Haier: Taking a Chinese Company Global

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- Strong Leadership: Zhang Ruimin is a unique Chinese business leader in that he had the vision to adapt his company’s strategies to each market it operated in while also focusing not only on cost but also on Brand Equity to differentiate himself from his Chinese competitors in the global market.

This is shown early in his career when his focus on quality allowed him differentiate himself from his other local Chinese rivals. His decision to take the road less travelled and enter developed economies (where he could receive higher margins) rather than entering developing markets was novel and using the strong backbone of low Chinese cost base was able to follow a “3 thirds” policy – that set out his desire to have a third of revenue come from the domestic Chinese market, a third from goods produced in China and sold overseas and a third from goods produced and sold overseas.

This flexibility and focus on creating a sustainable global production and sales base coupled with his focus on brand equity (along with quality and affordability) allowed him to scale up and find a niche in developed markets while taking advantage of the strong domestic growth. Haier is a firm that adapted to markets and developed strong positions in niches – for example the focus on the student and home office sectors in the US.

His appetite for risk also helped the company in the early days where due to a changing market scenario the firm had to tap a nascent Chinese IPO market, that many had deemed risky, to attain funds for them to setup their first large industrial complex setting the foundations for growth.

- Focus on Quality: As mentioned earlier, Zhang stood out from his peers due to his focus on quality and his vision to see the value in investing in his brand and his customer experience. The case mentions that in 1990 he setup a computerized customer service center in Qingdao, China that allowed him to keep a track of and provide after sales service to customers. This was unheard of at the time, instantly gave Haier a distinct advantage and made it stand out from its rivals and was a key reason for the firm gaining the market prevalence that it did especially in its early days in China.

- Product Innovation & diversification: Due to its strategy of consolidating in niches and expanding from there, Haier laid a strong focus and made significant investments in market research to develop a keen understanding before making bets (the higher of local talent also helps in this regard). Once an area (or product) and certain unmet consumer demands were identified, the company immediately began R&D to produce products that would gain traction when launched. The firm also invested and innovated with it’s supply chain in key countries to give it a leg up. For example, its strong position in the large chain retailers helped it gain a foothold in the American market.

Both domestically and internationally, as mentioned earlier, rather than expensive marketing blitzes, Haier built itself strong positions in niche markets and then looked to expand its product lineups in that market. It used its brand’s reputation and its growing product portfolio to rapidly expand into adjacent product categories. Its growth in Europe is testament to this where it was able to adapt to local tastes by country. Great examples of this are how in France they sold top loading washing machines, they developed desks with refrigerators in them for the US and developed appliances that matched kitchens cabinets in Europe.

- Foreign technology and ability to imitate: Zhang doesn’t hide from the fact that he didn’t reinvent the wheel but rather learnt best practices from products and brands that were successful, looked to ‘digest’ and understand how they were successful and once they had a solid platform looked to innovate. A technology licensing agreement with a German firm Liebherr, joint ventures with Sanyo, Mitsubishi, Derby and Merloni allowed Haier to develop a strong understanding of refrigerator and air conditioner technology before entering the market themselves. Their understanding of high quality manufacturing and workmanship allowed them to innovate and bring high quality design and manufacturing principles into lower cost goods.