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Feb.2005,Volume 4, No.2 (Serial No.20) China-USA Business Review, IS S N 1537-1514, US A
Haier’s Trilogy of Internationalization:
“Going Out, Going In and Going Upward”
Yuping Du*
Abstract: This paper analyzes Haier ’s trilogy of internationalization. Following an introduction of Haier, its
internationalization is analyzed in three parts: the first part is “Going Out”——the sowing phase as a niche
marketer in exporting; the second part is “Going In”——the rooting phase as a brave contender in FDI; and the
third part is “Going Upward”——the fruiting phase as a fighter in building a world brand.
Key words: Haier trilogy internationalization
1. Introduction
On its twentieth anniversary, December 26, 2004, Haier announced that its global sales reached RMB 100
billion. This was 29,000 times more than that in 1984 when it started. Haier is a super-large Chinese enterprise,
which started out as the Qingdao Refrigerator Factory in 1984 with imported refrigerator production technology
from Germany. Armed with the brand name strategy initiated by Ruimin Zhang, CEO of Haier, Haier is actively
engaged in technical innovation, scientific management, capital operations, mergers and acquisitions, and
multinational expansion. It has completed its long march from a small enterprise burdened with 1.47 million Yuan
in debts to its present position as the number one producer of domestic electrical appliances in China. Over the
past twenty years, Haier has built a network composed of design, manufacturing, sales and service, with 18 design
centers, 10 industrial parks, 30 overseas factories and manufacturing bases, 58,800 sales offices and 96 product
lines.
“Haier is a pioneer of Chinese enterprises globalization and focuses upon establishing a system for globe
wide marketing and brand building. Just like many Western traditional manufacture companies in globalization
practice, it needs time and patience. Haier is brave. It is the Americans who operate Haier’s (America) factory. In
fact, a person is believed to be confident when he shows confidence in someone else,” said Dr. John Caslione, an
1
expert of global sales strategy.
2. Analysis of Haie r’s Trilogy of Internationalization
Haier’s development can be divided into three stages by time dimension. Stage one of building a brand name
(1984-1991): Using seven years to build a strong nation wide brand name in refrigerator through a well-planned
TQC (total quality control) system. Stage two of diversified development (1992-1998): Diversifying the product
catalogue to avoid having all the company’s eggs in one basket in seven years. Stage three (since 1998) of going
*
Yuping Du, M BA, lecturer of School of International Trade and Economics, Guangdong University of Foreign Studies, Guangzhou,
Guangdong, China, Postcode: 510420; Tel: 020-36207853, 33318763; E-mail: yupingdu@126.com.
1
Hair Online 1, Dr. John Caslione, expert of global sales strategy, is quoted as saying while being interviewed by media, “Haier is a
pioneer of the globalization of China’s enterprises”, http://www.haier.com/english/news/newslist.asp , 2004.09.15.
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Haier’s Trilogy of Internationalization: “Going Out, Going In and Going Upward”
multinational. With the aim of building an international brand name, Haier has 62 distributors and more than
30,000 outlets around the world now. The company’s target for the beginning of this century is to enter the top 500
list of Fortune magazine.
In this process, Haier implemented its trilogy of internationalization strategy of “Going Out, Going In and
Going Upward”. To be more spec ific, firstly, “Going Out”——the sowing phase: Export the products to
achieve worldwide recognition, not so much for foreign currency earning (immediate income) but for
(long-term) brand building. As a pioneer of internationalization in China, compared to other world famous
multinational corporations, Haier conducted a differentiation strategy as a niche marketer; secondly, “Going In”
——the rooting phase: Invest abroad to achieve worldwide credibility. The principle of Haier ’s FDI (Foreign
Direct Investment) is where there is a market; there should be a factory once the sales produce net profits over
the break-even-point. Haier penetrates the mainstream local markets through direct investment. This is a
localization strategy; thirdly, “Going Upward” ——the fruiting phase: Upgrade Haier ’s image to win a
worldwide reputation through using the leverage of global capital markets, intellectual capital and resources to
build a world famous brand.
2.1 “Going Out”——A Niche Marketer in Exporting
Over the past 20 years, Haier witnessed significant prosperity and is now a transnational organization widely
recognized in the world community. Haier currently manufactures a wide range of household electrical appliances,
15,100 varieties of items in 96 product lines and exports products to more than 160 countries. In 2004, the export
value of Haier exceeded USD 1 billion, setting the highest record of export value by the self-owned brands of
following figure shows Haier ’s export growth from 1998 to 2004.
China’s home appliance corporations. The Haier's Export Value Chart
12
10
10
Export Value($10k)
8
6
4.23 4.49
3.8
4
2.8
2 1.38
0.7665
0
Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004
Year
Figure 1 Haier’s Export Value
Haier has a different way of thinking in exporting: “Exporting for brand building not for foreign currency
earning”. Haier’s good quality products increased the global prestige of its brand name and this has pulled the
growth of exporting dramatically. At the 96th Canton Exporting Commodities Fair, Haier ’s Exhibition Hall was
the largest one, covering 477 square meters. 15 categories and 230 items were displayed for worldwide buyers
to choose. The full set of cut-edge E-home Appliances and global unique arc-shaped familyline2 lines attracted
crowds of purchasers. All these show Haier ’s great plans to be a world-class home electronic appliances
provider.
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Haier’s Trilogy of Internationalization: “Going Out, Going In and Going Upward”
The KSF (Key Successful Factor) of Haier ’s exporting strategy is to differentiate its products from world
giants in order to meet the unfulfilled niche market demands. Drawing from Sun Tzu’s The Art of War, Haier
outflanked bigger rivals and prospered in market niches. Haier’s small computer-desk refrigerators for university
students are common in U.S. college dormitories. Haier’s design is innovative and different from competitors, so
the compact refrigerators have been able to outsell similar products made by competitors. Haier’s washing
machines fit into single ladies’ individual laundry-room in Japan, and the freestyle wine cellars and coolers are
customized for specific needs in European markets. Haier ’s differentiated products are not only catering to the
younger generation but also earning the brand loyalty among them that will provide future opportunities for sales
of the product lines.
To build its local international distribution networks, Haier implemented “from countries to surrounding
cities” marketing strategy to avoid direct competition in developed countries. Haier ’s products were first sold
mainly in individual peripheral stores to build up consumer awareness. Then local consumers demanded their
products, forcing the mainstream chain retailers to carry them. Haier won access to major U.S. distributors such as
Wal-Mart, Sears and Home Depot. After feeling the local market pulse and learning the rules of American
business, Haier entered the U.S. major-appliance markets. Now, Haier products are also marketed in 12 out of 15
European chain supermarkets and; in the top ten chain stores in Japan.
“Going Out” strategy helped Haier to achieve worldwide recognition.
2.2 “Going In”——A Brave Contender in FDI
Because of decades of self-imposed isolation, China was generations behind Western rivals when it initiated
economic reforms in 1979. Now, Chinese producers are seeking opportunities to leverage their domination of the
world’s largest market into global advantage. For companies, China’s WTO (World Trade Organization)
membership, which means increased competition at home from foreign companies, is a further spur to look
abroad.
Haier, however, is proactive in conducting FDI. Haier Group began its internationalization process more than
ten years before China’s accession into the World Trading Organization. “All of our competitors are very
powerful,” said Ruimin Zhang. “All we can rely on is our speed.” (David, 2003) Haier established 18 design
institutes, 10 industrial parks and 30 overseas production factories worldwide. Haier’s international promotion
framework encompasses global networks for design, production, distribution and after-sales services. Haier
recruits local employees to design, produce and sell its products both in the United States and in some European
countries. All Haier’s overseas factories are in operation. Going into the developed countries helps Haier to
understand the customs and habits of local customers, and to convert innovative product ideas into appropriate
local tastes. Haier’s local design institutes explore the needs and demands of the consumers in different regions to
satisfy consumers as quickly as possible.
There is a Chinese saying: “If one wants to improve one’s chess skills, he should play with the top players.”
Haier’s development strategy is to explore the difficult developed markets first and then go into the easier
markets .So it started from European and American markets instead of the developing market of Southeast Asia.
Haier’s motives of “Going In” are to utilize advanced technology in the developed countries, to utilize local
intellectual des igns to fit local culture and to allocate worldwide resources and capital to operate the factories and
companies locally.
Haier Group’s primary purposes to set up manufacturing subsidiaries in developed countries were to gain
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Haier’s Trilogy of Internationalization: “Going Out, Going In and Going Upward”
access to advanced technology, to expand into markets without tariffs, to save freight costs, to build brand image
and to establish itself in the markets. Haier achieved more than its expectations. When Haier-America/Italy
Companies received more orders than its production, either these surplus orders would go to Haier -China or other
Haier overseas factories would purchase finished products or components from Haier-China and attach its own
brand, both of which would increase Haier-China’s export volume and make full use of low cost advantage in
China.
In the year 2004, Haier overseas production reached USD 1 billion. To implement its internationalization
strategy, Haier established multilateral cooperation with many international rivals. On January 8 and February 20,
2002, Haier signed agreements with Sanyo and SAMPO to utilize joint investments and combined resources,
which will bring Haier to the level of a world-class manufacturer.
Its“ Going In” strategy has helped Haier achieve worldwide credibility.
2.3 “Going Upward”——A Fighter in World Brand Building
Haier’s leadership position in the Chinese home appliance industry was solidified by obtaining the domestic
market share of 21% for overall appliances, far ahead of all its competitors, 34% for white goods, exceeding
globally recognized domination line, and 14% for small electric appliances, overtaking all previous competitive
rivals. The “Haier” brand is China’s largest independent intellectual property brand. “Haier” of Haier Group,
valued RMB61.6 billion Yuan, tops the list of the evaluations on China’s nation's “most valuable brands” in 2004
(People’s Daily, 2004). The following figure shows Haier ’s fast brand equity growth compared with Changhong,
Comparison between the Brand Equity of Changhong and Haier
which used to be the home appliances market leader in China (SUFEP, 2002).
700
600 616
500 489 530
436
Value 400
330 330
(￥10m） 300
245 260 260 261 266 267
265 Changhong
200 192
100 Haier
0
Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004
Year
Figure 2 Comparison between the Brand Equity of Changhong and Haier
The USA has General Electric; Germany has Mercedes-Benz; Japan has Toyota. In the fast-growing China,
however, Haier is a comparable global competitor. To go upward, Haier undertook brand establishment, expansion
and innovation in the past two decades as a fighter in building a world brand. On January 31, 2004, Haier was
named one of the World’s 100 Most Recognizable Brands in a global name brand list edited by the World Brand
Laboratory, one of the world’s five brand evaluation organizations. As the only Chinese brand on the list, Haier
was ranked 95th after such household names as Coca-Cola, McDonald’s and Nokia, which were the top three.
Recently, the Financial Times and PricewaterhouseCoopers jointly undertook a survey of the World’s Most
Respected Companies and Entrepreneurs on an industry and country basis. Haier was placed first on the list of the
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Haier’s Trilogy of Internationalization: “Going Out, Going In and Going Upward”
2
World’s Most Respected Companies.
Facing the challenges brought by E-commerce and China’s accession to the WTO, Haier began a
management restructuring program in 1998 backed by the efficient Haier Market-chain System (see the following
framework) and order process performance, focusing on improved information dissemination for contract
performance, logistics, capital investment, after-sales services, inventory and operation cost reduction. Haier’s
production and management system restructuring enabled the company to diversify internal and external resources.
Haier worldwide logistics, distribution and manufacturing facilities ensure customer satisfaction through their
efficient operation.
Haier’s management philosophy and corporate culture are admired and researched by overseas scholars.
Haier’s management is recognized worldwide. Haier was introduced in 16 case studies in courses of business
mergers, financial management and corporate culture at seven foreign educational institutes, including Harvard
University, University of Southern California, Lausanne Management College, the European Bus iness College
and Kobe University. Haier was recommended to the EU Case Studies by Lausanne Management College for
Haier Market-chain Management (see the following framework). This made Haier ’s reputation climb not in the
business world but also in the academic world.
“Going Upward” strategy has helped Haier achieve worldwide reputation.
Figure 3 Haier Marketing Chain Process Model Version 3(2004.12.07)
Source: http://www.haier.com/english/about/framework.html.
3. Conclusion
2
Hair Online 2, “Financial Times and PricewaterhouseCoopers (PwC) joint survey of the World’s Most Respected Companies and
Entrepreneurs Haier ranked top of the World’s Most Respected Companies”, http://www.haier.com/english/news/index.asp , 2004.11.26.
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Haier’s Trilogy of Internationalization: “Going Out, Going In and Going Upward”
Haier has been building one modern factory of the size of a football field every month for the past 20 years.
Haier has been developing 2 new products for its customers everyday and increasing 1 new customer every
(to be continued to Page 68)
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