The aim of the paper is to identify and analyse the business objectives, which drove Haeir to rely on flanking strategy to enter the highly competitive markets of the United States of America. The paper would first introduce the concept of flanking strategy and then go on to give an overview of the organisation chosen for the study, Haeir. The section would then go on to discuss the business of Haeir. The final section would then analyse the business scenario in the United States, which made Haeir apply flanking strategy. The paper would be on the case study and would draw substance from sources like books, journals and official websites of companies.
Flanking strategy or flanking marketing is a strategy, which companies use to enter new market by marketing products, which are capable of meeting those needs of the customer base the existing products are not able to meet. A company aiming to enter a new market first conducts a research about the needs of the consumers of the products. Then it studies the products existing in the market and their capabilities. They identify those needs of the consumers, which these existing brands cannot fulfil. Then the company manufactures and markets those products, which are capable of meeting those demands of the consumers (Lim 2015).
The companies using this strategy are usually multinational companies who have technologically and financially very powerful. These companies are able to allocate fund to conduct research on the consumer needs in the prospective market to identify the void left by the existing companies. They use this void as a opportunity to enter those new market by introducing appropriate products. The flanking companies are technologically very strong and use knowledge as a deadly tool while designing appropriate products to enter these markets (Kim 2016). This analysis shows that only multinational companies can adopt this fatal tool of flanking strategy because it requires integration of financial power, technological expertise and knowledge management. The multinational companies identify these customer segments, which they are, satisfy with their goods and then extend their customer base as they gain competitive advantage in the market (Karimi and Naghibi 2015).
This analysis of the concept of flanking strategy shows that entering new markets with appropriate products which innovation. The multinational companies in order to introduce appropriate carries in open innovation with the firms existing in the target market to manufacture appropriate products suited to the market.
Haier is a Chinese electronics goods manufacturing and marketing company which hs its headquarters in Qingdao, China. The company started its journey as a small refrigerator-manufacturing factory producing poor quality refrigerators. The company known as Qingdao General did not stress on quality and suffered losses due to sales returns of defective products. The company adopted its objective of manufacturing high quality products to ensure customer satisfaction and high revenue under the leadership of Zhang Ruimin, a bureaucrat who acquired the company. The company got its present name Haeir around the 1990s. The company became the first Chinese companies to get ISO 9001 certification and listed itself on the Shanghai Stock Exchange (Markets.ft.com 2017).
Haier emerged as the top electronic goods manufacturer in China by 2004 and gained third position internationally. The increase in the presence of multinational companies from other countries in the Chinese electronic market made Haier expand outside the Chinese market. This expansion strategy of Haier is reflected in the core strategies of the company, which comprise of five strategies namely, brand building strategy, diversification strategy, internationalisation strategy, global brand strategy and networking strategy. These strategies of Haier in turn rest on the core values of the electronic goods manufacturing company. They are, the company should bring about innovation to honour the needs of the consumers, it should bring continuous improvement in their products and it should act towards benefit of the consumers (Haier.net. 2017).
Hier expanded into the market of the United States of America using the flanking marketing strategy which sereval motives. The company had started selling its products using the export strategy but did not earn the company the leading position in the international market it aimed to gain. This made Haier use flanking strategy to expand into the American and European by setting up subsidiary companies. The following were the motives of Haier behind using the flanking strategy to enter the market of the United States of America:
One of the core strategies of Haier Electronics as discussed above is brand-building strategy. The company regards its brand among its most important asset to sustain and expand in the global market. The United States was regarding as one of the toughest and more profitable white goods market in the world. The market of the United States already had presence of Whirpool and GE Electronics (whirlpoolcorp.com 2017). Hence, the successful entry and sustenance thereafter in the American market boosted the brand power of the companies. Haier used this brand-building attribute of the American market to strengthen its global brand strategy. The multinational electronics goods company used flanking marketing strategy to enter the market of the United States of America. The motive behind this was that the market of the US already had big players like Whirlpool. Hence, it would not be prudent for a Chinese company to invade the market of the US with traditional white goods like domestic electronic appliances, a segment that was already under the domination of these existing companies (Smilansky 2017).
Haier used flanking marketing strategy and combined it with niche marketing strategy. It recognised two under explored niche markets which the already existing players like Whirlpool did not satisfy. They were the small-scale establishments like dormitories and hotels and the wine cellars using electricity to refrigerate wine. One of the attributes of flanking marketing is to provide the recognised segments with high quality products. Haier offered these small-scale establishments and wine storage firms with high quality products. This strategy proved to be successful for Haier, which encouraged the company to target the more competitive refrigeration market in the United States of America, which was under the domination of leading companies like Whirlpool (Schultz et al. 2015). This initial success of the company in the US boosted its brand image in the global market. This analysis shows that the global brand-building motive, the first motive of Haier to enter the US market through flanking was successful.
The second motive, which encouraged Haier to use flanking strategy to enter the competitive white goods market in the United States of America, was the need to attain diversification. The case study reveals that around 1991-1998 the Chinese market experienced invasion of foreign companies like Samsung (bloomberg.com 2017). Thus, the motive of the Haier was to diversify its operations beyond the borders into new markets to counteract this invasion of foreign companies. The company already used export strategy to sell its products in the foreign market but had no direct interaction with the customers. This communication gap between the company and the consumers in the foreign market limited the company’s knowledge about their needs and expectations (Benedettini, Neely and Swink 2015). This lack of knowledge impeded the company manufacturing of appropriate products to serve their needs. Therefore, this prevented Haier from gaining product differentiation and competitive advantage in the international market. The company could also use the franchising model to enter the market of the United States but that meant depending on the local franchisees in the US about whom the company had limited knowledge. Moreover, the franchisees were more acquainted with the American brands like GE Electric and Whirlpool, which meant they would prefer franchisees with these brands compared to Haier (Corsi, Marmi and Lillo 2016). Hence, the flanking strategy was the appropriate mode entry, which Haier decided to choose to enter the US electronic goods market to obtain its second motive-diversification.
Haier chose flanking marketing to diversify its market risks and expenses. The case study mentions that big foreign multinational electronic goods manufacturers like Samsung invaded the Chinese market. This meant that Haier lost some its customers to these multinational companies and suffered loss of revenue. This need to recover and minimise losses led the company to adopt its second strategy, diversification strategy. The company entered that US market by recognising two segments of customers, which the leading refrigeration companies like GE Electronics, did not serve. They were the small-scale wine sellers who required storing wine and small establishments like dormitories. These small-scale firms could not afford using Whirlpool or GE refrigeration facilities, which were very expensive (geappliances.com 2017). The case study remains silent about the other options like affordable refrigeration facilities. However, one can assume that the local refrigeration facilities were of inferior quality, which prevented these small-scale industries from using them. This gap between the refrigeration needs of the small-scale firms and the available market options provided Haier a perfect opportunity to use flanking strategy by offering high quality refrigeration solution, which would cost-effective. This company through this flanking strategy succeeded in bringing about disruptive innovation. First, by introducing the high quality refrigeration product it established itself as an electronics company, which manufactured products to benefit the consumers. Secondly, the cost effective refrigeration solution exhibited the ability of Haier to satisfy consumer needs at low cost without compromising on the quality. This success encouraged Haier to introduce more expensive and high-end products in the United States, which allowed the company to capture a portion of market from established American brands like Whirpool (Tzokas et al. 2015). Thus, flanking strategy enabled the Haier to use two other marketing strategies, which helped it diversify its business in the American market. The company adopted down-market stretch to serve small-scale establishments by providing them with high quality but cost effective refrigeration solution. It used up-market stretch to manufacture high-end electronic goods, which helped it to serve the upper class customers and big companies in the US which high-end refrigeration solution (Kotabe and Kothari 2016). Thus flanking strategy allowed Haier to serve both lower market segments and upper market segments earn revenue. This huge base of revenue allowed the multinational electronics goods manufacturing company to diversify the losses it eared in China due to entry of powerful foreign companies like Samsung Electronics Huizhou Company Limited, the Chinese subsidiary of Samsung Electronics Company (samsung.com. 2017). This success, which Haier earned in the American using flanking strategy, led to the company entering new markets like the European Union and the Middle East. This strong brand image, which Haier earned in America, Europe and the Middle East, enabled it to strengthen its brand image in the Asian market. This helped the company to diversify the business risks and losses it suffered due to invasion of foreign in China. This analysis shows that flanking strategy helped Haier to achieve its second business motive, diversification of its business risks.
The third motive, which led Haier to use flanking strategy to secure profitable entry into the American market, was local brand building and international market leadership. The company could use product export strategies to enter the American market but that did not allow it to gain access to the consumer directly. Entering American electronics goods market using the franchisee model would have failed because the franchisees would have preferred the already established American brands like Whirpool to Haier, which was a Chinese company. The wholly owned subsidiary entry strategy deemed fit in this situation for Haier to gain strong hold in the international market to counteract the loss of business it incurred in China. This analysis made Haier realise that it should position itself brand in the American market as a local brand of America to attract American customers. The company used flanking strategy to introduce economical refrigeration solutions to the small businesses in the US, which the established companies did not serve (Alden et al. 2013). The success of this strategy encouraged Haier to expand into the high-end refrigeration segment to cater to big business houses, which required refrigeration. The strategy helped Haier to establish itself as high quality electronics goods manufacturing company who could cater to the needs of the American customers. This success of Haier fuelled its positioning of itself as America’s local company by building a manufacturing plant to cater to the needs of the American market. It can also be stated that establishing itself as a local brand would enable Haier attract local franchisees, which would open ways for further business expansion. The case study reveals that the company used flanking strategy to expand into Europe and the Middle East. The company used the strategy to counteract the image that Chinese goods were inferior to their foreign counterparts (Christodoulides, Cadogan and Veloutsou 2015). As a result, Haier was able to capitalise in other Asian markets like India and replace their local electronic companies to acquire market leadership. This analysis shows that flanking strategy enabled Haier to establish its brand as a local American brand and gain international leadership, which was its third motive.
Conclusion:
The detailed discussion identifies and discusses three underlying motives of Haier of using flanking strategy namely, global brand building, diversification and local brand building and international leadership. The flanking strategy helped the company to establish itself as both a global brand and a local brand. It helped it to gain a strong foothold in the market of the United States. It could use this strong foothold it acquired in the US to form franchisees to expand further into the American market. Thus, flanking strategy provides base to establishment of Haier in the US market and gain competitive advantage in spite of presence of brands like Whirlpool.
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