AS 01- Haier Group (A K Virangi Jayawardena) Final V1 PDF

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Haier Group...

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Faculty of Business & Law

STRM043

Subject

: Competitive Stratagy and Innovation

Assignment

: HAIER GROUP - Internationalisation Strategy

Lecturer Name

: Dr Hasintha Premarathne

Student Name

: A K Virangi Jayawardena

Student ID

: 20422488

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Table of Contents 1.

Executive Summary..................................................................................................................... 3

2.

Introduction - Haier Group Corporation...................................................................................... 3

3.

Phases of Haier’s internationalization ......................................................................................... 3

4.

The Core Elements of Haier's internationalization Initiative ...................................................... 5

5.

Haier’s success in the international arena.................................................................................... 6

6.

Key features of Haier's Management System & its specifics .................................................... 10

7.

Conclusion ................................................................................................................................. 11

8.

References ................................................................................................................................. 12

Table of Figures Figure 1. Figure 2. Figure 3. Figure 4. Figure 5. Figure 6.

Renowned Sledgehammer of Haier in 1985 Source: (Haier Corp, 2021) ............................. 9 Haier's technology alliances (Source: (Zeng & Zhong, 2003) .............................................. 4 Foreign Direct Investment by Haier Group (Source: (Duysters, et al., 2008) ...................... 8 Haier’s Diversification (Source: (Kayani & Janjua, 2013).................................................... 5 Haier’s patent applications in China: 1992-2007 (Source: (Duysters, et al., 2008) ............ 5 Source: Euromonitor International 2017 .............................................................................. 8

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1. Executive Summary In 1984, the People’s Bank of China - Qingdao Branch approved an offering made by a state-owned refrigerator from a company name ‘Qingdao Refrigerator Co., Ltd’ after 20 years of its life span became the powerful household appliance name across the Globe until to-date. The pathway for the success was not in favour of the company in the initial years as it was on the brink of bankruptcy. The turnaround of ‘Qingdao Refrigerator Co., Ltd’ into Haier Group is one of the epic tales in the business world (Haier Corp, 2021). Haier's internationalization policy and management practices have received widespread acclaim and admired due to its contribution towards the Company’s growth.

2. Introduction - Haier Group Corporation The Haier Group Corporation is a leading manufacturer of white goods and many other household appliances to the world market. It began producing refrigerators using German manufacturing technology. The company has grown significantly over the last 26 years, pursuing technological research, product line growth, trading, and international expansion. Haier now has a global presence in a variety of sectors. Haier claims to be the market leader in several segments around the world, including compact refrigerators in the United States, washing machines in Iran, and air conditioners in Cyprus. At current, Haier Group Corporation is the world's largest refrigerator manufacturer, with a market share of 17.3 per cent, as per the Euromonitor International, a global authority-2017’ global refrigerator ranking list. Haier ushers the "Chinese era" into the global refrigerator industry (Kwok, 2016).

3. Phases of Haier’s internationalization Modernisation allows businesses to grow outside their domestic markets. An internationalisation strategy is essentially a company's plan for selling its goods in foreign markets. When stepping into the international arena as a stepping stone most of the companies would obtain licensing, franchising, collaborating or strategic alliances, M&A, establish a new, wholly-owned subsidiary, or may enter into a JV (Zeqiri & Angelova, 2011). Prior to going beyond the national territories, Haier Group initiate some amendments to their processes as below, 3.1. Phase I - The pursuit of Quality In the late 1980s’, Haier commenced its journey towards building the brand, where the growing interdependence of the global economy marked a turning point in the company’s history. The company never wants to be a “shooting star enterprise” without quality assurance. Haier envisaged a strategic change of direction away from the Chinese market and toward international markets. Haier's top management eventually discovered that, under the new rules of the system, the business could no longer compete exclusively on price, and that it needed to compete on quality, which had previously been

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overlooked by companies in the secured Chinese market. With the appointment of the current CEO of Haier, Zhang Ruimin, as the plant director, whome changed the company’s way of thinking, “Quality over Quantity”, he led the way by destroying 76 no’s of unqualified refrigerators by the hands of their makers personally, which set a strong perception in the consumers' minds pertaining the quality of the product & in the workers' mind on the substantial change that is about to come (Liu & Li, 2002).

Figure 1. Renowned Sledgehammer of Haier in 1985 Source: (Haier Corp, 2021)

3.2. Phase II -Diversification through Horizontal Integration Haier operates on a vertically integrated business model. Designing, production, distribution, marketing, and customer care, after-sales are all in-house. Thus, Haier was able to maintain control over the quality of its goods and services, with the vertical integration Haier has established a strong presence in domestic markets. In this stage, the company started manufacturing refrigerators, washing machines, air-cons and shifted towards other black and beige appliances as well. To manage international relationships effectively, horizontal integration was needed, hence strategies were developed, e.g. to reduce suppliers' negotiating power, gain the trust of the locals and the company ended up with several JVs and M&As. Between 1991 and 1998, Haier completed 18 leveraged buyouts throughout the United States. E.g. Buying GE appliances provided Haier with the brand name they wanted to win over the Americans (NGAI, et al., 2004). E.g. In 1995, the group acquired ‘Red Star Electric Appliance’ which is a washing machine manufacturer & Wuhan Elec-appliance Co., which make freezers and air conditioners. With the “Shock fish to eat” strategy, Haier able to add “rapid response” to their value-chain which enables them to outbid the competitive edge of other brands (Kayani & Janjua, 2013).

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3.3. Phase III –Internalization Haier expanded into similar cultures e.g. Indonesia and JV in the Philippines & Malaysia as their first global expansion. The company's expansion to the United States was carefully integrated after attaining sufficient knowledge and experience. The company expanded byways of JVs, M&As to develop a brand reputation globally.

Figure 2.Haier's technology alliances (Source: (Zeng & Zhong, 2003)

Figure 3 Foreign Direct Investment by Haier Group (Source: (Duysters, et al., 2008)

3.4. Phase IV –Globalization The company registered “Haier" as a trademark in 102 countries as a resemblance of a steady enterprise. In this stage, the company refers not only to the native resources but also the international resources as well. 3.5. Phase V – Platforms HOPE (Haier-Open-Partnership-Ecosystem) online portal was initiated for innovative technology exchange.

4. The Core Elements of Haier's internationalization Initiative Haier was shielded with political assistance from the highest Chinese ranks as a part of their international policy. Another aspect to consider is Haier's administrative structure, which is headed by Zhang Ruimin from the leadership of Qingdao municipality to its current leadership. His nature of the leadership of task-oriented and authoritative was the key tactic in achieving its main objectives of globalization. During this pioneering period, his authority has enabled the group to achieve remarkable development (Harward Business Review, 2017). The lead-time management was also a critical success factor, which gave ample time for the brand to settle within the local mindset. The first-movers attempt was a success due to their relationship with the

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local officials. The micro-enterprises were components of Haier's global organizations that share R&D, manufacturing, and distribution functions, which act as a link to the local market. 4.1. Features

that differentiate Haier from the Western firms

At the very outset, Haier breaks the stigma of low quality with Chinese brands. They position their brand with quality rather than merely selling the product at the lowest possible price. The company always identifies the niche markets and caters by understanding the local specifications. E.g. In Indonesia due to the nation's energy limitations and voltage fluctuations, Haier introduced energysaving adaptable-voltage apparatuses. Likewise in the US, a refrigerator with a fold-out table was introduced to appeal to students living in dorms. Haier never enters a foreign territory without reputed strategic alliances, as it was their localization policy and continuous innovation was embedded in every aspect. Furthermore, the company never hesitates to work with a competitor to enter into a market. E.g. Haier supplied compact coolers to Welbilt appliances ltd at its early stages and later on replaced it with its own.

5. Haier’s success in the international arena Haier Group’s success in the international arena was not built in a fortnight, it was carefully drafted and executed since they understood that there is more to a lucrative story. 5.1. Strategic Perseverance Unlike the other Chinese establishments that want to be in the world’s top 500, Haier has strategic goals and objectives from the beginning. When others are fully engrossed in the extensive business model and are only interested in achieving volume, Haier leads with a strategic perspective. Haier is positively open to employee feedback, where encouraging innovative thinking for the betterment (Ben Jacob, 2016). 5.2. OEC Haier embarked on a mission to improve not only quality but also operation, architecture, and technical capabilities. The famous OEC (Overall every control and clear) model, which was originally inspired by Japanese TQC management, was the signature of Haier’s quality. For several years, Japanese appliances were regarded as among the world's highest quality items. Haier, on the other hand, chose to set the bar even higher than Japanese Industrial Standards (JIS) which is the country's quality

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standards in Japan, which requires repair ratios to be at 0.6%, whereas Haier sets it at 0.4%, with average life of a refrigerator is at 15 years (Duysters, et al., 2008). 5.3. MiNi MiNi concept By practising RenDanHeYi model the company enables employees to be the CEO of their output (Boyd, 2019). This came as a cultural shock to Haier since in Chinese work ethics team spirit success is exalted more than individual triumph. Employees were on borrowed time and salary for 06 months, if they unfit, they are to leave the corporation, if they showed exceptional performance, exceptional rewards will follow. The limitless resources of society as a whole are accessible on the open platform or ecosystem initiated and organized by Haier, according to the Rendanheyi concept (Zhou, 2017). 5.4. Digital revolution The CEO of Haier always believed that success is achievable if it adapts to the pace of time, thus the company was one of the few companies that responded to the business climate change in white-good appliances. Their innovations in collaboration with Apple inc. are to be one of the greatest of the 21 st century. HOPE (Haier Open Partnership Ecosystem) online portal opens 3 rd parties to where the company benefits from solutions for bottlenecks in their processes from a fresh set of eyes. 5.5. Keen on customer focus Keen customer-focused innovation was built to seize market opportunities. E.g. inventing washing machines with large draining outlets which could be used for clean cloths as well as vegetables, and gourds proved to be successful (Johnson, 2017). 5.6. Glocalization One-third of Haier’s products are handled and sold in the home country, one-third of the items are handled in the home country but sold abroad, and the remaining items are handled and sold both in the home country and abroad. The transnational strategy is a well-coordinated solution to integration where the company aims to combine the benefits of global level efficiency improvements with the advantages of local responsiveness. As a result, Haier aims to establish a presence in international markets by understanding and meeting local needs. In the US, Company introduced Wine coolers compact refrigerators and they even customer-made the washing machines to be detergent-less cleaning (Duysters, et al., 2008). Localization of the Human resource was one of the significant moves of the company. E.g. In US, most of the employees were Americans, which was an access point to the American mind. However, managers from both the Chinese and American sides of Haier USA identified some communication

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difficulties. Nevertheless, staff’s salary is over-rated plus with performance-related bonus. Haier recognized the importance of integrating its corporate culture with local traditions and developing a workplace that is fully suitable for local staff and clients. Haier's unique strategy helped Haier to list

the USA on the New York Stock Exchange within three years.

5.7. Innovation Haier foresaw the new revolutionary era of IoT and made amendments to their processes and productions. Haier entered into joint research programs with leading international firms, leveraging its technical base and product selection. E.g. Haier teamed up with Apple Inc. and introduced a smarthome app (HomeKit) with smart appliances, lights, and locks (Fang, 2014). Furthermore, collaborating with these world-class innovative companies provides Haier with a radar function, allowing it to search and test new and emerging technologies all over the world (Duysters, et al., 2008).

Figure 5: Haier’s patent applications in China: 1992-2007 (Source: (Duysters, et al., 2008)

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The Group handpicked to the WTO (World Trade Organisation) membership which opened the pathway for the Group to work with other countries. Haier has been named China's most admired business by the Far Eastern Economic Review and the Financial Time (The Economist, 2004). It exhibits that, in paroral with the advent of globalization, Haier has ambitious internationalization policies. As per the CEO, Haier's growth in the global market is largely dependent on innovation (Haier Electronics Group Co., Ltd., 2019). Haier is dedicated to technical and management advancement, as well as a thorough understanding of customer demand, resulting in a world-class brand. The Group occupies 30 overseas plants and nearly 58,800 contract executors around the world. Haier was the first in the European Union to join the German market, which is known for being a difficult market to break into. The production and creative developments of every immovable, scrutinized system play a crucial role. In this regard, Haier has collaborated with well-known foreign companies to develop accommodating inspection systems. Haier receives trained knowledge about global giants in innovation improvement such as Toshiba, Mitsubishi, ESS, Philips, Metz, and Lucent are among Haier's helpful associates (Johanson & Vahlne, 2001). With a total investment of $30 million, it built a design center in Boston, a marketing Center in New York, and a manufacturing center in South Carolina, possibly the largest FDI from China in the United States.

Figure 6: Haier’s Performance (Source: Euromonitor International 2017)

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6. Key features of Haier's Management System & its specifics In the VUCA world, where companies are faced with difficult and unpredictable market conditions. If an entity is operating on unfamiliar grounds it implies some ambiguity in the environment. Thus, a master in home-grown management is crucial. Haier adopts relationship-based management and challenges the context and innovates a management theory of success in a challenging environment. The CEO of Haier changed the management style itself by breaking 76 no’s of defaults, which cost three times of avg. salary of the same worker who produced the item. Thereby changing the mindset from teamwork to individuality by introducing a new concept. “Rendanheyi” under which people and goals were integrated to create zero distance for the users while empowering entrepreneurial flexibility within the company. By adhering to Rendanheyi, Haier evolved from a traditional hierarchy to a flat structure where it is more responsive than ever before. “Independent operating unit”( ZZJYT) was established with high autonomy and fully empowered to establish new performance-based measures. as the next level of Rendanheyi, the company empowered every individual to be CEO of his bubble, where the stakeholdership was extended for their budgeting, contracting, hiring & firing (Frynas, et al., 2018). As per Zhang Ruimin, the company follows an extremely flat organisational framework, where every employee becomes a ‘source of innovation’. Structural framework, governance, assets are inter-linked with the innovation management process. Corporate unit performance is evaluated with the baseline figures set up with user-defined KPIs. Remuneration is solely based on micro-enterprise performance (Frynas, et al., 2018). OEC (Overall: Everyone/Everything/ Everyday; Control/Clear) management control is another unique concept that imposes strict work protocols and self-discipline. OEC entails that every employee should complete the assigned task daily. The OEC monitoring system pursues overall control of employee completion of his or her job every day, with a 1% progress over the earlier day's work (Lin, 2005). Thereby customer satisfaction, reliable and productive procedures, motivated and qualified workers, stable turnover, and higher profits have resulted in the subsequent adoption of the OEC management control framework. With OEC in place, Haier was able to increase the customer value, perceived value, operational performance, creativity, and pace to market are prioritized. Incentive mechanism is another subsystem, where they depict incentive policies with transparency and fairness. Points systems were introduced with 3E cards, an employee with more than 3 points was eligible for a higher pay grade with a bonus. Quality check vouchers with rewards and penalty cards are used to provide additional incentive.

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6.1. Take-home message for Chinese companies and other enterprises of the western

world Many Eastern world companies have been internationalizing their industries in response to increased competition in their domestic markets as a result of lower trade and investment barriers. However, instead of exporting low-cost goods, these companies can produce high-end goods in their fields. Haier exemplifies the vibrancy of the Chinese industry in several respects. The company broke the stigma of Low-cost & Low Quality, which kept most of the Chinese companies away from internationalization. The se...