Haier Case

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TARUN KHANNA INGRID VARGAS

Haier: Taking a Chinese Company Global

All success relies on one thing in overseas markets—creating a localized brand name. We have to make Americans feel that Haier is a localized U.S. brand instead of an imported Chinese brand. — Zhang Ruimin, 20032 On December 26, 2004, Haier Group, ranked China’s number-one company by the Asian Wall Street Journal,3 celebrated its 20th anniversary with annual sales topping RMB 100 billion.a (See Exhibit 1 for Haier revenue growth.) Starting with a defunct refrigerator factory in Qingdao, Shandong province, founder and CEO Zhang Ruimin built Haier into China’s largest home appliance maker.b Globally, Haier ranked third in white goods revenues, and was the second-largest refrigerator manufacturer (with about 6% of the global market) behind Whirlpool and ahead of Electrolux, Kenmore, and GE.4 Zhang pledged to make Haier the world’s best-selling refrigerator brand by 2006. (See Exhibit 2 for global appliance market shares.) Haier held about a 30% share of China’s RMB 129 billion white goods market,5 and had a growing presence in “black goods” sectors such as televisions and personal computers, but margins on domestic sales were shrinking. The Haier Group’s Shanghai-listed arm, Qingdao Haier, saw 2004 profit margins drop to 2.6%, from a high of 9.4% just five years earlier. (See Exhibit 3 for Qingdao Haier financials and Exhibit 4 for revenues by product.) Industry observers attributed the decline to increased competition from local firms and foreign multinationals in China. National overcapacity was estimated at 30% in televisions, washing machines, refrigerators, and other major appliances. Manufacturers were cutting prices at 10% to 15% annually.6 In this environment, Haier was betting its future on global sales. Haier’s 2004 export revenues were nearly double the previous year’s, and the company was targeting $1 billion in sales to the United States alone for 2005. Could Haier

a At the time, 8.26 RMB = 1 US$.

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b Haier, derived from the Chinese word for “sea,” was pronounced “high–R,” and Qingdao, “ching-dow.” In Chinese, given

names followed the family name. The family name Zhang was pronounced “Jong.” ________________________________________________________________________________________________________________

Professors Krishna Palepu and Tarun Khanna and Senior Researcher Ingrid Vargas, Global Research Group, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617-783-7860.

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Only by entering the international market can we know what our competition is doing, can we raise our competitive edge. Otherwise, we’ll lose the China market to foreigners. — Zhang Ruimin, 19961

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REV: AUGUST 25, 2006

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Haier: Taking a Chinese Company Global

become China’s first true multinational brand? In the process, would Haier be able to defend its dominant position in China against growing competition from Western and Asian multinationals?

Company Origins7

One of Zhang’s biggest hurdles was getting workers to understand that Haier’s commitment to quality was unlike that seen at other Chinese companies. To get his message across, Zhang...
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