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1. Was Haiers decision to globalize into developed markets early on a good strategy?

You need to be able to articulate a clear rationale about the risks and benefits of this model in offering a comprehensive assessment of the route that Haier took. Would this be a good option for other emerging market firms as well? Would you specify any caveats in applying to other firms? Ans. There are many perspectives to look into the globalization strategy of Haier. 1. Chinas entry into WTO in 2001 created too much competition for global brands. All multinational brands were attracted towards 1.2 bn peoples Chinese market. Global players like Samsung, Whirlpool, Siemens etc. taking market share of china. 2001 2002 Multinational Brand Market 26% 31% Share in China 2. Also due to high competition price war could not be avoided. Price war leads to decrease in revenue which causes reduction in profit margin. 1999 2004 Haiers profit margin 9.4% 2.6% From data we clearly see the margin of Haier was decreasing in a high rate in china. The one way Haier could have tried to increase revenue is to tap untapped market. Rural penetration of electronic items was very low in China. But for rural penetration lower price is very important. By that time all the multinational firms opened there production centre in china to leverage low labor cost. So cost advantage was not only laid in hand of Haier. Both market share and profit margin was reducing in Chinese market. The Route that Haier had taken for internationalization can be explained by the Dawars and frosts survival stategy.
Stage 1 Defender: 1. Haiers export was limited 2. Globalization was very weak

Stage 2 Contender: 1. Focused on quality to tap developed market 2. Exported to Europe, Japan and US markets.

Stage 3 Defender or Dodger 1. Post 1992 it entered into other markets without obstacle as a strong defender in international markets. 2. Dodger strategy to win price war and to increase profit margin using international assets.

High

Customized to home markets

Tranferable abroad

Pressure to globalization in the industry

After 1992

Direct exporting to developed economies (1992)

Defender Low
Before 1992 TQC and national brainding

Extender After 1992

Low

Competitive assets

High

In this environment Haier considered moving to the developed markets as an escape from profit erosion in the home market. Benefits of entering first in the developed market: 1) Establish brand equity : The brand equity that was created in developed market through quality and customer satisfaction would give Haier a leverage in developing market. Brand awareness will also increase in developing countries as many people from emerging nations travels in developed market. 2) Tracking competitors: International market is a arena where players learn through huge competition. Haier wanted to track competitors in international market and take leverage of that in all the markets. 3) Well established network of retailers

Developed countries have efficient distribution channels ( eg. Walmart) which can be used by a good quality unknown brand to create brand equity and hence Haiers could use their services in reaching the end customer contrary to a developing nation such as India where the distribution channels are not well developed. 4) Huge market The developed economies such as Europe and US were much bigger as compared to the developing economies and hence had more opportunities for growth. The Haier group also saw developed markets as potential learning arena to meet highest global standards. Risk attached to entering into the developed markets: 1) Competition with big player like whirlpool: Head on collision with big players can cause a significant loss in financials. But this risk comes with a opportunity to fight in niche market. Haier targeted student community to get a niche market in short time. 2) Economies of scale: Devoloped market has different tastes for different products. Aggregation will be difficult to implement and economies of scale will be hard to find. 3) Product acceptance: Chinese products were known to be of low quality and there were high chances that despite Haier maintain quality standard could not evade the biases attached to its home country products. All the factors if we consider then we find Haier had used a model which is springbound model. Haier went to developed market to establish brand equity for emerging market. Other emerging market which is very closed would be difficult to tap by this model. A closed emerging market will not focus on brand rather they will go for lower price. This model can be implemented for other firms given they also have similar core competency like quality. Haier focused on quality, other firms may have good relation with developed market OEM. Through them a firm can establish its brand by JV.