Presentation on theme: "HAIER: TAKING A CHINESE COMPANY GLOBAL"— Presentation transcript:
1HAIER: TAKING A CHINESE COMPANY GLOBAL Group: 9Hunny Agarwal (102)Hakim Datawala (115)G. H. Krishna (118)Sushant Mondal (137)Abhishek Parekh (142)Anirban Sengupta (150)
2Haier Group: Highlights Number one company by Asian Wall Street JournalChina’s largest Home Appliance ManufacturerLargest Player in the compact refrigerator market worldwideBrand “Haier” is recognized worldwide
3Haier Group: Challenges Declining Profit Margins; from 9.4% to 2.6%Overcapacity of white goods in Chinese MarketsDefending its market share in ChinaIncreasing its global presence to generate $1 billion sales to US
4Haier Timeline Haier started by taking over ailing Refrigerator Plant 1984Haier started by taking over ailing Refrigerator PlantEntered into JV with German company ‘Liebherr’1985Crossed the threshold of RMB 1 million1988Gold Medal for Quality in Refrigerators and establishment as a premium brand1991Overcame issues of oversupplyTakeover of Quindao Air Conditioner Factory and Quindao General Freezer Factory1992Company renamed to “Haier Group”Took over 500 acres of Quindao land for industrial park at cost of RMB 51 million1993Listing on Shangai Stock Exchange for refrigerator division. (Dilution of 43.7% stake)1995Took over ailing Red Star washing machine company for RMB 132 million in debt and aced the Washing Machine Market1997Acquisition of Yellow Mountain Electronics15 companies had been acquired1998Operational Restructuring started in all companies. All companies made into profit centers.Development centers envisioned- Capital Flow (Finance), Commerce Flow (Sales), Material Flow (Logistics), Overseas (Global Operations)
5Differentiating Competitive Strategy of Haier Haier gains competitive advantage by the adoption of a “strategy of diversification”. The company strives to be a leader by using innovative solutions in terms of technical specification and in design and creativity.Haier is different from most other Chinese manufacturers, whose aim is only to export and earn foreign currency – they produce and sell OEM products, i.e. without an own brand policy.Haier enters new markets overseas, the demands of local consumers are its starting point. So the company insists on a strategy of localization in overseas marketsFor example, in Europe, Haier is adopting a ‘three in one’ strategy – localized construction at a factory near Venice, Italy, a design centre in Paris and a sales centre in Milan.In order to improve its own key competitive ability, Haier started a business flow restructuring in 1998 and improved significantly the company’s feedback speed from the market, reducing operating costs and increasing competitiveness in themarket by this restructuring.
6Haier In Chinese Market Haier was the only company with leading shares across white good sectors.Haier was dominant in the RMB 48 billion refrigerator and freezer market, which accounted for about 38% of all white good sales in China.Haier’s share in country’s refrigerator market was 27% in volume and 52% by revenue.Analysts estimated that the company accounted for 61% of industry profits.2002(%)2003(%)2004(%)Refrigerator marketHaier26.726.228.2Guangdong Kelon13.412.410.8Henan Xinfel8.58.9Washing Machine Market25.825.730.4Wuxi Little Swan20.718.816.5Hefei Rongshida Group10.610.0AC Market16.316.617.5Midea10.911.4Gree7.49.1
7National CompetitorsIn 1989,100 refrigerator producers are there which had been reduced to 20, with the 10 largest accounting for 80% of the marketLeading domestic players failed to reach their growth potential due to many money-losing small competitors, who sustained by regional government’s budgetProtecting factors for Haier are diversified holdings, its differentiated products and its export strategyGuangdon Kelon-one of national competitors are only manufacturer of full line of home appliances. Kelon thus followed multi-brand strategy in China.Kelon’s new management had a new strategy to target China’s rural population and sold a million units of low-priced brand in first year of its operationHaier already had a strong presence in rural market but they did not target specifically rural segments with different pricing strategy
8Foreign EntrantsAfter Chinese entry in WTO in December, 2001, Haier faced competition not only from local brands but also from foreign competitors like Siemens, Electrolux, Samsung, LG, Matsushita, Sony, GE and WhirlpoolMany MNCs target emergence of a replacement market, specially high-end market in large citiesCompanies need to have a well informed sales and marketing network to capture untapped Chinese marketMNCs underestimated Chinese competitors and expected competition to come from other newly arrived foreign firms, instead, they faced biggest competition from Haier and Kelon, because of equally good technology and lower priceForeign brands refrigerator unit sales represented 31% of Chienese market in 2002, from 26% in previous year. Automatic washing machine sales accounted 38% of total sales, up from 31% last yearHaier has advantage of local knowledge- aware of Chinese culture and values
9Retail Channels for Haier Before 2000, Haier’s customers were mostly state-owned department stores, by 2004, appliance sales had moved out of the department stores and into individual specialized shops and private retail chainsDistributors are major domestic chains as well as international retailers like Wal-Mart and CarrefourIntroduction of Western retail models to China’s major cities coincided with the arrival of foreign multinational appliances brands like Siemens and GEWTO-mandated opening of rest of China to foreign retailers by the end of threatened to erase domestic firm advantages beyond the first tier citiesHaier has advantage of successfully tested sales approach to work on a non-uniform population, unlike in European market, where rural and semi- urban market is dominated by domestic or international hypermarkets
10Haier Market Advantages Haier Products commanded 20% Premium over other brands, still a leader in sales.Haier has superiority in majorly 3 areasMarket responsivenessDistributionAfter sales service
12Haier Market Advantages Market ResponsivenessFocus on meeting customer’s needs42 divisions act as individual companiesCreating innovative machines like Single wash, Potato washersMeeting Local demand at home and abroad with Innovative models
13Haier Market Advantages After sale ServicePioneered after sale service concept in China5500 independent strong contractor networkNational hotline customer serviceFree of charge replacement, low costs on repairs
14Haier Market Advantages DistributionHaier Logistics pioneered JIT concept in China in fields of packaging, raw materials, delivery and product distributionreduction of inventory cycle from 30 days to 7More focus on supplier reduction from 2300 to 1000Utilized growing infrastructureTeamed up 300 transport companies to deliver goodsUpfront cash created good cash flow for HaierHaier reorganized its logistics to server entire group unlike others
15Haier Market Advantages Having economies of scales reduced Logistics costs to minimumHaier has invested lots of time, energy, money in creating distribution, overcoming chinese bureaucracy.Haier was more localized than other companies, which can be overcome easily.Haier recognizes these are tangible benefits and other competitor can acquire these benefits by outsourcing logistics.
16Haier in International Markets Revenue generated should involve Zhang’s “three thirds” goal1/3rd from goods produced and sold in China1/3rd produced in China and sold overseas1/3rd produced and sold overseasCreation of Haier’s Overseas Promotion Division in 1999 led to rapid growth in international sales.Haier started to venture into overseas market as a contract manufacturer for overseas brandsIt entered into a JV with Mitsubishi to set up China’s largest AC plant2. Revenue was 17% from international markets in 20043. It exported to UK, Germany and then France and Italy
17Haier entered Europe in 1997 by producing AC’s in Belgrade. It was one of the first Chinese co’s to engage in FDI by setting up a refrigerator and AC plant through a JV with a local firm.Haier entered Europe in 1997 by producing AC’s in Belgrade.In Germany, when Haier’s “Blue Line” refrigerators beat local firm Liebherr in a ranking , Germany became Haier’s first export market.In 1997, Haier formed a JV with LKG to manufacture Haier branded products in Philippines for sale in regional marketWhich was a JV with a local companyHaier decided to go alone in Germany after it beat Liebherr in rankingsLKG is a Philippines company
18Haier started focusing on selling its branded products overseas Haier’s philosophy – “ To export in order to establish a brand reputation overseas unlike other Chinese firms who were interested in exporting products to earn foreign currency”Chinese firms exported products under an OEM client brand as they were associated with low quality in US and other countriesHaier tried emulating strategies of Sony, Samsung, LG while expanding into international marketsLG was the most likely model for Haier1.OEM- Under OEM, the manufacturing company’s products are purchased by a purchasing company and retailed under the purchasing company's brand nameKelon, Haier's largest domestic rival operated under OEM whereby its products sold under the brand name “ Magic Chef” alongside Haier- branded products in Wal-Mart stores in US3. Mention the LG model of expansion in international markets
19International Strategies Focus in the difficult market firstBegin with the niche productsStaff with locals
20Focused on difficult markets first Home markets of larger global competitorsHighest quality standardsRequirements of retailers and customers are tough to meetBuild a prestige and arrive with a ready made reputation in South Asian MarketZang said “ If we can compete in mature market with brands as GE, Matsushita, Philips, we can surely take the market of developing countries without much effort”
21Begin with niche Products Started with few models without directly confronting the competitorsCompact refrigerators for students and offices30% market share within 3 years.Attention from Wal-Mart and Best BuyIntroduction of regular product
22Staff With Locals Local people know the market very well Identify a local person with experience preferably in a leading white goods firm, to head the country operations.The person will hire a local team and set up sales and distribution networkEventually they will place their own people in key positions to get better market intelligence
23International Divisions HaierOverseasAmerica (N&S)EuropeMiddle EastSouth East AsiaEast AsiaChina
24Contd. Haier Products , 80% in white goods sold : 62 distributors, 30,000 retailers, 59,000 sales agents, 12,000 service personnelOperated 18 design institutes, 13 overseas factories, 11 industrial complexes.
25Haier AmericaEntered US market in 1994 with compact refrigerators captured 10% market shareMichael Jemal, import company Welbeilt appliancesJoint venture ‘ Haier America’ with Jemal in 1999Rented space in Manhattan , 13 people all American except for the accountantEstablished $40 million Industrial park and a factory in south Carolina
26Strategy in AmericaTo manufacture quality products and sell at premiumFocus on getting Haier products into large retail chains- Home Depot, Wal-Mart etcFocus on niche markets helped to avoid competition from GE, Maytag, Frigidaire
27Haier in EuropeIn 2000 Haier Europe headquartered in Varese, Italy, began coordinating sales an marketing in 13 European countries growing upto 17 inProduct line included refrigerators,freezers,washing machines,dishwashers,microwave ovens and small appliances all designed for the European market.In 2001 Haier invested $8 million to acquire a refrigerator plantin Padova,Italy,manufacturing built in refrigerators and freezers.In 2002 Haier A/C Trading began distributing air conditioners in the local market.By 2004 Haier had an estimated 10% share of European air conditioner sales.Haier’s headquarters in Varese coordinated logistics by 4 distributions center’s in Italy,Spain,UK and the Netherlands.
28Haier in IndiaHaier earmarked India as a potential high growth market, and invested heavily in building up production, distribution and sales capacities in the country.In 1999 it formed alliance with Indian appliance firm Fedder Lloyd Corp to jointly produce and market refrigerators nationally.In Jan 2004 it launched a broad range of products with the goal of becoming one of the top three white goods firms in India within 5 to 7 years.In 2004 it announced a $200 million investment over 4 years to establish a refrigerator factory and R&D center that would serve as a production site for South Asian and African markets,In 2004 Haier formed an alliance with Whirlpool and Voltas to manufacture refrigerators and air conditioners for the Indian markets.In India Haier used local human resources to establish business
29The Next 20 YearsHaier faced a number of challenges in the coming years including moving beyond niche markets in the US to its goal of introducing a full line products.Haier did well in small scale industries but there were doubts whether a Chinese company could break into major leagues because it was a new Company.In 2005 Haier was spending about 10% of revenues of global branding and marketing, more than double the industry average.The company planned to combine its expertise in white goods with information technology relatively new area for Haier to produce intelligent home appliances.It planned to get there one step at time securing market leadership at home in each sector and then taking it globally.Haier’s long term goal was to achieve one-third domestic sales, one-third exports and one-third produce and sold abroad.