Haier, an international icon: Success Factors and Market Challenges Essay

Born out of Qingdao Refrigerator Factory in 1984, the Haier (pronounced â€Å"high-er†) Group is China’s largest home appliance manufacturer (Wang and Ong 2007), and the world’s fourth largest white goods manufacturer (Chen 2008). Haier was ranked first among China’s Top 10 Global Brands by the Financial Times in 2005 (Haier’s company facts 2008). It was also ranked 86th among the world’s 500 Most Influential Brands by World Brand Lab in 2006 and is the only Chinese brand to be among the top 100 for three consecutive years. (Haier’s company facts 2008). Its Chairman and CEO, Zhang Ruimin who was appointed in 1984 as the director has been credited for pulling Haier out of bankruptcy to become a global corporation (Zhang Ruimin 2006) with annual turnover of USD16.2 billion in 2006 (Haier’s company facts 2008). Zhang was ranked 26th among World’s Most Respected Business Leaders by the Financial Times in 2005 and 6th among Asia’s 25 Most Powerful People in Business by Fortune magazine in 2004Haier’s key markets are China, Europe, USA, Japan (Beebe et al 2006) and India (Mumbai 2007). It has over 240 subsidiaries and 87 trading companies, design centers and industrial parks and over 50,000 employees worldwide (Haier’s company facts 2008). HAIER’S PATH TO SUCCESSIn 1984, CEO Zhang Ruimin took over the nearly bankrupt refrigerator factory (Lin 2005, 1). Today, Haier is known as a global brand. How did it become such as a success (Lin 2005, 1)?Strong leadership, customer service, product quality, innovation, speed, pricing, positioning, localisation of design, production and sales, latecomer advantages and market entry strategy are among the top ten factors for Haier’s success. Strong LeadershipZhang Ruimin (Zhang), Chairman and CEO of Haier is described as down-to-earth and a charismatic leader who has worked his way up (Chinaview People: Zhang Ruimin 2003). Zhang demonstrated out-of-the-box thinking and risk-taking when he combined traditional Chinese philosophy with modern Western management style (Chinaview People: Zhang Ruimin 2003) and avoided following norms of the industry (Wu 2003). â€Å"From the OEC management model of â€Å"Never Leave Today’s Work Till Tomorrow† and â€Å"Daily Settlement Leads to Daily Improvement† to the market chain management†, Zhang’s unique management ideas have won praises and is much of a discussion topic among management specialists and top universities around the world (Chinaview People: Zhang Ruimin 2003). Zhang’s aspiration for Haier to become a global brand began during the early stage he took on the factory (Liu and Li 2002, 701) With this ambition, Zhang set clear objectives and focuses in building the brand, diversifying product lines, going international and now building a global brand name in different phases (Haier’s development strategy 2008). In 2006, for the fourth consecutive year (Haier introduction 2008), Haier was ranked first for overall leadership among Chinese companies in the Wall Street Journal Asia’s annual survey of Asia’s 200 Most Admired Companies (Areddy 2006). Customer ServiceHaier aims to provide excellent customer service to gain an advantage over Western rivals who can be more complacent (Business in China: Double Star Group and Haier Group succeed without the consultants 2003, 14). To achieve this, Haier developed a customer-focused culture by reducing the distance between employees and customers requiring all employees to sell products, listen to customers and understand rivals’ products on a regular basis (Denison 2001, 222). Haier also set up more than 11,000 customer service centres in 160 countries (Yi and Ye 2003, 204) hiring and training locals to provide after-sale service to local customers (Li and Chen 2007). Haier’s dedication to customer service has won the â€Å"Five Star Diamond Award† presented by the American Quality and Service Society (Haier 1996). Product QualityZhang knows that the key to survival and future development is to establish and continue to improve product quality. To drive the  importance of quality, Zhang ordered responsible workers to destroy 76 defective refrigerators (Xu et al 2006, 30-31). As a result, Haier received the first ever National Gold Medal Award in China’s refrigerator industry (Haier 1988) and ranked first in China’s Top 15 Brands by Forbes (Kim 2003). InnovationTo improve its technology knowledge and create innovative products, Haier has been increasing investment in research and development (R&D) (Duysters et al 2008, 16) establishing an extensive global R&D and design network (DiPaolo and Li 2007). Its R&D investment is significantly higher than the market average – RMB6.7 billion in 2006, equivalent to 6.2 percent of its sales (DiPaolo and Li 2007). Haier also formed alliances with leading companies such as Liebherr, Philips, Mitsubishi and Toshiba to acquire manufacturing and technological know-hows, expand product lines as well as enter foreign markets (Duysters et al 2008, 11-12). The basis of China’s advantage is low-cost labour (Zeng and Williamson 2007, 27). Haier is take advantage of the cost advantage to provide high technology, choice and customised and specialty products at low price (Zeng and Williamson 2007, 55). Using cost innovation, Haier gained brand awareness in the US by making compact refrigerators and wine chillers to the mass market (Jain, Malik and Cruickshank 2006, 21). SpeedHaier understands that the speed in bringing products to customers to satisfy their needs before rivals is important to win them over (Wu 2003). Since entering US markets, Haier has gained one-third (Lin 2005, 2) of market share in the compact refrigerators for dormitories and offices and created the market for stand-alone wine coolers (Haley and Haley 2006, 46). PricingChinese products are often viewed as low quality (Xin and Yeung 2007). Aware of the poor image of Chinese products, Haier price its products at a five per cent premium over its Korean rivals, LG and Samsung (Chinese consumer durable firms eye a bigger piece of action 2008) so that its products will be perceived as â€Å"top-of-the-line† (Gupta 2006). PositioningHaier positions itself as a premium brand and aims to develop Haier as a dependable, high-technology global leader (Gupta 2003). Haier is not targeting at different classes of consumers instead â€Å"it wants consumers to feel that Haier is closest to satisfying their needs† (Haier’s Aim: â€Å"Develop Our Brand Overseas† 2003). Localisation of Design, Production and SalesHaier set up local design, production and sales facilities, and industrial parks in US, Europe, Asia Pacific and Middle East and employs mainly local people (Haier Press Room 2008). With localised operations, Haier is able to respond more quickly to changing customers’ needs (Young and Nie 1996, 12) and to be accepted by the local community (Haier Press Room 2008). Latecomer AdvantagesInstead of creating a new business model from scratch (Duysters et al 2008, 8), Haier, as a latecomer, has the advantage of comparing and modifying its business models against those of established rivals identifying niches, for example compact refrigerators in the US (Wu 2003) that larger rivals have overlooked (Duysters et al 2008, 8) or do not have the flexibility to adopt (Bartlett and Ghoshal 2000, 139). Market Entry StrategyHaier started exporting to tough markets such as United States (US) and Germany as Zhang (Wu 2003) believes that once it gained brand recognition in these markets, it will be easier for Haier to enter neighbouring developing countries (Liu and Li 2002, 702-703). When entering a new market, Haier introduced one product at a time. It first introduced refrigerators in the US market. Once the product becomes successful, Haier began introducing washing machines lines and other products capitalising on the brand awareness (Liu and Li 2002, 703). CHALLENGES AHEADChinese manufacturers including Haier now face increasing challenges posed by â€Å"decrease in orders from overseas markets† (Global recession hits China 2008), lack of resources, negative Chinese brand image, further margin squeeze and rising costs. Lack of R&D InfrastructureAlthough Haier increased investment in R&D, it can take years to catch up on the standard of the research in the West (Isaksen 2006). One big obstacle that marketing research firms face in China is the lack of infrastructure to carry out surveys (Isaksen 2006). Lack of Qualified Human ResourcesManagers with experience managing an international operation are scarce (Beebe et al 2006, 7). This shortage can negatively influence Haier’s global expansion (Liu and Li 2002, 703). For example, managers from the Chinese and American operations find it difficult to have productive discussions due to language barrier (Liu and Li 2002, 703). Global Brand Awareness and ImageChinese companies including Haier lack global brand awareness in developed markets in the US and Europe (Xin and Yeung 2007, 3) and suffer negative brand image of cheap, poor quality and unreliable (Swystun, Burt and Ly 2005, 3). This negative image is further weakened with the recent milk scandal (Made in China 2008: The Challenge for Chinese Brands Going Global 2008). Changing Western consumers’ perception requires years of marketing efforts (Liu and Li 2002, 704). Dominant Bargaining Power of BuyersHaier distributes its products with retail giants like Wal-Mart who have large buying power (Rosenbloom and Diane 1993, 78). These retail giants pursue mass merchandising strategies that emphasize low prices and low margins (Rosenbloom and Diane 1993, 80). 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