Strategy and Firm Expansion Haiers Path to Growth

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Strategy andFirm Expansion -----Haiers Path
to Growth

• Weiping Yu
• Business School at Sichuan University, China

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Case StudyHaiers Path to Growth

• Company background
• Development strategy

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Company Background

• In 1984, Qingdao Refrigerator Factory one
  product, 800 staff, lost money-about RMB 1.47
  million
• In 2006, global sales RMB 107.5 billion 51,000
  employees
• 15,100 varieties of items in 96 product lines,
  exporting to more than 100 countries, 240
  subsidiaries

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Company Background

• In the Chinese market
• Leadership, 21 market share in overall
  appliances.
• 30 market share in refrigerator, freezer, air
  conditioner and washing machine industries.

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Company Background

• In the world market
• First place in the United States for sales of
  compact refrigerators and wine coolers, in Iran
  for washing machines, and in Cyprus for air
  conditioners.

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Company Background

• Haier CEO Zhang Ruimin
• No. 1 of the 25 Most Powerful Business Leaders
  Inside China in the Chinese Edition of Fortune,
  April 2005.

Haiers goal is to become a globally recognizable
brand.
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Development Strategy 3 stages
The third stage 1999-2005
Revenue
The second stage 1992-1998
Globalization
Diversification
Year
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The First Stage Brand Building 1984-1991

• Strategy Analysis
• In 1984 more than 100 Chinese refrigerator
  makers, intensive competition, lack of strong
  brand.
• Haier started out as a small enterprise, losing
  money

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Strategy Formulation 1984-1991

• Brand strategy
• to be number 1
• quality comes before profit

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Strategy Implementation 1984-1991

• 7 years building the refrigerator brand
• Always at the forefront of technology and quality
  
• Enforcing the sense of total quality management

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Haiers Belief About Competition value war
instead of price war
Sorry, bye bye!
Come back, join the price war
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Haiers Belief About Quality 1excellent
products are produced by excellent employees
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Haiers Belief About Quality 2Haier doesnt
allow any defective products to be sold to the
customer
Quality of product
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Haiers Belief About Service 1Haiers people
touch the customers heart
Thanks so much!
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Haiers Belief About Service 2 the customer is
always right
Id like to tell all my friends to buy Haiers
products.
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Strategy Evaluation 1984-1991

• In 1986, attained the break-even point
• In 1990, earned National Quality Management Award
  in the refrigerator industry
• In 1991, was recognized as one of Chinas Ten
  Most Well-Known Brands

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The Second Stage Diversification1992-1998

• Extending the established brand
• -Related-product diversification
• -Unrelated-product diversification

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Related-Product Diversification Strategy
Implementation 1992-1998

• 1992 entry into freezer and air conditioner
  market by mergers acquisitions (MA)
• 1995 entry into white home appliance industry
  such as washing machines, heaters, microwaves and
  dish washers by MA and joint venture

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Related-Product Diversification Strategy
Implementation 1992-1998

• 1997 entry into black home appliance
  industry--TVs, VCRs, fax machines, phones

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Related-Product Diversification Strategy
Implementation 1992-1998

• 1998 entry into tan home appliance
  industry--computers

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Unrelated-Product Diversification Strategy
Formulation 1992-1998

• White home appliance industry became mature in
  home market
• Extending brand into unrelated industries such as
  insurance, securities, medicine, and food because
  of huge market

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Unrelated-Product Diversification Strategy
Implementation 1992-1998

• 1996 Haier medical company
• 1998 Logistics department
• Food, travel, real estate

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Diversification Strategy Evaluation

• MA 18 firms successfully
• A wide range of home appliances, 15,100 varieties
  of items, 96 product lines
• Over-extending the brand and failure in some
  unrelated-product diversification
• Lost money in medicine, food and computer
  industry

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The Third StageHaiers Globalization
Strategy1999-2005

• Driving forces
• Increasingly competitive domestic home appliance
  market, fierce price war
• Haier in China 30 market share
• With WTO, globalization potential is incredible
• Cost reduction derived from economies of scale,
  scope of economy and experience-curve effects
• The goal of Haier become a globally
  recognizable brand

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Haiers Globalization Strategy Formulation
1999-2005

• Shifting from diversification to globalization in
  1998
• 1/3 manufactured and distributed in China 1/3
  manufactured in China and distributed overseas
  and 1/3 manufactured and distributed in foreign
  countries

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How Haier entered the world marketplace
Globalization plus localization

•   Three phases of Haier's localization branding
  strategy
• In phase 1, initial period
• Pay attention not only to revenue, but also to
  brand reputation
• In phase 2, further development period
• Exploit market and then establish manufacturing
  plants in foreign countries
• In phase 3, branding period
• Use local resources to design, manufacture and
  distribute in foreign countries

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Globalization Strategy ImplementationRule 1

• Exploit market in developed countries first and
  in developing nations second
• Export to difficult markets first.

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Globalization Strategy ImplementationRule 2

• Use local resources to design, manufacture and
  distribute in foreign countries

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Globalization Strategy ImplementationRule 3

• Pay Attention to Local Responsiveness

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Local Responsiveness Satisfy Customer
Creatively
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Steps of Haiers Global Expansion
Exporting
After-service
Brand building
Localization
FDI, Joint venture, Strategic alliance
Break-even point
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Haier America

• On April 30, 1999, Haier held a foundation stone
  laying ceremony for Haier's 445,000 square meter
  production plant in Camden, South Carolina.
• On March 4, 2002, Haier unveiled its American
  headquarters in a landmark neo-classical
  building, the former offices of the Greenwich
  Savings Bank, in Manhattan (New York).

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 Why did Haier set up a plant in the USA?

• First, in 1998 and 1999, Haier's refrigerator
  exports exceeded by far the minimum production
  volume for a break-even point (Product
  life-cycle)
• Second, effectively avoided non-tariff barriers
  (Market imperfections)
• Haier had gained first place in the United States
  for sales of compact refrigerators and wine
  coolers

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Haier in Europe

• On June 19, 2001, Haier merged with an Italian
  refrigerator plant.
• In 2002, Haier's 6 kinds of refrigerators met
  Euro A Criteria in energy efficiency. As a
  result, buyers of Haier refrigerators in Germany,
  Netherlands, Belgium and Luxemburg could receive
  a government rebate of 100 euros.

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Haier in Japan

• On January 8, 2002, Haier and Sanyo established a
  joint venture.
• In May, 2002, Haier home appliances began to be
  distributed in Japan through Sanyo's sales
  channels at prices similar to those of Japanese
  leading brands, thereby enhancing Haier's
  reputation.

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Haier in Southeast Asia, Middle East and Africa

• Besides a trading company in Singapore, Haier has
  set up plants in Malaysia, Indonesia, Pakistan,
  Bangladesh and Viet Nam.
• Haier has established manufacturing plants in
  Iran, Jordan, Tunisia and Nigeria, and a trading
  company in Jordan.

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Haiers Globalization Strategy Evaluation

• Global networks for design, production,
  distribution and after-sales service.
• 10 manufacturing complexes, 30 overseas
  production factories, 8 design centers and 58,800
  sales agents worldwide.
• First place in the United States for sales of
  compact refrigerators and wine coolers, in Iran
  for washing machines, and in Cyprus for air
  conditioners.
• Fourth in revenue from global sales of white
  goods.
• In 2005, listed 89th of the 2005 World's 500 Most
  Influential Brands by the World Brand Lab.

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Part 3 Conclusion

• Haier Transnational strategy pays off

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Key success factors of international expansion

• Globally sustainable competitive advantage
• Local responsiveness
• Global culture
• Deep pockets

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Entry strategies

• Exporting
• Licensing
• Franchising
• Strategic alliances
• Joint ventures
• Wholly owned subsidiaries

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Alliances Partners in Markets

• China Strategic alliance with Suning and Gome
  chain stores
• United States Cooperation with TOP 10
  retailers, e.g. Sears, Lowe's, Home Depot, Best
  Buy, PC-Richard, Wal-Mart, Sam's, Costco,
  BrandsMart and Target
• Japan Cooperation with TOP 10 retailers, e.g.
  Yamada, Kojima and Jusco
• Europe Cooperation with Kesa, Media Market and
  Carrefour

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Growth strategy - phases
Globalization
Growth stage
Diversification
Vertical integration
Develop new markets

Penetrate current market

year