Haier

Haier Group

File:Haier logo.gif
Company type	Government Owned
Industry	Electronics, White Goods, Financial Services
Founded	1984 (adopted current name in 1992), Qingdao, China
Headquarters	Qingdao, China
Key people	Zhang Ruimin: Chairman and CEO Yang Mianmian: President Wu Kesong: Vice-Chairman
Products	Major appliances Small appliances Commercial heating and cooling systems Consumer electronics
Revenue	$13.3 billion (2005)
Number of employees	50,000
Subsidiaries	Haier Electronics Group Co. (SEHK: 1169) Qingdao Haier Co. (SSE: 600690)
Website	www.haier.com

Haier (Chinese: 海尔; pinyin: Hǎiěr) is a producer of household appliances ("white goods"), including air conditioners, laptops, refrigerators, etc. Its headquarters are in Qingdao, Shandong, China. They are now the third largest white goods manufacturer in the world. Haier Group reported sales of over $12 billion across all divisions in 2005. ^[1]

History

Haier's history begins long before the actual founding of the company, in 1920's Qingdao where a refrigerator factory was built to supply the Chinese market. After the 1949 establishment of the People's Republic of China, Haier was then taken over and turned into a state-owned enterprise. By the 1980s, the factory was in debt for over CNY ¥1.4 million and suffered from dilapidated infrastructure, poor management, and lack of quality controls; resulting from the planned economic system and relevant policies. ^[2] Production had slowed to a trickle, rarely surpassing 80 refrigerators a month, and the factory was close to bankruptcy. In desperation, the Qingdao government turned to a young assistant city-manager, Zhang Ruimin, responsible for a number of city owned appliance companies. Zhang was appointed the managing director of the factory in 1984.

Zhang Ruimin and the corporate legend

Zhang was an avid reader who had studied Western and Japanese business practices and management techniques. When he arrived in 1984, Zhang realized that the poor condition of the factory's quality controls was endangering its continued survival.

In 1985, a customer brought a faulty refrigerator back to the factory and showed it to Zhang. Zhang and the customer then went through his entire inventory of 400 refrigerators looking for a replacement. In the process he discovered that there was a 20 percent failure rate in his merchandise. To drive home the importance of product quality, Zhang had the 76 dud refrigerators lined up on the factory floor. He then distributed sledgehammers to the employees and ordered them to destroy the refrigerators. The workers were hesitant; the cost of a refrigerator at the time was about 2 years worth of wages. ^[3] Seeing their distress, Zhang said: "Destroy them! If we pass these 76 refrigerators for sale, we'll be continuing a mistake that has all but bankrupted our company." The refrigerators were smashed to pieces. One of the hammers is on display at company headquarters as a reminder to posterity.

Founding a new company

Haier was founded as Qingdao Refrigerator Co. in 1984. With China opening up to world markets, foreign corporations began searching for partnerships in China. One of these, Germany's Liebherr Group, entered into an agreement with Qingdao Refrigerator Co., offering technology and equipment to its Chinese counterpart. Refrigerators were to be manufactured under the name of Qingdao-Liebherr (Chinese: 青岛—利勃海尔; pinyin: Qingdao-Libuhaier). Combined with Zhang's disciplined management techniques, which broke from the tradition of the Iron rice bowl in Chinese state-owned enterprises, the company began to turn around. By 1986, Qingdao Refrigerator had returned to profitability and sales growth averaged 83 percent per year. With sales of just CNY ¥3.5 million in 1984, sales rocketed to CNY ¥40.5 billion by 2000; a growth of more than 11,500 percent.^[4]

With the success of Qingdao's refrigerator company, the municipal government asked it to take over some of the city's other ailing appliance makers. In 1988, the company assumed control of Qingdao Electroplating Company (making microwaves) and in 1991, also took over Qingdao Air Conditioner Plant and Qingdao Freezer.

The Haier Brand

Having diversified its product line beyond refrigerators, the company adopted a new name in 1991. Borrowing from the German name of its partner, "Haier" came from the last two syllables of the Chinese transliteration of Liebherr (pronounced "Li-bu-hai-er"). Qingdao Haier Group was further simplified in 1992 to Haier Group, the company's current name.

The company set out to establish itself as the country's leading brand, focusing upon reliability and product quality. Diversification would also allow Haier to spread out its risk among various product lines. So, in 1995 Haier bought out its chief rival in Qingdao, Red Star Electric Appliance Factory. In 1997, the company moved into television manufacturing with the acquisition of Huangshan Electronics Group. By the end of the 1990s, Haier was the most recognized brand in the country with products ranging from mobile phones to computers; it had also captured a dominant market share in its core white goods division.

International expansion

Its place in the domestic market secure, Haier moved onto the international stage with the goal of building a global brand name. The company opened a production facility in Indonesia in 1996, and the Philippines and Malaysia in 1997. Haier's move into the U.S. market was cautious at first; it focused upon two niche markets in compact refrigerators and electric wine cellars. Both markets were underdeveloped, but Haier believed that they both had growth potential and were being largely neglected. The company's sales figures soon proved this belief correct, allowing Haier to firmly establish itself in its US niche.

With this success, Haier looked to make further inroads in the North American market by moving into the full-sized refrigerator category. This would bring it into direct competition with established American giants: GE, Whirlpool, Frigidaire, and Maytag; not to mention foreign competitors like LG and Samsung. As part of its strategy, Haier decided to build a production facilty in the United States at Camden, South Carolina, opened in 2000. By 2002, US revenues reached USD $200 million, small when compared to its overall revenue of $7 billion, but Haier set an ambitious sales goal $1 billion and 10 percent of the US refrigerator market. Also in 2002, Haier moved into the Landmark Building in downtown Manhattan. Formerly the headquarters for the Greenwich Bank, the 52,000 square foot building was built in 1924 in the neo-classical style.

Haier continued its expansion into other international markets as well. Production facilities were constructed in Pakistan in 2002 and Jordan in 2003, greatly strengthening its position in the Middle East market. In Africa, Haier has plants in five countries: Tunisia, Nigeria, Egypt, Algeria and South Africa.^[5] The company also purchased a factory in Italy, as part of its continued drive into the European market. Haier has been successful in placing its products in most major European retail chains, either under its own brand or under OEM agreements with foreign partners. ^[6][7]

Ownership Structure

Although under partial public ownership, Haier is still technically a "collective" company, meaning that it is supposed to be owned by its employees. However, its actual ownership situation is opaque; the employees receive no dividends and do not know how much they own in reality. Interference from officials is also a risk for SOE's like Haier. Various levels of government often try to push their ailing companies upon successful ones, often resulting in failure; Haier was once talked into acquiring a pharmaceutical company, even though it had no prior experience or infrastructure in biotechnology.^[8]

As a government entity, Haier was also officially barred from entering the stock exchange early on. However, the company needed funds for its expansion and therefore sought loopholes to access private equity. In 1993, it listed a subsidiary Qingdao Haier Refrigerator Co. on the Shanghai Stock Exchange, raising CNY ¥370 million. In 2005, Haier entered the Hong Kong Stock Exchange through a "backdoor listing" by acquiring a controlling stake in a publicly listed joint venture Haier-CCT Holdings Ltd. (SEHK: 1169). Haier is also an index stock of the Dow Jones China 88 Index.

Maytag bid

In June 2005, Haier made a bid to acquire Maytag Corporation, backed by private equity funds Blackstone Group and Bain Capital. The bid was for USD $1.28 billion, or $16 per share, topping a previous offer of $14 per share made by Ripplewood Holdings. ^[9] In the end however, Maytag was bought by Michigan based Whirlpool Corporation which offered $1.6 billion in cash and stock, or $20 per share, plus assumed debt.^[10]

See also

• Whirlpool Corporation
• General Electric Company
• Siemens AG
• AB Electrolux
• Samsung Group
• Daewoo Business Group
• Maytag Corporation

External links

• Haier.com (English)
• Haier America (subsidiary)
• Haier IT Europe (subsidiary)
• Haier Europe HQs
• Asian Week's report on Haier