Haier: Case Analysis

Introduction

Haier Group (Haier) is a Chinese multinational company that specializes in consumer “white-goods,” i.e. consumer appliances, air conditioners, etc. As of 2010, Haier has achieved the position as the leading major consumer appliance brand in terms of global market share (Khanna, Palepu, & Andrews, 2012). Additionally, with a market share of 22.3%, Haier is the leading manufacturer of consumer appliances in the domestic Chinese market (Khanna, Palepu, & Andrews, 2012). With total revenues topping 137 billion RMB, in addition to operating 240 subsidiaries both domestically and abroad, Haier has established itself as a viable competitor in the global market.

Established in 1984, when Zhang Ruimin was appointed director of the floundering Qingdao General Refrigerator Factory (Khanna, Palepu, & Andrews, 2012), Qingdao Haier began to operate under Zhang’s belief that “Chinese customers would be willing to pay more for higher-quality products and reliable service,” (Khanna, Palepu, & Andrews, 2012), as opposed to the second-rate refrigerators to which the average Chinese consumer market had grown accustomed. Through technology licensing agreements with companies like Liebherr (Germany), joint ventures with Mitsubishi (Japan) & Merloni (Italy), and importation of production lines from Sanyo (Japan) & Derby (Denmark), Haier was able to acquire the technological and production expertise required to manufacture high quality refrigerators, freezers, and air conditioners for the Chinese market (Khanna, Palepu, & Andrews, 2012).

Although Haier had succeeded in manufacturing quality products for the Chinese market, it was in the area of customer service that the company was able differentiate themselves from its competitors. Through the establishment of a computerized service center in 1990, and an extensive commitment to after-sales service, an idea that the average Chinese consumer was not accustomed to receiving, Haier began to solidify its position as a “new breed” of Chinese company (Khanna, Palepu, & Andrews, 2012). Haier’s commitment to quality and service in combination with its growing brand reputation and leadership in the domestic refrigerator market provided both the capital and the opportunity for the company to diversify its product lines. Haier employed the strategy of acquiring firms that were struggling due to poor management but produced quality products that would benefit from Haier’s expertise in customer service and management structure (Khanna, Palepu, & Andrews, 2012).

Expansion

Having established itself as the leader in the domestic white-goods market, Haier began to set its sights on international markets in the early 1990’s. However, in following with the unconventional strategy that led to Haier’s leadership in the Chinese white-goods market, Zhang saw an opportunity for Haier to enter into developed markets with strong existing competitors first instead of the regional markets, as was the case with the majority of Chinese companies (Khanna, Palepu, & Andrews, 2012). As Zhang put it, “Only play chess with the masters” (Zhang, 2009).

Additionally, Haier employed the tactic of hiring local talent almost exclusively, with experience and knowledge of the potential market, to establish its presence overseas. Haier believed that this practice would allow the brand to become successful in foreign markets because it would help people accept Haier not so much as a Chinese company, but as a local brand, staffed with local employees (Khanna, Palepu, & Andrews, 2012). Furthermore, the knowledge and expertise possessed by the local employees would provide Haier with insight as to the needs of the local consumers.  

Haier’s strength as a company is their ability to adapt to each individual market that they enter. This is accomplished primarily through the combination of the aforementioned practice of hiring local talent with market knowledge, and a companywide commitment to differentiation and R&D. For instance when entering the U.S. market, Haier determined that it could not compete directly against the major full-size appliance companies like Maytag and Whirlpool. Instead they chose to focus on offering compact refrigerators for students and offices, as well as small wine coolers. These were products that the larger U.S. companies did not offer, so Haier was able to gain a presence in the U.S. market with little competition. By 2005, Haier had market shares of 26% for compact refrigerators and 50% for wine coolers in the United States. Having gained a foothold in the U.S., Haier began introducing its regular product lines to consumers (Khanna, Palepu, & Andrews, 2012).

In Europe, Haier engaged in a different strategy to gain market entry. The company found that differences in customer preferences and distribution channels across countries made it difficult for foreign manufacturers to successfully penetrate the European market. In response to these obstacles, Haier established four distribution centers across Europe to accommodate the differences in seventeen separate European markets (Khanna, Palepu, & Andrews, 2012).

Primary Problem Identification

Haier’s rise from a nearly bankrupt, second-rate refrigerator manufacturer to a leader in the global white-goods market in just under 30 years is a remarkable achievement unto itself. However, in order to achieve Zhang’s “three thirds” goal of company revenues generated equally from goods manufactured and sold in China, goods exported from China, and goods produced and sold overseas (Khanna, Palepu, & Andrews, 2012), Haier would have to increase its presence in both Europe and the United States, while continuing to “defend” its market position in China. As of 2010, Haier revenues consisted of 72.5% in domestic sales, 14% in export sales, and 13.5% in overseas produced sales (Khanna, Palepu, & Andrews, 2012). Obviously, these numbers do not meet the “three thirds” goal introduced by Zhang in 1997. So the question becomes three fold: How does Haier increase market share in the United States? How does Haier increase market share in Europe? And, How does Haier maintain its position in China amid new competition from both domestic and international challengers?

Potential Solutions and Recommendations

Beginning with the initial technology licensing agreement established with the German refrigerator company Liebherr in 1984, Haier has engaged in the practice of acquiring and adapting information and resources from different channels and using them to their full advantage. In order to achieve the goals of increased penetration into the U.S. & European markets, and sustained leadership in the Chinese market, Haier must apply the same principles. This means that Haier should adapt processes and initiatives that have been successful in one market into successful initiatives in another market as they are deemed appropriate.