HAIER : TAKING A CHINESE COMPANY GLOBAL

Amit kejriwal Dipika mukim M Satya Kalyan Srivatsava 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 Chinas number one by The Asian Wall Street Journal 2004 Celebrated its 20th anniversary in 2004 with annual sales topping RMB 100 billion worlds 4th largest White goods manufacturer and 3rd in revenues

Challenges Ahead (2004)

To become Chinas 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 Zhangs business philosophy

Quality focus Technology licensing agreement with Liebherr, Imported freezer and air conditioner production lines from Derby, Denmark and Sanyo, Japan, JVs 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

Haiers market advantages in China

Reputation of the Brand Commitment to quality Single Brand Approach High market responsiveness: focus on customers 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
Make Haier make a mark in world Market Build Brand Reputation by Entering the difficult markets first and then the easy ones Germany -> European + American Markets

Haier Tried to localize Haier has built factories in places such as the US, Italy, and Pakistan

Trying to integrate Haiers culture with local cultures and put local capital and intelligence together to manufacture products of a localized brand None of the employees at its New York office is Chinese

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 Frosts Survival Strategy Theory

(Ref: Haiers survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf)

Dawar and Frosts 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 Haiers 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 Frosts 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 Haiers 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 Abroad

Product 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

Hyper turbulent Environmental Stability

Renewing Transformation

Reactive

Satisficing

Sluggish

Stable High

Adaptive Orientation Low

OEC Management
(Market Economy model of Chinese Management Ref: http://www.rieb.kobeu.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: Haiers 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 firms 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 Haiers 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 minifridges that doubled as computer desks Got attention of major retail chains like Wal-Mart & Best Buy Can now get the chains to consider Haiers 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
Haiers survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf Market Economy model of Chinese Management http://www.rieb.kobeu.ac.jp/academic/ra/dp/English/dp131.PDF www.haier.com

THANK YOU