1. Strategy & Management in the Asian Corporation Week 8
Haier Growth
Strategy & Management in the Asian Corporation
Week 8

2. The man who made fridges cool
Haier founded 1984
When Zhang Ruimin took control of loss-making refrigerator enterprise QGRF
Incorporated as group company 1991 when market leader in China
Sales increased 73% pa
Sales of $9.7 billion in 2003
Has 30% of US market in small fridges
50% market for wine coolers
10% Europe’s air-conditioner market
4th largest white goods manufacturer after Whirlpool/Electrolux/Bosch-Siemens

3. Revenue of selected appliance manufacturers (mySAP case study)

4. Leading name? Haier is most high profile Chinese company
Promoting global brand
Strategic internationalisation from 1986

5. Haier overall strategy
Uppsala model
Low-high commitment modes of operation
Enter markets with successively greater psychic distance
no regular export activities
export via agents
establish overseas sales subsidiary
overseas production
Each in a logically sequential step
Provides technology/knowledge for incremental building

6. Classic internationalisation
Exported to Germany under license
Direct export (1992) to Indonesia
JV Indonesia 1996
Philippines & Malaysia 1997 
Production facility
JV Yugoslavia 1997
Greenfield in US 2000 (staffed with Philippines trained managers)
Merger Italy 2001 – entry to EU avoiding trade barriers
Classic Uppsala model
Switch to Greenfield around time of WTO entry
Foreign competition making home market less profitable
Competition key in internationalisation drive

7. Exporting strategy 1 – Defender
licensing agreement (84-91) brought in imported production technology
building strong brand name
implementing production techniques
globalisation pressure weak
2 – Contender
entered developed economies (1992) to obtain prestige/establish brand
3 – Extender
post 1992 moved easily into other developed markets
4 – “Dodger” strategy in domestic market
transferring back internationally competitive products

8. FDI strategy 1 – Defender customised to home market
began acquisition of small local companies
2 – Extender
began overseas operations 1996
increased psychic distance
used competitiveness developed in domestic market
extending initially to similar markets reduces risk
3 – Contender
1999  Greenfield developments
adaptive – applied local design/local products/local sales methods
4 - “Dodger” strategy in domestic market
did not compete directly
formal technological alliances with competitors (Whirlpool/GE)

9. Basis of strategy Strategies based on Building global brand
Following competition
Exchanging threat
Following customers
Shaping the competition

10. Does the light go out when the fridge door shuts?
Plans or processes?
Chinese firms have an unmanageably complex structure
Meyer & Lu (2002) “Managing Indefinite Boundaries” argue
Chinese firms are a web of relationships
Such webs are hard to control because it is not clear where one firm ends and another begins
Is it therefore possible to have an organised strategy of development?
Chen (2004) suggests
Most of Haier’s innovation is incremental and carefully guided
Driver is streamlining sales processes between user & supplier
Haier generates technological innovation by seizing business opportunity and heavily segmenting its markets.

11. Emphasis on process Supply chain case study on Haier highlights
From 1998 globalisation based on appropriate partnering strategies on case-by-case basis
Providing personalised products to meet each customers’ needs
Implemented JIT
Shifted manufacturing operations from MTS (make-to-stock) to MTO (make-to-order)
Introduced lean production processes
Demand-oriented operations
But in large scale markets (like US)
Haier owns and manages full scale operations encompassing design, manufacturing and distribution

12. E-business
Key role of internal processes stressed by Li & Chang (2004)studied e-business strategy of Haier
While commending vision in this respect
Note domestic strategy ill-timed due to insufficient infrastructure
Positives –
Working capital requirements dropped from 36 days in 2000 to 10 days in 2002
Inventory dropped by 74%
Warehouse space utilisation improved 100%
Working capital in inventory dropped 67%

13. Dodgy business Negatives –
Made several wrong choices in e-business strategy content
Controversial to focus so much on joining Global Top 500 Club as its strategic intent and
Achieving revenue volume as its strategic target
Haier might have expanded too far beyond the scope of its core competency and managerial control
Failed to differentiate core business from non-core business
Is Haier’s strategy misdirected?
Is pursuit of prestige and sales volume causing company’s fit between strategy and capabilities to dislocate?

14. The Economist’s view (March 2004)
In domestic & overseas markets
diversification is driven by opportunism and desperation not good strategy
Profits are not increasing despite sales growth
Quotes Zhang Ruimin
After China joined the World Trade Organisation every multinational set up in China. Margins are low here. If we don't go outside, we cannot survive
Outside China, Haier has so far concentrated on niches--mini-fridges (to which it adds a handy fold-down flap for a laptop) and wine coolers. But to continue to grow globally it will have to compete with the likes of Whirlpool in their main markets. Yet Haier lacks such firm's R&D, their design skills--it employs just ten researchers in America--their distribution or their service networks.

15. The Economist’s view (March 2004)
Nor is Haier being careful to keep costs low. Mr Zhang insists that Haier must produce outside China to be responsive to customers. Yet, at a stroke, that deprives Haier of its greatest advantage: China's vast pool of low-cost labour.
Meanwhile, Haier's attempt to reward creativity--allowing every engineer the freedom to design and build his own products--has worked too well, leaving it with a bewildering 96 categories of goods in 15,100 specifications, including a fridge that pickles Korean kimchee cabbage and a washing machine that also cleans sweet potatoes. Most of these variants add more to production costs and complexity than they will ever add to sales.
Worse, the group has moved beyond white goods into computers, mobile phones (where sales have badly disappointed), and even interior design and pharmaceuticals. All with unlimited potential, insists Mr Zhang. "This is a globalised era. No single industry can survive. There is a great future in these markets."

16. Pattern? Technology development Uppsala model of internationalisation
Founded on domestic competition
“Illogical” –
unrelated product diversification
over-engineering product
abandonment of domestic industrial base (& associated cost benefits)

17. Is this “typical” Asian strategy?
Commonalities:
Institutional emphasis
Shared characteristics of emerging economies
lack of established product/finance/labour markets
lack of sufficient laws & regulations
inconsistent enforcement of contracts
unrelated diversification may help to generate institutional support
Explains “doing it all oneself”

18. Is this “typical” Asian strategy?
Agency theory
owners and managers have divergent interests
Chinese investors don’t have skill to guide investment
institutionally have little power (who owns company?!)
asymmetry of information

19. Resource explanation Prahalad & Hamel (1990)
Core competencies – harmonised and coordinated aggregate of various production skills and multitude of technologies in diversified firm sharing resources and developed technology and skills between diversified firms
Needs uniform resource support
Close linkages
Ability to identify & develop core competencies
This pre-supposes
Consistent allocation of & access to resources

20. Different situation In emerging economy as markets are inconsistent
Broader scope (unrelated diversification) may overcome
institutional behaviour uncertainty
internally competitive markets
Put another way:
In advanced economies
institutional quality
consistency in resource access
mature markets
permit development of corporate competitiveness & promotion through related diversification
These conditions do not apply in emerging markets
This must affect corporate strategy

21. Li & Wong (2003)

22. Add in social antecedent dimension
Keister (2004) studied firm borrowing in China
In west as companies become more profitable they borrow less
In China as companies become more profitable they borrow more
Consider retained earnings = state assets
So undertake external debt in preference
Other companies copied strategies of successful
As firm grows – needs to access more capital
Therefore drive to internationalise may be more resource seeking than result of domestic competition

23. I’m sorry, I just can’t help it!
Di Benedetto & Song (2003) analyse Chinese firms from perspective of Miles & Snow’s typology of strategic types
Prospectors
Analysers
Defenders
Reactors
Suggest that in Chinese environment firms fit capabilities to promote strategic type (not vice versa)
Zhang’s comments suggest Prospector
Capabilities all aimed at first mover advantage & aggressive exploitation of markets
In an emerging market context