Haier in India: Building presence in a mass market beyond China

Why Did Haier Enter India?

• High GDP growth rate leading to increase in disposable income.• High growth rate in the Home Appliances sector.• Expected growth rate for the Home Appliances sector was 20% for

2005-10.

2000 2001 2002 2003 20040

2

4

6

8

10

12

14

16

GDP Growth Rate Home Appliances sector growth rate

Why Did Haier Enter India?(contd.)

• Low penetration in Home Electronics.• Huge scope for growth in rural India.• Favourable government policies.

Television Refrigerator0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Market Penetration in 2004

PESTLE Analysis

• Political• Political stability.• International Stability.• Industrial policy can vary depending upon the ruling party.• Political hassles often slow down reforms.

• Economic• High GDP growth rate.• Increasing disposable income.• High Inflation may lead to high wage demands from

employees.• High tax rates and dual taxation were major issues.• Economic Reforms and globalisation.

PESTLE Analysis(contd.)

• Social• Consumer Durables seen as status symbols.• Changing lifestyle will increase demand for consumer durables.

• Technological• Hardware manufacturing in India was not upto global standards.• Technology was not a major problem as Haier could easily

import it.• Legal

• Standard Employment Laws.• Slow legal process caused disputes to be long-drawn.

• Environmental• Pollution was a major problem in India.• No environmental laws were in place specifically for electronics

industry.

Porter’s Five Forces Analysis

Rivalry among Existing

Competitors

Threat of New Entrants

Bargaining Power of Buyers

Threat of Substitute

Products or Services

Bargaining Power of Supplies

• SUPPLIER POWER:a) Haier developed vertical integration in 1990s for controlling its supplies.b) Haier also formed a good relation and collaboration with their suppliers to secure their support for price, quantity and

facilities.

• BARRIERS TO ENTRY:a) In this business the company has set the high barrier of entry such as large capital for manufacturing set up and

innovation.b) The company has also well positioned its brand globally and has applied effective marketing strategy to create barrier of

new entry.

• BUYER POWER:a) Haier streamlines its business up to distribution to supply to the retailer.b) Haier patterned all its products and focused on the after sales services to create a differentiation in the market through

innovation, quality and price.

• THREAT OF SUBSTITUTEs:a) In 1984, there were 100 refrigerator makers to compete in China market. Now, the number has increased to a great

extent. Haier has realized the competition and invested more in R&D for improvement and innovation.b) With the advancement of technology, duplication of products is a threat.

• COMPETITIVE RIVALRY: a) As Haier business has become huge with its large capital, other companies struggle more to stay in market.b) With the current economy downturn, most companies are tending to reduce prices to capture a greater market share.

Some companies even use this strategy for penetration into the market.

Porter’s Five Forces Analysis

Haier’s Targets for Indian Market

• T.K. Banerjee was appointed as the president of Haier’s Indian operation.

• Banerjee wanted Haier to be in the top three brands in the home appliances in India.

• A policy of “Three-in-one” Localization was followed.• The target was to gain 20% of India’s white good market

in first 5 years and to be among the top three players in the industry in 7 years, i.e. by 2010.

• Planned to launch an India-centric product line for Indian consumers.

• For sales, it developed a network of direct dealers and distributors in India.

Haier’s Expansion Strategy

Haier India Strategy Timeline

1999

•Launched 3 in 1 aggressive strategy of localization (produce locally, carry out local sales strategy & create products catering to local needs).

2004

•Outsourced the product .

•Did not want to execute rapid localization because of fear of failure.

2007

•Set up a manufacturing Unit at Pune.

•This acted as a sourcing hub for delivery to middle east hence delivery time cut down.

2012

•They maintained their brand message as‘ Inspired Living.

•Simple brand communication -- that Haier is a global player.

ALLIANCES-Entered the Indian new market through strategic alliances with Fedder Lloyd Corporation to gain by sharing the development costs and risks with the local partner.

Felt that it might benefit from its local partner’s knowledge of a host nation’s competitive conditions, culture, language, political systems and business systems.

PREMIUM PRICING-They stuck to premium pricing strategy(5%). They bothered about how consumers perceive them . Did not wanted to get perceived as low cost Chinese brand . Focused on value war rather than price wars

BRAND COMMUNICATION-They followed this very simple brand

communication to prove that Haier is a global player.

PRODUCT STRENGTH-They did not compromised on quality.

Haier India Strategy

Strategies That Failed

It failed to achieve the set revenue targets.

Investments were not paying off and the operations needed an overhaul.

Poor reputation of after –sales care.

Low market share when they focused on premium product strategy

Heavy taxation policies lead to decrease in profit margin which resulted in decrease in demand.

Localization Strategies in India vis-à-vis US

Factor India Developed (USA)Mode of Entry • 2004 – Outsourced prodn. of low end

goods from local manufacturers and imported high end products.

• 2007 - Acquired the loss making plant of Anchor Daewoo in Pune

• 1994- Imported from China • Strategic alliance with Welbilt in Sales• 1999 – Greenfield production plant in

S.Carolina

Strategy • 3 in one StrategyDesign, Manufacturing and Marketing

• Similar strategy but primary objective was to fight on quality and innovation.

Focus • Regular products(innovative features), priced above mkt. premium.

• Expanded their product mix(niche products)

• Focus on niche products first.• Diversified into normal household

electronic appliances.

Marketing • Customized products.• Eg: Detergent free Washing machine .

• Every effort to communicate that it was an American brand.

• Partnership with NBABrand Positioning • High and Mid end Niche products • Niche High end products.

Glocal Strategy of Haier

USA 1994- Alliance with a local import based

company 1999 - Then setup own prodn. Plant and

gradually all the products were localized. Indonesia

1992 – Started by importing from China 1996 – Opened a production site.

Philippines and Malaysia 2002 – Established subsidiaries

Middle East (Jordan, Syria, etc.) 2002 – JVs in Syria and Lebanon 2003 – Started operations 2006 – 2nd production facility

Japan Strategic partnership with ‘Sanyo’ to get

deeper access to their markets.

Italy, Spain and UK 2001 – Acquired 100% of Italian

refrigeration plant Meneghetti plant. Italy – HQ for Haier Europe Soon forayed in Spanish, German, French

and other East European markets through JVs.

Pakistan 2001- Joint facility with a local electronics

company Soon opened their own facility.

INDIA Began by outsourcing production, later

started operations by acquiring Anchor Daewoo Electricals.

Customized design for local needs. Marketed as a local product. Produced locally at the plant in Pune. Only panels for LED TVs and water heaters

are currently being imported.

Glocal Strategy of Haier

• In almost all the major countries, it has followed the 3 in one approach.• In some of the smaller countries , they were either assembled or imported.

• Relationship between firm’s competencies and commitment on the basis of their entry strategy.

Indian Consumer durables Industry

Consumer Appliances

White Goods(Refrigerator,

Washing Machines, AC)

Brown Goods(Mixers, Microwave Ovens, Iron, Fans,

Dish Washers)

Consumer Electronics

TelevisionsMobile Phones

Audio EquipmentsMP3/DVD Players

Evolution

Pre-liberalizationClosed MarketIncreased product availabilityIncreased media penetration & advertising

LiberalizationLiberalization of marketsShift in focus from promotion to innovation Influx of players like LG and Samsung

GrowthIncreasing availability and affordability of consumer finance Low penetration of high-end products like AC

ConsolidationIncreasing penetration of high-end productsIntroduction of new aspirational products such as HDTVs1980s and

early 1990s

Mid and late 1990s

Early 2000s

Late 2000s

Market Share of Indian Consumer durables in FY’13

Advantage India

• 100% FDI allowed in electronics hardware manufacturing sector

• Duty relaxation schemes to provide tax sops

• National Electronic Policy

• Attracted investment even during recession

• USD 1 billion investment in production, distribution and R&D

• Rural and semi-urban market contribute to 35% of total sales

• Combined market size CAGR is 25% from 2010-15

• Huge untapped rural market

• Rising disposable income• Easy access to credit• Increasing electrification in rural

areas• Wide usability of online sales

Growing demand

Opportunities

Policy support

Increasing investments

Strategies of Korean firms in Indian Consumer durables Industry

Pursue cost leadership and market segmentation strategies

Increase similarity of products or provide alternatives to existing products

Employ low cost pricing to thwart out incumbent firms and to become price-quality leaders in the chosen markets

Impact of strategies of Korean firms on Indian market

Pursue cost leadership and market segmentation strategies

Increase similarity of products or provide alternatives to existing products

Employ low cost pricing to thwart out incumbent firms and to become price-quality leaders in the chosen markets

Eric Braganza

2009•Appointed as President of Haier India•Prior Experience : Senior positions at

Electrolux and Videocon

Identifying the Problem Area•Sales and Marketing – the weak link•Renovated the Sales structure and

restructured the manpower

Actions undertaken•Vertical Expansion by strengthening its

penetration network and Experience Centres

•Brand Positioning from low to mid to high end segments.

Eric BraganzaPre-Braganza State of Haier India

Stagnant growth. It could gain 3.5% share of the market vis-à-vis the target 15%.Entered India almost 7 years after its rivals LG and SamsungPoor After Sales Service due to lack of enough service centers, and due to unavailability of spare parts in them .Had to deal with the notion of being a “Chinese Company”

Eric Braganza

Restructuring of the Sales Network• A complete overhaul of branch and regional sales structure was

done. Haier India underwent a comprehensive manpower restructuring so that almost 30% of our workforce was new.

• It went for Forward integration by expanding the dealer network in Tier-II & Tier-III markets . It opened Branch Sales offices in Chhattisgarh, Jharkhand and Bihar.

• In 2010, Haier India boasted of 1500 direct dealers and 5,000 secondary dealers spread across the country.

• It offered them a gross margin of 10% to 15 % which was 3% higher than the industry average.

• To focus on dealer retention, Haier India treated its dealers and retailers as the First Customers.

Eric Braganza

Expanding Haier’s presence in India• Haier wanted its consumers to see and experience its

products.• Thus, it has come out with Haier Experience Centres(HECs).

They showcase a wide range of products, which is not possible at multi-brand outlets due to space constraints.

• These are actually franchisee stores that operate on revenue sharing. Mr. Braganza aimed to increase the revenue contribution from the HECs from 5% to 12%.

• It plans to increase the number of HECs from 170 to 275 by 2014, and the number of retail outlets from 4500 to 6000.

Eric Braganza

Improving After Sales-Service• Eric looked at setting up service centres known as InstaCare

across all state capitals and identified eight cities.• He planned to deliver a six-hour service in all metro cities

(involves from the time of the call till the problem gets solved).

• Recently Haier has announced a LIVE chat buddy – Dr. Fido to get the queries answered instantly on the official website of Haier.

Eric Braganza

Pricing Strategy• For a product-parity market such as the consumer durables ,

there is very little scope to charge premium on products.• Too high a price won’t find enough takers, and too low will

discount the brand. Haier is a mid-priced brand.• It did not want to sacrifice its upscale image because it wanted to

stand by the quality of the product even if the price is a little high.• The price of Haier products was above all the price-fighter brands. • However in premium range of televisions, refrigerators and

washing machines Haier is at least 5% cheaper than the high-end models of LG or Samsung.

• Despite at times during weakness in the Rupee, Haier did not reduce its price, so as not to compromise on quality.

Eric Braganza

Diversification and Expansion • Eric introduced 25 high end products in the existing segments like LED TVs,

deep freezers, washing machines dishwashers , etc.• He also introduced many small home appliances such as blenders, juicers,

Tea- kettles and Toasters in the small appliances segment, which contributed to around 3-4% of the total revenue.

• Haier invested 100 Crore in 2010 and close to Rs 50 Crore in 2011 in expanding its refrigerator manufacturing capacity at its Ranjangaon plant in Pune, so as to increase capacity from 10 to about 20 lakh units by 2014.

• Some major Innovations of Haier:The 3-door convertible refrigerator & the bottomMounted refrigerator.• He brought in John Abraham as Haier’s Brand Ambassador and led aggressive campaigns like“You Inspire Us”.

Strengths

• Globally No-1 brand in white goods.• Updated and latest technology.• High quality products.• Broad Product line.• Strong presence in home appliances

segment.• Big distributors are stocking many of

Haier’s product.

Opportunities

• North-east a potential market is still largely untapped.

• The rural market remains untapped.• Mobiles and cellular phone market offers

new growth opportunities.• Consumer electronics segment is

booming and set to grow at 14% CAGR.• Tie up with big retailers will help in

growth • High disposable income and higher

number of Nuclear Families in the society.

Threats

• Threat of being Chinese brand.• Threat from established foreign and

local competitors.• Infrastructure bottlenecks

especially in rural areas.• Food inflation resulting in

slowdown of growth in the mass segments.

• Volatile rupee-dollar fluctuations leading to high import prices.

Weaknesses

• Weak distribution network compared to competitors.

• Weak service agent network.• Slow marketing and sales promotion.• Poor tuning with dealers.• Poor brand visibility and awareness.• Weak presence in TV market.• Sales seasonality in specific segment hind

ering growth.

S W

TO

SWOT Analysis

Household Appliances Industry

51%

17%

23%

8%

FY04

Colour TVACRefrigeratorsWashing machines

48%

21%

22%

9%

FY09

Colour TVACRefrigeratorsWashing machines

47%

24%

20%

9%

FY14P

Colour TVACRefrigeratorsWashing machines

Total size = 133 Rs. Billion

Total size = 229 Rs. Billion

Total size = 397 Rs. Billion

Recommendations

M-SIPS (Modified Special Incentive Package Scheme)• Currently, India imports $33 billion of electronic goods, third only to the oil and

gold import bills $155 billion and $62 billion in 2012. Industry experts see India’s electronic imports surpassing its high oil import bill by 2030.

• M-SIPS is prepared under the National Policy on Electronics 2012 that seeks to speed up local manufacturing and curb electronics imports.

• It provides investors a subsidy of 20-25% on capital expenditure 50-75% for companies investing in so-called electronics manufacturing

clusters.• Haier India should take advantage of M-SIPS and increase local production to

protect itself from the volatile rupee-dollar fluctuations and accelerate growth.Increase presence in Rural Markets• Rural market contributes to 15-20% of Haier‘s total revenue. Currently, LG has

5% penetration in rural market and 34% penetration in urban areas. Haier should plan to further increase its reach in rural markets.

Recommendations based on 4Ps of marketing

Product

New innovative products should be launched tailored to the needs of Indian consumers. Product portfolio should be diversified to reach a wider audience and cater to different markets.Increase in number of service centers.

PriceHaier should position itself in the mid and high-end segment market. (Value for money)Pricing strategy should be tailored to keep the price below foreign competitors' prices and above the local competitor’s prices. (Better products with low premium)

PlaceExpand network of Haier Experience Centers and expand it to showcase all products under one roof.Expand dealership network to tier 2 and tier 3 cities.Diversification of the distribution Network to support the entire Product Portfolio.Use digital media for e-tailing .

PromotionSales promotional schemes should be given in regular intervals to both customers & dealers. (exchange offers, easy EMI, extended warranty, high margin to dealers )Increase marketing expenses to improve brand visibility and awareness.Focus on digital media for display and promotion (Currently 5% of total market budget).

4 P’s

Product A• Feature 1• Feature 2• Feature 3

Product B• Feature 1• Feature 2• Feature 3

Haier India’s Annual Turnover

2010 2011 2012 2013 2014 P0

500

1000

1500

2000

2500

825972

1203

1503

2000

Turnover (In Rs. Crore)

Haier India CAGR – 24.98%Consumer durables Industry CAGR (2010-15) – 15%

Key facts about Haier India

• The media mix - TV, online, local print ads and radio. Current focus is on television- ‘Jhukna mat’ and “Inspired by You” campaigns.

• For product categories, the monsoon season sees sales of washing machines increase, the onset of winter sees the increase in sales of water heaters, and LED TV sales increase at times of festivals and sporting events like IPL.

• Haier India manufactures all low end products locally such as DC-330, Window ACs and CRT TV. While all the high end products are imported.

• Refrigerators contribute nearly 35 per cent Haier's total turnover, while the consumer electronics panel business is the next big segment with nearly 30 per cent of the turnover. The AC sales contribute nearly 14 per cent of the total sale, washing machines at 10 per cent.

• As per "Indian Consumer Electronics Market Outlook 2015", Flat panel television, Tablet and Smartphone are expected to be the top performing segments in the market.

• As per a survey, 64% were not aware of Haier brand. This suggests revaluation of marketing strategies for enhancing brand visibility.

• 36% of people surveyed knew about Haier but only 20% of people surveyed had look on Haier product before making a purchase decision. This shows unavailability of brand in the customer preferred multi-brand store. (Concerned with place strategy of Haier)

References

• http://www.sunday-guardian.com/business/consumer-durables-players-see-potential-in-rural-market

• http://www.dnaindia.com/money/report-haier-to-manufacture-all-products-in-india-by-2016-1809683

• http://www.way2franchise.com/resource/article/haier_strengthening_its_india_franchise_network_of_dealers_and_service_franchise_aims_1000_cr_biz

• http://www.livemint.com/Industry/hlfCJssTzLLBgNZD1y5YIP/Consumer-electronics-firms-to-invest-3500-crore-in-India.html

• http://www.authorstream.com/Presentation/magrawal26-549892-haier/• http://www.navhindtimes.in/business/haier-india-launches-71-new-products-state• http://

www.campaignindia.in/Article/339512,haier-ups-marketing-spend-from-rs-55-cr-to-rs-80-cr.aspx

• http://www.slideshare.net/Rahulkamble56/16034641-projectreport• http://

www.slideshare.net/pareshgupta007/competitive-analysis-of-companies-competing-haier-8374312

• http://www.quickmba.com/marketing/mix/• http://afternoondc.in/business-investment/haiers-aggressive-strategy/article_16479• http://

www.displaysearch.com/cps/rde/xchg/displaysearch/hs.xsl/111010_india_flat_panel_tv_shipment_cagr_forecasted_through_2015.asp

• http://www.flatpanelshd.com/news.php?subaction=showfull&id=1329393118• http://www.prnewswire.com/news-releases/203568471.html