Haier’s North America Expansion

Haier is a renowned Chinese brand with a legendary enterprise development tale. The company has achieved a transforming turnaround by shifting from a firm that produced a single model of refrigerator in 1984 to the world’s leading innovative producer of household appliances. However, the success is attributed to the company’s growth strategies, which includes its diversification and globalization efforts. The US was one of the company’s target for internationalization, and it was majorly driven by stiff competition in its domestic market. Importantly, Haier managed to identify, build, and uplift its competitive advantage against its competitors both abroad and at home. The battle to gain global recognition continues, and Haier’s internationalization efforts still persists even though the company has made considerable progress in building a global brand. This paper examines factors that prompted Haier to start production in the US market, the firm’s progress by applying modalities including PESTLE analysis, Porter’s Five Forces, and SWOT analysis, and the ultimate lessons learned from its internationalization endeavors into the US.

Haier’s Production in the US Market

Haier’s initial venture into the US market was in 1994. During this period, the firm mainly targeted businesses that accepted low priced products without focusing on the brand. By 1999, the company’s export needs had exceeded its expected minimum production volume, and it had transformed into a market leader through the sale of wine coolers and compact refrigerators. To accommodate its growing production needs, Haier opened its industrial park in April 1999 to save freight costs, boycott tariff barriers, gain a strong foothold in the US market, and gain access to advanced technology. The company’s decision to move establish its industrial park in South Carolina was backed by various reasons.

First, South Carolina has conducive regulatory measures. For instance, the relatively favorable labor union environment significantly favored the company’s decision to establish the industrial park. In South Carolina, Employees have the liberty to join or forego membership of a labor union. Furthermore, the choice does not affect individual’s employability. Furthermore, South Carolina provided various incentives, including job creation tax credits, property tax incentives, tax exemptions on machinery, fuel, equipment, and electricity, among others. Besides, the state allowed carrying forward of net operating losses to a period of fifteen years due to low income tax rate. All these conditions, including the ability to recruit local talents, created the ideal conditions for the company to start its industrial park in South Carolina.

Haier’s PESTLE Analysis

Haier’s US market position can be evaluated using the PESTLE analysis to establish its brand success.

Political

China has managed to establish strong trading ties with the US. Moreover, China has established favorable legislations that promote global expansions for its domestic companies. Combined, these factors have enabled Haier to gain a strong foothold in international markets, including the US. Furthermore, the Chinese government made Haier its model company for other firms to emulate. As a result, the government offered favorable conditions, including moral and financial support to Haier towards its internationalization efforts. These crucial factors have bolstered Haier’s investment in the US, and have contributed to its massive success.

Economic

Various economic trends, both domestic and international, favor Haier’s operations. For instance, the localization of product designs in the US market has allowed Haier to gain a string market in America. The action is facilitated by local resources, which help in designing, manufacturing, and distributing products both in the US and in other global markets. Further, substantial growth in domestic market has promoted further growth opportunities for Haier. For example, in 2017, China experienced an economic growth of 6.9 percent, exceeding the country’s expected growth rate (BBC News, 2018). These favored more growth for many Chinese firms.

Social Environment

Currently, millennials remain the dominant target market for many markets that specialize in modern technology. In a technological era, millennials strive to get a smart home, and they are even willing to pay more. Considerably, this serves as an ideal opportunity for Haier to pitch its smart home technology and household appliances to the millennials. However, Haier’s also face challenges due to the socialized perception about the quality of Chinese products.

Technological Factors

Haier’s products have a reputation as technologically driven. For this reason, Haier needs to engage in constant research and development to ensure its products are at par with the current technology. Further, the firm should strive to deliver products whose technological features meet the requirement of customers in target markets.

Environmental Factors

Environmental consciousness is known to change the competitive landscape. Consumers have become more environmental aware and they strive to consume products that are friendly to the environment. For this reason, Haier should engage in environmental protection though compliance and corporate social responsibility activities that build its reputation as a green company.

Legal Environment

To ensure smooth operations within its domestic and international markets, Haier has to comply with the set regulations. These include patenting and copyrighting their products, which are crucial for security purposes as well as the future of the business. Notably, the company has patented 9738 products, which shows great concern for their legal purposes (Yong & Yazhou, 2017).

Porter’s Five Forces Analysis

Porter’s Five Forces is a crucial technique designed to help companies understand how they can remain within their level of competitiveness. It is essential in examining a company’s position based on the industry’s structure, and the viability of a business strategy against other market players. For this reason, tool is harnesses five forces, including threat of new entrants competitors, buyers’ bargaining power, suppliers’ bargaining power, force of rivalry, and threat of substitutes, to analyze the competitiveness, attractiveness, and profitability of a business within the industry (Omsa et al., 2017). It is considered a global overview as opposed to a detailed market analysis.

Threat of New Entrants

Whenever an industry proves more profitable, it attracts new market players who seek to diversify their markets or earn higher profits as well. As a result, it creates stiffer competition, which lowers the profits for the already established market players. However, the number of entrants and their impact on the market depends on the barriers to entry created by the incumbent firms (Omsa et al., 2017). Simply put, the extent with which new entrants join the market depends on whether Haier and other key players companies have placed sufficient barriers that disadvantages any new entrants. As Bruijl (2018) informs, common barriers include government retaliation, economies of scale, product differentiation, access to distribution channels, and high capital investments. When these conditions are applied to Haier’s case, the firm faces low threat of entry due to the capital needed to venture into this field. Additionally, accumulating high economies of scale takes years, making it challenging to compete with the pre-existing businesses. Furthermore, accessibility to global channels of distribution presents vast opportunities for Haier and other established companies an upper hand in that customers are more inclined to purchasing from these players. Another added advantage is that the Chinese government has put in favorable legislations that favor the global expansion of Chinese companies through provision of support infrastructures that help in global expansion. Hence, the vast opportunities for incumbent companies, as well as the multitude of challenges that deter new companies from joining the market create favorable conditions for these companies to dominate the market.

Buyer’s Bargaining Power

Haier’s consumers can lower its household appliances prices. However, that depends on two factors, bargaining power and price sensitivity (Bruijl, 2018). The core determiners of price sensitivity include competition, brand differentiation, and the importance of purchasing a product by the consumer. On the others hand, bargaining power is dependent on ease of switching Hair’s products with those of its competitors, cost, and buyer’s accessibility to information regarding prices of other appliances in the market. When all the factors are put into consideration, it is automatic that the customers’ bargaining power is significantly high due to low cost of switching to Haier’s competitors’ products due to availability and commoditization of similar products in the market, as well as  high price sensitivity since customers can purchase from other rivals in the market, such as Electrolux. Nonetheless, irrespective of a considerable buyer power, Haier has a significant advantage in the market due to customer loyalty that results from brand differentiation, which has ensured that Haier maintains its sales and gains more customers.

Supplier’s Bargaining Power

Haier’s suppliers include manufacturers producing key components used by Haier in making its products. However, the Chinese firm has a considerable power to control the input prices from its suppliers due to its economies of scale, which include a global market share. Furthermore, the company produces a multitude of products, which makes it an ideal target for many suppliers. As a result, it has the bargaining power since most suppliers want to continuously supply to this company.

Competition between Rivals

Omsa et al. (2017) highlights that the competition level among market rivals includes various factors, such as cost conditions, level of products differentiation, firm concentration ratio, and exit barriers. For many industries, the players are usually range from monopoly, to duopoly, oligopoly, or an entire lack of a key dominant player. Haier ranks among the key dominant players in the home appliances and electronics market in the US, competing against companies such as Whirlpool, Electrolux, LG, and Samsung. Most of these competitors produce products similar to Haier’s, including washing machines, refrigerators, microwaves, and television, among others. As a result, intense advertisements, price wars, and product innovations have dominated their industry.

Though Haier and its market rivals have managed to standout through product differentiation, most of their products have now become commoditized, and customers perceive minimal differences between rival products besides price. Critically considering Haier’s case, many consumer electronic goods have become daily purchases with minimal perceived value with those of its competitors. As Wever et al. (2008) elucidate, commoditization shifts the rival competition from innovation, differentiation, and value towards price. As a result, profitability is eroded by mass production and short product lifecycles. As a result, the home appliances and electronics industry has become highly competitive, driven by volume production and cost.

Threat of Substitutes

Substitute products range from products of direct rivals as well as other similar products in the market whose performance can meet the needs of a customer in a similar manner to a certain product. For example, fans are substitutes for air conditioners while cars substitutes airplanes. In the case of Haier, the substitutes for consumer electronics and home appliances, such as air conditioners, washing machines, refrigerators, and smartphones are few. For instance, while fans may substitute air conditioners in an office, they do not play that role effectively. Additionally, while Haier’s smartphones have substitutes, such as landlines and satellite phones, these are old technology and have high operational costs (Ashish, 2018).

Haier SWOT Analysis

Performing a SWOT analysis essential in assessing an organization. The strategy focuses on understanding four crucial aspects of a business venture, including its strengths, weaknesses, opportunities, and threats, and is helpful in making feasible strategies.

Strengths

Haier enjoys a highly renowned brand name coupled with a high reputation for delivering reliable quality products. As identified in the case study, the company has succeeded in joining the Fortune 500 companies, which makes it a reputable company. Another strength is its innovative prowess evidenced in its range of production. As Chan (2011) informs, the company had successfully patented 9738 products, becoming the lead Chinese appliance enterprise. Moreover, the company has been on the forefront in delivering a multitude of innovative smart solutions, pioneering quality life for its product consumers (Haier, 2018).  Furthermore, the company embraces a solid diversification strategy that consolidates its strengths. For instance, the acquisition of General Electronics in the US has significantly expanded its domestic market share. Further, buying General Electronics has opened world-class logistics for Haier (Riley, 2016).

Weaknesses

Besides the company’s strengths, it still proves vulnerable in several areas. First, Haier’s over-reliance on its domestic market was the core reason why the company acquired GE appliances to help with the diversification process outside its domestic market (Riley 2016). The move explains its low competitiveness in the US market. Further, Chan (2011) indicates that the company still dwells on traditional electrical products that have delayed its capital growth compared to other multinational companies.

Opportunities

China’s urbanization growth is estimated to reach 70 percent by 2030 (Sun et al., 2017). Haier, being the lead electronics and consumer appliances producer in China, has the opportunity to boost its sales. Furthermore, the home appliances market shows a growing trend in developing countries, such as China, Middle East, and India. These markets offer a huge opportunity for Haier to venture. Furthermore, these countries are known to have huge urban populations, which could increase Haier’s profit margins.

  • Threats

The signing of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) by President Trump has huge ramifications for Chinese firms among others, in fulfilling their expansion ventures, especially through acquisition (Broadman, 2019). IN this case, Haier’s expansion in the US may become challenging. Another threat is price war that is attributed to the multitude of new entrants in the electronics and home appliances industry, which have resulted in excessive supply compared to the market demand. As a result, existing companies, such as Haier have to lower their product prices, which threaten the success of the company in the market.

General Electronics

The Haier Group bought GE Appliances with the hope of creating long lasting solution to their business relations problems in the US. The acquisition was also aimed at facilitating Haier’s expansion move and tapping a greater market share across the globe. As previously mentioned, Haier’s penetration in the US was not entirely success, a reason why most of its products were shipped to its domestic market (Yong & Yazhou,  2017). With a reputable brand name, such as GE, Haier received the backing it needed to tap consumer trust in America. Furthermore, the efforts were intended to solidify its commitment to operating in the US (Riley, 2016).

With the shift of ownership, GE can undergo various changes, which might affect the employees. A change in corporate ownership is a significant organizational change that has some predictable impacts, including low productivity, high turnover rate, high sick leave, and poor commitment, among others (Galbraith, 2018). For this reason, the company has to handle the transition in a delicate way to avoid or minimize such instances. On the other hand, with the change in ownership, employees should also change their expectations. These include understanding that different leaderships have varying management approaches. Furthermore, the employees should remain optimistic towards working under a new management.

On the other hand, managing a culturally diverse workforce can be challenging for Haier. An important factor is that Haier has been operational in the US for over two decades, which implies that it is familiarized with the US culture. Nonetheless, cultural conflicts might arise, which might become a management problem for the newly acquired GE. To navigate the problems associated with organizational and national culture, Haier should embrace two structural principles.

The first principle focuses on how people interact locally. According to Patrick and Kumar (2012), the management can harness these interactions to become the basis for collective action and coordination among employees. The other principle emphasis is on bridging the divisions that occur internally and externally as a foundation for learning and information transfer. When combined, these princoples capture important details necessary for the employees and the organization at large to become successful. The core facilitator for higher-level diversity in an organization is to embrace the creative, communicative, and cultural skills that exist among the employees, and channeling these skills to improve the organization’s products, policies, and customer and employee experiences.

Strategic Implications for Emerging Chinese Multinationals

China has proven to be an economic global giant with an outstanding growth rate. As a global trading power, the country has laid an ideal foundation for its businesses to venture global markets effectively. However, as Liu and Li (2002) elucidate, the emerging Chinese multinationals have to adopt effective strategic approaches to succeed in the highly competitive global market. These include remaining market-driven and innovative to lay the foundation for optimal performance and growth. Further, they need to develop strategies for penetrating and tackling tough markets. Taking such actions helps these emerging multinationals to expand from a strategically expedient position.

Impact of Haier’s Success in the US on its Global Ventures

Haier’s success in the US market has favored its internationalization efforts. Majorly, the firm has familiarized itself on how to operate in a highly competitive market and it has all the necessary strategies and resources to take it global ventures a notch higher. Furthermore, with acquisition of a globally accepted brand, General Appliances, Haier has opened its doors to navigate the global arena.

 

 

References

Broadman, H. G. (2019, January 4). U.S. foreign investment policy gets a tougher but more transparent CFIUS. The Forbes. Retrieved from https://www.forbes.com/sites/harrybroadman/2019/01/04/u-s-foreign-investment-policy-gets-a-tougher-but-more-transparent-cfius/#5c7c18fe1fe6

Galbraith, M. (2018, October 5). Don’t just tell employees organizational change is coming – explain why. Harvard Business Review. Retrieved from https://hbr.org/2018/10/dont-just-tell-employees-organizational-changes-are-coming-explain-why

Bruijl, G. (2018). The relevance of porter’s five forces in today’s innovative and changing business environment. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3192207

Chan, X. (2011). A SWOT study of the development strategy of Haier Group as one of the most successful Chinese enterprises. International Journal of Business and Social Sciences, 2(11), 147-153. http://www.ijbssnet.com/journals/Vol._2_No._11_%5BSpecial_Issue-June_2011%5D/21.pdf

Patrick, H. A., & Kumar, V. R. (2012). Managing Workplace Diversity: Issues and Challenges. SAGE Open. https://doi.org/10.1177/2158244012444615

Omsa, S., Abdullah, I. H., & Jamali, H. (2017). Five competitive forces model and the implementation of Porter’s generic strategies to gain firm performances. Science Journal of Business Management, 5(1), 9-16. https://doi.org/10.11648/j.sjbm.20170501.12

Riley, C. (2016, January 15). China’s Haier buys GE’s appliance unit for $5.4 billion. CNN Business. Retrieved from https://money.cnn.com/2016/01/15/investing/ge-haier-appliances-sale/index.html#:~:text=General%20Electric%20has%20sold%20its,washing%20machines%2C%20refrigerators%20and%20microwaves

Yong, H. & Yazhou, H. (2017). Haier purpose: The real story of China’s first global super company. Infinite Ideas Ltd.

Sun, D., Liang, Z., Yu, L., Haimeng, L., Xiaoyan, S., …, Xixi, W. (2017). New-type urbanization in China: Predicted trends and investment demand for 2015–2030. Journal of Geographical Sciences, 27(8), 943-966. https://doi.org/10.1007/s11442-017-1414-4

Wever, R., Boks, C., & Stevels, B. (2008). The commoditization of consumer electronics products and its influence on packaging design. The 16th IAPRI World conference on Packaging, Bangkok, Thailand. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.548.2028&rep=rep1&type=pdf

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