Presentation on theme: "Strategy & Management in the Asian Corporation Week 8"— Presentation transcript:
1Strategy & Management in the Asian Corporation Week 8 Haier GrowthStrategy & Management in the Asian CorporationWeek 8
2The man who made fridges cool Haier founded 1984When Zhang Ruimin took control of loss-making refrigerator enterprise QGRFIncorporated as group company 1991 when market leader in ChinaSales increased 73% paSales of $9.7 billion in 2003Has 30% of US market in small fridges50% market for wine coolers10% Europe’s air-conditioner market4th largest white goods manufacturer after Whirlpool/Electrolux/Bosch-Siemens
3Revenue of selected appliance manufacturers (mySAP case study)
4Leading name? Haier is most high profile Chinese company Promoting global brandStrategic internationalisation from 1986
5Haier overall strategy Uppsala modelLow-high commitment modes of operationEnter markets with successively greater psychic distanceno regular export activitiesexport via agentsestablish overseas sales subsidiaryoverseas productionEach in a logically sequential stepProvides technology/knowledge for incremental building
6Classic internationalisation Exported to Germany under licenseDirect export (1992) to IndonesiaJV Indonesia 1996Philippines & Malaysia 1997Production facilityJV Yugoslavia 1997Greenfield in US 2000 (staffed with Philippines trained managers)Merger Italy 2001 – entry to EU avoiding trade barriersClassic Uppsala modelSwitch to Greenfield around time of WTO entryForeign competition making home market less profitableCompetition key in internationalisation drive
7Exporting strategy 1 – Defender licensing agreement (84-91) brought in imported production technologybuilding strong brand nameimplementing production techniquesglobalisation pressure weak2 – Contenderentered developed economies (1992) to obtain prestige/establish brand3 – Extenderpost 1992 moved easily into other developed markets4 – “Dodger” strategy in domestic markettransferring back internationally competitive products
8FDI strategy 1 – Defender customised to home market began acquisition of small local companies2 – Extenderbegan overseas operations 1996increased psychic distanceused competitiveness developed in domestic marketextending initially to similar markets reduces risk3 – Contender1999 Greenfield developmentsadaptive – applied local design/local products/local sales methods4 - “Dodger” strategy in domestic marketdid not compete directlyformal technological alliances with competitors (Whirlpool/GE)
9Basis of strategy Strategies based on Building global brand Following competitionExchanging threatFollowing customersShaping the competition
10Does the light go out when the fridge door shuts? Plans or processes?Chinese firms have an unmanageably complex structureMeyer & Lu (2002) “Managing Indefinite Boundaries” argueChinese firms are a web of relationshipsSuch webs are hard to control because it is not clear where one firm ends and another beginsIs it therefore possible to have an organised strategy of development?Chen (2004) suggestsMost of Haier’s innovation is incremental and carefully guidedDriver is streamlining sales processes between user & supplierHaier generates technological innovation by seizing business opportunity and heavily segmenting its markets.
11Emphasis on process Supply chain case study on Haier highlights From 1998 globalisation based on appropriate partnering strategies on case-by-case basisProviding personalised products to meet each customers’ needsImplemented JITShifted manufacturing operations from MTS (make-to-stock) to MTO (make-to-order)Introduced lean production processesDemand-oriented operationsBut in large scale markets (like US)Haier owns and manages full scale operations encompassing design, manufacturing and distribution
12E-businessKey role of internal processes stressed by Li & Chang (2004)studied e-business strategy of HaierWhile commending vision in this respectNote domestic strategy ill-timed due to insufficient infrastructurePositives –Working capital requirements dropped from 36 days in 2000 to 10 days in 2002Inventory dropped by 74%Warehouse space utilisation improved 100%Working capital in inventory dropped 67%
13Dodgy business Negatives – Made several wrong choices in e-business strategy contentControversial to focus so much on joining Global Top 500 Club as its strategic intent andAchieving revenue volume as its strategic targetHaier might have expanded too far beyond the scope of its core competency and managerial controlFailed to differentiate core business from non-core businessIs Haier’s strategy misdirected?Is pursuit of prestige and sales volume causing company’s fit between strategy and capabilities to dislocate?
14The Economist’s view (March 2004) In domestic & overseas marketsdiversification is driven by opportunism and desperation not good strategyProfits are not increasing despite sales growthQuotes Zhang RuiminAfter China joined the World Trade Organisation every multinational set up in China. Margins are low here. If we don't go outside, we cannot surviveOutside 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.
15The 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."
16Pattern? Technology development Uppsala model of internationalisation Founded on domestic competition“Illogical” –unrelated product diversificationover-engineering productabandonment of domestic industrial base (& associated cost benefits)
17Is this “typical” Asian strategy? Commonalities:Institutional emphasisShared characteristics of emerging economieslack of established product/finance/labour marketslack of sufficient laws & regulationsinconsistent enforcement of contractsunrelated diversification may help to generate institutional supportExplains “doing it all oneself”
18Is this “typical” Asian strategy? Agency theoryowners and managers have divergent interestsChinese investors don’t have skill to guide investmentinstitutionally have little power (who owns company?!)asymmetry of information
19Resource 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 firmsNeeds uniform resource supportClose linkagesAbility to identify & develop core competenciesThis pre-supposesConsistent allocation of & access to resources
20Different situation In emerging economy as markets are inconsistent Broader scope (unrelated diversification) may overcomeinstitutional behaviour uncertaintyinternally competitive marketsPut another way:In advanced economiesinstitutional qualityconsistency in resource accessmature marketspermit development of corporate competitiveness & promotion through related diversificationThese conditions do not apply in emerging marketsThis must affect corporate strategy
22Add in social antecedent dimension Keister (2004) studied firm borrowing in ChinaIn west as companies become more profitable they borrow lessIn China as companies become more profitable they borrow moreConsider retained earnings = state assetsSo undertake external debt in preferenceOther companies copied strategies of successfulAs firm grows – needs to access more capitalTherefore drive to internationalise may be more resource seeking than result of domestic competition
23I’m sorry, I just can’t help it! Di Benedetto & Song (2003) analyse Chinese firms from perspective of Miles & Snow’s typology of strategic typesProspectorsAnalysersDefendersReactorsSuggest that in Chinese environment firms fit capabilities to promote strategic type (not vice versa)Zhang’s comments suggest ProspectorCapabilities all aimed at first mover advantage & aggressive exploitation of marketsIn an emerging market context