Haier Group (“HG”) is a leading Chinese international manufacturer of large and small appliances, including refrigerators, freezers, conditioners, dishwashers and laundry products to cell phones and televisions. HG is not only known around the world for quality and innovation but as an early mover outside of the Chinese marketplace; it was able to implement a market strategy to take away market share from large manufacturers on their own home-front.
Haier Group’s Global Brand Strategy
Haier Group’s Expansion Strategy – It Was Time to Expand
China joined the World Trade Organization (“WTO”) in December 2001 and became part of the international appliance marketplace. HG had a choice to maintain its current position as the leading manufacturer in China or to expand its operations into global markets. HG faced stiff competition from domestic manufactures and multinational companies (“MNCs”) that were penetrating the Chinese market. Although HG maintained a market advantage based upon its innovative and rapid market response to customer needs, superior after-sales servicing and efficient distribution centers, it would be only a matter of time before MNCs acquired similar resources through third-parties and adapted to local market needs (Palepu pp. 7-9).
1 HG could face overcapacity within the Chinese market – i.e., too many manufactures and not enough market share – and lose the opportunity to support its global expansion to capture market share overseas. If HG have had kept the status quo, it may never have another opportunity to use profits generated from its domestic sales to go head-to-head with large manufactures and develop its own brand.
As early as 1997, HG had developed a formal global expansion strategy (Id. at 10). It manufactured products for MNCs overseas and entered into joint ventures (“JVs”) to explore foreign markets (Id.). HG had acquired access to the latest technology from the U.S. and Europe and was able to leverage its knowledge to manufacturer a better product at a higher profit per unit. Its competitive advantage was two-fold: (1) product differentiation; and (2) response speed (Id. at 15). HG was successful in China, because it focused on organizing itself to understand what customers want and to satisfy those needs as quickly as possible. It also was able to introduce brand new products or features that could be added to existing products to meet customers’ needs.
While most Chinese manufacturers marketed and sold products under an original equipment manufacturer (“OEM”) client brand, HG was willing to endure the earlier costs of developing its own brand (Id. at 10). HG adopted an expansion strategy to first build its market share in developed markets and then go after emerging markets. It opined that many Chinese manufacturers would first export to South East Asia where they had no strong dominate competitors; HG would instead focus on the difficult and larger markets of the U.S. and Europe (Id. at 11). If HG could succeed in these markets it would have raised its competitive edge and could easily thrive in emerging markets (Id.). This logic makes sense since, because if the HG brand was widely accepted in the U.S. and Europe, it would become widely accepted as a high quality product in emerging markets.
With the support and encouragement of the Chinese government, HG sought the benefits of being an early-mover and manufactured niche products in developed markets neglected by large manufacturers. HG focused on compact refrigerators for college students and offices and wine coolers (Id. at 11-12). When others began to imitate, HG was equipped to add new features, such as mini-fridges that doubled as a computer desk (Id. at 12). HG did not directly compete with the large manufactures in the U.S. and European markets because it had to “bridge the trust gap” and shed the low-quality reputation attached to Chinese manufactured goods. After establishing the quality of the niche products, HG was able to gain the attention of major retail chains and introduce standard products to the U.S.
HG learned from the mistakes made by MNCs in China and entered into new markets by hiring the right people with knowledge of local markets. HG developed JVs on five different continents, thus spreading the risk, and its strategy allowing HG to leverage knowledge from its local partners. It gained competitive advantage by product differentiation and response speed. HG’s large competitors were inflexible, slow moving and did not focus on the minor details of the customers’ needs. Customers felt as if HG’s products were local brands rather than imported Chinese brands.
Haier Group Faced Risks with Global Expansion
HG’s decision to globalize in developed markets faced risks if MNCs quickly learned from their mistakes in the Chinese market and started eating into HG’s domestic market share, depriving HG of the profits necessary to expand globally. If MNCs did not underestimate HG, they could have tracked movement and competed directly against the niches that HG sought to fulfill before introducing its standard products to major retailers. HG’s critical vulnerability was the Chinese reputation of manufacturing cheap quality goods, its harsh labor conditions and environmental practices. HG faced the risks that U.S. and European markets would reject out-of-hand the HG brand despite its innovation and high quality. China was fortunate to have HG lead the way in global expansion; another early-moving Chinese manufacturer with lower quality standards and poor market strategy could have resulted in failure and further setbacks for the Chinese government’s “going out” policy.
If HG chose to remain in its domestic market or sell its products under an OEM client brand, it may have never been afforded an opportunity to develop its own global brand. MNCs invested millions into factories and distribution in China in hopes to prevent HG from using its profits in the domestic market to support its advancement overseas (Id. at 15). HG’s market strategy capitalized on MNCs failures in China and its knowledge of western technology. It was too risky for HG not to make its move into the global community. HG exploited MNC’s slow response to customer needs, inattention to minor details and inflexibility to become a leading player in the global market. The risk of not expanding globally when faced with MNC competition in China outweighed the risks of being complacent with its domestic market share.