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Haier Case
Haier Case
Discuss the process of Haier's diversification strategy from single dominant business
to a diversified portfolio. What do you think were the reasons behind this
diversification strategy?
By the early 1990s, demand outstripped supply in China. They wanted to become a first
class brand and they did not had a big scale operation. This was possible through
diversification.
They wanted to extend their core competency of quality control into related products and
thus expand their customer base by acquiring poorly managed firms
Sometimes acquisition were done under the pressure of government to take over poorly
performing firm
Its superior learning of the Chinese market and efficient distribution system provided
them the confidence to enter into a diversified business
Retail channels: Haiers strong domestic distribution network gave them a competitive
edge over foreign players in tier 2 and 3 cities. It had extensive network of licensed
dealers and had partnerships with retail chains like Walmart. Independent retail shops,
government purchases, online and telephone sales were also its end of value chain.
Quality: Haier followed a strict quality control system supported by its newly
combined department across various functions.
Self-management teams: These teams were deployed by Haier in the loss making
companies that they acquired. These teams worked closely to turn around them into
profitable ventures.
Distribution: JIT purchasing of raw material helped Haier to reduce inventory cycle from
30 days to 7 days. Procuring form 1000 suppliers instead of 2300 suppliers before
provided them with a bargaining power with the suppliers. It also took advantage of
Chinas growing highway network and technologies likes barcode scanning. One of the
main differentiator was the reorganization of the logistics into a single group that
provided services to the entire company and gave them a competitive advantage.
Superior after sales service: Haier setup a computerized system to track thousands of
customers. Haier maintained a nationwide hotline to arrange house calls by service
agents. Warranty period provided by the company exceeded even the government
regulations. During the servicing of the equipment, they also used to provide the customer
with a temporary replacement.
The domestic electronic appliance market was becoming more competitive as less
profitable and foreign brands began flooding into China. So Haier decide to go into the
global markets for the following reasons:
Intention: Haier always had the strategic intent to build a global brand. Chinese
markets were also opening up to foreign competitors.
Increase market share and company goals: Zhang formulated the vision of the
company to receive equal revenues from goods produced and sold within China,
goods produced within China and sold overseas and goods produced overseas and
sold overseas. This called for going global and increasing market share.
Targeting difficult market first: Haier believed in focusing on difficult market first
and then shift focus to easy emerging market as it will help to establish strong brand
image.
Use right people: Haier used local people to expand quickly as they knew market
very well. They hired experienced local leading person to hire a local team and
develop S&D channel.
Product differentiation: Paid close attention to make small modifications and please
customers. One on One communication between customers and R&D, sales people.
Chinese market: Haier is known for innovation in China and there is a sense of feeling
of a home company in Chinese market. Haier should leverage upon these factors and
focus more on bringing out more innovative products and build image of a world class
domestic company. Stricter quality control measures and speedy customer service will
help in achieving a better brand recognition.
Global market: Haier should focus on building its brand in the overseas market by
projecting itself as an individualized brand that offers quality, adaptability and flexibility
in its products. Customer service should reach across the breadth and depth of
geographical areas.