Haier Case Study: Taking A Chinese Company Global

In 1984, Qingdao Refrigerator was a Chinese company dedicated to the manufacturing of refrigerators which was close to bankruptcy, and its future looked discouraging. Results were not good, as they even had to lend money in order to pay its employees. However, in 2004, under the name of Haier Group, Qingdao Refrigerator had become the 2nd biggest refrigerator manufacturer and ranked 3rd in white goods revenues in the world.

This radical change on the fate of the company deserves to be studied. First of all, Haier based its success in China on manufacturing high quality products. Having started manufacturing high quality refrigerators in 1984, Haier ended up producing a full line of home appliances only 10 years later. By maintaining high quality in all of its product lines, Haier built an excellent brand reputation between the Chinese customers. This brand reputation allowed them to put higher prices than its competitors to their products while increasing their sales. Haier kept on growing until they eventually became in the late 1990s one of China’s leading companies in the white goods sector. Moreover, another key for its success in China was adapting to customer needs. Haier’s market responsiveness to customer needs was very rapid and innovative, mainly because of their more than 40 distribution centers operating as independent sales companies, which were responsible for adapting to the customers of their region. For example, in China’s rural areas people used washing machines not only for washing clothes but also to wash sweet potatoes.

After receiving a call of a customer claiming that his washing machine had broken down, and realizing that the cause of the break down was the use of washing machines for cleaning sweet potatoes, Haier launched a washing machine to suit the peasant needs by making it suitable for washing sweet potatoes. After the introduction of foreign multinationals to the Chinese markets, Haier was able to compete against them despite of being smaller because of their market responsiveness and logistic. For their logistics, Haier had organized them to a single company serving the entire group, and reached almost all Chinese regions. Foreign multinationals however were operating mainly in the east coast of China, as their recent logistic structure made distributing their products to further Chinese regions too expensive to be profitable. Therefore, its logistic costs were much lower than their foreign peers which were new in the country. Later, Haier decided to expand themselves overseas, as Zhang, their CEO, thought that they had to go overseas in order to compete with the foreign multinationals not only in the international markets but also to maintain its position in the domestic market. Multinationals from emerging countries do not follow the traditional expansion strategies done by multinationals from developed markets (Esteban & Mauro F. , 2009). Multinationals from emerging countries expand more rapidly and in a dual path, which means that they search for opportunities for both developed and developing markets.

Traditionally, multinationals expanded to the closest countries in terms of distance and culture, while new emerging multinationals look for every opportunity no regarding to the distance, such as Haier with the US, Europe or India. Moreover, multinationals from emerging countries have the need to upgrade their resources. Zhang thought that entering developed markets would challenge the company to improve its quality standards, as customers and retailers were more exigent in developed countries and have the need to update their resources. These type of multinationals also show a good organizational adaptability to the new countries, as seen with Haier staffing with locals. The company hired an entire new management team formed by locals for Haier America, with a few Chinese employees that would give them feedback and knowledge. By adapting their organizational structure, they are able to know the different markets from the beginning and suit customer tastes better. Haier’s expansion strategy consisted on entering developed markets first, and then, after succeeding on them, they would enter the developing ones, often considered the “easier ones”. Moreover, they would gain brand reputation, as selling in Europe or in US would give the company prestige for when they entered emerging markets.

Chinese companies abroad as they are often seen as poor-quality manufacturers, so Haier wanted to separate themselves from that reputation. Nevertheless, entering first developed markets implied a slower growth and higher costs, compared to entering emerging markets instead. Despite of this downside, Haier entered and consolidated themselves in developed markets, being 70% of their overseas’ revenues in 2004 in developed markets. This strategy although imperfect, did not affect Haier’s exceptional performance during the last years. But, entering a developed market competing head-to-head with the already established big companies would result in failure. Established multinationals have loyal customers, a built relationship with retailers, logistics, etc. Haier, as well as other multinationals from emerging countries, should be entering developed markets focusing on niche markets (Tharun & Khrisnna G. , 2006). With this strategy, they don’t have to compete directly with those big multinationals as they are focusing on very concrete market segments. Meanwhile, by operating on niche markets, they are able to build their brand reputation and their relationship with retailers, improve its quality standards, etc. When Haier entered the US, the company focused on manufacturing compact refrigerators for students and offices, being both niche markets where domestic multinationals did not operate. Also, they were able to build a relationship with the big retailers such as Walmart, which operated in China too.

In 1997, Haier developed the “three thirds” strategy, which consisted in obtaining operating revenues in the following proportion: one-third produced and sold in China, one-third produced in China but sold overseas, and the other third produced and sold overseas. These goals have not been accomplished by far, as shown in the appendix (Tharun & Khrisnna G. , 2006). Revenues in China supposed the 83. 4% of Haier’s global revenues, pretty far from the goal of 33%. Therefore, this strategy was more theoretical than practical, and it shows the effort of the company to internationalize rather than the viability of accomplishing it. It is worth noting that Haier may have had a slower growth because of their strategy of entering first developed markets, which are already mature and have little growth potential. In other words, if they had entered developing markets first, they might have been closer to accomplish their “three thirds” strategy. As for the future, Haier should keep on investing great amounts of money on brand equity, as their brand reputation will determine its position on the global market. R&D expenditure should be one of the key parts of their strategy, as the company has to adapt to the quick changes on the industry. If they want to form part of the medium-upper quality segment on the white goods industry, Haier should be launching innovative products on the market, including the new intelligent home appliance products. By being innovative, they will gain reputation, sell more and consolidate in the global market. Haier has focused on mature markets and on close to home emerging markets. However, Haier should explore for more opportunities in other emerging markets, where there is a lot of room for growth. Multinationals originated in developing countries are better prepared to operate business in fast-changing countries with fragile institutions (developing countries). Regions such as Latin America, the Middle East or the richest parts of Africa have a lot of room to grow for the white goods industry.

As markets get more competitive in developed countries or even at their domestic market, Haier should be looking to maintain its growth by obtaining high revenues on those emerging markets, as they will eventually slow-down in the countries it is present in. By doing so, Haier will continue their story, a story of success, growing from a near-bankrupt Chinese local company to one of the world leader companies in their sector, showing us the importance of good management and project execution. Haier should serve as an inspiration for companies lacking direction, bad situations can be turned over with good management and patience.