Posted: February 5th, 2015

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use updated references ( last 5 years only) and preferred Saudi related articles. Also,the way of writing has to be like this: for example in a study conducted in XXX

by XXXX, nurses were asked XXXX using a XXX design and the results indicated that XXXXX.. These findings support the work of XXXXX, who conducted a similar study in

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Haier: Taking a Chinese Company Global

Only by entering the international market can we know what our competition is doing, can we raise our
competitive edge. Otherwise, we’ll lose the China market to foreigners.
— Zhang Ruimin, 19961

All success relies on one thing in overseas markets—creating a localized brand name. We have to make
Americans feel that Haier is a localized U.S. brand instead of an imported Chinese brand.
— Zhang Ruimin, 20032

On December 26, 2004, Haier Group, ranked China’s number-one company by the Asian Wall
Street Journal,3 celebrated its 20th anniversary with annual sales topping RMB 100 billion.a (See
Exhibit 1 for Haier revenue growth.) Starting with a defunct refrigerator factory in Qingdao,
Shandong province, founder and CEO Zhang Ruimin built Haier into China’s largest home appliance
maker.b Globally, Haier ranked third in white goods revenues, and was the second-largest
refrigerator manufacturer (with about 6% of the global market) behind Whirlpool and ahead of
Electrolux, Kenmore, and GE.4 Zhang pledged to make Haier the world’s best-selling refrigerator
brand by 2006. (See Exhibit 2 for global appliance market shares.)

Haier held about a 30% share of China’s RMB 129 billion white goods market,5 and had a growing
presence in “black goods” sectors such as televisions and personal computers, but margins on
domestic sales were shrinking. The Haier Group’s Shanghai-listed arm, Qingdao Haier, saw 2004
profit margins drop to 2.6%, from a high of 9.4% just five years earlier. (See Exhibit 3 for Qingdao
Haier financials and Exhibit 4 for revenues by product.) Industry observers attributed the decline to
increased competition from local firms and foreign multinationals in China. National overcapacity
was estimated at 30% in televisions, washing machines, refrigerators, and other major appliances.
Manufacturers were cutting prices at 10% to 15% annually.6 In this environment, Haier was betting
its future on global sales. Haier’s 2004 export revenues were nearly double the previous year’s, and
the company was targeting $1 billion in sales to the United States alone for 2005. Could Haier

a At the time, 8.26 RMB = 1 US$.
b Haier, derived from the Chinese word for “sea,” was pronounced “high–R,” and Qingdao, “ching-dow.” In Chinese, given
names followed the family name. The family name Zhang was pronounced “Jong.”
________________________________________________________________________________________________________________
Professors Krishna Palepu and Tarun Khanna and Senior Researcher Ingrid Vargas, Global Research Group, prepared this case. HBS cases are
developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of
effective or ineffective management.
Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Haier: Taking a Chinese Company Global

become China’s first true multinational brand? In the process, would Haier be able to defend its
dominant position in China against growing competition from Western and Asian multinationals?

Haier’s First 20 Years

Company Origins7

Haier originated in 1984 when Zhang took over a failing refrigerator factory in the Chinese port
city of Qingdao. At the time, Zhang was vice general manager of the household appliance division of
Qingdao’s municipal government, and became convinced of the latent demand for refrigerators by
the sight of customers standing in line to pay cash for second-rate refrigerators as they came off the
production line at Qingdao General Refrigerator Factory. The local government wanted to appoint
Zhang director of the nearly bankrupt company which had to borrow from neighboring villages to
pay salaries to its 800 employees, and Zhang reluctantly accepted the challenge.

The factory was a collective enterprise whose ultimate authority was the municipal government,
although the workers collectively held ownership of its assets and shared any profits after the
payment of local and national taxes and appropriate reinvestment in the company. Unlike the
government’s authority over state-owned enterprises, it did not own or have any claim—other than
taxes—on a collective enterprise’s assets or profits. The government could influence senior staffing
and major business decisions, however. Poor performance, labor disputes, or mismanagement of
funds were all grounds for the dismissal of senior managers by the local authorities.

In 1984 there were about 300 refrigerator manufacturers in China, most producing poor-quality
products. Zhang believed that Chinese consumers would be willing to pay more for higher-quality
products and reliable service. Inspired by the workmanship of German products that he saw during
a 1984 trip to Germany, Zhang remarked “Our people aren’t more stupid than Germans. Why can’t
we do the same as them?” and promptly entered into a technology licensing agreement with German
refrigerator manufacturer Liebherr.8 Haier later imported freezer and air conditioner production lines
from Derby of Denmark and Sanyo of Japan. Joint ventures (JVs) with companies such as Japan’s
Mitsubishi and Italy’s Merloni infused Haier with more foreign technology and designs. “First we
observe and digest,” Zhang explained. “Then we imitate. In the end, we understand it well enough
to design it independently.”9

One of Zhang’s biggest hurdles was getting workers to understand that Haier’s commitment to
quality was unlike that seen at other Chinese companies. To get his message across, Zhang once
pulled 76 refrigerators off the line, some for minor flaws such as scratches, and ordered staff to smash
them to bits. “That got their attention,” laughed Zhang. “They finally understood that I wasn’t going
to sell just anything, like my competitors would. It had to be the best.”10 Haier promoted personal
accountability by having poorly performing workers stand on a pair of yellow painted feet on the
factory floor at the end of the workday to explain their failings to assembled colleagues.

Haier made a profit of RMB 1 million in its second year, when its refrigerators sold in three major
Chinese cities. Despite overwhelming market demand and soaring prices for refrigerators, Haier
resisted mass production, focusing on quality and brand-building instead. In 1988, Haier won a gold
medal for quality in a national refrigerator competition. In 1989 China’s refrigerator market faced
oversupply, but rather than cut prices as its competitors had, Haier raised them. Zhang discovered
that the Haier brand commanded a 15% premium, even during a price war.11

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Haier: Taking a Chinese Company Global

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By the early 1990s, oversupply was no longer an issue. “At that time, demand outstripped supply,
and we didn’t have a big-scale operation. So we were focused on the China market. We didn’t think
about building our brand in the international market yet,” explained Yang Mianmian, Zhang’s right
hand since 1984 and later named group president. “Our target is to become a first-class brand. We
need to have a fairly large scale in order to achieve this,” added a Haier marketing executive. “If this
brand is not of large scale, it will not be successful.”

Growth and Diversification

By 1991, Haier had become China’s leading refrigerator manufacturer. “Now we could let our
reputation precede our new products,” said Zhang. “It was time to diversify.”12 Haier found two
candidates: the Qingdao Air Conditioner Factory, and the Qingdao General Freezer Factory, both
stumbling due to poor management. Haier took on the debt of each firm and retained most of their
employees. Introducing a new air conditioner type at the former and Haier worker discipline at the
latter, within one year the new divisions had transformed a deficit of RMB 15 million into profits.

The newly expanded refrigerator, freezer, and air conditioner manufacturer was renamed Haier
Group in 1992. The same year Haier acquired 500 acres of Qingdao land for a new industrial park to
house corporate headquarters and the bulk of the firm’s factories and subsidiaries. The land cost
RMB 80 million and construction costs were estimated to exceed RMB 1 billion, while Haier’s 1992
profits were just RMB 51 million.

To finance such a large capital investment, Haier was counting on promised bank loans of RMB
1.6 billion, but within a month of the land purchase, the Chinese central government tightened credit
nationally in an effort to halt real estate speculation.13 Finding no other option, Haier turned to
China’s nascent stock market, listing 43.7% of its refrigerator division on the Shanghai Stock
Exchange in November 1993. The IPO of A shares (limited to investors from mainland China) raised
RMB 369 million. “It was the first time Haier had done such a risky thing,” recalled Zhang. “If we
had not been successful with our IPO, Haier would have disappeared. We’d never done anything like
this, and that should be the only time we do it.”14

Acquisitions continued throughout the 1990s, sometimes under government pressure to take over
poorly performing firms.15 In 1995, the Qingdao Municipal Government pushed the nearly bankrupt
Red Star washing machine company onto Haier with the obligation to take on the firm’s employees
and RMB 132 million in debt, the equivalent of Haier’s 1993 profits.16 Within 18 months, however,
Haier had turned Red Star into the top-ranked washing machine manufacturer in China.17 Haier
added televisions and telecommunications equipment to its product mix with the 1997 acquisition of
Yellow Mountain Electronics located in Anhui province. By 1997, Haier had taken over 15 companies
in accordance with Haier’s acquisition strategy. “We buy only those firms that have markets and
good products but bad management,” Zhang said. “Then we introduce our own management and
quality control to turn them around.”18

Operational Restructuring

By 1998, Haier’s annual revenues had reached RMB 16.8 billion and the firm’s domestic market
shares for refrigerators, washing machines, and air conditioners each exceeded 30%. Haier had much
to celebrate, but the long period of extraordinary growth of consumer demand in China was showing
signs of slowing. Retail consumption for 1997 had grown 11.6% over the previous year, the lowest
increase since 1990. Industry optimists pointed to growing income levels among rural Chinese who

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Haier: Taking a Chinese Company Global

accounted for 72% of population, but only about 10% of rural households owned a refrigerator and
20% had a washing machine in 1998.19 (See Exhibit 5.)

Haier had exported appliances on an “original equipment manufacturer” (OEM) basis since the
early 1990s, and by the mid-1990s had established several overseas JVs in Asia. (See Haier in
International Markets on 10.) Haier was anxious to focus on overseas markets, but after a decade of
adding factories, the company first reorganized to achieve greater efficiency and position itself to
compete effectively with multinationals both at home and abroad. Haier’s many manufacturing
facilities were restructured into seven product divisions: Refrigerator, Air Conditioner, Washing
Machine, IT Products, Kitchen & Bath, Technology Equipment, and Direct Affiliates (including
communications, housing, and biological engineering).

Before 1998, most of the acquired businesses operated independent R&D, procurement,
production, and sales departments. Haier replaced the numerous service departments with four new
Group-wide “Development Divisions”—Capital Flow (Finance), Commerce Flow (Sales), Material
Flow (Logistics), and Overseas (Global Operations)—whose heads reported directly to the Haier
Group president. These new businesses operated as independent profit centers that competed with
third-party service providers for Haier’s business and could sell services to external clients as well.20
Human Resources, R&D, and Customer Relations were also joined into group-wide business centers
and sold their services on a fee basis to Haier Divisions. Similarly, Total Planning Management, Total
Quality Management, and Total Equipment Management centers were formed by combining these
functions across divisions. In 2000, Haier added an e-commerce company serving businesses and
individual customers.

Haier in Chinese Markets

By 2004, Haier had overtaken domestic rivals and defended its ground against encroaching
multinationals to become the number-one appliance company in China. While several firms held a
top-three position in a particular market such as washing machines or air conditioners, Haier was the
only company with leading shares across white goods sectors (Exhibit 6). Haier was dominant in the
RMB 48 billion refrigerator and freezer market, which accounted for about 38% of all white goods
sales in China. In 2002, Haier’s share of the country’s refrigerator market was 27% by volume and
52% by revenue, and analysts estimated that the company accounted for 61% of industry profits.21

National Competitors

From over 100 refrigerator producers in 1989, by 1996 China had just 20 major producers
remaining, with the 10 largest accounting for 80% of the market, up from 50% four years earlier.
According to a Chinese industry association, refrigerator manufacturers needed to produce more
than one million units annually to be profitable.22 Only three Chinese manufacturers, together
accounting for about 60% of the market, fell into this category in 1996, Haier among them.

In the 1980s, Haier’s commitment to quality had been enough to distinguish it from competitors,
but as the weakest Chinese firms failed or were acquired, Haier faced more formidable Chinese
competitors, many specializing in just one or two product lines. Chronic price wars, especially in the
refrigerator sector, hurt all of the leading players, with some selling stock at or below cost to clear
inventories. According to an industry analyst, “the leading domestic players failed to reach their
growth potential due to the numerous money-losing small competitors, which were being sustained

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Haier: Taking a Chinese Company Global

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in part by regional governments’ budgets.”23 But Haier cited its more diversified holdings, its
differentiated products, and its export strategy as protective factors that ensured continued profits.

Among Haier’s domestic rivals, only Guangdon Kelon, which had once held the top position in
China’s white goods market, offered a full line of home appliances. Like Haier, Kelon started out as a
refrigerator manufacturer in the early 1980s. In 1998, Kelon merged with a leading Chinese air
conditioner manufacturer. The company listed on the Hong Kong and Shenzhen stock exchanges in
the late 1990s, and Whirlpool chose Kelon to manufacture washing machines in China. In contrast to
Haier’s single-brand approach, Kelon followed a multibrand strategy in China. High-end appliances
carried the Kelon name; the Ronshen brand was used for mid-level models; and low-cost
refrigerators and air conditioners sold under the Combine brand. Because Kelon sold refrigerators
and air conditioners under all three brands, each with its own assembly lines and marketing
campaigns, the company cited the attainment of scale efficiency as its biggest challenge.24

Blaming intense competition in China’s refrigerator market, Kelon reported significant losses in
2000 and 2001. An accounting scandal revealed that the listed firm and its parent group had routinely
shared credit facilities and paid each other’s operating expenses.25 Another Chinese refrigeration
firm, Greencool Enterprises, acquired a majority shareholding in Kelon in late 2001. Kelon’s new
management introduced a strategy of targeting China’s rural population, selling nearly a million
units of a new lower-priced brand in the first year.26 Haier already had a strong presence in the rural
markets, but had not specifically targeted this segment with specially priced products. “The future
lies in the second-line and third-line markets, which is the rural population in counties and
townships,” said Kelon’s chief executive.27 In 2003, about 23% of rural Chinese households owned a
refrigerator.28 Kelon posted a modest profit in 2003, but reported a loss of RMB 44.7 million in 2004,
citing weak sales.29

Foreign Entrants

China’s entry into the World Trade Organization in December 2001 added pressure on Haier.
“Before, our competitors were domestic brands,” said Gao. “But now after China’s ascension into the
WTO, our competitors are Siemens, Electrolux, Samsung, LG, Matsushita, Sony, GE, and Whirlpool.”
Some foreign consumer appliance brands were in China even earlier. Whirlpool formed a JV with a
Chinese manufacturer to produce refrigerators in a plant near Beijing as early as 1994.30 By 1996,
Zhang noted that a second generation of competition had hit the Chinese white goods market. He
observed: “The Chinese market has become part of the international appliance marketplace.”31

Most multinationals realized that penetrating the Chinese market would not be easy. “Normally,
people think it’s a market of 1.2 billion people and that it’s going to explode,” said a Siemens
executive. “But in terms of saturation levels, urban areas in China are quite well equipped. The big
gap is in the rural areas and smaller towns, where saturation levels are below 10%.”32 Many
multinationals were banking on the emergence of a replacement market in the large cities where they
targeted the high-end market. “Setting up a sales and marketing network is a big challenge,” added
the Siemens executive. “It is tied closely to local conditions. . . . The key point is to build an effective
sales and marketing organization that can also follow changes in distribution.”33

The media noted that multinationals tended to underestimate the Chinese manufacturers,
expecting competition to come from other newly arrived foreign firms. Instead, they found
themselves competing with Haier and Kelon. “Their technology was nearly as good as Whirlpool’s,
their prices were lower, and their styling and distribution were better suited to China,” wrote The
Economist.34 Thinking that the China market was not ready for the latest technology, Whirlpool
produced Freon refrigerators with its JV partner in 1995. Meanwhile, Chinese manufacturers began to

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Haier: Taking a Chinese Company Global

respond to consumer demand for Freon-free units. In 1996, the Whirlpool JV sold less than 60% of its
newly manufactured Freon refrigerators, resulting in a loss of nearly $11 million. Realizing its
mistake, Whirlpool invested in a Freon-free production line in China, but by the time it was ready 18
months later, the market was nearly saturated.35 Whirlpool invested in refrigerator, air conditioner,
washing machine, and microwave factories in the mid-1990s, and accumulated losses of over $100
million in China by 1997. The U.S. company sold most of its holdings, saving the microwave factory
by focusing it on exports, and devoting its washing machine factory to production for Kelon, which
marketed the washers in China under its own brand.36 But in 2001, Whirlpool began a comeback,
launching 30 new products and setting up two global research and development centers and a large
production facility in China.37

Foreign brands were taking market share away from Chinese brands at alarming rates.
Multinational-brand refrigerator unit sales represented 31% of the Chinese market in 2002, up from
26% the previous year. Foreign brands were especially strong in the automatic washing machine
sector where they accounted for 38% of sales in 2002, up from 31% in 2001. Nevertheless, Yang
believed that Haier would preserve its local knowledge advantage over foreign firms:

Haier is much closer to China’s consumers, so we have a grasp on their changing tastes. We
design according to Chinese consumers. And we have paid a lot of attention to developing
human resources in the areas of marketing and design. Foreign companies design products for
China based on foreign approaches. They are not in tune with Chinese culture and values.

Retail Channels

Before 2000, Haier’s customers were mostly state-owned department stores, but by 2004 appliance
sales had moved out of the department stores and into individual specialized shops and private retail
chains. In 2004, domestic chains such as GOME accounted for about 30% of Haier’s sales. GOME was
China’s largest home appliance seller with over 100 outlets in 22 of China’s largest cities.
International chains like Wal-Mart, in China only a few years, accounted for no more than 5% of
Haier’s domestic revenue. In second- and third-tier cities, Haier had set up networks of licensed
dealers that accounted for another 30% of sales. Independent retail shops and government purchases
accounted for about 15% each, with online and telephone sales making up the rest.

The shift in retail channels since 2000 affected how Haier managed its customer relations. As Gao
explained:

A few years ago Chinese white goods customers were not very picky and it was easy for
large shops to make sales. At that time all we had to do to get their orders and keep our great
market share was to maintain a good relationship with these large shops and give them the
goods on time. Now our distributors are the major domestic chains as well as international
retailers like Wal-Mart and Carrefour. These private retailers put more emphasis on the bottom
line. The old concept of sales as managing the distributor relationship through “wine and
dine” is not applicable in the current market. Retailers are no longer focused on how much you
can drink together, but on how much money you can make for them.

The introduction of Western retail models to China’s major cities coincided with the arrival of
foreign multinational appliance brands like Siemens and GE which were very familiar with these
channels. The WTO-mandated opening of the rest of China to foreign retailers by the end of 2004
threatened to erase domestic firm advantages beyond the first-tier cities. However, Gao did not
believe that knowledge and experience of dealing with large multinational retail chains would give
foreign white goods firms enough of an edge to displace Haier. “The multinational brands together

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Haier: Taking a Chinese Company Global

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account for less than 10% of China’s white goods market, so they don’t have much clout with retail
chains, whether domestic or international,” he said. Foreign brands would fare even worse in second-
and third-tier cities and in rural areas, according to Gao. He explained:

Many foreign brands, including American ones like GE and Whirlpool, have a hard time
adapting to the Chinese population and vastness. Their tried and tested sales approaches work
on a more uniform population. But the diversity in geography and buying preferences in
China are huge. In the rural areas, it’s mostly small private enterprises that sell appliances. In
one county, there may be only two or three such shops that monopolize the whole area. There
are no domestic or international hypermarkets in China’s rural regions.

Haier’s Market Advantages

Haier executives cited the reputation of the brand and the company’s creativity as the firm’s main
strengths for competing inside China. “Consumers recognize Haier as the number-one brand in
China,” said Gao. “Our prices are 20% more than our competitors’, but we still have the most sales.”
The brand was supported by investing 5% to 7% of revenue into R&D each year. “This means we
have new products each year. Our products are not made obsolete by our competitors, but by our
own new products,” Gao added. Haier executives would not claim any definitive operational
superiority, but there were at least three areas in which Haier consistently won praise: innovative and
rapid market response, superior after-sales service, and efficient distribution.

Market responsiveness

“We have been successful in China because we are focused on

meeting customer needs,” said Zhang. “We are organized to understand what customers want and to
meet those needs, which are sometimes quite differentiated.”38 Haier’s 42 distribution centers
throughout China operated as independent “sales companies” that needed to be responsive to the
needs of customers to remain profitable.

When a customer in China’s rural Sichuan province complained to Haier that his washing
machine was breaking down, service technicians found the plumbing clogged with mud. Rural
Chinese were using the Haier machines, meant to wash clothing, to clean sweet potatoes and other
vegetables. Haier engineers modified the washer design to accommodate peasant needs. Since then,
Haier washing machines sold in Sichuan were labeled, “Mainly for washing clothes, sweet potatoes
and peanuts.”39

To accommodate summer lifestyles requiring frequent changes of clothing, Haier created a tiny
washing machine that cleaned a single change of clothes. The model saved on electricity and water
usage, making it an instant hit in Shanghai. It was later successfully introduced to Europe. Other
innovations included a washer that cleaned clothes without detergent, and a model that could wash
and dry clothes in a single machine, also popular in cities where space and time were at a premium.

Haier’s strategy of meeting localized market demand at home and abroad with innovative models
(for example, a refrigerator with a compartment for pickling Korean kimchee cabbage) had resulted
in about 96 product categories and 15,100 specifications. Haier executives maintained that these kinds
of feature innovations were inexpensive to produce, but highly valued by customers. “To manage the
costs of manufacturing our many different product models, our products are based on modules of
components and subsystems, and on basic platforms that we can vary,” said Zhang. “Periodically, we
will add some new features, but the basic model is there. We don’t change them randomly.”40

Service

In 1990, Haier had set up a service center in Qingdao that used a computerized system

to track tens of thousands of customers. The effort soon paid off, as customers throughout China,

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Haier: Taking a Chinese Company Global

accustomed to expecting little or no after-sales service, began to recognize Haier as a new breed of
company. Stories like that of taxi driver Chu Xiaoming and his 10-year-old Haier refrigerator were
repeated throughout China. In 1996, Chu half-heartedly called Haier’s customer hotline, not
expecting to get much help for a broken-down appliance purchased a decade earlier. One industry
observer noted:

To Chu’s surprise, a uniformed serviceman showed up on his doorstep the very next day.
He took the fridge back to the factory and lent Chu another for the interim. Two weeks later,
Chu’s old refrigerator was once again chilling his family’s meats and vegetables. And best of
all, the service didn’t cost an arm and a leg. “They only charged me 200–300 renminbi ($24–
$36) for the repairs,” he said. “I’m very satisfied.”41

By 2004, Haier had a service network of 5,500 independent contractors, one for each sales outlet.
Some of these service contractors were exclusive to Haier; others serviced both Haier and competing
products. Haier product owners could call a nationwide hotline to arrange for a house call by a
service agent. If the appliance needed to be removed from the home for servicing, Haier provided a
temporary replacement free of charge. Haier’s warranty periods covering full repair costs either met
or exceeded Chinese government regulations. According to Gao, customer appreciation of Haier
service was one of the company’s greatest competitive advantages. “In the country’s ranking of
service levels and after-sales service, Haier always ranks number one,” he said. “Whether in quality
of service or in volume, no one is able to compare to Haier at the moment.”

Distribution

Haier Logistics, an independently operated company created in 1999 as part of

Haier’s reorganization, had become a national pioneer in the field, offering “just in time” (JIT)
purchasing, raw materials delivery, and product distribution. Between 1998 and 2004, Haier had
reduced the size of its main raw materials warehouse from 200,000 square meters with an inventory
cycle of over 30 days, to a 20,000-square-meter distribution center with a seven-day inventory cycle.
In 2004 Haier’s JIT order-execution center purchased about 300,000 different components for the
group’s production lines from about 1000 suppliers in China and overseas, down from 2,300
suppliers before the reorganization. Logistics delivered raw materials to the production sites every
two hours, on average, with inventory updates and inter-company payments made automatically
using bar code scanning. Factory production usually began as soon as an order was received and
took one or two days, depending on the product.

Haier required full payment in cash before completing delivery on purchase orders. Once
payment had been received, Logistics delivered the goods to one of 42 Haier distribution centers
located throughout China. Substantial government investments in transportation infrastructure since
the late 1980s allowed Haier to take advantage of China’s growing highway network. Working with
over 300 transport companies which used about 16,000 vehicles across every region of China except
Tibet, the network moved over 100,000 products each day, not counting small items like cellular
telephones and vacuum cleaners. Haier delivered very large orders directly to retailer warehouses.
Each distribution center dealt with an average of 200 customers, some with multiple retail outlets.
The entire process, from initial order to final delivery of the products, took about 10 days, down from
36 days before the reorganization and introduction of information systems.

The main differentiator between Haier Logistics and domestic competitors was that Haier had
reorganized logistics into a single company serving the entire group. Other Chinese companies like
Midea and TCL had separate logistics operations for each product line. “Haier has very broad
product lines, and Logistics makes deliveries for the entire group and for other brands besides Haier
group,” said logistics information center executive Zhan Li. “When transporting a refrigerator, we
can also deliver a microwave, a water heater, and other products. Other companies don’t really do

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Haier: Taking a Chinese Company Global

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this. This kind of scale and volume probably gives us one of the lowest logistics costs.” Zhan also saw
Haier’s advantage over multinational companies:

In China, there are still regulations limiting multinationals in the area of Logistics, so they
have entered China on a JV basis. Multinationals have more experience than us, having gained
knowledge of different approaches and practices through their worldwide operations. But in
terms of logistics cost or network, they have no competitive advantage. Their staff costs must
be higher than ours and they don’t have a network in China. So I don’t think they are very
competitive in the China domestic market.

Establishing a logistics network in China was a complicated matter, requiring coverage of a vast
territory, navigating widely divergent terrains, and negotiating with numerous local governments.
Regulations affecting transportation could vary from location to location—for example, weight limits
for trucks, making logistics a more onerous production than in developed countries. Obstacles to
creating a highly integrated warehousing system like Haier’s were also numerous. In large cities like
Shanghai, it was difficult to find warehouse space large enough to accommodate the huge trucks
required for white goods. In the most remote areas it was a challenge to connect warehouses to a
company’s information network. “Setting up a warehouse and delivering goods to surrounding areas
in Inner Mongolia or Xinjiang Autonomous Region is difficult and expensive,” said Zhan. “It’s not
something you can build overnight. It involves a lot of infrastructure.”

Foreign multinationals could contract with one of the many independent Chinese logistics
companies to handle distribution, but costs would likely be higher and coverage areas were usually
limited to particular regions. “Foreign companies tend to cluster in the more developed costal areas
and there are many independent logistics companies based there. These companies don’t have
extensive penetration of internal regions of the country, but the volume of business is not that great in
those regions,” explained Zhan. Multinationals that wanted China-wide coverage would have to
patch together a national network using several different logistics companies. Still, many foreign
companies, such as Samsung, successfully outsourced logistics to Chinese service providers. Foreign
multinationals that tried to run their own distribution networks generally failed. The China Economic
Times attributed Whirlpool’s losses in the washing machine market to the multinational company’s
neglect of its Chinese JV partner’s existing distribution network. Whirlpool tried to establish its own
sales team and distribution channels, leading to high operating costs for its Chinese JV.42

Some Haier executives were cautious about relying on their strengths in the distribution and
service networks, or even on superior knowledge of the domestic market. Gao believed that foreign
companies entering China could access similar resources through third parties and become more
competitive if they adapted to local market needs. He elaborated:

They can spend money buying people who understand the China market, and they can buy
the sales channels and service as well. Electrolux came into China with nothing, and they took
people from Haier and quickly established a brand in China. So I don’t think these are the core
strengths for Haier. I think these tangible strengths are temporary. If we just sit on these
strengths, sooner or later GE will catch up. I think GE and Whirlpool are great companies with
a long history of over 100 years. They haven’t done very well in China because they have not
been very localized. If they get localized, I am sure they would do very well.

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Haier: Taking a Chinese Company Global

Haier in International Markets

Haier developed a formal global expansion strategy beginning in 1997 when Zhang announced
his “three thirds” goal of having Haier’s revenue derive in equal parts from sales of goods in three
categories: one-third from goods produced and sold in China, one-third produced in China and sold
overseas, and one-third produced and sold overseas. Overseas sales for 1998, largely to Europe and
the United States, amounted to just over $62 million, or about 3% of total Group sales.43 The creation
of Haier’s Overseas Promotion Division in 1999 signaled the beginning of rapid growth in
international sales through exports and overseas production, bringing the combined figure to nearly
17% of total revenue in 2004. (See Exhibit 1b.)

Haier had started to venture into overseas markets as a contract manufacturer for multinational
brands in the early 1990s, first exporting to the United Kingdom and Germany, and then to France
and Italy. Haier also used JVs to explore foreign markets. In 1994, Mitsubishi invested $30 million for
a 55% stake in a JV with Haier to set up China’s largest air conditioner plant. The Qingdao factory
would produce five of Mitsubishi’s latest models for export to Japan.44 In 1995, Haier became one of
the first Chinese companies to engage in foreign direct investment, setting up a refrigerator and air
conditioner plant in Indonesia as the majority partner in a JV with a local firm.45 In 1997 Haier
launched its first European manufacturing base, producing air conditioners in Belgrade through a JV
with a Yugoslav company.46

Haier refrigerators sold particularly well in Germany, where they were marketed by the German
appliance firm Liebherr under the “Blue Line” brand. When a blind quality test by a German
magazine gave Haier’s Blue Line refrigerators eight top rankings, beating Liebherr’s seven, Haier
decided it was time to market its own brand overseas. In 1997, Germany became the first export
market for Haier-branded refrigerators. The same year, Haier formed a JV with the Philippine
electronics company LKG to manufacture Haier-branded freezers, air conditioners, and washing
machines in the Philippines for sale to local and regional markets.47

Haier continued OEM production for foreign multinationals and actively sought new OEM
clients, but after 1999 the company was focused on selling Haier-branded products in overseas
markets. “The objective of most Chinese enterprises is to export products and earn foreign currency.
This is their only purpose,” said Zhang. “Our purpose in exporting is to establish a brand reputation
overseas.”48

Typically, Chinese manufacturers exported products under an OEM client brand. For example,
Kelon, Haier’s largest domestic rival, had overseas sales amounting to 12.5% of total revenue in
2003,49 but did not market its own brand overseas. At one time, Kelon-made refrigerators carrying
the Magic Chef brand sold alongside Haier-branded refrigerators at U.S. Wal-Mart stores.50 Because
of the low-quality image associated with Chinese-manufactured products, said Kelon’s chairman, the
company preferred to manufacture products for multinational OEMs.51

Haier, on the other hand, was willing to bear the early costs of establishing the firm as an
independent player overseas. “I predict that overseas profit growth will be a little slower than the
overall company’s profit growth,” said Zhang. “In some mature markets we will make profits, but in
entering new markets we may also at first lose money.”52

In pursuing expansion of its brand to international markets, Haier was emulating the strategies of
successful Japanese and Korean firms such as Sony, Samsung, and LG. LG Electronics, with total
2004 revenues of $24 billion (about 25% from white goods sales), was perhaps the most likely model
for Haier. LG produced the first Korean refrigerator in the 1950s, and expanded into other home
appliances and electronics. In the 1990s, following a makeover of its budget Lucky-Goldstar brand

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Haier: Taking a Chinese Company Global

706-401

into the higher-end LG brand, the company began its global expansion into strategic markets selected
primarily on the basis of market size and expected growth, openness to foreign businesses, and
intensity of competition. 53

LG decided to focus international expansion on China and Southeast Asia. The company also
established regional headquarters for Eastern Europe, Latin America, the Middle East, and Africa,
which were considered secondary but high-potential markets. Seeing no competitive advantage in
pursuing the developed markets of the United States, Japan, and Western Europe, LG initially
maintained only a modest presence in those regions.54 Aided by the fall of the Korean currency
during the late-1990s Asian financial crisis, LG’s overseas sales soared from 30% of appliance
revenues before the crisis to 70% in 2001. By 2004, LG’s overseas appliance sales reached about US $4
billion, and the company had made significant inroads in the U.S. market. However, while 82% of the
firm’s appliance sales were LG-branded, branded products accounted for just 55% of LG’s U.S.
sales.55

International Strategies

Focus on difficult markets first

Shunning conventional wisdom, Haier determined to focus

on the “difficult” developed markets first, and only after proving itself in those, to go after the
relatively “easy” emerging markets. In 2004, about 70% of Haier’s overseas sales came from the
developed markets of Europe, the United States, and Japan. Zhang explained the strategy:

Many Chinese enterprises will first export to Southeast Asia, for instance, which has
competitive markets but where there are no strong, dominant competitors. . . . We go to easier
markets after we first penetrate difficult markets such as the United States and Europe. These
are much bigger markets. They are also the home markets of our largest global competitors,
and we believe that if we can succeed there, we can succeed in easier markets.56

Haier also saw going into developed markets as a way to challenge itself to meet the highest
quality standards. “We chose the developed countries first because the requirements of both
customers and retailers are very tough and not easy to meet,” said Li Pan, Haier’s brand manager for
overseas markets. “For example, by entering the U.S. market, we learn the UL requirements and the
difference between the U.S. customers and the Chinese customers. We learn a lot of things that we
could not know if we just got into the Southeast Asian market or other developing markets.”

The prestige of having a brand that sold in Europe or the United States was such that Haier could
arrive in emerging markets with a ready-made reputation, thought Haier Overseas Division
executives. “Customers in India or the Middle East already know our brand because when they travel
they have seen our advertisements in Paris or Tokyo,” said one executive. Haier also used its U.S. and
European experience to convince emerging market retailers to carry Haier products. Haier found that
even having a few successful products in the developed markets opened the door to introducing the
full line of Haier products to developing markets, including high-end models, from the beginning.

“If we can effectively compete in the mature markets with such brand names as GE, Matsushita,
and Philips, we can surely take the markets in the developing countries without much effort,”
reasoned Zhang. “It is just like what we did with the domestic market. After Haier refrigerators had
taken Beijing and Shanghai, we met no difficulties getting into medium and small cities.”57

Begin with niche products

Haier typically entered developed markets with just a few

models to test the waters and steer clear of major competitors. “When we entered the U.S. market, we
found that nobody was making competitive refrigerators for students or for offices. So we offered

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Haier: Taking a Chinese Company Global

what the U.S. manufacturers did not make because for them the volume and prices were too low, and
within three years we had over 30% market share in compact refrigerators,” said Overseas Division
executive Diao Yunfeng. With minimal competition, the niche products brought in high margins,
added Diao. When others began to imitate, Haier added new features such as mini-fridges that
doubled as computer desks, aimed at college students living in dorms.

Having a very successful product like compact refrigerators or wine cellars in the U.S. allowed
Haier to get the attention of the major retail chains like Wal-Mart and Best Buy. Having developed a
relationship with them, Haier was in a stronger position to get the major chains to consider Haier’s
major appliances. “After we were successful in the niche products, then we started to introduce
regular products to the U.S. like the standard refrigerators, the apartment refrigerators, air
conditioners, washing machines, and other products,” said Diao.

Staff with locals

When entering a new market, “the first stage is to use the right people to

establish the structure,” said Li. “If we use local people, we can expand very quickly because local
people know the local market very well. If we use Haier, we don’t have enough human resources,
especially people with an international perspective, to expand worldwide.” Haier would begin by
identifying a local person with experience, preferably in a leading white goods firm, to head the
country operation. That person would hire a local team and develop sales and distribution channels.

“Our strategy is not just export; we want to use local people and local thinking to satisfy the needs
of the customer,” said Yang. “Compared to other foreign brands, we have an advantage in that we
have gathered experienced people who have worked for top brands to join us.” This is not the same
as what multinationals entering China have done, explained Yang. “When top foreign companies
come to China, they also use local Chinese, but these Chinese have not worked with major brands
before. So if they are using Chinese people with no brand experience to build their brand in China,
then they are in trouble.”

Li believed that in time Haier would have to place its own people in key positions overseas to get
better market intelligence. “We want to get more involved in the details ourselves. We have to know
the information at the end terminal. You have to have your own people who will report from the
field,” said Li. “People are our eyes, noses, and ears. If you don’t have the people, you don’t know
what is happening in the market. The country CEO cannot report on everything.”

Yang preferred to continue sending only temporary technical support teams from China while
relying on local partners to operate the business. Yang believed that U.S. consumers saw Haier as an
American brand, “because Haier is produced and sold by Americans,” she said. “We hope to have
Haier in each country be the Haier that they created. For example, in the United States, we hope that
it is Americans who build up Haier America,” said Yang. “If Americans can create GE and Whirlpool
and Electrolux, they can create Haier.”

International Divisions

Haier organized overseas sales into five large regional markets: The Americas, Europe, the Middle
East, Southeast Asia and East Asia. The Americas region, dominated by U.S. sales, accounted for
about 30% of overseas revenue, Europe for another 30%, and the remaining regions combined made
up the remaining 40%. Haier-branded products, about 80% in white goods, sold globally through 62
distributors and over 30,000 retail outlets. About 59,000 sales agents and 12,000 service personnel
supported sales operations. Haier operated 18 design institutes, 13 overseas factories, and 11
industrial complexes (eight in China and one each in the U.S., Pakistan, and Jordan.)58

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Haier: Taking a Chinese Company Global

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Haier’s formal International Divisions included JVs on five continents. Usually Haier was the
majority shareholder. In some cases, such as in the Middle East, Haier held a minority share in JVs.
Launched in Dubai, United Arab Emirates in 1999, Haier Middle East developed a network of
dealerships and service centers throughout the region. In 2002, Haier began manufacturing locally
through JVs with firms in Iran and Algeria that produced refrigerators, washing machines, and air
conditioners.59 Haier Industrial Park in Pakistan began production in 2002. The JV with the Pakistani
R Group, the country’s largest dealer of household appliances, took advantage of Pakistan’s largest
marketing and sales network for white goods.60 In 2001 Haier formed a JV with a Nigerian firm,
Nigeria Haier Company, and in 2002 Haier New Zealand launched. As of early 2005, Haier’s largest
overseas operations were in Europe and the United States, with the recently launched India operation
poised for rapid growth.

Haier America

Haier’s entry into the U.S. market began in 1994 when Michael Jemal, a partner

in a New York-based import company, Welbilt Appliances, approached the Qingdao manufacturer.
At the time, just three Haier compact refrigerator models met U.S. energy and safety standards, and
Jemal purchased 150,000 units to be sold in the U.S. All 150,000 sold under the Welbilt name within
the year, capturing 10% of the U.S. market for compact refrigerators.

Following the success of the Welbilt line of mini-refrigerators, in 1999 Haier and Jemal formed a
JV called “Haier America” to market a broader selection of products under the Haier brand. Haier
America launched with rented office space in Manhattan, 17 staff people, and a $50 million sales
target for the first year of operations. Jemal compared the new Haier operation to Sony’s 1960 startup
in a similarly dilapidated New York building. The difference was that Sony had brought 13 people
from Japan to staff the new business; the Haier team was all American, except for the accountant who
was sent from Qingdao.61 Haier America later moved its headquarters into a landmark building on
Broadway, which Haier purchased in 2001 for $14.5 million.

Haier established a $40 million industrial park and refrigerator factory in South Carolina. “Of
course, labor costs are much higher in the United States than they are in China. They can be 10 times
higher,” said Zhang. “But our strategy in the U.S. market is not to manufacture cheap products, take
them out of the factory, and push them into the market. We intend to manufacture quality products
that we can sell at a premium.”62 Haier’s U.S. factory had production capacity for 400,000 units per
year. In 2002 Haier sold 80,000 full-size refrigerators in the U.S., accounting for about 2% of the
market. Haier’s U.S. factory, even after a planned expansion, did not have capacity for producing
Haier’s 10% target market share, so Haier planned to supplement with exports from China.63

Jemal focused on getting Haier products into the large chain retailers such as Home Depot, Best
Buy, and Office Depot. (See Exhibit 7 for U.S. distribution channels.) The most difficult one to break
into was Wal-Mart, recalled Jemal. “It took us a whole year just to get an appointment.” Wal-Mart
finally agreed to look at Haier’s room air conditioners, and after testing different products for quality
and visiting Haier’s manufacturing facilities in Qingdao, placed an order for 50,000 units. The next
year, Wal-Mart doubled its order. In 2002, Haier sold 400,000 units of compact refrigerators, washing
machines, and air conditioners to the giant retailer. In March 2005, Wal-Mart’s online site listed 44
different Haier products, most targeted to the college student market. The best-sellers were a $140
compact refrigerator, a 125-can beverage center for $165, and a $200 portable clothes washer.
Topping Wal-Mart’s list of Haier products was a half-keg beer dispenser selling for $675.64

The focus on niche markets enabled Haier to avoid head-on competition with the likes of GE,
Whirlpool, Maytag, and Frigidaire, which together accounted for 98% of U.S. sales of full-size
refrigerators. “We don’t look to compete with them, because they are much bigger than we are,” said
Jemal. “We believe we have our separate position in the market, and they have theirs. They can step
on us anytime they want, because we are so small compared to them in the United States.”65 (See

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706-401

Haier: Taking a Chinese Company Global

Exhibits 8 and 9 for U.S. appliance market shares.) In 2005 Euromonitor reported that Haier had a
26% share for compact refrigerators, over 50% of the wine cellar market, and 17% of air conditioner
sales in the United States.66

Haier Europe

In 2000 Haier Europe, headquartered in Varese, Italy, near the Swiss border,

began coordinating sales and marketing of Haier products in 13 European countries, growing to 17
markets by 2004. Product lines included refrigerators, freezers, washing machines, dishwashers,
microwave ovens, and small appliances, all designed specifically for the European market. Haier
chose a former sales executive of Italy’s Merloni, Europe’s third-largest appliance maker, to head its
European operations. The Italian executive had started his own trading company, selling GE,
Whirlpool, and Siemens products, before joining Haier.67

In 2001, Haier invested $8 million to acquire a refrigerator plant in Padova, Italy, from Meneghetti
SpA, one of Italy’s largest manufacturers of built-in appliances made to match kitchen cabinetry. The
new Haier plant manufactured built-in refrigerators and freezers for the expanding built-in sector,
popular in the European market. In 2002, a new Italy-based company, Haier A/C Trading, began
distributing Haier air conditioners in the local market.68 By 2004 Haier had an estimated 10% share of
European air conditioner sales.69 Haier’s European HQ in Varese coordinated logistics through four
distribution centers in Italy, Spain, the United Kingdom, and the Netherlands.

The European appliance market was similar to the U.S. market in size and degree of development,
but significant differences in distribution channels and consumer preferences across countries made it
difficult for manufacturers to establish scale economies. For example, most Europeans favored front-
loading washers, but in France, one of the largest markets, consumers preferred top-loaders.
Independent appliance retailers dominated in Germany and Italy, while chain stores were common
in France and the United Kingdom. There were few pan-European appliance retailers, and national
and independent stores often favored domestic manufacturers. As a result, multinational appliance
manufacturers had often found themselves at a disadvantage to local national players that tended to
dominate in individual countries.70

Haier India

Haier earmarked India as a potential high-growth market, and invested heavily in

building up production, distribution, and sales capacities in the country. In 1999 Haier formed an
alliance with Indian appliance firm Fedder Lloyd Corp. to jointly produce and market refrigerators
nationally. In January 2004 Haier launched a broad range of products in the Indian market, with the
goal of becoming one of the top three white goods firms in India within five to seven years. A few
months later, Haier announced a $200 million investment in India over four years to establish a
refrigerator factory and research and development center that would serve as a production site for
Southeast Asian and African markets. In June 2004, Haier India formed an alliance with Whirlpool
and Voltas to manufacture refrigerators and air conditioners for the Indian market.71

In India, Haier discovered that the “easy” emerging markets were not so easy. The biggest
challenges for Haier in India were “the environment, the economy, and especially the channels,” said
Li. “In the United States you can easily find the top 10 chain stores. But in India, you cannot find
them.” Haier found that emerging markets required an even greater reliance on locals. Haier
employed a former Whirlpool India executive to head Haier India. “This key person explains the
whole market to us, including how to develop the channels and how to do the marketing, and we just
provide the product. He chooses the products and proposes modifications for the local market,” said
Li. “He also helped us to find the right factory, find the best way to assemble the product, and get it
to the distributor. In India we used local human resources to help us establish the whole business.”

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Haier: Taking a Chinese Company Global

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Competing Abroad

Zhang explained his two-pronged strategy for competing with local brands on Haier’s home turf:

Consumers in the United States are used to popular brands like GE and Whirlpool, so
they’ll wonder why they should choose a brand they’ve never heard of. But large companies
are established and slow moving, and we see an opportunity to compete against them in their
home markets by being more customer-focused than they are. To win over those consumers
we have two approaches: speed and differentiation.72

Product differentiation

Just as in China, Haier paid close attention to consumer needs in

overseas markets and was willing to make small product modifications to please customers. “Our
strategy for selling large refrigerators is the same as for compact refrigerators,” said Zhang. “We send
our R&D people to the United States to talk directly with our customers, or even with the salespeople
in chain stores, to find out their specific needs.”73 Haier’s market research resulted in simple
innovations such as a freezer with a separate compartment to keep ice cream at a slightly warmer
temperature, making it softer and easier to serve. “Consumers like the features we provide,” said
Zhang. “Large manufacturers aren’t paying attention to such minor details.”74

Response speed

Haier’s 18 design centers, some in foreign markets, facilitated rapid product

development. Ideas from the field could be quickly tested and made into prototypes. For example,
having noted that American customers did not like deep-box freezers because items at the bottom
were difficult to reach, during a visit to Qingdao, Jemal suggested to Zhang a two-level model with a
drawer on the bottom. Seventeen hours later, Jemal was presented with a working model of his
design. Haier executives also credited the firm’s flat structure with aiding speed. Salespeople would
provide market intelligence directly to model managers who, in competition with each other, would
quickly assess the feasibility and profitability of a design before mobilizing resources to produce it.

The Next 20 Years

Haier faced a number of challenges in the coming years, including moving beyond niche markets
in the United States to its goal of introducing a full line of products. While Haier had done well on a
small scale, some industry observers doubted whether a Chinese company could break into the major
leagues. “As a brand, Haier doesn’t work,” said a U.S. industry analyst. “People may buy a dorm
refrigerator from Haier, but I don’t think they’ll spend a lot of money on an appliance from a
company they’ve never heard of.”75 A Whirlpool executive believed that “one of the steps that many
of the Asian companies have missed is the huge investment that’s required to build brand equity.”76
But in 2005, Haier was spending about 10% of revenues on global branding and marketing, more
than double the industry average.77

Haier would also continue to be challenged at home. Whirlpool and Electrolux had invested
millions of dollars on factories and distribution in China. According to Euromonitor, “These
companies believe that going head–to-head with Haier Group in its domestic market will prevent it
from gaining the profits it might otherwise use to support its advance in the U.S.”78

Haier’s leadership was most concerned with securing the human resources needed to maintain
rapid growth, especially to manage foreign markets. Haier also needed talent to develop the next
generation of products. The company planned to combine its expertise in white goods with
information technology, a relatively new area for Haier, to produce “intelligent” home appliances.

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Haier: Taking a Chinese Company Global

But above all, Haier kept its eye on developing the brand. “We are number three in the world for
white goods,” said Yang. “We want to be number one.” Haier planned to get there one step at a time,
securing market leadership at home in each sector, and then taking that product line into the global
market. “In the international market, we want to get a 10% share to begin with. After that, we can
expand more.” Haier’s long-term goal was to achieve Zhang’s vision of one-third domestic sales, one-
third exports, and one-third produced and sold abroad, said Yang. “Exports are about 20% now, and
overseas made are at less than 10%—so the potential is great.”

16
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Haier: Taking a Chinese Company Global

706-401

Exhibit 1a

Haier Group Approximate Revenue and Net Profit (in RMB billions)

RMB bil

Revenue
YoY growth

1994

2.6
72%

1995

4.3
69%

1996

6.2
42%

1997

10.8
75%

1998

16.8
56%

1999

26.9
60%

2000

40.6
51%

2001

60.2
48%

2002

72.0
20%

2003

80.0
11%

2004

100.0
25%

Net profit
Net margin

1.4
3.4

2.0
3.3

2.7
3.8

1.6
2.0

1.9
1.9

Source:
Note:

Company documents.
Profit data for 1994–1999 was not available. Haier attributed the 2003 decline in profit to price wars in the domestic
market and to increased investments in overseas markets.

Exhibit 1b

Haier Group Approximate Revenue Breakdown (in US$ millions)

US$ millions

Domestic sales
as % of total revenue

Exports from China
as % of total revenue

Overseas made & sold
as % of total revenue

Total revenue

1998

1,971
97.0

62
3.0

<1
na

2,033

1999

3,112
95.8

138
4.2

<1
na

3,250

2000

4,633
94.3

280
5.7

<1
na

4,913

2001

6,861
94.2

424
5.8

<1
na

7,284

2002

7,868
90.3

444
5.1

400
4.6

8,712

2003

8,648
89.3

532
5.5

500
5.2

9,680

2004

10,100
83.4

1,000
8.3

12,100

Source:

Company documents.

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706-401

Exhibit 2a

Haier: Taking a Chinese Company Global

Manufacturer Global Market Shares for Large Kitchen Appliancesa (retail volume)

Manufacturer

Whirlpool Corp
Electrolux AB
Bosch-Siemens Hausgerate
General Electric (GE)
Haier Group
Matsushita Ltd
Maytag Corp
LG Group
Sharp Electronics
Merloni Elettrodomestici
Samsung Electronics Co
Wuxi Little Swan Co
Others
Total

Base Country

United States
Sweden
Germany
United States
China
Japan
United States
Korea
Japan
Italy
Korea
China

2001 Volume %

7.9
7.3
5.8
5.3
3.2
3.1
3.0
2.4
2.6
2.3
1.8
1.5
53.8
100.0

2002 Volume %

7.9
7.1
5.7
5.4
3.8
3.2
3.1
2.6
2.6
2.5
2.0
2.0
52.1
100.0

Exhibit 2b

Brand Global Market Shares for Large Kitchen Appliancesa (retail volume)

Brand

Whirlpool
GE
Haier
Bosch
Sharp
LG
Maytag
Samsung
Little Swan
National
Siemens
Electrolux
Others
Total

Manufacturer

Whirlpool Corp
General Electric (GE)
Haier Group
Bosch-Siemens Hausgerate
Sharp Electronics
LG Group
Maytag Corp
Samsung Electronics Co
Wuxi Little Swan Co
Matsushita Ltd
Bosch-Siemens Hausgerate
Electrolux AB

2001 Volume %

5.2
3.7
3.2
2.8
2.6
2.2
1.9
1.8
1.5
1.8
1.7
1.5
70.1
100.0

2002 Volume %

5.2
3.8
3.8
2.8
2.6
2.5
2.0
2.0
2.0
1.9
1.6
1.6
68.2
100.0

Source:

Note:

Euromonitor International, “The World Market for Domestic Electrical Appliances,” February 2004, available from
Global Market Information Database, http://www.euromonitor.com, accessed May 24, 2005.
Manufacturers with more than one major brand may have a high manufacturer market share and lower brand

shares.
aLarge Kitchen Appliances included refrigerators, freezers, stoves, ovens, washers, dryers, microwave ovens, and dishwashers.

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infringement of copyright. [email protected] or 617.783.7860.

Haier: Taking a Chinese Company Global

706-401

Exhibit 3a

Qingdao Haier Financials in RMB millions, 2000–2004

Year ended December 31

2000

2001

2002

2003

2004

Income Statement

Sales revenue
Operating costs
Taxes
Net profit

4,828
6,135
48
424

11,442
11,098
201
618

11,554
11,548
108
397

11,688
11,570
100
369

15,299
14,892
113
369

Balance Sheet

Current assets
Total assets
Current liabilities
Long term debt
Total liabilities
Total equity

2,263
3,934
828
NA
1,123
2,810

3,445
6,942
1,613
NA
2,010
4,932

3,494
7,324
1,664
0
2,065
5,259

4,020
7,373
1,392
138
1,984
5,389

3,958
7,107
783
138
1,389
5,719

Cash Flows

Operating activities
Investing activities
Financing activities
Net change in cash
Cash beginning balance
Cash ending balance

478
-461
-126
-109
491
382

702
-2,365
1,914
250
382
632

391
-658
218
-50
632
582

424
206
-363
267
582
849

738
-149
-704
-115
830
715

Exhibit 3b

Qingdao Haier Financial Ratios, 2000–2004

Year ended December 31

2000

2001

2002

2003

2004

Liquidity Ratios

Current ratio
Quick ratio
Working capital (US$ mil)

2.7
2.3
173.4

2.1
1.8
221.3

2.1
1.5
221.1

2.9
2.5
317.5

5.1
4.0
383.5

Operating Ratios

Asset turnover
Inventory turnover
Receivables turnover

1.3
9.1
7.3

2.1
20.1
15.4

1.6
16.5
15.6

1.6
16.5
18.9

2.1
18.3
19.5

Profitability Ratios (%)

Gross margin
Operating margin
EBITDA margin
Profit margin
Return on equity
Return on assets
SG&A expense/sales

18.0
7.7
9.7
8.9
15.7
11.0
10.4

16.6
8.6
10.1
5.4
16.0
11.4
8.2

12.9
5.6
7.2
3.4
7.8
5.6
7.6

14.5
5.2
6.8
3.2
6.9
5.0
9.5

13.1
4.1
5.5
2.4
6.7
5.1
9.1

Source:

Company documents.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

706-401

Exhibit 4

Qingdao Haier 2003 Revenues by Product

Haier: Taking a Chinese Company Global

Product category

Air conditioners
Refrigerators
Freezers
Small electrical appliances
Other

Revenues (as % of RMB 11.7 billion total)

52
28
7
4
9

Source: Adapted from “Qingdao Haier,” China Securities Research, November 8, 2004, available from
Thomson Research/Investext, http://research.thomsonib.com, accessed April 9, 2005.

Exhibit 5

China’s Household Penetration Rates for Consumer Goods

1985

1990

1995

2000

2001

2002

Refrigerators

Urban
Rural

6.6

42.7

66.2
5.2

80.1
12.3

81.9
13.6

87.4
14.8

Air Conditioners

Urban
Rural

1.4

8.1
0.2

30.8
1.3

35.8
1.7

51.1
na

Washing Machines

Urban
Rural

48.3

78.4

89.0
16.9

90.5
28.6

92.2
29.9

92.9
31.8

Color Televisions

Urban
Rural

17.2

59.0

89.8
16.9

116.6
48.7

120.5
54.4

126.4
48.1

Source:

Graham Ormerod, “Guangdong Kelon: A White Good Comeback Play,” G.K. Goh Research, August 29, 2003,

available from Thomson Research/Investext, http://research.thomsonib.com, accessed April 9, 2005.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

Haier: Taking a Chinese Company Global

706-401

Exhibit 6a

Refrigerator Market Shares in China (retail volume)

Company
Haier Group
Guangdon Kelon
Henan Xinfei
Wuxi Bosch-Siemens
Changsha Zhongyi Group
Nanjing LG Panda Appliance
Hefi Meiling Group
Suzhou Samsung
Hefei Rongshida Group
Panasonic China
Others

Leading Brands
Haier
Kelon, Ronshen, Combine
Xinfei
Siemens
Electrolux
LG
Meiling
Samsung
Rongshida
Panasonic

2002 (%)
26.7
13.4
8.5
8.4
10.1
4.9
8.4
4.2
2.6
1.7
11.1

2003(%)
26.2
12.4
8.5
8.4
7.7
7.0
7.8
3.9
3.6
2.3
12.1

2004(%)
28.2
10.8
8.9
8.5
6.9
6.6
6.1
4.4
4.1
2.9
12.8

Exhibit 6b

Washing Machine Market Shares in China (retail volume)

Company
Haier Group
Wuxi Little Swan
Hefei Rongshida Group
Nanjing LG Panda Appliance
Matsushita Electric China
Shanghai Whirlpool
Wuxi Bosch-Siemens
Suzhou Samsung
Hefei Royalstar
Jiangmen Jinling
Others

Leading Brands
Haier
Little Swan
Rongshida
LG
National
Whirlpool
Siemens
Samsung
Sanyo
Jinling

2002 (%)
25.8
20.7
10.6
5.0
6.1
4.0
3.5
2.7
2.4
3.4
16.0

2003(%)
25.7
18.8
10.0
6.7
6.0
4.2
3.6
3.1
2.4
2.2
17.4

2004(%)
30.4
16.5
10.6
7.0
6.3
4.0
3.6
2.8
2.6
1.9
14.2

Exhibit 6c

Air Conditioner Market Shares in China (retail volume)

Company
Haier Group
GD Midea Holding
Chuhai Gree
LG Electronics (Tianjin)
Ningbo O
Qingdao Hisense
Guangdon Kelon
Chunlan Group
Guangdong Chigo
TCL
Others

Leading Brands
Haier
Midea
Gree
LG
Ningbo
Hisense
Kelon, Ronshen, Combine
Chunlan
Chigo
TCL

2002 (%)
16.3
10.9
7.4
5.5
4.0
6.2
5.6
2.6
1.0
1.6
38.8

2003(%)
16.6
10.9
9.1
6.4
6.5
5.7
5.8
2.5
1.5
1.9
33.0

2004(%)
17.5
11.4
10.0
6.4
6.1
5.6
5.7
4.0
3.2
3.0
27.0

Source:

Provided by Haier, based on data from Chinese State Statistic Bureau, China Market Monitor Company, Ltd.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

706-401

Exhibit 7

Haier: Taking a Chinese Company Global

United States White Goods Sales ($ millions) and Distribution Channels (%), 2003–2004

2003

2004

Refrigerators
Sears
Mass merchandisers & clubs
Appliance stores
Home improvement centers
Others
Laundry appliances
Sears
Mass merchandisers & clubs
Appliance stores
Home improvement centers
Others
Room air conditioners
Sears
Mass merchandisers & clubs
Appliance stores
Home improvement centers
Others
Cooking appliances
Sears
Mass merchandisers & clubs
Appliance stores
Home improvement centers
Others

$5,649.4
38.5
7.5
28.5
22.5
3.0
$5,325.8
40
8
28
20
4
$1,655.6
17
31
14
28
10
$2,998.4
36
6
32
23
3

$6,149.4
40.0
9.0
28.0
20.0
3.0
$5,946.2
42
8
27
18
5
$1,392.4
17
39
15
23
6
$3,276.2
36
6
34
19
5

Source:

Adapted from Gerry Beatty, “Most White Goods Rose in 2004,” HFN, February 28, 2005, p. 44, available from
Factiva, www.factiva.com, accessed March 11, 2005.

Exhibit 8

U.S. Large Household Appliance Market Shares (%)

Company

Whirlpool
General Electric
Maytag
Electrolux (Frigidaire)

1998

35.7
28.5
17.0
11.9

1999

35.6
28.5
18.2
11.8

2000

33.1
26.6
17.9
16.6

2001

33.0
28.5
19.0
16.7

2002

33.7
28.5
16.4
17.7

2003

33.3
26.1
14.3
19.7

4.7

3.9

2.5

Others

2.2

2.0

3.3

2.8

3.7

6.6

Total

100.0

Source:

Laura A. Champine and Anand Krishnan, Morgan Keegan Equity Research, “Whirlpool Corporation,” March 14,

2005, available from Thomson Research/Investext, http://research.thomsonib.com, accessed April 28, 2005.
aAmana was acquired by Maytag in 2001.
b“Others” included Asian competitors such as Haier, LG, and Samsung which together accounted for much of the 2003
share increase.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

Haier: Taking a Chinese Company Global

706-401

Exhibit 9

Asian Manufacturers in U.S. Appliance Market, 2003

Market

Price

Major

Major Prod

Other Product

Company

1.9 %

Range

mid to high

Products

refrigerators,

Other Products

microwaves, A/Cs,

Distributor

Best Buy

Distributors

Sears,

(Korean)

washers,
dryers

vacuum cleaners,
compact refrigerators,

Best Buy

dehumidifiers, toasters

Samsung

1.6 %

high

refrigerators,

microwaves, A/Cs,

Best Buy

Sears

(Korean)

washers,
dishwashers

vacuum cleaners,
dehumidifiers

Haier

1.0 %

low

refrigerators,

microwaves, A/Cs,

Best Buy

Wal-Mart,

(Chinese)

freezers,
washers,
ranges

compact refrigerators,
wine coolers, compact
dishwashers

Lowe’s, Sears,
Home Depot,
Target

Daewoo

.5 %

low

None

microwaves, A/Cs,

n/a

Best Buy,

(Korean)

compact refrigerators

Home Depot

Source:

Michael Rehaut, Jonathan F. Barlow, JP Morgan North American Equity Research, “Appliance Industry: Imports,

Distribution Shift Drives Negative Outlook,” January 8, 2004, available from Thomson Research/Investext,
http://research.thomsonib.com, accessed April 28, 2005.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

706-401

Endnotes

Haier: Taking a Chinese Company Global

Zhang Ruimin quoted in Pamela Yatsko, “To Serve and Profit: A Chinese Fridge-Maker Wows Customers

with Service,” Far Eastern Economic Review, October 17, 1996, available from Factiva, http://www.factiva.com,
accessed November 1, 2004.

Zhang Ruimin quoted in Yibing Wu, “China’s Refrigerator Magnate,” The McKinsey Quarterly No. 3, 2003,

available at http://www.mckinseyquarterly.com, accessed February 23, 2005.

“The Asian Wall Street Journal 200 (A Special Report): How Asia’s National Champion’s Stack Up,” The

Asian Wall Street Journal, February 21, 2005, available from Factiva, http://www.factiva.com, accessed March 10,
2005.

“Business in China—The Next Stage,” Asia Pulse, March 17, 2005 and “Haier Ranks Second in Global

Refrigerator Markets,” China Daily, January 12, 2002, available from Factiva, http://www.factiva.com, accessed
November 1, 2004.

Access Asia Limited, “Refrigerators and Freezers in China: A Market Analysis,” April 2005, available from

ISI Emerging Markets, http://www.securities.com, accessed May 25, 2005.

Dexter Roberts et al., “China’s Power Brands: Bold Entrepreneurs are Producing the Mainland’s Hot

Consumer Products,” BusinessWeek, November 8, 2004, available from Factiva, http://www.factiva.com,
accessed March 10, 2005.

This section is largely based on Lynn Sharp Paine, “The Haier Group (A),” HBS Case No. 398-101, rev. July

27, 2001, Harvard Business School Publishing, 2001.

Pamela Yatsko, “To Serve and Profit.”
Zhang Ruimin quoted in Lynn Sharp Paine, “The Haier Group (A),” p. 7.

Ibid., p. 6.
Jeannie J. Yi and Shawn X. Ye, The Haier Way: The Making of a Chinese Business Leader and a Global Brand

(Dumont, New Jersey: Homa & Sekey Books, 2003), pp. 30 and 65.

Zhang Ruimin quoted in Lynn Sharp Paine, “The Haier Group (A),” p. 7.
Jeannie J. Yi and Shawn X. Ye, The Haier Way, p. 65.
Jeannie J. Yi and Shawn X. Ye, The Haier Way, pp. 65-66. Zhang eventually secured 240 RMB in bank loans,

which together with the IPO revenue and Haier’s own funds, paid for the industrial park by 1996.
15 “Haier Group Buys Up Ailing State Firms,” South China Morning Post, September 14, 1997, available from
Factiva, http://www.factiva.com, accessed November 1, 2004.
16 “China and the Chaebol,” The Economist, December 20, 1997, available from ProQuest, ABI/Inform,
http://www.proquest.com, accessed April 10, 2005; and Jeannie J. Yi and Shawn X. Ye, The Haier Way, pp. 66-67.

Lynn Sharp Paine, “The Haier Group (C),” HBS Case No. 398-162, rev. July 27, 2001, Harvard Business

School Publishing, 2001, p. 2.

“Haier Group Buys Up Ailing State Firms,” South China Morning Post, September 14, 1997, available from

Factiva, http://www.factiva.com, accessed November 1, 2004.
19 “End of Golden Age Brings Painful Change,” South China Morning Post, March 12, 1998, available from
Factiva, http://www.factiva.com, accessed November 1, 2004.

This section is based largely on Jeannie J. Yi and Shawn X. Ye, The Haier Way, pp. 149-162.
Access Asia Limited, “Refrigerators and Freezers in China: A Market Analysis.”

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

Haier: Taking a Chinese Company Global

706-401

Scott Stevens, “Don’t Blink: Household Electrical Appliances ’96 Exhibition in Beijing, China,” Appliance 39

Vol. 53, No. 10, October 1, 1996; and Li Yan, “Fridge Firms Face Tough Competition from Abroad,” Business
Weekly, February 16, 1997, both available from Factiva, http://www.factiva.com, accessed November 1, 2004.

Winston Yau, “Haier’s Earnings Defy Domestic Price War,” South China Morning Post, March 30, 2002,

available from Factiva, http://www.factiva.com, accessed November 1, 2004.

“Online Extra: Kelon: ‘We are a Multibrand Company,’” BusinessWeek Online, November 8, 2004,

http://www.businessweekasia.com, accessed May 17, 2005.
25 Ben Paul, “Stalking the Dragon,” The Edge (Singapore), September 16, 2002, available from Factiva,
http://www.factiva.com, accessed November 1, 2004.
26 “China’s Kelon Cuts Refrigerator Prices,” Xinhua Financial Network, March 2, 2004, available from Factiva,
http://www.factiva.com, accessed November 1, 2004.

Liu Congmeng quoted in Lee Chyen Yee, “China’s Guangdon Kelon Turns Inward for Growth,” Reuters

News, March 4, 2003, available from Factiva, http://www.factiva.com, accessed November 1, 2004.

“Konka to Concentrate on Refrigerator,” SinoCast China IT Watch, 26 November 2003, available from

Factiva, http://www.factiva.com, accessed November 1, 2004.
29 “HK Guangdong Kelon Electrical Hldgs FY Loss CNY44.7M,” Dow Jones Chinese Financial Wire, April 28,
2005, available from Factiva, http://www.factiva.com, accessed May 6, 2005.
30 “Whirlpool to Make Refrigerators in China,” Reuters News, December 5, 1994, available from Factiva,
http://www.factiva.com, accessed November 1, 2004.

Zhang Ruimin quoted in Scott Stevens, “Don’t Blink.”
Scott Stevens, “Don’t Blink.”
Ibid.

34 “Infatuation’s End,” The Economist, September 25, 1999, available from Factiva, http://www.factiva.com,
accessed March 15, 2005.
35 “China—Whirlpool Misunderstood China Market Experts Say,” ChinaOnline, March 19, 2002, available
from LexisNexis Academic, http://web.lexis-nexis.com, accessed June 8, 2005.

“Infatuation’s End.”

37 “Whirlpool Steps up China Comeback,” Dow Jones International News, October 28, 2001; and “Whirlpool
Relaunching Stratagem in China,” AsiaPort Daily News, March 29, 2002; both available from Factiva,
http://www.factiva.com, accessed March 15, 2005.

Zhang Ruimin, quoted in Yibing Wu, “China’s Refrigerator Magnate.”

39 Andrew Browne, “Haier Group Never Says ‘No’,” Reuters News, December 9, 1997, available from Factiva,
http://www.factiva.com, accessed March 15, 2005.

Zhang Ruimin, quoted in Yibing Wu, “China’s Refrigerator Magnate.”
Pamela Yatsko, “To Serve and Profit.”
“China—Whirlpool Misunderstood China Market Experts Say,” ChinaOnline, March 19, 2002, available

from LexisNexis Academic, http://web.lexis-nexis.com, accessed June 8, 2005.

Gao Wei, “Haier Plans Overseas Expansion,” Business Weekly, July 4, 1999, available from Factiva,

http://www.factiva.com, accessed March 15, 2005.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

706-401

Haier: Taking a Chinese Company Global

“Zhang’s Qingdao Masterpiece,”

Business

Weekly,

June

19,

1994,

available

from

Factiva,

http://www.factiva.com, accessed November 1, 2004.

James Hardin, “China’s Future Dragons—Successful Companies are Emerging,” Financial Times, August

14, 1997, p. 17, available from Factiva, http://www.factiva.com, accessed November 1, 2004.

Jeannie J. Yi and Shawn X. Ye, The Haier Way, p. 199.
Ibid., p. 191.
Zhang Ruimin, quoted in Yibing Wu, “China’s Refrigerator Magnate.”
Guangdon Kelon’s chairman, Gu Chujun, reported 2003 revenues of $4 billion and overseas sales of

revenue of $500 in “Online Extra: Kelon: ‘We are a Multibrand Company.’”

“Chinese Brands Out of the Shadows,” The Economist, August 28, 1999, available from Factiva,

http://www.factiva.com, accessed November 1, 2004.

“Online Extra: Kelon: ‘We are a Multibrand Company.’”
Zhang Ruimin, quoted in “Online Extra: Haier: ‘Local Resources’ are Key Overseas,” BusinessWeek Online,

November 8, 2004, http://www.businessweekasia.com, accessed May 17, 2005.

J. Stewart Black, Allen J. Morrison and Young Chul Chang, “LG Group: Developing Tomorrow’s Global

Leaders,” IVEY Case No. 9A98G009, January 22, 1999, Ivey Management Services, 1998, p. 12.

Ibid.
Moon Ihlwan, “White-Hot Goods: LG Electronics is Ringing Up Huge Overseas Sales,” BusinessWeek,

September 30, 2002, available from Factiva, http://www.factiva.com, accessed May 16, 2005.

Zhang Ruimin, quoted in Yibing Wu, “China’s Refrigerator Magnate.”
Zhang Ruimin, quoted in Jeannie J. Yi and Shawn X. Ye, The Haier Way, p. 188.
“Haier Group,” Euromonitor International, January 2005, available from http://www.euromonitor.com,

accessed March 28, 2005.

Jeannie J. Yi and Shawn X. Ye, The Haier Way, p. 191.
Ibid.
Ibid., pp. 205-225.
Zhang Ruimin quoted in Yibing Wu, “China’s Refrigerator Magnate.”
Yibing Wu, “China’s Refrigerator Magnate.”
Wal-Mart Web site, http://www.walmart.com, accessed March 17, 2005.
Jeannie J. Yi and Shawn X. Ye, The Haier Way, p. 214.
“Haier Group,” Euromonitor International, January 2005, available from http://www.euromonitor.com,

accessed March 28, 2005.

Jeannie J. Yi and Shawn X. Ye, The Haier Way, p. 199.
Ibid., p. 201.
“Haier Group,” Euromonitor International.

70 Charles W.F. Baden-Fuller and John M. Stopford, “Globalization Frustrated: The Case of White Goods,”
Strategic Management Journal 12, October 1991, pp. 493-507, available from ProQuest, ABI/Inform,

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

Haier: Taking a Chinese Company Global

706-401

http://www.proquest.com, accessed June 8, 2005; and U. Srinivasa Rangan and Jonathan Roche, “Whirlpool
Corporation, 2002,” Babson College case number BAB048, November 6, 2003.

“Haier Group,” Euromonitor International.
Zhang Ruimin, quoted in Yibing Wu, “China’s Refrigerator Magnate.”
Ibid.
Ibid.

75Michael

Arndt, “Can Haier Freeze Out Whirlpool and GE?” BusinessWeek Online, April 11, 2002, available

from Factiva, http://www.factiva.com, accessed March 15, 2005.

David L. Swift, executive vice president of Whirlpool Corp.’s North American region, quoted in Dexter

Roberts et al., “China’s Power Brands.”
77 Ben Uglow, Paloma Danjuan, and Martin Wilkie, Morgan Stanley Equity Research Europe, “Asia: Notes
from Our Trip,” Capital Goods Industry Research, January 10, 2005, p. 8, available from Thomson Research/
Investext, http://research.thomsonib.com, accessed March 10, 2005.

“Haier Group,” Euromonitor International.

This document is authorized for use only by SURESH VISHWANATH until September 2007. Copying or posting is an
infringement of copyright. [email protected] or 617.783.7860.

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