Haier aims for Europe and 'Made in China' upgrade

Chinese appliance and electronics giant Haier is aiming to expand into Europe with higher-end products, helping to upgrade China's reputation for churning out mostly cheap, low-quality goods.

However, experts say that even if Haier succeeds the country still has much to do before it emulates the transformation by neighbours Japan and South Korea over recent decades so that their top brands are now synonymous with class.

Haier already has the biggest share of the world's appliances and electronic goods market. Its revenues were 150.9 billion yuan ($23.7 billion) last year, giving it a 7.8 percent share of the global market in that sector.

But 70 percent of its sales were in Asia, where a low cost is often the key selling point. And it is now looking to take on competing brands such as South Korean giants Samsung and LG in becoming a household name in Europe.

To showcase its products and technology, the firm, which has 70,000 employees in 165 countries, recently invited European journalists to visit its headquarters and factories in the eastern port city of Qingdao.

Haier is seeking a five-percent market share for washing machines and refrigerators in Europe by 2015, up from three percent today.

To get this it needs to "develop products that speak to European tastes", said Rene Aubertin, who heads Haier's European office.

To help do this, he said the firm had opened up a research and development operation in Nuremberg, Germany.

Among the innovations Haier is hoping will attract European customers are fridges equipped with an external camera and tactile screen to record what goes on in the kitchen. The video can then be sent over e-mail.

Haier has also started to introduce European-standard sales and marketing techniques in China, so that the company is set for the new market, according to Yannig Gourmelon, a Shanghai-based business consultant with Roland Berger.

Gourmelon said one of these standards was a promise to deliver products in China within 24 hours of purchase.

He said Haier's business practices were already being noticed in Europe.

"Five or six years ago we knew nothing about Haier in Europe but today when I give a class (at the prestigious French Business School HEC), everyone knows what I'm talking about," Gourmelon said.

With China yet to develop consumer brands with reputations for making top-quality goods, Haier is still cautious of promoting the "Made in China" label.

"We never emphasise that point," said Li Pan, managing director of Haier's overseas division. But, he added: "We don't deny it. We don't believe 'Made in China' will bring any negative impact to our business."

Haier's rise to become a global player began from the ashes of a badly managed, state-run business in Qingdao that made fridges for the Chinese market in the dour mid-1980s.

The company says some of its success can be attributed to its philosophy of "innovate or die". Noticeboards in its headquarters proudly list the names of staff who have contributed fresh ideas to improve its products.

However, Michael Pettis, a professor at Peking University's Guanghua School of Management, said the Chinese economic system did not generally encourage such innovation.

Pettis said Chinese companies typically succeeded because they had good relations with government officials and could get favourable bank loans, not because they were great innovators.

"(In China) there are companies that have climbed up the value chain, but it's really been driven by cheap capital, not by innovation," Pettis said.

"Of course, every manager in the world will tell you that he wants to be innovative and move up the value chain and create higher value-added products, but not everybody does so."

Without the conditions that promote innovation, Chinese firms will continue to struggle in making higher-end products for the global market, according to Pettis.

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