Haier final

Haier: Taking a Chinese Company Global

KRI SHNA PALEPUTARUN KHANNAINGRID VARGAS

Case Discussion

Anto, Viswa International Business policy 27/01/10

DISCUSSION AGENDA

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


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.


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 countries50000 people employed240 subsidiary companies and 30 design centers,

plants and trade companiesGlobal revenue in 2006 was RMB107.5 billionChairman and CEO - Zhang Ruimin President - Yang Mianmian


Source: Datamonitor Publication Date: 22 May 2009

MAJOR COMPETITORSNational:

◦ 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

PRODUCT RANGE

Refrigerators/freezersAir-conditionersMicrowave ovensWashing machinesDishwashersTelevisionsMobile phonesComputersDVD playersWater heaters


Development Stages

◦Brand Building◦Diversification◦GlobalizationAnd NOW…..◦Global brand building


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 JUSCOEurope: KESA, Media Market and Carrefour


HAIER’S SUCCESS IN CHINA: Success Factor 1 – Quality and value focus

instead of price focus

Come back, join the price war

Sorry, goin for value

war

Haier


HAIER’S SUCCESS IN CHINA: Success Factor 2 – Nurture workers and

then demand work from them.

I put hope into the employees hearts – Zhang Ruimin(CEO)


HAIER’S SUCCESS IN CHINA: Success Factor 3 – Commitment beyond

contract.

Good Service

They only charged

me 200–300 renminbi ($24–

$36) for the repairs.

I am very satisfied


HAIER’S SUCCESS IN CHINA: Success Factor 4 – Customer satisfaction

through Innovation

◦7,000 patents◦In 2004 alone, Haier

applied for 695 patents, 2.7 patents per day.

◦Additionally, creates product differentiation

Bed coffee for my child


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

Implementation of JITImplementation of information systemsIntegrated delivery of different products


Haier’s strategy to enter developed markets first

◦It is considered as a escape route for erosion in profits from the local markets.

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


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

COMPETITOR ANALYSIS


Source: Ministry of Information and Technology, Government of India

Indian entry:Whirlpool in 1995Electrolux entered

around 2000

Indian middle class alone is more than the population of the United States (US).


COMPANY BACKGROUND

◦ The primary driver of revenue has been domestic sales.

1998 1999 2000 2001 2002 2003 20040

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Overseas made and sold

Exports from China

Domesticsales

15%

5.17%

4.83%

Figures in millions


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.


So the strategy was a partial success in terms of these objectives!

Haier’s strategy to enter developed markets first

Obj 1: Challenge the quality standardsObj 2: Creating a brand prestigeObj 3: Ease in penetration into developing

markets after success in developed markets.


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

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.


Operating Expenses are very high 11570(2003), 14892(2004)*Financial Management by Brigham & Houston

Financial Analysis

Financial RatiosIndustry 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 2.1Receivables 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


¹The globalisation of Chinese brands, Marketing Intelligence & Planning


Pros• 10% of revenues on global

branding and marketing• Excellent Managerial practices

like OEC, Market-chain, Individual-goal combination.

• High local responsiveness due to local units.

• Global networks for design, production, distribution and after-sales service.

Cons• Revenue of Haier in 2002 amounted to only about ten per cent of Sony's total electronics sales.

• Too much diversification has lead to brand dilution. (no multibranding¹).

• China tag.


¹Kotler Marketing Group


◦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.


Assumption: Haier will reach the goal by 2015.

HAIERS ONE THIRD STRATEGY

◦FEASIBILITY ANALYSIS:

Xi (y) (x=xi- µ) (x2) (xy)2000 4,913 -3 9 -147392001 7,284 -2 4 -145682002 8,712 -1 1 -87122003 9,680 0 0 02004 12,100 1 1 121002006 15,748 3 9 472442008 17,873 5 25 89365n=5 76310 3 49 110690

YearRevenue (in millions)

Time deviations from the year

Square of deviation

Product of time




◦FEASIBILITY ANALYSIS (Contd.,):

Projected Revenues following the regression y=10901.43+2258.98x

Year Revenue2009 24455.312010 26714.292011 28973.272012 31232.252013 33491.232014 35750.212015 38009.19




◦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.



◦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!!).


Thank you for your kind attention.

Questions please?

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