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

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Presentation on theme: "1 Haier Growth Strategy & Management in the Asian Corporation Week 8."— Presentation transcript:

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

2 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% Europes air-conditioner market –4th largest white goods manufacturer after Whirlpool/Electrolux/Bosch-Siemens

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

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

5 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 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 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 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 9 Basis of strategy Strategies based on –Building global brand –Following competition –Exchanging threat –Following customers –Shaping the competition

10 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 Haiers 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 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 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 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 Haiers strategy misdirected? Is pursuit of prestige and sales volume causing companys fit between strategy and capabilities to dislocate?

14 14 The Economists 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 15 The Economists 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." 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 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 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 18 Is this typical Asian strategy? Agency theory –owners and managers have divergent interests –Chinese investors dont have skill to guide investment –institutionally have little power (who owns company?!) –asymmetry of information

19 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 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 21 Li & Wong (2003)

22 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 23 Im sorry, I just cant help it! Di Benedetto & Song (2003) analyse Chinese firms from perspective of Miles & Snows typology of strategic types –Prospectors –Analysers –Defenders –Reactors Suggest that in Chinese environment firms fit capabilities to promote strategic type (not vice versa) Zhangs comments suggest Prospector Capabilities all aimed at first mover advantage & aggressive exploitation of markets In an emerging market context

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