Reasons Why Haier Expanded Production in the United States - Case Study Example

Haier Group It is the wish of any company to grow and expand its market share. Being dominant in the market offers unmatched advantages. For example, the company can control the price, since it serves the largest number of customers. Another advantage that cannot go unmentioned is the economies of scale, provided by the ability to produce and sell in bulk. Globalization has provided the window of opportunity for companies to expand their markets regarding numbers and region (Childress, 2016). Importantly, globalization enables for easier transfer of technology thus enabling a company to innovate and stay ahead of the competitor. However, in all its expansion drive, firms have one thing in mind, to meet the demands of the customers better than the competitors can do (Calabrese et al., 2015). One such company that has been able to expand from being small to a market leader is Haier. Heir is a privately owned Chinese home appliances manufacturing company. The company has grown its sales volumes from lows of $ 300000 in 1986 to over $ 30 billion in 2016 (Mohammed, 2016). The paper will analyze the success story of Heir group. Question #1 Reasons Why Haier Expanded Production in the United States The inclusion of the China in free trade zone with the United States provided a good political environment for the company to expand. Furthermore, the Chinese government saw the need for its local businesses to get international exposure and therefore encouraged them to expand into foreign markets. The social factors, the America population has a higher concentration of per capita income compared to the Chinese (Ch & Himpel, 2013). In fact, the top companies in this industry make majority of their sales in the American market. Therefore, expanding to this market was the natural thing the company had to do to gain global reputation. In other words, it is a form of benchmarking, assessing the performance of the toughest competitors and best-known brands of Whirlpool, AB Electrolux among others (Mohammed, 2016). Mainly, the Americans have higher disposable incomes compared to the Chinese. Therefore, they could buy more and at better prices. The success story of the Haier can majorly be attributed to the adoption of the technology and innovation. For example, upon entering the American markets, customers overlooked its products for well-known brands from Whirlpool and AB Electrolux. However, the company invested in the Research and Development and came up with innovative refrigeration designs that were fitted with convertible tables for students (Birnik & Bowman, 2007). Furthermore, the hiring of the Americans allowed the company to gain a competent human resource that introduced new technologies helping the company to stay on par with the competitors. Question #2: Porters Analysis of the U.S White Goods Supplier’s power. The major suppliers of the white goods market in the United States are Whirlpool which controls about 53% of the market (Mohammed, 2016). In addition, it dominates the supply channels such as the Walmart, Sears, and Lowe’s. The dominance in the market gives Whirlpool the power to control the prices of the goods or their quality. For example, some of its popular brands are Maytag, KitchenAid among others (Mohammed, 2016). The company can exert the pressure on the price of such favorite brands. Another leader in the United States market for white goods is AB Electrolux, The company controls about 23% of the market and equally can exert the price and Customers’ powers. The United States consumers have become accustomed to products from AB Electrolux, Whirlpool, and GE appliances. However, the United States market is large, estimated at over 300 million consumers. Therefore, no one supplier can ultimately control the quality and price when there are other suppliers. Therefore, even the market leaders must remain within the price range of the customers and maintain the best quality to attract buyers. Threats of new entrants: Like mentioned, the United States white goods market has been dominated by Whirlpool, AB Electrolux, and GE Appliances. Free trade and globalization have allowed for the faster transfer of technology and the expansion drive of many companies. Consequently, in the recent past, the United States market has seen new entrants such as LG electronics that is consistently gaining market by providing high-quality products to the consumers. Another entrant is Haier that has is already expanding its production capacity in the South Carolina signifying its growth forecasts in the North America (Mohammed, 2016). Another major entrant in the market in the recent past is the Samsung, another South Korean firm. The arrival of these new companies is threatening the survival of the traditional suppliers by providing products of higher quality and at lower prices. Rivalry among competitors: the intensity of the rivalry among the major suppliers of the white goods market in the United States is large. By all consideration, every company wants to take the lead as the largest provider (Marie, 2015). The competition for the acquisition of GE appliances between the Haier and AB Electrolux speaks to this rivalry. Furthermore, AB Electrolux and Whirlpool are in a race to be the dominant suppliers in the market. Threats of substitutes: The new entrants have introduced another form of competition in the form of innovative products. Consider, for example, LG internet refrigerators or the Haier convertible ones. The customers will, of course, prefer these substitutes and this poses a great danger to the market leaders, Whirlpool and AB Electrolux (Mohammed, 2016). Question #3: Why Haier Bough GE Appliances And What GE Employees Can Expect From New Employer. The driving force of the Haier in the acquisition of GE Appliances was to expand its market share in the United States. Increasing its share will enable it to compete more comfortably with the leaders such as Whirlpool. Furthermore, such an acquisition allows Haier to reach customers better using the distribution channels (marketing network) established by GE Appliances (Mohammed, 2016). The second reason that could have motivated Haier to acquire GE Appliances is the need to access technology. The GE products mainly served the high-end market that demands high quality. The achievement of the quality requires utilization of the best technologies available. The acquisition also enables Haier to utilize the current production facilities and resources better and thus improve its output. The new employees can expect a reorganization of the management. One approach that has made Haier successful is the ability to decentralize its management giving the employees the responsibility of making decisions. Therefore, compensation or the wages are determined by the customer satisfaction, any form of satisfaction attract a bonus from the company which is desirable to the employees. Therefore, the employees can expect less supervision but more scrutiny in the values they are bringing to the enterprise. The organizational cultures that Haier will face are about the production and distribution management. For example, Haier adopts a zero distance production paradigm which allows for a transition from mass manufacturing to customization. The advantage of this model is the reduction in the cost of the inventory and the ability to serve the customer faster. Furthermore, it allows for adaptability in meeting the needs of the client (Ruimin, 2015). GE Appliances involved stocking the raw materials and finished products which ultimately increased the inventory costs. The company will overcome the challenges of continuous integration of the two production process, for example, by exhausting the current stock of GE Appliances before resuming work on new orders. Question #4: Strategic Implications of Chinese Multinationals The rising Chinese multinationals are of strategic importance first because of the ability to control key consumer markets and gain an international reputation. The status makes the products of the company for appealing to more consumers as opposed to when they originated from China (Tang & Zimmerman, 2013). Furthermore, such reputations help the company to beat the country of origin stigma. The strategy is also aimed at maintaining profitability in the face of the slowdown in the Chinese economy. Question #5: How Success in the United States Will Support Growth to Other Markets The success of the acquisition in the United States may inspire the company to make further acquisitions in Europe. Notably, the acquisition allows the company to use the distribution channels of GE Appliances in Europe, and this will make it easy for the company to venture into this market, where it may make further acquisitions to expand its market share (Opata, 2015). The success also makes the investors more confident in the company. Therefore, it may consider issuing IPOs to support its expansion drive. In conclusion, the success story of the Haier can be attributed to its adaptability and innovation. For example, it adapted quickly to the demands of the American market. In addition, its efficient production process such as zero distance enable it to cut cost and offer goods at a cheaper price. The acquisition of GE Appliances will see the company continue to grow. 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