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Haier OCD Presentation

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Haier OCD Presentation

  1. 1. HAIER : TAKING A CHINESE COMPANY GLOBAL Amit kejriwal Dipika mukim M Satya Kalyan Srivatsava Sridhara Sirinus Topno Group 6
  2. 2. Agenda <ul><li>Case background </li></ul><ul><li>Haier – Till Now </li></ul><ul><li>Organization Concepts </li></ul><ul><li>Haier Worldwide </li></ul><ul><li>Recommendations </li></ul>
  3. 3. <ul><li>CASE BACKGROUND </li></ul>
  4. 4. Company Background <ul><li>Founder and CEO : Zhang Ruimin </li></ul><ul><li>Started in 1984 in Chinese Port city of Quingdao by taking over a failing refrigerator factory </li></ul><ul><li>Ranked China’s number one by The Asian Wall Street Journal 2004 </li></ul><ul><li>Celebrated its 20 th anniversary in 2004 with annual sales topping RMB 100 billion </li></ul><ul><li>world’s 4th largest White goods manufacturer and 3 rd in revenues </li></ul>
  5. 5. Challenges Ahead (2004) <ul><li>To become China’s first multinational brand and succeed internationally </li></ul><ul><li>Continue its dominance on home turf and defend against the onslaught of foreign giants like GE, Electrolux and Whirlpool </li></ul>
  6. 6. <ul><li>HAIER- TILL NOW </li></ul>
  7. 7. First 20 years <ul><li>Born in the year 1984 when Zhang took over a failing refrigerator factory </li></ul><ul><li>Factory was a collective enterprise whose ultimate authority was municipal government. </li></ul><ul><li>Workers were collective owners of assets and shared profits </li></ul><ul><li>Zhang’s business philosophy </li></ul><ul><ul><li>Quality focus </li></ul></ul><ul><ul><li>Technology licensing agreement with Liebherr, Imported freezer and air conditioner production lines from Derby, Denmark and Sanyo, Japan, JV’s with Mitsubishi, Japan and Merloni, Italy to improve quality levels </li></ul></ul>
  8. 8. Change Management By Zhang <ul><li>Major driving force </li></ul><ul><ul><li>Dissatisfaction with the present situation and coercive tactics </li></ul></ul><ul><ul><li>Ex: </li></ul></ul><ul><ul><li>Thrashing of faulty refrigerators </li></ul></ul><ul><ul><li>Workers at the end of everyday explainig about their failings to assembled colleagues which ensures no repetition of the same mistake </li></ul></ul><ul><li>Restraining force </li></ul><ul><ul><li>The Comfort Zone -> Reinforcing on quality and even charging premium for the same in the market. </li></ul></ul><ul><ul><li>what is in it for me -> Collective ownership and hence sharing of profits </li></ul></ul>
  9. 9. Outcomes <ul><li>Made a profit of RMB 1 million in its second year </li></ul><ul><li>It stuck to brand building and focus on quality </li></ul><ul><li>Won the gold medal for quality in national refrigerator competition </li></ul><ul><li>In 1989, supply outstripped demand </li></ul><ul><ul><li>Competitors cut price – result – a price war but Haier increased its price. </li></ul></ul><ul><ul><li>Haier commanded a brand premium of 15% in the market </li></ul></ul>
  10. 10. Growth and Diversification Stage <ul><li>“ Now we could let our reputation precede our newproducts” – Zhang </li></ul><ul><li>Zhang decided it was the time to diversify </li></ul><ul><li>Took over two sick companies Qingdao Air conditioner factory and Qingdao General freezer factory </li></ul><ul><li>In 1992, acquired 500 acres of Qingdao land for a new industrial park – large capital </li></ul><ul><ul><li>Went public – IPO in the year 1993 </li></ul></ul>
  11. 11. Growth and Diversification Stage <ul><li>From 1992 to 1998, Expand by merging with and acquiring other firms </li></ul><ul><li>“ We buy those firms that have markets and good products but bad management. Then We introduce our own management and quality control to turn them around” – Zhang </li></ul><ul><li>Using the above ideology they acquired firms like Yellow mountain Electronics and 15 other companies </li></ul><ul><li>Focused on building great distribution channels all over China and improving product development speed and quality. </li></ul><ul><ul><li>OEC Management: Became the pivot of Haier </li></ul></ul>
  12. 12. Operational Restructuring <ul><li>In 1998 annual revenue RMB 16.8 billion and domestic market share 30% </li></ul><ul><li>Slowdown in the local market – focus on international market more </li></ul><ul><li>First focus was reorganization to become more competitive </li></ul><ul><li>In 1998: Restructured the existing facilities into 7 product divisions </li></ul><ul><li>Four new group wide Development division </li></ul><ul><li>Formed centers such as TQM, TPM, TEM </li></ul>
  13. 13. Haier’s market advantages in China <ul><li>Reputation of the Brand </li></ul><ul><li>Commitment to quality </li></ul><ul><li>Single Brand Approach </li></ul><ul><li>High market responsiveness: focus on customer’s needs </li></ul><ul><li>Continuous innovation taking into consideration the customer needs </li></ul><ul><li>Free repair costs within warranty periods and replacements during the repair </li></ul><ul><li>Unified logistics department for all product lines which reduced transportation costs and enabled speedy delivery </li></ul>
  14. 14. Internationalization Stage <ul><li>“ To become a national brand is not enough. If a business is successful only in the domestic market, the superiority won't last long.” www.haier.com </li></ul><ul><li>Strictly adhering to this Haier decided to go global from 1999 </li></ul>
  15. 15. Globalization Strategy
  16. 16. Outcomes <ul><li>By 2004 Haier became the No.1 appliance company in china </li></ul><ul><li>It was the only company with leading share across the white goods market </li></ul><ul><li>It was dominant in the refrigerator and the freezer market </li></ul>
  17. 17. Dawar and Frost’s Survival Strategy Theory (Ref: Haier’s survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf)
  18. 18. Dawar and Frost’s Survival Strategy Theory <ul><li>Stage 1 : Defender </li></ul><ul><li>globalisation pressure was relatively weak </li></ul><ul><li>imported advanced technology in refrigeration from Germany and spent seven years building up a strong brand name in refrigerator production through a well-planned quality control system </li></ul><ul><li>Haier’s export, however, was limitedand indirect through agents. </li></ul><ul><li>Stage 2: Contender </li></ul><ul><li>“ first difficult, then easy” Principle </li></ul><ul><li>exported to Europe, Japan and US markets, to obtain prestige and to establish their brand </li></ul><ul><li>having built a highlydesirable industrial image for their quality products enabled the company to compete globally. </li></ul>
  19. 19. Dawar and Frost’s Survival Strategy Theory <ul><li>Stage 3: Defender and Dodger </li></ul><ul><li>After 1992 Haier entered into other markets within developing or less developed countries without obstacles as a strong defender in international markets </li></ul><ul><li>Enjoying the advantages of Extender strategy application, Haier applied a dodger strategy at the domestic market. </li></ul><ul><li>This is done to avoid price wars by using their integrated international competitive assets to reform the Chinese household electrical appliance industry </li></ul>
  20. 20. Present Day Scenario (2004) <ul><ul><li>Very strong in white goods market and growing presence in the black goods market </li></ul></ul><ul><ul><li>Recently a marked drop in the profit margins </li></ul></ul><ul><ul><li>It had to face players who specialized in one or two product lines </li></ul></ul><ul><ul><li>Its nearest competitor Kelon was acquired in 2001 by Greencool enterprise </li></ul></ul><ul><ul><li>More foreign players entered the market as china entered the WTO in 2001 </li></ul></ul><ul><ul><li>The Chinese market had become same as the world appliance market </li></ul></ul>
  21. 21. <ul><li>ORGANIZATIONAL CONCEPTS </li></ul>
  22. 22. Strategies followed (Ref: www.haier.com) <ul><li>Three phases of Haier’s Innovation Strategy </li></ul><ul><ul><li>Brand Building (1984-1991) -> Quality is prominent for Haier </li></ul></ul><ul><ul><li>Product diversification (1992-1998) -> Acquisitions of companies with bad management and infusing life into them </li></ul></ul><ul><ul><li>Globalization (1998-2005) -> Attacking the difficult markets first followed by relatively weaker ones </li></ul></ul><ul><li>Principles followed for expansion </li></ul><ul><ul><li>Best efforts are made to fully develop the current industry before entering new segment of relative products </li></ul></ul><ul><ul><li>Best efforts are made to gain the leading position in the new segment of the industry after a certain period </li></ul></ul>
  23. 23. Competing strategies Abroad <ul><li>Product Differentiation: </li></ul><ul><li>close attention to consumer needs </li></ul><ul><li>R&D professionals talked directly to consumers </li></ul><ul><li>Response Speed: </li></ul><ul><li>18 design centers facilitated rapid product development </li></ul><ul><li>Ideas from the field to be quickly tested </li></ul><ul><li>Flat structure enabled quick communication </li></ul>
  24. 24. Model Of Adaptive Orientation Renewing Transformation Reactive Satisficing Sluggish Hyper turbulent Environmental Stability Stable Adaptive Orientation High Low
  25. 25. OEC Management (Market Economy model of Chinese Management Ref: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp131.PDF) <ul><li>OEC : Overall Every Control And Clear </li></ul><ul><li>Philosophy: Solve problems immediately, search causes of problems and solve one by one </li></ul><ul><li>1995: Haier’s OEC Management was awarded National Management Innovation Advance Prize Of China Enterprise Confederation. </li></ul><ul><li>At the end of every day a worker checks on 3E card (Everyone Everything and Everyday) which contains 7 items -- job quantity, defects, usage of parts, condition of parts, safety, work attitudes and work discipline </li></ul>
  26. 26. OEC Management <ul><li>Based on the OEC scores workers are given wages, promotions and appraisals. </li></ul><ul><li>Linked each staff member to another, so that the specific responsibility of each employee is involved in the achievement of the firm’s objectives. </li></ul><ul><li>Outcome : No more disputes over trifles among staff members and, consequently, the quality of products was greatly improved. </li></ul>
  27. 27. Organizational Culture <ul><li>Haier corporate culture is guided and developed by </li></ul><ul><ul><li>innovative strategy </li></ul></ul><ul><ul><li>efficient organization </li></ul></ul><ul><ul><li>creative technology and </li></ul></ul><ul><ul><li>market orientation </li></ul></ul><ul><li>enabled Haier to grow swiftly with business expansion from China to outside world </li></ul><ul><li>Haier corporate culture features recognition and participation of all employees </li></ul><ul><li>Haier has had all its employees involved in realizing Haier’s ideal to be a global recognizable brand </li></ul>
  28. 28. Brand Marketing Philosophy <ul><li>Smashing of defective refrigerators has turned out to be the urge for brand </li></ul><ul><li>To become a national brand is not enough </li></ul><ul><li>Build name brand in developed markets and then expand the business into developing markets with little resistance </li></ul><ul><li>Create localized Haier brand in each market in world </li></ul><ul><li>Compete on value rather than price </li></ul>
  29. 29. Globalization Philosophy <ul><li>First difficult then easy </li></ul><ul><li>Without domestic market, business is rootless, without international market, business is weak </li></ul><ul><li>Three 1/3 rd s </li></ul><ul><ul><li>1/3 made and sold at home </li></ul></ul><ul><ul><li>1/3 made at home and sold abroad </li></ul></ul><ul><ul><li>1/3 made and sold abroad </li></ul></ul><ul><li>Three Internationalizations </li></ul><ul><ul><li>Internationalization of management system – build up employee loyalty </li></ul></ul><ul><ul><li>Internationalization of service – build up customer loyalty </li></ul></ul><ul><ul><li>Internationalization of brand – build up international competence </li></ul></ul>
  30. 30. Globalization Philosophy <ul><ul><li>Globalization of design </li></ul></ul><ul><ul><ul><li>Set up 18 design centers worldwide to consolidate resources from developed countrie </li></ul></ul></ul><ul><ul><li>Globalization of manufacture </li></ul></ul><ul><ul><ul><li>Set up 10 industrial parks and 22 plants overseas enabling prompt action to satisfy local user needs for quality </li></ul></ul></ul><ul><ul><li>Globalization of marketing </li></ul></ul><ul><ul><ul><li>5,000 overseas retail outlets and over 10,000 service centers all over the world. Best practices exchanged </li></ul></ul></ul>
  31. 31. <ul><li>HAIER WORLD WIDE </li></ul>
  32. 32. Europe <ul><li>Started in 2000 headquartered in Varese, Italy </li></ul><ul><li>Began coordinating sales and marketing in 13 European countries, growing to 17 markets by 2004 </li></ul><ul><li>HQ coordinated logistics through 4 distribution centers in Italy, Spain, UK, and Netherlands </li></ul><ul><li>Uses local finance, talents and culture </li></ul><ul><li>Differences in distribution channels and consumer preferences across countries </li></ul><ul><ul><li>Top loading Vs Front loading </li></ul></ul><ul><ul><li>Independent retailers Vs Chain stores </li></ul></ul><ul><ul><li>Difficult for manufacturers to establish scale economies </li></ul></ul><ul><li>Europe accounted for 30% in overseas sales of Haier </li></ul>
  33. 33. America <ul><li>Started in 1994 – sold products under Welbilt Appliances </li></ul><ul><li>Haier America formed in 1999 </li></ul><ul><li>All American team, except for accountant sent from Qingdao </li></ul><ul><li>Few models to test the waters and avoid major competitors like GE, Whirlpool, Maytag, and Frigidaire </li></ul><ul><li>Started with compact refrigerators nobody made </li></ul><ul><ul><li>In 3 years – over 30% market share in them </li></ul></ul><ul><ul><li>Combated imitators by adding new features as such as mini-fridges that doubled as computer desks </li></ul></ul><ul><ul><li>Got attention of major retail chains like Wal-Mart & Best Buy </li></ul></ul><ul><ul><li>Can now get the chains to consider Haier’s major appliances </li></ul></ul>
  34. 34. America <ul><li>Strategy not to manufacture cheap products but to manufacture quality products that can sell at a premium </li></ul><ul><li>To supplement with exports from China as capacity not enough </li></ul><ul><li>U.S. consumers saw Haier as American brand, “because Haier is produced and sold by Americans” </li></ul><ul><li>Accounted for about 30% of overseas revenue </li></ul><ul><li>In 2005 had a 26% share for compact refrigerators, over 50% of the wine cellar market, and 17% of air conditioner sales in the United States </li></ul>
  35. 35. India <ul><li>Earmarked India as a potential high-growth market </li></ul><ul><li>Invested heavily in building up production, distribution, and sales capacities in the country. </li></ul><ul><li>No chain stores in India thus greater reliance on locals </li></ul><ul><li>Employed a former Whirlpool India executive to head Haier India – to guide its operations </li></ul><ul><li>Local human resources to help establish the whole business </li></ul>
  36. 36. <ul><li>RECOMMENDATIONS </li></ul>
  37. 37. <ul><li>In Global Markets: Continue Brand Building Initiatives </li></ul><ul><ul><li>Publicize as a individualized brand </li></ul></ul><ul><ul><li>Publicize the quality, adaptability, speed and customer focus </li></ul></ul><ul><li>In Domestic Market: Continuous Innovation </li></ul><ul><ul><li>Publicize the fact that it is a home company </li></ul></ul><ul><ul><li>Publicize the awards received for quality </li></ul></ul>
  38. 38. Retention Strategy <ul><li>Work-life balance should be given priority </li></ul><ul><li>Give more autonomy and leadership at lower levels (moving away from traditional paternalistic leadership) </li></ul><ul><li>Job security is a concern - Show support publicly to top performers </li></ul><ul><li>Support must be given to normal performers to improve </li></ul>
  39. 39. Recruitment Strategy <ul><li>Recruit people who are open to learning and who are easily adaptable to continuous innovation </li></ul><ul><li>Search for people who are accommodative to customer requests </li></ul><ul><li>Recruit people who respect quality and process </li></ul><ul><li>Leverage the existing brand value to attract the required personnel from competitors </li></ul>
  40. 40. References <ul><li>Haier’s survival strategy to compete with world giants http://www.ryerson.ca/~iri/papers/ypdu.pdf </li></ul><ul><li>Market Economy model of Chinese Management http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp131.PDF </li></ul><ul><li>www.haier.com </li></ul>
  41. 41. <ul><li>THANK YOU </li></ul>

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