Internationalization Strategy of Haier

Evolution of International BusinessGroup 3

Ilaria Calabresi, Cheng Jing, Davide Ciccolella, He Jihong, Zhang Lei, Alessio Rescigno Dec.10, 2008

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Outline

Part 1: Overview on Haier Company overview Why go global

Part 2: Strategy as stretch and leverage Strategy as stretch Why go global so rapidly

Part 3: Haier’s strategic and organizational innovations Innovations supporting rapid global

Part 4: Latecomer position and catch up process Resource leverage for catch up as a latecomer

Part 1: Overview on Haier

A global and innovative company

Reasons to go global

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Haier, at a glance

A global company As of 2007, the Haier Group has established a total of 64 trading companies

(19 located overseas), 29 manufacturing plants (24 overseas), 8 design centers (5 overseas) and 16 industrial parks (4 overseas).

Consistent with Haier's position as a global brand, the company employs over 50,000 people around the world and has created 10,000 jobs outside of the PRC.

Haier boasts a 58,800-strong sales network in over 160 countries which accounted for a global turnover of 118 billion RMB (16.2 billion USD) in 2007.

An innovative company As of June 2008, the company has been awarded 8333 patents, with 1996

for Haier design team inventions. In 2007 alone Haier obtained 875 patents; 502 were invention patents. Haier has participated in the institution and modification of 9 international

standards, as well as 152 national and 425 industry standards, with 3 international standards to be launched in the near future.

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Why did Haier go global?

Internal driving forces Aspiration to compete globally and become one of the Global 500. Export to earn foreign exchange, to make brand name famous

internationally. Set up plants overseas to avoid tariffs and reduce transportation costs, to

control services and marketing/ distribution, to develop design and R&D capabilities by utilizing high quality local human resources.

External driving forces The saturation of the Chinese home appliances market, with intensifying

competition, including that from international competitors. The potential for further development in the domestic market was limited

due to high current market share. Encourage and supported by the Chinese government due to Haier’s active

pursuit of internationalization and its dominant position in home appliance sectors.

Part 2: Strategy as stretch and leverage

The dominant managerial frame

A more balanced managerial frame

Reasons for which Haier expanded so rapidly

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The dominant managerial frame

The dominant managerial frame: an external perspective Fit the company with its competitive environment

Environment changes, so does the company’s strategy. Allocate resources

Focus on core business. Make decision with long-term perspective

Patient money.

Strategy as stretch and leverage Long-term competitiveness depends on managers’ willingness to

challenge continually their managerial frames.Competitiveness is born in the gap between a company’s resources and

its managers’ goals.Leadership cannot be planned for, but neither can it happen without a

grand and well-considered aspiration. By Gary Hamel and C.K. Prahalad, Harvard Business Review, March-April

1993.

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A more balanced managerial frame

A more balanced managerial frame: an internal perspective Stretch company’s strategy over its resources

Aspiration. Leverage resources: to generate greater resource productivity

Concentrate them more effectively on key strategic goals Be loyal to consistently pursue strategic goals, focus on building next competitive

advantages. Accumulate them more efficiently

Learn from doing, both from insiders and outsiders. Complement one kind of resource with another to create higher order value

Balance critical complementary resources and integrate different resources to build synergies and to create new valuable resources.

Conserve resources wherever possible Recycle resources to that the related capabilities can be imbedded inside the

company, enroll other companies in the pursuit of a common objective, attain goal through relatively low-cost, low-risk approaches.

Recover resources from the marketplace in the shortest possible time Accelerate revenue realization.

Implement strategy with consistency of effort and purpose Patient money with managed risk, strategy by design and by incrementalism

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Why did Haier expand so rapidly?

Managerial frames combined with internal and external perspectives Adapt to business dynamics and focus on building competitive

advantages

Market orientation and innovation More flexible, faster, closer to customers, and more focused

The capabilities of acquiring international experience Local operation, promotion, distribution, after sale service and

cultural management and adaptation

Part 3: Strategic and organizational innovations

International expansion

International objective

Export strategy

Foreign market entry strategy

Competing strategy

Resource leverage strategy

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International expansion and objective

Innovative sequence for international expansion Firstly focus on developing countries to build volume and acquire

international experience. Then move to US, from design to marketing to manufacturing, with the aim

to develop its technology in the US and also upgrade its reputation/image as a leading international brand.

Then move to European markets and other emerging markets with confidence and experience gained in the US.

Innovative international objective To produce and sell 1/3 of its total output in China To produce 1/3 of its total output in China but export to international markets To manufacture and sell 1/3 in foreign countries.

To keep marginal benefits in China. To develop design, manufacturing and marketing networks internationally to build

up Haier’s brand international reputation.

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Export and foreign market entry strategy

Innovative export strategy Enter and tack tough markets (the US and Germany) first before eas

y markets (developing countries).In developed counties, Haier uses local mature distributors and marketin

g channels that are familiar with local marketing practices and environment and have no barriers in language and cultural features, as to learn from them.

Start to explore markets in developing countries after having accumulated marketing experience and brand reputation in developed countries.

Innovative product-focused international market entry strategy Focus on the marketing of one product.

Once this product becomes successful, other products will follow benefiting from the established brand name and thus require little promotional effort.

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Competing and resource leverage strategy

Innovative competing strategy One step closer to international customers than competitors through

competition against time, using its design and manufacturing capabilities to meet special requirements within minimum waiting time.

Innovative resource leverage strategy Increase investment in R&D. Complete localization of design, manufacture, and marketing.

Set up marketing, research and development centers both domestically and internationally, using local human resources, strategically intended to help the local head office develop home appliances that meet local needs, and acquire and transfer the developed technology throughout the whole group.

Form international technological alliances with major multinationals.

Part 4: Latecomer position and catch-up process

“ Why a company from a developing country with limited resources and non-technological and cost advantage comes into the market and takes away established companies’ market share? ”

Latecomer position

Catch-up process for internationalization

Resource leverage

Conclusions and implications

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Latecomer position

Limited high quality human resources Skilled human resources for local operations, promotion, distribution, after

sale service and cultural management and adaptation are extremely scarce within China.

Limited R&D capabilities for core technology Remained highly dependant on foreign key components and technology,

including high-performance electro-motors, compressors, controllers, magnetrons and sensors.

Weak international brand awareness and image World’s perception of raw materials and low value-added products from

China.

A lack of experience in international business Without any prior international experience, it often has to make progress on

a trial and error basis, and has often paid expensive tuition fees.

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Catch-up process for internationalization

Managerial aspiration with a global vision Centralized organizational structure

Well disciplined, well-nurtured corporate culture of innovation and market orientation

Build strong foothold in Chinese home appliance market

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Build brand reputation through survival in tough markets like the USA and German

Localization of marketing, R&D centers and manufacturing to leverage local human resources, local market dynamics and international operation

experience, and to acquire and transfer skills and technologies

Develop strategic alliances with western MNEs for leveraging core technology

Internationalization

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Concentrating resources Convergence and focus

Under Zhang’s leadership, Haier focused its attention on one goal at a time.

At first the firm was focused on becoming successful in China, achieved this first goal it aimed to become a global firm and enter the Global 500.

And also Haier was focused on a well-nurtured corporate culture of innovation and market orientation, and a global vision.

Haier’s resource leverage (1)

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Accumulating Resources Extracting

Through design and offering specific products for specific demand, Haier built its capability of quickly meeting demands from small segments. For example, compact refrigerators for crowded living conditions, air conditioners combined strong heat-resistance with unique anti-erosion ability for desert conditions.

Through building R&D and design centres in forefront markets, Haier got access to the latest technologies.

Borrowing At the beginning, Haier introduced technology ,equipment and standards from

German company, and then sold products back to the German company as a way of entering the German market.

After had strong bargaining power, Haier formed international technological alliances with major multinationals.

Haier relied highly on the local distribution chanels when it entered into markets like Germany. By borrowing distribution channels from downstream, Haier saved resources to build new channels and was able to reach and get knowledge of local customers more effieciently.

Haier’s resource leverage (2)

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Complementing resources Balancing

Haier exploited its globally based locations to balance product development, production and distribution and marketing, to achieve high standards in all the three areas.

Product development is conducted in research centres strategically intended to develop, acquire and transfer technology.

For production it decided that the optimal strategic objective was the 3*(1/3).

For distribution, up to 2002, Haier established a total of 62 distributorships, covering over 40,000 sales network points with exports reaching 160 countries and regions. In developed countries, It used local distributors which were more efficient due to the familiarity with local marketing practices and environment.

Haier’s resource leverage (3)

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Conserving resources Recycling

Focus on brand building, and then leverage the successful brand.

By going to developed countries like US, the already built brand name has been successfully “recycled” to other developing countries, through spin-off of technology and reputation /image.

Its ‘focus on marketing one product’ new market entering strategy made its resources more efficient.

Co-optionHaier has managed to work together with other firms on common

objectives such as developing new technologies. Alliances and joint ventures have been formed with Mitsubishi, Lucent,

Philips, etc. Recovering resources

Haier accelerated the time for resources’ recovery, mostly with a faster product development.

For example, during a conference in 2001 a manager proposed the redesign of a freezer which had some problems, after only 17 hours, the prototype had already been prepared.

Haier’s resource leverage (4)

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Conclusions and implications

An aspiration to join Global 500 is very important for Haier to pursue its internationalization and globalization.

What’s more important is its continuous catching-up to bridge the gaps coming from being a latecomer. The deep culture of market orientation and innovation. The innovative resource leveraging methods. The excellent execution and good governance.

Unique and solid home market position is also very important for Haier to get government support and to gain bargaining power against western MNEs.

Thank you for your attention!

References

Gary Hamel and C.K. Prahalad, (1993) “Strategy as Stretch and Leverage”, Harvard Business Review, March-April.

Hong Liu, Kequan Li, (2002) “Strategic Implications of Emerging Chinese Multinationials: The Haier Case Study”, European Management Journal Vol. 20, No. 6, pp.699-706.

Mathews, J.A. (2007) “Latecomer strategies for catching-up: the cases of renewable energies and the LED programmed”, Int. J. Technological Learning, Innovation and Development, Vol. 1, No.1, pp.34-42.