SMITH BRAINTRUST – Haier Group’s recent $5.4 billion purchase of General Electric’s appliance unit is expected expand the China-based manufacturer’s market share and distribution channels and potentially boost its credibility among U.S. consumers. The move more broadly represents a case study of an emerging market company “going global.”
Haier’s “best choice will be to build synergies over time by preserving many capabilities coming from the GE side, while transferring some of their practices into the acquired company to achieve global efficiencies,” says strategy professor Paulo Prochno at the University of Maryland's Robert H. Smith School of Business.
Likewise, Haier reportedly will operate GE and its recently relaunched Haier America unit, initially, as separate entities. GE will operate independently under a local board with input from its current management team.
Lessons from Tata
The approach would reflect that of Tata Group’s Jaguar-Land Rover acquisition from Ford in 2008, says Prochno. The India-based company retained and granted autonomy to Jaguar Land Rover’s England-based managers. Four years later, the deal was called a stunning success.
Though Tata's acquisition reflected "a low-end manufacturer buying high-end brands, the logic for post-merger integration is similar," Prochno says. Think of Haier’s move as “a mass-premium manufacturer in China without U.S. market penetration buying a mass-premium manufacturer with a strong U.S. presence,” he says.
Conversely, when a deal — such as Inbev’s Anheuser Busch acquisition — focuses on saving operating costs, “a company can impose its way of doing things and produce a quick post-merger integration,” Prochno says. “But the Haier-GE deal suggests a best -of-both approach in which the process takes longer and synergies are harder to achieve initially.”
Prochno says emerging market firms like Haier can have a widely recognized brand in their home market with strong capabilities in such areas as manufacturing, logistics, service and innovation. These companies also could be leaders in most of the segments they operate and charge premium prices. “Yet, translating those advantages globally is not an easy task,” he says.
Some of Haier’s capabilities are tied to the local market. “Haier may well understand and meet the Chinese customers’ needs,” he says. “But its global capabilities — for example in manufacturing high quality products — are not enough to compete in foreign markets.”
The company “needs a global brand, relationship with sellers and more knowledge about consumers in each market,” he says. “Those elements take a long time to build.”
Haier has worked to develop those capabilities by entering the U.S. market as a niche player, starting small to learn about the market. But the company, Prochno says, has long given up on trying to grow organically.
The GE acquisition in 2016 has given a Haier “a huge boost to its global ambitions,” he says. “The approach makes sense. Becoming a mass market player presents a big challenge, but reverses the risk of being stuck as a niche brand.”
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