c a s e 24

C A S E 24The Haier GroupU.S. Expansion

By,

Osama Mosad

Antoine Andrawos

Shady Taymour

Youssef Ishak

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Strategic ManagementDr. Heba El Dahshan

The Haier Group

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Company Background

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Haier is the world’s 4th largest white goods manufacturer and one of China’s Top100 IT Companies. The Business Scope of Haier is technology research, product developmentand manufacturing, trade and financial services. The key products are refrigerators/freezers, commercial air-conditioners, microwave ovens, washing machines,dishwashers, televisions, mobile phones, and computers, etc. Haier has 240 subsidiarycompanies and 30 design centers, plants and trade companies and more than 50,000employees throughout the world. Haier specializes in technology research, manufacturingindustry, trading and financial services.

Company Background

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The main problem to be resolved for Haier was how to differentiate itself from General Electric, Wirlpool, Maytag, and Electrolux in white goods and from Sony, Panasonic, Philips, and LG in brown goods and thus achieve a winning competitive advantage in the U.S market

CURRENT SITUATION 1 - 6A. Current Performance• High and Growing Financials.

• Annual Growth Rate of 78%.

• In 2003 Global Sales reached $10 Billion.

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CURRENT SITUATION 2 - 6B. Strategic Posture 1 - 51. Vision

Become the third largest appliance maker in the world

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CURRENT SITUATION 3 - 6B. Strategic Posture 2 - 52. Mission• Highest quality products with minimum cost.

• Develop effective strategy to survive and prosper against

aggressive competition in the United States over the intermediate and long-term future.

• Continues growth is our long term target.

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CURRENT SITUATION 4 - 6B. Strategic Posture 3 - 53. Objective

• Main goal to continuously increase the volume of products sold in the United States and to modify the company’s products to meet American demand.

• To integrate itself with the locality and build brand recognition. • To achieve the cost control needed to maintain its price

advantage.• To continuously improve its services to build the trust of local

customers.• Expanded the amount of units in order to achieve the 10%

market share in U.S. refrigerator sales in 20058

CURRENT SITUATION 5 - 6B. Strategic Posture 4 - 54. Strategies• Brand name strategy, diversified development strategy,

multinational strategy • Differentiate Products to gain competitive advantage.• Global Growth through acquisition with strong brand name to

gain recognition using the strong financial position.• Captured some attention from the low end of the market• Saving the cost of transportation and consolidate its price

advantage by collaboration with COSCO • Aggressive advertising on internet and sponsorships for sports

teams to improve brand recognition 9

CURRENT SITUATION 6 - 6B. Strategic Posture 5 - 55. Actions• After sale service is very essential to gain customer trust ( A &

E Factory Service).• Cost reduction is essential to gain competitive advantage.• Manage the costs of manufacturing many different product

models by periodically changed the modules of components • Fast in developing new products

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STRATEGIC MANAGERSA. Top Management

• Zhang Ruimin, the Haier Group ‘s CEO , and his colleagues had turned Haier from a collectively run workshop into an international enterprise.

• Combined chinese traditional culture and western by establishing the OEC(overall every control and clear ) market chain system

• Clear identity problems, causes, and find solutions one by one • Realize a zero distance contact with customers • Stimulate employee enthusiasm and competitiveness and

each employee act as a manager 11

EXTERNAL ENVIROMENT 1 - 7

Key External Factors Weight Rating Weighted Score

OpportunitiesGrowing Economy in US 0.18 3 0.54Technological innovation in digital technology

0.20 4 0.80

Lower-income young people and college student are attracted by low prices. 0.02 1 0.02

Middle-aged and older people having high brand loyalty but high price sensitive 0.06 1 0.06

Power of other stakeholders 0.09 1 0.09Bargaining Power of buyers 0.09 2 0.18Threats of new entrants 0.12 2 0.24

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EFAS Table 1 - 2



ThreatsThreat of substitutes 0.09 2 0.18

Rivalry Among Existing Firms 0.11 4 0.44

Bargaining Power of supplying distributors’ Power

0.04 2 0.08

TOTAL 1.00 2.63 13

EFAS Table 2 - 2


A. Societal Environment 1- Economic

• Growing Economy, U.S. consumer disposable income increased ,and relatively low mortgage rates maintained a fairly high demand for new homes, These positive factors simulated people’s consumption of durable goods including home appliances and consumer electronics. (O)

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EXTERNAL ENVIROMENT 4 -7

A. Societal Environment2. Technological

The demand for consumer electronics was driven by technological innovation especially in digital technology. (O)

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A. Societal Environment3. Sociocultural

• For Home appliances, the company targeted Lower-income young people and college students by offering relatively low prices on its compact appliance.(O)

• Middle-aged and other people preferred well known brands and they cared about the warranty and services of the products but were somewhat price sensitive, they might try new brands especially brand loyalty now is only 35% (O)

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B. Task Environment 1 - 2

1. Power of other stakeholders: Medium, Quality, Safety & Environmental regulation increasing (O)

2. Bargaining Power of buyers: Low, Technology and material can be sourced from China (O)

3. Threats of new entrants: Low, due to very high changing technology especially in digital electronics. (O)

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B. Task Environment 2 - 2

4. Threat of substitutes: High, In home appliances, the threat of substitute products came largely from incremental improvements(such as energy-efficient washers and dryers or timed coffee makers) rather than from wholly new products that made previous products obsolete (such as the invention of the electric refrigerator, which replaced the icebox). (T)

5. Rivalry Among Existing Firms: High, Whirlpool, GE, Maytag, Electrolux, LG, Bosh-Siemens, Sub-Zero, Viking, ….etc. (T)

6. Bargaining Power of supplying distributors’ Power: High, Super retailers more important; mom and pop dealers less. (T)

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INTERNAL ENVIRONMENT 1 - 8

Key Internal Factors Weight Rating Weighted ScoreStrength Strong motivated technician team 0.08 1 0.08Focus on organizational restructuring & management decentralizing

0.06 2 0.12

Successful management system 0.04 2 0.08Unique design with relatively low prices 0.11 4 0.44Supply & Distribution functions to determine the respond to emergency market needs

0.09 2 0.18

Product distribution in US was nationwide 0.04 2 0.08An average growth rate of 78% 0.06 3 0.18Annual sales grew 1.7 times from year 2001 to year 2004

0.04 2 0.08

In Home appliance offer high quality with relatively lower prices.

0.06 3 0.18

Haier America imported its product from china where labor costs were much lower.

0.09 3 0.27

In Haier’s America, land is available for expansion 0.10 4 0.40

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IFAS Table 1 - 2


Key Internal Factors Weight Rating Weighted Score

Weaknesses

Consumer electronics has no competitive advantage.

0.09 2 0.18

Weak Brand recognition in US 0.10 4 0.40

Haier have an outdated website design 0.04 2 0.08

TOTAL 1.00 2.75

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IFAS Table 2 - 2


A . Corporate Structure

1. Zhang Ruimin’s management system had been widely acknowledged as a superior by domestic and overseas management professionals. (S)

2. Haier focused on organizational restructuring and management decentralizing with application of advanced information and network systems in order to fulfillment, market chain performance, logistics, capital operation, after-sales service, product inventory and operational cost reduction. (S)

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B. Corporate Culture• Haier had a strongly motivated technician team, which was

able to increase the company’s product competitiveness by applying more features and style designs on its existing products. (S)

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C. Corporate Resources 1 - 4

1. Marketing

a. Haier’s strengths were its relatively low prices and the unique designs and appearance of its electronics products. (S)

b. The supply and distribution functions were extremely important to Haier’s business development because they would determine how fast the company could respond to emerging market needs and how well the company could control its logistics costs. (S)

c. Haier did have an outdated Web site design, however , putting it behind Whirlpool, GW, Sony, and Panasonic. (W)

d. Haier’s product distribution in the US was nationwide, and its products could be found in most major chain retailers. (S)

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C. Corporate Resources 2 - 42. Finance

a. During the 17-year period from 1984 to 2001, the Haier Group had experienced a rapid growth , with an average annual growth rate of 78 %. (S)

b. In Year 2003, Haier Group’s Global sales reached $10 Billion. (S)

c. From year 2001 to 2004, Haier Group’s annual sales grew 1.7 times and its ales doubled in US market and its total exports more than tripled. (S)

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C. Corporate Resources 3 - 43. R & D• Compared with most of the major brands, Haier’s consumer

electronics products has no competitive advantages either in technology advances or in product quality, except for their relatively lower prices. (W)

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C. Corporate Resources 4 - 44. Operations

a. Haier had grown in the major home appliance market by offering higher quality and a wider range of appliances with relatively low prices. (S)

b. Haier America imported its products from china or the other subsidiaries of the Haier Group, where labor costs were much lower than in America. (S)

c. Although Haier had only one manufacturing base in America, the land available was large enough for continuous expansion. (S) 26

ANALYSIS OF STRATEGIC FACTORS 1 - 2A. Situational Analysis

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Opportunities Growing Economy in US 0.18 3 0.54Technological innovation in digital technology

0.20 4 0.80

Threats

Threat of substitutes 0.10 2 0.20Rivalry Among Existing Firms 0.11 4 0.44

Strength Unique design with relatively low prices

0.11 4 0.44

In Haier’s America, land is available for expansion

0.10 4 0.40

Weaknesses

Consumer electronics has no competitive advantage.

0.10 2 0.20

Weak Brand recognition in US 0.10 4 0.40TOTAL 1.00 3.42

SFAS Table

ANALYSIS OF STRATEGIC FACTORS 2 - 2

B. Review of Current Mission and Objectives

Current Mission appears appropriate

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STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY 1 - 6

A. Strategic Alternatives 1- Integration Strategy:- moving in production path a. Backward integration: having control on supplier b. Forward integration: having control on distributor

c. Forward Horizontal Integration: gaining control over competitors

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A. Strategic Alternatives

2- Intensive Strategy:- based on existing products a. Market Penetration: to increase market share of my existing products in existing market. b. Market Development: introduce existing products in new markets due to excess production. c. Product Development: introduce existing products but with adding new features to introduce finally a new one. 30



3- Diversification Strategy: a. Concentric Diversification: introducing new related products or services to new customers. b. Horizontal Diversification: introducing new unrelated products to existing customers. c. Conglomerate Diversification: introducing new unrelated products to new customers. 31



4- Differentiation Strategy:

a. Cost Leadership: introduce product or service with lowest possible price compared to rivals to a broad range of customers who are price sensitive.

b. Differentiation: introduce product or service with a unique features to a broad range of customers who are price sensitive.

c. Cost Focus: introduce product or service with lowest possible price compared to rivals to a narrow range of customers who are price sensitive.

d. Differentiation Focus: introduce product or service with unique features to a narrow range of customers who are price sensitive.

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STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY 5 - 6B. Recommended Strategy 1 - 21- Forward Horizontal Integration: gaining control over competitors where the company is having a very strong financial position.

2- Product Development: introduce existing products but with adding new features to introduce finally a new one where Haier’s strengths were its relatively low prices and the unique designs and appearance of its electronics products.

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B. Recommended Strategy 2 - 2

3- Concentric Diversification: introducing new related products or services to new customers where in Haier’s America, land is available for expansion.

4- Differentiation: introduce product or service with a unique features to a broad range of customers who are price sensitive where this may be appropriate for Middle-aged and other old people who preferred well known brands and they cared about the warranty and services of the products but were somewhat price sensitive, they might try new brands especially brand loyalty now is only 35%

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IMPLEMENTATIONA. Success in US is done by gaining more brand recognition. B. R&D need to be improved as does increase distributions centers to more efficiently supply chain and individual retailers.

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EVALUATION AND CONTROLUsing the good Financial Position for Acquisition on strong brand name is needed but with a careful and full study on the acquiring company to enhance Hair’s company in the US market achieving highest profits.

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THANK YOU

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