Can Haier Freeze Out Whirlpool and GE?
Over the past 30 years, Asian manufacturers have invaded almost every corner of the U.S. economy, exploiting their cost advantage to seize often sizable shares of the market. Yet domestic producers of big-ticket household goods maintained their lock, even as as one industry after another caved to foreign competition.
The three biggest players in the U.S. -- Whirlpool (WHR ), General Electric (GE ), and Maytag (MYG ) -- are all American. Even No. 4 Electrolux Group, while based in Sweden, assembles its Frigidaire ranges and refrigerators in the U.S. But this industry's number soon may be up.
China's premier multinational, Haier Group, has set its sights on the U.S. In the last year, Haier has secured floor space in such leading discount chains as Wal-Mart, Lowe's, and Best Buy, turning its compact refrigerators into the category's best-seller.
Hoping to build on its momentum, Haier is broadening its product line with mini-freezers, wine chillers, and bigger fridges. Next up: Made-in-China air conditioners, which the company predicts will claim the No. 2 slot in the U.S. by the end of summer. Last year, Haier toted up $200 million in U.S. sales. By 2005, the company vows to hit $1 billion.
Big talk? You bet. Haier's main selling point so far has been its cheap prices. Thanks to its low-wage factories in China, Haier's popular 2.7-cubic-foot refrigerators retail for only $115 at Wal-Mart. But to expand from its niche into a full-scale appliance company, Haier will have to make and market high-end goods as well.
It has an incentive to move up, of course: Margins on luxury products can be sinfully fat. Because of that, however, the Big Four won't surrender the upscale segment to imports as easily as they did portions of the entry level.
YOU BOUGHT A WHAT?
Moreover, to succeed in the high end, Haier will have to appeal to image-conscious consumers who value brand above nearly everything else. And some industry analysts argue that brand building may be beyond Haier, both financially and culturally. "As a brand, Haier doesn't work," contends analyst Nicholas P. Heymann of Prudential Securities. "People may buy a dorm refrigerator from Haier, but I don't think they'll spend a lot of money on an appliance from a company they've never heard of."
Haier is following the strategy that worked for Sony and Hyundai
Haier just might pull it off, though. Its battle plan, after all, is the same one that other Asian companies such as Sony and Hyundai have used to capture sales from American companies that had long dominated their home markets: Start with low-end items that high-cost American companies can't profitably produce and then, as consumers grow accustomed to your brand, gradually work your way up toward the top. "We have a strategy of good, better, best," outlines Michael Jemal, president of Haier America. "We are going to go full range."
In fact, retailers say Haier is already well on its way. H.H. Gregg Co., a 42-store appliance and electronics chain, started carrying Haier's basic compact refrigerator last fall. Today, the Indianapolis-based retailer displays a half-dozen Haier products, including a 14.3-cubic-foot refrigerator/freezer that lists for $350. A comparable model made by Whirlpool under its no-frills Roper brand sells for $400. That's a big difference to penny-pinchers. As a result, Haier sales have grown 10% a month, says Jeffrey McClintic, H.H. Gregg's vice-president for appliance merchandise. "They've got a good, aggressive growth curve," he says.
And while Haier is relatively unknown in the U.S., it may be the most formidable corporation yet to emerge from China. Founded 17 years ago on the eastern coast in Quindao, Haier ranks as the No. 1 maker of washing machines in China and the No. 2 refrigerator manufacturer in the world -- behind Whirlpool. It boasted global revenues of $7.3 billion in 2001, with a catalog of products ranging from deep freezers to TVs and irons.
That puts Haier ahead of GE Appliance, which had $5.8 billion in sales last year, and Maytag, with $4.1 billion. "Haier is a good company and somebody we've got to pay a lot of attention to," acknowledges David L. Swift, executive vice-president for Whirlpool's North American region.
Haier bought a landmark Manhattan building to use as Western hemisphere HQ
When it comes to advertising, Jemal concedes that Haier can't match the American incumbents, which can afford prime-time TV spots and glossy spreads in magazines. But Haier is using investments in tangible U.S. assets to highlight the company's commitment to the American market. It recently spent $14.5 million to acquire the landmark Greenwich Savings Bank building in Midtown Manhattan to serve as headquarters for the Western hemisphere. The 75-person office opened in March. It also spent $40 million to construct a factory in Camden, S.C. That plant now employs 230 people assembling the top-mount refrigerator/freezers found on the sales floor at H.H. Gregg.
Haier's U.S. rivals are already on the counteroffensive. Whirlpool and Electrolux both have sunk millions of dollars in China on factories and distribution. Their primary goal is to sell white goods inside China as the country's population grows wealthier.
LAST LINE OF DEFENSE.
However, Whirlpool's Swift owns up to another agenda: He hopes that by going head-to-head with Haier on its home turf, Whirlpool can deny Haier profits it might otherwise use to support its advance into the U.S. American companies are also moving more of their assembly work to low-wage countries to limit Haier's cost edge. Whirlpool, for example, now makes its microwave ovens in China, just like Haier.
America's Big Four have one more line of defense. Even factoring in China's low wages, it's still all but impossible to ship high-end household appliances across an ocean and make money. After all, a refrigerator is mostly a giant metal box filled with air.
It wouldn't be wise for the current leaders to be complacent, however. Many other U.S. manufacturing giants once believed American consumers would never dump their trusted brands for cheap, no-name imports from Asia. Only a generation ago, most TVs were built in the U.S. by American corporations. By 1987, however, only Zenith Electronics was left, and it was sold in 1995. The buyer? LG Electronics of Korea.
By Michael Arndt in Indianapolis
Edited by Beth Belton