Mohamad HAIER at 5.00

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Presented by : Mohamed Abdelkarim

: Mohamed Gamal

: Abdullah Emara

Strategic analysis STRA 704Dr. Sania ElgalalyGUC MBA ±2011

Strategic Audit of Haier Group

³Case 24´

1



1- Current SituationA. Current Performance 2001 to 2004

Organized into 6 Divisions:

Strategic Audit for Haier Group

2



Annual growth rate 78%

Top 100 Most recognized Worldwide Brand Name

20 Year Old Company from China

Brand value in 2004 is $ 7.4b

18 Design Centers

10 Industrial Parks

30 Overseas factories and manufacturing bases

58,800 Sales offices

96 Product Group Categories To include :

Refrigerators, Washing Machines, Air Conditioners, Cell phones, TVs,.3



2004 :

Global Sales $12 Billion

4th in Global Sales revenue for White goods

21% Market Share China overall Appliances

34% Market Share China Major Home appliances

14% Market Share China small electronic appliances

4



B. Strategic Posture 1

- Mission

To improve the quality of life, focusing on customers'

needs

B. Strategic Posture 2

- Objectives

Haier strives to create innovative and affordablequality products, to deliver sincere, delightful and

caring services, in order to satisfy different customers

Main goal to continuously increase the volume of

products sold in the United States and to modify the

company¶s products to meet American demand.

5



To integrate itself with the locality and build brand

recognition.

To achieve the cost control needed to maintain its

price advantage.

To continuously improve its services to build the trust

of local customers.

Expanded the amount of units in order to achieve the

10% market share in U.S. refrigerator sales in 2005

6



StrategiesStrategies

CORPORATE DIRECTIONAL STRATEGY:

Global growth strategy through horizontal growth and

concentric (related) diversification

Three Stage Growth Plan

Brand Name Strategy

7 years built strong brand name in Refrigerator products

through Total Quality control System

Haier product became known for quality and innovation

7



Diversified Development Strategy 1992-1998

6 years to diversify product catalogue

By 2004 13,000 products in 86 categories and 30,000employee

Going Multinational Strategy

First move into Southeast Asia

Second expand into United States in 1990s

European entrance in 2001

Japan expansion in 2002

2005 Haier has 62 distributors and 30,000 retail outlets

worldwide

Eventual Goal

To be listed among Fortune 500 Successful Companies 8



StrategiesStrategies

BUSINESS STRATEGY:

Competitive strategy in U.S market

9



Policies

Expand Brand Recognition

Offer Niche products while expanding diverse product line

Maintain strict cost control to keep product prices

competitive

Continue quick development programs and fast production

updates

Maintain strong distribution network and supply chain

relationships 10



Policies

After sale service is very essential to gain customer trust

( A & E Factory Service).

Cost reduction is essential to gain competitive advantage.

Manage the costs of manufacturing many different product

models by periodically changed the modules of

components

Fast in developing new products

11



2. Corporate GovernanceA. Board of DirectorsName itle Age

Zhang Ruimin Chairman and Chief Executive Officer 61

Yang Mianmian President and Director 65

Chai Yongsen Executive Vice President and Executive Director 44

Cui Shaohua ice President and Executive Director 49

Song Chunguang

ice President, Sales Director of Pegasus Qingdao, Deputy General

Manager of Pegasus Qingdao and Executive Director 43

Liang Haishan ice President and Executive Director 40

Cao Chunhuaice President, General Manager of Washing Machine Division and

Executive Director 38

Name (Connections) Primary Company Age

Wu Kesong Haier Group Company 56

Kin Kau Lam Mark Neo Telemedia Limited 56

Wu Yinong Haier Electronics Group Co., Ltd. 44

Hoi Wing Fung Henry Global Energy Resources International Group Limited 51

OTHER BOARD MEMBERS ON BOARD MEMBERS

12



External Environment (EFAS)

A. Natural Environment

Weather factors associated with shipping overseas (T)

Long shipping times (T)

B - Societal Environment PESTEL

Economic

Lower production costs in China (O)

United States market is the largest in the world (O)

Growing Economy, U.S. simulated people¶s

consumption of durable goods including home

appliances and consumer electronics. (O)

13




Technological

High initial investment for producing products with more

features (T)

The demand for consumer electronics was driven by

technological innovation especially in digital technology. (O)

Political-Legal

High cost of competitors duties by manufacturing overseas

and selling in the U.S. (T)

New regulations on the usage of harmful materials in

production in China. (T).

14




Socio-cultural

Desire for new electronics in U.S. market (O)

For home appliances, the company targeted Lower-

income young people and college students by offering

relatively low prices on its compact appliance.(O)

Middle-aged and other people preferred well known

brands and they cared about the warranty and services

of the products but were somewhat price sensitive, they

might try new brands especially brand loyalty now is

only 35% (O)

15




RivalryHigh

Entrants:Low

Buyers:

High

substitutes:High

Supplier:Low

Stakeholders:Medium

16



Porter 5 Forces

Supplier power

1- Haier has developed vertical integration since 1990s in controlling it supplies (Advantage to Haier)

2- Haier also forming a good relation and collaboration with their supplier in securing their support in term

of price, quantity, quality and facilities. (Advantage to Haier)

Barriers of Entry

1- In this business the company has set the high barrier of entry such as large manufacturing set up and

innovation. (Advantage to Haier)

2- the company also has well position its brand globally and applies effective marketing strategy to create

barrier of new entry. (Advantage to Haier)

Buyer power1- Haier also streamline it business up to distribution to supply to the retailer. (Advantage to Haier)2- Haier has pattern all its product and focus on the after sale service to create differentiation in the market

through innovation, quality and price. (Advantage to Haier)

Threat of

substitute

1- In 1984 there are 100 refrigerator makers whose compete in the china market. Today, with the

globalization era the numbers of competitor grow like a mushroom. Realizing to substitutes Haier has

invested more funds to the R&D for further improvement and innovation (threat to Haier)

2-nowadays, with the technology advancement new technology easily can be duplicated to produce similar

/identical product. (threat to Haier)

Competitive

rivalry

Haier business is difficult to exit as it involve large capital ,that makes most of the companies struggle their

very best to stay in the market (threat to Haier)

With the current economy downturn most of the company tries to sell their product by reducing the price .

The main reason to capture the market share some small competitors will use this strategy to penetrate the

customers care about their spending during economy downturn (threat to Haier)

HAIER PORTER 5 FORCES

17



EXTERNAL ENVIROMENTEXTERNAL ENVIROMENT

Key External Factors Weight Rating WeightedScore

OpportunitiesGrowing Economy in US 0.18 3 0.54

Technological innovation in digital technology 0.20 4 0.80

Lower-income young people and college studentare attracted by low prices. 0.03 1 0.02

Middle-aged and older people having high brand

loyalty but high price sensitive0.06 1 0.06

Power of other stakeholders 0.09 1 0.09

EFAS

Threats

Competition in U.S. market 0.2 5 1Lower response rate for stocking certain

products and overstocking 0.07 4 o.28

Increased cost of import duties 0.07 3 0.21

High initial investment to Manu . products

with more features than competitors O.1 4 o.4

TOTAL 1.00 3.69 18



Internal Environment

1. Corporate Structure

Started out in 1984 as a government owned enterprise.

Haier focused on organizational restructuring and

management decentralizing with application of advanced

information and network systems in order to fulfillment,market chain performance, logistics, capital operation, after-

sales service, product inventory and operational cost

reduction. (S)

In 2004 was organized into Haier China, Europe, America,

Middle East, Spain and New Zealand Divisions.

In 1999 established a Design Center in Boston, a marketing

center in New York, and a Manufacturing facility in S.C. 19



Internal Environment

2. Corporate Culture

Haier had a strongly motivated technician team, which was

able to increase the company¶s product competitiveness by

applying more features and style designs on its existing

products. (S)

Reputation at home (China) for quality, innovation, and

customer service. (S)

The main goal of the company was to continuously increase

the volume of products sold in the U.S & modify products to

meet U.S. demands

20



Corporate Resources

1. Marketing

Haier¶s strengths were its relatively low prices and the unique

designs and appearance of its electronics products. (S)

Low brand loyalty in us market 35% (s)

Introduced its Two Brothers logo into the U.S. market to

boost its brand image. (W)

Promoted mostly by outdoor advertisement, airports,

magazines, heavily in trade publications, and on the internet.

Outdated website. (S)

Little TV advertising, company sponsored sports teams and

low brand awareness. (W) 21



2. Finance

85% of company orders came from top 10 Chain

stores in U.S. and Europe (S)

Average annual growth rate of 78% from 1984-2001. (S)

Ranked 4th in major appliance sales worldwide at the end of

2004. (S)

3. R&D

Sluggish new technology development (W)

Needs to develop technology for ³smart appliances´ (W)

Haier¶s consumer electronics products has no competitive

advantages either in technology advances or in product

quality, except for their relatively lower prices. (W) 22



4. Operations

Reached a strategic cooperation agreement with COSCO in

2004, to help explore business opportunities worldwide. (S)

Strong distribution network and good relations with both

chain and individual stores. (S)

Lack of U.S. distribution centers and limited exhibition space

of standard products compared to major competitors. (W)

Labor costs in China were much lower than in America. (S) Available land to expand in U.S (S)

23



IFAS Table

Internal Factors Weight Rating Wieghted Score Comments

Strengths

Promotion by outdoor

advertisement, airports,

magazines, trade publications

and internet. 0.1 4 0.4 Outdated website does not help85% of company orders came

from top 10 Chain stores in U.S.

and Europe 0.1 3 0.3

Average annual growth rate of

78% from 1984-2001 0.05 3 0.15

Ranked 4th in major appliance

sales worldwide 2004 0.1 2 0.2

Agreement with COSCO in 2004 0.1 3 0.3to help the company explore business opportunitiesworldwide

Strong Distribution Network

and good relations with

chain and individual stores 0.1 2 0.2

Weaknesses

Two Brothers Logo 0.05 1 0.05 practically unknown or unheard of in the U.S.

TV Advertising 0.1 1 0.1 plans to launch more aggressive TV Campaigns

Sluggish new technology

development 0.1 2 0.2

could weaken its competitiveness when facing even

more serious competition in the future

Needs to develop "Smart

appliance" technology 0.1 1 0.1 address the "smart kitchen" concept development

Lack of U.S. Distrubution

centers 0.1 1 0.1

could enable the company to capture and respond to

trends in local markets and increase competitiveness

Total 1 23 2.1 24



Analysis of Strategic Factors

A. Situational Analysis (SWOT)

1. Strengths

Promotions by outside advertisements (magazines, trade

publications, etc)

85% of orders came from top 10 chain stores in U.S. and

Europe

Ranked 4th in major appliance sales in 2004

Agreement with Cosco in 2004

Strong distribution network and good relations with chain

and individual stores

25



2. Weaknesses

TV Advertising

Sluggish new technology development

Need to develop smart appliance technology

3. Opportunities

Introduction of products to U.S. market at lower cost

International Partnerships4. Threats

Competition in U.S. market

Lower response rate for stocking certain products and

overstocking

High initial investment to manufacturer products with

more features than competitors 26



Weaknesses

W1: Poor TV Advertising

W2: Sluggish new technology

development

W3: Need to develop ́ smart

applianceµ technology

Strengths

S1: Promotions by outside

advertisements .

S2: 85% of orders came from top 10

chain stores in U.S. and Europe

S3: Ranked 4th in major appliance

sales in 2004

S4: Agreement with Cosco in 2004

S5: Strong distribution network .

S6: Strong innovative design team

SW

OT

O1,W1Need more advertising

campaigns to improve the brand

image.

W2,W3,O2 more investment in R &

D product and basic.

S6,O2 Develop new features

products.

O1,S2,S3 Market penetration to

increase market share.

Opportunities:

O1: Growing economy in the U.S.

O2:Technological innovation

O3: Young people and low prices.

W1,T1 Need more advertising

campaigns to improve the brand

image.

W2,T1 more investment in R & D

product and basic

S1,S2,T1 Maintain the good

relationship with the major retail

chains.

S3,S4,S5T2 Get better spaces floor in

the super retail chains.

S6, T3 Increase the entry barriers and

improve competitiveness by adding

more innovative products.

ThreatsT1: Competition in U.S. market

T2: Lower response rate for stocking

certain products and overstocking

T3: High initial investment to

manufacturer products with more

features than competitors27

TWOS



SFAS Duration

Strategic Factors Weight Rating

Weighted

Score

S

h

o

r

t

I

n

t

e

r

m

e

d

i

a

t

e

L

o

n

g Comments

S1 Promotions by outdoor advertisements 0.05 4 0.2 X

Advertising in airports, magazines, trade

publications, and internetS2 85% of orders came from top 10 Chain

stores in U.S. and Europe 0.08 3 0.24 X

S3 Ranked 4th in major appliance sales

worldwide in 2004 0.05 2 0.1 X

S4 Agreement with COSTCO in 2004 0.07 3 0.21 XHelped explore business opportunities

worldwide

0.1 1 0.1 X

Plans to launch more aggressive TV

Campaigns

W2 Sluggish new technology development 0.1 2 0.2 X

Could weaken its competiveness when

facing more serious competition in thefuture

W3 Needs to develop "Smart Appliance"

technology 0.1 1 0.1 XAddress the "Smart Kitchen" concept

development

W4 Lack of U.S. distribution centers 0.05 1 0.05 X

Could enable the company to capture

and respond to trends in local markets

and increase competitiveness

Growing economy inus 0.1 4 o.4 X X

Focus on the worlds largest market to be

a truly global company

Technological innovation in digital

technologyo.1 4 0.4 X X

T1 Competition in U.S. Market 0.1 5 0.05 X

Several competitors with a larger market

share in U.S. including Whirlpool whichhad 33.4% of the Market Share in large

appliances.

0.05 4 0.2 XLonger shipping time due to product

manufactured overseas

T3 High initial investment to manu.

products with more features thancompetitors 0.05 4 0.2 X

Advertising, higher local manpower

rates, and higher R&D costs

SFAS

28



Analysis of Strategic Factors

Review of Current Mission and Objectives

The mission is appropriate.

Some objectives need to be more specific and quantified

29



Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives

1. Growth Strategy: Horizontal Growth Strategy.

Target niche markets in the U.S. by developing a wider

range of products and services to satisfy their needs.

Pros: Enables the company to more quickly capture and

respond to local trends and increase competitiveness.

Cons: Aggressive competition

30



Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives

2- Differentiation Strategy:

Develop new features for the consumers of electronics

and home appliances through differentiation and

differentiation focus

31



Recommended Strategy

Recommend alternative # 2 :the differentiation Strategy.

Which will enable the company to quickly capture and

respond to market trends.

Improve the brand image by both attarctive features and

high quality of the products.

Increase the company¶s competitiveness.

32



Recommended Strategy

This should be depending on :

Good financial capabilities.

Strong innovative designing system.

Implementing cost control by using OEC. (Overall every

control and Clear).

33



Implementation

A. Success in US is done by gaining more brand

recognition.

B. R&D need to be improved as does increase

distributions centers to more efficiently supply chain

and individual retailers.

34



Evaluation and Control

1. With Programs in place The Haier Group seems to have

there evaluation and control in place. The Haier group has

had three growth stages Brand Name Strategy, Diversified

Development Strategy, and Going Multinational Strategy

35



Thank You

36

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