Haier is now widely recognized in the world. As the latest statistics of Euro-monitor, Haier was placed 5th of the global white goods manufacturers with the largest world market share for refrigerators. As showed on the Far Eastern Economic Review issue December 26, 2002, Haier was placed 1st of the most respected companies in Asia and Pacific Region.
Going multinational (since 1998) with the aim of building an international brand name, Haier now has 62 distributors and more than 30,000 outlets around the world. The company's target for the beginning of the next century is to enter the top 500 list of Fortune magazine.
Haier’s Strategy Study I: Why to go globalization/internationalization?
According to the economic forecast of year 2000 electronic water-heater in China market, from China National Information Centre, there are more than 12 main manufactories: Wanjiale, Haier, Kangquan, big thumb, Golden friend, Litter-duck, Smith, etc. Although the whole market tends to increase continuously, the fierce competition also makes the market centralization degree remain low (water-heater in-use ratio 1999: Wanjiale 26.35%, Narcissus 8.81%, Haier 8.35%, Marco 5.6%, etc.). Meanwhile, the proportion of gas water-heater & electronic water-heater is 7:3, gas water-heater still remains to be the main body of market possession.
Having a look at the ‘foreign’ rivals, like ARISTON and A.O. Smith, their fast growing also brings great competition. Merloni Termosantari Company (Italy) planned to introduce a multi-brands strategy in China market; A.O.Smith claimed to invest 3,000 million dollars in order to seize the market. To certain extend, the successful launch of these foreign brands also prove the possibilities of going globalization in these industry.
The divers for going globalization can be generally grouped into 4 categories: Global market convergence, cost advantages, government influence and global competition (Figure 4.1)
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Global market convergence. In such markets like electronic appliance, customers needs and preference tend to be similar; on the other hands, suppliers for those industries can be found operating on a global basis. As mentioned above, after his success in European market, MTS invested 50 million dollar in his Wuxi plant, and successfully in occupying the 1st place of market share in year 2000 & 2001
- Cost advantages. Industry as electronic water-heater is standardized, large volume based, it requires for optimum economies of scale. Meanwhile, other advantages as lower labour cost will also abstract global competitors. Those specific respects help the manufactories to find ways of matching the local competitors who has already benefited from such advantages
- Government influence. Facing challenges from E-commerce and China’s accession to WTO, more and more foreign companies enter china market to search for opportunities. They do not only aggravate the competition, but also bring in advanced technologies and new administration logic. The other vital influence is coming from government’s direct financial support. The Chinese government has decided to give energetic support to the development of six companies including Haier, Baoshan Iron and Steel Complex, Beijing University Founder Group Corp., Huabei Pharmaceutical, Sichuan Changhong and Jiangnan Shipyard by allocating at least 20 million Yuan to each enterprise annually in an effort to make them part of the top 500 by the year 2010
- Global competition. To those industries whose customers are on a global scale, companies who adapt globalization strategy also place pressure on their rivals. For instance, after MTS’s successful launch in china, A.O.Smith (U.S.A), Bealich (German), Aircom srl (Australian) all entered this market in year 2000 respectively
Haier’s Strategy Study II: How to go globalization/internationalization?
It is important to appreciate that strategy must be viewed not as a one-time assessment of the international environment but as an evolving plan. It is necessary for the strategies to remain flexible and to adapt to the continually changing market conditions . The following chart illustrates the 3 vital strategy progressive stages (Figure 5.1):
As we discussed in the last chapter, Haier has great opportunities to go globalization. Aiming to build an international famous brand, Haier began its march toward a multinational company in early 1998. Haier’s globalization mainly consists of the following principles :
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“First difficult, then easy”. It aims at the high-end target markets such as US and Europe in the 1st stage of going abroad. Haier believes that if the “picky” customers of these two markets are satisfied with its products, acting from this strategically advantageous position, there will be no problem for it to enter into other markets. This strategy made Haier a well-prepared company in the international competition
- Aims at creating brand image rather than creating profit. Haier considers that, from a long-term point of view, to hold an international famous brand will bring extra profitability in the international market, and provides firm and solid foundation for future development
- 3 ‘one third’ strategy. Adapting to the regional economy integration during the global economic development, Haier formulated his strategy as: 1/3 national production & marketing, 1/3 national production & international marketing, 1/3 overseas production & marketing. It does not only enable Haier adequately utilize preferential policy in regional economy, but also enhance its capabilities of resisting the market risks brought by exchange ratio variation. What is beyond Haier’s imagination is that it also let Haier effectively avoid the influence of the recent Asian financial crises.
Nevertheless, if Haier has the opportunities to go globalization, so it could be the same opportunities for the other domestic competitors, why Haier became so successful and distinctive? Haier’s strategy also presents us a good practise of combining globalization and Internationalization.
Theoretically, the following table provides comparison between ‘pure’ globalization and ‘pure’ internationalization modes (Figure 5.2 ):
The ideal strategy is the one that matches the degree of globalization to the potential of the industry/firm. Whatever the push toward globalization may be, the most successful strategies are those that find the delicate balance between international and global dimensions which make optimal use of a firm’s resources and interests . A brand can be globally recognized, so do a company, but none universal products/services can meet customers’ requirements all around the word, Haier knows well about that. To make it become globally successful, Haier strategy implicates the steps of going internationalization. Here under we go deeply to explore and illustrate Haier’s distinctive globalization/internationalization strategy (Resource from ):
- Products internationalization. This is divided into to 3 major concerns.
- Quality internationalization. The first step Haier took is to acquire the “passport” to the world—international certifications. In April 1994, Haier was awarded ISO9001 certification, the first company in China in the industry to get this certification. After that, Haier has received 18 quality certificates from UL(USA), CSA(Canada), SAA(Australia), VDE&GS(Germany), CE(EU) and S-MAR(Japan) etc. With these certificates, Haier can directly export its products to 87 countries and regions
- Design internationalization. Haier has customized its products according to the requirements of different areas. It established dozens of information stations abroad. Large volume of information is sent to Haier’s headquarters through Internet everyday. The design team then creates different product models based on the information. For example, nobody likes a black freezer in China because in Chinese culture black symbolizes “death” or “misery”. However, according to the research, European people prefer the black. Therefore, Haier designed a freezer that is totally black for European market. This model was very popular in the recent Cologne Home Electronic Appliance Exhibition and gained many orders for Haier
- Sales network internationalization, including 3 key parts.
- Pre-sales, sales, after-sales system. Haier’s strategy is brand oriented, its sales system has to undertake the functions not only to deliver goods to customers, but also to collect and feed-back market information, to promote products, to sale products and to provide Haier’s ‘5 stars’ service
- Instead of simply sending its sales team abroad to expand global market, Haier makes the full use of existing sales network of those foreign distributors. It seeks to redeploy the distributors’ enthusiasm by setting-up rational motivation regulation, thus the distributors can perform the standardized Haier ‘5 stars’ mode service all around the world. Tino(Italy), Hakaus(Spain) and Martin(Spain) all send their technicians to be trained in Haier, their service help Haier to obtain good reputation in local country, as well as its famous brand image. Haier now has 62 distributors and more than 30,000 outlets around the world
- ‘Zero-distance marketing’, which implicates both the ‘zero-distance’ between the company and employee, and the ‘zero-distance’ between the employee and customer. The concept requires the forever loyalty to the customer, which also results in a favourable brand loyalty from the customers. This is the guarantee of providing customer satisfied products/services
- Inter-enterprise internationalization. Haier considers it as the pre-practise of going global.
- To maintain long-term competitive advantage, Haier puts great emphasis on developing internationalized human resource, providing coercive, standardized and comprehensive training course (including foreign language, production technique, practical capability, culture knowledge and business regulations, etc.) to its high-level managers
- Haier also imports ‘6s management’ concept from GE. ‘6s management’ is a data-based, theoretical management system chasing for ‘100% perfect’. Haier requires all her employees, logistic, labor, sales team, to perform like an engineer, thus to ensure providing the precise, non-defects products/services
- Resource & operation internationalization. As Mr. Zhang (President of Haier) once stated, "Haier still lags far behind prestigious multinationals such as GE and Siemens. The road to catch up with the world's top 500 is also a process of absorbing advanced technology and expertise of the multinationals." Haier is well known as a transnational company, this is achieved by creating an integrated network of interdependent resources and competences :
- Localized operation. The search for an appropriate balance between a global and a national strategy is an on-going exercise. To maximize global economies while being responsive to the restrictions imposed by various countries , Haier transfers herself to a transnational company. Haier believes that a product is designed by market, so she has set-up 5 plants in Philippines, Malaysia, Slavonia, etc., 6 design centres in USA, Holland, Australia, German, France and Japan. These facilities abroad helps to collect related market information and conduct customized designs according to local customer needs
- Technology internationalization. Haier’s goal is to not only catch up with the advanced technologies but be a technology leader as well. Recently, Haier has built-up 15 technical alliances with German, Holland and USA, covering multi-media technology, digital technology and software technology. Through the integration steps of international technology resource, Haier successfully maintains the leading place in her product core-technology and greatly enhance its competitive capability. For example, an international regulation indicates that all the freezer products in developed countries must employ non-fluorine-refrigerating technology that is very important for environment protection. However, the current technology is not cost-effective and will lower the freezer’s refrigerating ability. After learning this, Haier accelerated its steps in non-fluorine technology development. It invested a large amount of money to establish a research centre while co-operated with some institutes and universities. Now its ‘non-fluorine + energy-saving’ refrigerating technology has become the most advanced technology in the industry
- Information internationalization. Haier sets-up 10 information centres in Korea, Japan, USA, Canada, Austria, Holland, UK, Taiwan & Hangkang, the whole network is continuously gathering real-time technology and marketing information
Summary and Conclusion
It used to be said that it was more important to ‘do the right things’ than to ‘do things right’. In other words, strategy is more important than the management of day-to-day operations, it is vital not only to a company’s success, but also to its very survival .
Haier’s achievements and experiences present a successful transnational model. We try to summary the following points from above mentioned in Haier’s strategy choices:
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Internationalized product, a physical base of going global. Capital, brand, culture and human were widely considered as the primary conditions for a company to realize globalization/internationalization. Take capital as a sailing boat, then, brand is the sail. Haier’s superior to her competitors is mainly benefited from her brand image, which is also the primary weapon for her to be successful in international market; meanwhile, globalized quality is the guarantee for creating internationalized products. This is the 1st learning from Haier’s case study
- Internationalized marketing, an efficient device. Differentiation of target markets, differentiation of production, diversification of marketing strategy and localization of marketing evaluation are all the key characters of multi-national strategy, it aims to enlarge market share by providing maximum satisfaction to local markets, while decreasing the effects of trade barrier. This strategy could become a highly concern for Chinese superior enterprise
- Internationalized sales network, an important term. Affected by regional culture, customer behaviour and etc., multi-dimension competition requires the sales teams to be aware of not only economical effect, but also legal, political, physiological and social effects. Haier’s employment of foreign distributors, instead of sending sales team overseas, helps to reduce marketing cost, as well as adapting to specific target markets more effectively.
- Internationalized resource, a powerful tool. The advantage of this approach, which gives multi-national status, is that the organization concerned is able to make use of local labour and local business/suppliers, even the local leading technologies and real-time information in making the goods or supplying the services. This is often welcomed by nations who have insufficient employment opportunities for their own nations, or are keen to support investment in their national economy by overseas companies .
As a whole, after reviewing Haier’s internationalization strategy, we may go over the benefits from a successful transnational corporation:
- It builds and legitimizes multiple and diverse internal perspectives able to sense the complex environmental demands and opportunities
- It has physical assets and management capabilities, which are distributed internationally but are interdependent
- It requires a robust and flexible international integrative process
Meaning while, as mentioned above, ‘do things right’ is the preference, the success of a transnational corporation dependents upon the ability simultaneously to achieve global competences, local responsiveness and organization-wide innovation and learning. This is accomplished through following features:
- Each national unit operates independently, but is a source of ideas and capabilities for the whole corporation. Haier’s localized operation not only creates ‘zero distance’ linkage to the local markets, but also enlarge and enrich the company’s ability to manage mobility of capital, people and ideas, thus to realize international resources optimizing
- National units achieve global scale through specialization on behalf of the whole corporation. Difference of ‘pure’ globalization and ‘pure’ internationalization had been discussed in last chapter, whereas they exist coordinately in a transnational corporation. A global strategy often embodies the concentration mode, in which major shares in major markets, core product standardization, and a uniform marketing approach tend to the objectives . Haier’s high-quality products, Haier’s ‘5 stars’ service are performed all around the world with same standard to satisfy all her customers
- The corporate centre manages this global network by first establishing the role of each business unit, then sustaining the system, relationships and culture to make the network of business units operate effectively. Haier proves again, that the terminal competition is the competition of human resource.
Notes & Reference:
G.A.Cole, 1994, Strategic Management, theory and practice, DP Publication Ltd, London, p1
Figure source:
Gerry Johnson & Kevan Schloes, 2002, Exploring Corporate Strategy, sixth edition, Prentice Hall, Harlow, p103
Extracted from:
Harry Costin, 1998, Readings in Strategy and Strategic Planning, The Dryden Press, USA, p341
Regarding to Haier’s strategy and conclusion, all key points were extracted from:
Anthony Paul, “Haier’s Power,” June 1999
George S.Yip, 1989, Global Strategy, in a World of Nations, Sloan Management Review, USA, p31
Harry Costin, 1998, Readings in Strategy and Strategic Planning, The Dryden Press, USA, p338
Gerry Johnson & Kevan Schloes, 2002, Exploring Corporate Strategy, sixth edition, Prentice Hall, Harlow, p460
Harry Costin, 1998, Readings in Strategy and Strategic Planning, The Dryden Press, USA, p337
Brian Houlden (foreword by Sir Adrian Cadbury), 1993, Understanding Company Strategy, an Introduction to Thinking and Acting Strategically, Brian Houlden, UK, p14
G.A.Cole, 1994, Strategic Management, Theory and practice, DP Publication, London, p124
Harry Costin, 1998, Readings in Strategy and Strategic Planning, The Dryden Press, USA, p334
Gerry Johnson & Kevan Schloes, 2002, Exploring Corporate Strategy, sixth edition, Prentice Hall, Harlow, p460
Harry Costin, 1998, Readings in Strategy and Strategic Planning, The Dryden Press, USA, p334
Further Reference: Major Awards and Honour of Haier Group
- In 1994, Haier was awarded the ISO9001 certificate for product quality.
- In September 1996, Haier received the ISO14001 environment certificate
- Haier has gained TUV and VDE certificates from Germany and a CSA certificate from Canada for safety and energy efficiency, as well as a UR certificate from the US for safety and quality (Haier was the first Chinese enterprise to join the UL list under its own name)
- In January 1998, Haier was ranked among the top ten light industry enterprises by The State Federation of Light Industries
- In December 1996, Haier's energy saving and environmentally friendly refrigerators won a State second prize for scientific and technological progress
- On December 16, 1994, Haier won the State prize for modern enterprise management
- In April 1989,Qingdao Refrigerator Factory won a prize for enterprise reform and innovation
- In May 1998, Haier was named the "Flower of China's National Economy" by Moftec (Ministry of Foreign Trade and Economic Co-operation)
- In 1990, Haier won the State Golden Horse Award for enterprise management
- In December 1997, Haier was presented with the Customer Satisfaction Cup by China's Customer Satisfaction Movement Congress
- In 1990, Haier won the State prize for quality management
- Haier refrigerators won first place in a German contest for refrigerator quality world-wide
- In 1998, Haier won the State prize for quality
- In August 1998, Haier won the Torch Enterprise prize from the Ministry of Science and Technology
- In 1996, Haier won a special prize for quality and efficiency and was named as an Advanced Enterprise for Quality and Efficiency. The State’s Quality Management Association gave both of these honours