international business_haier taking a chinese company global
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Haier: Taking a Chinese Company Global
A r n a b | A n k u r | S o h a m | S u d i p | S h r i k a n t
Group 2
Agenda
Haier – Company Background
Advantages in China & International Expansion
Question 1 : Success drivers in domestic market
Haier – Competitive Advantage ( Porter’s diamond)
Dawar & Frost’s survival strategy : Positioning of Haier ( Export and FDI)
Question 2: Globalization Philosophy and Consequences
Haier: Company Background
• Started in 1984 at Qingdao as a refrigerator manufacturer
• 800 employees• Collective enterprise – ultimate authority
with municipal government• License Agreement with Liebherr• Imported AC & freezer production lines
from Denmark and Sanyo• JV with Japan’s Mitsubishi & Italy’s
Merloni• 1992 – Renamed Haier Group• 2004 – China’s largest home appliance
maker • CEO – Zhang Ruimin• 2nd largest global refrigerator
manufacturer • 3rd largest company in global white goods
revenue• 30% market share in china – White goods• Growing presence in Black Goods sector
Growth & Diversification
• 1992 – excessive debt due to acquisition of land and subsequent construction at Quingdao
• 43.7% of its refrigerator division - IPO at Shanghai Stock Exchange
• Acquisitions continued throughout 1990s – 15 companies till 1997
• Acquired mostly companies with bad management, introduced own management and quality control
Operational Restructuring
• Early 1990s – exported appliance as OEM
• 7 product divisions• 1998 - 4 development
divisions• Capital Flow
(Finance)• Commerce Flow
(Sales)• Material Flow
(Logistics)• Overseas (Global
Operations)• 1998 – China market
share more than 30%, RMB 16.8bn
National Competitors
• 1996 – 20 major domestic competitors (refrigerators)
• Only 3 had annual sales of more than 1 million units
• Guangdon Kelon – Biggest Competitor• Offered full line of
appliances• Multibrand strategy
for China• Targetted China’s
Rural market
Foreign Entrants
• WTO pressure – Chinese economy opened in 2001
• Siemens, Electrolux, Samsung, LG, Sony and Whirlpool
• Foreign Multinationals rapidly growing • 2001 - 26% China
Refrigerator sales• 2002 - 31% % China
Refrigerator sales• 2001 - 31% China
Washing Machine sales
• 2002 - 38% % China Washing Machine sales
Haier: Company Background
International Expansion
1994 – JV with Mitsubishi – setup China’s largest AC plant 1995 – became
first Chinese company to engage in FDI in Indonesia
Began expansion strategy in 1997 1997 –
Launched “Blue line” brand refrigerators in Germany
1998 overseas sales - $62 million (3% of Group sales)
International StrategyInternational Divisions
• Focus on difficult task first
• Begin with niche products
• Staff with locals
• Haier America• Haier Europe• Haier India
Advantage In China
• Retail Channels Before 2000 – State owned
departmental stores 2004 – Domestic chain GOME
accounted for 30% sales 100 outlets in China’s 22 largest
cities• Reputed Brand known for its creativity• Market responsiveness
Modified Dish Washer Tiny Washing Machine
• Service Computerized Information System
• Distribution 1999 : Haier Logistics –
Independently operated company Reduced Inventory levels Reduced delivery times
Success drivers
• Build quality, Reliability• Blind test
• Better than German brand Liebherr
Quality commitment
• Branded, not just OEM products• Unlike most competitors
• Higher priced but better products
Branding
• Best after-sales service• Chu Xiaoming’s case• House calls, Warranty coverage, Temporary replacement
Customer-centric
Success drivers continued
Diversified
• Full line of appliances lesser risk
• Seven product segments• Growth
despite price wars
Innovative
• Potato washer, Happy summers, Detergent-less wonder etc.
Responsive
• Assess needs Identify demand Satisfy it
Supply chain
• JIT system Customer focus, Lesser costs
• Group-wide logistics Cross-product distribution• When
transferring a fridge, can transfer a microwave too
Success drivers continued•Fla
tter hierarchy
•Set up company-wide divisions•I
ndependent profit centers
Organization structure
•Observe Imitate Develop
•TT/JV with Liebherr, Sanyo, Mitsubishi, Merloni
Technology transfer
•Market leader in all their segments•W
ield market power
Market position
•Cover entire China•T
ough for competitors (esp. foreign multinationals) to imitate
Greater reach
Determining competitive advantage in China
• Manufacturing hub• Competitive suppliers• Electronic industry• Close working relations
• Cheap labor• Infrastructure investment• Government influence• Opening economy
• Decreasing demand• High GDP growth• Picky consumers• Diverse preferences
• Market leader• Differentiation• Diversification• Multinationals• Local competitors Firm
strategy, structure
and rivalry
Demand conditions
Supporting and
related industries
Factor conditions
DodgerFocuses on a locally
oriented link in the value chain, enters a joint
venture or sells out to a multinational
ContenderFocuses on upgrading
capabilities and resources to match multinationals
globally , often keeping to niche segment
DefenderFocuses on leveraging
local assets where multinationals are
weak
ExtenderFocuses on expanding to similar markets like the home base, using
competencies developed at home
Dawar & Frost’s Survival Strategy Positioning for Emerging Market Companies
Pres
sure
to g
loba
lize
in th
e in
dust
ry
Competitive Assets
Customized to home market Transferable abroad
High
Low
*http://hbswk.hbs.edu/archive/501.html#figure
Defender
Contender
Extender
Dodger
(1987-1991) TQC& national brand(1984-86) Technology-learning
1992- Direct exporting to developed markets to build international brands
After 1992- Competing with international competitive assets
After 1992- Competing with international competitive assets
Customized to Home market
Transferable abroad
Pres
sure
to g
loba
lize
High
Low
Competitive Assets HighLow
Haier’s Positioning Strategy for Exporting
Defender
Contender
Extender
Dodger
(1987-1991) TQC& national brand(1984-86) Technology-learning
1999-2001 – FDI in Developed markets
1998-2001 – International brand and international alliances
1991-1998 – Diversification1991-1999 - FDI in LDCs
Customized to Home market
Transferable abroad
Pres
sure
to g
loba
lize
High
Low
Competitive Assets HighLow
Haier’s Positioning Strategy for FDI
Competing in developed markets with top players would improve the competency of various functions of the company.
Understanding both the developed and developing markets and coming up with products that suit these markets
Established brand name in developed markets would create a good reputation for the brand which will help it in emerging markets.
Success in US would draw attention of retailers like Wal-Mart, Best Buy
Developed markets have well established infrastructure and distribution networks which make Haier could leverage to get a hold in the market
Haier Established relationship based distribution networks which invariably helped it over the long run
Customers in developed economy are more quality conscious than price. This would suit Haier as this would push it to meet higher quality standards and at the same time they can sell their product at a premium.
BENEFITS
Benefits of going to developed market
Difficult for a new player to create a market position for
itself among top players.
Difficult to meet quality and safety standards of
developed economy on all product lines. Cost of
production will go up as well.
Cost of building new establishment, labour,
employment, marketing the product etc. goes up in
developed market.
Culture difference is bigger between china and US than with other Southeast Asian
nations.
Not easy to take on with bigger competitors on their strong hold.
Not easy to woo the big retailers and wholesalers in developed markets to carry the products of an unknown brand.
Risks Involved Are
Globalization Philosophy
• 1/3 made and sold at home• 1/3 made at home and sold abroad• 1/3 made and sold abroad
First difficult then easy
Three Internationalizations
• Internationalization of management system – build up employee loyalty• Internationalization of service – build up customer loyalty• Internationalization of brand – build up international competence
Without domestic market, business is rootless, without international market, business is weak
Three 1/3rds
Set up 18 design centers worldwide to consolidate resources from developed countries
Globalization of design
Set up 10 industrial parks and 22 plants overseas enabling prompt action to satisfy local user needs for quality
Globalization of manufacture
5,000 overseas retail outlets and over 10,000 service centers all over the world. Best practices exchanged
Globalization of marketing
Globalization Philosophy
Consequences :Three Third Strategy
Domestic Sales
Domestic Sales Growin
g at diminis
hing rate
•Saturation of the urban market ( Haier stronghold)
•National overcapacity estimated at 30% in appliance market
•Growth Potential at Rural area where saturation level below 10%
•Kelon and other competitors also have strong focus on rural market
19981999
20002001
20022003
20040.00%
10.00%20.00%30.00%40.00%50.00%60.00%70.00%
57.89%48.88%
48.09%
14.68%9.91%
16.79%
Domestic Sales Growth
DomesticSales Growth
Consequences :Three Third Strategy
Increasing
export
•Prospect of reaping global economies of scale
•Low labour cost in producing white goods in China
•Export in European market such as Germany where they are marked under the Haier brand name
Export from China
1998 1999 2000 2001 2002 2003 20040
200
400
600
800
1000
1200
62138
280
424 444532
1000
Export From China in US$ Million
Export From China
Consequences :Three Third StrategyOverseas Made and Sold
Increasing
sales of
Overseas
Manufactured
products
•Started from Niche products then introduce full range of products
•Some of the successful niche products Compact refrigerators , Wine cellar, Mini-fridge
•2% market share of full size refrigerators in US in 2002
•10% market share of European air conditioner market
Product Market Share
Compact refrigerator
26%
Wine cellar 50%
Air conditioner 17%2002 2003 2004
0
200
400
600
800
1000
1200
400500
1000
Overseas Made& Sold in million USD
Overseas Made& Sold
Three Third Strategy: Success or Failure?
Sluggish domestic growth rate compensated by international sales
Sales from exports and overseas production grew from 3% of total revenue in 1998 to 17% in 2004
70% of Haier’s overseas sales came from developed markets
Year Growthover previous year in exports
Growth over previous year in overseas made & sold
2003 19.82% 25%
2004 87.97% 100%
Total in 2004
$1000 m $1000 m
19981999
20002001
20022003
200475
80
85
90
95
100
105
97 95.8 94.3 94.290.3 89.3
83.4
3 4.2 5.7 5.8
5.1 5.5
8.3
4.6 5.28.3
Overseas made & soldExport from ChinaDomestic Sales
THANK YOU
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