Haier Case Study

1. Why did Haier choose to enter into developed market first? What are the benefits/risks of this move?

Haier started off as a collectively-owned small factory on the edge of bankruptcy in Qingdao and turned into the largest home appliance maker, holding about 30% of the white goods market; third globally. Haier has grown tremendously and became the second largest refrigerator producer in the world and to have presence in the black goods market. So we will look at the strategies that Haier had in order to become so successful.

As Haier started off, Haier focused a lot in maintaining high standards and high quality, establishing a renowned brand. Despite the overwhelming market demand and soaring prices for refrigerators, Haier resisted mass production, different from its competitors; they focus on quality and building its brand, in order to charge a premium in its brand.

After building the standards system, Haier leverage on the established system and decided to diversify and take on new products. Haier diversify through acquisitions of companies with good products but poor management and sometimes due to government pressure. At this stage, Haier focused on increasing her corporate competitiveness through standards innovation by tailoring her product innovation according to domestic and foreign market needs and promoting standards development for innovative enterprises products. We can see that Haier took a multidomestic strategy, targeting the Chinese market and eventually overtook domestic rivals and dominate the white goods market.

However, when China entered the World Trade Organisation in 2001, it added pressure on Haier. The bigger and stronger foreign brands such as LG, GE, Electrolux and Whirlpool increased the competition in the Chinese white goods market. However, it was not easy for them to penetrate the Chinese market due to the labour cost, infrastructure and knowledge of the market. Although Haier still preserve its local knowledge advantage over foreign firms but over time, the stronger foreign brands are still able to access the similar resources through third parties and become more competitive if they adapted to local market needs, eventually they still threaten Haier’s dominance and market share.

Soon, Haier developed a formal global expansion strategy and set up “three thirds” goals where Haier derive her revenue in three categories: one-third from goods produced and sold in China, one-third produced in China and sold overseas and one-third produced and sold overseas.

Haier started to venture into overseas markets as a contract manufacturer for multinational brands, first exporting to the United Kingdom and Germany, and then to France and Italy. Haier also used joint ventures to explore foreign markets where it set up plants overseas. Haier’s refrigerator sales in Germany were doing well, hence it continued to expand to the Philippines and eventually continue to export overseas to establish a brand reputation in the foreign markets rather than just earning foreign currency.

In pursuing expansion of its brands to international markets, Haier was emulating strategies of successful Japanese and Korean firms such as Song and LG. Although LG focus international expansion on China and Southeast Asia, the emerging markets, as she sees no competitive advantage in developed markets, but Haier was determined to focus on the “difficult” markets first, then the relatively “easy” emerging markets. Haier observed that many Chinese companies first export to Southeast Asia, which has competitive markets but there are no strong, dominant competitors. Hence, Haier believed that if she can succeed in the difficult markets such as the United States and Europe, which are much bigger markets and are also home markets of Haier’s largest global competitors, she can succeed in easier markets.

Haier also saw going into developed markets as a way to challenge itself to meet the highest quality standards. The requirements of both customers and retailers are very tough and not easy to meet, it will definitely benefit Haier if she is able to meet them and eventually create brand recognition in the difficult markets. In addition, Haier got to learn many things that she might not be able to learn in the developing markets. For example, by entering the US market, Haier learnt the UL requirements and the difference between the US customers and the Chinese customers.

Haier could also arrive in the emerging markets with a ready-made reputation with the prestige of having a brand that sold in the developed markets. In the globalized economy, the flow of information and people had been made easy, people from the developing countries can easily get to know about Haier brand. Haier also used its US and European experience to urge emerging market retailers to carry Haier products. Haier discovered that having a few successful products in the developed markets opened the door to introduce the full product line of Haier to developing markets, including high-end models. Haier believe that if she could effectively compete in the highly competitive developed markets with bigger and stronger players such as GE and Philips, she could definitely overcome the competition and difficulties in the developing countries. In addition, Haier could easily leverage on its established system and competencies gained from the domestic market to aid in entering the developing markets.

Although by entering the developed markets first, Haier can benefit significantly in terms of her sales, brand recognition, market share as well as expansion into developing markets, there are risks that Haier should consider. Haier had to consider the risk of failing in the developed markets and the conditions of the developed markets. Haier might not be able to establish brand recognition and overcome the competition, leading to lose of profits given the early high costs of establishing the firm overseas. Haier has to consider the political risks such as uncertainty created by government regulation, corruption and potential nationalization of private assets. Hence, it is advisable for Haier to conduct a political risk analysis of the developed countries before entering. Haier also have to consider the economic risks of the developed countries such as terrorism and differences and fluctuations in the value of currencies. Haier will also have to consider the complexity of managing her operations and the growth of the firm and study the different cultures and institutional practices.

We have discovered the reasons why Haier chose to enter the developed markets first and also look at the benefits that Haier will ought to gain by performing the action. However, Haier have to look at the potential risks of the act and weigh the benefits and risks accordingly.

2. Was this international expansion strategy of Haier a good one? Why or why not?

Previously we have discussed about Haier’s strategy of entering into the developed markets first and the benefits and risks of the strategy. We have also observed that Haier has changed its international corporate-level strategy over time. It started off with multidomestic strategy, focusing on its brand, quality and catering to the needs of the Chinese market. Then to the export strategy when it started to export her products to United Kingdom and Germany and finally it used a transnational strategy through which it seeks to achieve both global integration and local responsiveness. Haier sets up operations overseas to cater to the local needs and ensures close global coordination.

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