Business Model of Haier in the US Market - Case Study Example

Executive Summary This report provides an understanding of Haier in respect on its new business model in the US model. The repot highlights the various objectives along with various strategies like brand awareness, competitor analysis to make its presence felt in the US market. The company can look towards a strategic alliance technique to gain access into the US market and look to develop marketing strategies accordingly by using the marketing variables. A SWOT analysis has been developed to identify the major opportunities and threats in US markets along with measures to address the various macroeconomic factor challenges. The report also provides a proactive panning towards its future vision along with a discussion on its supply chain management and HR considerations. Finally the report ends with a conclusion to provide both theoretical and practical understanding of the business model of Haier in the US market. Table of Contents 1.0 Introduction 3 2.0 Brief about Haier 4 3.0 Objectives 4 4.0 SWOT analysis 4 5.0 Strategies 6 6.0 Operations/ Supply chain 6 7.0 Marketing Mix 8 8.0 HR Consideration 9 9.0 Mode of Entry 9 10.0 Standardization/ Adaptation 10 11.0 Budgeting 11 12.0 Challenges Addressed 12 13.0 Future Vision 12 14.0 Conclusion 13 15.0 References 14 Introduction Haier is the world’s fourth largest white good manufacturer and was founded in the year 1984 under the chairmanship of Mr. Zhang Ruimin. This assignment has been prepared with an objective to develop a business plan for Haier in USA. The report highlights the objectives which act as reasons to penetrate into the US market. A SWOT analysis has been performed to evaluate the strengths and opportunities along with threats and weaknesses. The report then move to show the different feasible strategies which Haier can look to adopt to gain higher growth in the US market. The report also highlights how the company shall perform by using different strategies along with a look towards the supply chain. Further the report reflects human resource strategy of Haier and entry mode selection to penetrate into the US market along with reasons for selecting the same. The report also provides an understanding of utilization of different marketing mix variables and a budget estimate to ensure financial viability of the business model. Finally the report also highlights the challenges Haier need to adhere to ensure market growth and higher profits along with a vision which needs to be considered once the product has been launched in United States. Brief about Haier Haier is the world’s four largest manufacturer of white goods and was founded in the year 1984 with its headquarters located in Qingdao, China. The company manufactures home appliances in over 15100 varieties with different specifications which fall under 96 different categories. Haier is reported to have over 240 subsidiary companies, over 110 design centre and over 50000 employees with market coverage in over 100 countries across the globe. Besides home appliances, Haier also focuses on technology research, manufacturing, trade and other financial services. Haier looks to deal in white household appliances such as refrigerators, air conditioners, washing machines, televisions, water heaters, personal computers, mobile phones, and kitchen appliances. The advancement in technology and the ability to provide quality products has helped Haier to improve their brand image and will act as a mechanism through which better business opportunities can be established elsewhere Choosing US Market Haier aims to choose US as the potential market because of the following reasons United States is more stable and pragmatic with an increasing demand for appliances and products which thereby provides an opportunity to be able to capture a bigger market (Coughlan, Stern & Adl Ansary, 2006) Customers in USA are more inclined towards branded products which will help Haier to develop a pool of loyal customers based on quality offerings The competition in USA is less as there are few players from the domestic arena and Haier will have to compete with only the international players which is not the case with other countries Home appliance market of US is anticipated to grow at a higher rate of 1.92% CAGR by 2016 in comparison to Japan which is expected to grow by 1.62% by the end of 2016 and India by 1.56% (Coughlan, Stern & Adl Ansary, 2006). Objective Objectives play an important role in any business plan and so does it do here. Haier looks to target USA market with its decided strategy of strategic alliance. The objectives with regard to penetration of US market have been discussed as under. Haier needs to penetrate into the high end appliance market of USA by looking to acquire Maytag to ensure better market share and higher growth. It needs to continue its dynamic growth cycle approach and build brand equity of its own in the USA market (O’ Donnell, 2000). To decide upon the various marketing strategies and adopt the best suitable strategy as per market demand and product life cycle requirements. To decide upon the channels of distribution to ensure correctness and effectiveness in its supply chain. To become a leading market share holder of homemade appliances in the US market. To provide comfort and convenient to its end user and ensure maximum customer satisfaction (O’ Donnell, 2000) To expand its market share in US market with new improved technology and better utilization of its human resources. To develop products as per customer needs and demands and apply proper marketing strategies to ensure higher growth and profitability along with future challenges to be addressed in a proactive manner. US Market The US market for consumer durable goods is fast growing and there is a continuous demand for products. It has been identified that around 87% of the households have refrigerators, washing machine and other consumer durables. With a continuous change in the lifestyle of people the adaptation towards white goods is increasing. The market of US is slowly saturating but still provides an opportunity for other players as change in preference towards those products is increasing. The market is competitive as players like Electrolux, Samsung, Whirlpool and others continue to have a presence. Since, the people demand better quality products even at a slightly higher price it provides an opportunity through which demand is bound to grow. Target, Segmentation & Positioning Haier will look to target the middle and upper middle class of the society. This is primarily due to the amount of money which the company has invested in different areas has increased the price of the product. The product has been further segmented and aims towards segmenting the people based on income, age and usage. On the basis of income segmentation Haier looks to attract people from the higher end of the society. On the basis of age it looks to target the middle age group from 15 to 45 years of age and on the basis of usage it aims to attract people who are fond of using technology so that their daily activities can be carried out easily. This has thereby ensured that the positioning that the company looks to adopt will be aimed towards the upper segment of the society and will look towards ensuring that the different needs of the people are easily met. SWOT Analysis Haier has its own strengths and weaknesses which the company needs to critically evaluate to ensure proactive planning and covert its threats into opportunities and further ensure long term sustainable growth of the company in the US market. An analysis of the same is discussed as under (Porter, 1998) Strengths It is the world’s 4th largest white household appliances manufacturer with a strong brand name in China. It has the ability to produce a large number of different models and series of products. Products are designed as per customer needs, tastes and preferences as the use of latest innovation and technology in its products category. The company has a strong financial backup with risk taking ability to invest in new markets and products. This is matched by a successful marketing strategy to open and make a brand presence in US market. It is configured with high experience to do business in Europe with strong established collaboration with its customers. Weaknesses Tough competition from many competitors producing similar products and similar design which has increased the complexities for the business. Lack of experience in dealing with its new US market is an aspect which needs to be analyzed. Brand awareness of its products is lower in the US market which needs to be worked on. Low level of concentration on core technology with higher dependence on other companies for its core components or parts Opportunities Good investment situation to tap the US markets as it is growing. Capable of designing suitable products as per American customer needs which has a high standard of quality, energy cost and environment. New potential target groups and distribution channels will multiply the efficiency through which business transactions takes place. To learn the new coming technologies and develop products out of the box to gain an edge of its rivals in the US market. Threats High cost of new entries in the US market as it is competitive. Customers strong brand loyalty to other rivals in the similar industry will make it difficult to attract customers. Drastic competition in every existing and potential new US market. Strategies In order to gain larger market share and ensure higher growth in the US market Haier needs to first create brand awareness about its products by using various promotional tools and marketing strategies. The company needs to identify its major competitors using a competitor analyzing strategy and then look to capture the existing market. Discussed underneath is the list of strategies which Haier needs to significantly consider and adopt to ensure growth in its targeted US market. Competitive Strategy: Haier should look to develop and adopt a competitive strategy by firstly analyzing the major competitors in the US markets and their competitive strategy adopted. Customized competitive strategy needs to be developed when entering each specific market at a specific time (Jobber 2004). A complete market study is of prime importance to develop feasible competitive strategy where focus is to develop new differentiation competitive strategy and set benchmarks for others to follow. Brand Awareness Strategy: Haier is particularly new in the American market, hence building a brand awareness of its products is of prime importance. The very notion of American people to believe that Chinese company supply inferior quality products need to be eliminated (Jobber 2004). To further create brand equity the company should look to decide upon various promotional tools and ensure deeper penetration in the US market. Product Differentiation Strategy: Haier is one of the leading white goods manufacturing company and produces different variants of home appliances. The company should continue with its product differentiation strategy to ensure larger market coverage and higher growth. It should focus on personalization by using its excellent design talents to create more good appearances of its products and functional products. Diversification Strategy: Haier started its diversification strategy in 1992 by diversifying its products category from one to another. During the initial market capture phase it should look upon concentration strategy of the products in demand and then look to diversify its products category to capture a larger market in the United States. Localization Strategy: Haier should look upon localization strategy by developing its products and services as per a particular language, US culture and desired look “Look and Feel”. It should look to design the products to meet the local consumer needs of US and their lifestyle to ensure maximum customer satisfaction and quicker responses from its customers which shall also help the company to build brand equity of its own. Operations/Supply Chain Operations, logistics and supply chain management are the key ingredients for Haier to ensure availability of its products as per demand situations in the US market. It includes not just the flow of goods and services but also includes flow of information, resources, energy and people to avail maximum utilization of its resources. Haier in order to develop a strong operation system shall look upon the following Potential distribution channel: The distribution channel of sales in USA is running quite mature and experienced. Haier can look upon similar entry plans to cater the US markets (Ekeledo & Sivakumar 2008). It can look to choose the distribution channel as Producer- Wholesaler/Retailer- Consumer. The distribution channel can be divided into three groups as per sales area and market share. The largest group can be electrical retailers than through specialty stores and the third group is the local market chains. B2B marketing: In order to motivate the retailers, Haier should look upon B2B marketing to ensure retailers cooperation with suppliers. Haier can offer bonus schemes and flat discounts to boost up sales if the retailers consumption is over a pre-decided amount of products (Ekeledo & Sivakumar 2008). Online Sales: People in US are more pruned to time saving online shopping and Haier should look to develop its own exclusive website for US market along with collaboration of its products being sold in other popular US shopping websites. Supply chain management: Haier needs to build a strong supply chain to make its products available to its buyers and maintain strong relationship with its suppliers and resellers. The company should target electrical retailers and specialty stores along with its own exclusive showrooms and service centre. Elimination of unnecessary intermediaries with a simple distribution channel shall be more fruitful for the company. The company can look to appoint franchisers and super stockiest along with exclusive distributors in its supply chain management to ensure further catering of the large US market demands. HOME APPLIANCE DISTRIBUTION CHANNELS IN THE UNITED STATES Marketing Mix Marketing mix is an important tool to ensure effectiveness of the company’s performance. An analysis how Haier can look to utilize its marketing variables is illustrated as under. Product The product is the central point on which marketing strategies and energy must focus. Haier plan to adopt their products in the local markets of US should look towards differentiation strategy or producing standardized products. An analysis of consumer behavior shall help the company to develop products as per consumer needs, tastes and preferences. It should look towards cost-effective production strategy and product differentiation to cater the demand of US markets. Care should be taken with regards to appearance, function and quality of profits backed with sales service centre and after sales services. Price Price is a marketing variable which helps to generate revenue for any organization. Haier should look towards cost factors and keep its price low to penetrate into the US markets. Setting competitive prices shall help the company to fight against its rivals in a better position. Economic condition, legal factors and political factors need to be considered while setting price to ensure no hindrance in the selling of its products. Place Place is considered with several factors of transporting and storage of goods along with availability of the products at the right time of market demand. Haier should look upon targeting its products on basis of right place and at right time through its distribution system (Hollensen, 2004). Logistic and supply chain shall need to be strengthen to ensure easy availability of the products. Promotion Promotion is the business of communicating with the end users. Haier in order to make a presence of its products and create a brand loyalty and brand equity in the US markets should look upon various promotional tools like advertising, public relations, discounts, offers etc. Selling the goods with off-season discounts can help the company to boost up sales of its products even during the lag period (Hollensen, 2004). It needs to decide upon correct promotional tool and correct media as per competitor strategy to make its promotional activities stronger and ensure higher growth and sales of its products. HR Considerations Management of human resource is an important consideration as they constitute the most vital resources for Haier. Haier instead of looking for Chinese management system should look to hire local managers and ensure a fair and transparent system of recruitment and retention of its employees. Best people for the best job should be the most effective HR strategy for Haier. Once the workforce is recruited it should look to increase the effectiveness of its workforce with motivational factors like incentives, promotion along with punishments and demotion (Colin and Fan, 2006). Developing an organizational structure with horizontal integration shall be more fruitful for Haier to cater the US markets. Haier to marshal its workforce should also look towards personnel planning, assessment of personal needs, alignment of personal needs with organizational objectives, correct compensation and understanding labor management relationship. Mode of entry As already had been highlighted in the first assignment, strategic alliance seems to be the most appropriate mode of entry for Haier to gain access into the existing US market. The reasons for the same are listed as under. Strategic alliance with distributors and brand retail players shall help Haier to penetrate deeper into the existing market. Cost benefit analysis shall be on the higher side with larger sales. Supply chain management will be more effective and market coverage shall enlarge at a rapid pace. Strategic alliance shall help both Haier and its strategic partners to develop a stronger business model as per situation. Risk of failure shall be on the lower side with lower investments and better catering of the US markets. Standardization/ Adaptation Haier looks towards dealing with standardized products where the goods provided by them will be of the highest quality. While looking to function in USA Haier will look at providing standardized products which can be compared with other products which are available in the market. The strategy of dealing with standardized products will ensure that it can be compared with other providers in the market (Balet & Ghoshal 2007). This strategy will also help to develop a niche market through which will help Haier to be able to create a market for itself. The strategy of standardized products will also ensure that the framework will be such that it will provide an opportunity to tap a larger market and ensure better products and services. This will thereby help to bring a transformation and will make it easy to ensure that the products gets accepted and will thereby maximize the chances and opportunity of being successful. Budgeting Haier has also identified the different areas and directions based on which the marketing budget will be spent. The identification of the budgeting aspect will help to ensure that the customers can be attracted towards the product. Haier looks to have the budget which will be spent on the different directions to be as The different aspects and directions which Haier looks towards covering through their strategy of marketing will ensure maximum customer reach. This will provide an opportunity to create a niche market and will ensure maximum penetration. A further breakdown of the different budgets is being highlighted as in ‘000 The different dimensions which have been identified will thereby ensure that Haier will be able to target the correct segment and will help to ensure a complete transformation and change through which the long term prospect of the business will be decided. Challenges Addressed Challenges in the US markets are immense originating from different macroeconomic factors and marketing variables which has already been identified in assignment one. Here is a detail discussion of addressing each such specific challenge. The Socio Cultural Challenges: Haier in order to eliminate socio cultural challenges should look to develop standardized products. In fact investigation needs to be carried out to identify the suitable adaptation strategy for US market. An analysis of consumer behavior shall help in eliminating cultural differences and adapt to customer needs and wants to ensure maximum customer satisfaction. The Policy Challenges: Each country has their own policies to protect their domestic companies. Haier in order to gain access to US market should choose upon strategic alliance to reduce the unfavorable policy and share risks and business with local partners. The Economic challenges: US is characterized with high purchasing power and higher economic growth, so Haier should instead of looking for cost cutting adopt to quality generation techniques to ensure maximal growth and revenue. Competition Challenge: Haier should develop a competition analysis strategy to figure out the market opportunities in the US market. It should try to develop marketing strategies keeping in mind both local and global competitors and develop products as per customer needs and preferences. Distribution Challenges: Haier in order to strengthen its supply chain management should look towards three groups of distribution channel which consists of Producer-Retailer-Customer. It should target three categories which are electrical retailers, specialty stores and local market chains along with a franchise system and exclusive showrooms of its products. Legal and Political Challenges: Political and legal factors have significant influence over the pricing strategy of Haier. These factors shall restrict Haier in setting prices on basis on economic consideration. Hence, Haier should look to determine its price on basis on competitors move and market forces. Sales Promotion Challenges: Haier in order to penetrate deeper into the American market should look towards various promotional tools and focus on advertising to build a brand awareness of its products and services and further ensure correct selection of media for advertising its products. Future Vision Haier after its product launch in the US market should look to consider the following in its near future. To ensure maximum utilization of its available resources by clearly understanding the future market conditions and developing pro active panning for the same. To tap the uncovered market of home appliance market of US and focus on introducing new product categories in the US market. To develop an organizational structure most feasible as per cultural environment prevailing in US. To maximize sales by introducing a self owned producing unit in US market and produce high quality goods which are cost effective. To penetrate deeper into the US market by adopting to market techniques like product differentiation or price skimming. To build on a strong financial base and eliminate the debts funding in its strategies developed to cater the US market. Conclusion This report has been prepared to provide a basic understanding for Haier, a company manufacturing white goods to sustain its new business model in the US market. The report provides an understanding of the general objectives of Haier in the US market along with future vision. The report also highlights the most suitable strategy for Haier to gain entry into the US market along with a SWOT analysis to identify the major threats and opportunities. The report on the other hand provides an understating of various marketing mix variables and strategies which it can look upon to ensure sustainable growth of the company in US market. 15.0 References Balet, A.C. & Ghoshal. S. (2007) Managing across the border: New strategic requirements, Slogan Management Review Summer, pp 7-17 Colin, W. and Fan, M. (2006) Risk and Foreign Direct Investment, New York Coughlan, A., Stern, W. & Adl Ansary, E. (2006). Marketing Channels, 7e, ISBN 9780131913462 ISBN 10:0131913468 , Pearson Education Ekeledo, I. & Sivakumar. K (2008) Foreign Market Entry Mode Choice of Service Firms: A contingency perspective, Journal of the academy of marketing sciences, Vol. 26, pp 274 – 292 Jobber, David. (2004) Principles and practice of marketing, 4th edition, the McGraw-Hill Companies O’ Donnell, S.W. (2000), managing foreign subsidiaries: agents of headquarters, or an interdependent network? Strategic management journal 21, pp 525 – 548 Porter, Michael E (1998) Competitive Strategy: techniques for analyzing industries and competitors, with new introduction, New York Hollensen, S. (2004) Global Marketing, 3rd edition, page 284, Chapter 9-12 Read More