Haier: Taking a Chinese Company

Haier: Taking a Chinese Company Global Case Analysis

There are many factors that contributed to the resurgence of Haier, yet the most critical were those undertaken by founder and CEO Zhang Ruimin to make quality a core part of the company culture. This saved Haier in China by re-establishing its reputation while also underscoring the need for each employee to own their share of quality for the company. Diversification and global expansion, including the attainment of the Three One Thirds Program, were only possible after Haier chose to embrace quality over competing on price alone. In analyzing this case, concepts from our course including the Porter Value Chain and Five Forces Models and Hofstede Model of Cultural Dimensions are used.

Analysis of Haier

Total Quality Management (TQM), lean manufacturing, and supply chain management and optimization all contributed to Haier's resurgence first in China, setting the foundation for global diversification in the next phase of their development. Zhang Ruimin's reversal of the corporate culture to embrace quality led to the company attaining 17.5% market share in 2004, leading all other manufacturers in this category. While the case mentions quality, what is actually going on is far more complex than just implementing new standards; Haier is actually redefining its entire value chain. Evidence of this is seen throughout the case with the rapid market share growth in air conditioners, refrigerators, and washing machines.

The creation and continual fine-tuning of their value chain gives Haier greater flexibility and agility in their diversification strategies and global expansion. The examples of successful diversification strategies throughout Europe and the U.S. further underscore this point. With diversification transformed into a core strength, global expansion continues, with a share of air conditioner, refrigerator and washing machine sales gained in American and European channels that long-standing global competitors would have had. As a result, GE, Whirlpool and other global competitors invest heavily in the Chinese market with the intention of depleting Haier financial resources and constricting their ability to compete in the U.S. The following is a value chain analysis of Haier's competitors in China.

In choosing to use a deliberate logistics and supply chain-based approach to expanding their manufacturing operations, foreign competitors to Haier are successfully using location-based economics of scale coupled with effective localization strategies to gain greater market share. Foreign competitors Haier has competing in China also invest heavily in automated service and support programs to ensure very high levels of local responsiveness. Foreign competitors are more focused on leverage subsidiary skills and using these investments in localized manufacturing as learning outposts or sources of market research and market intelligence.

Another perspective can be seen from the Haier Group case study when Porter's Five Forces Model is applied to the case, which is shown below. Haier's global competitive position is defined by the bargaining power of suppliers, substitute products and services, bargaining power of buyers and potential new market entrants. The core competencies and profitable growth through value creation that Haier has been able to attain is more attributable to leveraging subsidiary skills to create localization strategies. What emerges from an analysis of the economies of scale attained by streamlining its own value chain is the fact that Haier has the ability to define localized strategies very effectively without losing global sales and value chain momentum in the process. Haier's decision to only concentrate on those most competitively-entrenched markets could have led to pressures for cost reductions and the continual pursue of low-cost pricing strategies that would have impacted profitability. Instead, Haier concentrates on location-based economies of scale, translating local market intelligence and attaining greater market insights while reducing costs through the experience effect.

One of the core competencies of Haier is their ability to quickly gain access to foreign markets significantly different than their own. The successful launch into the U.S., where the company was able to concentrate on local responsiveness through an innovative new product development and introduction (NPDI) process, illustrates this point. The cost and time pressures surrounding local responsiveness are significant for any organization, yet for manufacturers in white goods, they are particularly challenging due to cost pressures and the pressure to keep operations profitable. Quantifying these differences from a cultural standpoint is possible using the Hofstede Model of Cultural Dimensions comparing the U.S. And China shown to the right. The Power Distance Index (PDI), Individuality (IDV) and Long-Term Orientation (LTO) factors are the most significant in terms of differences across cultures and illustrate why leveraging subsidiary skills is so critical for growth into emerging markets. Haier is known for having this as a core competency. Capitalizing on these differences in cultural dimension over time assists Haier in value creation, profitable growth and enabling experience effects.