A rising star from China: Haier Group

The early years

In 1984, then-35-year-old Zhang Ruimin, deputy manager of a home appliance company

in Qingdao, China, was appointed director of Qingdao General Refrigerator Factory. At that
time, the firm was deeply in debt and suffered from decreasing demand. Zhang identified a need
to introduce far-reaching measures in order to manage a successful turnaround.

Zhang discovered that close to 20 per cent of refrigerators in stock were of inferior
quality. Zhang asked for all defective models to be lined up and ordered his staff to destroy
these. This incident represents the turning point in the firm’s history and marked the beginning of
the company that is known today under the brand name Haier.

Under Zhang’s management, employees began to understand the importance of product

quality and reliability, and Haier established a successful brand strategy. With the goal of
providing high-quality products and services, Zhang established his “always cautious, always
meticulous” philosophy of achievement that shaped Haier’s corporate culture, and is largely
responsible for Haier’s reputation for innovation as well as for the enthusiasm of its 70,000+
employees.

Diversification

One of Zhang’s strategies was to learn from best business practices in developed
countries such as the United States, Germany and Japan. Following this strategy, Zhang
revolutionized his company: He tied salary to performance, sent technical personnel abroad for
advanced training, and developed a worldwide supply chain system. Zhang was aware of the fact
that Haier could best improve its image by partnering with a foreign company. Therefore, in
1985, he entered into a joint venture with the German firm Liebherr, a leading home appliance
manufacturer. During this partnership, the Chinese manufacturer benefited from access to
Liebherr’s refrigerator technology, improved product quality and built up its reputation.
Moreover, several years later, the firm was renamed after the second part of the Chinese
translation of its partner Liebherr to receive its current name, Haier.

The first signs of the joint venture’s success became apparent as early as 1988, when
Haier gained a dominant position in the Chinese refrigerator market. In the same year, the firm
completed its first acquisition and integrated a small electroplating firm, the Qingdao
Electroplating Company, from Qingdao, China, later transforming the newly acquired division
into a microwave producer.

Haier took an impressive step forward when it achieved internationally recognized

accreditations such as the Underwriters Laboratories Inc. certification from an American
independent product safety certification organization, the Technischer Uberwachungsverein
accreditation from the German technical inspection association, and the qualification of the
International Organization for Standardization, a non-governmental organization with
headquarters in Switzerland. These certifications marked Haier as an accredited supplier for the
international markets.

In the 1990s, Zhang decided to spread Haier’s corporate risk by diversifying into various
new product lines. Therefore, in 1991, Haier merged with the Qingdao Freezer Factory and the
Qingdao Air Conditioner Factory, two financially challenged companies from Qingdao, China,
that flourished with rising sales shortly after Zhang’s restructuring was completed. Considering
high growth forecasts for the acquired businesses, Zhang made a decision to expand production
facilities by buying land for a new industrial park, which would house corporate headquarters
and 66 subsidiaries. In order to finance this large-scale project, Zhang listed Haier on the
Shanghai Stock Exchange in 1993, thereby raising sufficient capital to establish Haier Industrial
Park in Qingdao, China, two years later.

In the same year as going public, Haier started cooperating with the Japanese firm
Mitsubishi in order to gain more expertise in air conditioners. Haier also partnered with the
Italian firm Merloni Elettrodomestici, at that time the third largest home appliance producer in
Europe. Together, the partners built a washing machine production plant for the Chinese market
in Qingdao, China. It consequently paved the way for Haier’s subsequent acquisition of the Red
Star Electric Appliance Company in 1995, which was turned around from “money-losing to
profit-generating” within three months.

Haier expanded into the television business with the acquisitions of the Huangshan
Electronics Group and the Yellow Mountain Television Company in 1997. Haier’s various
strategies led to a total of 18 Chinese enterprises in a range of industries being acquired. By the
end of the century, Haier’s offerings included traditional home appliances (e.g. washing
machines, electric irons, microwaves) as well as the latest consumer electronics goods (e.g.
mobile phones, televisions, computers).

Internationalization

Following the success of Haier’s diversification strategy and continuously increasing

exports, Zhang started to implement his plans for more sophisticated international expansion.
While earlier-stage exports relied mainly on licensing agreements (e.g., with Liebherr in
Germany) and sales alliances (e.g., with Welbit Appliances in the United States), Zhang aimed to
increase Haier’s independence and degree of internationalization. Haier defined three stages:

 Stage one: ‘Seeding’ – a sales-volume-based approach that emphasizes reputation

building and foreign distribution through local sales agents;
  Stage two: ‘Rooting’ – key aspects are rising market share and creating wholly owned
production subsidiaries abroad;
 Stage three: ‘Harvesting’ – represents the implementation of subsidiary-based local sales
and location of R&D capabilities abroad.

After Haier’s initial market entry in the United States, the firm established itself in emerging
countries as ‘Haier ASEAN’ (abbreviation for the Association of Southeast Asian Nations).
Haier followed its initial exports to Indonesia in early 1992 with opening its first foreign
production site there four years later. In 1997, Haier furthered its expansion into emerging
subsidiaries in the Philippines and Malaysia.

During the same year, Haier approached foreign distributors at the World Household
Appliances Expo in Cologne, Germany, with the intention to take a share of the world market in
home appliances. Haier had to hire external sales agents to import its refrigerators from China
and to sell these in the European market, mainly in Germany, the Netherlands and Italy.

Having gained self-confidence as well as reputational and financial strength, Haier refocused
on the US market a few years later. Based on Haier’s previous sales alliance with Welbit and the
US market’s complexity, Zhang opted for a cautious market expansion strategy. Zhang targeted
two niche categories, namely small-sized compact refrigerators and electric wine coolers. Zhang
believed that those markets were underdeveloped and therefore remained below the US-based
producers’ radar, yet offered a lot of growth potential. Zhang’s assessment proved to be right:
Haier developed into a renowned brand in these previously ignored product niches. Along with
this success, Zhang considered a stronger, long-term oriented commitment in the US by
diversifying Haier’s product offerings and establishing a local production. Expansion into the
market for full-size refrigerators placed Haier in direct competition with the big four American
appliances brands: GE, Whirlpool, Frigidaire and Maytag. In 2000, with the help of its former
local distributor, Haier established its first wholly owned production subsidiary in Camden,
United States.

Within a 12-month time frame, Haier demonstrated its ambitious growth strategy by building
these industrial parks for (1) export-oriented production; (2) the expansion into information
technology; and (3) local production and research and development (R&D) in Camden, United
States. By the end of 2000, Haier had grown tremendously and controlled six production plants
overseas. By 2001, Haier’s contribution to the US economy was recognized by the naming of a
street located near the Haier American Industrial Park as “Haier Road”. Haier was the only
Chinese company to receive this honor in the United States, which was particularly important for
the company’s reputation in its home country.

In Europe, Haier tried yet another approach. Having relied solely on local sales agents in the
past, Haier founded a European trading company that would receive the exclusive distribution of
Haier products in seventeen European countries. In 2001, Haier’s first transnational merger with
an Italian refrigerator company, owned by Meneghetti, took place and contributed substantially
to its ambitious goal of conquering the European market of refrigerators and freezers.

In the same year, Haier established further production sites in Pakistan and Bangladesh.
Moreover, Haier established a joint venture in Nigeria, Africa, centralizing the entire production
of home appliances for the African continent. Furthermore, in 2001, Haier partnered with OBI,
the German market leader in the Do-It-Yourself sector to form China Homeworld Company
Limited. The joint venture focused on the retail business of construction and home furnishing
materials. On the one hand, OBI predicted potential for its own Chinese retail stores to offer
home appliances and electronics through the access to Haier’s local distribution and logistics
networks in China. On the other hand, Haier would benefit from extended domestic and overseas
market access through OBI’s sales channels.

One year later, in 2002, the firm expanded to Jordan and reinforced its strong market position
in the Middle East. In the same year, Haier built trading subsidiaries for air conditioners in Italy
and Spain, and in the UK one year later. Following the Nigerian joint venture, Haier opened its
second joint African production plant in Tunis, Tunisia, in 2002.

To strengthen its position in the Asian markets, Haier formed a partnership with Sanyo, a
leading Japanese electronics company. The objective of this cooperation was “to exchange
market resources with higher efficiency and thus create a larger market”.

By the end of 2002, Haier had grown into an international company that managed thirteen
production plants abroad, generating sales of US $ 1 billion. Haier’s year-on-year revenues
growth was 37 per cent in 2002. In 2003, Haier established a brand alliance with OBI in China to
enter the German home appliance market.

In 2004, Haier’s Pakistani subsidiary achieved the ISO9001 accreditation as the first of
Haier’s overseas production facilities and the first foreign home appliance manufacturing facility
in Pakistan. In the same year, Haier’s Jordon Industrial Park started operations and expanded its
capacity with a second production facility in 2006. This was a large project, representing an
annual production capacity of 150,000 air conditioners, 300,000 washing machines and 450,000
televisions.

During the following years, Haier continuously increased its product offerings worldwide,
established more and more foreign sales and trading offices, and negotiated with potential joint
venture partners, especially in Eastern Europe.

The Cuban government started cooperating with Haier in 2006 following Cuba’s ‘Energy
Revolution’ programme. In return for the approved market entry, Haier announced a donation of
energy-efficient street lamps to Cuba, creating a win-win situation for both parties. After four
years of successful cooperation, Haier and Japanese Sanyo deepened their commitment by
forming a joint venture in Osaka, Japan. One year later, in 2007, Haier entered into strategic
cooperation with Intel, a leading American semiconductor chip producer, and Cisco, a
worldwide leader in networking equipment. In the same year, Haier established its first India-
based production plant in Pune, India, by acquiring the appliances production of the company
Anchor Daewoo, a joint venture between Anchor Electricals, a subsidiary of the Japanese
Panasonic Corporation, and Daewoo Electronics from South Korea. With this acquisition, Haier
took the next step in implementing its localization strategy. The acquisition allowed Haier to
circumvent import tariffs, and to achieve reduced delivery times, and better customer service.

In 2008, Haier became the world’s largest refrigerator manufacturer in terms of sales,
surpassing its US rival Whirlpool. In the beginning of 2009, Haier and the Venezuelan
government signed a cooperative agreement on household appliances. Plans were made to
establish a local production site in partnership with a publicly owned consortium from
Venezuela. In 2009, in an attempt to strengthen its position in the New Zealand market, Haier
acquired a 20 per cent stake in Fisher & Paykel, New Zealand’s largest domestic home
appliances producer. With the mutual trade agreement, Haier became the exclusive distributor of
the high-end white goods in China, whereas Fisher & Paykel took responsibility for Haier’s
products in the Australian and New Zealand markets.

In early 2010, Haier agreed to a strategic alliance with Hewlett-Packard (HP), a leading
multinational information technology company. The goal of the agreement was to enhance both
companies’ competitive position. Haier’s distribution network offered HP broad access to
China’s rural areas. In 2001, Haier and Panasonic initiated a takeover of Sanyo’s refrigerator and
washing machine unit in Japan and South-East Asia. This acquisition, to be consumed in 2012,
will increase Haier’s access to the highly competitive market of white goods and give the firm
inroads into the challenging Japanese market where domestic brands are typically favored over
foreign ones.

To keep up with the speed of international innovation, Haier developed an international R&D
network consisting of six research centers in Qingdao and Beijing, China; Seoul, South Korea;
Tokyo, Japan; Milan, Italy; and Los Angeles, United States, as well as eight global design
centers in Seoul, South Korea; Osaka, Japan; Los Angeles and Camden, United States;
Copenhagen, Denmark; Amsterdam, the Netherlands; Munich, Germany; and Milan, Italy.