Is Haier Looking to go Higher?

Wednesday, December 27, 2006 2:35
Comments Off on Is Haier Looking to go Higher?

There have been a couple of rumors related to Haier lately, and while in the 3rd city of my 12 day U.S. tour, I began to wonder…. is Haier looking to go higher?

According to a Wikipedia page, Haier currently has:

  • 12 billion in sales for 2005
  • Manufacturing in China (Qingdao), U.S. (Camden, SC), E.U. (Italy) and in Africa (Tunisia, Nigeria, Egypt, Algeria, and South Africa)

As recently reported in the Shanghai Daily, Xinhua, and others, Haier is looking at a 10% stake in Founder Technology (China’s 2nd largest computer manufacturer). Of course, Founder denies any knowledge or interest in such a deal “at this time”.

For those outside China, this may not mean much at first. After all, Founder is not selling computers into the U.S. or E.U. markets, and it is probably not big enough to pull off a globally branded acquisition like Lenovo.

For Haier though, Founder could present an opening to significantly increase their product portfolio, their brand equity, the capacity of their logistics network, and ultimately their global position. Haier has previously already competed to take Maytag off the market, but lost to Whirlpool in a deal that many believe was more about politics than economics.

Product Portfolio/ Sales Side Benefits:
As the 3rd largest white goods manufacturer in the world, Haier already has established itself globally as a leading manufacturer of refrigerators and A/C units, and is one of China’s few recognizable global brands (WSJ subscription needed). Following and through this success has come a brand image for quality products that has been able to compete with Whirpool or Maytag, and while they have yet to move into direct competition for the larger units, they have been very successful in smaller units.

To add another “white good”, or at the very least another high value item, to the product portfolio, Haeir could further build their brand, and Founder would only stand to benefit from the association.

Of course, the products would have to perform would have to perform, and in order to make real gains the products would need to improve and leverage the tangible assets of the relationship to grow geographically.

With Legend and Founder already controlling a significant portion of the market, the investment in Founder would look to further reduce the market shares of the 2nd and 3rd tier OEMs in China. In addition, as rumors of Gateway and other 2nd tier foreign manufacturers entering China is occurring, this investment would be a significant barrier to entry for them as well.

Operational Benefits:
Where the Legend deal is interesting from an operations perspective is that Haier will be able to build out and increase efficiency within their own network to drive down over all logistics, warehousing, and other transportation related costs.

To support their operations, Haier has already built one of China’s strongest logistics networks (2000 employees, 42 offices through 7 DCs) , & 500+ trucks) that is able to cover the majority of China in ways that only china post is able to. It is so strong that several foreign logistics firms have looked to take partial/ full ownership, and others are still working to convince HAier to spin the unit out of the group.

Not solely reliant upon in-house assets, Haier has also developed the relationships to deliver their products in areas not covered by their own network, and unlike many foreign manufacturers, Haier is able to move in mass.All of this is supported by an in-house tracking system (WMS, TMS, & IMS).

By adding Legend to the Group, Haier would be able to increase warehouse space, trucking lanes, and support a more efficient supply chain overall

Wrap-Up:
While only a “rumor” at this point, this potential deal has shown that in China there are some interesting possibilities and unexpected advantages to cross-industry consolidations. It is the next step for the larger companies who have already acquired locally/ regionally and are looking to move internationally.

For Haier, the international move has already been made, and this “deal” will result in both savings for Haier and increased sales for Founder as relationships and networks are fully leveraged to the benefit of the group. This is a model that will become a familiar one as it provides benefit to both groups on an international stage, and it is a model that others will follow.

Where acquisitions or mergers in the U.S. tend to follow industry, and often times vertical, in China there are many other variations that are considered… and Haier’s interest in taking Founder to the next level is just the first of many.

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