Haier: Taking a Chinese

Company Global
KRI SHNA PALEPU
TARUN KHANNA
INGRID VARGAS

Case Discussion
DISCUSSION AGENDA

◦ Company background and profile

◦ Development stages
◦ Factors for Haiers success in China
◦ Haiers strategy
◦ Breaking the Niche barrier
◦ Haiers one third startegy

Anto, Viswa International Business policy 27/01/10

COMPANY BACKGROUND

◦ Haier Group was founded in 1984 in Qingdao

by Zhang.
◦ Deficit of 215350.59 U.S. dollars
◦ Highly indisciplined work force
◦ Absolete factory.

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COMPANY PROFILE

 World’s 4th largest white goods manufacturer and

China’s largest home appliance brand.
 15,100 different specifications (under 96 categories)
 Sold in 100 countries
 50000 people employed
 240 subsidiary companies and 30 design centers,
plants and trade companies
 Global revenue in 2006 was RMB107.5 billion
 Chairman and CEO - Zhang Ruimin
 President - Yang Mianmian

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MAJOR COMPETITORS
 National:
◦ Guangdong Elecpro Electric Appliance Holding Co., Ltd.
◦ Elec-Tech International Co., Ltd.
◦ Hisense Kelon Electrical Holdings Co. Ltd.
◦ Ningbo Fuda Company Limited

 International:
◦ Whirlpool Corp(United States)
◦ Electrolux AB (Sweden)
◦ Bosch-Siemens Hausgerate (Germany)
◦ General Electric (United States)

Source: Datamonitor
Publication Date: 22 May 2009

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PRODUCT RANGE

 Refrigerators/freezers
 Air-conditioners
 Microwave ovens
 Washing machines
 Dishwashers
 Televisions
 Mobile phones
 Computers
 DVD players
 Water heaters

Source: Datamonitor
Publication Date: 22 May 2009

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Development Stages

◦ Brand Building
◦ Diversification
◦ Globalization
And NOW…..
◦ Global brand building

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SALES NETWORK

China: Alliance with Suning and Gome chain

stores
America: SEARS, Lowe's, HOME DEPOT,
Best Buy, PC-Richard, Wal-Mart, Sam's,
Costco, BrandsMart and Target
Japan: YAMADA, KOJIMA and JUSCO
Europe: KESA, Media Market and Carrefour

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HAIER’S SUCCESS IN CHINA:
Success Factor 1 – Quality and value focus
instead of price focus
r va lue
, go in f o
Sorry
war

Come back, join

the price war

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HAIER’S SUCCESS IN CHINA:
Success Factor 2 – Nurture workers and
then demand work from them.

Haier
I put hope into the employees
hearts – Zhang Ruimin(CEO)
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HAIER’S SUCCESS IN CHINA:
Success Factor 3 – Commitment beyond
contract.
The
I am very satisfied y on
me l
200 y charg
renm –300 ed
i
$36 nbi ($
Good Service ) fo 2
r th 4–
e re
pair
s.

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HAIER’S SUCCESS IN CHINA:
Success Factor 4 – Customer satisfaction
through Innovation
Bed coffee
for my child
◦ 7,000 patents
◦ In 2004 alone, Haier
applied for 695 patents,
2.7 patents per day.
◦ Additionally, creates
product differentiation

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HAIER’S SUCCESS IN CHINA:
Success Factor 5 – Distribution

 Implementation of JIT
 Implementation of information systems
 Integrated delivery of different products

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Haier’s strategy to enter
developed markets first

◦ It is considered as a escape route for erosion in

profits from the local markets.

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Dawar and Frost’s survival strategy theory
and Haier’s internationalisation strategy

Yuping Du
Jan(2003), Journal of Chinese Economics and Business Studies

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COMPETITOR ANALYSIS

Indian entry: Indian middle class

Whirlpool in 1995 alone is more than the
Electrolux entered population of the
around 2000 United States (US).

Source: Ministry of Information and Technology, Government of India

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COMPANY BACKGROUND

◦ The primary driver of revenue has been domestic sales.

14,000 5.17%

12,000
4.83%
10,000

8,000 15%
6,000
Overseas made and sold
4,000 Exports from China
Domesticsales
2,000

Figures in millions
0
1998 1999 2000 2001 2002 2003 2004

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QUALITY AND EFFICIENCY

◦ In Germany, the Netherlands, Belgium, and

Luxembourg, consumers could receive a rebate of €100
for purchasing a Haier energy-efficient refrigerator (A+
rated in energy conservation).
◦ Since 2007, US consumers have received rebates of $40
to $100 when they purchase Haier Double Drive washing
machines.
◦ Haier products earned UL certification (Underwriters
Laboratories Inc.).
◦ Haier's "Tank" refrigerator won Japan's G-Mark Design
Prize.

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Haier’s strategy to enter
developed markets first

Obj 1: Challenge the quality standards

Obj 2: Creating a brand prestige
Obj 3: Ease in penetration into developing
markets after success in developed
markets.

So the strategy was a partial success in terms of

these objectives!

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BREAKING THE NICHE BARRIER

 Perceived quality— Haier products are known for their

superior quality.
 Global status—The idea that transnational brands confer
an elite status on the buyer. Haier does the same.
 Country-of-origin quality— Country of origin tag may
have an impact on Haier’s entry into high-end white
goods because Chinese products are associated with
lower quality.
 Citizenship—The social relation that China has with the
other country will have an impact on the customers final
decision.

HBS professor John Quelch and Earl Taylor of Research International in Cambridge, Mass

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Financial Analysis
Industry
Financial Ratios Standard* 2000 2001 2002 2003 2004

Current Ratio 2.56 2.7 2.1 2.1 2.9 5.1

Inventory Turnover 9.6 9.1 20.1 16.5 16.5 18.3

Asset turnover 1.31 1.3 2.1 1.6 1.6 2.1

Receivables
Turnover 70.02 7.3 15.4 15.6 18.9 19.5

Profit margin 7.73 8.9 5.4 3.4 3.2 2.4

Return on Assets 7.92 11 11.4 5.6 5 5.1

Return on equity 15.11 15.7 16 7.8 6.9 6.7

Operating Expenses are very high 11570(2003), 14892(2004)

*Financial Management by Brigham & Houston

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BREAKING THE NICHE BARRIER

¹The globalisation of Chinese brands, Marketing Intelligence & Planning

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BREAKING THE NICHE BARRIER

◦ Can Haier freeze Whirlpool?

 Haier will have to appeal to image-conscious
consumers.
 Haier cannot play cost card alone.
 Truly powerful brands will emerge only from market
competition¹. Chart strategies to overcome competition.
 Lower the operating expenses to get higher profit
margin which can be reinvested, because the
competition against cash rich conglomerates.
 The penetration of appliances into rural segment is very
low. This segment of the market if properly addressed
can generate revenues for overseas ambition.

¹Kotler Marketing Group

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HAIERS ONE THIRD STRATEGY

◦ FEASIBILITY ANALYSIS:
Revenue (in Time deviations Square of Product
Year millions) from the year deviation of time
Xi (y) (x=xi- µ) (x 2) (xy)
2000 4,913 -3 9 -14739
2001 7,284 -2 4 -14568
2002 8,712 -1 1 -8712
2003 9,680 0 0 0
2004 12,100 1 1 12100
2006 15,748 3 9 47244
2008 17,873 5 25 89365
n=5 76310 3 49 110690

Assumption: Haier will reach the goal by 2015.

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HAIERS ONE THIRD STRATEGY

◦ FEASIBILITY ANALYSIS (Contd.,):

Projected Revenues following the regression
y=10901.43+2258.98x
Year Revenue
2009 24455.31
2010 26714.29
2011 28973.27
2012 31232.25
2013 33491.23
2014 35750.21
2015 38009.19

Assumption: Haier will reach the goal by 2015.

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HAIERS ONE THIRD STRATEGY

◦ FEASIBILITY ANALYSIS (Contd.,):

 Indicating 38009.19/3 = $12.669 billion USD
 Hence going by this trend Haier should generate
$12.669 billion USD as revenues from each of the
three modes.
 Whirlpools revenue – 18 billion
 GE Consumer Appliances – 21.41 billion (includes
industrial equipment also)
 Haier does not have good hold on the high-end
products which have higher revenues.

Assumption: Haier will reach the goal by 2015.

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HAIERS ONE THIRD STRATEGY

◦ FEASIBILITY ANALYSIS (Contd.,):

 Haier had 3.8% volume share on Large kitchen
appliances. Whirlpool being at 7.9%.
 52% by small players who hold less than 2% of
share each.
 Haier would not only have to topple top players
but also the small players.
 By all these analysis, it can be said that three
thirds strategy is not a viable one (and definitely
not wise too!!).

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 Thank you for your kind
attention.

Questions please?

Anto, Viswa International Business policy 27/01/10