Haier’s Strategy for Global Success Essay.
In 1920s China, a small factory opened in Qingdao, Shandong province, to manufacture refrigerators. Though the Qingdao factory survived for more than sixty years, by the early 1980s, poor management and heavy debt nearly forced it to declare bankruptcy. At the same time, the opening of the Chinese economy to the international market saw an influx of foreign companies seeking investment opportunities. One such company was Liebherr Haushaltergäte (Liebherr), a leading German appliance maker. Liebherr saw a burgeoning market for appliances, and proposed a partnership with the Qingdao factory, in which Liebherr’s technology and manufacturing know-how would be sold to the factory.
In 1984, Qingdao Refrigerator Co. Ltd. was born out of this partnership. However, technology alone was not enough to rescue the company.
That same year, CEO Zhang Ruimin, then the assistant manager of Qingdao city’s household appliance division, arrived, bringing with him management techniques adopted from Japan and the West, with a focus on building a strong brand name founded on quality products.
Mr. Ruimin’s techniques were successful, and by 1991 the company had turned a considerable profit and diversified into other household appliances such as freezers, microwaves and air conditioners. Recognizing that the company’s name was no longer synonymous with its products and had a poor reputation from its prior history, Mr. Ruimin decided to take a new name.
The company adopted an abbreviation of the phonetic spelling of Liebherr – written as Lieberhaier – to become the Haier Group Corporation (Haier). This name change marked the birth of a new brand name and the revitalization of the company’s image. Capitalizing on its new management and brand, Haier transformed itself into the second largest home appliance company in the world, and the number one such company in China. By 2010, Haier designed, manufactured and marketed over 15,000 products in 96 categories sold in over 100 countries throughout the world.
The beginning of Haier’s brand strategy is the stuff of corporate legend. In 1985, one of the company’s customers brought back a refrigerator (still a rare luxury item in China at the time) because it did not work. Mr. Ruimin and the customer went through all the company’s available stock of refrigerators until they finally found a working model. Of the 400 or so finished refrigerators in the factory at the time, 76 were found to not be in working order. In response, he called his employees together and ordered that all of the dud refrigerators be lined up on the factory floor. He then gave sledgehammers to the workers and ordered them to smash the refrigerators. Mr. Ruimin is reported to have told the workers: ‘Destroy them! If we pass these 76 refrigerators for sale, we will be continuing a mistake that has all but bankrupted our company.”
This event brought the importance of quality products to everyone in the company, and Mr. Ruimin stressed to them that quality products linked to a strong brand name were essential to the company’s survival. With this new commitment to quality, the installation of new equipment and the transfer of manufacturing know-how from Liebherr, sales rose 83% in two years. With the company’s reputation increasing, the name change to Haier created a new brand synonymous with quality cutting-edge technology that would inspire customer confidence and do away with any negative sentiments associated with the company’s former name. Developing new products backed by intellectual property rights (IPRs) such as patents ensured that the brand’s success would continue and it would maintain a competitive edge.
The company and its customers also took pride in the ability of the Haier brand to successfully compete with more established international competitors. Haier knew that its brand was its most valuable resource, with brand image at the core of its business identity and strategy, therefore its early branding strategy was to build a strong, leading national brand name. Throughout the 1990s, the company realized its vision, and made multiple acquisitions to diversify its product portfolio and the company brand quickly become ubiquitous throughout China. With its position in China profitable and secure, Haier embarked on a global branding strategy.
This strategy aims to position the company as a local brand in different world markets in conjunction with enhanced product competitiveness and strong corporate operations. The company focuses on localizing the design, manufacturing and sales processes, so it can truly become a “local” brand. The company is close to achieving its goal in important markets such as the United States and Europe, in which it has local production facilities. Its products are available in twelve of the top fifteen chain stores in Europe and in ten of the leading chain stores in the United States.
Research and Development
Since the company’s restructuring in the early 1980s, innovating new quality products has been of central importance to its goal of building a globally recognized brand name. Haier and its subsidiary companies constantly focus on innovating new products through research and development (R&D). One such technology the company’s R&D efforts developed is its “Safe Care” technology, which it applies to appliances such as water heaters. Safe Care monitors wiring and electrical components of the appliance and gives a warning should any electricity leakage pose a risk to the consumer.
This technology was introduced at the 66th International Electrotechnical Commission Conference in 2002, and products equipped with Safe Care went on sale in 2006. This is just one example of Haier’s innovative capabilities through its R&D efforts. The R&D department is also responsible for developing all of the computer software that runs its products such as Safe Care, and this is an essential part of the company’s R&D strategy.
Patents, Copyrights and Trademarks
Haier’s innovation and expansion has led it to be the owner of over 6,000 patents and over 500 software copyrights worldwide. To maintain its competitive edge, the company ensures that it secures protection for all of its intellectual property (IP). Haier is an avid user of the Patent Cooperation Treaty (PCT) system, and has made over twenty PCT applications. Because the company endeavors to build a global brand, trademarks are also an essential aspect of its IP strategy. As such, Haier has registered a trademark for its company name under the international Madrid system. It has also made trademark registrations for its name in the United States with the United States Patent and Trademark Office (USPTO) and in Europe with the Trademark and Designs Registration Office of the European Union (OHIM).
Haier designs, produces and markets its products through its global network and business framework. As of 2010, Haier had fifteen industrial complexes, thirty overseas production factories and bases, eight design centers and over 58,000 sales agents worldwide. In the domestic market, Haier focuses on four leading product categories: refrigerators, refrigerating cabinets, air conditioners and washing machines. Haier also has a significant consumer electronics division. For international markets, Haier has adopted a unique strategy to penetrate difficult markets such as the United States and Europe. When it first entered the market in the United States, it identified two potentially lucrative yet underdeveloped niche markets – that of small sized refrigerators for dorm rooms, hotels, and the like; and electric wine cellars.
Haier’s imports of these appliances, coupled with a strong design and development team, helped the company rapidly develop its brand, and by 2000 it was a major player in both product markets. The success of Haier in such niche markets has allowed its brand name to become well known, which encouraged the company to target the higher-end full size refrigerator market in the United States. To do so, the company built its first manufacturing plant in the United States in Camden, South Carolina in 1999. In line with the company’s goal of making its brand name “local” in international markets, this initiative was a resounding success. Haier has since undertaken similar initiatives in other markets such as the European Union and the Middle East.
Haier’s focus on building a strong brand has brought it from the brink of bankruptcy to one of the most successful appliance companies in the world. By 2010 the company had over 50,000 worldwide employees. It enjoyed an annual growth rate of 68% between 1984 and 2005, with revenue in 2005 totaling 103.4 billion Chinese Renminbi (RMB). The company enjoys a 40% market share for household appliances in China and has successfully entered difficult markets such as the United States, and it is now the world’s number two refrigerator manufacturer, only second to Whirlpool.
Despite the economic slump in 2008, Haier profits increased nearly 20% that year and enjoyed net profits of RMB 768 million. In 2004, Haier acquired a controlling stake in Haier-CCT Holdings, a joint venture which was listed on the Hong Kong Stock Exchange that same year. Haier’s international success and well known brand name led to the company becoming an official sponsor for the 2008 Beijing Olympic Games.
Success Built on the Shoulders of Branding
Key to any company’s success is its brand, and strong brands allow a company to not only grow domestically but also internationally. Haier rode the wave of its strong domestic brand to enter new markets and expand into a fast growing multinational corporation. In March 2009, the Financial Times recognized Haier’s success when it ranked it among the Top 10 Chinese World-class Brands. Through protecting its IP and brand names with trademarks, Haier has built up a powerful asset that has transformed the company and brought global recognition for its brand and products.