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Discuss the process of Haier's diversification strategy from single dominant business
to a diversified portfolio. What do you think were the reasons behind this
diversification strategy?
Haier decided to delay diversification until they became a first class brand in the
Refrigerator segment in their domestic market (China), so that when they diversify,
their reputation that they have earned would enable them to reach out to the
customers and connect with them better. Also, by this time, they would have
achieved a fairly large enough scale so that they would be able to exploit their
learnings and apply them for other products.
As mentioned in the case, during this time, the general perception amongst the
Chinese consumers was that Chinese companies were not capable of providing
quality products. Thus Mr.Zhang decided to focus on the quality aspect in the initial
stages itself. By focusing only on Refrigerators, they quickly made manufacturing of
quality, a core competence which became a source of sustained competitive
advantage that they could exploit after diversification.
According to the case, Haiers diversification strategy was mainly by acquiring firms
that have markets and good products, but bad management. This strategy ensured
that they were acquiring firms who had fairly competent technical employees who
were not being utilized properly by their management. Thus, Haier, by utilizing the
experience of these employees and by coupling it with their managerial excellence
and quality control, could quickly turnaround loss making firms into profitable firms
at the same, improving their product offerings and brand reputation.
We see from the case that Haier first acquired an Air Condition factory and a Freezer
factory and then later acquired Red Star washing machine Company, a television
company and then a telecommunications equipment manufacturer. This also meant
that they moved gradually from one product offering to another (in terms of
technology that is common between two successive product).
accentuated by the story of the Chu Xiaoming, a taxi driver. They were also ranked
as the number one firm in After sales service.
c. local distribution: Haier logistics was a pioneer in the field of logistics in China.
They developed an extensive distribution system that could serve the entire product
group. Establishing a network of this scale was a complex issue, and this was a
source of advantage of Haier. Also, by developing this network, they were able to
serve the tier 2 and tier 3 centers also.