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”

Bloomberg Businessweek (North America) - - Contents - �Rachel Chang

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.

$2.5b

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