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Economic Analysis: Haier Group Corporation

Free «Economic Analysis: Haier Group Corporation» Essay Sample

While many Chinese companies have folded their operations due to an array of factors, some have determined to expand internationally. Haier Group Corporation is an example of successful Chinese organizations, as it has managed to carve a niche for itself with its quality white goods. Remarkably, Haier stands some notches higher than certain reputable Western ventures as a result of its product research and development. Haier was created by Zhang Ruimin from a failing government refrigeration company, which transformed into one of the greatest manufacturers, designers and suppliers of household appliances. Nevertheless, there are numerous chances of expansion for Haier’s different products. An in-depth analysis of the corporation’s current market environment shows that although the demand for white goods may have peaked in China, there exists untapped potential for growth in such regions as Africa, parts of Europe and America since there is still a high demand for white goods and the ease of entry into the market by new companies is relatively low.

Company Background

Haier Group Corporation is one of the most reputable producers and suppliers of consumer electronics and general home appliances, namely mobile phones, refrigerators, microwaves, televisions, dishwashers, and air conditioners among others (Haier, 2015). The company has its headquarters at Qingdao in China. Having been in business for 33 years, the firm designs, develops, produces, assembles, and supplies home appliances and consumer electronics to the global market. As such, in 2014, the organization had a 10.2% share in white goods (Crainer, 2015). Today, to guarantee quality and penetrate an even wider market, Haier engages in technical research, invests in the development of new products, and increasingly focuses on global expansion. Currently, the company can enter into other international markets and advance by introducing smaller Chinese products in addition to its present American-style white goods.

Market Environment Analysis

An analysis of the market environment shows many expansion and growth opportunities for Haier. The company’s main competitors are GE appliances, Electrolux, Whirlpool, LG, German Bosch and Siemens. Each of these ventures has been spread globally hence becoming a major source of competition to Haier. In the US, for example, Whirlpool has a market share of 37.8%, Electrolux has a 20.6% market share whereas LG has 5.1% (Chang, 2016). The presence of these firms that undeniably offer equally high-quality white goods means that consumers can buy the products of other manufacturers if they fail to get a good deal in one company.

On the ease of entry, the industry requires a huge capital outlay for investing in buildings, machinery, remunerate the workers and meet other financial needs. Haier’s revenue in 2016 was 29.2 billion (Haier, 2015). Thus, this reveals that it can afford the capital to invest in new markets. Entry is also hard due to technological needs, namely, the need for product differentiation and tougher government regulations (Crainer, 2015). The entry threat is also low, as many corporations dealing with white goods zealously protect their key technologies. Therefore, they are inimitable and cannot be easily replicated by others. Nevertheless, exit from the market is not easy. It is made particularly hard by the highly specialized assets that are difficult to dispose or reposition and other costs such as write-offs and closing costs. Furthermore, it is more complicated to exit this market as a result of having interrelated businesses that make it imprudent to sell some divisions.

With regard to the market demand, the home appliances industry, which combines electrical and mechanical devices required in the household is currently a multi-billion industry. It has been forecasted that the industry will generate a combined volume of more than $590 billion by 2020 (Hagerty, 2015). Additionally, the future will provide an opportunity through an increased preference for smaller-sized appliances. Hagerty (2015) notes that in 40 years, the construction of smaller spaces will be at its highest rate in the US; therefore, Haier will offer its services to young novice homeowners and freelance workers. Moreover, the demand is high as people in African and other European countries gradually shift towards more modernized ways of handling tasks. The supply, however, is not readily available due to the huge capital investments needed to launch such businesses (Suo & Bardhan, 2013). Hence, the fact that China is a point of supply for components is an advantage to Haier.

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Pricing is imperative in international ventures. Thus, the buyers, particularly in the US, have little potential to dictate the pricing, as their number is substantial (Hagerty, 2015). If the quantity of consumers were restricted, the ease of determining the prices would have been quite high. Additionally, the pricing may be determined by the worth of competitors’ products. Haier, therefore, has limited ability to influence the pricing. The outsourcing of services to manufacturers reduced the production costs in the industry, improved flexibility, and restructured the production process in the white goods industry. Unlike some of its rivals who have to ship the essential components from China and Japan, Haier has the upper hand as it manufactures most of the elements in its home country, namely China. Besides, Haier can lower production costs by developing and implementing new technologies.

Lastly, concerning the distribution needs, the satisfaction of customers lies greatly in a company’s supply chain efficiency. Today, most corporations in the industry have drastically reduced the order cycle-time through random-access portfolio storage, projecting and collaborative planning. Consumers of the white goods require a prompt response and quick delivery. As such, outlet channels and individual stores helped meet the distribution needs. However, with technology’s permeation, clients can order their products online and have them delivered to their doorsteps. Haier already has a very responsive website that handles the distribution needs of the customers. Furthermore, the firm provides after-sale-services to maintain their loyalty. Haier products are conveniently available in retail stores for the ease of accessibility.

Recommendations

With its current success and the increasing demand for home and electrical appliances, Haier shod consider expanding to Africa, some parts of America, and different European countries. The lifestyles and routines of consumers are gradually shifting, and people are presenting more demands. As such, they have little time or even the willingness to spend their money on, for example, cleaning services, but clients are still keen on maintaining high levels of hygiene (Crainer, 2015). Therefore, there is a ready market that will keep growing; hence, the corporation should consider expanding into other areas.

Moreover, Haier can capitalize on the production of small-sized items, as their demand may be high in the future. The exit may not be advisable as the company is currently in its expansion phase. Furthermore, it has currently invested too much making it relatively hard to exit the market. The potential for change in their product exists, albeit to a small extent. However, instead of changing their goods entirely, Haier can introduce new manufactured items to the market, including a wide range of smartphones and laptops as well as some environmentally friendly products (Li, 2017). It can also make profit from designing smaller gadgets and appliances without necessarily Americanizing them.

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Regarding location, Haier can establish offices in each region where it expands. However, the main headquarters should remain in China. Additionally, it is recommended that Haier maintain its supply in China to capitalize on costs. Most countries have stringent production laws; hence, Haier may find it challenging to create supply bases in new countries. It may be expensive to buy its components in the states where it will develop its business, as the host suppliers may have the upper hand in pricing. Lastly, Haier has increased chances of building a new customer base by venturing into new markets. It can also develop new products for its existing customer base.

Conclusion

In conclusion, Hair Group Corporation has gradually grown to expand and carve a niche for itself in the white goods industry. Nonetheless, this growth has not happened overnight. The company is a good example of what a series of small but well-calculated efforts can achieve. An in-depth analysis shows that there exists the potential for advancement for Haier as the demand for white goods is expected to keep increasing. Additionally, expansion opportunities will be provided to Haier, if it introduces new products to its existing markets and explores new markets to supply its products. Haier should also take advantage of the fact that entry into the new market is quite hard for new businesses. Since it already has the huge capital outlay and a globally recognized brand name, Haier can expand into untapped markets in America, Europe and Africa.

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