Based on Haier Case, answer each question below. If possible, each question gives one paragraph. (one and half pages enough) Industry analysis The Future of the Industry A. Given your industry and intra-industry analysis, what do you think the future holds for the industry? What do you predict will be future trends in industry performance? B. Are significant opportunities in the market untapped? C. What might the current competitors in the industry do to improve their competitive position? D. Are there significant threats to the industry looming over the horizon? Firm-level analysis Brief Historical Overview of the Firm A. What is the strategic scope of the company? What products and markets does the firm compete in? B. What are the company's stated missions and objectives? How have these missions changed over time? C. What has the recent history of the firm been? D. What recent events have significantly affected the firm? E. How well has the firm recently performed? Haier: Taking a Chinese Company Global in 2011 Starting in 1984 with a defunct refrigerator factory in Qingdao, a port city in China’s Shandong province, founder and CEO Zhang Ruimin built Haier Group (Haier)a into China’s largest home appliance (white goods) maker before launching operations overseas in the 1990s. Haier developed a formal global expansion strategy beginning in 1997, when Zhang announced his “three thirds” goal of having Haier revenue come equally from goods produced and sold in China, goods produced in China and sold overseas, and goods produced and sold overseas. This announcement came amid three decades of booming economic growth in China that began with agricultural reforms in 1978. The reform program then extended to the creation of special economic zones for manufacturing and trade, the rise of small collective businesses, and the privatization of state-owned industry in the 1980s. The reforms of the 1990s included tax and currency restructuring and policies to facilitate foreign enterprise, free trade, and the growth of equity markets.1 From 1980 to 2010, China’s real gross domestic product (GDP) grew at an average annual rate of nearly 10%, lifting hundreds of millions of people out of extreme poverty and creating an urban middle class.2 By 2010, the Chinese economy was the world’s second largest, measured by GDP at purchasing power parity (PPP), and analysts expected it to exceed the size of the U.S. economy within decades.3 While per capita disposable income was substantial in 2010, however, some geographic regions in China were still relatively poor on a per capita basis. (See Exhibits 1a and 1b for economic, demographic, and currency data on China.) Most urban households already owned white goods, but in rural China, penetration rates for appliances such as refrigerators still stood at 58.2 units per 100 households, offering room for market growth. China had been the world’s leading white-goods manufacturer since 2007 and, in 2010, was home to 49% ...

1. Based on Haier Case, answer each question below. If possible,
each question gives one paragraph. (one and half pages enough)
Industry analysis
The Future of the Industry
A. Given your industry and intra-industry analysis, what do you
think the future holds for the industry? What do you predict will
be future trends in industry performance?
B. Are significant opportunities in the market untapped?
C. What might the current competitors in the industry do to
improve their competitive position?
D. Are there significant threats to the industry looming over the
horizon?
Firm-level analysis
Brief Historical Overview of the Firm
A. What is the strategic scope of the company? What products
and markets does the firm compete in?
B. What are the company's stated missions and objectives? How
have these missions changed over time?
C. What has the recent history of the firm been?
D. What recent events have significantly affected the firm?
E. How well has the firm recently performed?
Haier: Taking a Chinese Company Global in 2011
Starting in 1984 with a defunct refrigerator factory in Qingdao,
a port city in China’s Shandong province, founder and CEO
Zhang Ruimin built Haier Group (Haier)a into China’s largest
home appliance (white goods) maker before launching
operations overseas in the 1990s. Haier developed a formal
global expansion strategy beginning in 1997, when Zhang
announced his “three thirds” goal of having Haier revenue come
equally from goods produced and sold in China, goods produced

2. in China and sold overseas, and goods produced and sold
overseas. This announcement came amid three decades of
booming economic growth in China that began with agricultural
reforms in 1978. The reform program then extended to the
creation of special economic zones for manufacturing and trade,
the rise of small collective businesses, and the privatization of
state-owned industry in the 1980s. The reforms of the 1990s
included tax and currency restructuring and policies to facilitate
foreign enterprise, free trade, and the growth of equity
markets.1
From 1980 to 2010, China’s real gross domestic product (GDP)
grew at an average annual rate of nearly 10%, lifting hundreds
of millions of people out of extreme poverty and creating an
urban middle class.2 By 2010, the Chinese economy was the
world’s second largest, measured by GDP at purchasing power
parity (PPP), and analysts expected it to exceed the size of the
U.S. economy within decades.3 While per capita disposable
income was substantial in 2010, however, some geographic
regions in China were still relatively poor on a per capita basis.
(See Exhibits 1a and 1b for economic, demographic, and
currency data on China.) Most urban households already owned
white goods, but in rural China, penetration rates for appliances
such as refrigerators still stood at 58.2 units per 100
households, offering room for market growth. China had been
the world’s leading white-goods manufacturer since 2007 and,
in 2010, was home to 49% of global capacity.4
In 2011, Haier summarized group performance with three
numbers: 1, 8, and 28. The company had been the No. 1 white-
goods manufacturer in China since 2001 and had just been
named the leading refrigerator manufacturer worldwide by
Euromonitor.5 (See Exhibit 2 for major consumer appliances
market share in China.) A 75% increase in Haier’s 2010 profits
was 8 times its 9% increase in revenues. (Exhibits 3a and 3b
show Haier’s financial performance.) And 28 was the rank of
Haier Electronics Group, a Haier subsidiary, on BusinessWeek’s
2010 list of the most innovative firms.6 Haieroperated 240

3. subsidiaries and had established 61 trading companies (19
abroad), 24 manufacturing plants (all abroad), 10 research and
design centers (8 abroad), and 21 industrial parks (4 abroad).7
(See Exhibit 4 for an illustration of Haier’s worldwide
operations.)
As Haier approached the end of its third decade of operations,
Zhang was aiming at even bigger targets for 2011 and beyond:
deeper market penetration, both in rural China and abroad, to be
achieved by increasing market share and adding product
categories. Zhang also hoped to enter new countries and to see
Haier laundry machines and air conditioners reach the same
leading global position that its refrigerators had reached. “The
key,” Zhang said, “is whether Chinese enterprises can be both
the dominant industry rule maker and the industry leader.”
Zhang needed to maintain Haier’s industry leadership at home
as well. This challenge required him to decide which lessons
from Haier’s international operations to apply at home, and
which lessons from its domestic operations to apply
internationally.
Emergence and Growth in China, 1984–19938
In 1984, Zhang, vice general manager of the household
appliance division of Qingdao’s municipal government, was
convinced of China’s latent demand for refrigerators by the
lines of customers willing to pay cash for second-rate
refrigerators as they came off the production line at the ailing
Qingdao General Refrigerator Factory. The municipal
government wanted to appoint Zhang as director of the nearly
bankrupt company, which was already forced to borrow from
neighboring villages to meet payroll. Reluctantly, Zhang
accepted the challenge, thereby launching Qingdao Haier.
Haier thus began as a township and village enterprise (TVE),
whose 800 workers collectively owned its assets and shared any
profits that remained after the payment of local and national
taxes and appropriate reinvestment in the company. TVEs
emerged in China during the 1980s, initially on an experimental
basis before private enterprise emerged in an organized way. In

4. addition to creating local economic vitality, the success of
agricultural reforms enacted by Deng Xiaoping and his
reformist allies after 1978 engendered increases in productivity,
which resulted in the release of rural laborers. TVEs served as
alternative sources of employment for these workers who sought
new work. TVEs differed from state-owned enterprises, which
operated at the national and provincial level, in that the
municipal governments under whose purview TVEs operated did
not own or have any claim—other than taxes—on a collective
enterprise’s assets or profits. Municipal governments could,
however, influence senior staffing and major business decisions.
Poor performance, labor disputes, or mismanagement of funds
were all grounds for dismissal of senior managers by the local
authorities. Because markets were not yet well developed in
China, particularly during the early 1980s, municipal
governments could also help local TVEs by influencing, directly
or indirectly, the allocation of key resources such as bank
credit, machinery, import licenses, and operating inputs.
In 1984, high-quality output was rare among China’s 300
refrigerator manufacturers, and Zhang believed that Chinese
consumers would be willing to pay more for higher-quality
products and reliable service. Inspired by the workmanship of
products he saw on a 1984 trip to Germany, Zhang signed a
technology licensing agreement with German refrigerator maker
Liebherr.9 Later, Haier imported freezer and air-conditioner
production lines from Derby of Denmark and Sanyo of Japan.
Joint ventures (JVs) with Japan’s Mitsubishi and Italy’s Merloni
brought Haier 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.”10
One of Zhang’s biggest early hurdles was getting workers to
understand that Haier’s commitment to quality was substantially
different from that of other Chinese companies. To make his
point, Zhang once pulled 76 refrigerators off the line, some for
minor flaws such as scratches, and ordered staff to smash them

5. to bits. “That got their attention,” laughed Zhang. “They finally
understood I wasn’t going to sell just anything like my
competitors would. It had to be the best.”11
Haier made a profit of RMB 1 million in its second year, selling
refrigerators in three major Chinese cities. Despite
overwhelming market demand and soaring prices for
refrigerators, Haier resisted ramping up output, focusing instead
on quality and brand building. 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, Zhang raised them and
discovered that the company could command a 15% premium,
even during a price war.12 By December 1989, revenue had
reached RMB 410 million, from RMB 3.48 million five years
earlier.13
The Chinese economy experienced a slowdown after the April
15, 1989 death of Hu Yaobang, a former leader of the Chinese
Communist Party who supported reforms. On the evening before
his funeral, 100,000 Chinese citizens, primarily students and
intellectuals, began six weeks of protests to encourage
continued economic reform. The international community
disapproved of the Chinese government‘s handling of the
situation and responded with condemnation;; the World Bank
and the Asian Development Bank suspended foreign loans to
China, and commitments of foreign direct investment (FDI)
were cancelled. Some within the Chinese government attempted
to curtail free- market reforms and reinstitute administrative
economic controls. These efforts, however, were met with
resistance from provincial governments, and China‘s economic
growth continued.
In 1990, Haier set up a computerized service center in Qingdao
that allowed it to keep track of tens of thousands of customers.
The investment soon paid off, as customers throughout China,
accustomed to little or no after-sales service, began to recognize
Haier as a new breed of company. Stories of satisfied
customers, such as that of taxi driver Chu Xiaoming, were

6. repeated throughout China. Chu called Haier’s customer service
hotline when his 10-year-old Haier refrigerator broke down, not
expecting to get much help for an appliance that old. To his
surprise, a serviceman showed up on his doorstep the very next
day, took the broken fridge back to the factory, lent Chu another
one for the interim, and returned two weeks later with the old
refrigerator repaired.14
Haier continued to grow into the early 1990s along with China’s
economy. Aided by continuing market-oriented economic
reforms that aimed to create a “socialist market economy,”
China’s GDP had grown at an annual rate of 9.5% from 1980 to
1990.15 By 1991, Haier was China’s leading refrigerator
manufacturer. The country still offered plenty of room for
growth, and Haier managers wanted to ensure market
leadership. Zhang’s long-time lieutenant, Ms. Yang Mianmian
(named Haier Group president in 1993), explained, “At that
time, demand outstripped supply, and we didn’t have a large-
scale operation. So we were focused on China’s market. We
didn’t think about building our brand in the international market
yet.” A Haier marketing executive added, “Our target is to
become a first-class brand. We need to have a fairly large scale
in order to achieve this. If this brand is not of large scale, it
will not be successful.”
Market leadership in refrigerators and a growing brand
reputation led Zhang to look for further opportunities. “Now we
could let our reputation precede our new products,” said Zhang.
“It was time to diversify.”16 Haier found two candidates: the
Qingdao Air Conditioner Factory and the Qingdao General
Freezer Factory, both stumbling under poor management. Haier
took on the debt and employees of each firm. By introducing a
new type of air conditioner at the former firm and its higher
expectations for worker discipline at the latter, Haier
transformed a deficit of RMB 15 million in these new divisions
into profits within a year.
Renamed Haier Group in 1992, the company acquired 500 acres
of Qingdao land for a new industrial park to house its corporate

7. headquarters and the bulk of its 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.
For financing, 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.17 Finding no other option,
Haier turned to China’s nascent stock market, listing 43.7% of
its Qingdao Haier 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.”18 Haier Electronics Group Co., a
subsidiary of Haier Group that manufactured and sold washing
machines and water heaters, was later listed on the Hong Kong
Stock Exchange in 2005. Overall, listed entities accounted for
60% of the book value of Haier’s assets. (See Exhibit 5 for
Qingdao Haier financial performance, and Exhibit 6 for Haier
Electronics Group financial performance.)
Developing Abroad and Deepening at Home, 1994–2003
The rapid growth of the Chinese economy in the decade after
Haier’s founding stoked inflation in China, which peaked in
1995 at an annual rate of 17% amid central government efforts
to curtail bank lending. Simultaneously, China’s central
government sought to rationalize state-owned enterprises
(SOEs) by pushing spin-offs, mergers, and closures of SOEs at
both the national and provincial levels throughout the 1990–
2004 period. Haier acquired 15 companies—including those that
made washing machines, telecommunications equipment, and
televisions—during the 1990s, sometimes under government
pressure to take over poorly performing SOEs.19 “We buy only
those firms which have markets and good products but bad
management,” Zhang said. “Then we introduce our own
management and quality control to turn them around.”20

8. Despite the disruption for urban workers, the effort to
rationalize SOEs ultimately eliminated many underperforming
assets and operating inefficiencies, refocusing state ownership
on sectors deemed nationally important. Over the same period,
foreign direct investment inflows grew rapidly in China from $4
billion in 1990 to over $60 billion in 2004,21 helping to spur
GDP growth and technology transfer. China joined the World
Trade Organization (WTO) in 2001 and its trade soared 18%
that year, with exports outstripping imports. WTO membership
helped boost Chinese entrepreneurialism and the growth of the
country’s urban middle class.22
The number of Chinese refrigerator producers shrank from over
100 in 1989 to 20 producers by the mid-1990s, with the 10
largest accounting for 80% of the Chinese market, up from 50%
four years earlier. According to a Chinese industry association,
refrigerator manufacturers needed to produce more than 1
million units annually to be profitable.23 Only three Chinese
manufacturers, together accounting for about 60% of the
market, fell into this category by 1996, Haier among them.
Beyond China
In the early 1990s, Haier began to venture into overseas markets
as a contract manufacturer for multinational brands, first
exporting to the United Kingdom and Germany and then to
France and Italy. Typically, Chinese manufacturers exported
products under an original equipment manufacturer (OEM)
client brand, as Haier’s rival, Kelon, had done for refrigerators
carrying the Magic Chef label for sale in the U.S.24 Haier-
brand refrigerators sold particularly well in Germany, where
they were marketed by Liebherr beginning in 1991. When
Haier’s refrigerators beat Liebherr’s in a blind quality test
conducted by a German magazine, Zhang decided it was time
for Haier to market its own brand overseas.
Haier was willing to bear the costs of establishing the firm as an
independent player overseas. As Zhang recalled in 2004, “I
predicted that overseas profit growth will be a little slower than
the overall company’s profit growth. In some mature markets

9. we will make profits, but in entering new markets we may also
at first lose money.”25 Zhang also saw other benefits of
remaining independent: “The objective of most Chinese
enterprises is to export products and earn foreign currency. This
is their only purpose. Our purpose in exporting is to establish a
brand reputation overseas.”26
In this task, Haier was influenced by the strategies of successful
Japanese and Korean firms such as Sony, Samsung, and LG
Electronics. LG, for example, produced the first Korean
refrigerator in the 1950s before moving into other home
appliances and electronics. In the early 1990s, following the
makeover of its budget Lucky-Goldstar brand into the higher-
end LG brand, the company began its strategic global
expansion.27
Before 1999, overseas sales, largely to Europe and the U.S.,
amounted to just over 3% of total Haier Group sales.28 The
creation of Haier’s Overseas Promotion Division in 1999
signaled the beginning of rapid growth in international sales
through exports and overseas production. Haier’s overseas sales
were organized into five large regional markets: the Americas,
Europe, the Middle East, Southeast Asia, and East Asia. The
largest overseas operations were in the U.S. and Europe while
operations in India, launched in 1999, were poised for rapid
growth. Haier’s international divisions also included JVs on
five continents, in countries including Indonesia, New Zealand,
Nigeria, the Philippines, and Yugoslavia.29 Usually, Haier was
the majority shareholder. In some cases, such as in the Middle
East, Haier held a minority share.30
Haier America Haier entered the U.S. market in 1994, having
been approached by Michael Jemal, a partner in a New York-
based import company, Welbilt Appliances. At the time, only
three Haier compact refrigerator models met U.S. energy and
safety standards, and Jemal purchased 150,000 units for U.S.
sale. All of these units sold under the Welbilt name within the
year, capturing 10% of the U.S. market for compact
refrigerators.

10. “When we entered the U.S. market, we found nobody was
making competitive refrigerators for students or for offices. So
we offered what the U.S. manufacturers did not make,” said
Overseas Promotion Division executive Diao Yunfeng of
Haier’s typical entry strategy for developed markets. “Within
three years, we had over 30% market share in compact
refrigerators,” he recalled. When rivals appeared, Haier added
new features such as mini-fridges that doubled as computer
desks. “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 U.S.”31 (See Exhibit 7 for manufacturer market
share of major consumer appliances in the U.S.)
Jemal focused on getting Haier products into large chain
retailers such as Home Depot, Best Buy, and Office Depot. Wal-
Mart was the most difficult retailer to connect with. 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, giving
Haier credibility with other major chain stores. “After we were
successful in the niche products, then we started to introduce
regular products to the U.S., like the full-size refrigerator
freezers, air conditioners, and washing machines,” said Diao.
In 2001, Haier America moved its New York headquarters into a
landmark building on Broadway and established a $40 million
industrial park and refrigerator factory in South Carolina. “Of
course, labor costs are much higher in the U.S. than 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.”32
In 2002, Haier’s South Carolina factory had annual production
capacity of 400,000 units, and Haier sold 80,000 full-size

11. refrigerator-freezers in the U.S., accounting for 2% of the
market. Sales to Wal-Mart alone in 2002 amounted to 400,000
units and included compact refrigerators, washing machines,
and air conditioners. Even after a planned expansion, Haier’s
U.S. factory could not supply Haier’s 10% target market share,
so Haier planned to supplement its output with exports from
China.33 In 2005, Euromonitor reported that Haier had U.S.
market shares of 26% for compact refrigerators, 50% for wine
coolers, and 17% for window air conditioners.34
Haier Europe In 2000, Haier Europe, headquartered in Varese in
northern Italy, began coordinating sales and marketing of Haier
products in 13 European countries. Product lines included
refrigerators, freezers, washing machines, dishwashers,
microwave ovens, and small appliances, all manufactured in
China but designed specifically for the European market. Haier
chose a former sales executive of Italy’s Merloni, Europe’s
third-largest appliance maker, to head European operations.35
The European appliance market was similar in size and maturity
to the U.S. market, 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, consumers preferred top-loaders. Independent appliance
retailers dominated in Germany and Italy, while chain stores
were common in France and the U.K. Few pan- European
appliance retailers existed and national and independent stores
often favored domestic manufacturers. Thus, multinational
appliance manufacturers had often found themselves at a
disadvantage to local national players.36
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. By 2004, Haier’s European headquarters
coordinated logistics through four distribution centers in Italy,
the Netherlands, Spain, and the U.K. to serve 17 markets. In
2004, revenue generated in Europe accounted for 17% of Haier

12. Group’s total revenue.37
Haier India Haier earmarked India as a potential high-growth
market and invested heavily in building up production,
distribution, and sales capacities there. A 1999 alliance with
Indian appliance firm Fedder Lloyd Corporation to jointly
produce and market refrigerators nationally gave Haier
preliminary experience in India. In January 2004, Haier
formally launched a broad range of products in India, initially
manufactured in China and exported to India. Haier had a
slower-than- expected start gaining market share in India and, a
few months after the formal launch, announced a $200 million
investment in India over four years to establish a refrigerator
factory and R&D center.
In India, Haier discovered the challenges of working in
emerging markets. Haier’s greatest challenges in India were
“the environment, the economy, and especially the channels,”
said Li Pan, Haier brand manager for overseas markets. “In the
U.S., you can easily find the top 10 chain stores. But in India,
you cannot find them.” Haier found that emerging markets
required even greater reliance on locals than the company
permitted elsewhere, and it hired a former Whirlpool India
executive to head Haier India.
International Strategies
Focus on difficult markets first Shunning conventional wisdom
among Chinese firms, Haier opted to enter the “difficult”
developed markets first and, only after proving itself in those,
go after the relatively “easy” emerging markets. 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.”38 Haier also saw developed markets as a way 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.
Haier used its U.S. and European experience to convince
emerging market retailers to carry its products; competing

13. effectively in mature markets against brands such as GE,
Matsushita, and Philips gave Haier credibility elsewhere. This
approach followed Haier’s growth in China: starting in Beijing
and Shanghai and moving into medium-size and small cities.39
Staff with locals When entering a new market, Li said, “The
first stage relies on local people, who know the market very
well. This allows us to expand very quickly.” Haier began by
identifying a local manager with experience, preferably in a
leading white-goods firm, to head the country operation, hire a
local team, and develop sales and distribution channels. “Our
strategy is not just purely 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.” Multinationals entering China had a different
approach, Yang noted. “Top foreign companies coming to China
tend to use local Chinese, but local hires often have not worked
with major brands before.”
Li believed that, in time, Haier would have to place its own
people in key positions overseas to get better market
intelligence. “We have to know the information at the point of
sale. You have to have your own people who will report from
the field,” said Li. Yang preferred to continue sending only
temporary technical support teams from China while relying on
local partners to operate the business. “We hope to have Haier
in each country be the Haier that they created. For example, in
the U.S., we hope that it is Americans who build up Haier
America,” said Yang. “If Americans can create GE, Whirlpool,
and Electrolux, they can create Haier.” Zhang explained Haier’s
two-pronged strategy for competing with local brands on their
home turf:
Consumers in the U.S. 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

14. than they are. To win over those consumers, we have two
approaches: speed and differentiation.40
Haier paid close attention to consumer needs in overseas
markets and made product modifications to meet them. “We
send our R&D people to the U.S. to talk directly with our
customers or even with the salespeople in chain stores,” said
Zhang.41 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.”42
Haier’s eight design centers facilitated rapid product
development, which allowed ideas from the field to be quickly
tested and prototyped. For example, having noted that American
customers did not like deep-box freezers because items at the
bottom were difficult to reach, 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.
In 2004, Haier-branded products sold globally through 62
distributors at over 30,000 retail outlets outside of China. About
59,000 sales agents and 12,000 service personnel supported
sales operations, and Haier operated 13 overseas factories.43
(See Exhibits 8a and 8b for market share of major consumer
appliances globally.) Still, revenues from exports and from
goods made and sold overseas each accounted for only 8.3% of
total Haier Group revenues for 2004, far below the “three
thirds” goal Zhang had set seven years earlier (see Exhibit 3b).
Deepening at Home
Foreign rivals in China Just as Haier had been busy growing
overseas during the 1990s, foreign consumer-appliance brands
had been entering China, both to take advantage of cheap
Chinese labor and to sell into the world’s most populous
market. As early as 1994, Whirlpool formed a JV with a
Chinese manufacturer to produce refrigerators in a plant near
Beijing.44 In 1996, Zhang noted, “The Chinese market has

15. become part of the international appliance marketplace.”45 The
impact of China’s 2001 WTO entry added pressure on Haier to
solidify its brand globally and maintain a dominant position in
the Chinese market. “Before 2001, our competitors were
domestic brands,” said Haier vice president Gao Yicheng. “But
now, after China’s ascension into the WTO, our competitors are
Siemens, Electrolux, Samsung, LG, Matsushita, Sony, GE, and
Whirlpool.”
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
low.”46 (See Exhibit 1a.) 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.”47
Haier’s domestic rivals also planned to capitalize on the rural
Chinese market, where, in 2001, less than 20% of households
owned a refrigerator.48 Chinese refrigerator firm Kelon had
already begun doing so, selling nearly a million units of a new
lower-priced brand in 2002.49 “The future lies in the second-
line and third-line markets, which is the rural population in
counties and townships,” said Kelon’s CEO.50 While Haier
already had a strong presence in the rural markets, the company
had not specifically targeted this segment with specially priced
products.
Foreign manufacturers initially underestimated Chinese
manufacturers and 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.51 Whirlpool, for

16. example, mistakenly thought the market did not value cutting-
edge technology and sold less than 60% of its Freon-equipped
air conditioners, losing $11 million before shifting to Freon-
free models, only to find that market saturated.52 Having
invested heavily in manufacturing infrastructure in China since
1990, Whirlpool by 1997 had accumulated losses of over $100
million. The company retrenched by selling most of its China
holdings, turning its microwave factory production to exports,
and devoting its washing-machine factory to OEM production
for Kelon.53 In 2001, Whirlpool began a comeback in China,
launching 30 new products, two global R&D centers, and a large
factory.54
By 2002, foreign brands were taking market share from Chinese
brands in some sectors. Multinational brand refrigerator unit
sales accounted for 31% of the Chinese refrigerator sector 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’s local knowledge
would preserve its advantage over foreign firms. “Haier is much
closer to China’s consumers, so we have a grasp of their
changing tastes,” said Yang. “We design according to Chinese
consumers. Foreign companies design products for China based
on foreign approaches. They are not in tune with Chinese
culture and values.”
The sale of refrigerators and freezers made up the largest sector
of China’s white-goods market in 2002.55 The sector was
valued at RMB 38 billion, which accounted for 37% of the total
value of the white-goods market.56 Haier’s share of the
refrigerator and freezer sector in 2002 was significant. The
company held a 27% share by volume, a 52% share by revenue,
and an estimated 61% of industry profits.57 That same year, the
Asian Wall Street Journal ranked Haier as China’s leading
company.58
Haier’s response In an effort to fend off loss of market share to
foreign rivals, Haier diversified its domestic products, adapted

17. to retail shifts, and improved service and distribution. When
service technicians found Haier washers clogged with dirt after
rural Chinese used them to clean vegetables, Haier engineers
modified their design to accommodate this repurposing and
labeled those sold in Sichuan, “Mainly for washing clothes,
sweet potatoes, and peanuts.”59 For muggy summers in urban
Shanghai, Haier created a tiny washer that cleaned a single
change of clothes, a product that was later successfully
introduced in Europe. This adaptation to local needs was carried
out in other product lines as well, such as a refrigerator with a
compartment for pickling Korean kimchee cabbage. Product
diversity resulted in 96 product categories and 15,100
specifications. Haier executives maintained that these
innovations were inexpensive to produce and 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.60
After 2000, Haier’s customers shifted from being primarily
state-owned department stores toward individual specialized
shops and private retail chains. In 2004, 30% of Haier’s sales
came from domestic chains such as Gome, China’s largest home
appliance seller;; 30% from licensed dealers in smaller cities;
15% each from independent retail shops and government
purchases; and the remaining 10% from online and telephone
sales.
The advantage Haier enjoyed with domestic retailers was
threatened when the WTO mandated that China open its market
to foreign retailers by the end of 2004. However, Gao did not
believe that foreign white-goods firms had enough knowledge to
displace Haier. “The multinational brands together account for
less than 10% of China’s total white-goods market, so they
don’t have much clout with retail chains,” he said. Foreign
brands would fare even worse outside major cities. “Many
foreign brands have a hard time adapting to the Chinese
population and vastness,” Gao explained. “Their tried-and-

18. tested sales approaches work on a more uniform population. But
the diversity in geography and buying preferences in China is
huge.”
Haier also fortified its domestic position by improving its
service and distribution network. By 2004, Haier had a service
network of 5,500 independent contractors, one for each sales
outlet. Haier product owners could call a nationwide service
hotline and warranty periods covering full repair costs met or
exceeded Chinese government regulations. “In the country’s
ranking of service levels and after-sales service, Haier always
ranks No. 1,” Gao said.
Haier Logistics, created in 1999, had pioneered “just in time”
purchasing, raw materials delivery, and product distribution in
China. On average, raw materials were delivered to Haier
production sites every two hours, and factory production was
usually complete in one or two days. Haier Logistics moved
over 100,000 items a day, delivering goods to 42 Haier
distribution centers in China and very large orders directly to
retailer warehouses. By 2004, the entire process, from initial
order to final product delivery, took about 10 days, down from
36 days before 1999.
Haier Logistics differed from the logistics operations of Haier’s
domestic rivals in being a single company that served the entire
Haier Group. “When transporting a refrigerator, we can also
deliver a microwave, a water heater, and other products,” said
logistics information center executive Zhan Li. Chinese
regulations limited multinationals’ logistics operations,
requiring them to enter China through a JV. “Multinationals
have more experience than us from their worldwide operations.
But in terms of logistics cost or network, they have no
competitive advantage,” noted Zhang.
Blending International and Domestic Growth, 2004–2011
By 2004, Haier had become the No. 1 appliance company in
China (see Exhibit 2). While other firms might rank in the top
three for a particular appliance, Haier led across product
categories. Outside China, Haier still had much room to grow

19. (see Exhibits 7, 8a, and 8b).
To cement its dominance within China and further differentiate
itself from competitors, Haier worked between 2007 and 2010 to
capitalize on its existing competitive advantages to further
penetrate untapped sources of demand, especially outside
China’s cities. To minimize any gap between Haier’s market
and its increasingly large organization, Zhang instituted a novel
redeployment of Haier’s human capital, creating several
thousand small teams of employees that worked to better serve
the Group’s existing and potential clientele.
Outside China, Haier managers worked to expand Haier’s
presence by expanding the product lines available in any given
market, moving Haier from a niche to a general player, while
also addressing local customer desires by extending and
adapting practices and products from one Haier market to
another. More broadly, Zhang hoped to see Haier demonstrate
market leadership, which he defined as having the top white-
goods market position in Haier’s markets around the world.
Achieving and Maintaining the Top Market Position in China
To get there, Haier planned more deliberately, securing market
leadership at home in each sector, and then taking that product
line into the global market. “In the international market, we
wanted to get a 10% share in white goods to begin with when
entering a market. After that, we could expand more,” Yang
said. Haier also reorganized itself around cross-functional teams
whose relatively small size was intended to make the company
more accessible and responsive to the consumer.
ZZJYT Based on an ancient Chinese proverb, the acronym
ZZJYT—for the Romanized zizhu jingying ti, or 自主经营体—was
loosely translatable as “self-managed teams.” These teams
typically ranged between 9 and 30 members and consisted, at a
minimum, of a leader, four customer managers, and four product
managers from the core businesses. Through the ZZJYT model,
Haier continually assessed its position in a market and
identified specific competitive advantages in order to quickly
adjust its corporate strategies to adapt to the market. The model

20. was also used to attract talented employees, enticed by
opportunities for teamwork, responsibility, and
entrepreneurship.
As such, the ZZJYT teams formed an innovative organizational
structure that was the centerpiece of what the company called
its 1,000-day change. Zhang had emphasized that “to better
satisfy consumers’ unsatisfied needs, we must become more
consumer centric.” Zhang also sought to secure the talent
required to maintain and manage rapid growth in foreign
markets and to develop the next generation of products. ZZJYTs
were developed to make Haier a more customer-focused
business as well as to attract, foster, and retain talented
employees.
To create ZZJYTs, Haier inverted the typical corporate
pyramid—one that funneled ideas down from executive
decision-makers to the customer—in favor of a pyramid in
which ideas were generated by the customer at the base and
traveled up through the company. ZZJYT’s “end-to-end”
construction operated across all functional areas of Haier’s
business. According to one Haier executive, “ZZJYT realized
the transformation from ‘selling products’ to ‘selling services’
and that fostered differentiated and sustainable competitive
advantages.”
ZZJYT teams operated in market sensing, product design, or
production and manufacturing domains. Some teams had
specific responsibility for the needs of a particular Haier
customer. Haier employed an incentive system to encourage
hard work, ownership, and quality service. Each ZZJYT was
responsible for its own profit and loss (P&L), and each
individual team member had to meet explicit key performance
indicators (KPIs). Haier set P&L targets at different levels, and
team members were awarded incentive pay that increased as
they achieved higher targets. Other incentive pay was designed
to facilitate teamwork and was awarded only when the team
attained its target P&L. ZZJYT team members still received a
base salary even if the target P&L was not met.

21. The majority of the 2,000 ZZJYTs operated in the Chinese
market, with nearly 500 of the teams assigned to China’s third-
and fourth-tier consumers in its 2,862 counties. The concept
was extended to Europe and the U.S., where, as in China, some
teams were dedicated to specific key accounts.
ZZJYTs also fostered internal talent development. Haier
employees who wanted to join a specific ZZJYT were required
to gain majority approval from the team members. Zhang also
supported shifting away from assigning markets and toward
having teams compete to manage Haier’s more lucrative
markets. He explained:
For years we were puzzled by how to ensure that we had the
right people in the right positions within such a large and
complicated global organization. In the past, top management
always considered who was the right person for a leadership
position and appointed them appropriately. We moved away
from that traditional model and adopted internal competition for
positions. If an existing ZZJYT team member’s performance is
superior to the current leader’s performance, that person can
then become the leader.
A company that has vigor depends on whether the opportunities
are fair, not on whether the results are fair. Generally,
companies are bureaucratic with hierarchical corporate cultures.
Instead, I have built a platform that provides equal
opportunities for my employees to compete and fight for the top
if they are capable. This way the person only gets the position if
they are passionate about their capability. I find this person is
more capable of delivering good results.
Market penetration Zhang sought to penetrate China’s rural
marketplace. China’s 2,862 counties contained 30,000 towns,
640,000 villages, and the majority of China’s population. In
2007, Haier began implementing a strategy to reach these
consumers by building an integrated and responsive system to
sell, distribute, and service Haier products across China through
company- owned retail stores, local sales contractors, and an
expanded delivery and repair network.

22. Staff gave home-design seminars to increase traffic in the
stores, which served as one-stop shops for the purchase,
installation, and maintenance of Haier products. Haier hoped
that the ease of the shopping experience would save customers
time and effort. Haier’s retail centers were also established as
rural community gathering spaces where children could come to
do their homework and where residents could bring non-Haier-
branded household products for repair. In fact, these Haier
locations also distributed products from rival brands GE,
Hewlett Packard, and Panasonic. By 2011, Haier had 6,000
county stores, 24,000 town stores, and 150,000 vendor
contractors in villages, who were paid on commission. The
Haier sales and service network also included more than 19,000
service centers capable of serving any location in China within
24 hours, as could the company’s 91 distribution centers.
Haier’s efforts to increase its rural market penetration were
greatly enhanced in 2008 by the Chinese government’s rural
subsidy program, part of a $586 billion economic stimulus
package. For decades, China’s economic development had been
driven by increasing exports, rising FDI, and expanding
domestic demand. From 2000 to 2010, for example, exports rose
from $210 billion to $1.6 trillion, and annual FDI inflows
increased from $40 billion to $106 billion.61 In 2008, the
global financial crisis reduced inward FDI, and experts
predicted that pressure to appreciate the renminbi would
dampen export growth.62 Expanding domestic consumption
seemed the most stable path to continued growth under these
circumstances. Chinese business leaders lobbied the central
government to subsidize increased domestic consumption, just
as they had sought the subsidies and rebates historically
provided for exports.63 In 2009, the Chinese government
launched a subsidy program to encourage rural consumer
spending. Aimed primarily at farmers—who, as a group, had
little discretionary income and were highly price-sensitive—the
program offered rebates equal to 13% of the purchase price of
cars, motorcycles, trucks, and small household appliances.64

23. Manufacturers and retailers were required to not raise product
prices for the duration of the program.65
When the program ended in spring 2011, sales of home
appliances in China’s rural areas had surged 168%.66 On
average, 4 million units of subsidy-eligible items were sold
each month in 2009.67 This increased to between 5 and 6
million units per month in 2010, and the first three months of
2011 alone produced 30 million units in sales.68 Refrigerators
and televisions were the most popular appliances.69 “Three
groups have benefited from this subsidy: the farmers got benefit
in access and affordability of product, the companies got the
market, and the government won the hearts of the people,”
reflected Zhou Yunjie, Haier’s executive vice president.
“Before the program, the urban market was 60% of the total
appliance market, and rural accounted for the other 40%,” he
explained. “After the program, those numbers inverted, with
two-thirds of the rural market sales made within the rebate
program.” The subsidy program was credited as a major driver
in Haier’s 13% growth from 2009–2010.
With its commitment to being close to the customer, Haier
continued to differentiate its product lines based on lessons
learned from developing its foreign markets. For example, in
Europe, the company discovered that families used magnetic
paper pads to leave messages on the refrigerator door. Haier
developed a video messaging device integrated into the
refrigerator door that allowed families to leave video messages
in place of paper notes. New designs enabled the refrigerator’s
center drawer to be easily switched to a freezer drawer. Other
insights from Haier’s various markets were also being
implemented across its domestic and international operations.
Smaller dishwashers, first developed for daily use in Japan, and
high-capacity laundry machines developed to accommodate the
long robes worn in Pakistan, were made available in other
markets.
Haier also sought to expand its share of foreign markets by
acquiring rival white-goods OEMs and by expanding overseas

24. production capacity. In 2005, with backing from two large U.S.
private equity funds, Haier made a bid to acquire U.S. appliance
maker Maytag for $1.28 billion.70 The bid failed, however, and
Maytag was bought by Whirlpool for $1.7 billion.71 Still, Haier
continued to strengthen its U.S. manufacturing infrastructure
with a $150 million investment in 2006 to expand the
production capability of the Haier America industrial park in
South Carolina. This expansion also allowed Haier to produce
high-end refrigerators in the U.S. for export to China.
The Next 10 Years
Regarded as a national hero,72 Zhang was proud of the work he
had done to transform Haier into one of China’s first global
brands. In his 25 years of leadership, Haier’s revenue had
grown from just RMB 1 million in 1984 to RMB 136 billion in
2010. In 2011, Zhang still had high hopes for the company and
the brand. China’s economy continued to boom, and ample
opportunity remained for Haier to grow through product
diversification and additional market penetration. Haier also
had room to grow in major developed markets overseas such as
the U.S., where the company accounted for only 1.6% of white-
goods sales by volume.
In 2011, Zhang made a significant departure from Haier’s long-
time strategy of building the strength of the namesake brand by
introducing the Casarte brand to China’s urban centers. Zhang
believed Casarte, a high-end brand inspired by Chinese demand
for European luxury goods and high-quality products, would
generate higher profit margins at home while also eventually
increasing Haier’s market share in both emerging and developed
markets. In July 2011, Haier signed a memorandum of
understanding to acquire the white-goods and consumer-
appliance business of Japan’s Sanyo Electronics, a Panasonic
subsidiary with 23.9% of Japan’s white-goods market.73
Looking ahead to the next decade, Zhang and his colleagues
would depend on the intellectual capital developed through their
experience of acquiring numerous companies, entering and
retaining new markets, restructuring the organization, and

25. managing hundreds of subsidiaries around the world. To grow
the brand, they would need to determine which of the lessons
learned from Haier’s international operations should be
implemented in China, and which skills learned at home could
best be applied abroad.