For a 15-year-old, Haier India is already playing in the big league and giving some serious competition to established players.
Just like its bottom-mounted refrigerators, the company has turned the country’s consumer durable market upside down. In 2018, it clocked net sales worth Rs 3,500 crore to become the fourth-largest white goods company in India.
Globally, the Chinese multinational took the top position 10 years ago. According to Euromonitor, by 2014, Haier had the world’s largest share —10.2 percent — in the white-goods market, which it continues to dominate.
In India, the company’s immediate goal is to double sales in India and become a $1-billion company by the end of 2020, Haier India President Eric Braganza told Moneycontrol.
That would leapfrog Haier India ahead of Whirlpool and place it just behind LG and Samsung.So, what worked for Haier in India, a fiercely competitive market?
“It has not been an easy journey,” said Braganza as he talks about the about the company’s progress in Asia’s third-largest economy.
In India, Haier’s portfolio offering includes air conditioners, washing machines, water heaters, television sets and refrigerators.
Braganza took over in September 2009, five years after the company’s foray into India. Haier India’s turnover was just Rs 200 crore then.
The first thing it did when it came to India in January 2004 was to build a distribution network. Haier has 17,000 dealers, of which 2,000 were direct dealers and the rest were indirect dealers.
It has 38 offices, with a manufacturing unit on the outskirts of Pune. “But, we have reached the capacity limits at this location even earlier than we thought, and have now decided to open another unit in Noida, which will be significantly larger than the current one,” said Braganza.
The Pune facility produces refrigerators (0.5 million), air-conditioners (0.5 million), washing machines (0.5 million), TV sets (0.5 million) and water heaters (0.5 million).
The Noida plant will be much bigger– spread over 123 acres, with an investment outlay of around Rs 3,000 crore. It will produce a million additional units of each of the above products, and may even introduce new goods.
Haier India’s success is yet another chapter in the Chinese firm’s impressive turn around scripted by Zhang Ruimin, a young city manager who was handed over a bankrupt state enterprise in 1984.
Zhang inherited a debt of over ¥1.4 million, creaking infrastructure and poor management that cared little for quality. The company was making only 800 refrigerators a month when it got into a joint venture with a German refrigeration company, Liebherr.
German technology helped the Chinese company improve quality and management processes. Zhang saw sales grow from CNY 3.5 million in 1984 to CNY 40.5 billion in 2000. In 1988, the company came to be known as Haier (possibly because the last two Chinese characters of Liebherr were Haier) and was asked by the Qingdao government to take over other ailing appliance manufacturers. What followed was a series of acquisitions, which continue to date, at home and abroad, giving Haier a global play.
Quality, quality, quality
Another reason for Haier’s success is Zhang’s ruthless commitment to quality. He famously ordered his employees to take a sledgehammer to 76 refrigerators after a customer complained of poor quality. The message was clear – there was no place for shoddy work. And, it has served the company well.
In a price-sensitive market like India, it was critical to find the right price point. As one analyst said, the problem Haier faced was that it did not want to be known as a Chinese company, at least initially. It was because many people associated Chinese products with poor quality.
Haier had to change that perception.
It avoided advertising itself as a Chinese company. It settled for a price point that was a bit lower than that of the market leader but higher than those of the cheapest brands. Getting the pricing right was a key factor.
Adherence to quality has changed the way consumers view Haier.
‘Ulte ko Seedha’
The next step was to adopt the right strategy. It did that brilliantly with refrigerators. “We analysed how the traditional refrigerators are designed in a way where the less used freezer section is at the top and the more often used refrigerator section is at the bottom. Thus, every time the user needs to use the refrigerator section, they have to bend down to access it. Keeping this in mind, we launched a campaign focused on our bottom- mounted refrigerators on the narrative ‘Ulte ko Seedha’ in 2016,” said Braganza.
“We were the first-ever brand in the industry to introduce this range of bottom mounted refrigerators which helped in reducing bending of consumers by 90percent and enabled greater visibility of the refrigerator section with food items stored at the eye-level.”
It followed a similar strategy for other products –adding a feature or two that others didn’t have.
Take water heaters, for instance. Most brands offered to cope with a water pressure of 6 bar, Haier’s geysers worked well with 8 bar pressure levels. The heaters came with a 5-star energy efficiency rating, and also displayed the water temperature, a feature unique to Haier. And, the heaters were prices a tad lower than those of competitors. It appears to have worked well.
In an industry that rarely sees year-on-year growth of more than 10percent, Haier has been impressive. “We registered growth [rates] of around 50 percent and became one of the top five consumer durables brands in India. In 2018, we grew 71 percent in our overall refrigerator business and doubled our sales in the mid and high segment. In the washing machine segment, we grew 55 percent and in the air conditioner segment, we witnessed a growth of 40 percent. In our commercial AC business, we witnessed an equally impressive growth of 50 percent,” says Braganza.
Ears to the ground
The company’s management philosophy, drawn up by Zhang, is also unique.
“Haier’s Rendanheyi Model for management is based on creating a huge value of its services for customers, employees and enterprise and maintain the vitality of venture enterprises in the fast-paced age of the Internet,” said Braganza.
As part of the model, functioning enterprises are segregated into micro-enterprises. “These self-organizing micro-businesses act as separate entities, where the employees do not wait to hear from the boss, but rather listen to their valuable customers. The idea is to ensure that employees get ownership, decision-making rights and a customer-paid salary,” he said. “With such a working setup, they begin thinking like entrepreneurs. As a result, we have one of the lowest attrition rates in the country.”
According to a report by the Consumer Electronics and Appliances Manufacturers Association (CEAMA) and consultancy firm EY, India is expected to rank fifth in the world in the consumer durables market by 2025. “The Indian market for consumer electronics and appliances is around $9.7 billion and has grown at a CAGR of 9.7 percent over the 2010-2014 period and is poised to reach $20.6 billion by 2020,” it said.
But the consumer goods market in India has been witnessing a bit of froth, primarily due to two reasons. First, the middle class is growing, and so is its appetite for better consumer durables. Second, the market is underpenetrated, which suggests that the growth potential is tremendous.
That perhaps explains why others, like Haier, have come up with investment plans.
In July 2018, Samsung announced an investment of Rs 5,000 crore for expanding the capacity at its Noida plant. A month earlier, Bajaj Electricals had acquired Nirlep, a kitchenware manufacturing company for Rs 42.50 crore.
There are reports that Intex Technologies will invest around Rs 60 crore in technology software and Internet of Things startups to create an ecosystem for its consumer appliances and mobile devices.
Micromax plans to invest US$ 89.25 million by 2020 to transform into a consumer electronics company.
Panasonic has started its first refrigerator plant in India while Flipkart in October 2017 launched a private label, Marq, for large appliances.
British technology company Dyson will invest around Rs 1,300 crore in the Indian consumer durables sector by 2023.
The competition in the consumer goods segment is about to get fiercer and Haier is ready for it.