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Firstly, Haier has pegged its offerings on quality, with a midmarket pricing strategy. It disrupted the Indian refrigerator market with a bottom-mounted unit (where the freezer is placed at the bottom instead of at the top). Later, it introduced a standalone freezer to allow Indians to store meat and fish, away from the main refrigerator freezer where ice creams are kept. Haier also invested Rs 600 crore in a 42-acre plant in Pune instead of importing everything from China. Then came a growth spurt. In 2017 Haier’s revenues grew by 45%. In 2018, it sold 14 lakh refrigerators, up 70% from 8.7 lakh units sold in 2017. Overall growth in 2018 was 47%.
It was about time too. Haier, based out of Qingdao province in eastern China, has been the top home appliances maker in the world by volume for a decade now (according to market researcher Euromonitor).
Recently, it has grown through acquisitions across the world. In 2012, Haier acquired New Zealand-based Fisher & Paykel Appliances for $766 million. Its biggest buy came in 2016, when it bought the appliances business of American multinational GE for $5.6 billion. In 2019, it bought Italian home appliances maker Candy for $547 million.
In India, however, it has been outrun by South Korean giants. Samsung and LG together command more than 50% of the Indian market in the three product categories.
Haier’s recent growth rush has now pushed it to the fifth position as of April 2019 (according to Indian Brand Equity Foundation), and its internal estimates say it is likely to get to the fourth spot by December 2019, behind Samsung, LG and Whirlpool.
Yet, there are questions. Rajeev Karwal, who has held leadership positions at LG, Electrolux and Kelvinator, says something has been amiss with Haier’s Indian strategy. “Given their range of products in China, they had the depth to grab a larger chunk of the Indian market. We have only seen 25% of their range in India.”
With the decline of Videocon and the likes of LG and Samsung focusing on higher margin products, Indian brands like Havells and Godrej benefitted more as compared with Haier. A case in point, Karwal says, is the air purifier market that Haier should have targetted with its existing range since LG and Samsung were not selling these in India.
Make in India Bet
Haier has now bet on expanding its manufacturing in India to match its growth and reach the third spot in consumer durable brands by the end of 2020 and also become an exporter from the country in two years.
While Haier’s overall brand growth in 2019 may have been slower at 35%, it is still three times the industry growth and the company aims to touch Rs 4,500 crore in sales this year.
Haier is now investing in a second factory, in Greater Noida, with an investment of Rs 3,069 crore. Construction activity is on at the 123-acre plot, with China Construction Sausum (India) building the plant. The first phase will start production here by October 2020. Braganza visited the site on Diwali to hand out gifts to the 100-odd workers, which include many Chinese nationals. “If you want to grow in India, you need to manufacture here and invest here. You cannot import and trade indefinitely,” says Braganza.
Meanwhile, Samsung has shifted its TV production to Vietnam after India increased duty on LCD and LED panels.
Haier, however, is keen on pushing ahead since it is running out of capacity in Pune.
The Greater Noida factory, at the end of its first phase, will double Haier’s output of refrigerators to nearly 4.2 million, and treble its production of washing machines and air conditioners to 1.5 million each.
But Karwal, who has now turned entrepreneur, says local manufacturing is not enough, and it does not matter for the Indian consumer whether a Chinese company makes the product in India or if an Indian company imports it from China. All that the consumer wants is good quality and service at a reasonable price, he says.
Braganza says Haier also imports some topend products such as side-by-side refrigerators, front-loading washing machines and some deep freezers from China.
Incidentally, had India entered the Regional Comprehensive Economic Partnership (RCEP), imports from China would have become easier. With India walking away from RCEP, Haier’s decision to manufacture here looks sensible. Also, India is now the largest market for the Haier brand outside China.
Strategy: Disruption
“We have always had conventional refrigerators in our range, but decided to push the bottom-mounted refrigerator, as our research showed that in India the freezer is opened only 20% of the time,” Braganza told ET Magazine, sitting at Haier’s Goregaon office. Usually he works out of Goregaon from Monday to Wednesday before flying to Delhi on Thursdays. Staying in Mumbai means he can visit the Pune plant regularly. Although Greater Noida will now be key for operations, Braganza is not planning to shift, depending on a good video conference facility instead.
He outlined the plan for a wider play for Haier in India. This will include offering internet of things and smart homes with interconnected devices. The TV, now a small segment for Haier, will become central to the IoT offerings, acting as a hub for all home appliances. Haier has also introduced innovations like “self-cleaning” in washing machines or “high rated pressure” for geysers making them suitable for high-rise buildings.
Haier has installed washing machines at nearly 100 student hostels across the country, starting from Lady Shri Ram College in New Delhi. It offers a laundromat-like washing service that comes with an app for students to pay and keep track of their laundry. Braganza says the service will be expanded to 1,000 colleges within a year. At some hostels, the company also offers a specialised clothes dryer.
Haier has already gained a 25% market share in the freezer market, which had not seen a home consumer-focused freezer before. Braganza says they will introduce other Haier brands in India. Apart from the acquisitions mentioned earlier, Haier has brands such as Aqua (mostly sold in Japan), Casarte (Europe) and Leader (China) that it can introduce in India.
Market shares in consumer durables are a grey area in India, as there are no independent verifiers who publish these numbers. GFK, a company that tallies market shares in this sector, does not make the data public.
Haier claims to have captured 13% of the refrigerator market, 9% of washing machine and 7% of air conditioner market in India.
The numbers show there is a long road ahead for Haier, given the low penetration of consumer durable products in India as compared with the global average.
While pointing out that Haier’s rapid growth should be seen in context of its smaller base, Pinaki Ranjan Mishra, the India consumer leader at EY, says there are opportunities for growth through innovation. “Efficient online deliveries have taken consumer durables to the rural market. As inflation is low, consumers have incentive to buy, trade up and replace existing items too. This allows for product innovations and creation of new niches.”
Nikhil Mathur, India managing director of market researcher GfK, says: “The ongoing structural shift in the consumer durable sector is primarily led by higher adoption of superior technology, premiumisation, shrinking brand loyalty and borderless shopping.”
GfK’s research shows that air conditioners led with 26% growth in volume and 30% in sales in January-September 2019, while refrigerators grew 11% by volume and 10% by sales.
“We started off with the stigma of being a Chinese brand. But our quality has been accepted in India,” says Braganza. A strong service network and taking care of dealers’ margins have also been key strategies, he says.
With the upcoming manufacturing hub in Greater Noida promising to widen the depth of Haier’s products, the challenge for Braganza is to take the company to a position where it can challenge the leadership of the South Korean brands at the higher end. It will, of course, have Indian brands to compete with in the mid-market.
Haier traces its beginning to 1920, at a refrigerator factory in Qingdao. Later, a technology partnership with Swiss multinational Liebherr in 1984 led to the brand name Haier and the company’s resurgence. Now, 100 years after its beginning, 2020 will be a crucial one for Haier in India.
Fact file
— Haier, based out of Qingdao in China, is the biggest home appliances maker in the world by volume
— After Pune, Haier India is building a factory in Greater Noida, with an investment of Rs 3,069 crore
— Samsung and LG together command more than 50% of the Indian market in refrigerators, air conditioners and washing machines
— Haier’s strategy has been mid-market pricing & strong service
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