HAIER CASE

1) Using Yip’s model, is Haier operating in a global industry?

With the joining of China to the WTO, Haier has begun to operate in a global industry. Haier is
producing products to satisfy common customer needs that are similar across the globe. While they
produce different products for different locations, most of the changes are just small modifications to a
base model. Haier is also participating in transferable marketing by using the Haier name in all locations,
and participating in the lead countries for the white goods industry. While they could have chosen to
invest in emerging markets, they felt that they needed to compete against firms in lead countries to
hone their skills, and show consumers that they are capable of competing with the best.
The industry is also global because of economies of scale. In many of the smaller countries,
economies of scale cannot be achieved by a firm only marketing to that nation. Because of this, firms
try to expand globally to use excess capacity. There are also high imports and exports within the
industry. While assembly may take place in the nation that will retain the product, most of all the parts
come from different locations around the world.
While all of Yip’s drivers are not present in the current industry, many are present, and they
are driving the industry globally. Many of the multinational firms have been competing global well
before Haier because Haier was sheltered from trade policies, but going forward, Haier will be
competing against the multinational firms, and they must keep a close eye on competition to continue
their success.

See Exhibit

2) Why was Haier so successful in China?

Commitment to Quality

Inspired by the Germans, Zhang, CEO of Haier, drove a culture that focused on quality before anything
else. While it was difficult for him to engrain this into the Chinese workers, there a two examples of
how he did it. To make people feel personally responsible for the quality, poorly performing workers for
the day would be required to stand on a pair of yellow footprints and explain to their coworkers their
failings. On another occasion, Zhang had worker destroy 76 refrigerators that had minor flaws such as
scratches to demonstrate the importance of quality. Because of this quality, the Chinese consumers
viewed Haier as the highest quality brand, and Haier was able to price products at 15-20% more than
competitors.
HAIER CASE

Market Responsiveness

Haier was excellent and responding to consumers’ needs through innovation and service. Because of
their extensive funding of R&D, they were able to research markets and see what customers wanted.
On one occasion, in rural China, a consumer complained about his wash machine not working. Come to
find out, it was clogged with mud because he had been washing sweet potatoes in it. In response, Haier
made some adjustments and began to brand some of its wash machines as, “Mainly for washing clothes,
sweet potatoes and peanuts.” Haier also had success because of their service. When a product stopped
working, it had an extensive network of repair specialist to take care of the problem, and if the product
needed to be removed, provide a temporary unit. Their ability to meet and exceed customer
expectations helped them lead to success in the Chinese market.

Distribution

With China joining the World Trade Organization, Haier began to see increase competition in the
market. However, because Haier understood the Chinese retail channels so well, and because their
distribution was very efficient, they had greater success. Most multinational brands that entered the
market tried to distribute their product to large retail chains. However, this channel amounted for little
market share. Most white goods revenue came from specialized shops or dealers who worked in rural
areas. Because of the relationships Haier had developed, they achieved advantage. Haier also had
incredible Logistics. Because the WTO prevented multinational companies from operating their own
logistics, Haier was able to set up their supply chain however they desired. They incorporate JIT (Just-In-
Time) inventory, and created a separate company that managed all logistics. Be doing so, they were
able to take advantage of economies of scope because they shipped other companies products along
with theirs to make full shipments, reducing costs. Their experience with the retail environment created
greater revenues, and their experience with the supply chain decreased costs. This ability to generate
higher profits led to more money for R&D to increase market responsiveness and increase Haier’s
success in China.
HAIER CASE

Customer Drivers:
Common Customer Needs- Customers
mainly require the same products with
slight modification
Transferable Marketing- Marketing for
white goods requires little local
adaptation. Most companies use the
same name in all nations

Cost Drivers: Governement Drivers:

Economies of Scale- Some nations
industries are not large enough to
acheive
Haier in Favorable Trade Policies- With China
joining the WTO, trade policies have
been relaxed
Favorable Logistics- The products are
not going to spoil, and can easily be a Global High Imports & Exports- While assembly
may take place in the retaining nation,
shipped
Differences in Country Costs- Low cost Industry parts are purchased from various global
locations
contries can learn to produce white
goods

Competitive Drivers:
Global Competitors- Haier's
competotors were competeing against
one another before China joined the
WTO.