HAIER Case Study Report: Challenges Faced by MNEs in FDI and Global Strategy Adopted

This case study report discusses the challenges faced by MNEs in FDI and the global strategy adopted by HAIER, the largest producer of white goods in the world. It highlights the major challenges faced by HAIER in the USA and the innovative solutions provided by the company. The report also discusses the CAGE problems and the different types of challenges faced by the organization while operating in markets outside the country.

Running head: ASIA PACIFIC BUSINESS PERSPECTIVE
HAIER case study report
Name of the student
Name of the university
Author Note:

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Table of Contents
Introduction......................................................................................................................................3
HAIER as a producer of White goods.............................................................................................4
Major Challenges faced in USA......................................................................................................5
Does MNE’s usually face such challenges in FDI..........................................................................6
CAGE Problems..............................................................................................................................8
Global Strategy Adopted by HAIER to adapt to the problems.....................................................10
Exporting...................................................................................................................................11
Foreign Direct investment (FDI)...............................................................................................12
Conclusion.....................................................................................................................................13
Recommendation...........................................................................................................................14
References......................................................................................................................................16
Appendix........................................................................................................................................18
Appendix 1.................................................................................................................................18
Appendix 2.................................................................................................................................18
Appendix 3.................................................................................................................................19
Appendix 4.................................................................................................................................19
Appendix 5.................................................................................................................................20
Appendix 6.................................................................................................................................20

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Introduction
HAIER Group Corporation is a Chinese multinational company that specializes itself in
the manufacturing of consumer electronics and different types of home appliances.
Headquartered in Qingdao, China, the company designs, develops, manufactures and sells
different kind of electronic products that are needed for our daily use (haier.com 2018). The list
of products that are manufactured and sold by the organization includes the likes of refrigerators,
air conditioners, mobile phones, televisions, microwave and many other such different electronic
products of similar ranges and similar uses. The company is listed to be the largest shareholder
of white goods in the global market (haier.com 2018). The following report that lists the
company to be the most preferred brand globally proves its technical and service capability. The
Company is listed in the Chinese stock exchange and also in the European International Stock
Exchange of Frankfurt. The main reason behind the listing of the company in the European Stock
Exchange is to ensure its swift presence in the European Union market to make an easy and
efficient trade. The company has been able to get hold of the largest portion of the global market
because of the implementation of a number of effective strategies. The company though had a
very decent beginning gradually started to establish itself by diversifying its range of production
line and thus specializing in the manufacturer of televisions, micro ovens, air conditioners and
most recently established itself as the manufacturer of modern smart phones. The following
report will be highlighting the clear picture of the company as a major producer and the largest
market share holder of the global white goods.
HAIER as a producer of White goods
There is a common feeling of the majority of the western world that the manufacturers of
the main electronic goods brand that are used by the consumers are mostly produced by
companies like General Electronics, Whirlpool, Bosch or LG. However least number of people
has the idea that the largest producer of the white goods in the globe is HAIER located in China.
In the last 34 years the company has transformed itself from a local worn out factory of China to
a multinational company with a market share of more than 10.2% globally. The company
employs more than 60,000 people with each of them curves out a single step to the success of the
company globally. As mentioned earlier the company has been leading the charts of the largest

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producer of White Goods in the globe. In more specific words, the company has been leading the
charts of the largest white goods producer for consecutive 9 years starting from the year 2009.
This helped the management of the organization to strengthen the foothold of the company and
also earn the recognition of being the largest producer of consumer appliances globally by share
in the market. The data released by euro monitor international revealed that the volume of sales
of HAIER in major household electronic appliances accounted for more than 10.3% in the last
year. On the other hand the global revenue of the organization increased by more than 20% year
to year and now stands close to 250 billion Yuan that amounts to more than 40 billion US
Dollars. The company has ten different brand name subsidiaries that are present in the different
names and are allocated with taking the care of different types of business units of the company.
The company takes the help of the names of the subsidiaries and in turn manufactures and also
distributes a large number of commercial products in the HVAC and the refrigeration markets.
Apart from this there are other white goods including the likes of refrigerators, washers,
televisions, color TV sets, LED TV’s and other consumer electronics (Buckley and Hashai
2018). Apart from this there are also different kinds of other electronic appliances produced by
the company that also falls under the White Goods. This includes the likes of the washing
machines, water heaters, electronic kitchenware, sterilizing cabinets, baking ovens, steamers,
dishwashers and much other such similar kind of appliances deemed to be fit for the use as
kitchenware (haier.com 2018).
The main aim of the company is to ensure the creation of new and innovative home
appliances that generally anticipates the fast changing needs of all the different consumers
around the world (Avendano Melguizo and Miner 2017). The company is an independent and
leading global provider of business intelligence on the industries, countries, consumers all
around the world. One of the major reasons behind the success of the company can be attributed
to the responsiveness of the management to the market and satisfying the different needs and
demands of the customers over the products manufactured by the company. The management of
the company generally keeps a close eye on the feedback of the customers after using their
products and necessarily changes or adds new specifications and innovative features to make
sure that the products are always the smartest and the most innovative. This in turn increases the
revenue of the company and makes it capable of being the leader in the global market of white
goods. The technical expertise of the company is believed to be unmatched as it often does a

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thorough market research and finds out the advantages and the disadvantages if any of a product
with the customers and then tries to find the best solution available and innovates a product
according to a new specification to fit the demands and mitigate the problems of their customers
(Bakir and Brennan 2016). An example in the following regard can help to determine the
innovative capacity of the organization. During its early years when the company used to
manufacture only refrigerators, the marketing team of the company observed that majority of the
students in the college dormitories placed wooden boards across the two refrigerators to save
space in the cramped rooms where they lived (Bradshaw 2017). The report submitted by the
marketing team of the company mentioned this problem of the students and ask the organization
to come up with a bright and effective solution to ensure the benefit of the customers (Bakir and
Brennan 2016). The report of the marketing team was taken up quite seriously by the
management and thus within a few months, the research and development team of the
organization came up with a small yet compact a new kind of refrigerator that would save ample
space for the students in their clogged rooms without compromising any amount of refrigerator
space. The changes in the production, development and innovation of these white goods by the
company had not just happened in a day but took a large time to complete gradually. These
changes combined together to create the success story of the organization at present.
Major Challenges faced in USA
As already mentioned earlier the HAIER Group is the largest manufacturer as well as the
market holder of White goods in the globe. The stiff local industry competition in the early
1990’s due to the country’s inclusion in the World Trade Organization. The competition in the
domestic market grew fierce due to the growth of new and small firms and also the entry of a
large number of major western firms to take advantage of the super cheap labor of the country.
The management of HAIER however, took a completely innovative step to ensure the
sustainability in the market (Bende-Nabende 2018). The company decided to diversify the range
of products and turn it into a multi production company for white goods.

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Does MNE’s usually face such challenges in FDI
According to, Bradshaw (2017) there is an increasing recognition that understanding the
forces of different types of economic globalization requires looking at the foreign direct
investment first by different types of multinational corporations during the time the firm is based
in other countries by means of the acquiring or establishment of production facilities. There is a
huge importance of FDI and multinational Corporations in the economy of the globe. As the
present world economy has shifted its base to the developing countries of the world the focus of
the MNC’s have naturally shifted on these countries. The population of the globe has
transformed its needs from just basic needs to a more consumption oriented needs (Hermelin
2015). The following tendency has created a proper environment for more and more ne
consumers of different types of new and innovative products and services across the different
types of emerging markets. The main focus countries of the multinational companies are India,
China, Mexico and Brazil. These countries have shown a sudden and huge increase in the
economic growth. Thus such a growth has been the main reason for the companies to invest in
the countries as these strategic investments will prove to be a success in the near future (Bende-
Nabende 2018). The other reasons behind FDI in these countries are the political, cultural,
sociological transformations of the company. However the changing scenario of world economy
has forced the management of these companies to rethink of their investment plans in overseas
countries.
As said by Bradshaw (2017) the MNE’s having operations in the emerging markets have
great scope to formulate, grow as well as sustain because these type of markets are generally
growing stronger and better year after year. The MNE’s must never forget that the following
markets are highly risky and less predictable, unstable, and very much less profitable in nature.
The main challenges that are faced by the organization are as follows;
 Globalization is one of the most important challenges that are faced by the organizations
as because the increase in the globalization forces has brought certain changes to the
shared value and institutionalized practices (Brennan 2015). It helps to bridge the gaps in
global governance systems are among the most important challenges faced by the
policymakers and the corporate leaders alike.

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 The organizations generally face different types of the challenges such as the ability to
adapt to the different kinds of cultural differences, standards and practices.
 The failure to provide proper market segmentation is another major challenge to the
organization as because the lack of proper market segmentation will make the
organization incapable to identify the potential market and the main customers of the
business.
 The balancing of the price and the quality has been a major problem for the organization.
The main problem for the organization will be to match the standard and the price suited
to the nation as because it is very much important for the business to do such a thing
accordingly (Brennan 2015).
 The maintenance of the corporate social responsibility perfectly suited to the
organizational needs is one of the most important elements that have to be maintained by
the management of the organization (Buckley and Hashai 2018). The companies are
expected to balance the role of the economic development of the country along with the
social responsibilities of the country in which the business firms operate.
 Income risks, risks from foreign currencies, financial instability risks, operational risks,
financing and accounting risks are other major challenges faced by the management of
the company while operating in markets outside the country.
 The companies also face problems in emerging countries as because the people of the
following countries generally have a high level of price sensitivity. The companies also
face challenges as often they fail to meet the local demands of the customers from within
a particular product (Jin et al. 2018).
 There are always concerns of the organization on the absence of proper infrastructure in
the countries. The developing countries often faces shortfall in proper and efficient
infrastructure to support foreign direct investment in different sectors of the industry.
 The presence of strict rules and regulations can often cause hurdles to the industry. there
are often strict regulations and policies that have to be adhered by the company to set its
foot in the host country. The adherence to all these different rules can be often
problematic for the organization.
Apart from this the challenges can also be classified according to a number of different types.
They are as follows;

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a. Human Challenges- The human challenges can be further classified into Ethics, Science
and technology, research and development, Peace and Conflict, Transformational
organized crime, health issues and many more as such.
b. Business Challenges- The business challenges on the other hand mainly includes the
likes of segmentation of the market, positioning of the market, targeting the market,
Promotion of the business, advertisement and distribution. It is also a huge difficult task
to ensure remaining competitive in business as well as socially responsible. The main
challenges that bother the business in such cases are corruption, crime and theft, poor
work force, lack of proper knowledge, lack of infrastructure, political problems,
inadequate supply of infrastructure, insufficient means of banking and financial services
and many such similar problems.
CAGE Problems
The CAGE distance framework identifies the cultural, Administrative, Geographic and
the different economic differences or the distances between the different countries that the
management of the organizations must address when crafting out the new kinds of international
strategies. It can also be used to identify the patterns of trade, people inflow and outflow,
information, capital and many other such related elements. The Cage Framework is thus
measureable by a certain phenomenon and can be differentiated by a number of unilateral and
bilateral factors. The different factors of each of the elements are as follows;
a. Cultural Distance- The cultural distance can be measured by means of different
languages in different countries as well as different types of ethnicities. The absence of
any connective ethnic or social networks is mainly behind the absence of the connective
ethnic and social networks (Buckley and Hashai 2018). Apart from this the difference in
religions and presence of different values and thoughts can also be referred to as the
cultural difference.
b. Administrative Distance- According to, Brennan (2015) the administrative distance can
be referred to as the absence of colonial ties like the one present in between the
commonwealth countries, the absence of a common and unique currency like the
European Union and the presence of an unstable political and economic situation.

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c. Geographic Distance- The name itself suggests that the following distance is the distance
between the two countries which can be measurable. The geographic distance also refers
to a change in the time zone and a change in the disease, climate and environment of the
business.
d. Economic Distance- The following difference on the other hand refers to the cost or the
quality of the natural resources, financial resources or the basic resources and
infrastructure needed to establish the business in the foreign country (Brennan 2015).
The above part totally concentrated with a generalized and compact discussion of the CAGE
framework. It is important to have a clear and transparent idea of the CAGE framework to
identify the problems of HAIER more accurately. The different elements or distances that
compose the CAGE framework clearly impose a lot many problems for that of HAIER. Almost
all the management of the Chinese company has a very strong dedication and motivation for the
country and so they prefer to keep the workplace language mostly in mandarin. HAIER is no
such difference as because the management of HAIER prefers to use the Chinese language in the
workplace which creates problems for the organization as because non introduction of English or
any other forms of Western language can be a administrative problem to the organization. Apart
from this the presence of different cultural backgrounds of western laborers can cause a grave
problem for the organization (Brennan 2015). The management of the company generally faces
problems in establishing manufacturing units in countries like USA and some countries of
Europe because of the presence of a strong market share by companies like General Electronics,
LG and other reputed brands. The people of these countries have a very little idea about the
international reputation of HAIER and thus have the tendency to abstain them from buying
goods of the company. The geographical distance between China and hotspot markets like USA
and Europe is a major challenge to the organization and thus makes it tough for the company to
properly arrange logistical and other major needs needed by the organization to operate the
business in other countries (Buckley and Hashai 2018). Geographical challenges will also
provide a major challenge to the employees of the organization as they may have to face the
scope of diseases, other health issues and harsh climate which may create problems for the
organization to operate in the different business markets of the world. As HAIER manufactures
white goods, they invest a huge amount of money to secure a proper profit. Therefore the
dedication of funds to the research and development of new and innovative white goods creates a

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blockage to the development of the organization in the new markets. The presence of major
international and local business organizations which deal in white goods will thus get major
advantage in the near future as they have slowly adapted themselves to the CAGE Framework of
the business organization (Jin et al. 2018). The absence of proper elements needed to follow the
CAGE framework thus renders the organization ineffective of achieving proper success in the
new markets. Therefore the management of HAIER has to ensure a much linear and clear
approach that can be beneficial for the success of the organization accordingly. The presence of a
dynamic and stable leadership and efficient strategy can be the only way possible to implement
the business under the CAGE framework and also ensure success in the market (Buckley and
Hashai 2018).
Global Strategy Adopted by HAIER to adapt to the problems
Since the entry of China into the World Trade Organization, the household appliances
electric industry along with other kind of industries that are involved in the development of the
different kind of manufacturing processes has been facing a number of global challenges due to
the unstable economy of the world (Bradshaw 2017). The HAIER group has set up a successful
example while facing different types of such challenges and realities that exists in the market.
The main strategy of the management of the company has been towards the internalization of the
company and its products. The internalization process has taken shape just after the problems
emerged in local Chinese market as there was a severe imbalance of trade after the country
included itself in the World Trade Organization (Frick and Kaimann 2017).
Though China was one of the most insignificant player in the international business.
However the introduction of FDI and large scale trade reforms changed the business conception
of the country and now it is home to the manufacturing centers of almost all the major, medium
sized as well as innumerable number of small companies. The developmental phase of the
country helped the development of that of the different types of the companies including HAIER.
As said by, Frick and Kaimann (2017) the company was quick to change its policies and decided
to concentrate on the international market rather than focusing and investing totally on the local
markets. The idea of the company to invest outside China was a success as the company had
been the undisputed leader of white goods for a long time now. The management of the company

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while expanding its presence in the country decided to go along with the framework of the
UPASALA Model that allowed the sequence of low to high commitment modes of operation
and entering into new markets with the presence of successively greater psychic distance. The
stages followed by the organization are as follows;
a. Export through Independent representatives
b. Establishment of a sales subsidiary overseas
c. Overseas production
The process of the internalization generally runs in accordance with the two segmenting
aspects of the model which is exporting and FDI.
Exporting
HAIER primarily started exporting from the start of the year 1992. The next few years
were golden years for the company as they recorded a huge growth in the export and rose to
around US$2.8 million. The exporting countries grew to around 160 different countries and
many more such different regions (Frick and Kaimann 2017). The exported items included the
likes of the refrigerators, freezers, air conditioners, washing machines and many more other such
electronic appliances. The colors included special colors that were mainly selected for the
following countries. The most common colors included white, black and cream. Most of the
export was meant for European countries which had a huge demand for HAIER made products
as the European export stood at 60%. Japan constituted 20%, South East Asian countries
constituted more or less 16% while the rest 4% was for demands from other countries. The
internalization strategy of the company is so well constituted that the organization owns more
than 100 different trading centers across the world and more than 16000 service centers. Apart
from this the company has a huge number of more than 45000 sales offices in different parts of
the world. Though the company began started exporting to only the developed countries, the
increase in revenue and trade reforms in different countries helped it to trade and export goods to
developing countries of the world (Guimón and Filippov 2017).
Foreign Direct investment (FDI)
The foreign direct investment is one of the best and the most popular form of investment
that is generally followed by most of the developing countries to boost up their economy. The

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implementation of the FDI model helps the country to attract a large amount of revenue into the
economy of the country and also improves the state of the company. The first FDI was
introduced by HAIER in the year 1996 in Indonesia. The company decided to invest a heavy sum
of money in the country as because the market study by the management revealed a huge
potential. The FDI process in Indonesia was followed by similar such processes in different other
countries. The company invested to build three new important windows of opportunities and two
possibilities of expansions. The three different windows created by the management of the
organization are as follows;
a. Window of Information- Information is one of the most important things in foreign
direct investment. The management of the company must have a proper idea on the
market where they are investing. There should be a proper idea about the competitors in
the market, the customers of the market, the choice of the customers, the trends in the
market and many more as such. The presence of these kind of information is useful for
the company as such an input makes it aware of the conditions prevailing in the market,
which further helps them to formulate different strategies of the business.
b. Window of Purchasing- The purchase decision generally refers to the decision by the
management of the company to acquire different business organizations in the foreign
land. The management of HAIER group has a fixed acquisition policy where the
company assesses the condition of the firm and the condition of the market where the
company operates to get a proper idea on the future happenings and predict the outcome
of such an investment.
c. Window of Technology- A study by, Guimón and Filippov (2017) suggested that
technology is one of the most important success factors while making any potential
investment. The presence of quality technology is one of the most important
characteristics of the business. The application of technology in a new market is a must to
gain a ground in the business.
The management of the organization has to manage and maintain a number of different
processes to ensure their survival in the international market. At the beginning the management
has to make English a mandatory for the employees in the workplace to avoid any sort of
communication problems in the international market. Apart from this the organization has to

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keep a proper update with the political situations of the country and change their strategies with
need. It will be also helpful for the management to ensure the presence of a proper and effective
funding program to ensure success for the industry (Bradshaw 2017). An example in this
particular case can help to justify the FDI policy of the company. The HAIER group adopted a
particular foreign direct investment policy to enter the U.S.A market. In the year 1999, the
management of the company set up a marketing center for the business in New York along with
a manufacturing center in South Carolina. The combination of both these centers was the largest
FDI project of HAIER group in the United States of America. The U.S FDI project helped the
company to overcome the different market barriers and avoid the economic and political crisis.
The avoidance of all these different barriers was enough to provide the organization an easy
entry into the United States market. Though the entry to the U.S market was easy, the company
faced huge competition in the market from the likes of the powerful competitors like that of
General Electronics, Electrolux and that of Whirlpool. Apart from this there are other kinds of
factors like that of the expensive cost of US labors which tend to further destabilize the
company.
Conclusion
The following report has provided a detailed overview of HAIER and the internalization
process that it follows. The main focus of the report is on the identification of the CAGE
framework and the challenges faced by the company while the implementation of the framework
in the overseas markets where it operates. In both the business and the academic senses, it is
mostly believed that the main impact of the globalization of the different business organizations
brings positive outcomes. These types of positive outcomes are especially felt by the home
countries and the host countries. The positive outcomes vary from a range of different types of
the benefits. These benefits generally include the likes of the economic, cultural, social and
financial. The benefits result into job creations, development of the human resource,
infrastructural development. On the other hand there are many challenges that are to be faced by
the management of the organization which comes mainly in the form of physical, institutional
and technological reforms. These challenges include maintenance of the industrial standards of
the host country, laws and regulations of the company as well as competition laws. These kinds
of outcomes are more visible and reflective in the emerging economies or the emerging countries

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of the globe as because these types of countries still struggle with uncertain and unstable
economic, legal and political conditions along with the presence of poor basic infrastructure.
The thorough analysis of the following report will thus help the readers to get a clear idea of FDI
and the way they are implemented to mitigate the CAGE distance framework by the Chinese
company. The discussion of the challenges faced by the companies along with the
implementation of the FDI has further helped to make the report more compact in nature. The
proper explanation of all the relevant methods and the process by which the business spreads its
wings internationally has helped to make the report more informative and added to its quality.
Recommendation
The analysis of the following report has suggested that Foreign Direct Investment is one
of the main source of economic growth as well as the source of expansion respectively for the
country and the organization. The MNC’s like HAIER which have targeted the developing
countries to expand its base and carry forward the process of internalization will face a number
of major challenges to implement their strategies in these countries in a proper and efficient
manner and will thus face a huge loss. The main problems described in the business are;
a. political instability
b. Lack of basic infrastructure
c. Lack of proper business partners in the host country
d. Strong presence and authority of labor unions
e. Absence of quality related and the absence of different supporting industries
f. Presence of red tapes
g. Presence of complex rules and regulations
The main aim of the business organization in this case will be to cope up with the following
hurdles in a smart and efficient way. It can be possible by means of;
1. Collaborative Approach to deal with local government- The management of HAIER
must approach the local government and discuss about the possibility of the company
opening a unit in the country and discussing about all the different needs of the
organization and assuring them of the benefits that the establishment of the organization

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will bring into the country. The collaborative approach to the local government will help
the organization to easily establish a successful business unit in the host country.
2. Strategic Alliances with proper suppliers- The identification, verification and finally the
selection of the suppliers of different parts of the different electrical components to be
sold by HAIER will have to be carried out with proper and a verified check up. The
details regarding the suppliers must be verified thoroughly. the management must ensure
the past history of the suppliers along with the reputation of the supplier in the local
market. The completion of all this processes will lead to a final agreement between the
supplier and the organization.
3. Carrying out proper research and development process-The carrying out of proper
research and development process is utmost essential for the success of the business
organization. The research and development process will help to innovate new products
that can easily fit into the demands of the local people of the host country.
4. Development of local human capital- Human capital can be developed by increasing
work hours as well as employing local people. The employment of the local people will
ensure the increase in the economy of the country.
5. Investment of local infrastructure development- As absence of infrastructure that can
support investment is one of the major hurdles faced by the company; it will be beneficial
to provide a certain amount of sum to the purpose of the development of infrastructure.
References
Avendano, R., Melguizo, A. and Miner, S., 2017. Chinese FDI in Latin America: New Trends
with Global Implications. Washington: Atlantic Council.

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Bakir, C. and Brennan, L., 2016. Emerging 16 multinationals in Europe. Emerging Market
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comparative study of the ASEAN-5 economies, with development policy implications for the least
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Samal, S. and Raju, V., 2016. A Study of Foreign Direct Investment (FDI) on Manufacturing
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Zdziarski, M., Srai, J.S. and Rezk, R., 2016. Network 13 configurations in the white goods
global value chain. Emerging Market Multinationals in Europe, p.200.

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Appendix
Appendix 1
Figure 1: HAIER Manufacturing Unit
Source: (haier.com 2018)
Appendix 2
Figure 2: HAIER Products
Source: (haier.com 2018)

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Appendix 3
Figure 3: Market share of HAIER
Source: (haier.com 2018)
Appendix 4
Figure 4: HAIER Qingdao Industrial Park
Source: (haier.com 2018)

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Appendix 5
Figure 5: HAIER Market share by means of products
Source: (haier.com 2018)
Appendix 6
Figure 6: Brand Value of HAIER

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Source: (haier.com 2018)