Haier

International Business Approach

Team: Rahul Gossain Ratnesh Saurabh

Haier Case Overview

Haier Group in China Haier Group, ranked Chinas 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 Chinas 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 worlds best-selling refrigerator brand by 2006.

High threat from new MNCs Entry barriers frorm of access to retail & logistics Economies of product being breached with new facilities Brand equity is Haiers biggest strength but MNCs 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 Chinas 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 Presence Global Competitive Advantage

Measuring Value Chain

Optimization

Defining Global Competitive Advantage

Imperitives:
Haier held about a 30% share of Chinas 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 Groups 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. Haiers 2004 export revenues were nearly double the previous years 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 Low High High

International Divisions

Global Product Companies Transnational Corporations

LOCAL INDEPENDENCE & RESPONSIVE-NESS

Low

International Subsidiaries

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 Haiers 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 Haiers 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 Chinas largest air conditioner plant. The Qingdao factory would produce five of Mitsubishis 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 Haiers Blue Line refrigerators eight top rankings, beating Liebherrs 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 Haiers 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 Haiers 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

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 Haiers Blue Line refrigerators eight top rankings, beating Liebherrs seven, Haier decided it was time to market its own brand overseas. In 1997, Germany became the first export market for Haier-branded refrigerators.

Understanding of Markets
Successful products like mini refrigerators

Sourcing & Distribution network in place:

Expanded international production facility Walmart access Synchronization of International operations

Development of Global brand

Worldwide Branding