Haier’s North America Expansion
Haier is fast becoming one of the world’s largest and fastest growing household appliance manufacturers. It has aggressively pursued expansion strategies in North America, which has enabled it to grow its global market share. Its internationalization strategy, which uniquely resembles those of typical multinational Japanese companies, has been successful thus far, with the acquisition of GE Appliances in January 2016 cementing its position as one of the major players in the global white goods industry (Chang, 2016). This paper explores Haier’s North America expansion plans and the strategic implications of such expansion to other Chinese companies. Analysis indicates that Haier’s exemplary flexibility and adaptability to the changing market needs have been its core competencies that have enabled it to efficiently internationalize its operations.
Production in the U.S. and Expansion Plans
In 1999, Haier made a strategic decision to start producing its goods in the U.S. It invested U.S. $30 million, establishing a marketing center in New York and a manufacturing facility in South Carolina (Liu & Lee, 2002). The core-influencing factor at the time was to expand its global presence by venturing into markets where it had not gained a foothold, and the U.S. market aligned perfectly with Haier’s global expansion efforts (Chang, 2016). Its decision to start production in the U.S. was primarily aimed at introducing its products in the country.
Haier has aggressively pursued global expansion since 1999. With the acquisition of GE Appliances, the company plans to further expand its operations. The PESTEL analysis indicates that there are various external environmental factors pertinent to its expansion plans in the U.S. in 2016-2017. Politically, the U.S. is one of the strongest proponents of democracies. Despite the recent post-election unrest, the country has a relatively stable political climate that is attractive to investors. Economically, the U.S. remains one of the largest economies in the world. In 2014, its GDP was more than U.S. $16.7 trillion (Hagerty, 2015). With the unemployment rate reducing fast, the population will have an enhanced disposable income and an accompanying increased marginal propensity to consume Haier’s products. Socially, the most encouraging factors pertinent to the company’s expansion plans are that the majority of the people has a liberal mindset and will fancy using Haier’s products, even if they are not as popular as GE’s, Electrolux’s, or Whirlpool’s ones. However, the fast-aging population points to labor shortage challenges in the future.
The technological factors are also encouraging. Innovation and technology are the cornerstones of the U.S. economy. Haier’s innovation efforts to increasingly automate the appliances and appropriate mobile technology aligns perfectly with the country’s move toward adapting and applying technology (Hagerty, 2015). On the other hand, the environmental factors are largely restrictive. The U.S. has one of the most stringent business waste disposal laws that restricts production and profitability. The legal framework is also constricting, especially with regards to labor laws that favor employees. There is also the antitrust law that poses an existential threat to Haier’s expansion efforts in the U.S. as it limits its ability to optimize its growth via acquisitions and mergers (Waldmeir, 2012).
Porter’s Five Forces Analysis
The U.S. white goods industry is one of the core manufacturing industries in the country. The appetite for the white goods in the U.S. and all over the word is fast increasing, and it is projected to reach a combined volume of U.S. $228 billion by 2020 (Chang, 2016). The U.S. white goods industry has a high supplier power. There are a few American suppliers of the high-tech components that are used in the manufacturing of appliances (Suo & Bardhan, 2013). The majority of these components is outsourced from China and Japan. Therefore, the American suppliers have the potential to drive up prices, at least in the short run. Considering the domestic suppliers, the costs of switching from one to another is high. On the other hand, the U.S. white goods industry buying power is relatively low. There are many buyers in the market, making it virtually impossible for them to dictate or drive prices down (Waldmeir, 2012). Had the market been limited, it would have been easier for the buyers to determine the prices.
The competitive rivalry in the U.S. white goods industry is high. There are many competitors in the market who also have an immense capability to compete both domestically and in the global arena. The main competitors of Haier in the U.S. are Whirlpool with 37.8% of the market share, Electrolux with 20.6% of the market share, and LG with 5.1% of the market share (Crainer, 2015). The presence of the companies that offer equally attractive products means that suppliers and buyers can switch from one manufacturer to another if they do not get a good deal, giving the companies little control and power over the situation.
The threat of substitution is relatively low. There are no perfectly close substitutes for home appliances being manufactured. The buyers will have to manually perform the duties such as washing their clothes, dishes, heating the food and other functions or outsource them, which is uneconomical. The substitution is not easy or viable. The last factor is the threat of new entry. It is low since it costs much time and money to set up, enter the market, and compete effectively (Liu & Lee, 2002). Various companies also have protections for their key technologies, making them inimitable business core competencies.
Acquiring GE Appliances
In January 2016, Haier acquired GE Appliances, the white goods unit of GE, for U.S. $5.4 billion. Low U.S. penetration is evidently the primary reason behind Haier’s decision to buy GE Appliances, which at the time of the acquisition was the second largest manufacturer of household appliances in the country (Chang, 2016). As indicated earlier, before purchasing GE Appliances, Haier only enjoyed 1.1% of the U.S. market share and 10% of the global market share (Crainer, 2015). Therefore, the acquisition enabled the company to create a solid foothold in North America since GE has already established a brand name, loyal consumer base, and distribution network.
Additionally, the allure of partnering with GE may also have informed the decision to buy GE Appliances. The acquisition has enabled Haier to create a long-term partnership with GE, which will benefit Haier since GE focuses on high-tech manufacturing that Haier appropriates. It can leverage GE’s cutting-edge technological standards to connect ordinary household appliances to smart technology systems (Hagerty, 2015). Additionally, Haier may have purchased GE Appliances to enhance its image as a manufacturer of quality products. The ‘Made in America’ tag enables it to market its products effectively in Asia-Pacific, Europe, and Africa.
GE employees should expect a different organizational culture with the change of ownership. One of the foundations of Haier’s success has been people management. It essentially creates small self-managed teams and encourages the creation of an environment that embraces a marketplace of idea concept (Suo & Bardhan, 2013). These changes may be new to employees. Since both companies are located in the U.S. and the employees are predominantly the U.S. citizens, there is a minimal social culture shock if any. To overcome the barriers to assimilation, GE should employ a polycentric staffing approach as opposed to geocentric or ethnocentric approaches (Jullens, 2013). Through the polycentric approach, the company will recruit managers who are the U.S. nationals to run the company deviating from the previous trend of appointing Chinese managers and directors.
China is fast rising as a globally influential political and economic power. As such, many of its companies are emerging as global competitors. One of the strategic implications of the emergence of Chinese multinationals such as Haier is that it promotes the domination of Chinese companies in the global arena. The emerging companies provide the blueprint which other Chinese companies follow to conquer the world market, the same way the Japanese companies did during the 1980s and 1990s (Liu & Lee, 2002). Eventually, the emergence of Chinese multinationals will accelerate the involvement of other Chinese enterprises in outward foreign direct investment (Crainer, 2015). To the Western nations, the implication is that the competition in the global market will only increase in the foreseeable future. With the acquisition of GE, Haier projects that it will boost its global market share from 10% to 19%, becoming more competitive (Chang, 2016). As other enterprises follow its internationalization strategy, the Western companies will increasingly face intense competition. The Western government will also have to devise foreign economic policies that favor the local enterprises as opposed to multinationals.
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Haier’s success in the U.S. market will boost its operations and investments in other countries. The success in the U.S. will provide a blueprint that the company can use to internationalize its operations and gain a foothold in Europe, South America, and Africa (Crainer, 2015). Its strategy of introducing the most basic household appliances first to create a name before leveraging the popularity of this name and introducing more sophisticated, high-end products into the market has proven effective in both Asia and the U.S. (Suo & Bardhan, 2013) It should help streamline its operations in other markets. Furthermore, the projected increase in revenue and profitability should help the company to venture further into other markets.
Lessons Learned and Conclusion
It is evident that Haier is one of the largest and fastest growing household appliance manufacturers in the world. Its impeccable internationalization strategies have enabled it to gain a foothold in the global market arena. The core lessons learned are that mergers and acquisitions are the best expansion strategies for white goods manufacturers and that the Chinese internationalization strategies have proven effective. A further lesson is that the Chinese firms are fast emerging and may soon dominate the world. The success Haier has enjoyed in the U.S. market will only enable it to replicate the same in other markets, becoming a global stalwart in household appliances in the coming years.
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