HAIER : TAKING A CHINESE COMPANY GLOBAL

Amit kejriwalDipika mukim

M Satya KalyanSrivatsava Sridhara

Sirinus Topno

Group 6

Agenda

Case background Haier – Till Now Organization Concepts Haier Worldwide Recommendations

CASE BACKGROUND

Company Background

Founder and CEO : Zhang Ruimin Started in 1984 in Chinese Port city of

Quingdao by taking over a failing refrigerator factory

Ranked China’s number one by The Asian Wall Street Journal 2004

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

world’s 4th largest White goods manufacturer and 3rd in revenues

Challenges Ahead (2004)

To become China’s 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

HAIER- TILL NOW

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

Zhang’s business philosophy Quality focus Technology licensing agreement with Liebherr,

Imported freezer and air conditioner production lines from Derby, Denmark and Sanyo, Japan, JV’s with Mitsubishi, Japan and Merloni, Italy to improve quality levels

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

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

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

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

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

Haier’s market advantages in China

Reputation of the Brand Commitment to quality Single Brand Approach High market responsiveness: focus on

customer’s needs Continuous innovation taking 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

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

Globalization Strategy

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

Dawar and Frost’s Survival Strategy Theory (Ref: Haier’s survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf)

Dawar and Frost’s 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

• Haier’s 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.

Dawar and Frost’s 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 strong defender in international markets

Enjoying the advantages of Extender strategy application, Haier applied a dodger strategy 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

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

ORGANIZATIONAL CONCEPTS

Strategies followed(Ref: www.haier.com)

Three phases of Haier’s 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

Competing strategies AbroadProduct 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

Model Of Adaptive Orientation

Renewing Transformati

on

Reactive

Satisficing Sluggish

Hyper turbulent

En

vir

on

men

tal S

tab

ilit

y

Stable Adaptive Orientation

High Low

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 problems immediately,

search causes of problems and solve one by one

1995: Haier’s 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

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 involved in the achievement of the firm’s objectives.

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

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 Haier’s ideal to be a global recognizable brand

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

Globalization Philosophy

First difficult then easy Without domestic market, business is rootless,

without international market, business is weak Three 1/3rds

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

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

HAIER WORLD WIDE

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

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 Haier’s major

appliances

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

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

RECOMMENDATIONS

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

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

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

References

Haier’s survival strategy to compete with world giants http://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

THANK YOU