With its $5.4 billion bid for GE Appliances, China’s Haier hopes it’s found the key to U.S. success
Appliances ▶ Buying GE’S appliance unit, it gains a prominent U.S. brand ▶ “Haier has always had this global dream, and this completes it”
When Haier Group set its sights on entering the U.S. market in 1999, it took a year before the Chinese appliance maker’s executives could get a meeting with Walmart to show off its air conditioners. Haier at the time made one of every three refrigerators sold in China, but that meant little to U.S. consumers wary of the brand’s quality and more comfortable with homegrown labels, according to a 2003 book, The Haier Way. On Jan. 15, Haier figured out a way around such perceptions: It agreed to pay $5.4 billion to acquire General Electric’s appliance unit, the secondlargest U.S. manufacturer of major appliances, according to researcher Euromonitor International. “This is the most significant move in Haier’s history,” says Liao Xinyu, a Shanghai-based analyst at UBS. “Haier has always had this global dream, and this completes it.”
How badly did the Chinese buyer want the trusted U.S. brand? Haier’s offer is 60 percent more than the $3.3 billion that Sweden’s Electrolux had agreed to pay for the unit last year. GE scrubbed the sale to Electrolux in December because of regulatory worries that the combined companies would have too high a market share in cooking appliances. The deal between Haier and GE Appliances is also subject to approvals in China and the U.S., but the Chinese company expects it to close in mid-2016, since the two businesses “are complementary and have minimal business overlap in terms of product range and geographic scope,” a Haier spokesman said in a statement.
In its first forays into the U.S., Haier thought small: turning out low-priced niche appliances like mini-fridges for college dorms and small wine cellars for city dwellers. But Haier Chairman Zhang Ruimin always had a bigger goal of establishing a U.S. brand that wasn’t dependent on low prices. So Haier in 2000 became the first Chinese company to build a manufacturing facility in the U.S., in South Carolina. The company also rolled out innovations such as remote monitoring of its appliances’ functions via the Internet and customizable appliances, says Torsten Stocker, a former partner at consultant A.T. Kearney’s consumer practice.
“It’s underappreciated in the U.S. how advanced Haier is in product and manufacturing quality and the extent to which they’ve integrated products with the Internet,” says Stocker, now chief operating officer at electronics distributor Thakral’s lifestyle division.
Still, Haier’s U. S. market share has barely improved, from 0.7 percent in
2006 to 1.1 percent last year, according to Euromonitor— even though worldwide sales at its appliance divisions in 2014 were about triple those of GE Appliances. This low penetration after 15 years is a major factor behind Haier’s bid, says Feng Zhang, an appliance analyst at Euromonitor. “Haier has been trying to establish a foothold in the U. S., but its presence is still not strong,” he says. “GE already has the brand name, loyal customer base, and distribution network in the U. S.”
The buyout comes amid intense consolidation in the global appliance business. In recent years, Whirlpool acquired Italy’s Indesit and a majority stake in China’s Hefei Rongshida Sanyo Electric, while Spain’s CNA Group bought that nation’s insolvent Fagor Electrodomesticos. Haier bought New Zealand-based Fisher & Paykel Appliances Holdings in 2012, and it faced competition from Chinese rival Midea Group for GE Appliances. “The whole industry is synthesizing,” says UBS’S Liao. “This is a very important buy for Haier. If they didn’t get it, there’s not much left to buy.”
As part of their deal, GE and Haier also signed a broader strategic partnership to explore cooperation in the industrial Internet, health care, and advanced manufacturing and will work together on affordable consumer health initiatives in China. That alliance is potentially more important than the appliance buyout itself, says Bill Fischer, a professor of innovation management at IMD business school.
Haier Chairman Zhang “has been speaking for the last several years of the strategic desirability of turning Haier into a ‘platform company,’ where it uses its talent and assets to collaborate with others,” Fischer says, much the way app developers work with Apple’s iphone and ipad. “Haier is not interested in becoming the GE of China. They want to be the Apple of China.”
Edited by James E. Ellis and Dimitra Kessenides Bloomberg.com Amount set aside by Bank of America, Wells Fargo, Citigroup, and Jpmorgan Chase to cover souring energy loans as the price of oil falls below $30 a barrel. The bottom line China’s Haier is paying $5.4 billion for GE Appliances—60 percent more than Electrolux’s previous offer for the unit.