Online Extra: Haier's Aim: "Develop Our Brand Overseas"

The Chinese appliance maker's CEO explains its strategy to make itself known as a company that meets consumers' needs

Zhang Ruimin is CEO at Haier Group, one of China's most globally ambitious companies. Under the 54-year-old's tutelage, this appliance manufacturer has grown from its humble beginnings 18 years ago as a small refrigerator factory on China's eastern coast, to a $8.73 billion company, which recently became the No. 1 fridge maker worldwide.

Haier, which already has 13 overseas factories from the Philippines to Iran to Camden, S.C., is focusing on expanding it's U.S. sales which reached $250 million last year. BusinessWeek Beijing Bureau Chief Dexter Roberts met Zhang on Mar. 5 at company headquarters in Qingdao, Shandong. In an hour-plus interview, Zhang discussed Haier's international branding strategy. Following are edited excerpts:

Q: What's driving your company's overall development?

A:

After China's accession into the World Trading Organization, we are seeing many rivals from foreign countries entering the Chinese market, and most of these competitors are very internationalized companies. If a Chinese company wants to become internationalized, we must take this challenge from a foreign enterprise and convert it into an opportunity.

Haier has two methods. One is to convert the competition into a kind of cooperation. One good example is our cooperation with Japan's Sanyo. We are both able to make use of our mutual distribution channels to sell the opposite party's products. For example, we are selling our wine coolers and washing machines in Japan. And they are selling their batteries and other appliances in China.

The other way is to convert the conflict into a connection. An example is how we use the very mature logistics systems that Haier has here in China. Many international competitors after coming to China are interested in making use of our logistics systems to help them develop their business in the Chinese market. On the other hand, even as they make use of our logistics systems, this also helps us to strengthen our logistics and makes us stronger.

Q: Is Haier interested in investing in international companies?

A:

Last week an international consulting firm suggested we consider merging with a U.S. company. But our chance of acquiring this manufacturer is not that large. We feel our main objective in the American market is to build up our own brand name -- that is the Haier brand. But if we acquire this company, then we will have to use their brand name for a certain amount of time. And we will have to spend money to develop their brand. If we do not plan to use this brand name, this acquisition does not make any sense.

Q: What's the role of international advertising agencies in building up your company's brand?

A:

We feel that the precondition for any kind of effective advertising is that one must first have innovative products. If you do not have innovative products, the best ad agency won't help you. In all the different regions we do business, we first we must come up designs to differentiate our products from our competitors' products. Then after we have some innovative products, we will invite local ad agencies to do advertising that helps consumers understand the differences between our products and those of our competitors.

Usually, the ad agencies we use are very local companies. They understand the customs and habits of local customers. They can help convert the innovative ideas of our products into the appropriate local ideas that may attract that place's consumers. [However,] in the American market and European market we have cooperated with several international ad agencies.

Q: Can you explain what Haier's product-positioning strategy is?

A:

We have to understand the end needs of our consumers. Our product designers must go to the market to uncover the needs and demands of the consumers, then come back and design products. So the positioning strategy of Haier cannot simply be defined as aiming at the medium, low, or high end of a market. Our strategy is to satisfy our consumers as quickly as possible. We want consumers to feel that Haier is the one company that comes closest to satisfying their needs.

Q: Some analysts have suggested that Haier's strategy in the U.S. market is one of initially focusing on the low end of the market -- for example with your successful sales of inexpensive compact refrigerators --then moving to higher-end products. What's your response?

A:

The strategy we are using in the U.S. is to build up [consumer] awareness. And we want to make consumers feel our brand meets their needs. So our strategy has focused on developing innovative products. For example, we chose the dormitory refrigerator not because the product is cheap, but because we feel dormitory refrigerators can satisfy the needs of American college students. So we designed this product for that group of consumers. The design was innovative and different from our competitors, so our compact refrigerators have been able to outsell similar products made by our competitors.

Now we are moving into higher-end refrigerators. So you can say we first have focused on the low end, and now we are moving into the medium end and later we will move into the higher end. But here we are just utilizing product-differentiation strategies to move effectively into the U.S. market.

Q: Some analysts have questioned your strategy of focusing on developed markets like Europe and the U.S. Why is Haier making this aggressive move into developed countries?

A:

Our development strategy is to explore the difficult markets first and then go into the easier markets. So our first efforts were to explore the European and American markets rather than the developing countries. There is still a very large distance between a Chinese enterprise and a European, American, or Japanese enterprise.

Like most Chinese companies, at Haier we began by using foreign technology in our products. So many of us in China still have what I consider a mental impediment. That is, we feel it is very hard to go directly to developed markets and fight face-to-face with more advanced competitors. So most Chinese companies tend to go to the easy markets -- the developing countries -- first. Their objectives there are to both build up exports and to earn foreign currency.

But at Haier, our objective is not just to earn hard currency but also to build up our company's brand awareness and recognition. And in order to enter developed countries, our products have to pass through a very stringent certification process. Usually this process takes almost one year. And once you enter the market, often people will feel that products from China are just cheap junk. So in order to sell our goods at a decent price, we must regularly increase our quality. This puts pressure on Haier. But this pressure also helps us improve and build up our brand reputation in a country.

There is a Chinese saying: "If one wants to improve one's chess skills, then one must play with the top players." Currently, the exports of China are growing very fast, but most of this is products with foreign brand names. We want to develop our brand overseas. And we feel that building up a good brand reputation is one of the most valuable things for a company to accomplish.

Q: In building your brand, how important is it to develop strong relationships with international retailers?

A:

Take the U.S. At this point, we already have relationships with the top 10 largest chain stores. But instead of only managing relations with our [retailers], we feel the most important thing for Haier is to help [them] make money. Instead of just building good relations, we intend to help the retailers identify who are their target consumer groups.

Different chain stores have different consumers. Some of them target a lower-end consumer -- one example of that is Wal-Mart. Others target a higher-end consumer -- like Sears. So we have to help our retailers by developing products that meet their specific needs. This is the most important task.

Q: What are the biggest challenges facing Chinese companies as they build their brands internationally?

A:

The most difficult thing is to get consumers to acknowledge the value of the brand. In the U.S. market, there are many mature brand names such as Maytag, Whirlpool, and G.E. People feel that those are the most trusted brand names. It is also the same in the European market. There it is Bosch and Siemens that are most trusted. Most of these brand names have been in existence for more than 100 years. But Haier has a history of only 10-plus years. And it has only been a few years since Haier first moved into these overseas markets. So this is a major challenge we must overcome.

Also key to strengthening Haier's brand name is our speed and our ability to differentiate ourselves from our competitors. While other companies may also recognize a consumer's needs, they may not be able to convert this knowledge into real products in a timely enough fashion. At Haier, we can convert ideas into products in a very short time. This is especially after our recent business-process reengineering. Secondly, our products must not appear similar to any other company's products. We must develop products that clearly differentiate us from all of our competitors.

Another challenge unique to China is we have started our brand development very late. So we have to catch up in a very short period of time. I will give you an analogy: It's like constructing a 10-story building. Our foreign competitors have already finished all the way up to the ninth floor. The Chinese market is their 10th floor. Once they have moved successfully into the China market, they will be finished with building this highrise. But in China, we have only built the first floor. There are still nine floors to be built.

So in order to catch up, and eventually overtake them, we must move faster than other companies. Even Korean companies have a much longer history than us. Take Samsung -- it started its business in the 1930s. So this challenge of brand building is unique to Chinese enterprises.

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