Internationalization Strategy

Case 19 Haier Group:
Internationalization
Strategy
The transformation of the bankrupt Qingdao General Refrigerator Factory into the
Haier Group, one of the world’s biggest and most successful household appliance
companies, is an epic tale that symbolized China’s rise to become the world’s dominant manufacturing center and a major source of foreign direct investment. In the
process, Haier’s CEO, Zhang Ruimin, had become a national hero and internationally renowned business leader that Fortune magazine listed among “The World’s
50 Greatest Leaders” for 2014.
Yet, the story of Haier is also atypical of China’s industrial development. By
2015, Haier had achieved a global position that had eluded most other Chinese
state-owned enterprises. Within the appliance industry, Haier had established itself
as a major global brand, a frontrunner in terms of innovation and product design,
and, without the help of large-scale acquisitions, had built a strong presence in
the sophisticated and intensely competitive appliance markets of North America,
Europe, and Japan. Haier views its development as comprising a sequence of phases
each lasting about seven years (Figure 1).
What lessons can other emerging market multinationals learn from Haier’s remarkable achievements and does Haier’s unconventional approach to strategy and management also offer lessons for the leaders of Western multinational corporations?
And what about the future of Haier? Its global presence has been built upon a
combination of opportunism, ambition, and determination. As it consolidates its
position as a leading multinational corporation, does Haier need a more orderly and
integrated approach to global strategy?
Building Leadership in the Home Market
When Zhang Ruimin was appointed general manager of the Qingdao General
Refrigerator Factory in 1984, it was a cooperative enterprise with about 800 workers operating under the control of the Qingdao city government. Zhang’s early
effort concentrated upon collaborating with foreign appliance makers—including
Liebherr of Germany, Merloni of Italy, and Mitsubishi and Sanyo of Japan—in order
to improve product design and process technology. In 1985, Qingdao Refrigerator
formed a joint venture with Liebherr for producing refrigerators for the Chinese
This case was prepared by Robert M. Grant assisted by Ayan Chakraborty. ©2015 Robert
M. Grant.
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market. A key challenge was changing employees’ attitudes to product quality.
In one—now famous—intervention, Zhang ordered defective refrigerators to be
removed from the production line and smashed to pieces.1 The company’s efforts at
quality management were also greatly assisted by the decision in 1992 to apply for
ISO9001 authentication. Achieving this international quality standard required a total
reformulation and upgrading of processes.2
At the heart of Zhang’s efforts to build the Haier brand was emphasis on customer
service. Haier’s efforts to build an after-sales service network were helped in 1990 by
establishing a computerized service center to keep track of its customers.
Under the leadership of Zhang Ruimin and his close colleague Yang Mianmian, the
company developed rapidly. Improved product quality fueled strong demand and,
between 1984 and 1989, revenues climbed from 3.5 million to 410 million yuan. In
1992, a new factory complex and head office were built on the outskirts of Qingdao
and in the same year the company adopted the name Haier Group. In 1995, its refrigerator division was listed on the Shanghai Stock Exchange and in 2005 its subsidiary,
Haier Electronics Group, was listed on the Hong Kong Stock Exchange.
During the 1990s, Haier acquired 16 other Chinese companies with the result that
it became a supplier not only of a broad range of domestic appliances but also televisions, telecommunications equipment, and other consumer electronics products.
As a result of Haier’s cultivation of brand image through its emphasis on product quality and customer service, not only did it become a leading manufacturer
of domestic appliances in China but it was also able to sell its products at a price
premium to other domestic brands.
Haier’s Management System
Governance
Formally, Haier was a collective under the supervision of Qingdao municipal government. In practice, the ownership, organizational structure, and governance of
the Haier Group were unclear.3 The group’s two public companies—Qingdao Haier
FIGURE 1 Haier Group: Strategy phases, 1984–2015
Source: www.haier.net/en/about_haier/haier_strategy/, accessed July 20, 2015.

1984 1991 1998 2005 2012
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Company Ltd listed in Shanghai and Haier Electronics Group Company Ltd listed
in Hong Kong—had opaque relationships with one another and with their parent
company. The list of directors and senior managers of Qingdao Haier Company
made no mention of Mr. Zhang Ruimin. No consolidated financial statements were
available for the group. The Haier website gave the group’s revenues as 200 billion
yuan in 2014; however, the revenues of the two listed companies totaled 155 billion
yuan, implying that another 45 billion yuan were attributable to other business entities within Haier.
Zhang Ruimin
Despite its opaque governance structure—or perhaps because of it—power within
the Haier Group was concentrated in the hands of Zhang Ruimin. This power
derived partly from his formal position as chairman and CEO, partly from his informal authority and reputation as the architect of Haier’s remarkable development,
and partly from his political ties. In addition to being the secretary of the Communist
Party Committee of the Haier Group, he was also a member of the party’s Central
Committee. His political connections gave Haier independence from municipal
interference and valuable support from central and provincial government.
Zhang was born in Qingdao in 1949. Despite a lack of formal education, he was
an avid reader. His ideas about management developed during his career at Haier,
where he began as deputy plant manager at the age of 33. His management philosophy combined Chinese traditions from Confucius and Sun Tzu to Mao Zedong and
Western ideas he derived from Joseph Schumpeter, Peter Drucker, Jack Welch, and
Jim Collins and Jerry Porras (Built to Last).4
Zhang’s management thinking developed in parallel with his strategy for Haier.
His early focus was on building Haier’s capabilities in relation to quality management, customer focus, brand building, and new product development. Gradually,
Zhang’s priorities shifted toward fundamentally rethinking Haier’s structure and
management systems. For example, customer orientation became the principle of
“market chains” around which Haier’s internal relationships were reformulated.
The idea behind “market chains” was that, in the same way that Haier’s fundamental purpose was to serve its final customers, all interactions within the company
could be redefined around supplier–customer relationships:
Every unit, every operation and everyone was linked to a customer and every
unit/operation/body was someone else’s customer. In this way everyone within
the enterprise, no matter how deeply inside the firm, felt market pressure directly.5
Developments in information and communications technology, especially the
internet, greatly influenced Zhang’s thinking about internal organization. Increasingly,
he devoted himself to moving Haier from a hierarchy to a decentralized, teambased structure. For example, Haier’s sales organization for China was completely
restructured:
We used to have a pyramid-style structure for our sales in China. The people in
charge of sales had to manage business at the national, provincial, and city level.
After the arrival of the internet age, we realized that under this triangular hierarchical structure, people had a difficult time adapting to the requirements of the times.
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So we reorganized ourselves as an entrepreneurial platform. We flattened everything out, taking out all the middle management. We decentralized the structure
to one with more than 2,800 counties. Each county organization has seven people
or fewer.6
His notion of a platform-based enterprise also embodied the concept of a borderless enterprise:
We are using digital technology to connect everyone … there is no “inside” the
company versus “outside” anymore. As a Haier executive, my goal is no longer to
be a maker of home appliances, but to be an agent of interaction and networking among people who might be anywhere. I want to turn the company into an
Internet-based company, a company unrestricted by borders. Whoever is capable,
come and work with us … In the long run, there won’t be any company employees
to speak of—only the Haier platform. We involve customers in a similar way. In the
past, users would hear through advertising which Haier products were good, then
they’d go buy those products. Now we bring in users to participate in the whole
process of product development.7
Central to Zhang’s approach to management was commitment to innovation,
adaptation, and continuous improvement. This was captured in the slogan: “today’s
work must be finished today; today’s accomplishment must be better than yesterday’s; and tomorrow’s goal must be higher than today’s.” Increasingly, this meant
adopting a totally different conception of what Haier was and what it was trying to
achieve. According to an interview with Zhang conducted by Reuters:
The ultimate aim, Zhang says, is for Haier to become a full services company for
the wireless age, where customers place orders for tailor-made appliances, and
communicate directly with their home appliances via smartphone or controlling
device.8
In pursuit of this goal, Haier became the first home appliance maker to partner
with Apple on its smart home platform.
Performance Management
A feature of the management system Zhang introduced at Haier was commitment to
performance enforced through accountability and backed by individual incentives—
an approach that was unusual among Chinese companies.
At the heart of this system was “Overall, Every, and Control and Clear”—also
known as Haier’s “OEC” principle. According to Haier’s head of human resources,
Wang Yingmin: “O stands for Overall; E stands for Everyone, Everything, and Every
day; C stands for Control and Clear. OEC means that every employee has to accomplish the target work every day. The OEC management-control system aims at overall control of everything that every employee finishes on his or her job every day
with a 1% increase over what was done the previous day.”9
OEC became part of a performance management system that began each December
with performance targets set by corporate headquarters for every division. Each
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division submits a divisional action program. This becomes the basis for a month-bymonth system of performance management where actual performance is compared
to the previous month’s performance and targets for the current month. Monthly
divisional performance management is disaggregated into daily performance management assessment for every employee. Each day begins with team leaders briefing team members and each day ends with each worker completing a self-checking
assessment against specific OEC criteria. These assessments are linked to employee
compensation through a system of bonuses and penalties.
Innovation and New Product Development
Haier’s product development was driven primarily by its responsiveness to customer
needs. A Harvard Business School case study reports on how, in response to frequent breakdowns of washing machines in rural China, Haier technicians discovered that its washing machines were being used to clean sweet potatoes and other
vegetables. Haier responded with design changes to its washing machines together
with advice to rural customers on their use for cleaning vegetables and peanuts.10
Providing design modifications to meet the preferences of specific customer
groups were facilitated through flexible modular design. According to Zhang Ruimin,
“Our products are based on modules and sub-systems, and on basic platforms that
we can vary. Periodically we will add some new features, but the basic model is
there.”11 Simple design modifications included freezers with separate compartments
that kept ice cream at a slightly higher temperature to permit ease of serving, and
Korean refrigerators with separate compartments for kimchee.
Haier’s commitment to enhancing consumers’ experiences also extended to providing internet connectively for it appliances. In 2014, it launched its “Smart Living”
appliances with Broadcom’ embedded wireless connectivity allowing customers
to monitor and control their appliances remotely including home appliance controls, managing lighting and curtains, multimedia entertainment, and security alarm
monitoring.
Building the Networked Enterprise
Zhang Ruimin’s ideas about market responsiveness, entrepreneurial initiative, and
team-based organization eventually became crystallized in his concept of the networked enterprise. Central to the transformation of Haier into a new type of organization was the creation of some 2000 self-managed teams called “ZZJYTs”—an
acronym for Zi Zhuu Jing Ying Ti, meaning “autonomous business unit.” Professor
Bill Fischer and colleagues described the ZZJYTs as follows:
Each comprises a team of 10 to 20 people—sometimes located in one place,
other times virtual—who come from various functional roles and are brought
together for a specific mission, and who are given profit and loss responsibility and accountability. They have their own independent accounting systems
and complete autonomy in hiring and firing employees, setting internal rules
about expenses and determining bonus distribution, and making almost any
operational decision that typically would be made by an independent functional
organization.
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Haier organizes its ZZJYTs in three tiers. First-tier ZZJYTs have the task of directly
facing the market, understanding customer needs, and providing customers with
the right products. Second-tier ZZJYTs are responsible for supporting the first-tier
ones, providing them with the resources and the guidance they need. Third-tier
ZZJYT managers are the business division managers or functional managers who
set corporate strategies and direction for the whole group. A typical first-tier ZZJYT
is composed of sales, R&D, marketing, and finance people. Everyone, whatever
their function, is expected to talk to consumers regularly.12
The transition from hierarchy to self-managed teams is one phase in Haier’s
transformation into a network of microenterprises where each team becomes an
entrepreneurial business unit responsible for its own success. Within this model,
the team members are not necessarily Haier employees. During 2014 and 2015,
Haier’s eliminated thousands of jobs then encouraged displaced employees to seek
opportunities as self-employed members of micro-enterprises collaborating within
the Haier network. According to Zhang Ruimin:
Employees used to obey their superiors and now they create value for users. They
must become entrepreneurs and makers. The makers set up micro-enterprises,
and the micro-enterprise owners jointly create users and the market. However,
micro-enterprise owners are not appointed by the enterprise but elected by makers, and micro-enterprise owners can also select makers. After a period of time, if
a micro-enterprise owner is considered incompetent by micro-enterprise members,
he/she will be removed from the post, which actually often happens in Haier. More
importantly, micro-enterprise owners are not limited to Haier employees but can
come from external resources as well. The micro-enterprises plus social resources
form an ecosystem to jointly create different markets.13
Internationalization
International Strategies in Domestic Appliances
Internationalization in the domestic appliance industry has attracted considerable
interest from business school scholars. In an influential article, Harvard professor Ted
Levitt argued that the success of Italian appliance manufacturers such as Indesit and
Merloni was the result of the economies of scale they were able to exploit through
producing large volumes of standardized models for world markets.14 Subsequent
research, however, showed not only that scale economies were modest in appliance
manufacture but also that the most profitable producers were typically those that
differentiated their products and their marketing strategies to meet the preferences
of individual national markets.15
By the beginning of the 21st century, the domestic appliance industry was dominated by multinational firms whose operations spanned most continents of the world:
Electrolux (of Sweden), Whirlpool (of the US), LG and Samsung (of South Korea),
and Bosch-Siemens (of Germany). However, there were still major players whose
markets were predominantly either national or regional: General Electric and Maytag
(of the US); Merloni (of Italy); and Haier, Hisense Kelon, and Wuxi LittleSwan (of
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China). However, during the first decade of the 21st century, several of these national
players either internationalized or sold out to multinational players (e.g., Maytag was
acquired by Whirlpool and GE’s appliance division was acquired by Electrolux).
Haier’s Initial Internationalization
Haier began its internationalization in, what appeared to be, a fairly haphazard fashion. Between 1992 and 1997, Haier entered a number of overseas markets:
● In South-East Asia, initially Indonesia, Philippines, and Malaysia, Haier established joint ventures with local companies to manufacture and sell refrigerators and air conditioners.
● In the US, Haier began supplying compact refrigerators to an importer,
Welbilt Appliances, initially for sale under a retailer’s brand, subsequently
under the Haier brand. Compact refrigerators were followed by wine coolers.
Sales were concentrated on large chains—notably Walmart.
● In 1997, Haier began exporting appliances to Germany, the Netherlands,
and Italy for sale by importers mainly under the Haier brand name. Haier
achieved significant sales in Germany, where Liebherr was its sales agent and
distributor.
However, Zhang soon made it clear that Haier’s goal in expanding overseas was
not to seek export revenues through exploiting Haier’s low manufacturing costs in
China but to build a global brand: “making Haier the most respected brand in the
world is the most important goal in the global strategy.”16 While this was partly a
matter of national pride—“China should have world famous brands of its own”—it
was also about challenging Haier to raise its standards of product development,
manufacturing, marketing, and customer service to world-class levels. Yet, building
a global brand would be achieved through focusing on local markets: “All success
relies on one thing in overseas markets—creating a localized brand name,” noted
Mr. Zhang. “We have to make Americans feel that Haier is a localized US brand
rather than an imported Chines brand. The same goes for the European market.”17
Haier’s “locally designed, locally made, locally sold” approach involved three
stages of development:
● First, seeding—getting its products established in an overseas market and
building brand recognition, initially through using local distributors and sales
agents.
● Second, rooting—building market share and establishing manufacturing
plants in the foreign market.
● Third, harvesting—establishing R & D facilities and conducting a full range of
activities within the foreign market.
It also meant a focus on challenging markets. Rather than following conventional wisdom and focusing on entering nearby markets which were at a similar (or
lower) stage of economic development than China, Haier chose to tackle developed
markets with sophisticated consumers—North American, Europe, and Japan. As
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Mr. Zhang remarked: “If one wants to improve one’s chess skills, then one must play
with the top players.”18
Success in these markets required hiring experienced local managers to head
Haier’s overseas subsidiaries. “We want to use local people and local thinking to satisfy the needs of the customer,” explained Yang Mianmian. Haier typically targeted
experienced executives who had worked with leading appliance companies to head
up its foreign operations. Chinese expatriates were primarily technical staff sent from
headquarters.
Haier America
Haier America was established at the initiative of Michael Jemal, a partner of Haier’s
US distributor, Wellbilt Appliances. Under Jemal’s leadership Haier penetrated niche
markets—notably small refrigerators for offices and students’ dorm rooms and wine
coolers. In both categories Haier became the market leader, before expanding into
window air conditioners and full-size appliances. In 2000, it opened a manufacturing plant in South Carolina and in 2001 moved into its New York headquarters on
Broadway.
Haier’s US production and marketing focused initially on refrigerators, where
Haier positioned itself at similar price points to the market leaders, Whirlpool, GE,
and Electrolux (Frigidaire), but sought differentiation advantage through innovative
design features targeted at specific customer needs. Thus, Haier’s product development and marketing of appliances were built around a segmentation of four demographic groups: 18- to 25-year-old dwellers in dorms or small apartments, 22- to
30-year-old apartment dwellers, 28- to 35-year-old first-time homebuyers, and 35- to
55-year-old “step-up” home dwellers.
In 2006, Haier introduced its upmarket range of Italian-designed appliances under
the Casarte brand name. The Casarte line of products was subsequently introduced
into other markets, including China.
Haier’s US product development capability was enhanced by the creation of an
R & D center at its South Carolina industrial park in 2012. In 2013, Haier America
became a fully owned subsidiary of Haier Group after minority shareholders were
bought out. In 2014, Adrian Micu, formerly head of engineering with Whirlpool, was
appointed CEO of Haier America.
Haier Europe
In 2000, Haier established a European sales office in Varese in the north of Italy
to coordinate its European appliance sales. In the following year, Haier acquired
Meneghetti Equipment, which owned a refrigerator plant in Padua and a distribution network.
Over time, Haier repositioned itself from the lower price band to the middle of
the market, where it sought to capture market share through aesthetics and design—
drawing upon its Italian design center (in Varese) and German R & D center (in
Frankfurt). In refrigerators, Haier Europe put a special emphasis on three-door
models and novel color options. In 2010, Haier Europe moved its headquarters to
Paris and, in 2015, Yannick Fierling, another recruit from Whirlpool, was named
CEO of Haier Europe.
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Haier in Asia-Pacific
Most of Haier’s market entries into Asian countries were through joint ventures. In
India, Haier partnered with Fedder Lloyd Corporation; in Pakistan, with the Ruba
Group. The most important collaboration was with Sanyo Electric Company of
Japan. The 2002 agreement with Sanyo involved the distribution by Haier of Sanyo
products in China, the supply of technology and components from Sanyo to Haier,
and the creation of Sanyo Haier to produce and market Haier appliances in Japan.
In 2012, Haier acquired Sanyo’s domestic appliance business from its parent,
Panasonic, for $132 million. As explained in a Financial Times case study, transferring Haier’s management system to the newly acquired Sanyo employees was a
major challenge given Haier’s emphasis on individual responsibility for performance
targets and Sanyo’s traditions of collective responsibility and deference to seniority.19
Later in 2012, Haier acquired New Zealand-based Fisher & Paykel, an upmarket
appliance maker specializing in dishwashers, washing machines, and cookers, for
$751 million. Fisher & Paykel had plants in New Zealand, Australia, US, Thailand,
Mexico and Italy.
Haier’s Future as a Global Company
For all Haier’s remarkable success under Zhang Ruimin’s leadership, the effectiveness of its international strategy is difficult to assess. Clearly, Haier had done a
brilliant job in exploiting the greatest opportunity available to the appliance industry for the past three decades: the rapid rise in the living standards of Chinese
households. By 2015, it had become the world’s biggest supplier of major home
appliances with a unit market share of over 9%—ahead of rivals LG, Electrolux,
Samsung, and Whirlpool. In terms of domestic appliance revenues, Haier was either
third or fourth.
However, the great majority of Haier’s sales was in its home market, where it
was market leader. In refrigerators it held 36% of the Chinese market; in washing
machines, 46%. Outside of China, Haier’s performance was less consistent. In the
US it had performed spectacularly well taking market leadership from Whirlpool in
2014, but in Europe, Japan, and most emerging-market countries, its performance
was much less impressive.
This uneven performance raised questions about the overall cohesiveness of
Haier’s international strategy and the rationale upon which it was based. Despite the
effectiveness with which Zhang Ruimin articulated Haier’s strategy and management
system, Haier’s international strategy seemed inconsistent and haphazard. In some
countries Haier set up new subsidiaries; in others, it used joint-venture to access an
existing business system. Its product strategies, market positioning, and brand identity all varied considerably from country to country.
Given the likelihood that Haier’s home market would experience slower growth
in the next five years than the last five, and that the global market would experience
slow growth, did Haier need to reformulate its international strategy?
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Appendix: Financial Data for Haier
TABLE A1 Selected financial data for Qingdao Haier and Haier Electronics
2010 2011 2012 2013 2014
Qingdao Haier
Revenue ($million) 9,743 11,638 12,628 14,102 14,422
Operating margin (%) 4.9 5.5 6.6 7.1 8.7
Net margin (%) 3.36 3.65 4.09 4.82 5.62
ROE (%) 27.61 35.03 33.59 32.57 27.5
Return on invested capital (%) 17.93 18.35 17.23 16.94 14.89
Employees 53,412 59,814 57,977 55,726 54,286
Haier Electronics Group
Revenues ($billion) 5,802 7,893 8,819 10,199 12,452
Operating margin (%) 4.01 3.75 4.18 4.36 4.89
Net margin (%) 2.69 2.82 3.05 3.27 3.64
ROE (%) 48.30 42.80 35.48 30.72 25.47
Return on invested capital (%) 47.58 39.07 31.74 28.11 23.05
Employees 18,204 18,406 17,304 16,506 15,637
Sources: Annual reports of Qingdao Haier Company Ltd. and Haier Haier Electronics Group Co., Ltd.
Notes
1. The early history of Haier is outlined in the Harvard
Business School case “Haier: Taking a Chinese Company
Global,” Case No. 9-706-401 (2006).
2. See “Yang Mianmian: President of Haier,” CEIBS Case No.
307-015 (2007): 5.
3. Haier’s corporate governance is discussed in N. Kumar
and J.-B. E. M. Steenkamp, Haier: The Quest to Become
the First Chinese Global Consumer Brand (University
of North Carolina, Kenan-Flagler Business School,
December 2013): 4–5.
4. Zhang’s intellectual influences are discussed in Kumar
and Steenkamp, ibid.: 5–6.
5. IMD/CEIBS, “Building Market Chains at Haier,” IMD Case
No. 3-0939 (August 2003).
6. A. Kleiner, “China’s Philosopher: CEO Zhang Ruimin,”
strategy+business, Issue 77, (Winter 2014).
7. Ibid.
8. “Fridge Magnate: Zhang Shifts Haier Focus for Wireless
Age,” (May 12, 2015), http://www.reuters.com/
article/2015/05/12/us-haier-elec-strategy-idUSKBN-
0NX2IN20150512, accessed July 20, 2015.
9. T. W. Lin, “OEC Management-Control System Helps
China Haier Group Achieve Competitive Advantage,”
Management Accounting Quarterly (Spring 2005).
10. “Haier: Taking a Chinese Company Global,” HBS Case
No. 9-706-401 (2006): 6.
11. Ibid.
12. B. Fischer, U. Lago, and F. Liu, “The Haier Road to
Growth,” strategy+business (April 27, 2015).
13. Z. Ruimin “Nine Years’ Exploration of Haier’s Business
Models for the Internet Age,” www.haier.net/en/about_
haier/news/201502/t20150225_262109.shtml, accessed
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