Haier taking Chinese company global

Case analysis
7/5/2011 IIM Kozhikode Satyajit Mohanty Roll num 14/130 Section - D

Why was Haier so successful in China? Identify and discuss its specific competencies, skills and resources and how it was able to harness these dimensions in driving to success.

The success mantra for Haier in China was simple but was differentiated from other local competitors. They always set the trends and benchmark which the others followed. Hence they were always 2-3 cycles ahead of their local competitors (as well as global competitors) in the product life cycle. Some of the major competencies they had were
y

y y y y

Product differentiation (innovative products) o They gave close attention to consumer needs, hence were able to innovate new products every year Response speed o They understood the changing customer behaviour faster than any other company , as in China the diversity in geography and buying preferences are huge. Focus on quality and brand building rather than mass production o Most of the Chinese companies worked with the reverse strategies Sophisticated and complex distribution channel covering most of the parts of China Technology from foreign countries. They followed a strategy to incorporate the technology into their system - Observe, Digest and then imitate and then develop independently. Superior after sales service

The skills and resources which they had to achieve these competencies were They tried to integrate the supply chain for their efficient working Customer loyalty
o

o o o

They provided high quality, innovative products which created a loyal customer base. These customers in turn will buy further products of Haier and also bring in new customers Unlike Kelon, Haier sold its products under a single brand, which made the brand visibility more uniform than Kelon(Its major competitor) As against the foreign competitors in the Chinese market, Haier had a competitive advantage of understanding the Chinese culture and values better thanthem. They had 5500 service centres which could cater to the after sales service demand of the customers

Employee loyalty
o o

Every employee was accountable to the other employees of the team for failure in delivery of the assigned work in stipulated time They always retained the employees of any acquired company

Supplier Loyalty
o o

Haier acquired new businesses which provided service for Haier s core business. Hence they integrated the suppliers into their system These new businesses acted as competitors to the other third party service providers to Haier; hence the suppliers were more effective because of increase in competition.

These all skills and resources helped them to attain the competitive advantages and hence a successful organization in China. Apart from this they also took some risk while Acquiring Qingdao land by listing themselves at shanghai stock exchange.

Was Haier s decision to globalize into developed markets early on a good strategy? Explain the risks and benefits of this decision. Would this be a good option for other emerging market firms as well? Would you specify any caveats in applying to other firms?

Haier strategic internalisation can be best explained by Dawar & Frost survival strategy Haier s positioning in exporting
y

Stage 1 - defender o Haier imported technology from Germany based on license agreement. From 1984 to 1991 the globalization pressure was relatively weak. Hence Haier was in its initial stage a Defender. They first observed the digested the technology and then imitated and finally developed independently Stage 2 contender o Haier s competitive strategy in exporting was as contender . Haier launched its internalisation strategy by exporting very creatively. They opted for a first difficult then easy principle. The use of contender strategy, having built a highly desirable industrial image for their quality products enabled the company to compete globally. Stage 3 both defender & dodger o After 1992 Haier entered the developing markets without obstacles as a strong defender in international markets. Haier on other hand applied a dodger strategy at the domestic market to avoid price wars.

HIGH

Customized to home market Dodger After 1992 competing with international assets

Transferable abroad

PRESSURE TO GLOBALIZE IN INDUSTRY Defender 1987 -1991 TQC,, NATIONAL brand 1984-86 technology learning LOW

Contender (direct export to international market) 1992

Extender Post 1992 competing with international assets

LOW

COMPETITIVE ASSETS

HIGH

Haier s positioning in FDIs overseas

Customized to home market

Transferable abroad

HIGH

Dodger 1998-200 1 international brand & alliances

Contender 1998-200 1 FDI in developed market

PRESSURE TO GLOBALIZE IN INDUSTRY Defender 1984-86 technology learning

Extender Diversification FDIs in less developed countries

LOW

LOW

COMPETITIVE ASSETS

HIGH

Haier s strategy to globalize early into developed countries could bring out the best possible out of them; hence they followed a good strategy

Can Haier build on its success in the niche products to become a dominant global brand in high-end white goods? What might such strategy look like and how might this be rolled out?

While examining the financial performance over the past 5-10 years we can get the conclusion that Haier s ephemeral success in niche market segment can t actually boost its aim to become global leader in long run. Analysing the Qingdao Hair s ROE, it has decreased drastically. The Qingdao asset turnover ratio and equity has remained constant over a period. Hence major reason behind decrease in ROE is the decrease in profit margin. Qingdao s profit margins are decreasing mainly because of increasing completion from the multi-national companies. Also in addition to this Haier had to increase in expenditure in marketing its brand equity and completed acquisitions to obtain global presence. Looking at Haier at global level there is decrease in earnings performance. Financials reveal varying profit margins over the last 5 years. The profit margin is growing at a slower rate than its revenue growth (6 (a)). This depicts the increased investments which Haier is making to improve brand equity. Haier s revenue has grown continuously over the last ten years but the year on year growth has declined since 1997. Haier s focus on price sensitive segments in developed countries does decrease the amount of revenue it can generate in these markets. Hence it should push its entire product line into the market.

Is Haier s three thirds strategy a viable or wise approach? Offer a holistic view

The three thirds strategy by Haier stated that 1/3rd of goods should be produced and sold in China 1/3rd of the goods should be produced in China and sold overseas. 1/3RD of the goods should be produced and sold overseas. This approach was viable as there were many reasons for Haier to go global. Some of them are

Haier held about a 30% share of China s 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 Group s 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. Haier s 2004 export revenues were nearly double the previous year s the company was targeting $1 billion in sales to the United States alone for 2005. Could Haier Competition from MNC after WTO entry

Also a company should focus to have a balance between its local and overseas market so that even if any market is affected because of any downturn, the organization is survived by the other market. Mostly companies go global when the local market is saturated. Same thing happened to Haier, they became China s leading refrigerator manufacturers. Haier a innovative company, which has its core competency as good quality and understanding ever changing customer needs. Henceexports as of now constitute 20 % and overseas production is as less as 10 %. There is still a lot of potential which needs to be achieved in these segments.