COMPETITIVE POSITION OF HAIER
Haier’s competitive position in China is of product differentiation and being the late mover. They wanted to start refrigerators in China that are of high quality which were not being offered in Chinese markets by any existing players. There were many refrigerators manufacturers in Chinese markets but all were manufacturing low quality refrigerators. When Haier started manufacturing refrigerators there were already around 300 manufacturers of refrigerators which make Haier late mover in the industry but yes they had differentiation strategy and their point of difference was their commitment to quality which was considered very unique attribute as far as Chinese refrigerators market was concerned.
Haier’s high quality is evident from the fact that they have emphasized on offering the best piece to the end consumer. Any item, not meeting the quality standards was not moved forward in the market. It was clearly a differentiation strategy because at that time, Chinese market was filled with around 300 refrigerators manufacturers but all were producing low quality products. Taking a step forward, Haier decided to produce high quality products which was a big decision and for that Haier went into joint ventures with couple of foreign companies to produce high quality products.
Emphasis was always on high quality unlike other companies thus to maintain that low volume was mainly focused by Haier. Mass production was avoided intentionally to be consistent with high level of production. This strategy of Haier’s made them able to earn revenue of RMB 1 million in just second year of their operations.
Haier’s focus was on brand building which actually helped them to receive 15% premium even in the situation of price war. In 1991, Haier realized that it was right time to diversify as their name got established so they wanted to cash out their brand name.
Haier’s international strategy was to enjoy a niche market as it entered in US market with manufacturing of refrigerators and then with time to broaden their scope of operations with offering couple of more products. They expanded into the product category of air conditioners and freezers after their success of refrigerators.
The major objective of this over all international strategy was to establish good reputation of Haier brand name in foreign market. Chinese companies are considered to have inferior quality and therefore consumers do not prefer these products. So Haier had to overtime this challenge.
Haier developed their global policy in 1997 which focused on that concept that their revenues were to be driven from 3 equal parts and each part had to contribute around one third of the total sales. The three components of sales were consisting of: revenues coming from the sales of goods that are produced locally in China and sold in China, other component was the sales of goods that are produced in China but sold in foreign countries and the last component was from the sales of the goods that are produced and sold both in foreign countries.
Three most important strategies that Haier followed were firstly focusing on difficult markets and secondly to begin with niche market and lastly to have local staff.
Focusing on difficult markets like United States and Europe actually enabled them to establish their brand names to a higher level. Once the company established its brand name in these difficult markets then it became easier to make a name in other easier markets.
Haier started with niche strategy in Unites States with refrigerator manufacturing. It was actually a successful strategy because it helped them gain high margins and also because there are always less number of competitors in niche segment. In even United States , there was a gap as far as refrigerators for offices and students were concerned. Haier began with that segment by producing mini refrigerators.
Thirdly Haier had a strategy to hire local staff wherever they operate as it helps them in gaining local knowledge regarding local markets and local consumers.
Another good element of Haier’s strategy was that they entered into joint ventures with foreign companies that helped them in their global operations as it allowed them to explore useful information regarding foreign markets
On the basis of PEST, it can be said that Haier has to design its products and marketing communication strategies according to social environment and trends wherever it operates.
As Haier is an electronic appliances company it has manage its external environment as well. PESTL analysis is used to analyze and manage the external environment.
Political and Legal Factors: All political laws and regulations have to keep in mind while going for operations in another country. These laws vary from state to state, so company intending to operate internationally must be aware of those laws to work smoothly. For instance, the laws of Chinese markets are different than laws of U.S. and thus all these factors need to be considered.
Economic Factors: Haier will also have to keep in view the economic situations of every country where it is operating, their inflation rate, spending rate, purchasing power, employment rate because these are various broad factors that actually affect purchase decisions of appliances. This would help Haier to price their products according to the needs of particular country’s consumers.
Social Factors: A big challenge for Haier was to overcome that negative perception regarding Chinese products. Chinese products were regarded as inferior quality products which caused hindrance for Haier to establish its brand name in foreign markets where already there were giant players in operating in the industry. Another challenge that Haier is facing is to broaden its market in U.S., as Haier started with niche market by manufacturing refrigerators for students and offices but now it has to increase its growth and for that it has to increase the scope of its market by introducing full range of products. To change their strategy from niche market to a broader market would be a big challenge for Haier in U.S. To operate in foreign markets, specialized human resource would be required to operate in foreign markets that have the understanding of the local markets. To maintain and manage that human resource is another challenge for Haier.
Technological Factors: Haier while it is moving ahead will have to plan strategies to overcome competition and will have to keep on innovating as this particular field of electronic appliances is very fast paced. Changes are coming in this field on daily basis with continuous scientific developments. So innovation will be a big challenge for Haier to make its name in the market. Also it has now become very necessary as profit margins are shrinking day by day and technological developments are making appliances obsolete in terms of features and designs.