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Case Study I
HAIER’s foray intoInternational Markets :
In the late 1990s,the Haier group (Haier) was the leader in the Chinese consumerappliances market (with a 39.7%, 50% and 37.1% market share inrefrigerators, air-conditioners and washing machines respectivelyin December 1998). But deflation in the Chinese economy slowedsales.
ut deflation in theChinese economy slowed sales growth from 50% in 1998 to around 30%in 1999. Haier decided to look for new markets. Since the US had alarge demand for consumer appliances, Haier entered the US marketin 1999. Analysts were doubtful about Haier's acceptability toAmerican consumers, as there was a general perception in the USthat Chinese goods were of low quality. Haier, however, wasconfident that with its product differentiation strategy it wouldbe able to create a positive image for its products among theAmerican public. In the early 2000s, the consumer appliances marketin the US started hotting up as Haier entered the market. By 2009,Haier products were sold in 9 of the 10 top retail chains in theUS.
With Wal-Martagreeing to stock Haier products, many analysts believed that Haierwould be able to shake up the US consumer appliances market. In2009, Haier had a 6% market share in the US refrigerator market; itstated that it was aiming for a 15% market share by 2015.
The history of Haierdates back to 1984 when Ruimin Zhang (Zhang), a bureaucrat with thelocal government was asked to take charge of Qingdao GeneralRefrigerator Factory, a state-owned enterprise that ismanufacturing refrigerators for sale in China. When Zhang took overthe management, the company was on the brink of bankruptcy, with nofunds to pay the salaries of its employees or to invest in newproduct development. When Zhang took charge of the company, herealized that the company did not look after the quality of itsproducts; nor did it bother about customer satisfaction. In 1985,Zhang started importing technology from a German firm and beganmanufacturing technically sophisticated refrigerators.
Zhang emphasized theelements of customer satisfaction and quality control in thecompany. In 1985, when a customer complained about the poorperformance of his refrigerator, Zhang conducted a quality checkand found that out of 400 refrigerators inspected, 76 weredefective.
He had all thedefective refrigerators destroyed with a sledge-hammer. Accordingto Zhang, this made the workers realize that quality is of only twotypes - acceptable and unacceptable. In 1989, the company changedits name to Qindao Refrigerator Co. Ltd., and it was restructuredwith funds raised from banks and government agencies. In 1991, thecompany once again changed its name to Qindao Haier Group Co. andin the same year it merged with Qingdao Air-conditioner Plant andQingdao Freezer General Plant. In 1992, the company set up QingdaoFreezing Equipment Co. In the same year, it merged with anotherpreviously state-owned enterprise Qingdao Condenser Factory, whichmanufactured refrigerator condensers.
In the same year itbecame the first company in China to get ISO 9001 certification,and the company's name was changed to the Haier Group. In 1993,Haier went in for an IPO of RMB 50 million and got listed on theShanghai Stock Exchange (SSE).
During themid-1990s, Haier began to grow through mergers and acquisitions. In1995, it merged with Red Star Electric Appliance Company (and fiveof its subsidiaries). This company manufactured washing machines.It also acquired Wuhan Elec-appliance Co., which manufacturedfreezers and air conditioners. Between 1995 and 1997, Haieracquired seven companies and started exporting its goods to foreignmarkets.
By 1997, Haier wasthe number one consumer appliances brand in China and the marketleader in all its product segments, which included refrigerators,washing machines, microwave ovens and freezers and its revenueswere reported at $1.15 billion (10 billion Yuan)...
Haier's Competitors in the US Market
USA was the world'slargest and most competitive market for consumer appliances. Theconsumer appliances market can be segmented on the basis ofproducts into kitchen appliances and home comfort products.Included in kitchen appliances are products such as dishwashers,disposers, compactors, food preservation appliances, refrigerators,freezers etc.
In the home comfortsegment are included products such as room air-conditioners anddehumidifiers. The home appliances market in the US was dominatedby American companies, namely GE Appliances (a subsidiary ofGeneral Electricals), Whirlpool and Maytag. The only strong foreignplayer in this market was Sweden's Electrolux. GE Appliances,Whirlpool, Maytag and Electrolux together accounted for around 98%of the 9 million standard refrigerators sales in the US every year.In the 1990s, many Asian players such as LG Electronics and Samsungentered the US market in a big way. The big four companies in theUS market concentrated on the high- end market comprising full-sizerefrigerators and washing machines, since the margins in thissegment were high...
Strategies in the US Market
Haier decided tocompete with the US brands on the quality plank rather than onprice. However, analysts felt that it would be very difficult forthe company to win over American consumers who associated Chinesegoods with low quality. To strengthen its presence in the USmarket, Haier adopted a localization strategy.
It opened a designcenter in the Los Angeles and employed US designers for designingits products for the US market. Haier also opened a marketingcenter in New York. The company focused on enhancing consumerawareness about the company and its products. Commenting on Haier'sstrategy, Zhang said, \"We want consumers to feel that Haier is theone company that comes closest to satisfying their needs.\" Forinstance, none of the consumer appliances companies in the USoffered a compact refrigerator to satisfy demand from collegestudents who could not afford normal size refrigerators...
Going High-End
Most analysts feltthat Haier would feel the real competition only when it entered thehigh-end market. In the compact refrigerator segment, Haier did notface much competition from established players in the US, who didnot focus on the low margin segment.
However, the majorUS players were keeping track of Haier's activities. Commenting onthe competition from Haier, GE Appliances Chief Executive, JimCampbell said, \"I take it very seriously. They may be producingonly 200,000 refrigerators per year now, but that's going to getbigger.\"
On the negativeside, some analysts felt that Haier lacked the brand image to makea dent in the high-end segment. They pointed out that in general USconsumers were brand-conscious, and this was especially true in thecase of high-end products. The lack of a positive brand image inthis consumer segment would probably make it difficult for Haier tosucceed in the high-end markets. Analysts felt that Haier had anadditional weakness in its distribution and service centers...
Future Prospects
Despite a fewreservations, analysts too were, by and large, upbeat about thecompany because of its strong performance in breaking into theAmerican market in a short time.
Said NicholasHeymann of Prudential Securities, \"Over five years, it could becomea force.\" With quality products and lower prices, it was felt thatHaier would be able to garner a sizeable market share in the US.Haier's experience in the geographically vast and diversifiedChinese market would serve it well in catering to the USmarket.
However, a majorworry for Haier is how to fund its expansion plans. Increasingcompetition in the domestic markets is bringing Haier's financesunder pressure.
Questions 1:
What in your opinionis the significance of an organization entering into InternationalMarkets for business? Is it advantageous or disadvantageous?
