Haier Case Study

HAIER : Taking a Chinese Company Global    

Overview:

Haier Group found in 1984 was a failing refrigerator company when Director Zhang came into force.At that time he did what he will be doing best in the coming years and signed a licensing agreement with German refrigerator company Liebherr.

In 1986, Haier reached a profit of 1 Mio RMB. Altough there was a huge market demand, the company resisted mass production and continued to focus on quality and brand-building instead.The company’s target was to become a first-class brand.

In 1991, Haier become China’s leading refrigerator manufacturer.

In 1992, Besides refrigerators, Haier expanded into freezer and air conditioner manufacturing and became  ‘Haier Group’.

In 1993, Haier Group went public with %43.7 shares in Shangai Stock Exchange.

By 1997, Haier Group had taken over 15 companies in accordance with Haier’s acquisition strategy. Developed a formal global expansion strategy with 3 thirds.

Strategy in Int’l Markets: 1/3 of the revenues to come from goods;

• produced/sold in China
• produced in China and sold overseas
• produced/sold overseas.

By 1998, Haier Group’s annual revenues reached 16.8 billion RMB, and its market share increased to 30%.

In 2002, Haier Group’s share of the country’s refrigerator market was 27% by volume and 52% by revenue.

Scope: Main scope at the beginning was mainly the rural areas in China. As the company grew it expanded its scope to international markets for consumers who are looking for high-quality products.

Why international markets for Haier?

• The margins on domestic sales are shrinking.(Profit margins coming down from %9.4 to %2.6 in five years.
• Increased competition coming from local firms and foreign multinationals in China.
• Overcapacity in the business; Manufacturers were cutting prices at 10% to 15% annually.

The way to success :

Value Proposition:

• Obviously the most important thing is that Haier stayed committed to producing quality products whatever the market situation is. It is also stated in the case that this high-quality products increases the customer’s willing to pay as it is also proven that their prices are 20% higher than their competitors.

• Both in service levels and after-service levels, Haier always ranked number one in China receiving high customer appreciation.

• With Haier Logistics, it offers just in time ‘JIT’ purchasing, raw materials delivery and product distribution. (Vertical  Integration ; They manufacture ,distribute and sell their products)

Competitive Advantage:

• They know the Chinese people and culture very well. They are focused on meeting particular needs of clients. They come over this differentiated needs of the customers by establishing 42 distribution centers throughout China which operated as independent ‘sales companies’. (manufacturing washing machines for sweet potatoes or a single change of clothes. Taking into account that the income levels in rural China is growing who accounted for 72% of China, but also only 10% of them owning refrigerator and 20% of them owning washing machine, the biggest potantial in the Chinese market is there. The urban areas in China are more saturated.
• Never giving up quality goods is another competitive advantage as they become famous for their product’s quality.
• Excellent service that is provided after sale is another competitive advantage. The service network was formed of 5.500 independent contractors.The Haier product owners can call a nationwide hotline to arrange for a house call by a service agent.If the appliance needed to be removed from the home servicing, Haier provided them  replacement free of charge.It’s warranty periods covering full repair costs either met or exceeded.
• Haier Logistics had organized logistics into a single company serving the entire group.Other companies had seperate logistics operations for each product line. For instance; When transporting a refrigerator, we can also deliver a microwave, a water heater and other products. Other companies didn’t really do this.
• Haier invests %5 to %7 of its revenues to R&D each year which means they have new products each year.
• Their staff is cheaper compared to international competitors.

Complementaries:

• Haier producing a high-quality product which makes it cheaper to market a money-back guarantee.
• Manufacturing their different product levels in a cheaper cost than it is assumed thanks to the modules of components, subsystems and basic platforms that the products are based on.

International Strategy:

• Before they enter a market with Joint Ventures mostly, they observe and digest, then they imitate. In the end, when they understand to do it well enough, they started doing it independently.
• Zhang said their purpose is exporting to establish a brand reputation however the other companies are looking for earning foreign currency.

• They focused difficult markets first such as the Unites States and Europe. They believed that if they succeded there and met their standards, they will inevitably be also successful in easier markets.
• They entered the developed markets with just a few models and niche products.
• They hired local people in international markets because they know the local market very well.

Porter Five Forces Analysis:

1-Threat of New Companies: LOW

The barriers to enter the market for newcomers are high as there is a vast amount of capital needed at first stage. There are many companies very well-known operating in the market.

2-Threat of Substitute Product: LOW

I can only think of a substitute product for TV’s and that is the computers and internet. Through internet, people can watch whatever they want whenever they want. That is the biggest threat against TV’s.For other home appliance products, I can’t think of any substitutes.

 3- Suppliers Bargaining Power: LOW

Haier is one of the biggest players in Asia in home appliance market. Therefore it buys large in quaintity from the suppliers. This increases its power over the suppliers.