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1.

Do you think that Haiers decision to globalize into developed markets early on
was a good strategy?
The reason why Hairer decided to globalize is based on Zhang Statement Moving from a niche
to a general player, which was made after entering different markets to increase their brand power to get
geograpical scope of regional then move to globilize by focus on product scope (see exhibit Nes). So it means the
strategy they used was first geographical and second in product scope.
Does the presence of the corporation in given geograpic market improve the total competitive advantage of
business unit?, Does Ownership of business unit in a geographic market produce a greater competitive advantage
than an alternative arrangement would produce?
Being global is a good strategy, because Heier already got the geograpichal scope and their business unit

5.

In the wake of the escalating competition due to massive entry of world-brand competitors, such as Siemens,
Whirlpool, Samsung, etc., how Haier retains its dominance in domestic markets?

The retention of Haiers dominance in the Chinese market is a consequence of i) ex-ante advantages (further
explained in Exhibit XX) such as reputation, settled distribution network and favorable advantageous acquisition of
SOEs at book value.; ii) institution-based-view advantages (further explained in Exhibit XY) such as the knowledge
of market informal rules and formal institutions; their logistic advantage and expertise for creating sales 7 marketing
networks.
Finally and more important, it was a consequence of iii) strategic moves for (further explained in Exhibit Z) having
as pillar the diversification of product, adaptation and expansion of the retail network and improved service; those
three pillars of their strategic moves lead to a consistent and aligned activity system (as presented in Exhibit XZ) in
order to moving into a general player with further penetration of rural area.
6.

Do you think that Haiers three thirds strategy has been a viable or wise approach?

From the analysis of the Breakdown of revenue for the firm (Exhibit YX.) it can be seen how Haier had follow their
commitment for increasing their global participation and reducing the dependence in the domestic market; in 1998
their domestic sales counted for more than 95% of their total revenue; while in 2010 this counts for 72.5%. Even
though the firm has not reached their target; according to a linear regression model approximation it has been found
that domestic sales could reach 30% of the total revenue by 2028 (measure of fitness R2: 0.9546).
Nevertheless, the idiosyncratic manner in which Haier decided their three thirds is not the recommended approach
(Peng (2009), Piskorski (2007) and Peng & Delios (2006)) firms should increase their presence in a given
geographic market if that is going to increase their competitive advantage and, thereafter, lead to above-average
returns of scale1. All the same, it is found for Hair that they had been able to use their domestic know-how for
succeeding in foreigner markets; and at the same time used their foreigner success for their local markets
(worldwide knowledge application). It is found that they began by exploiting their original products overseas,
established distributors and finally began to manufacture abroad.

1 It would have sense if the firm is able to win because of factor cost differences; economies of scale or
exploitation of knowledge around the world. This is sustained even though having a market leader firm
might be acceptable in as an informal institution form the institution-view of the firm (Peng (2009) and
Peng & Delios (2006)).

Exhibit X. Main institutional changes in China during the studied period


Change
1. Shift in channel
structure

Description
2001 channel shifted from being primary state-owned department stores
toward individual specialized shops and private retail chains

2. Chinese government
rural subsidy

From 2008-2011:
Pushed by the industry in order to promote the rural sector.
During the period the sales of home appliances in Chinas rural areas
increased 168%

3. Limitations to
multinational logistics

Logistic operations limited; requiring the vehicle of Joint Ventures; which


leave them in a competitive disadvantage with Chinese firms

4. Reforms from 1900s

Focused on facilitating foreign enterprise, free trade and growth of equity


markets
Tax and currency restructuring
Policies restructuring

5. WTO inclusion of
China

Inclusion of China was made in 2001; and markets were opened to


foreigner producer in 2014

Exhibit XX. Incumbent (ex-ante) advantages of Haier over foreigner firms (using framework of
Peteraf, 1993)).
Incumbent
advantages
Reputation

Description

Quality at international standards and superior service in all China (rural and
urban areas)
Player in international markets, which gave further credibility to their
standards

Settled distribution
and service network

By 1999 Haier already counted with Haier Logistics


The center reduced production times from 36 days (1999) to 10 days (2004)
Haier Logistics served all the 42 distribution centers in China by using Just-intime system

Expansion by
acquisition at Book
Value

Acquisition of business (15 between 1990-2004) at book value of several TVE


(township and villa enterprise) and SOEs (State-Owned Enterprises) which
were performing poorly.
Haier acquired firms in which Haier had the parenting advantage of know-how
(by acquiring firms with management problems; but good products and
markets)

Exhibit XY. Competitive advantages of Haier over foreigner firms from the institution-based view
of the firm (Based on Peng & Delios, 2006)
Institutional advantage
Knowledge of markets
informal rules & formal
institutions

Description
When the market was opened, higher was a player of more than 15 years in
the market; and a local and admired player (named Chinese hero)
Firm had already survived several institutional changes (Exhibit X); had
knowledge and experience with the institutions.

Challenge of forming
Sales & Marketing
Network

For Whirlpool and other competitors to form Sales & Marketing networks
was a challenge due to the lack of the concentration in urban areas (where
they focused in high-end items) and lack of expertise for entering rural areas.

Advantage in Logistics

It was not only an incumbent advantage (Exhibit XX); but there was also an
explicit limitation to foreigner firms made by the government

Exhibit Z. Main moves of Haier for Keep dominance in the domestic markets
Moves
Diversification of
products

Adaptation to retail shifts


(Exhibit X)

Description
Adaptation to consumer needs and customization with their niche
approach in several product types;
Increase of product categories (96) and product specifications (15.100);
Use of modules components and subsystems for the production.

Improved service

Creation of ZZJYT

Vertical forward integration until the retail (replacing state-owned to


retails);
Expansion of distribution network until more than 170.000 outlets
(6.000 county stores; 24.000 town stores and 150.000 vendor
contractors).
DYI seminars and community service in owned retail stores, in order to
increase store traffic;
Expansion of service network: more than 19.000 service centers;
Warranty periods equal or shorter than government requirements;
More than 5.500 service contractors;
Hotline for service.
New redeployment of Human Capital;
Organizational structure using self-managed teams (9-30 people) with
specific targets based on incentive remuneration, results-oriented
promotion and internal competition;
This allowed Haier to secure best talent, increase efficiency and reduce
bureaucracy.

Exhibit XZ. Haiers Activity System for post market aperture -2004 (Based on Porter, 1996).

Expansion of vendor
contractors
Operational efficiency

centers
42 distribution

Modules components and subsystems for production


ZZJYT

JIT system with Hailer Logistics


Expansion of distribution network

Products tailored to customer needs

stores
Owned retail

MOVING FROM NICHE TO A GENERAL PLAYER

DYI seminars and community


service

Increase the product scope

Improved service

Increased product categories and spectifications

Expansion of service
network

Superior warranty periods

More than 5.000


contractors Hotline for service

Exhibit

Application of the Five major elements of Strategy (Hambrik & Fredickson, 2001, p. 54)

ge 1. Brand Power
ge 2 Product line breadth by:
us in difficult Market First
pid International expansion by making new plant on some international region (US, Europe and India)

Entire Household
White good Market
Worldwide

Exhibit hh
Strategic Staging of Heirer
Before Globilize

Stage 1
Stage 2

When Globilize

Stage 1
Stage 2
Stage 3

Exhibit gggggg
A typology of Diversification strategies along product scope and
geograpic scope (Peng, 2006, p 367)

Exhibit YY. Analysis of Haier Group Approximate Revenue Breakdown as % of total revenue

A. Haier Group Approximate Revenue Breakdown as % of total revenue (1998-2010)


100%

13.5

90%
80%

14

70%
60%
50%
40%

72.5

30%
20%
10%
0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Domestic sales

Exports from China

Overseas made and sold

B. % Domestic revenue trend formula.


12
10
8
6
Domestic sales
% Domestic Revenue

Linear (Domestic sales)

4
2
0 f(x) =
1998R = 0 2000

2002

2004

2006

2008

2010

With a fit of 95.4%; it could be expected that the Three Tier would be reached by the year 2028.

References
Campbell, Goold & Alexander (1995). Corporate Strategy: The Quest for Parenting Advantage. HBR.,
March-April:120-142.
Hambrick & Frederickson (2005). Are You Sure You Have a Strategy? AME., Vol.19:51-62.
Peng & Delios (2006). What Determines the Scope of the Firm Over Time and Around the World? An
Asia Pacific Perspective. APJM., Vol.23: 385-405
Peng (2009) The Institution-Based View as a Third Leg for a Strategy Tripod. AMP., Vol.23:63-81.
Peteraf (1993). The Cornerstones of Competitive Advantage: A Resource-Based View. SMJ., Vol.14:179191.
Piskorski (2007). Choosing Corporate and Global Scope. # 707496.
Porter (1996). What is Strategy? HBR., Nov-Dec.: 61-78.
Roberts & Liu (2001). Ally or Acquire? How Technology Leaders Decide. SMR., Vol.43:26-34.