2.0 Corporate level strategyÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦4
2.2 Relationship between corporate parent and SBUÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦6
2.1 Process of internationalizationÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦5
2.3 Decentralized FederationÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦6
3.0 Business level strategyÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦.8
4.0 Internal analysisÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦..9
4.1 Primary activities-Inbound and outbound logisticsÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦.9
4.3 Support activities-Human resource managementÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦...10
4.4 Marketing and salesÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦11
4.5 Technology developmentÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦11
5.0 External analysis -five force frameworkÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦..11
5.1 Competitive rivalryÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦11
5.2 Buying powerÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦.12
5.3 Power of supplierÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦..12
5.4 Threat of entryÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦...12
7.0 Limitations of analysisÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦ Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦13
8.0 Evaluation of existing strategyÃ¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦Ã¢ÂÂ¦.14
Haier Group was found in 1984, it was emerged from refrigerator factory close to bankruptcy, which was located in QingDao, China. Now, Haier exports its products to over 160 countries. Haier have been globalizing its businesses since 90s. Now, Haier has operations in middle east, European, Asian pacific and American countries.
In this report, the relations between Haier and SBU in USA will be examined. As the SBU in USA is relative important to Haier compare to other SBUs. Because, the company's strategy motives and attractiveness of the market. Haier has adopted a decentralized federation model to manage relationship between corporate parent and America SBU. Haier believes that they are dealing different customers in different geography areas. In addition, different levels of its strategies have been examined, such as corporation strategy, business strategy and existing strategy. Analysis has been done by using Value chain, five forces and SWOT frameworks. There are some internal competences have been identified through those analysis. For example. Haier's SAP SCM system and its efficient distribution networks. These systems have significantly reduced Haier's distribution times, material handling times and its production handling. Also, Haier's entrepreneurial leader Ruimin Zhang has played a crucial role in Haier's strategy planning process. He favors Japanese management and lean philosophy. Therefore, Haier has developed its own OEC management-control system. It is kind of similar to lean approach of operation management. It makes every employees in Haier to control every thing they do on their daily jobs, increase at a steady speed of 1 percent to previous day. This system emphasizes on involvement of everyone and discourages inequity among employees. However, the weaknesses of Haier will become more obvious in the future. Such as communication between oversea SBUs; saturation of users in Household appliance market. Haier will need to adjust its strategies to overcome these challenges by exploiting its strengths and external opportunities.
In the complex and fast changing business environment today, there are many challenges faced by multinational companies. So, it is crucial for companies to understand its own strategies and adjust their strategies when circumstances change. This report aims to analyze strategies of a household appliances company, which is called Haier. Now, it is the fourth largest manufacturer in the world. As a multinational company, Haier's strategies have been one of the crucial factors for its success in both of domestic and oversea markets. It has been especially successful in USA market, the success has greatly strengthen its position for its international expansion. Now. Haier has gone through the development stages, which are brand building, diversification and globalization. Its business model has written into case studies in many western universities. To understand Haier's successes, different levels of its strategies will be examined, such as corporation strategy, business strategy and existing strategy. Value chain, five forces and SWOT analysis will be used to evaluate the company's internal competences and its external business environment. The internal analysis will focus on its household appliance division in the US. These frame works can help to gain deep understanding of all levels of Haier's strategies.
This diagram shows three phases of Haier's strategy
2.0 Corporate level strategy
Haier Group was found in 1984, it was emerged from refrigerator factory close to bankruptcy, which was located in QingDao, China. It was primarily built to supply the Chinese market and become the leading brand in China. After years of development, Haier had returned to profitability and turned out to be a dominate player in China. Haier website (2007) mentioned that today, Haier has 240 subsidiary companies and 30 design centers all over the world. It has employed about 50,000 people. Also, it has diversified into technology research, manufacture industry, trading and financial services. In 2006, its total revenue was about 12 billion US dollar. Haier is the only Chinese brand to be ranked in the top 100, within the world's 500 most influential brands. In addition, the achievements of Haier largely based on unique corporate culture, values and purpose. It has a clear mission statement to guide Haier's direction. "A mission statement is a statement of the overriding direction and purpose of an organization" (Johnson et al, 2005) According to Haier America Trading "Haier is committed to providing our customers with reliable, stylish, and innovative products for the home. We strive to create quality appliances that surpass what other manufacturers typically offer. Our purpose is to integrate function, practicality, and appearance into superior products unlike anything available today." In other word, Haier wants to differentiate itself from other appliance manufacturers. Quality is emphasized as the most important thing for the organization. The CEO of Haier Zhang had sent a clear message to employees about the importance of quality. Haier website (2007) stated that, once Zhang discovered 76 faulty refrigerators in their inventory, then he asked employees to destroy faculty products with hammers. Even today, one of those hammers is exhibited in Haier's headquarter to remind employees. "Zang said Zhang said: "Destroy them! If we pass these 76 refrigerators for sale, we'll be continuing a mistake that has all but bankrupted our company." Conversely, Schafer (2005) said Haier's ownership structure is very complicated, it is supposed to be a partial public ownership. But the government has greater influence over the organization than its employees, Zhang was pointed by the Chinese government. For example, Haier's vision is to be a recognized brand in global market. This is influenced by the government, because Chinese economy has been growing at a very fast speed. Still, the economy is based on manufacturing for foreign companies, there are no globally recognized Chinese brands. If Haier can achieve this vision, Haier's experience can be helpful for other Chinese companies to globalize their business. As the Chinese government is the largest shareholder in Haier, the government often point Haier in a certain direction. Wit and Meyer (2004) stated "in the stakeholder values perspective do not see why the supplier of one ingredient in an economic value-creation process has a stronger moral claim on the organization than the providers of other inputs. Even Haier is under public ownership, but dividends have never been distributed to its employees. Wit and Meyer (2004) mentioned that Often, organizations' activities have an impact on wide range of stakeholders. If only shareholders' interests are pursued (in this case the government), other stakeholders can not be motivated and lack of trust between stakeholders.
2.1 Process of internationalization
Furthermore, Haier exports its products to over 160 countries. Haier has been globalizing its businesses since 90s. Now, Haier has operations in middle east, European, Asian pacific and American countries. Its first oversea industrial park is founded in South Carolina, it aims to localize their products for American market. The US market is very important part of its globalization strategy. Because, often many people associate Chinese products with poor quality. Haier is desperate to make itself a premier name globally. Also, America is tightly linked with many nations in the world. So, if Haier can build a positive brand image and compete effectively in the US market, it will be easier for its later expansions into other countries. Also, the American market is very attractive for business expansions. This has been done by many other companies like Sony, Samsung and Honda. According to Engardio and Amdt (2006) "Haier Group is making a play to become the next premier name in white goods. Haier follows a playbook borrowed from the Japanese and Koreans: First, build a huge base at home that gives you economy of scale and a market where you can test products and perfect your manufacturing. Then go on the offensive overseas and race up the value chain." Also, Haier's strategy is to localize R&D, manufacturing and sales in different markets. For example, in Haier's Amman industrial park, it has specially designed a model of washing machine with large capacity and energy efficiency for the Middle East market. This model has met local customer's requirements and expectations. Therefore, Haier has become increasingly popular in Middle East countries. However, from some points Haier is only a relative global company, it is far from its goals. According to Wit and Meyer (2004), that only few types of its products have gained reasonable market shares, such as washing machine, refrigerator, and television. Its financial service business and other household products are hardly found on global market. Also, their revenues largely generated in their domestic market. In contrast, Haier has been localizing its business to meet customer requirements in some markets. The definition of globalization is difficult to distinguish. But Wit and Meyer (2004) concluded "the process of globalization-it is characterized by decreasing international scope, similarity and integration."
2.2 Relationship between corporate parent and SBU
It is an important issue for muti-national business to mange relationships between corporate parent and SBUs. Because, SBUs have their responsibilities and business strategies. It is a challenge for managers make SBUs to work in harmony, otherwise the whole corporation can not operate efficiently to achieve its objectives. Wit and Meyer (2004) mentioned in 1940s, "SONY' vision was that people's enjoyment of the software content should be central and that different types of devices for accessing this content should be networked into an integrated system." In order to achieve its vision, SONY established a global hub to connect all different SBUs. It aimed to unify SONY as a single corporation. Furthermore, Haier's main business is household appliances, Haier uses its reputation gained in household appliance industry to expand its activities into other businesses. "Once customers had experienced the quality of a Haier refrigerator, they would want to buy other products of the same brand." (Strategy Direction, 2006) Now, Haier has diversified into many businesses by acquiring other companies. Therefore, how to manage different SBUs cross the world is crucial for Haier's long term success. In this report, the relations between Haier and SBU in USA will be examined. As SBU in USA is relative important to Haier compare with other SBUs. Because, American SBU has been allocated more resources than other SBUs. In 2002, Haier bought its American headquarters in the landmark neo-classical building, the former offices of the Greenwich Savings Bank. Haier has an ambition for long term development in USA. According to Wit and Meyer (2004) "some firms are more asymmetrical, placing more emphasis on just a few of their business activities. Strategist need to decide which activities will be focus of further growth and increased weight within the firm, allocating resources accordingly" Also, there are some other reasons, why American SBU is more important. For example, the company's strategic motives and attractiveness of the US market.
2.3 Decentralized Federation
In addition, Haier seems adopted a decentralized federation model to manage the relationship between parent and America SBU. Haier believes that they are dealing different customers in different geography areas. They mainly target niche market in the US, therefore it must localize its products. As Haier has already localized R&D, manufacturing and sales in US. Haier's strategy is to localize its brand in US, to make customers feel they buying American products rather than imported goods. According to Bonnema (2003) "One of the plant goals, for example, is establishing a supplier base in the U.S., as opposed to using its parent company's Chinese connections. What we would like to get to is where we have all of the main commodities in the U.S." As Wit and Meyer (2004) stated a decentralized federation is each country subsidiaries have little coordination and can make self-sufficient and autonomous decisions. Also, low level of standardization, which means each country units are free to adapt itself to the particular situation in their national environment. Nonetheless, there are some degree of coordination between Haier's home country and American SBU. Because, American plant only manufactures refrigerators, still other products have been manufactured in China. According to Allan Guberski, VP and general manager of Haier America Refrigerators Co., (cited by Bonnema 2003) "one of the main focuses of the Camden plant is finding the most effective way to balance its Chinese and U.S. operations." It is important for Haier to determine an appropriate level of decentralization and coordination. Refer to Wit and Meyer (2004) " the corporation can be divided into different business units with intent of focusing each on separate business areas, but this differentiation must be offset by a certain degree of integration to be able to address common issues and realize synergies."
3.0 Business level strategy
Moreover, business level strategy aims to assist companies to gain competitive advantages in the marketplace, by differentiating themselves from competitors and providing desired products for customers. Haier's business level strategy is to target the niche market and work closely with local customers, in order to understand their customers' requirements. Haier knows it can compete with major players like GE and Whirlpool on international scope, because its brand is more recognized by its local customers. Therefore, Haier adopted a hybrid strategy, which is route 3 on strategy clock. Haier provides slightly differentiated product with low price than competitors. In America market, Haier only focused on small range of product like mini refrigerator used in hotel and office, affordable compact wine cooler and pizza oven for college students. Haier has generated high level of sales with these products. "Haier seeks to serve its customers in a way that its competitors can't. The firm places great emphasis on understanding what its customers want and quickly meeting their needs. Haier realized that most of the customers who buy its compact refrigerators are college students. These students generally have very small rooms and apartments and have a need to conserve space. Haier designed a refrigerator with wooden flaps on the sides that can be folded out to make a computer table."(Hunt, 2005) Also, another Haier's critical success factor is that Haier focuses on small range of products in niche market allows it to meet customer demand quickly. For example, Hunt mentioned Haier regularly sends its R&D people to interview its customers and staff in chain stores. When some front line staff suggested Haier equip its refrigerators with locks for cubicle and dorm room security, Haier responded immediately by developing a new model. Few months later, this model was on the US market. Basically, Haier's success in America is due to it focused on limited set of product. According to Wit and Meyer (2004) firms focus on limited set of product can avoid several major problems below:
-Low economies of scale
-Show organizational learning
-Unclear brand image
-Unclear corporate identity
-High organizational complexity
-Limits to flexibility
However, Haier only focuses on niche market their profit margin is relative low compare with main players, which are 14% and 19% in 2006 and 2007. In contrast, GE had achieved 26% and 27% profit margin respectively. These figures indicated that Haier's business sales are much lower than GE. Also, Haier is a niche market player, its business scale is smaller than GE. The table below shows corporate scales of several mainstream players.
Comparing Corporate Scale of Haier, GE, Other Companies ($million)
4.0 Internal analysis
Also, Haier's strategy capabilities need to be examined, in order to understand how the company has achieved its competitive advantages. The value chain is an effective tool for evaluating that, whether the company's primary activities and support activities have delivered best value products or services.
4.1 Primary activities-Inbound and outbound logistics
According to High Tech Association 2003, that Haier has established a central logistics division by using a SAP SCM system, which supports most of Haier's divisions. It allows Haier to improve its production planning, warehouse management, supplier relationship management. "Following this implementation, average time for material waiting at distribution centers before being sent to production centers was reduced to three days, average time for finished goods in transit at these distribution centers was less than seven days, and utilization of transportation and storage capacity was increased."( High Tech Association, 2003) Also, Haier have been using resellers to distribute its products to customers. Haier has partnerships with over 10 chain stores in America, such as Wal-Mart and Absolute Home. It is a cost effective way to sell its products, because this strategy lets Haier to reduce stock costs, cost of buildings maintain its facilities. In 2005 and 2006, with its logistic system Haier has achieved higher stock turnover ratio, which are 8.9 and 8.5 times respectively.(cost of sales/stock3349770/376379=8.9times,4334997/510000=8.5times) It means that haier can moves its goods through its business faster. As the stock turnover ratio of GE are 6.3 and 6.5 times. (74110000/11401000=6.5times,66814000/10474000=6.3times) The most important point is that partnerships can support Haier's overall strategy, which is meet customer demand and speed to market. These chain stores have close contact with customers, they can provide valuable and accurate information about customer needs. Therefore, both of Haier's product offering and speed to market can be improved.
The value chain shows all value added activities in Haier's operation
Haier favors Japanese style of operation management, Just-In-Time management principles have been applied by Haier. According to Slack et all (2004) "Just-In-Time is a disciplined approach to improving overall productivity and eliminating waste. It provides for the cost-effective production and delivery of only the necessary quantity of parts at the right quality, at the right time and place."
4.3 Support activities-Human resource management
Plus, Haier has developed its own OEC management-control system. Lin (2005) said O means overall; E means everyone, everyday every thing; C means control and clear. It is kind of similar to lean approach of operation management. It makes every employee in Haier to control every thing they do on their daily jobs, at a steady speed of 1 percent to previous day. Haier noticed that this is a crucial area for the future business growth and sustain its primary activities. "Business growth, a company needs to continuously raise its goals and quality through innovation. That's where OEC comes in. Based on market competition, OEC management strives to continuously raise the firm's goals and improve management skills to achieve a sustainable competitive advantage." (Lin,2005) All employees have to attend an OEC training course, it helps them to understand the OEC criteria. All employees conduct their own activities to control and check by following OEC criteria. Also, All divisions will be allocated a next year's guideline line and goals based on previous performance. Also, individuals have to fill a form to report their daily control, check and clear activities, this information will be used for monthly OEC control general. It can be seen that Haier's OEC system is implemented at all level of organization to ensure efficient performance. Furthermore, Haier has a very motivating incentive mechanism, all employees receive a daily grade based on their performances and a point system can be able to employees to collect points, the number of points is linked to their annual bonus and wages.
4.4 Marketing and sales
Haier desperately to build its global brand image and transform its image from cheap product to high-tech product. Because, Haier has expanded its product range to flatscreen TV, mobile phone and computer. However, it does not have a strong brand image to support itself, customers often associate its product with low price. Refer to Engardio and Amdt (2006) "Since entering the U.S. in 1999, it has become the top-selling brand of compact refrigerators, a market leader in home wine coolers, and No. 3 in freezers. U.S. sales last year: $750 million. But Haier is still known in the U.S. mainly for commodity goods. "When I look across the major appliance categories, I've not yet seen [Haier] have any perceivable position," Nevertheless, Haier is gradually improving its weakness that it has employed former Motorola marketer as global chief brand officer. Also, it has signed a partnership with NBA. It aims to take their brand higher, according to Murph (2006) "Haier has stepped up its push into the US market, signing a strategic marketing partnership with the National Basketball Association (NBA), aimed at lifting Haier's presence on the global stage"
4.5 Technology development
Hunt (2005) stated that Haier has developed two online networks to take the advantage of the E-business, which are business to business network and business to customer network. These two networks allow Haier to change original way of process business process, with business to business network Haier can reduce its costs and improve efficiency. Because, the network can help Haier find the most suitable suppliers. Now, many process is automatically done on the site, like place orders, stock replenishment and process payment. With this advantage, Haier has established a distribution network all over the world. Additionally, the most remarkable thing is that, Haier asks its retailers to provide internet access for customers in their stores. It increases the chances of customer using their online networks, so customers can access more information about its products. Refer to Hunt (2005) "Distributors and retailers also serve as a source for providing product information, offering consultation or advice, and taking orders from the consumers who don't have internet access or don't feel comfortable placing online orders by themselves. In this way, Haier is able to pursue a strategy of low-cost production and high-value for its customers."
5.0 External analysis -five force framework
Johnson et al (2005) the five force framework is used to assess Haier's competitiveness in household appliance industry. But, it is only used at the level of Haier' American business unit, because Haier has diversified into many different industries.
5.1 Competitive rivalry
For Haier's the market is fairly competitive, as it only focuses on niche market in the US market. Weston (1998) mentioned that the household appliance market is roughly dominated by three large corporations, which are whirlpool, GE and Maytag. These three companies together make up 85% of market shares. Johnson et al (2005) in an oligopoly market where only few dominate players, the industry tend to be less competitive for those smaller players, who can accommodate themselves between major players. Haier has done well by focusing activities to avoid the attention of the dominant companies. Refer to Hunt (2005) the question that considers the director of Haier everyday is how to avoid competitions from large companies.
5.2 Buying power
The buying power of consumers is not very high, as Haier provides differentiated products with relative low price. For example, Haier's Pizza box designated to target college students. The dominated players can not produce this kind of niche product at profitable price. Therefore, Haier's customers do not have much choice. Even they decide to switch other companies, their products will cost a lot more than Haier's products.
5.3 Power of supplier
Power of supplier is low, because Haier uses its B to B online network to get a fragmented source of supply. The online network allows Haier to select the most suitable suppliers, that understand Haier' strategic objectives and be able to assist it to achieve its goals. The switching costs from one supplier to another supplier is low, Haier get its supplies all over the world. According to Bonnema(2003) "Haier will search the most cost effective options. We'll do what makes sense," notes Mr. Guberski. "If we can produce a part more economically in China than here [in the U.S.], of course we'll probably go that route. If we can source it domestically, we will certainly do that. We end up passing along this value to our customers, which is what we ultimately want to do to be successful in the marketplace."
5.4 Threat of entry
The threat of entrants is low because of huge cost in capital investment. For example, Haier invested more than 40 million US dollar to build their American industrial park. Also, Haier has been investing enormous amount of money for marketing their brand in the US market. For new entrants marketing cost is a sunk cost, and there is no guarantee that they can gain market shares. Moreover, household appliance market is in its maturity. According to Johnson et al (2005) that a matured market is very difficult to gain shares. As all players all relative equal in size, they all try to maintain their market shares and emphasis on efficiency and reducing cost. So there is no space for new entrants to grow in this market.
From above internal and external analysis should be helpful in understanding the factors in the industry and market environments. Additionally, a SWOT analysis can further address the key issues in its business environment, which can impact on Haier's strategy development.
Haier has consolidated its position in American market by offering high quality and stylish products. Its innovative compact products have changed the trend of household appliances design. So, Haier has received well reserved attention from its customers, the high level of customer satisfaction can be an important force for its future development. Secondly, speed of product development Haier has capabilities to develop a new product at faster speed than competitors. Speed of product development and its distribution network allow Haier to react quickly to customer demand. Also, Haier has a wide range of product, it is easy for haier to promote new products by combining them in package deal with best selling products.
Communications between corporate parent and SBUs, as Haier's headquarter is located in China. The Chinese culture is deeply influenced by Confucianism, which pursue harmony and balance. This discourages employees to challenge the company's Hierarchy. On the other hand, there is no Chinese employee in American SBU. Therefore, it is easy to cause confusion and misunderstanding between corporate parent and SBUs. It can prevent Haier to deploy its resources and capabilities efficiently.
Now, Haier has done successfully with their niche products. It can try to enter established market, as the price margin is higher in the established market. Because, Haier has built some customers with niche products. So, a customer who familiar with its product quality and dependability, they probably will buy haier's other appliances.
The household appliance market is in maturity. In this kind of situation, often there is saturation of users. Also, all established players try to maintain their market shares and emphasis on efficiency and reducing cost. It is very challenging for Haier to grow its business in the market.
7.0 Limitations of analysis
There are limitations in these frameworks used in the report, value chain only focuses on internal factors that give the firm core competences and where value added activities are created. Also, five forces simply examine the firm's industry environment. Both of these frameworks have ignored some elements in macro environment. For example, political factor and economic factor, there are often political frictions between China and America due to political issues and trade deficits. In the past, America put an embargo on trade between China. If this happen again, it is very likely to affect Chinese firms like Haier. Also, as Haier has expanded its product range some products like computer may this cause security concerns for some American firms which, their businesses involving processing some sensitive information. For example, before the defense department of America had refused to use computers, that provided by a Chinese computer manufacturer Lenovo. Besides, the trade deficit gap is getting bigger between China and America. The US government has frequently put pressure on Chinese government about its undervalued exchange rate. If Chinese government lifts its exchange rates, then Haier will probably lose its low price advantage.
8.0 Evaluation of existing strategy
Many companies have their own views of companies' future state, where they want their companies to be in the future. Haier has developed its three phases of strategy, which are domestic quality reputation, diversification and global expansion. Haier has completed its three phases of development successfully. Haier's success is owed to the director of Haier Zhang, he has developed a vision of the organization's future. He is a strategist of great natural talent, he leads Haier to the success. He favors Japanese business philosophy, but, he didn't completely copy the way Sony and Samsung did. He adjusted Haier's stategy based on its resources and capabilities. According to Wit and Meyer (2004) that "some companies do have a strategist of great natural talent; usually the founder or chief executive. They have an intuitive grasp of the basic elements of strategy. They have an idiosyncratic of mode of thinking in which company, customer and competition merge in a dynamic interaction out of which a comprehensive set of objectives and plans for action eventually crystallizes" This kind of strategist can be find in many Japanese companies. Refer to Mintzberg et al (1998) it is clear that, Haier's strategy formation process is based on concept of the entrepreneurial school. Because, in the entrepreneurial school emphasized on personalized leadership, personality of entrepreneurs and vision.
Also, in entrepreneurial firms power usually centralized in the hand of few individuals, and these visionary leaders can develop a vision of their organization in their minds. Then, they put ideas into action, so they often build their own strategies rather than manipulate. "Most of the young presidents have the urge to build rather than manipulate. Expansion is a sort of disease with us says one president" (Mintzberg et al, 1998) Therefore, visionary leaders can be the source of creativity in their organizations. It is one of the key factors for their strategy success, because they will not develop a 'me too' strategy. It can be seen that director of Haier Zhang is the visionary leader. According to Hunt (2005) "When challenging the large, established firms of Europe and the United States Zhang realizes that, we can't just do me-too products, so if we're like them, we'll be crushed." Nonetheless, from resource based view, organization can gain competitive advantages by possess distinctiveness resource. Now, one of Haier's weaknesses is lack of core technology. Haier has been very innovative on product features, it has not developed new technology for its product. Because, Haier needs some intangible assets to support its technology development, such as research facility or special knowledge. Intangible resources are more difficult to acquire or may not be transferable. Therefore, Haier has gone down to a different route, by exploiting its speed to market and innovative features to meet customer need. According to Wit and Meyer (2004) "this point is often expressed in terms of the classic SWOT analysis tool, which suggests that a sound strategy should match a firm's strength and weakness to the opportunities and threats encountered in the firm's environment."
A conclusion may be drawn, after evaluations of Haier's strategies from different aspects. There are some internal competences have been found in its value chain, which give Haier flexibility and speed to outperform competitors. For example. Haier's SAP SCM system and its efficient distribution networks. These systems have significantly reduced Haier's distribution time, material handling time and its production handling. Also, Haier's staff is highly motivated by its OEC management-control system. Because, the management system provides adequate training, instruction and resources. All employees' performance is clearly and unambiguous linked with rewards. Plus, the management has established consistent rating systems to avoid inequity among employees. The most important element of its strategic success is that, Haier has implemented philosophy of entrepreneurial school. The director Ruimin Zhang is the entrepreneurial leader, he has developed differentiated strategies for Haier to avoid competitions from mainstream players. However, Haier will extend to other market and compete directly with established players. Then, Haier will need to adjust its strategies to cope its weaknesses like communication between corporate parent and SBUs, in order to exploit its resources efficiently. Also, saturation of users is a big issue for Haier, it will very be difficult to gain market shares to support its growth. But, at this stage Haier has performed well in the market place, it has been very innovative and competitive, when compare with similar sized companies in the market.
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