Haier Strategy

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Haier: A Global Brand

Executive Summary
Haier, under the leadership of CEO Zhang Ruimin, grew from a single model refrigerator firm to the #5 white goods producer in a matter of two decades. Throughout the expansion process Haier entered over 100 countries through multiple entry modes and into other industries. The 2005 financial results gave Haier reason to pause and reassess its mission and strategic intent. The primary issue was whether to continue its expansion strategy or slow down operations and engage in a stabilization strategy. After careful analysis and debate the team recommends the latter based on underutilized facilities, operational inefficiencies, and the risk involved with increasing debt. The stabilization strategy would include continued pursuit of exports and non-equity alliances; however further significant financial investments would not be pursued. A shift from a multidomestic strategy to a transnational strategy is recommended in order to centralize operations to ensure efficiency and learning, and increases accountability based on product instead of by geographical area. Background & History

Haier has a rich and exemplary history, one that is studied by many business experts and business schools worldwide. Haier managed to break out of the “China mold” and become a leader in the appliance industry. Haier progressed through three stages of growth and was embarking on its fourth stage of “Global Brand Building” as of 2006. The stages provide insight to Haier’s history and culture. During the “brand strategy” stage (1984-1991), Zhang Ruimin transformed the bankrupt Qingdao Refrigerator Factory from a single model refrigerator manufacturer into the number one refrigerator brand in China with sales of US$125M in 1991. The culture of the collective-owned enterprise allowed for a highly unmotivated work force. Zhang changed the culture through historical events such as destroying 76 defective refrigerators with a sledgehammer and forcing errant workers to confess failures while standing on red footprints. These symbolic actions are still acknowledged today. Strict controls on quality, productivity, and after-sales service gave Haier a competitive advantage over Chinese competitors, catapulting it to the first place position. The “diversification strategy” stage (1991-1998) was a period of intense competition. Haier faced intense domestic competition as competitors emulated Haier’s approach to quality and productivity. Additionally, some foreign competitors entered the market. Haier sought an advantage through an emphasis on after-sales service and diversification into other products. It also recognized the need to export products overseas. Haier’s “activating shock fish” efforts, in which it acquired poorly managed firms with good tangible assets and made them profitable, allowed it to diversify within the white goods industry and enter the brown goods industry (televisions). In fact it did this with 14 such companies. Haier emerged as the #1 white goods producer in China by 1998 with dozens of product lines. Global efforts resulted in 1/3 of sales coming from abroad and total sales of $US1.38B in 1997. During the “internationalization strategy” stage (1998–2005) Haier aggressively pursued global efforts to create a global brand name. By 2005 Haier was the #5 white goods producer worldwide with 95% of its products branded as “Haier”. Unlike many Chinese OEMs it did not rely on low-cost labor and sell to foreign brands. Haier basically followed the “internationalization process” entering markets by exporting and graduating to non-equity alliances followed by joint ventures. Haier also created foreign subsidiaries with industrial parks in South Carolina and Pakistan. It tended to gain a foothold through niche markets, such as mini-refrigerators and wine cellars in the U.S. It tackled the tougher markets first and sold under the “Haier” name. Haier accrued a wealth of “globalization” knowledge...
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