fete We CIMT] Alter almost going bankruptin 1984, the Qingdao General Refigeratr Factor from Qingdao (China) was restructured, Presently known athe Haier Group (inthe flloning: Hair), thas become ore of the leading consumer electronics and home applances manufacturers in the world 2011, Hair sale" reached almost US $238 ilion a yearonyear increase of more than 11 percent! A share of 27 percent of revenues came from washing machines, 7 per cent rom water heaters and 66 per cet from integrated channel services. The ater comprise ‘the product distrbution an logistics senicesbusines ofthe Hair Group and acount for he soles of the “nontaier” brands. However, the products sold through Hairs intagrated channe! serves include manly refrigerators, ar cnditiones, televisions and computers of the group ise Sine 2009, Hair has been consistently ranked as the word's largest major apptance brand, with a global retail ve shar of 78 percent. Siuces stories suchas Hae’ are not an exception anymore, yet Haier an be seen as an exemplary MINE from an emerging economy that worked is way upto become arenowmed ejobal brand in over 100 countries. Thanks to the high sil evel of its management it ‘focus on knowiedge generation, and wel'thought-out strategy execution, Hole’ local and international expansion turned out to be more than satisfying. However, in its early intemationalzation stage, Haier hed to face many challenges, related mainy to the company’s poor reputation and low quality standards. Some drastic changes were necessary to improve Haier’ market postioning and save it from bankruptcy. The early yea improving product quality and reputation In 1984, ther-35yearold Zhang Ruimin, deputy manager of a home appliance company in Qingdao, China, was appointed director of Qingdao General Refrigerator Factory. At that time, the firm was deeply in debt and suffered from decreasing demand; employees were notably demotivated. Zhang identified a need to introduce far-reaching measures in order to manage a ‘successful turnaround. While investigating a cies complaint about the poor quality of a refrigerator purchased from the firm, Zhang discovered that 76 out of 400 refrigerators in stock were of inferior qualty, reflecting a fellure rate of dose to 20 per cent. Zhang asked for all defective models to be lined up and ordered his staf to destroy these. This indent represents the turning pointin the firm's history ‘and marked the beginning of the company that is known today under the brand name Hale. Under Zhang's management, employees began to understand the importance of product quality and reliability, and Haier established a successful brand strategy. With the goal of providing high-quality products and services, Zhang established his “always cautious, always meticulous“ philosophy of achievement that shaped Haier’s corporate culture, and is largely responsible for Haler’s reputation for innovation as well as for the enthusiasm of is 70,000+ employees.”Diversification through joint ventures and M&A (One of Zhang's strategies was to lear from best business practices in developed countries such as ‘the United States, Germany and Japan. Following this strategy, Zhang revolutionized his company: He tied salary to performance, sent technical personnel abroad for advanced training, and developed a worldwide supply chain system. Zhang was aware of the fact that Haler could best improve itsimage by partnering with a foreign company. Therefore, in 1985, he entered into a joint venture with the German firm Liebherr, a leading home appliance manufacturer."* During this partnership, the Chinese manufacturer benefited from access to Liebher’s refrigerator technology, improved product quality and built up its reputation. Moreover, several years later, the firm was renamed after the second part of the Chinese translation of its partner Liebherr to receive its current name, Haier. The first signs of the joint venture's success became apparent as early as 1988, when Haier gained a dominant position in the Chinese refrigerator market.” In the same year, the firm completed ts first acquisition and integrated a small electroplating firm, the Qingdao Electroplating Company, from Qingdao, China, leter transforming the newly acquired division into a microwave producer Over time Zhang's drive continuously to improve products and services did not fade Haier took an impressive step forward when it achieved internationally recognized accredita- tions such as the Underwriters Laboratories Inc. certification from an American independent product safety certification organization, the Technischer Uberwachungsverein accreditation from the German technical inspection association, and the qualification of the International Organization for Standardization, a non-governmental organization with headquarters in Switzerland. These certifications marked Haier as an accredited supplier for the international markets *" However, in the 1990s, Zhang realized that quality alone was insufficient to achieve sustained corporate growth. He decided to spread Haier’s corporate risk by diversifying into various new product lines. Therefore, in 1991, Haier merged with the Qingdao Freezer Factory and the Qingdao Air Conditioner Factory, two financially challenged companies from Qingdao, China, that flourished with rising sales shortly after Zhang's restructuring was completed. Considering high growth forecasts for the acquired businesses, Zhang made a decision to expand production faclities by buying land for a new industrial park, which would house corporate headquarters and 66 subsidiaries. In order to finance this large-scale project, Zhang listed Haier on the Shanghai Stock Exchange in 1993, The IPO became a big success, raising sufficient capital to establish Haier Industrial Park in Qingdao, China, two years later.** In the same year as going public, Haier started cooperating with the Japanese firm Mitsubishi in order to gain more expertise in air conditioners." Haier also partnered with the Italian firm Merloni Elettrodomestici, at that time the third largest home appliance producer in Europe.Together, the partners built a washing machine production plant for the Chinese market in Qingdao, China. This joint venture enabled Haier not only to acquire valuable technology necessary to produce washing machines, but also to implement its diversification plans. It consequently paved the way for Haier's subsequent acquisition of the Red Star Electric Appliance Company in 1995, which was tured around “from moneyosing to profit-generating” within three months. Thanks to the acquisitions of the Huangshan Electronics Group and the Yellow Mountain Television Company in 1997, Haier expanded into the television business.”® Haier's diversification strategy led to a total of 18 Chinese enterprises in a range of industries being acquired. By the end of the century, Haier’s offerings included traditional home appliances (e.g., washing machines, electric irons, microwaves) as well as the latest consumer electronics goods (e.g., mobile phones, televisions, computers).”” Internationalization Following the success of Haier’s diversification strategy and continuously increasing exports, Zhang started to implement his plans for more sophisticated international expansion. While earlierstage exports relied mainly on licensing agreements (e.g, with Liebherr in Germany) and sales alliances (e.g., with Welbit Appliances in the United States), Zhang aimed to increase Haier's independence and degree of internationalization with the help of a multichannel strategy. “To achieve its balanced country portfolio", Haier defined three stages: + Stage one: ‘Seeding’ - a sales-volumebased approach that emphasizes reputation building and foreign distribution through local sales agents; + Stage two: ‘Rooting’ - key aspects are rising market share and creating wholly ovmed production subsidiaries abroad; + Stage three: ‘Harvesting’ - represents the implementation of subsidiary-based local sales and location of R&D capabilities abroad.” In guiding the international expansion of Haier, Zhang followed his credo: “difficult things first, easier steps later”. He initially intended to enter markets in developed countries first, and to expand into developing countries afterwards. However, this strategic approach, that aimed to gain strong managerial, technological and reputational competences in developed economies and to apply these newly acquired competencies subsequently in emerging countries, was not strictly followed.®" After Haier's initial market entry in the United States, the firm established itself in emerging countries as ‘Haier ASEAN’ (abbreviation for the Association of Southeast Asian Nations). Haier followed its initial exports to indonesia in early 1992 with opening its first foreign production site there four years later. In 1997, Haier furthered its expansion into emerging economies by establishing subsidiaries in the Philippines and Malaysia.During the same year, Haier approached foreign distributors at the World Household Appliances Expo in Cologne, Germany, with the intention to take a share of the world market Haier’s strategy Today, Haier’s journey to the top league of international home appliances producers repre- sents a great Chinese success story, and an inspiring example for MNEs from emerging countries worldwide. After several near escapes from insolvency, the formerly small Chinese refrigerator manufacturer was revitalized and established as a world brand. Haier’s extraordi- nary transformation, however, was not magical, but was based on hard work, endurance and insight on industry functioning. Haier’s development path can be subdivided into four major phases. First, in the immediate period after Zhang's appointment as a director, Haier’s reputation suffered due to past quality problems. As his frst order of business, Zhang aimed to improve the quality of Haier’ refrigerators and implemented a ‘brand building strategy’ (1984-1991). In partnership with foreign companies, Haier built up advanced technological knowledge and updated its production equipment. In addition, Zhang created a strong focus on quality and implemented Total Quality Management (TQM), a proven method borrowed from qualty-driven Japanese manufacturers. From then on, Zhang asked all employees to participate in continuously improving Haier’s products and processes. Second, with the new strict quality standards, Haier achieved huge success on the Chinese refrigerator market in the late 1980s and embarked on a diversification path. In the beginning of the 1990s, Haier started to expand into related businesses by acquiring and integrating numerous (and often struggling) local enterprises (1991-1998). While com petitors tried to gain market share through price wars, Haier stuck to its principle of superior quality, which eventually allowed the company to achieve competitive advantage. Moreover, Zhang established Haier’s own management control system ("OEC") that aimed to “accom. plish what's planned each di According to “Haier's definition, ’0" stands for ‘Overall, E’ stands for ‘Everyone’, ‘Everything’ and ‘Every Day’, and ‘C’ stands for ‘Control’ and ‘Clear’."** This managerial approach focuses ‘on “overall control of everything that every employee does every day" and suggests that all svaluate and improve what's accomplished each day”.employees finish their daily assignments with an increase of one per cent in volume of work each day.” Third, Haier’s diversification phase was followed by internationalization (1998-2005). By introducing a “Threein-One” strategy, namely the co-location of design, production and marketing, Zhang was able to achieve customization of products to fit local needs. Haier’ international expansion succeeded and this improved its market postion vis--vis foreign rivals Until today, Haier has followed the "Threein-One’ principle. However, some managerial adjustments were needed in order to implement successfuly Zhang's ‘global brand strategy’ to keep up with the speed of globalization, Haier decided to consolidate its resources in R&D, production and sales on a global scale, Fourth, in 2010, Haier announced its strategic transformation from a production focused ‘company to a service focused one, with an emphasis on meeting customer needs ina tailored, customized fashion.” Driven by complex customer demand and a fierce competitive environ- ‘ment, Haier became one of the most innovative home appliances companies worldwide. Its achievements in innovation were recognized with the Industrie Forum Communication Design ‘Award in 2011." Haier’s strategic plan forthe next five years includes the goal of remaining the ‘number one home appliances brand in the world, and to be among the top five international electronics brands.Zhang Ruimin Zhang Ruimin is one of the most respected and powerful executives in Asia. Zhang's role in (0 an award-winning, innovative corporation prompted widespread analysis of his managerial practices. Zhang managed to build a successful corporate culture, Which he infused with his personal values of modesty, search for knowledge and a firm commit. ‘ment to quality. Following best global practices and focusing on continuous product innovation, Zhang updated Haier’s business model and integrated the concept of zero inventory, thus achieving "a subversion of traditional management”.""” In the later step of Haier'sinternation- alization, Zhang pushed Haier’s independent operational entities to produce following “individual goal combinations"." Like the OECapproach, this management tool focuses on turing little-known Haier it ‘the individual employee. The individuat-goal combination defines each employee as “an inde- pendent and innovative strategic business unit with the collective goal of achieving primacy in the marketplace”."®* By assigning more responsibilty to employees, they get involved in setting business objectives, manage business resources and create shared value for the company and dents likewise." Even after Haier became a successful global brand, Zhang never lost sight of the company’s Chinese roots. Respect for Chinese culture and politics remains an integral part of Haier’s corporate values. In return, the Chinese government honoured Zhang's achievements by appointing him to the alternate committee for the 16th and 17th Central Committees of the ‘Communist Party of China."”°QUESTIONS 1. What are Haier's FSAs? How did Haier exploit these in its international expansion? 2. Which specific resource recombinations have helped Haier to achieve international success? 3. Which market entry strategy did Haier choose for its various international markets? 4, Most manufacturing companies move to China to gain advantage of cheap labour, However, Haier ~ a Chinese company ~ opened production plants around the world. Why? 5. Based on Haier’s case, please discuss differences (if any) between developed. ‘economy MNEs and emerging economy MNEs. Can you name specific ‘examples from the case? 6. Haier’s CEO, Zhang Ruimin has been the key decision maker in the company for almost 30 years. What has been his unique contribution to the firm’s success? Do you think he could have achieved the same level of success in an MNE from a developed country? Please explain. 7. Can developed country MNEs learn from Haier’s worldwide success? Are there any best practices that developed country MNEs could ‘copy’ from Haier?