Zhang Ruimin, the chief executive of one of China's largest
appliance makers, has a plan to build a signature, $2,000 refrigerator in
America to capture a bigger slice of the lucrative U.S. market. Mr. Zhang's
strategy brought Haier Group closer to its potential customers and avoided the
cost of shipping bulky appliances from China. But since it was introduced last
year, the new high-end refrigerator has been given a cool reception.
One of China's
biggest consumer brands, Haier makes more than twice the number of
refrigerators in a year made by Whirlpool Corp. Even though it is the leading
seller of compact fridges used in dorm rooms, it is still a mere pipsqueak in
the $40 billion U.S. market, where it has been selling mostly lower-cost
appliances for years.
Growth overseas is
crucial for Haier because profit margins from the company's core products in
China — refrigerators and washing machines — are razor-thin thanks to increasing
foreign competition. That pressure has increased since 2004, when Haier made an
unsuccessful attempt to buy Maytag Corp., losing out to Whirlpool.
Haier's rigid,
top-down management structure fell flat with American workers accustomed to a
less-authoritarian style. By 1999, Haier had become a colossus in China,
probably the single best-known appliance brand in the country. It had a
reputation for good quality, and surveys of recent college graduates
consistently ranked Haier as one of China's most desirable employers. But
profit margins were falling, prompting Mr. Zhang to search for growth abroad.
"Haier is at a
crossroads" as it attempts to build a dynamic company out of a
bureaucratic, formerly state-owned enterprise, said Teng Bingsheng, a professor
at the Beijing-based Cheung Kong Graduate School of Business.
Haier's head of its
U.S. division, Michael Jemal, acknowledged that the economic downturn has hurt
business, but said in an email that U.S. sales have increased year-to-year in
all areas. But Haier's U.S. factory in Camden, South Carolina is still running
at a loss. Having higher-cost overseas operations to manage has weighed on
profit growth. According to unaudited figures from China's Ministry of
Information, Haier's 2006 gross profit was $20.3 million, a 32% drop compared
with four years ago.
Haier's washing
machine without an agitator — which makes for larger loads and gentler washing
— is 40% cheaper than a similar Whirlpool model. But with the slump in the
U.S. housing market, Haier's "timing is tough," says Mr. Torgerson.
Undeterred, Mr. Zhang
says he wants to add 10 more overseas plants by 2010. Those who don't become
global players "won't survive," he says.
Source: Fong, Mei, “Chinese
Refrigerator Maker Finds U.S. Chill,” Wall
Street Journal, March 18, 2008.