Haier Group Corporation

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Haier Group Corporation

1 Haier Road, Hi-Tech Zone
Qingdao 266101
Telephone: +86-532-893-9999
Fax: +86-532-893-8666
Web site: http://www.haier.com

Government-Owned Company
Incorporated: 1984 as Qingdao Refrigerator Co., Ltd.
Employees: 30,000
Sales: $4 billion (2003 est.)
NAIC: 333415 Air Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing; 334111 Electronic Computer Manufacturing; 335221 Household Cooking Appliance Manufacturing

Haier Group Corporation is one of the world's top-selling makers of white goods and other home appliances. The Qingdao, China-based company has grown rapidly to capture the number two spot worldwide in its core refrigerators segment, trailing only the United States' Whirlpool. At home, however, Haier has captured the lead in that segment, accounting for more than one-third of all refrigerators sold each year, and is also the leader in a number of other appliance categories, such as air conditioners and dishwashers. Since the late 1990s Haier has dramatically expanded its range of products in a diversification move that has brought the company into such markets as mobile telephones and personal computers. At the same time, Haier has pursued an aggressive globalization effort, building a sales network in more than 160 countries, with a presence in more than 38,000 retail outlets worldwide. The company's sales and distribution are backed by a vast network of subsidiaries with production facilities throughout China and 12 manufacturing plants outside of China. The company's foreign facilities include operations in Pakistan, Jordan, Indonesia, the Philippines, Malaysia, Iranand Camden, South Carolina, in the United States. The latter plant, opened in 2000 and supported by a U.S. sales and marketing head office in New York City, is part of Haier's plans to take a 10 percent share of the U.S. refrigerator market by as early as 2005. Credit for Haier's success goes to CEO Zhang Ruimin, who transformed the small, ailing, state-owned company into a global powerhouse at the dawn of the 21st century. The company remains controlled by the Chinese government, but operates independently. Subsidiary Qingdao Haier Refrigerator Co., Ltd. is listed on the Shanghai Stock Exchange. The company is also seeking a backdoor listing on the Hong Kong Stock Exchange through its 2004 purchase of a controlling stake in the Haier-CCT Holdings joint venture. Haier Group's sales are estimated at more than $4 billion per year.

Rebuilding a Refrigerator Plant in the 1980s

The 1920s saw the construction of a factory to build refrigerators in China's coastal Qingdao (then spelled as Tsingtao, which later lent its name to the famous beer as well). Following the Communist revolution in 1949, the factory was taken over by the government. Under socialist control, however, the factory went into a long decline. By the early 1980s, its production had slowed to a trickle. Burdened by a heavy debt, the company, then known as Qingdao Refrigerator Company, had been losing money and, unable to pay its 600 workers, was close to bankruptcy. As Haier itself later admitted, the company, where production struggled to top 80 refrigerators a month, consisted of little more than "a row of shabby buildings containing several lathes."

Yet the early 1980s also marked the first opening of mainland Chinese economy to the international market. A large number of foreign companies traveled to China seeking investment opportunities. One of these was Germany's Liebherr Haushaltgerate, a leading appliance maker in that country. Liebherr proposed a partnership with the Qingdao refrigerator plant, including the sale of Liebherr's refrigerator technology to the Chinese company. Its ownerthat is, the city of Qingdaoagreed to the partnership.

Technology alone was not enough to rescue the company, however. Instead, the Qingdao company's rebirth relied on the arrival of a new managing director, Zhang Ruimin, in 1984. Zhang, the son of a Qingdao textile worker, had joined the municipal government in the 1960s, when the Cultural Revolution had shut down the country's school system. Zhang, an avid reader, studied on his own, focusing particularly on Japanese and Western management techniques. By the beginning of the 1980s, Zhang had become the assistant manager of the city's Household Appliances Division, which oversaw the Qingdao plant, as well as a number of other city-owned appliance companies. After the Qingdao plant's managing director left the company in 1984, Zhang was placed as the factory's leader.

Zhang recognized that simply introducing Liebherr's technology would not be enough to turn the company around. The company's entire culturemarked by nepotism and indifference to qualityneeded to be overhauled. One of Zhang's first moves was to turn to friends in Qingdao's outlying and cash-rich agricultural cooperatives for loans in order to pay some of the back wages owed to the company's workers. Zhang also bought a company bus and began providing transportation to workers in order to relieve commuting difficulties. Zhang himself began commuting with the company's workers.

Zhang's next move became the stuff of corporate legend. In 1985, one of the company's customers had brought back a refrigeratorthen still a rare luxury item in Chinahe had bought because the refrigerator did not work. Zhang and the customer went through the available stock of refrigerators until they finally found a working model. Of the 400 or so finished refrigerators at the factory at that time, nearly 20 percent had failed Zhang's inspection.

In response, Zhang called his employees together and ordered that the 76 dud refrigerators be lined up on the factory floor. He then gave sledgehammers to the workers and ordered them to smash the refrigerators. As Zhang reportedly told workers: "Destroy them! If we pass these 76 refrigerators for sale, we'll be continuing a mistake that has all but bankrupted our company."

National Brand Leader in the 1990s

The refrigerators' destruction marked a new era for the Qingdao plant. The installation of Liebherr's equipment and technology was accompanied by a new and rigorous commitment to quality. Zhang also adapted new management techniques for the company, particularly the so-called "5-S Movement" developed by Japan's Masaaki Imai. The 5-S system established quality control through a five-step series of protocols: seiri (discard the unnecessary), seiton (arrange tools in the order of use), seisoh (keep the worksite clean), seiketsu (keep yourself clean), shitsuke (follow workshop disciplines). Zhang added a sixth "s""safety." Workers were expected to follow the protocols, at the risk of being exposed to public criticismand ultimate dismissal, once a rarity in China.

By 1986, the transformation of the company was underway and the Qingdao plant had become profitable. Production had begun to rise steadily while sales began a remarkable climb, averaging some 83 percent per year. From sales of just RMB 3.5 million in 1984, the company's sales ultimately grew to more than RMB 40.6 billion in 2000an increase of more than 11,600 percent.

Seeing the refrigerator company's success, the Qingdao government began asking the company to take control of a number of the city's other failing appliance makers. In 1988, the company took over Qingdao Electroplating Factory, which then became the Qingdao Microwave Electric Appliance Factory. Then in 1991, the company took over the Qingdao Air Conditioner Plant and Qingdao Freezer. Zhang quickly installed the company's corporate culture and commitment to quality at the new sites.

Having expanded beyond refrigerators, the company took on a new name in 1991, adopting an abbreviation of the phonetic spelling of Liebherrwritten as Lieberhaier by the Chineseto become Qingdao Haier Group. The German-sounding name also proved a useful marketing tool, inspiring confidence not only within the Chinese domestic market, but also later in the decade as the company imposed itself as a global appliance force.

The company adopted the simplified name, Haier Group, in 1992. By then, it had achieved the highly coveted ISO 9001 quality certification for its refrigerator production. By 1994, its air conditioner and freezer production had won ISO 9001 certification as well. The company's quality effort coincided with a drive to build Haier into a leading national brand. By the end of the decade, Haier had become the leading appliance brand in China, with clear dominance in many of its product categories.

Company Perspectives:

Haier Is the Sea

Haier should be like the sea. Because the sea can accept all the rivers on earth, big and small, far and near, coming all the way to empty into it.

Once in the bosom of the sea, every drop will function as a whole and rush together pertinaciously and dauntlessly, under the command of the sea, to a common goal. They will rather be smashed to pieces than retreat as deserters, hence the overwhelming force of the sea.

The sea offers all of itself to mankind and never demands anything in return. Only through this bounty and unselfishness can the sea become an everlasting existence providing for all living beings.

Haier should be like the seaaccepting all talented people from around the world for an ambitious goal. Every Haier employee should be capable rather than mediocre and redundant, for they are the backbone and guarantee of Haier's future development.

Concerted efforts will generate power of the sea. This will be backed by a spirit"Dedication to the Motherland by Pursuing Excellence" which Haier persistently advocates. Therefore, everything deemed unbelievable and impossible can be real and possible, and the Billow of Haier will rush past everything on its way and roll on and on.

Thus, Haier should be like the seamaking contributions to mankind "sincerely forever." In so doing, it will exist forever for the good of all. Haier will be part of the whole society.

Haier is the sea.

Diversification in the 1990s

Although Haier, as a government-controlled body, was barred from the stock exchange, it found its way onto the Shanghai Stock Exchange through the listing of subsidiary Qingdao Haier Refrigerator. The company raised nearly RMB 370 million in the offering, which it used to increase its production capacityand especially to add capacity for production of refrigerators destined for the export market.

Indeed, the mid-1990s marked Haier's movement onto the global appliance scene. As part of its effort to establish itself as one of the world's top appliance makers, Haier opened a series of foreign production plants, starting with Indonesia in 1996. In 1997, the company opened new production subsidiaries in the Philippines and Malaysia. The company also had entered the U.S. market, identifying two potential, yet underdeveloped niche marketsthat of small-sized refrigerators for dorm rooms, hotels, and the like; and electric wine cellars. Haier's imports of these appliances, coupled with a strong design and development team, helped the company rapidly impose itself, and by the beginning of the decade, Haier was one of the major players in both markets.

Haier's success in these niche categories encouraged the company to target the higher-end full-size refrigerator market in the United States. In order to break into that market, which remained dominated by the big four U.S. makersGE, Whirlpool, Frigidaire, and MaytagHaier decided to build its own manufacturing plant in the United States, which opened in Camden, South Carolina, in 1999.

During the 1990s, as well, Haier engaged in a diversification drive in order to protect itself from downturns in any of its core product categories. Part of the company's diversification came through a series of acquisitions of struggling Chinese companies, often at the request of the municipal governments. Such was the case with the company's acquisition of its chief rival in Qingdao, Red Star Electric Appliance Factory, in 1995. That purchase was followed in 1997 by the takeover of failing Huangshan Electronics Group, a maker of televisions, in 1997. As with its earlier acquisitions, the company quickly worked to transform these companies' work culture, instilling them with its quality commitment.

Global Brand in the New Century

By the end of the 1990s, Haier's diversification, for the most part, was completed. With an array of products ranging from its core white goods to mobile telephones and personal computing systems, the company faced a degree of criticism from analysts, who wondered if the company had not diversified too widely. Nonetheless, the company continued to play a role as one of China's fastest-growing firms, with sales topping $2.3 billion in 1998. By then, the company had captured 40 percent of China's refrigerator sales, nearly 36 percent of washing machine sales, more than 47 percent of all freezer sales, and nearly 37 percent of air conditioners sold in China.

With its position in China relatively solid and highly profitable, Haier entered its third development phase, adopting a new strategy: that of transforming Haier into a globally recognized brand name. The company built a strong position in the Asia and Middle East markets, backed by new factories in Pakistan, opened in 2002, and in Jordan, which began test production in December 2003. By 2004, Haier had become one of the leading brands in those regions. The company also had succeeded in placing its productsalthough not necessarily its brandin most of Europe's top retail chains.

The United States became the group's most ambitious target at the dawn of the 21st century. With sales of its electric wine coolers going stronglythe company already claimed a 60 percent share of that niche marketits effort to build brand status continued apace. By 2002, revenues from the group's U.S. operations topped $200 milliona drop in the bucket compared with the company's total of more than $7 billion. Nonetheless, Haier remained confident, announcing plans to build its U.S. position to more than $1 billion by mid-decadeand its intention to grab as much as a 10 percent market share in the country's full-size refrigerator market.

While observers remained skeptical of the company's chances in the United Statesa notoriously difficult market for foreign brandsHaier's confidence remained bolstered by its success elsewhere. As the world's number two refrigerator maker, trailing only Whirlpool, Haier expected to be able to protect its dominant position in China, despite the increasing inroads made by foreign manufacturers into that market. In order to fuel its growth, Haier found its way onto the Hong Kong Stock Exchange through a so-called backdoor listing by acquiring a controlling stake in a publicly listed joint venture, Haier-CCT Holdings Ltd., in 2004. Under Zhang Ruimin, Haier had grown into a globally operating, diversified home appliance leader.

Key Dates:

Zhang Ruimin is appointed general manager of nearly bankrupt Qingdao Refrigerator Co., and leads installation of new refrigerator technology and manufacturing equipment in partnership with Liebherr of Germany.
Qingdao Refrigerator becomes profitable for the first time as new quality control commitment spurs sales.
The company adds a new product group through the acquisition of Qingdao Microwave Electric Appliances Factory.
The company acquires Qingdao Air Conditioner Plant and Qingdao Freezer General Plant; the brand name Haier is adopted.
Qingdao Haier Refrigerator Co. is listed on the Shanghai Stock Exchange.
The company builds its first foreign production plant in Indonesia.
Production subsidiaries are opened in Malaysia and the Philippines.
A production subsidiary is opened in the United States.
A production facility is opened in Pakistan.
Test production begins at a new plant in Jordan.
The company acquires a controlling stake of the Haier-CCT Holdings joint venture in order to gain a backdoor listing on the Hong Kong Stock Exchange.

Principal Subsidiaries

Qingdao Haier Refrigerator Co., Ltd.; Haier Refrigerator Co., Ltd; Haier Refrigerator (International) Co., Ltd.

Principal Competitors

Siemens AG (SI); Matsushita Electric Corporation of America; Samsung Electronics Co. Ltd.; Electrolux AB; LG Electronics Investment Ltd.; Whirlpool Corporation; BSH Bosch und Siemens Hausgerate GmbH; GE Appliances; Siemens PLC; Daewoo Electronics Corporation.

Further Reading

Arndt, Michael, "Can Haier Freeze Out Whirlpool and GE?," Business Week Online, April 11, 2002.

Beatty, Gerry, "On a Haier Level," HFN The Weekly Newspaper for the Home Furnishing Network, March 8, 2004, p. 35.

"China's Haier Plans Backdoor HK Listing," Asia Africa Intelligence Wire, March 23, 2004.

Fonda, Daren, "Look Out, Whirlpool," Time, January 28, 2002, p. B9.

Grace, Robert, "When Far East Meets South," Plastics News, June 2, 2003, p. 1.

"Haier and Higher," South China Morning Post, June 22, 2001.

"Haier Group's Exports Soar," China Daily, December 21, 1999.

"Mainland Haier to Broaden Cooperation with Tsann Kuen," Asia Africa Intelligence Wire, May 19, 2004.

Roberts, Dexter, "Baby Steps for a Chinese Giant," Business Week Online, July 18, 2002.

Sprague, Jonathan, "China's Manufacturing Beachhead," Fortune, October 28, 2002, p. 192.

M.L. Cohen