MKT630 Idea Solution
The Chinese manufacturer of home appliances(e.g. refrigerators), Haier Group, was near bank- ruptcy when Mr Zhang Ruimin was appointed plant director in 1984, the fourth one that year. It is Zhang Ruimin who has led the company to stand up and grow to the world’s sixth largest home appliance manufacturer.
Zhang Ruimin had an internationalization mind- set for the initial stage of Haier’s development. In 1984, soon after having joinedthe plant, he intro- duced technology and equipment from Liebherr, a German company, to produce several popular refrigeratorbrands in China. At the same time he actively expanded cooperation with Liebherr by manufacturing refrigerators based on its stand- ards which were then sold to Liebherr, as a way of entering the German market. In 1986 the value of Haier’s exports reached US$3 million for the first time. Zhang Ruimin later commented on this strategy: ‘Exporting to earn foreign exchange was necessary at that time.’ When Haier invested in a plant in the United States, Zhang Ruimin thought it gained location advantage by set- ting up plants overseas to avoid tariffs and reduce transportation costs. Internalization advantage had been attained through controlling services and marketing/distribution, and ownership advantage had been achieved by developing design and R&D capabilities through utilizing high-quality local human resources.
The entry of global home appliance manufacturers into the Chinese market forced Haier to seek international expansion. In particular, since China joined the WTO almost every international competitor has invested in China, establishing wholly-owned companies. The best defensive strategy for Haier would be to have a presence in its competitors’ home markets. The saturation of the Chinese home appliance market, with intensifying competition, has been a major motive. After the mid-1990s price wars broke out one after another in various categories of the market. At the end of 2000, Haier’s market shares in China ofrefrigerators, freezers, air conditioners and washing machines had reached 33, 42, 31 and 31 per cent, respectively. The potential for further development in the domestic market was therefore limited. One of the important external triggers for the internationalization of Haier has been the Chinese government. Being an international player, Haier gained some special conditions that other Chinese companies could not obtain. For instance, Haier had already been approved to establish a financial company, to be the majority share- holder of a regional commercial bank, and to form a joint venture with a US insurance company. Without its active pursuit of internationalization, as well as a dominant position in home appliance sectors, it would normally be impossible for a manufacturer to get approval to enter the financial sector.