Strategic analysis STRA 704 Dr.

Sania Elgalaly
GUC MBA 2011

Strategic Audit of Haier Group Case 24

Presented by : Mohamed Abdelkarim : Mohamed Gamal : Abdullah Emara
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Strategic Audit for Haier Group

1- Current Situation
A. Current Performance 2001 to 2004
Organized into 6 Divisions:

 Annual growth rate 78%  Top 100 Most recognized Worldwide Brand Name  20 Year Old Company from China  Brand value in 2004 is $ 7.4b  18 Design Centers  10 Industrial Parks  30 Overseas factories and manufacturing bases  58,800 Sales offices  96 Product Group Categories To include :
Refrigerators, Washing Machines, Air Conditioners, Cell phones, TV s, .
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2004 : Global Sales $12 Billion 4th in Global Sales revenue for White goods 21% Market Share China overall Appliances 34% Market Share China Major Home appliances 14% Market Share China small electronic appliances
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B. Strategic Posture 1 - Mission

To improve the quality of life, focusing on customers' needs B. Strategic Posture 2
- Objectives

Haier strives to create innovative and affordable quality products, to deliver sincere, delightful and caring services, in order to satisfy different customers

Main goal to continuously increase the volume of products sold in the United States and to modify the companys products to meet American demand.
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To integrate itself with the locality and build brand recognition.

To achieve the cost control needed to maintain its price advantage.

To continuously improve its services to build the trust of local customers.

Expanded the amount of units in order to achieve the 10% market share in U.S. refrigerator sales in 2005
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Strategies


CORPORATE DIRECTIONAL STRATEGY: Global growth strategy through horizontal growth and concentric (related) diversification Three Stage Growth Plan Brand Name Strategy  7 years built strong brand name in Refrigerator products through Total Quality control System  Haier product became known for quality and innovation
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Diversified Development Strategy 1992-1998  6 years to diversify product catalogue

By 2004 13,000 products in 86 categories and 30,000employee

 Going Multinational Strategy  First move into Southeast Asia  Second expand into United States in 1990 s  European entrance in 2001  Japan expansion in 2002  2005 Haier has 62 distributors and 30,000 retail outlets worldwide  Eventual Goal  To be listed among Fortune 500 Successful Companies

Strategies
 BUSINESS

STRATEGY:

Competitive strategy in U.S market

 Policies
Expand Brand Recognition Offer Niche products while expanding diverse product line Maintain strict cost control to keep product prices competitive Continue quick development programs and fast production updates Maintain strong distribution network and supply chain relationships
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 Policies
After sale service is very essential to gain customer trust ( A & E Factory Service). Cost reduction is essential to gain competitive advantage. Manage the costs of manufacturing many different product models by periodically changed the modules of components Fast in developing new products
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2. Corporate Governance
A. Board of Directors
Name Zhang Ruimin Yang Mianmian Chai Yongsen Cui Shaohua Song Chunguang Liang Haishan Cao Chunhua Title Chairman and Chief Executive Officer President and Director Executive Vice President and Executive Director Vice President and Executive Director Vice President, Sales Director of Pegasus Qingdao, Deputy General Manager of Pegasus Qingdao and Executive Director Vice President and Executive Director Vice President, General Manager of Washing Machine Division and Executive Director Age 61 65 44 49 43 40 38

OTHER BOARD MEMBERS ON BOARD MEMBERS

Name (Connections) Wu Kesong Kin Kau Lam Mark Wu Yinong Hoi Wing Fung Henry Primary Company Haier Group Company Neo Telemedia Limited Haier Electronics Group Co., Ltd. Global Energy Resources International Group Limited Age 56 56 44 51
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External Environment (EFAS)

A. Natural Environment
 Weather factors associated with shipping overseas (T)  Long shipping times (T)

B - Societal Environment PESTEL

 Economic
 Lower production costs in China (O)  United States market is the largest in the world (O)  Growing Economy, U.S. simulated peoples consumption of durable goods including home appliances and consumer electronics. (O)
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External Environment (EFAS)  Technological

 High initial investment for producing products with more features (T)  The demand for consumer electronics was driven by technological innovation especially in digital technology. (O)

 Political-Legal
 High cost of competitors duties by manufacturing overseas and selling in the U.S. (T)  New regulations on the usage of harmful materials in production in China. (T).
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External Environment (EFAS)  Socio-cultural

 Desire for new electronics in U.S. market (O)  For home appliances, the company targeted Lowerincome young people and college students by offering relatively low prices on its compact appliance.(O)  Middle-aged and other people preferred well known brands and they cared about the warranty and services of the products but were somewhat price sensitive, they might try new brands especially brand loyalty now is only 35% (O)
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External Environment (EFAS)

Entrants: Low
Stakeholders: Medium

Buyers: High

Rivalry High

Supplier: Low

substitutes: High

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HAIER PORTER 5 FORCES

Porter 5 Forces 1- Haier has developed vertical integration since 1990s in controlling it supplies (Advantage to Haier) Supplier power 2- Haier also forming a good relation and collaboration with their supplier in securing their support in term of price, quantity, quality and facilities. (Advantage to Haier) 1- In this business the company has set the high barrier of entry such as large manufacturing set up and Barriers of Entry innovation. (Advantage to Haier) 2- the company also has well position its brand globally and applies effective marketing strategy to create barrier of new entry. (Advantage to Haier) 1- Haier also streamline it business up to distribution to supply to the retailer. (Advantage to Haier) Buyer power 2- Haier has pattern all its product and focus on the after sale service to create differentiation in the market through innovation, quality and price. (Advantage to Haier) 1- In 1984 there are 100 refrigerator makers whose compete in the china market. Today, with the globalization era the numbers of competitor grow like a mushroom. Realizing to substitutes Haier has Threat of substitute invested more funds to the R&D for further improvement and innovation (threat to Haier) 2-nowadays, with the technology advancement new technology easily can be duplicated to produce similar /identical product. (threat to Haier) Haier business is difficult to exit as it involve large capital ,that makes most of the companies struggle their very best to stay in the market (threat to Haier) Competitive rivalry With the current economy downturn most of the company tries to sell their product by reducing the price . The main reason to capture the market share some small competitors will use this strategy to penetrate the customers care about their spending during economy downturn (threat to Haier) 17

EXTERNAL ENVIROMENT
EFAS
Key External Factors Weight Rating Weighted Score
0.54 0.80 0.02 0.06 0.09

Opportunities
Growing Economy in US Technological innovation in digital technology Lower-income young people and college student are attracted by low prices. Middle-aged and older people having high brand loyalty but high price sensitive Power of other stakeholders 0.18 0.20 0.03 0.06 0.09 3 4 1 1 1

Threats
Competition in U.S. market Lower response rate for stocking certain products and overstocking Increased cost of import duties High initial investment to Manu . products with more features than competitors TOTAL 0.2 0.07 0.07 O.1 1.00 5 4 3 4 1 o.28 0.21 o.4 3.69

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Internal Environment
1. Corporate Structure
  Started out in 1984 as a government owned enterprise. Haier focused on organizational restructuring and management decentralizing with application of advanced information and network systems in order to fulfillment, market chain performance, logistics, capital operation, aftersales service, product inventory and operational cost reduction. (S)  In 2004 was organized into Haier China, Europe, America, Middle East, Spain and New Zealand Divisions.  In 1999 established a Design Center in Boston, a marketing center in New York, and a Manufacturing facility in S.C.
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Internal Environment
2. Corporate Culture  Haier had a strongly motivated technician team, which was able to increase the companys product competitiveness by applying more features and style designs on its existing products. (S)  Reputation at home (China) for quality, innovation, and customer service. (S)  The main goal of the company was to continuously increase the volume of products sold in the U.S & modify products to meet U.S. demands
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Corporate Resources
1. Marketing

Haiers strengths were its relatively low prices and the unique designs and appearance of its electronics products. (S) Low brand loyalty in us market 35% (s) Introduced its Two Brothers logo into the U.S. market to boost its brand image. (W)

Promoted mostly by outdoor advertisement, airports, magazines, heavily in trade publications, and on the internet. Outdated website. (S) Little TV advertising, company sponsored sports teams and low brand awareness. (W)
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2. Finance 85% of company orders came from top 10 Chain stores in U.S. and Europe (S) Average annual growth rate of 78% from 1984-2001. (S) Ranked 4th in major appliance sales worldwide at the end of 2004. (S) 3. R&D Sluggish new technology development (W) Needs to develop technology for smart appliances (W) Haiers consumer electronics products has no competitive advantages either in technology advances or in product quality, except for their relatively lower prices. (W)
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4. Operations Reached a strategic cooperation agreement with COSCO in 2004, to help explore business opportunities worldwide. (S) Strong distribution network and good relations with both chain and individual stores. (S) Lack of U.S. distribution centers and limited exhibition space of standard products compared to major competitors. (W) Labor costs in China were much lower than in America. (S) Available land to expand in U.S (S)

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IFAS Table Internal Factors Weight Strengths Promotion by outdoor advertisement, airports, magazines, trade publications 0.1 and internet. 85% of company orders came from top 10 Chain stores in U.S. 0.1 and Europe Average annual growth rate of 0.05 78% from 1984-2001 Ranked 4th in major appliance 0.1 sales worldwide 2004 Agreement with COSCO in 2004 0.1 Strong Distribution Network and good relations with 0.1 chain and individual stores Weaknesses Two Brothers Logo TV Advertising Sluggish new technology development Needs to develop "Smart appliance" technology Lack of U.S. Distrubution centers Total

Rating Wieghted Score

Comments

0.4 Outdated website does not help

3 3 2 3

0.3 0.15 0.2 to help the company explore business opportunities 0.3 worldwide

0.2

0.05 0.1 0.1 0.1 0.1 1

1 1 2 1 1 23

0.05 practically unknown or unheard of in the U.S. 0.1 plans to launch more aggressive TV Campaigns could weaken its competitiveness when facing even 0.2 more serious competition in the future 0.1 address the "smart kitchen" concept development could enable the company to capture and respond to 0.1 trends in local markets and increase competitiveness 2.1
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Analysis of Strategic Factors

A. Situational Analysis (SWOT) 1. Strengths  Promotions by outside advertisements (magazines, trade publications, etc)  85% of orders came from top 10 chain stores in U.S. and Europe  Ranked 4th in major appliance sales in 2004  Agreement with Cosco in 2004  Strong distribution network and good relations with chain and individual stores
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2. Weaknesses  TV Advertising  Sluggish new technology development  Need to develop smart appliance technology 3. Opportunities  Introduction of products to U.S. market at lower cost  International Partnerships 4. Threats  Competition in U.S. market  Lower response rate for stocking certain products and overstocking  High initial investment to manufacturer products with more features than competitors
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TWOS

SW

Strengths S1: Promotions by outside advertisements . S2: 85% of orders came from top 10 chain stores in U.S. and Europe S3: Ranked 4th in major appliance sales in 2004 S4: Agreement with Cosco in 2004 S5: Strong distribution network .

Weaknesses W1: Poor TV Advertising W2: Sluggish new technology development W3: Need to develop smart appliance technology

OT
Opportunities: O1: Growing economy in the U.S. O2:Technological innovation O3:Young people and low prices. Threats T1: Competition in U.S. market T2: Lower response rate for stocking certain products and overstocking T3: High initial investment to manufacturer products with more features than competitors

S6: Strong innovative design team S6,O2 Develop new features products. O1,S2,S3 Market penetration to increase market share. O1,W1Need more advertising campaigns to improve the brand image. W2,W3,O2 more investment in R & D product and basic. W1,T1 Need more advertising campaigns to improve the brand image. W2,T1 more investment in R & D product and basic

S1,S2,T1 Maintain the good relationship with the major retail chains. S3,S4,S5T2 Get better spaces floor in the super retail chains. S6,T3 Increase the entry barriers and improve competitiveness by adding more innovative products.

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SFAS

SFAS
Strategic Factors Weight 0.05 0.08 0.05 0.07 Rating 4 3 2 3 Weighted Score 0.2 0.24 0.1 0.21 X X S h t o r X

Duration I n t e r m e d i a t e L o n g

S1 Promotions by outdoor advertisements S2 85% of orders came from top 10 Chain stores in U.S. and Europe S3 Ranked 4th in major appliance sales worldwide in 2004 S4 Agreement with COSTCO in 2004

Comments Advertising in airports, magazines, trade publications, and internet

Helped explore business opportunities worldwide Plans to launch more aggressive TV Campaigns Could weaken its competiveness when facing more serious competition in the future Address the "Smart Kitchen" concept development Could enable the company to capture and respond to trends in local markets and increase competitiveness Focus on the worlds largest market to be a truly global company

0.1

0.1

W2 Sluggish new technology development W3 Needs to develop "Smart Appliance" technology

0.1 0.1

2 1

0.2 0.1

X X

W4 Lack of U.S. distribution centers

0.05

0.05

Growing economy inus Technological innovation in digital technology

0.1

o.4

o.1

0.4

T1 Competition in U.S. Market

0.1 0.05

5 4

0.05 0.2

X X

Several competitors with a larger market share in U.S. including Whirlpool which had 33.4% of the Market Share in large appliances. Longer shipping time due to product manufactured overseas Advertising, higher local manpower rates, and higher R&D costs

T3 High initial investment to manu. products with more features than competitors

0.05

0.2

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Analysis of Strategic Factors

Review of Current Mission and Objectives
 The mission is appropriate.  Some objectives need to be more specific and quantified

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Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives
1. Growth Strategy: Horizontal Growth Strategy. Target niche markets in the U.S. by developing a wider range of products and services to satisfy their needs. Pros: Enables the company to more quickly capture and respond to local trends and increase competitiveness. Cons: Aggressive competition
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Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives
2- Differentiation Strategy: Develop new features for the consumers of electronics and home appliances through differentiation and differentiation focus

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Recommended Strategy
Recommend alternative # 2 :the differentiation Strategy. Which will enable the company to quickly capture and respond to market trends. Improve the brand image by both attarctive features and high quality of the products. Increase the companys competitiveness.

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Recommended Strategy
This should be depending on : Good financial capabilities. Strong innovative designing system. Implementing cost control by using OEC. (Overall every control and Clear).

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Implementation
A. Success in US is done by gaining more brand recognition. B. R&D need to be improved as does increase distributions centers to more efficiently supply chain and individual retailers.

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Evaluation and Control

1. With Programs in place The Haier Group seems to have there evaluation and control in place. The Haier group has had three growth stages Brand Name Strategy, Diversified Development Strategy, and Going Multinational Strategy

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Thank You

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