Case Study haier-logo
Financial and Strategic Analysis for Haier

Identify a company to research. This will be quoted on the local (country) stock exchange, one that you can use for the examination and one that has accessible records for you to analyse.

  1. The company selected is Haier.

 

Secure a copy of the external accounts and commence an analysis of these.

The various important financial ratios of Haier is calculated as follow:

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Research the stock exchange of the country concerned with respect to its efficiency and background.

  1. Haier is listed in Hong Kong Stock Exchange.
  2. The Hong Kong Stock Exchange is the stock exchange of Hong Kong. It is Asia’s second largest stock exchange in terms of market capitalization, behind the Tokyo Stock Exchange.
  3. Hong Kong Stock Exchange is highly liquid. It is a reputable market as well.

 

Track the share price and commence wider research into the company in terms of its products, sectors, SWOT, PESTLE, recent history, competitors etc. (9.3.2011). Consider Michael Porters work on competitive forces and investigate the potential for this analysis. Research the past history of the company and relate recent price changes to past events, especially the last 2 years (ongoing)

Track the Share Prices:

  1. Since January 2009, the share prices of Haier had performed very well.
  2. The share prices performance is largely due to successful international expansion of Haier products and operations to other countries around the world.

haoer-chart

 

Recent History of Haier:

  1. A review of the success stories of Haier shows that it go through three stages of development. The three stages include:
    1. First Stage of Haier’s Development: Branding Strategies
      1. The company has only a single product: refrigerator.
      2. The company employed Total Quality Management System with rigorous standards in the operational and manufacturing process; and able to produce high quality refrigerators that are widely recognized in the marketplace.
  • The company successfully position itself as provider of higher quality products with cheaper price than the competitors. Soon, the company establish strong brand name in China.
  1. Second Stage of Hair’s Development: Diversification Strategy
    1. The second stage of development of the company is to capitalize on the reputation of its quality products, to pursue a product diversification strategy in the domestic market of China.
    2. The company soon began to sell freezers, dishwashers, and microwaves.
  2. Third Stage of Haier’s Development: Internationalisation Strategy
    1. The company embarked on a new expansion strategy, to continuously transfer its brand name to the international arena, to both developing and developed countries around the world.

 

Products of the Company:

  1. Refrigerators, washing machine, and water heater are three main products of the company. Besides, the company does have production for other consumer electrical products such as television, fan, air conditioners, and any other products categorized under the white goods home appliances category.

 

Sectors of the Company:

  1. The company operates in consumer electrical sector. More specifically, the company is operating in the white goods home appliances sector.

 

Competitors of Haier:

  1. Sony, General Electric, Toshiba, National, LG, Samsung, Panasonic, Sanyo and any other competitors in the consumer electronics segment/ industry.

 

PESTLE Analysis for Haier:

  1. Political Factors:
    1. Generally speaking, political situation around the world is improving.
    2. Although there are some negative issues on political landscape of China, that is not some serious for Haier.
  2. Economic Factors:
    1. The economy of emerging country (e.g., BRICS) is growing fast. Of these, it is expected the economy of China has bright prospects. Due to economy growth, people have better purchasing power and more willing to spend for better standard of living. Such a trend favors Haier.
    2. Economy outlook in western country is less promising. Unemployment rate is high, and the budget deficits of many developed countries are worrying. This may affect profitability of Haier in these countries.
    3. The labor costs in China are rising. This is negative news for Haier.
  3. Social Factors:
    1. Populations in developed countries are aging. These people required different products.
    2. The living standards of people are improving. People place more focus on lifestyles.
    3. People have busy working hours today. They need advance technologies and electrical products to ease their work at home (e.g., cleaning the floor, washing clothes and etc.).
  4. Technological Factors:
    1. Technological changes are fast. Energy savings or efficient technologies are crucial for Haier and any other consumer products manufacturers in the future.
    2. The proliferations of information technology give rise to internet and social media marketing. Haier shall take serious effort to market its products in the market space!
  5. Environmental Factors:
    1. Global warming and CO2 emission are serious issues today. Consumers are becoming more environmentally conscious.
    2. Green products and technologies are expected to be in great demand in the future. Consumers will support green products more in the future.
  6. Legal Factors:
    1. Depending on where Haier conduct its business, the company should aware of the differences between regulatory rules and business laws among the countries.

 

SWOT Analysis for Haier:

  1. Strengths:
    1. Good reputation in China.
    2. Strong competitive advantages: excellent quality at below average price.
    3. Low cost leadership.
    4. Strong leadership by the founder.
    5. Ability to adapt to local context in market expansion in the international arena.
  2. Weaknesses:
    1. Still a new brand in the international context.
    2. Brand name may be hurt by unethical products produced by other irresponsible Chinese companies.
  3. Opportunities:
    1. Rising living standards and purchasing power of people around the world – particularly among people in the emerging countries.
    2. Aging population in developed countries – they need different products.
    3. People are getting used to purchase online. There are great opportunities from social media marketing and digital/ internet marketing.
  4. Threats:
    1. Gloomy economy outlook in developed countries, particularly in the US and certain countries in Europe.
    2. Increasingly competitive business/ industry landscape. Intense rivalry among existing competitors.
    3. Rise of labor costs and huge inflationary pressure in China. Besides, commodity prices have been increasing in the recent years – that will hurt the profit margins of Haier.

 

Porter Five Forces Analysis for Haier:

  1. Rivalry among existing competitors: HIGH
    1. The competition between Haier Group and all of the other competitors are intense.
    2. Competitors are constantly innovating to design products with more features and benefits to the customers. Failure to innovate will cause corporate failure.
  2. Threats of new entrants: MODERATE
    1. Threats of new entrants are serious issues in China.
    2. However, very few of the new entrants are able to survive in the long term, as the competition is very intense.
  3. Threats of substitute’s products: MODERATE
    1. Competitors try to innovate for better substitutes.
    2. Products are designed to be comprehensive and have all necessary function. Developments of all-in-one products are the future trend.
  4. Bargaining power of suppliers: MODERATE
    1. The bargaining power of suppliers of Haier Group is getting stronger and stronger.
    2. Haier is able to grow at a faster pace than those suppliers and the threats of increasing bargaining power of suppliers are mitigated significantly. Currently, Haier has more bargaining power in dealing with the various suppliers.
  5. Bargaining power of customers: HIGH
    1. As the prices of the general electrical appliances have been going down, customers have more choices.
    2. Customers face little/ no switching costs to use competitors’ products.
    3. It can be expect that the customers will continuously have much bargaining power as the competitions among the industry players increase.

 

Importance and Benefits of Porter Five Forces Framework:

  1. Enable management to understand industry structure.
  2. Importance to formulate the strategic directions of a company.
  3. Can be combined with other framework to understand the external environment.
  4. Useful in assisting companies to define their respective competitive advantages in the marketplace.
  5. Force management to think deeply on the industry structure and landscape.

 

Reflect on the future for this company and make, reasonable predictions concerning its future (ongoing).

The company is a fast growing international business. The brand name is gaining recognition by people in other people around the world. Given that the company able to achieve great successes in China (i.e., a remarkably challenging and competitive business environment), it is expected that the company able to penetrate the market of foreign countries relatively easily. Besides, considering that the products quality of Haier is outstanding, and yet the products are sold at highly competitive (i.e., products are priced lower than the major competitors), it is reasonable to expect that people will soon realize the fantastic value offering by Haier. Thus, it can be predicted that Haier will grow fast via market penetration strategies. Then, the company will switch to product development strategies to enlarge product portfolio for further growth and profitability.

 

Summarize and explain the international influences on this company (ongoing).

The increasingly globalized worlds put pressure towards Haier on several factors as follow:

  1. Adoption of more globally accepted financial reporting standards.
  2. Exercise CSR in the global context. Engage in green and sustainability growth and corporate development.
  3. Think global, and yet operate and act according to local context (in the international expansion process).
  4. Conform to international standards in products design and value delivery process.
  5. Partners with other multinational companies for growth and formation of strategic alliances to compete more effectively in the global context.

 

As part of your accounts analysis be prepared to compare (benchmark) with others. This can be done by swapping research with others in the group.

Haier stock prices performance outperforms all of the stock market indexes around the world (in the past 2 years). Generally speaking, the company is a fast growing international company with many success stories in other countries around the world.

 

 

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