiles and cellular phone market offers new growth opportunities. Consumer electronics segment is booming and set to grow at 14% CAGR. Tie up with big retailers will help in growth High disposable income and higher number of Nuclear Families in the society.

Threats
Threat of being Chinese brand. Threat from established foreign and local competitors. Infrastructure bottlenecks especially in rural areas. Food inflation resulting in slowdown of growth in the mass segments. Volatile rupee-dollar fluctuations leading to high import prices.

Household Appliances Industry


FY04
8%
24% 51% 22% 21%

FY09
9% 20% 48%

FY14P
9% 47%

17%

24%

Colour TV AC Refrigerators Washing machines

Colour TV AC Refrigerators Washing machines

Colour TV AC Refrigerators Washing machines

Total size = 133 Rs. Billion

Total size = 229 Rs. Billion

Total size = 397 Rs. Billion

Recommendations
M-SIPS (Modified Special Incentive Package Scheme) Currently, India imports $33 billion of electronic goods, third only to the oil and gold import bills $155 billion and $62 billion in 2012. Industry experts see Indias electronic imports surpassing its high oil import bill by 2030. M-SIPS is prepared under the National Policy on Electronics 2012 that seeks to speed up local manufacturing and curb electronics imports. It provides investors a subsidy of 20-25% on capital expenditure 50-75% for companies investing in so-called electronics manufacturing clusters. Haier India should take advantage of M-SIPS and increase local production to protect itself from the volatile rupee-dollar fluctuations and accelerate growth. Increase presence in Rural Markets Rural market contributes to 15-20% of Haiers total revenue. Currently, LG has 5% penetration in rural market and 34% penetration in urban areas. Haier should plan to further increase its reach in rural markets.

Recommendations based on 4Ps of marketing

Product
New innovative products should be launched tailored to the needs of Indian consumers. Product portfolio should be diversified to reach a wider audience and cater to different markets. Increase in number of service centers.

Price
Haier should position itself in the mid and high-end segment market. (Value for money) Pricing strategy should be tailored to keep the price below foreign competitors' prices and above the local competitors prices. (Better products with low premium)

Place
Expand network of Haier Experience Centers and expand it to showcase all products under one roof.
Expand dealership network to tier 2 and tier 3 cities. Diversification of the distribution Network to support the entire Product Portfolio. Use digital media for e-tailing .

4 Ps

Promotion

Sales promotional schemes should be given in regular intervals to both customers & dealers. (exchange offers, easy EMI, extended warranty, high margin to dealers ) Increase marketing expenses to improve brand visibility and awareness. Focus on digital media for display and promotion (Currently 5% of total market budget).

Product A Feature 1 Feature 2 Feature 3

Product B Feature 1 Feature 2 Feature 3

Haier Indias Annual Turnover


Turnover (In Rs. Crore)
2500 2000 1500 1000 500 0 2010 2011 2012 2013 Haier India CAGR 24.98% Consumer durables Industry CAGR (2010-15) 15% 2014 P 825 972 1203

2000 1503

Key facts about Haier India

The media mix - TV, online, local print ads and radio. Current focus is on televisionJhukna mat and Inspired by You campaigns. For product categories, the monsoon season sees sales of washing machines increase, the onset of winter sees the increase in sales of water heaters, and LED TV sales increase at times of festivals and sporting events like IPL. Haier India manufactures all low end products locally such as DC-330, Window ACs and CRT TV. While all the high end products are imported. Refrigerators contribute nearly 35 per cent Haier's total turnover, while the consumer electronics panel business is the next big segment with nearly 30 per cent of the turnover. The AC sales contribute nearly 14 per cent of the total sale, washing machines at 10 per cent. As per "Indian Consumer Electronics Market Outlook 2015", Flat panel television, Tablet and Smartphone are expected to be the top performing segments in the market. As per a survey, 64% were not aware of Haier brand. This suggests revaluation of marketing strategies for enhancing brand visibility. 36% of people surveyed knew about Haier but only 20% of people surveyed had look on Haier product before making a purchase decision. This shows unavailability of brand in the customer preferred multi-brand store. (Concerned with place strategy of Haier)

References
http://www.sunday-guardian.com/business/consumer-durables-players-see-potential-inrural-market http://www.dnaindia.com/money/report-haier-to-manufacture-all-products-in-india-by2016-1809683 http://www.way2franchise.com/resource/article/haier_strengthening_its_india_franchise _network_of_dealers_and_service_franchise_aims_1000_cr_biz http://www.livemint.com/Industry/hlfCJssTzLLBgNZD1y5YIP/Consumer-electronics-firmsto-invest-3500-crore-in-India.html http://www.authorstream.com/Presentation/magrawal26-549892-haier/ http://www.navhindtimes.in/business/haier-india-launches-71-new-products-state http://www.campaignindia.in/Article/339512,haier-ups-marketing-spend-from-rs-55-crto-rs-80-cr.aspx http://www.slideshare.net/Rahulkamble56/16034641-projectreport http://www.slideshare.net/pareshgupta007/competitive-analysis-of-companiescompeting-haier-8374312 http://www.quickmba.com/marketing/mix/ http://afternoondc.in/business-investment/haiers-aggressive-strategy/article_16479 http://www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/111010_india_flat_pan el_tv_shipment_cagr_forecasted_through_2015.asp http://www.flatpanelshd.com/news.php?subaction=showfull&id=1329393118 http://www.prnewswire.com/news-releases/203568471.html