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Business Management Analysis

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CHAPTER I
INTRODUCTION

Haier Group is the world’s 4th largest white goods manufacturer. It was founded in 1984 with the headquarter in Qingdao, Shandong Province, PRC. Under the leadership of Chairman and Chief Executive Officer (CEO) - Mr. Zhang Ruimin, Haier manufacturers home appliances in over 15100 varieties of different specifications under 96 categories. There have over 100 countries that selling Haier products around the globe. According to the Haier Group official website, Haier now has over 240 subsidiaries companies, over 110 design centers, plants and trading companies and over 50,000 employees throughout the world. Besides doing home appliances business, Haier’s also focused on technology research, manufacturing, trade and financial services. Eventually, the global revenue of Haier for 2005 was RMB 103.4 billion.

1.1 Ownership of The Company

According to Financial times, as far as transforming moments in a CEO’s Career, Mr. Zhang Ruimin is the chairman of the Board of Directors and CEO of Haier Group. Mr. Zhang’s current goal is to further enhance Haier’s leadership in Chinese and global markets and strengthen the reputation of Haier’s brand worldwide. In 1984, Zhang Ruimin was appointed as the director of the Qingdao Refrigerator Factory, a small, ailing collectively-owned factory in the Shandong province of China. Under his leadership and unique management philosophy, the company has since grown to become the Haier Group as now to be the China leading’s home appliance brand, and one of the world’s largest home appliances makers with the distribution presence over 100 countries. Mr. Zhang’s management philosophy is a blend of international management principles and Chinese wisdom with innovation and excellence as its cornerstones. It is the driving force behind the motivation and enthusiasm of Haier’s staff over 50,000 employees worldwide. He acts as a role model for modern Chinese entrepreneur. In fact, Haier is a government owned company. Although it is under public ownership, Haier still technically a “collective” company which is supposed owned by its employees. However, its actual ownership situation is opaque. The employees did not receive any dividends and their own in this company. Various levels of government often try to push their ailing accompanies upon successful ones. At once period, Haier was talked into acquiring a pharmaceutical company without experience or infrastructure in biotechnology.

Since Haier is a government entity, it was also officially barred from entering the stock exchange at the early stage. In later, the company needed funds for its expansion and therefore sought loopholes to access private equity. In 1993, Haier listed a subsidiary Qingdao Haier Refrigerator Co. on the Shanghai Stock Exchange through a “backdoor” listing” with the acquiring a controlling stake in a publicly listed joint venture Haier-CCT Holdings Ltd.

2. Subsidiaries and Business Activities

According to Haier official website, Haier has 12 industrials parks, 5 manufacturing bases and 42 trading companies in China which employing more than 40000 people. The company’s products include home appliances, communications, IT, home systems, finance, and real estate. Haier is the leader in China’s white goods market. Haier was the China’s largest home appliance manufacturer with 25% total share (Zhongyikang, 2007). The company also captured nearly 30% of the share in the high-end market.

Based on Haier’s website, the major general home appliances products which is produced by Haier is the refrigerator. Haier is one of the world’s largest and most advanced refrigerator manufacturers by producing over 12 million units of refrigerators and freezers annually at its 20 production facilities worldwide. Haier is the first company to make breakthroughs in integrating fluorine-free, energy-saving technologies with large freezing capacity, and solve technological problems related to sterilization. Besides, Haier also is the first company produced variable-frequency refrigerator, which is made of heat insulating material designed for aerospace.

In fact, Haier uses the world’s most advanced automatic flexible production lines to ensure the delivery of highly quantities of highly reliable air conditioners, which are exquisite in quality and free of defects under its eight large production bases in China. Besides, Haier also produces washing machine as one of the home appliances. Haier produces washing machines of 5000 different specifications under 18 categories, and is the only company in the world with capability of large scale production of top load washing machines in Asia, front load washing machines in Europe, agitator washing machine in America and dual-drive washing machines. In producing washing machines, Haier with a mission of “customer-oriented design”, pays great attention to safety, health, and the environmental concerns of consumers in designing its products. In addition, Haier has introduced a series of new hi-tech environmentally-friendly washing machines, staying ahead of the market trend and demonstrating the technological innovation capability of the company.

According to the information provided, Haier produces 1.8 million units of freezers every year. Haier is licensed to supply products for military provisions and is the only company to win the bid for three consecutive years. Freezers with Haier brand have received ISO9001 quality, ISO4001 environmental compliance, and ISO2001 metering and testing certification. Freezers under the Haier’s brand which is the first freezer maker to receive TUV International Safety Certification and was the first to receive a no-fluorine certificate from the United Nations Development Programme. Due to the Haier spirit of continuous innovation, Haier dust collectors consistently lead the trend in the dust collection market. Its dust bag series are designed to collect dust from all directions. The user-friendly design includes such features as a speed-adjustment button on handle, dust bag design, and lightweight aluminum alloy cord.

On the other hand, there are four types of home appliances for kitchen and bathroom which produced by Haier which are integrated kitchen, water heaters, kitchenware and microwave ovens. Firstly, Haier integrated kitchen products come with an advanced green safety system and are equipped with environmentally friendly material, dust-free digital technology, high quality sync installation and one-stop green service channel which can brought customers the ultimate green and safety experience. Haier Kitchen Company is the only one in its product segment to receive ISO9001 quality certification in China.

Besides, Haier manufacturers water heaters of 300 specifications under 12 categories that including electric water heaters, gas water heaters, solar energy heaters and gas boilers in the category of the mechanical, electric, and network-based with the capacity range of 5-litres to 500-litres. “Safety-based Products” is the philosophy that Haier used in manufacturing water heaters and leads the industry in safety technologies. Haier’s kitchen appliances can be categorized into 4 categories which are dishwashers, exhaust fans, gas cookers and sterilizing cupboards. These kinds of kitchen appliances are producing more than 300 specifications. Same as the products before, Haier always produce its products based on environmentally-friendly technology, same also in Haier Kitchenware, which is with zero leakage and low radiation. These products received environmentally friendly and green product certifications in both China and US.

Lastly, Haier offers microwave ovens in 50 varieties under 8 categories, which including mechanical, electronic and digital, and with the capacity range of 17-litres to 40-litres. Stainless steel and painted stoves are the special features for Haier’s microwave. Haier launched steam microwave oven, lead to the new technology which had received FCC and FDA certificates from the U.S Federation Drug Administration.

1.2.1 Foreign Operations and Their Performance

In 1984, Haier sounding names come from Lieberhaier, a technology transfer partner of its early year. Then, Haier opened and expanded it business to foreign markets. Those foreign markets are located in USA, Europe, South Asia, Asean, Middle East and Africa. The table 1.1 below shows the foreign operations of Haier in international abroad:

|USA |Europe |South Asia |ASEAN |Middle East |Africa |
| |Germany |India |Thailand |Jordan |Tunisia |
| |Italy |Pakistan |Indonesia | |Nigeria |
| |Holland |Bangladesh |Philippines | |Egypt |
| |Denmark |Sri Lanka |Malaysia | |Algeria |
| |Romania | | | |South Africa |
| |Ukraine | | | | |

Table 1: Foreign Operations of Haier

Firstly, Haier opened the American Haier Industrial Park in South Carolina on April 30, 1999, marking Haier’s entry into the US market. Besides, it has established the Haier Holding Company (US), Haier Real Estate Ltd., Haier America Trading Company based in New York., design, research and development center in Los Angeles, New York and South Carolina. Haier products are currently sold by Best Buy, Wal-Mart, and other top North American retailers. The main products sold in US market including refrigerators, freezers, the top-load washer, home air conditioners, commercial air conditioning systems, microwave ovens, dishwashers, televisions, and cell phones. In US market, Haier’s environmentally-friendly products are subsidized by government. US consumers have received rebates of $40 to $100 when they purchase Haier Double Drive washing machines.

Haier first entered Europe market through Germany. In fact, the first imported technology used by the company came from Germany. Haier exported 20000 refrigerators to that country marking Haier’s introduction into the European market. It also has research, design, and development centers in Italy, Holland, Germany, and Denmark, as well as manufacturing facilities in Italy and OEM Factories in Romania and Ukraine. Haier’s products are sold in KESA, Media Market, Carrefour, Expert, and other major European retailers. The main products sells in Europe are refrigerators, freezers, top-load washing machines, home air conditioners, water heaters, microwave ovens, dishwashers, television sets, computers and cell phones.

Haier entered South Asia market in February 2001 and established trading companies, manufacturing facilities, and R&D centers in India, Pakistan, and Bangladesh, and an OEM manufacture in Sri Lanka following the company’s “Three-In-One” localization strategy. In order to satisfy consumer demands in Pakistan, Haier design a “gown washing machine”. Besides, it also designed a “wide refrigerator” for local Pakistani consumers.

Haier entered the ASEAN market in October 1999. The company now has industrial parks, manufacturing facilities, and trading companies throughout the ASEAN region and Haier product are sold in Thailand, Indonesia, Singapore, and Vietnam. Its first subsidiary in Jakarta named PT. Haier Sapporo Indonesia Haier. In June 1997, the Philippine Haier-LKG Electrical Co. Ltd was found. Then, Malaysia Haier Industry (Asia) Co. Ltd was found later on. In April 2007, Haier purchased the Thailand Refrigerator Factory from Sanyo that making Haier became the second largest producer of refrigerators in Thailand.

Haier began selling refrigerators in the Middle East and African markets in 1993. Nowadays, Haier sells refrigerators, freezers, drum and top-load washing machines, air conditioners, microwave ovens, television sets, computers, mobile phones, integrated kitchen appliances, dish washers, water heaters, and other products in more than 30 countries in the Middle East, Africa, and West Asia that including Saudi Arabia, United Arab Emirates, Jordan, Oman, Yemen, Turkey, Qatar, Bahrain, Egypt, Algeria, Morocco, Kenya, Tanzania, Sudan, Cote d'Ivoire, Gabon, Tunis, Nigeria, South Africa, Mali, Benin, Ghana, Gambia, Mauritius, Mozambique, Angola, and the Congo.

In addition, Haier has established industrial parks, manufacturing facilities, and trading companies throughout the Middle East and Africa. Haier developed high-capacity washing machines and refrigerators; air conditioners designed to handle tropical conditions; and Arabic-enabled television to fulfilled the demand and special requirements of the Middle East consumers. Haier also set up a factory in Nigeria in May 2001 in order to introduce Haier’s technology. Haier has formed a joint venture in Tunis to produce refrigerators, air conditioner, washing machines and other white goods.

CHAPTER II
ANALYSIS OF HAIER’S FOREIGN OPERATIONS

2.1 SWOT Analysis

SWOT is the most common tool for a company-situation analysis. It is a strategic planning used to evaluate the Strengths, Weaknesses, Opportunities and Threats that involved in a project or in a business. It involves specifying the objectives of business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve the objectives. Strengths are the attributes of the person or company that is helpful to achieve the objective whereas weaknesses are the attributes of the person or company that is harmful to achieve the objective. On the other side, opportunities are the external conditions that are helpful to achieve the objective whereas threats are the external conditions which could damage the objective. In reality, identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from SWOTs. The table 2.1 below shows the SWOT analysis of the Haier’s foreign operations in different regions and will be explained further:
|SWOT |Strength |Weakness |Opportunities |Threat |
| | |Low quality perception |Government Subsidy |Largest and most competitive |
| |Localization strategy | | |market |
|USA | | | | |
| | | | | |
| | | | | |
| |High quality, unique |High cost of production, |Good and equal |Drastic competition |
| |design, efficient customer |low quality perception |environment, learned | |
|Europe |service, well collaboration| |advanced technologies, | |
| |with customers | |government subsidy | |
| |Localization strategy, |Little brand awareness |Increasing demand, |Bad economic situation, |
| |capturing the low-end of | |preferential policies, |drastic competition |
|South Asia |the customer durables | |tax breaks on imported | |
| |market, long standing | |equipment | |
| |commitment with consumers, | | | |
| |innovative products | | | |
| |Low cost of production |Excessive labor laws |Many companies pulled |Competition, high-level |
| | | |out investment during |business disputes with |
|ASEAN | | |financial crisis in 1998|government |
| |Diversified product lines, |Shortage of qualified |Increasing demand, |Fierce competition, political|
|Middle east |highly meet special |labor |preferential tariffs |instability |
| |requirements (tropical | | | |
| |condition) | | | |

Table 2.1: SWOT Analysis of Haier’s Foreign Operations in Different Regions

2.1.1 USA

Haier’s first international expansion took place in developed markets such as USA which allowed its products to meet higher safety and consumer standards. Many analysts believed that Haier would be able to shake up the US consumer appliances market due to the mission US with Wal-Mart agreeing to stock Haier products. Besides, Haier’s environmentally-friendly products are subsidized by the US government. The US consumers have received rebates of $40 to $100 when they purchase Haier Double Drive washing machines. Within the opportunity, Haier’s Competitors in the US market was the world’s largest and most competitive market for consumer appliances. Haier decided to compete with the US brands on the quality plank rather than on price. However, it would be very difficult for the company to win over American consumers who associated Chinese goods with low quality. So, in order to strengthen its presence in the US market, Haier adopted a localization strategy. Haier successfully focused on niche products by offering variety versions for different market segments in USA.

2.1.2 Europe

Haier started manufacture in Europe since 1996. The strengths such as high quality, unique design and efficient customer service have made Haier gained wide recognition in Europe appliance market. Haier’s three-door refrigerators and detergent-free washing machines have won the German Red Dot Award for their outstanding design. Besides, Haier has established well collaboration with important customers in Europe before building any plants there. On the other hand, the high cost of production is one of the weaknesses of Haier in Europe. Some of the European customers also classify China made appliances as low quality and cheap. Apart from that, most European countries can offer a good and equal environment for every new company. So, it is a good opportunity for Haier to make investment there. Haier’s products are sold in KESA, Media Market, Carrefour, Expert and other major European retailers. Besides, Haier can learn many new coming advanced technologies in Europe. In fact, the first imported technology used by Haier came from Germany. In addition, consumers could receive a rebate of € 100 for purchasing a Haier energy-efficient refrigerator which has achieved A+ standard for energy conservation in Germany, Netherlands, Belgium and Luxembourg. However, drastic competition in Europe has threatens Haier’s position as many European customers have strong brand loyalty of competitors. They will always continue buy the branded home appliances that they trust previously and will not easily swift to other branded home appliances in the markets.

2.1.3 South Asia

Haier entered the South Asia market in February, 2001. Haier has established trading companies, manufacturing facilities and research and development centers in India, Pakistan, and Bangladesh as well as an OEM manufacture in Sri Lanka by following the company’s “Three-in-One” localization strategy. The strengths of Haier in South Asia is due to its strategy of capturing the low-end of the customer durables market and has a long standing commitment to its consumers. Haier has designed a “gown washing machine” in order to satisfy consumer demands in Pakistan. Apart from that, the “gown top-load” was designed specifically for Pakistan families to wash up to 12 gowns in one load with less twisting and abrasion. Besides, Haier’s pride of place its technology and innovative driven products there. The weakness of Haier there is little brand awareness of the South Asia consumers. They will only buy the cheapest home appliances regardless the brands. The increasing demand for home appliances in South Asia especially the India as the emerging market has opened the opportunity for the establishment of Haier’s plants there. The advantages of preferential policies, tax breaks on imported equipment, infrastructure, and business services have became a multinational platform for Chinese companies to enter in Pakistan and other South Asian nations. Meanwhile, Haier faces the threats of bad economic situation and drastic competition in South Asia. It will influence in the profitability of the Haier’s products there.

2.1.4 ASEAN

Haier entered the ASEAN market in October, 1999. However, Haier has opened few production facilities in ASEAN Countries in the early years. It opened a production facility in Indonesia in 1996 and the Philippines and Malaysia in 1997. After the financial crisis broke out in ASEAN countries, many companies of household appliances from developed countries pulled out their investment in there. However, Haier took the advantages of that opportunities and intensified its efforts of strengthen Haier’s products there. In addition, Haier has purchased the Thailand Refrigerator Factory from Sanyo in April 2007 to become the second largest producer of refrigerators in Thailand. Its production facilities in those countries have created the opportunity for Haier’s products to be sold throughout the ASEAN countries, the Pacific Rim, and even Australia. However, there are high-level business disputes between the government and foreign investors demonstrate that even after investments become up-and-running, there are still scopes for legal problems or obstacles posed by legal wrangling. The strength of having foreign operations there is due to its low cost of productions. It has made Haier’s products more competitive in term of pricing strategy. Although the labours in there are cheap but the labour laws needed to be followed are considered excessive.

2.1.5 Middle East and Africa

Haier began selling refrigerators in the Middle East and African markets in 1993. In Middle East, production facility was constructed in Jordan in 2003 whereas Haier has plants in five countries in Africa which are Tunisia, Nigeria, Egypt, Algeria and South Africa. In Middle East and Africa, diversified product lines and highly meet special requirements such as air-conditioners designed to handle tropical conditions are the strengths of Haier in those markets. Besides, Haier developed high-capacity washing machines and refrigerators have met the special requirements suggested by Middle East consumers. However, the shortage of qualified labour in these regions is the weakness of Haier. It will increase the administration cost of Haier by having effective training plans for the unskilled labours.

One the other side, the increasing demand for home appliances and favorable demographics of the regions are the opportunities for Haier to enter there. In fact, Haier took the advantages of preferential tariffs among Arab countries to enter new markets previously not open to Haier products. Anyways, the fierce competition in target markets and political instability has threatened the position of Haire in Middle East and Africa. The instability position there may resist the remittance of profits earned from the subsidiaries to the parent company then.

CHAPTER III ENTRY MODE

Entry mode can be defined as an institutional arrangement which make possible the entry of a company’s products, technology, human skill, management or other resources into foreign market. The entry mode of how to enter a new foreign market can have a significant impact on the result (Wang, 2009). There are several modes which can be used by enterprises. There are exporting, importing, licensing, franchising, joint research and development, management contracts, turnkey project, strategic alliance, and FDI (Foreign Direct Investment- joint venture (JV), mergers and acquisitions (M&A), Greenfield/ wholly owned subsidiaries (WOS).

3.1 Exporting

Exporting is the first step for Haier to get involved in international business and market to avoid the substantial costs of establishing manufacturing operations in the host country. Most companies adopt a “first the easy, then the hard” approach to enter the global market that are familiar to them either geographically or culturally close to them before expand into unfamiliar and geographically or culturally areas. However, Haier is applying a difference basic strategy in entering the global market, “first the hard, then the easy” which means getting into the markets which enquiry a tougher entry requirements first, and then just entering the markets with lower entry requirements.

Export and a product-focused has been chosen as the international strategy to enter and tackle tough markets (especially those in developed countries as the Germany) first before easy markets or developing countries (Liu & Li, 2002). Zhang Rui Min believed that once had a strong foothold in tough markets, created good reputation of its brand name, it will then be easier to expand into other markets such as developing countries and definitely stand a strategically advantages position.

Haier found that most customers in developing countries there would be difficult for them to question a brand name that had already established popularity brand name in developed countries, and much more importantly, the price of this reputable brand would be very competitive (Liu & Li, 2002). Besides, Germany is one of the largest populations among the member states of the European Union. Haier also believed that once the initially product successful entering foreign market, the other products will be benefiting with the strong brand name. Thus, Haier concentrated only on refrigerators as the initially product on the marketing. Haier started its exporting as indirectly and then move towards exporting directly.

In 1984, Haier had US$ 1.24 million sales and 600 employees. After seventeen years, its sales reached to US$ 19 billion and with US$ 5.1 billion of profit and employed over 30,000 employees (Liu & Li, 2002). Its product line has been developed from refrigerators to more than 86 product categories. Haier exports its products to more than 160 countries and regions (for example Indonesia, Bulgaria, Malta, Czech Republic, Cyprus, Albania, Ukraine, and Russia), and has now become the world’s sixth largest home appliance maker with an export volume of US$ 420 million in year 2000 and more than 40,000 sales network points established globally (Fonda in Liu & Li, 2002). Initially Haier export to Germany is base on a licensing agreement but at the later stage, it also exports to developing countries thorough multiple channels.

3.2 Joint Venture (JV)

It is importance for foreign entrant firm to establish advantages competitive position in the host market before its competitors (Lin, Jiang & Bruce, 2007). Thus, host industry growth will reflect the attractiveness of local industry and reflect the choices for a foreign firm to entrant the market. A foreign entrant firm will prefer an entry mode that enables rapid establishment in order to earn profit by sharing the substantial cost and risk with the potential country so that it can build up a local competitive edge in advance of its competitors. Haier has targeted developing economies and emerging markets with high growth rates and large growth potential, such as Eastern Europe and Southeast Asia whereby using JV as quick entry mode compared to a wholly owned subsidiary (WOS) entry mode which demands more preparation and processing time and other resources (Lin, Jiang & Bruce, 2007).

According to study, those firms are unfamiliarity and higher risk due to inexperience in international operations will also more preferred to JV mode as collaborative strategies. This is due to the firm will be benefits from a local partner’s knowledge of the host country’s competitive conditions, culture, language, politic systems and business practices.

Haier’s first overseas JV was launched in Indonesia and built up a manufacturing plant with Sapporo Company on December 6, 1996. It is an important lesson towards internationalization investment for Haier. Without any international experience, Haier has paid expensive tuition fees soon after the inauguration of production, major political turmoil in Indonesia forced Haier to shut down the operation firm. A similar disaster also occurred in Yugoslavia where wars have destroyed Haier’s operation there (Liu & Li, 2002). Based from the experienced, Haier has gradually learned to be more mature and fully of the weakness when penetrate business into foreign market where FDI is made.

Japan has been considered in long time and the last and most difficult Asian market for foreign companies to entry. This is due to Japan is known as the domain of household appliances which is competitive market for Haier products. On 8th January, 2002, Haier and Japan’s Sanyo Electric Co had made the announcement jointly for sale of Sanyo products under the “Sanyo” and “Haier” and establishment of JV mode agreement, where Sanyo Electric holds a 60% stake and 40% with Haier. Under the terms of agreement Sanyo is also required for sales of Haier products in Japan supplying of Haier with Sanyo devices and technological collaboration.

3.3 Greenfield/ Wholly Owned Subsidiary (WOS)

International experience of a MNC will be a positive relationship and degree of control in foreign ventures (Liu & Li, 2002). Their strategy of overseas expansion is “Where there is a market, there must be a factory”. They usually will export the products and franchised their technology. When the markets of the products exceed the break-even point and earning profit, they will start with Greenfield/WOS project as the firm size has moved to a large-size company (Pietrobelli, Rabellotti & Sanfilippo, 2009, pp.1-25). With the experiences of familiarity with the risk international operations will prefer WOS. In April 1999, Zhang Rui Min leading Haier uses Greenfield invested more than $40 million to seek strategic assets and established Haier Industrial Park in Camden, South Carolina, in the United State. After the hard work and effort, first products went on sale in 2001 and by 2004. The factory was turning out 400, 000 family-sized refrigerators per year (Lin, Jiang & Bruce, 2007).

Besides, Haier has also set up a marketing center in New York, design and R&D centers in Los Angeles and Boston in order to acquire, develop, and transfer technology to help the head office develop home appliances that to meet the needs and wants of local consumers (Haier Group, personal communication, August, 2004). Haier Group penetrates into US by using the Greenfield is based to an essential part of its long-term strategy. Haier aims are to build an international brand name and to enter Fortune Magazine’s Global 500 list.

In gaining a brand reputation and developing market position in US, it has help Haier to explore markets worldwide. Reasons for the local factory are said to be reduction of costs, circumvention of anti-dumping from China, as well as the opportunity of selling Haier products under ‘made in USA’ (Bell, 2008). There is not only that Haier setting up design, and R&D centers in US or others developing country just to access foreign technology assets, but it is also for them to capture the externalities created by host-country technology clusters and the center of innovation (Lin, Jiang & Bruce, 2007).

3.4 Mergers and Acquisitions (M&A).

M&A have become preferred methods for Chinese firms to invest for resources, largely because they provide rapid access to proprietary technology and quicker establishment of R&D capabilities offered. Increasing use of M&A as means of foreign market entry as evidence that asset-seeking FDI is on the rise. In addition, companies can also use M&A to set up majority-owned JV as an effective means of seeking strategic resources while reducing uncertainty related to foreign markets (Miroslawski, 2008). Haier, one of the world’s leading home appliance manufactures with headquarters in Qingdao, as a new international players, is the author of the biggest success story generally conduce cross-border M&A with the primary motive of rapidly obtaining and controlling strategic assets.

Even though M&A is an expensive strategy of entry mode, it is effective and takes less time to implement. M&A will be undertaken by firm as the entry mode to entrant into foreign country is due to the rising costs of innovation of entry into unfamiliar markets, the competitive pressure to be more cost competitive, the growing need for complementary technology and economies of scale and scope of the firm, the protection or advance of global markets, and also the need to encapsulate the time of the innovating or market entry process (Dunning & Narula, 2002). Therefore, to access M&A into foreign country, that firms may engage in an outward FDI from a position of weakness, and entrant countries that may inbound FDI is because the host countries’ resources and capabilities offer competitive advantages to the foreign firms (Miroslawski, 2008). It is clearly mentioned that why did Haier chosen the Italy as the country to implement M&A and had spend about US $7milliom in year 2001 to acquire refrigerator manufacture Menghetti.

3.5 Strategic Alliance

There are certain reasons that why do companies seek for strategic alliances. There must be several motivations lead MNCs to use strategic alliances. However each company will have different capabilities and reasons for forming strategic alliances. Thus, it can be concluded with some reasons. Which are local partner’s knowledge of the market whereby companies always seek partners with similar products who have a good knowledge, government requirement usually happened in developing countries where government always require JV as a condition of entry into host countries as to ensure that the companies have an ownership position, sharing risks when agree to cooperate on a project, sharing technology, economics of scale, and benefit from low-cost material or labor (Cullen & Parboteeah, 2005, pp280-281).

As a company from a developing country, Haier has some disadvantages when compared with Western multinationals, such as lack of resources and advanced technology. After more than ten years of branded business activities in developed markets such as the USA, Haier Group’s has primarily entered US and Europe markets by its own Haier brand and organic growth. In order to overcome lacks in market know-how, Haier has searched for partnerships and alliances with locally established distributors and retail brands (Liu & Li, 2002). For the Europe, Haier has managed to overcome the disadvantages by setting up research centers and entered the German kitchen furniture and appliance market by a brand alliance with OBI with technological development. Western multinationals are willing to trade off technology against market penetration has allowed the research centers to develop, acquire, and transfer technology (Liu & Li, 2002).

For political reasons, Taiwan had long been prohibited manufactured imports from China. Unlike mainland, Taiwanese investors are always welcomes and encourage investing in mainland. However, at the end of 2001, with the entry of Taiwan and mainland China into the World Trade Organization, Taiwan has been forced to open some of its markets to mainland companies. Since then, grabbed an opportunity and circumvent the barrier, Taiwan’s Sampo Electric agreed and jumped into strategic alliance approached with Haier.

|Institutional Mode |Year |Country |Initial Products |Name |
|Export |1990 |Germany |R/F |External sales agencies |
| |1992 |Indonesia, Japan |R/F |External sales agencies |
| |2003 |Bulgaria, Malta, Czech Republic, Cyprus, |R/F |External sales agencies |
| | |Albania, Ukraine, Russia | | |
|Joint Venture |1996 |Indonesia |R/F |PT Haier Sappora Indonesia (Manufacturing |
| | | | |plant with Sapporo Company) |
| |1997 |Philippines, Malaysia |A/C, R/F , D/W |Haier LKG Electrical Appliances Ltd |
| | | | |(Manufacturing plant with LKG Electric |
| | | | |Company), Haier Industrial (Asia) Ltd |
| | | | |(Haier manufacturing plant) |
| |1997 |Yugoslavia |A/C |Yugoslavia Haier Air Conditioner Plant |
| |1999 |Iran |R/F, W/M, G/C |Haier Mid-East Ltd & Haier Iran Factory |
| | | | |(Haier manufacturing plant) |
| |2000 |Vietnam |RF |Haier manufacturing plant |
| |2001 |Bangladesh, USA |A/C, D/W, R/F, |Hayes & Haier Appliances Company Ltd |
| | | |F/R, W/C |(manufacturing plant with Hayes |
| | | | |Blangladesh company), New HQs for Haier |
| | | | |America |
| |2002 |Japan |R/F, W/M, |Sanyo electric company(trading, |
| | | | |manufacturing) |
|Greenfield/ Wholly | | | | |
|Owned Subsidiary |1999 |USA |R/F |Haier Industrial Park Camden, South |
|(WOS) | | | |Carolina |
| |1999 |United Arab Emirates |A/C, R/F, W/M |Haier Middle East Trading |
| |2000 |Italy |A/C, R/F |Haier Europe trading, Italy |
| |2001 |Jordan, Pakistan |Home appliances |Jordan Haier Middle East Trading Co. |
| | | | |Ltd.(JHMET), Haier Industrial Park |
| | | | |Pakistan |
| |2002 |Spain |A/C |Haier A/C Trading Spain |
| |2003 |United Kingdom |A/C |Haier A/C Trading UK |
| |2004 |Finland, Estonia, Italy, Germany |M/P, T/V |Regional sales offices of Haier Europe |
| | | | |Trading |
| |2004 |Australia |A/C, R/F, T/V, W/M|Sales office Haier Australia-HAEC |
| |2005 |Russia |A/C, M/P, T/V |Haier Russia Trading |
| |2005 |New Zealand |A/C, R/F, T/V, W/M|Sales office Haier Appliances New Zealand |
|Mergers and |2001 |Italy |R/F |RF plant of Meneghetti Equipment |
|Acquisitions (M&A) | | | | |
| |2007 |India, Thailand |R/F | |
|Strategic Alliance |2002 |Taiwan |A/C,R/F, TV,W/M |Sampo Electric Company(trading, |
|(Brand alliance) | | | |manufacturing) |
| |2003 |Germany |F/R, R/F |Distribution through OBI |

CHAPTER IV MARKET CHALLENGE

Nowadays, the earth is shrinking small and small due to the developing of information technology. Consequently, more and more domestic companies can be globalized easily. However, different countries have different social cultures, policies and economics, so there will be some challenges for MNCs to adapt the suitable strategies in order to distribute, price and promote their products in different locations. Although Haier Group is a multinational Corporation, but it is still facing some marketing challenges when they want to expand their business globally. In reality, they have to do analysis about the market conditions that exist in the host country and try to produce products that are required by the customers over there. Besides, they also need to find solution to overcome the problem so that their business expansion can be successfully implemented. In fact, the challenges which are faced by this company can be seen from four aspects that are products, price, promotion and distribution.

4.1 Challenges for Products

Product is seen as the sum of all physical and psychological satisfactions which a user can receive that including the physical core, packaging and auxiliary services. Haier produces many types of home appliances such as refrigerators, washing machines, and air conditioners. For example, Haier produces top load washing machines in Asia, introduce front load washing machine to Europe market, and bring agitator washing machine into America market. In order to fulfill the demand of American, Haier has to try to modify its product line. The white-goods sales in the U.S market are now dominated by the top five retailers, so Haier has to try to enter into all these chains which are Sears, Lowes, Home Depot, Best Buy and Costco.

4.1.1 The Social Culture Challenges

Initially, when Haier plans to adapt their products in the local markets abroad, they should think of whether to meet the desires of customers by using differentiation strategy or producing standardize products. In fact, investigation needs to be carried out so as to find out the suitable adaptation strategy to be used in Asian, American, European or other regions of the world market. Different countries have different social culture that is the acquired, collective knowledge of a group that people use to interpret experience and actions. Culture influences the consumers’ wants and needs because it impacts on the interpretations of products’ communication. So, analysis on consumer behaviors is very important for Haier to adapt their products feature, packaging, symbolic attributes and service attributes.

For example, the Indian consumers make said that China products are low-tech, unreliable, and not worth it, even though its price is the lowest. To enter this types of markets, Haier has to face with problems that their products cannot accepted by the consumers and won’t gain the market share because they more trust the existing brand in the market before.

4.1.2 The Policy Challenges

Each country has their own policy to protect their domestic industries and maintain their economic growth. So, Haier should analysis the policies of the countries in order to find out which countries are favorable and which countries are unfavorable for entering purpose. From the analysis, Haier can plan for foreign direct investment by establishing subsidiaries in those favorable countries so as to hold all the benefits. On the other hand, Haier can choose joint venture strategy in the countries that have unfavorable policy so as to share risks and benefits with local companies.

4.1.3 The Economics Challenges

Economics is the social science that studies the production, distribution as well as the consumption of goods and services. Generally, the division of the countries by economics that are developing countries, emerging countries, developed countries, and less developed countries. As each type of countries have different purchasing power, so Haier should analysis the details of purchasing power for each local market deeply. The high purchasing power will be the most favorable markets for Haier to expand their business there due to the higher profit from the increasing sales. To produce different products in different markets, Haier has to use the local resources. If not using local resources, the products come out cannot even satisfy the needs of local consumers’ needs. This means that if Haier want to introduce new product in U.S for example, it has to use the resources that exist in U.S so that can meet the demand of the consumers.

4.1.4 The Cost, Market Conditions and Competition Challenges

Haier is relentless to reduce the cost for their products. So, it is important for Haier to analysis which countries can provide the lower cost of production in term of labor cost. The low cost of production can benefit Haier in pricing strategy in order to compete in fierce competition markets. Besides, Haier also should analysis the market condition and competition challenges in the entering markets so as to know the strengths and weaknesses of their local competitors. Eventually, Haier can attack them through their weaknesses for gaining the higher market shares at the end.

4.2 Challenges for Distribution

Distribution is the process of making a product or service available for use or consumption by consumers by an organization or set of organizations. The objectives of distribution will ultimately be highly related which some will enhance each other while others will compete.

According to CEO of Haier Group, Mr. Zhang Ruimin, the largest challenges faced by them when they go overseas are lack of global marketing and distribution system. For example, when Haier wants to enter a new market such as U.S, they must find someone to sell their products. This is because the Chinese products aren’t well recognized by local retailers. Therefore, they have to try hard to penetrate the new markets.

4.2.1 The Challenges of Choosing Distribution Channel

The distribution is about a chain of intermediaries where each of them passing the product down the chain to the next organization before it finally reaches the consumer or end-user. Each of the elements in these chains will have their own specific needs which the producer must take into account along with those of the all-important end-user. The challenges for choosing which type of distribution channel to adapt the local market can be direct or indirect.

Haier’s products are mainly sold through national chain retailers in the United States. This distribution channels enable Haier’s products to increase their presence and brand awareness in the U.S market. However, these distribution channels will cause Haier products faced more competitors because they carry variety of similar products at once times. Therefore, if Haier wants to capture a significant market share through all of the distributions channels, it should place a greater emphasis on marketing efforts with the chain retailers.

a. direct occurs when a company sells directly to an importer or buyer that located in a foreign market area. b. indirect occurs when a company uses independent organizations that located in the producer’s country.

4.3 Challenges for Price

Price is an amount of money for which a thing is offered, sold or bought that one must give up or suffer in order to gain something. Some of the companies use price cuts so as to strengthen their position in one market. As a leading local home appliances manufacturer, Haier has reduced the prices of several types of refrigerators by up to 40 percent in order to maintain its leading position and to weed out local competitors in the refrigerator market such as GE, Whirpool and Electrolux. Price wars have reduced the number of refrigerator makers in China from more than 400 at the end of 2003 to fewer than 300 in 2004. In fact, the low cost strategy allowed Haier to experience rapid growth and experience three development phases in the last 20 years.

For another example, Haier launched its high-end Casarte series. This series are stainless steel exteriors which has large storage capacity and adjustable interior. As China’s largest home appliances manufacturer, Haier use its strong market foothold to create designs with global appeal. Therefore, Haier become less sensitive to global competition because it focuses on the market segmentation where the customers enhance on their lifestyle and offering product for well-moneyed consumers. Besides, India consumer not confidence with Haier;s product. The Haier hope that they can shake off this concept among the consumers. Therefore, Haier plan to showcase its technological prowess, selling its products through over 1000 dealers across the country. However, the top four companies had already entered the market and put large investment and gained market share in manufacturing sector. Therefore, Haier has no special advantage. They have large volumes of price-wise and production facilities to compete with them.

4.3.1 Challenges for Determinant of Price

There are several factors for Haier to be considered on when determine the price of their products. Pricing on products is very important process as it will influence in the profitability and the market shares gained of the corporation.

4.3.1.1 Cost Factor

Cost is a major factor in price determination and there are a number of reasons to have detailed information on cost. Cost of production is very useful in setting a price floor. Haier may face a lot of challenges for the level of production’s cost for the products in each local market such as the local labor price, the supply of raw materials and so on.

4.3.1.2 Competition Factor

Competitive conditions help to determine the actual price that should be set. When Haier determines the price for the products, Haier needs to analysis the international and local competitors in term of their pricing strategies so as the price of Haier’s products has more competitive advantage.

4.3.2 Economics Conditions for the Price

The determinants of the price also should be considered in term of the market’s economic conditions. It is because the economic condition will influence the purchasing power for the destination countries. So, the challenge for Haier to occupy the more target market shares is to device a suitable price.

4.3.3 Legal and Political Influence for the price

The different of legal and political influence in different countries will also influence the determination of the price of Haier’s products. Legal and political factors act primarily to restrict the freedom of a company to set prices strictly on the basis of economic considerations.

4.4 Challenges for Promotion

Promotion is about disseminating information about a product, product line, brand, or company.

4.4.1 Challenges of Sale Promotion

The sales promotion activities are of a relatively short-run duration that added tangible value to the product or brand. The tangible value which is created by the sales promotion may come in various forms. In fact, Haier should consider whether sales promotion is useful for increasing sales of Haier’s products or not so that the company will focus on the short-run promotion or choose other type of promotion to occupy the long-run promotion.

4.4.2 Challenges of Publicity

Publicity is the news about a company published free in some outside periodical and it is often a result of the public relations activities of company. Haier should maintain a higher level of credibility in company’s own advertisements so as to prevent any friction of using Haier’s products.

4.4.3 Challenges of Advertising

Advertising defined as any paid message placed in a medium. International or global advertising is the use of the same advertising appeals, messages, art copy, stories, and so forth, in multiple country markets.

4.4.3.1 Economic About Advertising.

Different countries have different economic system, so Haier should consider which types of advertising to be used in different economic system. For instant, a liberal economic system based on a market economy is more favorable for advertising than a centrally planned economic system. Due to the challenges that occurred, Haier should find the specific way for promoting their products in different markets.

2. Social Cultural About Advertising

The level of acceptance in advertising is not the same for different social culture. For example, some countries have a cultural background that fosters individualism while others are more prone to foster gregariousness. There is no evidence that advertising is more successful in one surrounding than another, so it is very important for Haier to determine the social culture of the different markets to prevent any social conflict on the company’s advertisement.

CHAPTER V CONCLUSION

Haier is a multinational corporation which its headquarter set as Qingdao, Shandong Province. Haier is the 4th largest white goods manufacturer. Haier opened and expanded its business to foreign operations which can be divided into USA, Middle East, ASEAN, South Asia, Europe and Africa. Each country has its attractiveness place that Haier makes decision to enter their markets. However, Haier needs to identify the local markets before they enter it. This can help them to prevent from facing failure when expanding their businesses. The manager or top management level has to analyze the threats and opportunities that will affect the success of their business. However, they also have to know the weaknesses of the market and find solutions to overcome it so that they can gain profit and market share.

Haier used different entry mode strategies in enter different markets. They used exporting, joint venture, wholly owned subsidiaries, mergers and acquisition and strategic alliances. Haier used “first the hard, then the easy” strategy which means they choose to enter the well-developed market such as USA, and then only entered the developing countries. These entry mode strategies help Haier to know the local markets well so that they can meet with their competitors such as GE, Electrolu and Whirpool n producing similar product lines.

However, Haier Group has to face with challenges during enter foreign markets which from these four aspects: products, promotions, prices and distributions. The products and prices of the competitors will give challenges to Haier when they want to launch new products in each market. Besides they have to use effective promotion way to promote their products so that can be easily accepted by different segment of consumers. They need to use right distribution channels in introducing their products to other people especially their competitors can produce substitute products to own their local markets.

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