Haier: Taking a Chinese Company Global

In the paragraphs below I will highlight some of the key reasons that allowed Haier (a Chinese home appliances and electronics manufacturer) to go from a small, local Chinese enterprise to a leading global firm over the space of almost 30 years. The case highlights several reasons for this growth - the growing domestic (Chinese) market, pro-growth government policies, localization, product innovations, strong leadership and a unique global strategy amongst others. What’s especially fascinating is that at that time of the case being written, Haier was the largest appliance manufacturer in China while ranking number 28 in BusinessWeek’s list of most innovative firms and most intriguingly, Haier’s 75% increase in profit in 2010 was 8 times more than the 9% increase in its global revenues.

Reasons for Haier’s growth:

1. Government Policies & Growing Chinese Market: China’s GDP growth over a 30-year period from 1980 – 2010 eclipsed that of any other country in the world at ~10% p.a. The government’s focus to develop a strong domestic economy lead, coupled with China’s abundant natural resources, plentiful labor base and burgeoning middle class allowed the economy to grow on the base of an exponential increase in domestic demand and production.

This purchasing power of China’s middle class also increased and with that a demand for home appliances and electronics that at the time was being met by domestically produced goods – usually manufactured by small TVEs. The growth of TVEs (Town and Village enterprises) formed the backbone of this growth, backed by their municipal governments that allowed them access to bank credit, machinery, licenses and other operating inputs. Government backing and availability of financing was especially crucial for Haier during it’s early growth as the company was initially able to receive a loan and land allocation to build its an industrial park (though due to government policies it later decided to tap the growing Chinese IPO market to raise funds).

Haier held a strong position in the Chinese market due to its high quality goods, diverse product portfolios and consumer need focused products (these will be touched on in more detail in the following points). It understood the needs of China’s diverse and wide spread demographic population and constantly looked to improve its offerings with changing consumer preferences. A strong focus on ensuring a strong after sales service network and building strong domestic channel and retail relationships helped it sure up its domestic base and ward of competitors in the Chinese market. It was also one of the first Chinese firms to adapt to global best practices such as a just-in-time supplier network and a hybrid product distribution network.

1. Haier’s Global Strategy: Instead of just mass exporting lower cost goods from China, Haier looked to create a strong brand reputation through selling high quality products.

The firm adapted to each market that it operated in, identifying niches, innovating not only in terms of the products but also in how it organized its sales, marketing, distribution and after sales support services. They looked to hit the harder markets first, proving that their goods met high standards of developed countries, then gauging a market’s willingness to pay, took their product to the so called easier emerging markets where they would take a strong position with their quality products.  

Using these levers, it looked to establish a strong brand reputation through its quality products.  In the US Haier built a strong position in the compact refrigerator category selling mainly to offices and students, then looked to enter other product lines. They also followed a strategy of strong localization in each of their markets, giving them the ability to adapt to a particular market’s unique requirements.

Unlike other east Asian consumer and electronic goods giants that tend to have a bias towards management from their home country at certain levels of management, Haier looked to recruit experienced employees and managers from the market who understood what it took to succeed in those countries.

Haier also had a horizontal organizational structure that across the globe and set up several self-managed teams globally who’s focus was to identify and look to solve unmet consumer demands of not only its customers but also those in the market. This fed into the company’s ethos of being consumer focused, innovative and allowed them to gain a deep knowledge of the market they operating in. This also lead to them being highly flexible and (as explained in the following points below) allowed them to localize their product offerings. This groups were largely autonomous, financially independent (in that they were judged on their individual performances) and gave the company an almost entrepreneurial (this also helped it retain talented employees).