HAIER: TAKING A CHINESE COMPANY GLOBAL

1. HAIER: TAKING A CHINESE COMPANY GLOBAL Group: 9 Hunny Agarwal (102) Hakim Datawala (115) G. H. Krishna (118) Sushant Mondal (137) Abhishek Parekh (142) Anirban Sengupta (150)

2. Haier Group: Highlights

3. Haier Group: Challenges

4. Haier Timeline

5. Differentiating Competitive Strategy of Haier • Haier gains competitive advantage by the adoption of a “strategy of diversification”. The company strives to be a leader by using innovative solutions in terms of technical specification and in design and creativity. • Haier is different from most other Chinese manufacturers, whose aim is only to export and earn foreign currency – they produce and sell OEM products, i.e. without an own brand policy. • Haier enters new markets overseas, the demands of local consumers are its starting point. So the company insists on a strategy of localization in overseas markets • For example, in Europe, Haier is adopting a ‘three in one’ strategy – localized construction at a factory near Venice, Italy, a design centre in Paris and a sales centre in Milan. • In order to improve its own key competitive ability, Haier started a business flow restructuring in 1998 and improved significantly the company’s feedback speed from the market, reducing operating costs and increasing competitiveness in the market by this restructuring.

6. Haier In Chinese Market Haier was the only company with leading shares across white good sectors. Haier was dominant in the RMB 48 billion refrigerator and freezer market, which accounted for about 38% of all white good sales in China. Haier’s share in country’s refrigerator market was 27% in volume and 52% by revenue. Analysts estimated that the company accounted for 61% of industry profits.

7. National Competitors • In 1989,100 refrigerator producers are there which had been reduced to 20, with the 10 largest accounting for 80% of the market • Leading domestic players failed to reach their growth potential due to many money-losing small competitors, who sustained by regional government’s budget • Protecting factors for Haier are diversified holdings, its differentiated products and its export strategy • Guangdon Kelon-one of national competitors are only manufacturer of full line of home appliances. Kelon thus followed multi-brand strategy in China. • Kelon’s new management had a new strategy to target China’s rural population and sold a million units of low-priced brand in first year of its operation • Haier already had a strong presence in rural market but they did not target specifically rural segments with different pricing strategy

8. Foreign Entrants • After Chinese entry in WTO in December, 2001, Haier faced competition not only from local brands but also from foreign competitors like Siemens, Electrolux, Samsung, LG, Matsushita, Sony, GE and Whirlpool • Many MNCs target emergence of a replacement market, specially high-end market in large cities • Companies need to have a well informed sales and marketing network to capture untapped Chinese market • MNCs underestimated Chinese competitors and expected competition to come from other newly arrived foreign firms, instead, they faced biggest competition from Haier and Kelon, because of equally good technology and lower price • Foreign brands refrigerator unit sales represented 31% of Chienese market in 2002, from 26% in previous year. Automatic washing machine sales accounted 38% of total sales, up from 31% last year • Haier has advantage of local knowledge- aware of Chinese culture and values

9. Retail Channels for Haier • Before 2000, Haier’s customers were mostly state-owned department stores, by 2004, appliance sales had moved out of the department stores and into individual specialized shops and private retail chains • Distributors are major domestic chains as well as international retailers like Wal-Mart and Carrefour • Introduction of Western retail models to China’s major cities coincided with the arrival of foreign multinational appliances brands like Siemens and GE • WTO-mandated opening of rest of China to foreign retailers by the end of 2004 threatened to erase domestic firm advantages beyond the first tier cities • Haier has advantage of successfully tested sales approach to work on a non-uniform population, unlike in European market, where rural and semi-urban market is dominated by domestic or international hypermarkets

10. Haier Market Advantages • Haier Products commanded 20% Premium over other brands, still a leader in sales. • Haier has superiority in majorly 3 areas • Market responsiveness • Distribution • After sales service

11. Haier Market Advantages

12. Haier Market Advantages • Market Responsiveness • Focus on meeting customer’s needs • 42 divisions act as individual companies • Creating innovative machines like Single wash, Potato washers • Meeting Local demand at home and abroad with Innovative models

13. Haier Market Advantages • After sale Service • Pioneered after sale service concept in China • 5500 independent strong contractor network • National hotline customer service • Free of charge replacement, low costs on repairs

14. Haier Market Advantages • Distribution • Haier Logistics pioneered JIT concept in China in fields of packaging, raw materials, delivery and product distribution • reduction of inventory cycle from 30 days to 7 • More focus on supplier reduction from 2300 to 1000 • Utilized growing infrastructure • Teamed up 300 transport companies to deliver goods • Upfront cash created good cash flow for Haier • Haier reorganized its logistics to server entire group unlike others

15. Haier Market Advantages • Having economies of scales reduced Logistics costs to minimum • Haier has invested lots of time, energy, money in creating distribution, overcoming chinese bureaucracy. • Haier was more localized than other companies, which can be overcome easily. • Haier recognizes these are tangible benefits and other competitor can acquire these benefits by outsourcing logistics.

16. Haier in International Markets • Revenue generated should involve Zhang’s “three thirds” goal • 1/3rd from goods produced and sold in China • 1/3rd produced in China and sold overseas • 1/3rd produced and sold overseas • Creation of Haier’s Overseas Promotion Division in 1999 led to rapid growth in international sales. • Haier started to venture into overseas market as a contract manufacturer for overseas brands • It entered into a JV with Mitsubishi to set up China’s largest AC plant

17. It was one of the first Chinese co’s to engage in FDI by setting up a refrigerator and AC plant through a JV with a local firm. • Haier entered Europe in 1997 by producing AC’s in Belgrade. • In Germany, when Haier’s “Blue Line” refrigerators beat local firm Liebherr in a ranking , Germany became Haier’s first export market. • In 1997, Haier formed a JV with LKG to manufacture Haier branded products in Philippines for sale in regional market

18. Haier started focusing on selling its branded products overseas • Haier’s philosophy – “ To export in order to establish a brand reputation overseas unlike other Chinese firms who were interested in exporting products to earn foreign currency” • Chinese firms exported products under an OEM client brand as they were associated with low quality in US and other countries • Haier tried emulating strategies of Sony, Samsung, LG while expanding into international markets • LG was the most likely model for Haier

19. International Strategies

20. Focused on difficult markets first • Home markets of larger global competitors • Highest quality standards • Requirements of retailers and customers are tough to meet • Build a prestige and arrive with a ready made reputation in South Asian Market • Zang said “ If we can compete in mature market with brands as GE, Matsushita, Philips, we can surely take the market of developing countries without much effort”

21. Begin with niche Products • Started with few models without directly confronting the competitors • Compact refrigerators for students and offices • 30% market share within 3 years. • Attention from Wal-Mart and Best Buy • Introduction of regular product

22. Staff With Locals • Local people know the market very well • Identify a local person with experience preferably in a leading white goods firm, to head the country operations. • The person will hire a local team and set up sales and distribution network • Eventually they will place their own people in key positions to get better market intelligence

23. International Divisions Haier China Overseas America (N&S) Europe Middle East South East Asia East Asia

24. Contd. Haier Products , 80% in white goods sold : • 62 distributors, 30,000 retailers, 59,000 sales agents, 12,000 service personnel • Operated 18 design institutes, 13 overseas factories, 11 industrial complexes.

25. Haier America • Entered US market in 1994 with compact refrigerators captured 10% market share • Michael Jemal, import company Welbeilt appliances • Joint venture ‘ Haier America’ with Jemal in 1999 • Rented space in Manhattan , 13 people all American except for the accountant • Established $40 million Industrial park and a factory in south Carolina

26. Strategy in America • To manufacture quality products and sell at premium • Focus on getting Haier products into large retail chains- Home Depot, Wal-Mart etc • Focus on niche markets helped to avoid competition from GE, Maytag, Frigidaire

27. Haier in Europe • In 2000 Haier Europe headquartered in Varese, Italy, began coordinating sales an marketing in 13 European countries growing upto 17 in 2004. • Product line included refrigerators,freezers,washing machines,dishwashers,microwave ovens and small appliances all designed for the European market. • In 2001 Haier invested $8 million to acquire a refrigerator plant • in Padova,Italy,manufacturing built in refrigerators and freezers. • In 2002 Haier A/C Trading began distributing air conditioners in the local market. • By 2004 Haier had an estimated 10% share of European air conditioner sales. • Haier’s headquarters in Varese coordinated logistics by 4 distributions center’s in Italy,Spain,UK and the Netherlands.

28. Haier in India • Haier earmarked India as a potential high growth market, and invested heavily in building up production, distribution and sales capacities in the country. • In 1999 it formed alliance with Indian appliance firm Fedder Lloyd Corp to jointly produce and market refrigerators nationally. • In Jan 2004 it launched a broad range of products with the goal of becoming one of the top three white goods firms in India within 5 to 7 years. • In 2004 it announced a $200 million investment over 4 years to establish a refrigerator factory and R&D center that would serve as a production site for South Asian and African markets, • In 2004 Haier formed an alliance with Whirlpool and Voltas to manufacture refrigerators and air conditioners for the Indian markets. • In India Haier used local human resources to establish business

29. The Next 20 Years • Haier faced a number of challenges in the coming years including moving beyond niche markets in the US to its goal of introducing a full line products. • Haier did well in small scale industries but there were doubts whether a Chinese company could break into major leagues because it was a new Company. • In 2005 Haier was spending about 10% of revenues of global branding and marketing, more than double the industry average. • The company planned to combine its expertise in white goods with information technology relatively new area for Haier to produce intelligent home appliances. • It planned to get there one step at time securing market leadership at home in each sector and then taking it globally. • Haier’s long term goal was to achieve one-third domestic sales, one-third exports and one-third produce and sold abroad.

30. Thank You!!!!!