MGMT5604 : Asia-Pacific Business Perspective : HAIER As a Producer of

(1) What are the key factors in the rise of Haier as a global whitegoods manufacturer?

(2) What are the major challenges for Haier to operate in the United States? Do MNEs usually face such challenges when making foreign direct investments?

(3) What global strategy has Haier adopted to deal with CAGE problems in global operations?

Answer: 

Introduction:

HAIER Group Corporation is a Chinese multinational company that specializes itself in the manufacturing of consumer electronics and different types of home appliances. Headquartered in Qingdao, China, the company designs, develops, manufactures and sells different kind of electronic products that are needed for our daily use (haier.com 2018). The list of products that are manufactured and sold by the organization includes the likes of refrigerators, air conditioners, mobile phones, televisions, microwave and many other such different electronic products of similar ranges and similar uses. The company is listed to be the largest shareholder of white goods in the global market (haier.com 2018). The following report that lists the company to be the most preferred brand globally proves its technical and service capability.  The Company is listed in the Chinese stock exchange and also in the European International Stock Exchange of Frankfurt. The main reason behind the listing of the company in the European Stock Exchange is to ensure its swift presence in the European Union market to make an easy and efficient trade. The company has been able to get hold of the largest portion of the global market because of the implementation of a number of effective strategies. The company though had a very decent beginning gradually started to establish itself by diversifying its range of production line and thus specializing in the manufacturer of televisions, micro ovens, air conditioners and most recently established itself as the manufacturer of modern smart phones. The following report will be highlighting the clear picture of the company as a major producer and the largest market share holder of the global white goods.

HAIER as a producer of White goods 

There is a common feeling of the majority of the western world that the manufacturers of the main electronic goods brand that are used by the consumers are mostly produced by companies like General Electronics, Whirlpool, Bosch or LG. However least number of people has the idea that the largest producer of the white goods in the globe is HAIER located in China. In the last 34 years the company has transformed itself from a local worn out factory of China to a multinational company with a market share of more than 10.2% globally. The company employs more than 60,000 people with each of them curves out a single step to the success of the company globally.  As mentioned earlier the company has been leading the charts of the largest producer of White Goods in the globe. In more specific words, the company has been leading the charts of the largest white goods producer for consecutive 9 years starting from the year 2009. This helped the management of the organization to strengthen the foothold of the company and also earn the recognition of being the largest producer of consumer appliances globally by share in the market. The data released by euro monitor international revealed that the volume of sales of HAIER in major household electronic appliances accounted for more than 10.3% in the last year. On the other hand the global revenue of the organization increased by more than 20% year to year and now stands close to 250 billion Yuan that amounts to more than 40 billion US Dollars. The company has ten different brand name subsidiaries that are present in the different names and are allocated with taking the care of different types of business units of the company. The company takes the help of the names of the subsidiaries and in turn manufactures and also distributes a large number of commercial products in the HVAC and the refrigeration markets. Apart from this there are other white goods including the likes of refrigerators, washers, televisions, color TV sets, LED TV’s and other consumer electronics (Buckley and Hashai 2018). Apart from this there are also different kinds of other electronic appliances produced by the company that also falls under the White Goods. This includes the likes of the washing machines, water heaters, electronic kitchenware, sterilizing cabinets, baking ovens, steamers, dishwashers and much other such similar kind of appliances deemed to be fit for the use as kitchenware (haier.com 2018).

The main aim of the company is to ensure the creation of new and innovative home appliances that generally anticipates the fast changing needs of all the different consumers around the world (Avendano Melguizo and Miner 2017). The company is an independent and leading global provider of business intelligence on the industries, countries, consumers all around the world. One of the major reasons behind the success of the company can be attributed to the responsiveness of the management to the market and satisfying the different needs and demands of the customers over the products manufactured by the company. The management of the company generally keeps a close eye on the feedback of the customers after using their products and necessarily changes or adds new specifications and innovative features to make sure that the products are always the smartest and the most innovative. This in turn increases the revenue of the company and makes it capable of being the leader in the global market of white goods. The technical expertise of the company is believed to be unmatched as it often does a thorough market research and finds out the advantages and the disadvantages if any of a product with the customers and then tries to find the best solution available and innovates a product according to a new specification to fit the demands and mitigate the problems of their customers (Bakir and Brennan 2016). An example in the following regard can help to determine the innovative capacity of the organization. During its early years when the company used to manufacture only refrigerators, the marketing team of the company observed that majority of the students in the college dormitories placed wooden boards across the two refrigerators to save space in the cramped rooms where they lived (Bradshaw 2017). The report submitted by the marketing team of the company mentioned this problem of the students and ask the organization to come up with a bright and effective solution to ensure the benefit of the customers (Bakir and Brennan 2016). The report of the marketing team was taken up quite seriously by the management and thus within a few months, the research and development team of the organization came up with a small yet compact a new kind of refrigerator that would save ample space for the students in their clogged rooms without compromising any amount of refrigerator space. The changes in the production, development and innovation of these white goods by the company had not just happened in a day but took a large time to complete gradually. These changes combined together to create the success story of the organization at present.

Major Challenges faced in USA 

As already mentioned earlier the HAIER Group is the largest manufacturer as well as the market holder of White goods in the globe. The stiff local industry competition in the early 1990’s due to the country’s inclusion in the World Trade Organization. The competition in the domestic market grew fierce due to the growth of new and small firms and also the entry of a large number of major western firms to take advantage of the super cheap labor of the country. The management of HAIER however, took a completely innovative step to ensure the sustainability in the market (Bende-Nabende 2018). The company decided to diversify the range of products and turn it into a multi production company for white goods.

Does MNE’s usually face such challenges in FDI

According to, Bradshaw (2017) there is an increasing recognition that understanding the forces of different types of economic globalization requires looking at the foreign direct investment first by different types of multinational corporations during the time the firm is based in other countries by means of the acquiring or establishment of production facilities. There is a huge importance of FDI and multinational Corporations in the economy of the globe. As the present world economy has shifted its base to the developing countries of the world the focus of the MNC’s have naturally shifted on these countries. The population of the globe has transformed its needs from just basic needs to a more consumption oriented needs (Hermelin 2015). The following tendency has created a proper environment for more and more ne consumers of different types of new and innovative products and services across the different types of emerging markets. The main focus countries of the multinational companies are India, China, Mexico and Brazil. These countries have shown a sudden and huge increase in the economic growth. Thus such a growth has been the main reason for the companies to invest in the countries as these strategic investments will prove to be a success in the near future (Bende-Nabende 2018). The other reasons behind FDI in these countries are the political, cultural, sociological transformations of the company. However the changing scenario of world economy has forced the management of these companies to rethink of their investment plans in overseas countries.

As said by Bradshaw (2017) the MNE’s having operations in the emerging markets have great scope to formulate, grow as well as sustain because these type of markets are generally growing stronger and better year after year. The MNE’s must never forget that the following markets are highly risky and less predictable, unstable, and very much less profitable in nature. The main challenges that are faced by the organization are as follows;

• Globalization is one of the most important challenges that are faced by the organizations as because the increase in the globalization forces has brought certain changes to the shared value and institutionalized practices (Brennan 2015). It helps to bridge the gaps in global governance systems are among the most important challenges faced by the policymakers and the corporate leaders alike.


The organizations generally face different types of the challenges such as the ability to adapt to the different kinds of cultural differences, standards and practices.
The failure to provide proper market segmentation is another major challenge to the organization as because the lack of proper market segmentation will make the organization incapable to identify the potential market and the main customers of the business.
The balancing of the price and the quality has been a major problem for the organization. The main problem for the organization will be to match the standard and the price suited to the nation as because it is very much important for the business to do such a thing accordingly (Brennan 2015).
The maintenance of the corporate social responsibility perfectly suited to the organizational needs is one of the most important elements that have to be maintained by the management of the organization (Buckley and Hashai 2018). The companies are expected to balance the role of the economic development of the country along with the social responsibilities of the country in which the business firms operate.
Income risks, risks from foreign currencies, financial instability risks, operational risks, financing and accounting risks are other major challenges faced by the management of the company while operating in markets outside the country.
The companies also face problems in emerging countries as because the people of the following countries generally have a high level of price sensitivity. The companies also face challenges as often they fail to meet the local demands of the customers from within a particular product (Jin et al. 2018).
There are always concerns of the organization on the absence of proper infrastructure in the countries. The developing countries often faces shortfall in proper and efficient infrastructure to support foreign direct investment in different sectors of the industry.
The presence of strict rules and regulations can often cause hurdles to the industry. there are often strict regulations and policies that have to be adhered by the company to set its foot in the host country. The adherence to all these different rules can be often problematic for the organization.

Apart from this the challenges can also be classified according to a number of different types. They are as follows;

1. Human Challenges- The human challenges can be further classified into Ethics, Science and technology, research and development, Peace and Conflict, Transformational organized crime, health issues and many more as such.
2. Business Challenges- The business challenges on the other hand mainly includes the likes of segmentation of the market, positioning of the market, targeting the market, Promotion of the business, advertisement and distribution. It is also a huge difficult task to ensure remaining competitive in business as well as socially responsible. The main challenges that bother the business in such cases are corruption, crime and theft, poor work force, lack of proper knowledge, lack of infrastructure, political problems, inadequate supply of infrastructure, insufficient means of banking and financial services and many such similar problems.

CAGE Problems 

The CAGE distance framework identifies the cultural, Administrative, Geographic and the different economic differences or the distances between the different countries that the management of the organizations must address when crafting out the new kinds of international strategies. It can also be used to identify the patterns of trade, people inflow and outflow, information, capital and many other such related elements. The Cage Framework is thus measureable by a certain phenomenon and can be differentiated by a number of unilateral and bilateral factors. The different factors of each of the elements are as follows;

1. Cultural Distance-The cultural distance can be measured by means of different languages in different countries as well as different types of ethnicities. The absence of any connective ethnic or social networks is mainly behind the absence of the connective ethnic and social networks (Buckley and Hashai 2018). Apart from this the difference in religions and presence of different values and thoughts can also be referred to as the cultural difference.
2. Administrative Distance-According to, Brennan (2015) the administrative distance can be referred to as the absence of colonial ties like the one present in between the commonwealth countries, the absence of a common and unique currency like the European Union and the presence of an unstable political and economic situation.
3. Geographic Distance-The name itself suggests that the following distance is the distance between the two countries which can be measurable. The geographic distance also refers to a change in the time zone and a change in the disease, climate and environment of the business.
4. Economic Distance-The following difference on the other hand refers to the cost or the quality of the natural resources, financial resources or the basic resources and infrastructure needed to establish the business in the foreign country (Brennan 2015).

The above part totally concentrated with a generalized and compact discussion of the CAGE framework. It is important to have a clear and transparent idea of the CAGE framework to identify the problems of HAIER more accurately. The different elements or distances that compose the CAGE framework clearly impose a lot many problems for that of HAIER. Almost all the management of the Chinese company has a very strong dedication and motivation for the country and so they prefer to keep the workplace language mostly in mandarin. HAIER is no such difference as because the management of HAIER prefers to use the Chinese language in the workplace which creates problems for the organization as because non introduction of English or any other forms of Western language can be a administrative problem to the organization. Apart from this the presence of different cultural backgrounds of western laborers can cause a grave problem for the organization (Brennan 2015). The management of the company generally faces problems in establishing manufacturing units in countries like USA and some countries of Europe because of the presence of a strong market share by companies like General Electronics, LG and other reputed brands. The people of these countries have a very little idea about the international reputation of HAIER and thus have the tendency to abstain them from buying goods of the company. The geographical distance between China and hotspot markets like USA and Europe is a major challenge to the organization and thus makes it tough for the company to properly arrange logistical and other major needs needed by the organization to operate the business in other countries (Buckley and Hashai 2018). Geographical challenges will also provide a major challenge to the employees of the organization as they may have to face the scope of diseases, other health issues and harsh climate which may create problems for the organization to operate in the different business markets of the world.  As HAIER manufactures white goods, they invest a huge amount of money to secure a proper profit. Therefore the dedication of funds to the research and development of new and innovative white goods creates a blockage to the development of the organization in the new markets. The presence of major international and local business organizations which deal in white goods will thus get major advantage in the near future as they have slowly adapted themselves to the CAGE Framework of the business organization (Jin et al. 2018). The absence of proper elements needed to follow the CAGE framework thus renders the organization ineffective of achieving proper success in the new markets. Therefore the management of HAIER has to ensure a much linear and clear approach that can be beneficial for the success of the organization accordingly. The presence of a dynamic and stable leadership and efficient strategy can be the only way possible to implement the business under the CAGE framework and also ensure success in the market (Buckley and Hashai 2018).

Global Strategy Adopted by HAIER to adapt to the problems 

Since the entry of China into the World Trade Organization, the household appliances electric industry along with other kind of industries that are involved in the development of the different kind of manufacturing processes has been facing a number of global challenges due to the unstable economy of the world (Bradshaw 2017). The HAIER group has set up a successful example while facing different types of such challenges and realities that exists in the market. The main strategy of the management of the company has been towards the internalization of the company and its products. The internalization process has taken shape just after the problems emerged in local Chinese market as there was a severe imbalance of trade after the country included itself in the World Trade Organization (Frick and Kaimann 2017).

Though China was one of the most insignificant player in the international business. However the introduction of FDI and large scale trade reforms changed the business conception of the country and now it is home to the manufacturing centers of almost all the major, medium sized as well as innumerable number of small companies. The developmental phase of the country helped the development of that of the different types of the companies including HAIER. As said by, Frick and Kaimann (2017) the company was quick to change its policies and decided to concentrate on the international market rather than focusing and investing totally on the local markets. The idea of the company to invest outside China was a success as the company had been the undisputed leader of white goods for a long time now. The management of the company while expanding its presence in the country decided to go along with the framework of the UPASALA Model that allowed the sequence of low to high commitment modes of operation and entering into new markets with the presence of successively greater psychic distance. The stages followed by the organization are as follows;

1. Export through Independent representatives
2. Establishment of a sales subsidiary overseas
3. Overseas production

The process of the internalization generally runs in accordance with the two segmenting aspects of the model which is exporting and FDI.

Exporting

HAIER primarily started exporting from the start of the year 1992.  The next few years were golden years for the company as they recorded a huge growth in the export and rose to around US$2.8 million. The exporting countries grew to around 160 different countries and many more such different regions (Frick and Kaimann 2017). The exported items included the likes of the refrigerators, freezers, air conditioners, washing machines and many more other such electronic appliances. The colors included special colors that were mainly selected for the following countries. The most common colors included white, black and cream. Most of the export was meant for European countries which had a huge demand for HAIER made products as the European export stood at 60%. Japan constituted 20%, South East Asian countries constituted more or less 16% while the rest 4% was for demands from other countries. The internalization strategy of the company is so well constituted that the organization owns more than 100 different trading centers across the world and more than 16000 service centers. Apart from this the company has a huge number of more than 45000 sales offices in different parts of the world. Though the company began started exporting to only the developed countries, the increase in revenue and trade reforms in different countries helped it to trade and export goods to developing countries of the world (Guimón and Filippov 2017).

Foreign Direct investment (FDI)

The foreign direct investment is one of the best and the most popular form of investment that is generally followed by most of the developing countries to boost up their economy. The implementation of the FDI model helps the country to attract a large amount of revenue into the economy of the country and also improves the state of the company. The first FDI was introduced by HAIER in the year 1996 in Indonesia. The company decided to invest a heavy sum of money in the country as because the market study by the management revealed a huge potential. The FDI process in Indonesia was followed by similar such processes in different other countries. The company invested to build three new important windows of opportunities and two possibilities of expansions. The three different windows created by the management of the organization are as follows;

1. Window of Information-Information is one of the most important things in foreign direct investment. The management of the company must have a proper idea on the market where they are investing. There should be a proper idea about the competitors in the market, the customers of the market, the choice of the customers, the trends in the market and many more as such. The presence of these kind of information is useful for the company as such an input makes it aware of the conditions prevailing in the market, which further helps them to formulate different strategies of the business.
2. Window of Purchasing-The purchase decision generally refers to the decision by the management of the company to acquire different business organizations in the foreign land. The management of HAIER group has a fixed acquisition policy where the company assesses the condition of the firm and the condition of the market where the company operates to get a proper idea on the future happenings and predict the outcome of such an investment.
3. Window of Technology-A study by, Guimón and Filippov (2017) suggested that technology is one of the most important success factors while making any potential investment. The presence of quality technology is one of the most important characteristics of the business. The application of technology in a new market is a must to gain a ground in the business.

The management of the organization has to manage and maintain a number of different processes to ensure their survival in the international market. At the beginning the management has to make English a mandatory for the employees in the workplace to avoid any sort of communication problems in the international market. Apart from this the organization has to keep a proper update with the political situations of the country and change their strategies with need. It will be also helpful for the management to ensure the presence of a proper and effective funding program to ensure success for the industry (Bradshaw 2017). An example in this particular case can help to justify the FDI policy of the company. The HAIER group adopted a particular foreign direct investment policy to enter the U.S.A market. In the year 1999, the management of the company set up a marketing center for the business in New York along with a manufacturing center in South Carolina. The combination of both these centers was the largest FDI project of HAIER group in the United States of America. The U.S FDI project helped the company to overcome the different market barriers and avoid the economic and political crisis. The avoidance of all these different barriers was enough to provide the organization an easy entry into the United States market. Though the entry to the U.S market was easy, the company faced huge competition in the market from the likes of the powerful competitors like that of General Electronics, Electrolux and that of Whirlpool. Apart from this there are other kinds of factors like that of the expensive cost of US labors which tend to further destabilize the company.

Conclusion: 

The following report has provided a detailed overview of HAIER and the internalization process that it follows. The main focus of the report is on the identification of the CAGE framework and the challenges faced by the company while the implementation of the framework in the overseas markets where it operates. In both the business and the academic senses, it is mostly believed that the main impact of the globalization of the different business organizations brings positive outcomes. These types of positive outcomes are especially felt by the home countries and the host countries. The positive outcomes vary from a range of different types of the benefits. These benefits generally include the likes of the economic, cultural, social and financial. The benefits result into job creations, development of the human resource, infrastructural development. On the other hand there are many challenges that are to be faced by the management of the organization which comes mainly in the form of physical, institutional and technological reforms. These challenges include maintenance of the industrial standards of the host country, laws and regulations of the company as well as competition laws. These kinds of outcomes are more visible and reflective in the emerging economies or the emerging countries of the globe as because these types of countries still struggle with uncertain and unstable economic, legal and political conditions along with the presence of poor basic infrastructure.  The thorough analysis of the following report will thus help the readers to get a clear idea of FDI and the way they are implemented to mitigate the CAGE distance framework by the Chinese company. The discussion of the challenges faced by the companies along with the implementation of the FDI has further helped to make the report more compact in nature. The proper explanation of all the relevant methods and the process by which the business spreads its wings internationally has helped to make the report more informative and added to its quality.

Recommendation: 

The analysis of the following report has suggested that Foreign Direct Investment is one of the main source of economic growth as well as the source of expansion respectively for the country and the organization. The MNC’s like HAIER which have targeted the developing countries to expand its base and carry forward the process of internalization will face a number of major challenges to implement their strategies in these countries in a proper and efficient manner and will thus face a huge loss. The main problems described in the business are;

1. political instability
2. Lack of basic infrastructure
3. Lack of proper business partners in the host country
4. Strong presence and authority of labor unions
5. Absence of quality related and the absence of different supporting industries
6. Presence of red tapes
7. Presence of complex rules and regulations

The main aim of the business organization in this case will be to cope up with the following hurdles in a smart and efficient way. It can be possible by means of;

1. Collaborative Approach to deal with local government- The management of HAIER must approach the local government and discuss about the possibility of the company opening a unit in the country and discussing about all the different needs of the organization and assuring them of the benefits that the establishment of the organization will bring into the country. The collaborative approach to the local government will help the organization to easily establish a successful business unit in the host country.
2. Strategic Alliances with proper suppliers-The identification, verification and finally the selection of the suppliers of different parts of the different electrical components to be sold by HAIER will have to be carried out with proper and a verified check up. The details regarding the suppliers must be verified thoroughly. the management must ensure the past history of the suppliers along with the reputation of the supplier in the local market. The completion of all this processes will lead to a final agreement between the supplier and the organization.
3. Carrying out proper research and development process-The carrying out of proper research and development process is utmost essential for the success of the business organization. The research and development process will help to innovate new products that can easily fit into the demands of the local people of the host country.
4. Development of local human capital-Human capital can be developed by increasing work hours as well as employing local people. The employment of the local people will ensure the increase in the economy of the country.
5. Investment of local infrastructure development-As absence of infrastructure that can support investment is one of the major hurdles faced by the company; it will be beneficial to provide a certain amount of sum to the purpose of the development of infrastructure.

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