1. HAIER : TAKING A CHINESE COMPANYGLOBAL Amit kejriwal Dipika mukim M Satya Kalyan Srivatsava Sridhara Sirinus Topno Group 6

2. Agenda

Case background

Haier Till Now

Organization Concepts

Haier Worldwide

Recommendations

3.

CASE BACKGROUND

4. Company Background

Founder and CEO : Zhang Ruimin

Started in 1984 in Chinese Port city of Quingdao by taking over a failing refrigerator factory

Ranked Chinas number one byThe Asian Wall Street Journal 2004

Celebrated its 20 thanniversary in 2004 with annual sales topping RMB 100 billion

worlds 4th largest White goods manufacturer and 3 rdin revenues

5. Challenges Ahead (2004)

To become Chinas first multinational brand and succeed internationally

Continue its dominance on home turf and defend against the onslaught of foreign giants like GE, Electrolux and Whirlpool

6.

HAIER- TILL NOW

7. First 20 years

Born in the year 1984 when Zhang took over a failing refrigerator factory

Factory was a collective enterprise whose ultimate authority was municipal government.

Workers were collective owners of assets and shared profits

Zhangs business philosophy

• Quality focus

• Technology licensing agreement with Liebherr, Imported freezer and air conditioner production lines from Derby, Denmark and Sanyo, Japan, JVs with Mitsubishi, Japan and Merloni, Italy to improve quality levels

8. Change Management By Zhang

Major driving force

• Dissatisfaction with the present situation and coercive tactics

• Ex:

• Thrashing of faulty refrigerators

• Workers at the end of everyday explainig about their failings to assembled colleagues which ensures no repetition of the same mistake

Restraining force

• The Comfort Zone -> Reinforcing on quality and even charging premium for the same in the market.

• what is in it for me-> Collective ownership and hence sharing of profits

9. Outcomes

Made a profit of RMB 1 million in its second year

It stuck to brand building and focus on quality

Won the gold medal for quality in national refrigerator competition

In 1989, supply outstripped demand

• Competitors cut price result a price war but Haier increased its price.

• Haier commanded a brand premium of 15% in the market

10. Growth and Diversification Stage

Now we could let our reputation precede our newproducts Zhang

Zhang decided it was the time to diversify

Took over two sick companies Qingdao Air conditioner factory and Qingdao General freezer factory

In 1992, acquired 500 acres of Qingdao land for a new industrial park large capital

• Went public IPO in the year 1993

11. Growth and Diversification Stage

From 1992 to 1998, Expand by merging with and acquiring other firms

We buy those firms that have markets and good products but bad management. Then We introduce our own management and quality control to turn them around Zhang

Using the above ideology they acquired firms like Yellow mountain Electronics and 15 other companies

Focused on building great distribution channels all over China and improving product development speed and quality.

• OEC Management: Became the pivot of Haier

12. Operational Restructuring

In 1998 annual revenue RMB 16.8 billion and domestic market share 30%

Slowdown in the local market focus on international market more

First focus was reorganization to become more competitive

In 1998: Restructured the existing facilities into 7 product divisions

Four new group wide Development division

Formed centers such as TQM, TPM, TEM

13. Haiers market advantages in China

Reputation of the Brand

Commitment to quality

Single Brand Approach

High market responsiveness: focus on customers needs

Continuous innovationtaking into consideration the customer needs

Free repair costs within warranty periods and replacements during the repair

Unified logistics department for all product lines which reduced transportation costs and enabled speedy delivery

14. Internationalization Stage

To become a national brand is not enough. If a business is successful only in the domestic market, the superiority won't last long.www.haier.com

Strictly adhering to this Haier decided to go global from 1999

15. Globalization Strategy 16. Outcomes

By 2004 Haier became the No.1 appliance company in china

It was the only company with leading share across the white goods market

It was dominant in the refrigerator and the freezer market

17. Dawar and Frosts Survival Strategy Theory (Ref:Haiers survival strategy to compete with world giantshttp://www.ryerson.ca/~iri/papers/ypdu.pdf) 18. Dawar and Frosts Survival Strategy Theory

Stage 1 : Defender

globalisation pressure was relatively weak

imported advanced technology in refrigeration from Germany and spent seven years building up a strong brand name in refrigerator production through a well-planned quality control system

Haiers export, however, was limitedand indirect through agents.

Stage 2: Contender

first difficult, then easy Principle

exported to Europe, Japan and US markets, to obtain prestige and to establish their brand

having built a highlydesirable industrial image for their quality products enabled the company to compete globally.

19. Dawar and Frosts Survival Strategy Theory

Stage 3: Defender and Dodger

After 1992 Haier entered into other markets within developing or less developed countries without obstacles as a strongdefenderin international markets

Enjoying the advantages ofExtenderstrategy application, Haier applied adodgerstrategy at the domestic market.

This is done to avoid price wars by using their integrated international competitive assets to reform the Chinese household electrical appliance industry

20. Present Day Scenario (2004)

• Very strong in white goods market and growing presence in the black goods market

• Recently a marked drop in the profit margins

• It had to face players who specialized in one or two product lines

• Its nearest competitor Kelon was acquired in 2001 by Greencool enterprise

• More foreign players entered the market as china entered the WTO in 2001

• The Chinese market had become same as the world appliance market

21.

ORGANIZATIONAL CONCEPTS

22. Strategies followed (Ref: www.haier.com)

Three phases of Haiers Innovation Strategy

• Brand Building (1984-1991) -> Quality is prominent for Haier

• Product diversification (1992-1998) -> Acquisitions of companies with bad management and infusing life into them

• Globalization (1998-2005) -> Attacking the difficult markets first followed by relatively weaker ones

Principles followed for expansion

• Best efforts are made to fully develop the current industry before entering new segment of relative products

• Best efforts are made to gain the leading position in the new segment of the industry after a certain period

23. Competing strategies Abroad

Product Differentiation:

close attention to consumer needs

R&D professionals talked directly to consumers

Response Speed:

18 design centers facilitated rapid product development

Ideas from the field to be quickly tested

Flat structure enabled quick communication

24. Model Of Adaptive Orientation Renewing Transformation Reactive Satisficing Sluggish Hyper turbulent Environmental Stability Stable Adaptive Orientation High Low 25. OEC Management (Market Economy model of Chinese Management Ref: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp131.PDF)

OEC : Overall Every Control And Clear

Philosophy: Solve problemsimmediately,search causes of problems and solve one by one

1995: Haiers OEC Management was awarded National Management Innovation Advance Prize Of China Enterprise Confederation.

At the end of every day a worker checks on 3E card (Everyone Everything and Everyday) which contains 7 items --job quantity, defects, usage of parts, condition of parts, safety, work attitudes and work discipline

26. OEC Management

Based on the OEC scores workers are given wages, promotions and appraisals.

Linked each staff member to another, so that the specific responsibility of each employee is involvedin the achievement of the firms objectives.

Outcome :No more disputes over trifles among staff members and, consequently, the quality of products was greatly improved.

27. Organizational Culture

Haier corporate culture is guided and developed by

• innovative strategy

• efficient organization

• creative technology and

• market orientation

enabled Haier to grow swiftly with business expansion from China to outside world

Haier corporate culture features recognition and participation of all employees

Haier has had all its employees involved in realizing Haiers ideal to be a global recognizable brand

28. Brand Marketing Philosophy

Smashing of defective refrigerators has turned out to be the urge for brand

To become a national brand is not enough

Build name brand in developed markets and then expand the business into developing markets with little resistance

Create localized Haier brand in each market in world

Compete on value rather than price

29. Globalization Philosophy

First difficult then easy

Without domestic market, business is rootless, without international market, business is weak

Three 1/3 rd s

• 1/3 made and sold at home

• 1/3 made at home and sold abroad

• 1/3 made and sold abroad

Three Internationalizations

• Internationalization of management system build up employee loyalty

• Internationalization of service build up customer loyalty

• Internationalization of brand build up international competence

30. Globalization Philosophy

• Globalization of design

• • Set up 18 design centers worldwide to consolidate resources from developed countrie

• Globalization of manufacture

• • Set up 10 industrial parks and 22 plants overseas enabling prompt action to satisfy local user needs for quality

• Globalization of marketing

• • 5,000 overseas retail outlets and over 10,000 service centers all over the world. Best practices exchanged

31.

HAIER WORLD WIDE

32. Europe

Started in 2000 headquartered in Varese, Italy

Began coordinating sales and marketing in 13 European countries, growing to 17 markets by 2004

HQ coordinated logistics through 4 distribution centers in Italy, Spain, UK, and Netherlands

Uses local finance, talents and culture

Differences in distribution channels and consumer preferences across countries

• Top loading Vs Front loading

• Independent retailers Vs Chain stores

• Difficult for manufacturers to establish scale economies

Europe accounted for 30% in overseas sales of Haier

33. America

Started in 1994 sold products under Welbilt Appliances

Haier America formed in 1999

All American team, except for accountant sent from Qingdao

Few models to test the waters and avoid major competitors like GE, Whirlpool, Maytag, and Frigidaire

Started with compact refrigerators nobody made

• In 3 years over 30% market share in them

• Combated imitators by adding new features as such as mini-fridges that doubled as computer desks

• Got attention of major retail chains like Wal-Mart & Best Buy

• Can now get the chains to consider Haiers major appliances

34. America

Strategy not to manufacture cheap products but to manufacture quality products that can sell at a premium

To supplement with exports from China as capacity not enough

U.S. consumers saw Haier as American brand, because Haier is produced and sold by Americans

Accounted for about 30% of overseas revenue

In 2005 had a 26% share for compact refrigerators, over 50% of the wine cellar market, and 17% of air conditioner sales in the United States

35. India

Earmarked India as a potential high-growth market

Invested heavily in building up production, distribution, and sales capacities in the country.

No chain stores in India thus greater reliance on locals

Employed a former Whirlpool India executive to head Haier India to guide its operations

Local human resources to help establish the whole business

36.

RECOMMENDATIONS

37.

In Global Markets: Continue Brand Building Initiatives

• Publicize as a individualized brand

• Publicize the quality, adaptability, speed and customer focus

In Domestic Market: Continuous Innovation

• Publicize the fact that it is a home company

• Publicize the awards received for quality

38. Retention Strategy

Work-life balance should be given priority

Give more autonomy and leadership at lower levels (moving away from traditional paternalistic leadership)

Job security is a concern - Show support publicly to top performers

Support must be given to normal performers to improve

39. Recruitment Strategy

Recruit people who are open to learning and who are easily adaptable to continuous innovation

Search for people who are accommodative to customer requests

Recruit people who respect quality and process

Leverage the existing brand value to attract the required personnel from competitors

40. References

Haiers survival strategy to compete with world giantshttp://www.ryerson.ca/~iri/papers/ypdu.pdf

Market Economy model of Chinese Management http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp131.PDF

www.haier.com

41.

THANK YOU