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Taking Business Haier

TURNING COLD INTO A HOT COMMODITY


ELIZABETH DARLING JAMES EKWENSI

Company History
y Initially operated as a township and village

enterprise (TVE)


Began on an experimental basis prior to private enterprise

Alternative source of work for rural laborers

800 workers collectively own assets and share profits


Municipal governments had no claim other than taxes Municipal governments could influence senior staffing Municipal governments could influence allocation of key resources

Business Environment Circa 1980


y Undeveloped markets y Private enterprises not yet emerging in organized

manner y High quality output was rare y Municipal control of resources and staffing y 300 refrigerator manufacturers in China

History of Innovation
y 1984: Zhang appointed director of nearly bankrupt

company launch of Qingdao Haier y Inspiration: Liebherr of Germany, Derby of Denmakr, Sanyo of Japan y Joint Ventures: Japans Mitsubishi, Italys Merloni y Development of manufacturing capabilities:


First we observe and digest. Then we imitate. In the end, we understand it well enough to design it independently.

y Result: commitment to quality unlike any other

Chinese company

Haier: Milestones
y Started in 1984 y Launched overseas operation in 1990s y Developed a formal expansion strategy in 1997 y Company grew on the background of economic

advancement in China between 1980 and 2010 y Became world leaders in white goods manufacturing y Controls 49% of global capacity

Haiers Business Strategy: Differentiation


y Chinese companies during 1980s not focused on

quality y Zhangs production line had to be the best


  

Quality Control Customer Data Customer Service

y Premium pricing

Assessing Differentiation
y 1984 Revenue: RMB 3.48 million y 1989 Revenue: RMB 410 million y 2010 Revenue: RMB 136 billion y Group performance: 1, 8 and 28

- 1: #1 white goods manufacturer in China since 2001 #1 refrigerator manufacturer world wide - 8: 8x increase in revenue (75% increase in profit) - 28: Haier Electronics Group ranked 28th on BusinessWeeks 2010 list of the most innovative firms

History of Market Share

Haier Global Strategy


1. Focus on difficult market first:
y Proving itself in the difficult market (US and Europe)

made it relatively easy to convince emerging markets of Haiers high quality and desirability
y Five large regional markets: the Americas, Europe, the

Middle East, Southeast Asia, and East Asia

y Market entry strategy: from niche product to regular

products; from contract product to brand product; JVs in five continents including Indonesia, new Zealand, Nigeria, the Philippines and Yugoslavia

Haier Global Strategy


1. Focus on difficult market first: Haier America (1994)
y Entry strategy was to offer what US manufacturers

y y y y

did not make competitive refrigerators for students and offices Established a $40 industrial park and refrigerator factory in South Carolina. Within three years gained 30% share of the compact fridge market Innovation in the face of competition Quality product at premium price

Haier Global Strategy


1. Focus on difficult market first: Haier India (1999)
y Invested heavily in building up production,

distribution, and sales capacities y 1999 alliance with Indian appliance firm Fedder Lloyd Corporation to jointly produce and market refrigerators nationally y Poor retail infrastructure: fewer retail chains meant relying on local retailers unlike in US and Europe

Haier Global Strategy


1. Focus on difficult market first: Haier Europe (2000)

y HQ in Varese Italy, sales & marketing to 13

European countries y Product were all manufactured in China but specifically designed for Europe y acquired Meneghetti, one of Italys largest manufacturers of built-in appliances for $8 million in 2001

Haier Global Strategy


2. Staff with locals
y Relied on locals in India than the company permitted

elsewhere: hired a former Whirlpool India executive to head Haier India


y Haier chose a former sales executive of Italys

Merloni, Europes third-largest appliance maker, to head European operations

Haier Global Strategy


3. Building permanent market position
y Through market entry or expansion to defend or y y y y

improve its market share Focus on building a world famous brand Exporting to build a brand, not to earn foreign currency. We are not selling goods, but goodwill. Whenever Haier is mentioned, the entire world will know about it.

Haier Global Strategy


y (4) Meeting or following competition (defense) y (5) Exchanging of threat (offence): Expanding

abroad and locally using a combination of quality, price and local manufacturing y (6) Following customers: Where there is a market, there must be a factory. y (7) Shaping the competition: through innovation and acquisition

Assessment: Haier Global Strategy


Keys to Success
y Uncompromising quality standard y Flexibility and adaptability to local market y Unrelenting competitiveness locally and

internationally y Unique management style y Focus on brand y Customer focus

Current Issues
y Striking a balance of attention between international

and local markets y Domestic competition from other Chinese companies y Maintaining differentiation in foreign markets y Diversifying products to suit local market tastes and preferences

Recommended Response
y Continuous innovation and differentiation y Continued quality control and brand building y Maintain offensive stance in foreign markets to gain

market share via acquisition of U.S. companies




Aggressively pursue larger market share in U.S.

2010 market share: 1.6%

y Maintain defensive and offensive stance in domestic

market

References
y Haier: Taking a Chinese Company Global in 2011,

Tarun Khanna et al, Harvard Business School case review y Haiers survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf