Haier Case Study

Haier Case Study

Haier (Discussion Question 2): Do you agree with Haier's decision to globalize into developed markets early on? Explain Pros and Cons of the approach.

Introduction

The Haier Group is a Chinese based company with more than 70,000 employees around the globe and realizes a turnover of 135.7 billion Yuan (2010) a year. Haier has risen to be one of the world's top brands of consumer appliances, and was recognized as "China's most respected company" by Financial Times and the Far Eastern Economic Review.

Founded in 1984, the Haier Group was originally a small "collective" refrigerator production plant on the verge of bankruptcy. After the local municipal body which had ultimate authority over the enterprise appointed new management and following numerous mergers and joint ventures, the company and its CEO, Zhang Ruimin, began to earn a reputation for "turning" companies around.

By 2009, Haier produced over 96 categories of consumer goods ("white goods," including refrigerators, air conditioners, washing machines and microwave ovens). The company had revenues of $17 billion in 2008, with international sales of $4.5 billion. Haier dominated China's home appliances sector and benefited from the government subsidization of home appliances for rural households, selling over 1.2 million units of home appliances domestically. The company had passed Whirlpool to become the world's largest fridge-maker in terms of sales.

In between domestic and global successes, Zhang and the company made the difficult decision to undertake significant international expansion. Moreover, Haier made the decision to globalize into developed markets early on. While there were many pros and cons involved in this decision, I believe this was the correct decision.

Some of the factors that led Haier to look toward globalization for future growth were beyond its own control. In 2001, China entered the World Trade Organization, bringing some of the largest, most well-established foreign competitors into the Chinese market for so-called "white goods" and other products manufactured by Haier. As Zhang remarked, "globalization, especially China's anticipated entry into the WTO will make the country wide open to foreign competition. Only by actively taking part in global competition can we seize a chance to survive."

WTO entry coupled with increased domestic competition, Haier's 2004 profit margins dropped from 9.4% to 2.6% from 1999 to 2004, leading the company to expand globally as it fought to survive domestically.

China's political leadership also made it clear that it expected Chinese companies to expand globally as a source of national pride and a reflection of China's growing importance on the international scene.

As for the decision to expand into developed markets early on, the biggest "pro" is that the company was able to recognize the "cons" and deal with them immediately and effectively. One of the most obvious factors against entering the developed markets of the US, Japan and Western Europe is the presence of strong, well-established competitors. As the authors of the case study mention, many Chinese enterprises, as well as successful Japanese and Korean firms, focused their international expansion efforts on Asia for this very reason. Haier, on the other hand, focused on the difficult markets first. The company figured that if it could succeed in the developed markets, it could succeed anywhere in the world. As Li Pan, Haier's brand manager for overseas markets explained, "we learn a lot of things that we could not know if we just got into the Southeast Asian market or other developing markets." In other words, the company took a "con" and turned it into a "pro."

Similarly, Haier recognized that the dominant large companies in developed markets tended to be slow and static, so they addressed the "con" of a strong competitor by focusing on niche products. In the case of the US, that niche included college students living in dorms or small living spaces and offices. Within three years of entering the US market, Haier controlled 30% of the market in compact refrigerators. When the local competitors finally caught on, the company focused on product differentiation and the speed with which such different products could be introduced. Features like mini-fridges that could double as computer