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Haier: Taking a

Chinese Company
Global
Strategy Management
[Type the author name]

Discuss the process of Haier's diversification strategy from single dominant business
to a diversified portfolio. What do you think were the reasons behind this
diversification strategy?
Haier decided to delay diversification until they became a first class brand in the
Refrigerator segment in their domestic market (China), so that when they diversify,
their reputation that they have earned would enable them to reach out to the
customers and connect with them better. Also, by this time, they would have
achieved a fairly large enough scale so that they would be able to exploit their
learnings and apply them for other products.
As mentioned in the case, during this time, the general perception amongst the
Chinese consumers was that Chinese companies were not capable of providing
quality products. Thus Mr.Zhang decided to focus on the quality aspect in the initial
stages itself. By focusing only on Refrigerators, they quickly made manufacturing of
quality, a core competence which became a source of sustained competitive
advantage that they could exploit after diversification.
According to the case, Haiers diversification strategy was mainly by acquiring firms
that have markets and good products, but bad management. This strategy ensured
that they were acquiring firms who had fairly competent technical employees who
were not being utilized properly by their management. Thus, Haier, by utilizing the
experience of these employees and by coupling it with their managerial excellence
and quality control, could quickly turnaround loss making firms into profitable firms
at the same, improving their product offerings and brand reputation.
We see from the case that Haier first acquired an Air Condition factory and a Freezer
factory and then later acquired Red Star washing machine Company, a television
company and then a telecommunications equipment manufacturer. This also meant
that they moved gradually from one product offering to another (in terms of
technology that is common between two successive product).

How does Haier create value in its Diversified Portfolio?


Haiers management emphasizes three areas in which they had to be consistently
better than their competition to create value in their Diversified Portfolio. These three
areas were
a. innovation based on consumer requirements or market responsiveness :
example of how their engineers made slight tweaks to a washing machine that was
being used to wash sweet potatoes. Other examples of the same include a
refrigerator with Kimchi pickler etc. They were extremely smart to emphasize on
modular manufacturing where all these customizations could be added at minimal
cost without having to change the way the basic unit was being manufactured.
b. superior service: They utilized information technology very early on to automate
the way their service centers worked. Also, it was mentioned that, Haier offered
temporary units that their customers during the time the product was being repaired.
This ensured that their customers developed a brand loyalty which was further

accentuated by the story of the Chu Xiaoming, a taxi driver. They were also ranked
as the number one firm in After sales service.
c. local distribution: Haier logistics was a pioneer in the field of logistics in China.
They developed an extensive distribution system that could serve the entire product
group. Establishing a network of this scale was a complex issue, and this was a
source of advantage of Haier. Also, by developing this network, they were able to
serve the tier 2 and tier 3 centers also.

Why does Haier adopt globalization strategy? How does it do so?


Haier started a formal global expansion strategy in 1997 with the announcement of
three goals (1/3rd of the goods produced in China and sold overseas and 1/3rd
produced and sold overseas with the remaining 1/3rd produced and sold in China) by
Mr. Zhang.
The main reason why Haier decided to adopt globalization strategy was to test and
prove itself by competing with the leading manufacturers in the developed countries.
Unlike other Chinese firms, Haier decided to produce and sell under the Haier brand
itself so as to establish a brand reputation even though they also initially started off
as an OEM and continued to do so until 1999. This period let them understand the
expectations (in terms of quality, product requirements, specifications etc) of their
consumers.
After the double blind test that showed that Haiers Blue Line brand of AC was better
than JV partner Liebherrs, Haier became confident enough to launch products under
their own brand. They decided that there will be losses initially, but then, it was
imperative for them to stick to this strategy if they had to develop their brand
reputation, especially considering the fact that a lot of people would be biased
against Haier because of their Chinese Origin.
Haier also initially targeted only the niche segments (Especially in markets like USA)
where the initial product offerings were limited and not main stream (like a
refrigerator that doubles as a table, targeted at college students, mini refrigerators,
mini washing machines that can be used without detergents or those that can be
used to wash a single set of clothes etc.
Since this segment was not being serviced by the mainstream companies
(incumbents), Haier was easily able to acquire a substantial portion of this segment.
Also, they hired executives from the local population as much as possible because
they trusted that the knowledge of the locals is essential especially in an industry like
consumer electronics.

Do you think that Haier's strategy of investing in creating burdensome manufacturing


assets for multiple technologies and that of investing its branding and marketing
have inherent trade-offs. How do you think Haier can materialize Zhang's vision?
No. The way Haier went about their diversification and global expansion, they have
tried to reduce the tradeoffs as much as possible. In Mr. Zhangs words, the two
pronged strategy of keeping Haier agile and more customer focused than firms like
GE, Whirlpool etc. was showing benefits. Their sales volume (oversees made and
sold, and exports from China) increased sharply between 2002 and 2004 (from a
combined figure of $844 million to $2000 million). This is phenomenal for any firm in
a similar industry.
For a firm like Haier with its origins in China, it is imperative that they spend a lot on
developing their brand awareness amongst the foreign consumers by aggressive
marketing and branding strategies. This is because of the inherent biases amongst
the people (especially in the western countries) against products that are
manufactured by Chinese firms on parameters like Quality, reliability etc.
To materialize Mr. Zhangs vision, it is imperative that Haier maintains its product
differentiation and response speed at all costs. Haier can build on the success model
of their Blue Line brand of refrigerators, where they went for a JV with a local
reputed player and then over a period of time, after analyzing the market completely
and after having learnt from their JV experience, decide whether they want to
continue with the JV or branch out and start competing with the mainstream players.
This will give them a chance to study and learn about the market and its conditions
from close vantage point before deciding whether they should commit themselves to
it.
Also, in markets like USA, Europe, where they have already established
manufacturing facilities, it is imperative for them to position themselves as a
premium player through aggressive marketing.