Higher Ambitions: China Haier's Gambit to Invade American Homes

Updated on
  • Qingdao Haier offered $5.4 billion to buy GE Appliances
  • Company aims to become Apple of China, not GE, analyst says

When Haier Group set its sights on entering the U.S. market in 1999, it took a year before executives at the Chinese appliance maker secured a meeting with retailer Wal-Mart Stores Inc. to show off its air-conditioners.

Haier, which at the time made one out of every three refrigerators sold in China, held little appeal for American consumers wary about the Chinese brand’s quality and more comfortable with homegrown labels, according to a 2003 book “The Haier Way.”

Haier won’t need to wait that long again. Last week’s $5.4 billion deal to buy General Electric Co.’s appliance unit, second only to Whirlpool Corp. in the U.S., paves the way for the Chinese company to shed its image as a maker of cheap fridges and vault into the top echelon of high-end makers of Internet-connected kitchen products ranging from ovens to washers. 

“Haier will use this partnership with GE to transform itself -- maybe to start applying what it already does in China on a global scale,” said Torsten Stocker, a former partner at consulting firm A.T. Kearney’s consumer practice.

‘More Important’

Besides the purchase, Haier forged a "long-term strategic partnership” with Fairfield, Connecticut-based GE to jointly expand in high-tech manufacturing areas such as healthcare and the industrial Internet. According to Bill Fischer, a professor of management at the Lausanne-based IMD business school, that was Haier’s biggest coup.

“I believe that Haier sees the partnership as potentially more important than the acquisition itself,” said Fischer, who’s written a book about Haier’s transformation.

The tie-up between Haier and GE was discussed “at the senior-most level” of both companies and potential global projects that draw on each other’s expertise have been identified, a Haier spokesman said in an e-mail. A joint working group is being put together to narrow down details, according to the spokesman.

“The mention of other areas like healthcare is interesting as if you look at the whole picture of GE -- it’s a top healthcare equipment manufacturer globally, for example,” said Feng Zhang, consumer appliances analyst for Euromonitor International. “Consumer appliances have limited revenue compared to industry solutions.”  

For a start, taking over GE Appliances gives Haier ownership of the second-largest U.S. seller of major appliances such as refrigerators and dishwashers, according to Euromonitor International. That comes as growth at Haier’s Shanghai and Hong Kong-listed units have plateaued amid China’s slowing economy and weak property market, after posting years of soaring growth.

Shares of Haier Electronics Group Co., the company’s Hong-Kong listed subsidiary, fell 1 percent to HK$12.24 as of 10:53 a.m. local time. The benchmark Hang Seng index rose 1.1 percent. Shanghai-listed Qingdao Haier has been suspended since Oct. 16 pending a "significant acquisition".

Still, worldwide sales at Haier’s two listed units reached $25.2 billion in 2014, triple that of GE’s appliances and lightings unit. It’s a far cry from the company’s early days, when Haier tried to build a reputation as a company that responded quickly and creatively to the needs of neglected consumers.

Vegetable Washers

In the late 1990s, Haier executives designed a vegetable washer after noticing farmers clean their produce in washing machines, according to the website of the company based in the eastern coastal Qingdao city. It took a similar strategy for its first forays into the U.S. by churning out low-priced appliances such mini-fridges meant for college dorms, and smaller wine cellars used by city-dwellers.

Haier founder and Chairman Zhang Ruimin had bigger ambitions for American customers: establish a respected brand and break out of the low-cost game, according to a report by China Daily in 2012.

Under Zhang, who in 1984 took charge of a loss-making collectively-owned Qingdao refrigerator factory that became Haier, the company became the first from China to build a manufacturing facility in the U.S. in 2000. The company garnered accolades from the then-governor of South Carolina, where the factory was based, for helping counter the trend of off-shoring in American manufacturing jobs.

More recently, Haier’s innovations have included remote monitoring of appliances’ functions and allowing customers to customize the appliances that they buy, said Stocker, who started this month as chief operating officer of Singapore-based electronics distributor Thakral Corp.’s lifestyle division.

“It is under-appreciated in the U.S. how advanced Haier is in product and manufacturing quality and the extent to which they have integrated products with the Internet,” Shanghai-based Stocker said.

Despite Haier’s efforts to introduce consumers to its higher-end smart appliances such as a certified air-conditioner that works with Apple Inc. devices such as the iPhone and iPad, American consumers remained largely unmoved. Haier’s U.S. market share for consumer appliances has barely improved, from 0.7 percent in 2006 to 1.1 percent last year, according to Euromonitor.

Haier’s low U.S. penetration after 15 years is a major factor behind Haier’s bold bid for GE Appliances, said Euromonitor’s Zhang. “GE already has the brand name, loyal customer base and distribution network in the U.S.”

GE’s “Made-in-America” brand positions Haier well in the emerging markets of Asia-Pacific, Africa and the Middle East. Dishwashers, in which the U.S. manufacturer’s appliance unit has a foothold, is also the appliance segment projected to grow the fastest in the next five years, he said.

Haier can make use of GE Appliances’ cutting-edge technological standards to connect ordinary household appliances with smart-home systems, making breakthrough developments in smart appliances, the Chinese company said in an exchange filing.

Haier’s deal with GE comes amid a backdrop of intense consolidation in the global home appliances market, as companies attempt to boost their market shares, according to a 2014 report from consulting firm IHS Inc.

Important Buy

Recent deals include Whirlpool’s stakes acquisitions in Italy’s Indesit Co. and China’s Hefei Rongshida Sanyo Electric Co. Haier in 2012 bought control of New Zealand brand Fisher & Paykel Appliances Holdings Ltd., and had faced strong competition from rival Chinese manufacturer Midea Group Co. for GE Appliances. 

“This is a very important buy for Haier,” Xinyu Liao, a Shanghai-based analyst at UBS AG, said in a telephone interview. “If they didn’t get it, there’s not much left to buy.”

GE’s sale of its appliance unit comes as the manufacturer is itself attempting to position as a digitally savvy industrial manufacturer, by expanding a business providing data analytics capabilities for its heavy-duty equipment. The company earlier this month announced it would move its headquarters to Boston to bolster those plans.

Haier’s true aim is likely not in emulating the old GE, but to go for a less asset-heavy and nimbler strategy, where the company uses its assets as a “platform” to collaborate with others, much like how app programmers work with the iPhone and iPad, said IMD’s Fischer.

Chairman Zhang “has been speaking for the last several years of the strategic desirability of turning Haier into a ‘platform company,’” he said. “Haier is not interested in becoming the GE of China; they want to be the Apple of China.”