Strategic Marketing

in India

By A.Arputha Selvaraj – APMP IIM Calcutta

USI

Agenda

Case Overview

Haier Strategy in Chinese Market

Haier’s International Expansion Approaches

6 Frameworks / Tools (Porter, Yip, Dunning,

BCG, PLC, Integration/Responsiveness Grids)

Discussion

Case Overview

• Haier Group is a multinational company specializing in the production of home appliances and consumer electronics.

• Originated in 1984, When founder and CEO Zhang Ruimin took over failing refrigerator factory in Quindao, China.

Case Overview

• Zhang Ruimin took over in 1984, when it was approximately 300 refrigerator factories in china.

• Most of them produced poor quality products. • Zhang saw this, and therefore went to the other direction : Focusing on high quality

products and service.• Went into a JV with among others German manufacturer Liebherr which had technical

expertize in refrigerators. • Had a high focus on becoming a «first class brand» through large scale operations.• In 1992, After becoming Chinas leading refrigerator manufacturer, Haier Group started

to look into other similar businesses. Acquired companies with poor management and implemented new manag. With same focus on quality and service.

• Went public in 1993, at the Shanghai stock Exchange. • 1997, Started to target the rural areas of china. • At the same time, they started to diversify their product line. • 2004, became the number one appliance company in China. • At the same time, experiencing stronger and stronger competition from domestic and

multinational companies who tried to break into the market.

Case Overview

• By 2004, the Haier Group was the largest home appliance

maker, holding approx.. 30% of the white goods market (third

globally)

• They were the second-largest refrigerator manufacturer in the

world, and had a growing presence in the black goods market.• At this stage, with domestic market success, they were

considering going abroad and become a multinational brand. • But could they do this without loosing their position in china?

Strategy – Chinese Market

• Between 1989 and 1996, reduction from 100 to 20 refrigerators producers -> more competitive market.

• China entered the WTO in 2001 -> new competitors, multinationals. Difficult start for them, for several reasons.

• That said, the multinationals reached 31% of refrigerators market share in 2002, local companies being losing market share rapidly.

Strategy – Chinese Market

Haier’s competitive advantages in the Chinese market• Haier is known in China for its high quality products ; It has

therefore a very good brand reputation.

• Closer to chinese customers (design, needs) in comparison with multinationals.

• High investment in R&D (5-7% of revenues) and thus new products every year, very innovative.

• High market responsiveness, focusing on meeting customers needs ; 42 distribution centers in China operating as sales companies.

Strategy – Chinese Market

• High level of services, with better after-sales service than competitors ; According to the customers, one of the biggest advantages of Haier.

• Very good distribution channels/network, with «Haier Logistics» ; Advantage over multinationals, since establishing a logistics network in China is complicated.

• Staff cheaper than multinational competitors.

• That said -> these strengths in distribution and service networks, and the superior knowledge of the domestic market may not last forever! They are provisory advantages, since multinationals have already had some successes, contracting people who understand the Chinese market, buying sales channels and services as well.

Haier’s competitive advantages in the Chinese market

Company Goals

Haier Three Third Goals:

1/3 Revenue from goods produced and sold in China

1/3 Revenue from goods produced in China and sold overseas

1/3 Revenue from goods produced and sold overseas

Export

Contractual

Investment

Entry Strategy for International Markets

Strategy – Global Market

Strategy – Global Market

• Entry Mode: Joint Venture with multinational brands (1990s)

• In 1995 Haier become first company which engaged in FDI

• In 1997 lunched first European manufacturer based in Belgrade through JV.

• Until 1999 Haier continued OEM production for multinational companies

• After 1999 start selling under Haier Brand

Strategy – Global Market

Three Main Global Expansion Strategies:1 - Non-traditional expansion ➔ Focus on difficult market first

•“We chose the developed countries first because the requirements of both customers and retailers are very tough and not easy to meet”•High Prestige •Being well-known in developed markets can enhance market penetration ability in emerging markets•Competition in developed markets can guarantee the success in emerging markets

Three Main Global Expansion Strategies:2 – Begin with niche products

•“When we entered the U.S market, we found that nobody was making competitive refrigerators for students or for offices.” • Starting with mini-fridge , compact refrigerators •“After we were successful in the niche products, then we started to introduce regular products to the U.S market.”

Strategy – Global Market

Strategy – Global Market

Strategy – Global Market

The America: •1994 JV with Welbilt •1999 Haier America•Employing American staff •Establishing industrial park in South Carolina (To build brand reputation , being quality oriented)•Focus on niche which enabled Haier to avoid competition with GE, Whirlpool and ..Haier Europe:•1990 JV with some brands in UK, Germany and France •2000 HQ in Varese – Italy •Employing former sales executives of Italy’s Merloni as a local experienced staff•Europe and America were similar in terms of size and degree of developments •Europe and America were different in distribution channel and consumers preferences

Strategy – Global Market

Haier India: •1999 JV with Indian appliance firm (Fedder Lloye Corp.)•Establishing refrigerator and R&D Center •2004 alliance with Whirlpool and Voltas to produce refrigerator and Air Conditioner•Main Challenge in India ➔ Hard to find top chain store

• “In United States you can easily find the top ten chain stores but in India you cannot find them”

Strategy – Global Market

Haier Expansion Strategy Phases at a glance

Porter What’s Strategy Framework

Haier Activities System:Understanding of Markets

Outstanding Product quality

Sourcing & Distribution network in place

Development of Global brand

JIT delivery (reducing inventory cycle)

Haier Competitive Advantages:High product qualityDifferentiation in products and services (Thanks to high investment in R&D)Single brand managementQuickly response to shifts in market

Yip Globalization drivers

Competitive DriversDifficult first, Easy later (more competitors)Exports

Government DriversEntering to WTOExchange Currency

Market DriversGrowing demand for high quality products

Eclectic Paradigm

• Dunning

•Internalization (Value chain optimization)•Location (Entry to developed markets)•Ownership (Change from JVs to owned FDI)

HaierTransnati

onal

Sale

s

Time

Development Introduction Growth Maturity Decline

Product Life Cycle

BCG Matrix

In global market: Continue Brand Building Initiatives• An individualized brand• The product quality, adaptability and flexibility• Customer focused firm

In Domestic Market: Continuous Innovation• A home company• Increase quality

Recommendations:

Discussion

• Would Haier diversify their products by having different brand names, or should the continue with one big brand?

• Would you use JVs as entry mode to global markets?

• Did they make the right strategy by entering to developed market rather than easy markets?

Thanks for your

Attention

Thank You