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HAIER : TAKING A CHINESE COMPANY GLOBAL
Amit kejriwalDipika mukim
M Satya KalyanSrivatsava Sridhara
Sirinus Topno
Group 6
Agenda
Case background Haier – Till Now Organization Concepts Haier Worldwide Recommendations
CASE BACKGROUND
Company Background
Founder and CEO : Zhang Ruimin Started in 1984 in Chinese Port city of
Quingdao by taking over a failing refrigerator factory
Ranked China’s number one by The Asian Wall Street Journal 2004
Celebrated its 20th anniversary in 2004 with annual sales topping RMB 100 billion
world’s 4th largest White goods manufacturer and 3rd in revenues
Challenges Ahead (2004)
To become China’s first multinational brand and succeed internationally
Continue its dominance on home turf and defend against the onslaught of foreign giants like GE, Electrolux and Whirlpool
HAIER- TILL NOW
First 20 years
Born in the year 1984 when Zhang took over a failing refrigerator factory
Factory was a collective enterprise whose ultimate authority was municipal government.
Workers were collective owners of assets and shared profits
Zhang’s business philosophy Quality focus Technology licensing agreement with Liebherr,
Imported freezer and air conditioner production lines from Derby, Denmark and Sanyo, Japan, JV’s with Mitsubishi, Japan and Merloni, Italy to improve quality levels
Change Management By Zhang Major driving force
Dissatisfaction with the present situation and coercive tactics
Ex: • Thrashing of faulty refrigerators• Workers at the end of everyday explainig about their
failings to assembled colleagues which ensures no repetition of the same mistake
Restraining force The Comfort Zone -> Reinforcing on quality and even
charging premium for the same in the market. what is in it for me -> Collective ownership and hence
sharing of profits
Outcomes
Made a profit of RMB 1 million in its second year
It stuck to brand building and focus on quality
Won the gold medal for quality in national refrigerator competition
In 1989, supply outstripped demand Competitors cut price – result – a price war but
Haier increased its price. Haier commanded a brand premium of 15% in the
market
Growth and Diversification Stage“Now we could let our reputation precede our
newproducts” – Zhang
Zhang decided it was the time to diversify
Took over two sick companies Qingdao Air conditioner factory and Qingdao General freezer factory
In 1992, acquired 500 acres of Qingdao land for a new industrial park – large capital Went public – IPO in the year 1993
Growth and Diversification Stage From 1992 to 1998, Expand by merging with and
acquiring other firms
“We buy those firms that have markets and good products but bad management. Then We introduce our own management and quality control to turn them around” – Zhang
Using the above ideology they acquired firms like Yellow mountain Electronics and 15 other companies
Focused on building great distribution channels all over China and improving product development speed and quality.
OEC Management: Became the pivot of Haier
Operational Restructuring
In 1998 annual revenue RMB 16.8 billion and domestic market share 30%
Slowdown in the local market – focus on international market more
First focus was reorganization to become more competitive
In 1998: Restructured the existing facilities into 7 product divisions
Four new group wide Development division
Formed centers such as TQM, TPM, TEM
Haier’s market advantages in China
Reputation of the Brand Commitment to quality Single Brand Approach High market responsiveness: focus on
customer’s needs Continuous innovation taking into
consideration the customer needs Free repair costs within warranty periods
and replacements during the repair Unified logistics department for all product
lines which reduced transportation costs and enabled speedy delivery
Internationalization Stage
“To become a national brand is not enough. If a business is successful only in the domestic market, the superiority won't last long.” www.haier.com
Strictly adhering to this Haier decided to go global from 1999
Globalization Strategy
Outcomes
By 2004 Haier became the No.1 appliance company in china
It was the only company with leading share across the white goods market
It was dominant in the refrigerator and the freezer market
Dawar and Frost’s Survival Strategy Theory (Ref: Haier’s survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf)
Dawar and Frost’s Survival Strategy Theory
Stage 1 : Defender• globalisation pressure was relatively weak• imported advanced technology in refrigeration from
Germany and spent seven years building up a strong brand name in refrigerator production through a well-planned quality control system
• Haier’s export, however, was limitedand indirect through agents.
Stage 2: Contender• “first difficult, then easy” Principle• exported to Europe, Japan and US markets, to obtain
prestige and to establish their brand• having built a highlydesirable industrial image for
their quality products enabled the company to compete globally.
Dawar and Frost’s Survival Strategy Theory
Stage 3: Defender and Dodger After 1992 Haier entered into other markets
within developing or less developed countries without obstacles as a strong defender in international markets
Enjoying the advantages of Extender strategy application, Haier applied a dodger strategy at the domestic market.
This is done to avoid price wars by using their integrated international competitive assets to reform the Chinese household electrical appliance industry
Present Day Scenario (2004)
Very strong in white goods market and growing presence in the black goods market
Recently a marked drop in the profit margins It had to face players who specialized in one
or two product lines Its nearest competitor Kelon was acquired in
2001 by Greencool enterprise More foreign players entered the market as
china entered the WTO in 2001 The Chinese market had become same as
the world appliance market
ORGANIZATIONAL CONCEPTS
Strategies followed(Ref: www.haier.com)
Three phases of Haier’s Innovation Strategy Brand Building (1984-1991) -> Quality is prominent for Haier Product diversification (1992-1998) -> Acquisitions of
companies with bad management and infusing life into them Globalization (1998-2005) -> Attacking the difficult markets
first followed by relatively weaker ones
Principles followed for expansion Best efforts are made to fully develop the current industry
before entering new segment of relative products Best efforts are made to gain the leading position in the new
segment of the industry after a certain period
Competing strategies AbroadProduct Differentiation:• close attention to consumer needs• R&D professionals talked directly to
consumers
Response Speed:• 18 design centers facilitated rapid product
development• Ideas from the field to be quickly tested • Flat structure enabled quick communication
Model Of Adaptive Orientation
Renewing Transformati
on
Reactive
Satisficing Sluggish
Hyper turbulent
En
vir
on
men
tal S
tab
ilit
y
Stable Adaptive Orientation
High Low
OEC Management(Market Economy model of Chinese Management Ref: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp131.PDF)
OEC : Overall Every Control And Clear Philosophy: Solve problems immediately,
search causes of problems and solve one by one
1995: Haier’s OEC Management was awarded National Management Innovation Advance Prize Of China Enterprise Confederation.
At the end of every day a worker checks on 3E card (Everyone Everything and Everyday) which contains 7 items -- job quantity, defects, usage of parts, condition of parts, safety, work attitudes and work discipline
OEC Management
Based on the OEC scores workers are given wages, promotions and appraisals.
Linked each staff member to another, so that the specific responsibility of each employee is involved in the achievement of the firm’s objectives.
Outcome : No more disputes over trifles among staff members and, consequently, the quality of products was greatly improved.
Organizational Culture
Haier corporate culture is guided and developed by innovative strategy efficient organization creative technology and market orientation
enabled Haier to grow swiftly with business expansion from China to outside world
Haier corporate culture features recognition and participation of all employees
Haier has had all its employees involved in realizing Haier’s ideal to be a global recognizable brand
Brand Marketing Philosophy
Smashing of defective refrigerators has turned out to be the urge for brand
To become a national brand is not enough
Build name brand in developed markets and then expand the business into developing markets with little resistance
Create localized Haier brand in each market in world
Compete on value rather than price
Globalization Philosophy
First difficult then easy Without domestic market, business is rootless,
without international market, business is weak Three 1/3rds
1/3 made and sold at home 1/3 made at home and sold abroad 1/3 made and sold abroad
Three Internationalizations Internationalization of management system – build
up employee loyalty Internationalization of service – build up customer
loyalty Internationalization of brand – build up
international competence
Globalization Philosophy
Globalization of design Set up 18 design centers worldwide to consolidate
resources from developed countrie
Globalization of manufacture Set up 10 industrial parks and 22 plants overseas
enabling prompt action to satisfy local user needs for quality
Globalization of marketing 5,000 overseas retail outlets and over 10,000 service
centers all over the world. Best practices exchanged
HAIER WORLD WIDE
Europe Started in 2000 headquartered in Varese, Italy Began coordinating sales and marketing in 13
European countries, growing to 17 markets by 2004 HQ coordinated logistics through 4 distribution
centers in Italy, Spain, UK, and Netherlands Uses local finance, talents and culture Differences in distribution channels and consumer
preferences across countries Top loading Vs Front loading Independent retailers Vs Chain stores Difficult for manufacturers to establish scale economies
Europe accounted for 30% in overseas sales of Haier
America Started in 1994 – sold products under Welbilt Appliances Haier America formed in 1999 All American team, except for accountant sent from
Qingdao Few models to test the waters and avoid major
competitors like GE, Whirlpool, Maytag, and Frigidaire Started with compact refrigerators nobody made
In 3 years – over 30% market share in them Combated imitators by adding new features as such as
mini-fridges that doubled as computer desks Got attention of major retail chains like Wal-Mart & Best
Buy Can now get the chains to consider Haier’s major
appliances
America
Strategy not to manufacture cheap products but to manufacture quality products that can sell at a premium
To supplement with exports from China as capacity not enough
U.S. consumers saw Haier as American brand, “because Haier is produced and sold by Americans”
Accounted for about 30% of overseas revenue In 2005 had a 26% share for compact
refrigerators, over 50% of the wine cellar market, and 17% of air conditioner sales in the United States
India
Earmarked India as a potential high-growth market
Invested heavily in building up production, distribution, and sales capacities in the country.
No chain stores in India thus greater reliance on locals
Employed a former Whirlpool India executive to head Haier India – to guide its operations
Local human resources to help establish the whole business
RECOMMENDATIONS
In Global Markets: Continue Brand Building Initiatives Publicize as a individualized brand Publicize the quality, adaptability, speed
and customer focus
In Domestic Market: Continuous Innovation Publicize the fact that it is a home company Publicize the awards received for quality
Retention Strategy
Work-life balance should be given priority
Give more autonomy and leadership at lower levels (moving away from traditional paternalistic leadership)
Job security is a concern - Show support publicly to top performers
Support must be given to normal performers to improve
Recruitment Strategy
Recruit people who are open to learning and who are easily adaptable to continuous innovation
Search for people who are accommodative to customer requests
Recruit people who respect quality and process
Leverage the existing brand value to attract the required personnel from competitors
References
Haier’s survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf
Market Economy model of Chinese Management http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp131.PDF
www.haier.com
THANK YOU
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