In 2010, around one year after Haier bought its 20 per cent stake in Fisher & Paykel, I traveled to China to attend the opening of Fisher & Paykel’s first Chinese showroom and meet Haier executives. F&P shareholders are now mulling over Haier’s official bid to buy out New Zealand’s most iconic brand. The following story, originally published in Appliance Retailer magazine, provides an insight into the history of Haier.
As some of the information in the article has become dated, I have added some notes, in italics, to bring it up to the present.
Friends in Haier Places: The inside story on the unlikely union of Fisher & Paykel and Haier
Locked away behind a glass case in the National Museum of China at Tiananmen Square is a sledgehammer. This tool was not used in the revolution that overthrew the Chinese feudal system or in the wars with Japan: it was used in the ongoing war against dodgy Chinese manufacturing.
By Haier’s own admission, its Qingdao plant was decrepit in the early 1980s, so when the company’s long serving chairman and CEO Zhang Ruimin inspected a refrigerator factory and found a cache of products below his expectations, he took to them with the force and resolution rarely seen by an executive against his own stock. All up, Zhang and his factory workers annihilated 76 fridges that day.
That the sledgehammer now shares a home with 3,000-year-old antiques is testament to the reverberations of this act around the world of Haier. At the time, it was struggling, now it claims to be the biggest appliance supplier, and the second biggest retailer, in the biggest country in the world. (Haier still holds these two positions.)
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Not content with success on its own shores, Haier is now on the expansion trail. The first step of relevance to Australasia was the cornerstone stake in Fisher & Paykel — 20 per cent purchase in June 2009 — that initiated its new cooperative agreement with the iconic New Zealand brand.
(The following paragraphs revealed what Haier planned on doing from 2010 onwards. As I re-read this, I was intrigued by how it managed to complete these stated goals in such a short time frame.)
With a firm foothold into Australia, Haier will now leverage F&P’s sales experience and after sales service network to reintroduce the brand to the local market. Haier has been here before, but with little infrastructure and an untargeted product range. It wasn’t an abject failure, but it wasn’t a success either.
Operating out of Fisher & Paykel’s Lidcombe base, Haier is now in the opening gambit of its 3-stage international strategy. The first stage of this is Get In, in which a niche strategy controls the exportation of products into the new market.
Step two is called Stay In, whereby Haier plans to differentiate itself from rival brands through marketing, explanation of benefits and demonstration of product quality. (Haier’s award-winning ‘Live a Haier Life’ campaign has been one of the most memorable advertising campaigns of the last decade.)
The final stage is Leadership, which can also be translated from the Chinese as Take Over. At this level, maturity is reached, and Haier, all things going to plan, is established as a dominant force by both volume and value.
(Haier is literally now fulfilling its ‘Take Over’ destiny by attempting to take over Fisher & Paykel.)
Known disparagingly in the Australian industry as Yum Cha brands, Chinese suppliers have long shipped product into the country against the tide of public sentiment. During a meeting with Haier executives, senior vice president Zhou Yunjie admitted that consumer sentiment is not great, though this problem is more about perceived, rather than real, faults. He said blind test audiences had responded positively to Chinese appliances, but had then recanted on buying the products once they knew them to be Chinese.
This is a tough stigma to overcome, but Haier’s American-born president for the Asia Pacific region, Philip S Carmichael, is confident that it’s not impossible. When asked directly if any Chinese brand would ever emerge as a premium brand in an overseas market, he responded, “Yes, and it’s going to be us.”
“Haier’s position in China is not a low brand, we are actually a premium brand,” Carmichael continued. “If you follow our strategy, which is to get in, to come into the mainstream, and in our third step, become a premium player, in many markets this will see us moving into higher-end products across the world, not just in Australia and New Zealand.”
(Carmichael has since left Haier to become a senior executive at the Monterey Institute of International Studies in California.)
The principal reason amongst several furnished for partnering with Fisher & Paykel is its after sales service record. Haier has a remarkable service guarantee in China: promising urban customers in-home attention within three hours of contacting the company, and 24 hours within most rural parts of the country. This proposition will be married to targeted, individually selected product lines that are designed for success in Australia.
“Because we are now aligned with a company that offers the same sort of after-sales service that we offer in China, in other words, the best sales and service possible, we believe that with a better product offering, more specific for the Australian marketplace, backed up by our strong research and development, that we will see significant increases in our presence in Australia,” said Carmichael.
It may be a quiet hamlet by Chinese standards, but Hangzhou, with its population almost twice that of New Zealand, is the new home of Fisher & Paykel’s first Chinese showroom. Located in the Tower Shopping Centre, and flanked by Mercedes-Benz, Poggenpohl and Bang and Olufsen, this new permanent exhibition space is part of a high concept luxury department store within one of China’s more affluent cities.
Hangzhou is a commuter city for nearby Shanghai and, as such, it is home to many executives and a burgeoning middle class. It is also a vibrant internal tourist destination, with internal Chinese tourists visiting the town to walk along the banks of the historic Westlake and shop in brand name stores, including Tag Heuer, Hermes and Lamborghini.
Not that F&P’s store is a retail outlet per se. It is more of a showroom for its targeted launch customers: specifiers, designers and architects (SDAs), as explained by chief operating officer — international, Andrew Paykel.
“We’re not really looking at a replacement market here; it’s more new homes and new apartments, because it’s all built-in products, so you need to align yourself with kitchen companies like Poggenpohl, where you’ve got designers and architects actually specifying the product — so that’s our channel here,” he said.
Despite this strange marriage of cultures and strategies, Paykel was only positive in his assessment of the relationship so far. Much of the speculation and off the record conversations during this tour centred on whether the clash of cultures was affecting business dealings. When the question of conflict was put to Paykel, he refuted any such claims.
“We have a good relationship with Haier. We’re very fortunate to have them as partners here: we simply couldn’t have done what we’re doing here without their support,” he replied. “[There’s] no conflict at all, we work very well together and we complement each other very well.”
(Paykel has since gone on to open more Fisher & Paykel showrooms in China and expand the company into the second biggest country in the world, India.)
In a quiet moment at the launch in Hangzhou, the formidable Philip Carmichael said that floorspace at these high concept, premium brand shopping malls was like gold dust. He said there were waiting lists and premiums to such a shopfront. When asked if Fisher & Paykel’s new neighbours were partnered with a local, as F&P is with Haier, he replied, “No,” and after a pause, “And that’s why we’re going to beat them”.