Sky-high acquisition, is Haier the winner?

At the beginning of the new year, Haier made the largest overseas acquisition by a Chinese company, taking over General Electric Co.'s home appliance manufacturing unit for $5.4 billion in cash. An analyst lamented that a Chinese manufacturer that started out selling cheap refrigerators used in American college dormitories has paid a lot of money to bring in the old grandfather of American home appliances! General Electric has long been interested in withdrawing from the traditional home appliance industry. Last year, Sweden's Electrolux home appliance company offered $3.3 billion to acquire it, but it ended up being stuck in the antitrust review of the US market. Haier's current product sales only account for one percent of the U.S. market, and there should be no suspense to pass the monopoly review.

General Electric is a century-old store. Its founder was Edison who invented the light bulb. After World War II, the growing American middle class had a strong demand for home appliances. The company established R&D and manufacturing in the southern state of Kentucky in 1951. Base, reliable quality, and sales channels throughout the United States, it has been a leader in the home appliance industry in the United States for half a century. However, the new generation of consumers does not like the brand heritage, but thinks that this is an uncool product of the ancestors. Fortunately, new homes in the United States contain appliances, and GE relies on the home construction industry to buy in bulk to maintain its position in the market. The manufacturing base in Louisville, Kentucky, which at its peak had 25,000 employees, now has only 6,000. When the Swedish manufacturer was interested in acquisitions, the locals were worried that the new owner might lay off a large number of white-collar employees with overlapping functions such as accounting and law because of the integration of the company's business in North America. Immediately won the favor, the mayor of Louisville gave a warm welcome.

A sky-high acquisition must be a winner in the long run?

In this transaction, Haier has obtained the license to use the GE brand for 40 years. It seems that in the short term, GE appliances will not be renamed. The average consumer recognizes the brand but does not recognize the business owner behind, so Sales should not be affected by the acquisition. If Haier wants to maintain the original management structure, the two teams will operate separately. Compared with Lenovo's acquisition of IBM's personal computer part in 2005, the management cost will be higher. According to Bloomberg Business News, GE's appliance division had sales of $5.9 billion in 2014 and earnings before interest and taxes of only $400 million. The yield is not high. For a sunset industry, where are the possibilities for improvement? Haier faces many challenges.

The overseas acquisitions of domestic companies that cost hundreds of millions of dollars always say that regardless of short-term returns, long-term winners must be won. For example, Lenovo bought IBM's personal computer part, and after several years of twists and turns, it finally became the world's largest personal computer business. This is not surprising. China's domestic market is huge. As long as the domestic sales are successful, the world's sales champions are within easy reach. In fact, Haier ranks first in the world in terms of unit sales of home appliances, including refrigerators, air conditioners, fans, mobile phones, and personal computers. Lenovo lost money last year, although it was related to the acquisition of IBM's server manufacturing plant and the layoff of employees, but relying on mass sales, the profit is meager and the resilience is low, which is also one of the important reasons. With global PC demand down 8 percent last year, Lenovo's performance is naturally difficult to buck the trend.

Pros and Cons of Winning Sales Channels by Acquisition

The home appliance industry also relies on mass production, and sales channels and after-sales service are very important. Korean home appliances also wanted to use acquisitions as a shortcut to enter the US market. For example, Samsung bought AST Research, and LG also tried to acquire Zenith, a once-famous American electronics company, as a platform to aggressively attack the international market. All in vain, and many losses. After all, Samsung and LG learned that the key to winning is to continuously launch innovative products and build their own brands.

Haier set up a factory in South Carolina as early as 2000, producing TVs, washing machines, air conditioners, microwave ovens and other home appliances, and currently has 3,500 employees. For more than ten years, Haier's development in the United States has been too low-key. At the same stage, South Korea's LG quickly swept the city and seized the mid-to-high-end market in the United States. It is hoped that Haier's acquisition of GE's home appliance division will inject new vitality into the old company and bring better performance in the development of new products.

To be sure, acquiring an existing sales channel is a viable way to go. Hisense has acquired Sharp's sales channels in North America, and at the same time launched Sharp products that consumers are already familiar with and Hisense products that are still unfamiliar, effectively expanding its popularity. In 2005, Haier was interested in acquiring Maytag, a home appliance company famous for its dishwashers in the United States. In 2010, it also tested the business of General Electric. In 2012, it purchased local manufacturers Fisher and Paykel in New Zealand, and then bought the Sanyo washing machine business of Panasonic. As a platform to the Southeast Asian market. How to make good use of these channels requires, in addition to having a keen business acumen, a considerable understanding of the local culture and society.

The key to the success or failure of domestic enterprises to go global lies in whether they find the right local leaders. Such top managers are themselves scarce resources and are willing to work for Chinese companies. Apart from favorable treatment, what are they pursuing? How to summarize their understanding of the development trend of the US and international markets? What skills did they bring? How do these foreign compradors balance the pressure from their Chinese owners, their employees and changes in the external market?

At the beginning of 2014, Haier America replaced the original CEO and hired Adrian Micu, who was originally from Romania, to take over. It is common for American companies to hire management elites from all over the world. The CEOs of Microsoft, Google, and PepsiCo are all Indians. However, if foreign companies want to enter the American market, it is very important for the leaders to have a deep understanding and recognition of the local culture and society. . After Geely acquired Volvo that year, it hired a former Volkswagen German executive to lead the Swedish team. The German and the Swedes under him could not get it together, and the internal friction was serious and the extremely valuable first two years were wasted.

Last summer, I saw a very familiar small refrigerator for Haier University dormitory in a hypermarket. Not much. Marketing strategies often emphasize building brand loyalty when consumers are young, and continuing to choose brands they are familiar with as their financial power grows. However, foreign millennials (equivalent to the post-80s generation in China) lacked that kind of warm feeling towards Haier. Instead, they had a high vision, and they didn’t bother to buy the refrigerator brand that was crowded in the dormitory. On the other hand, Haier's opportunity may also be here. If millennials find that Haier is not what it used to be, it has been reborn and has become a high-quality and fashionable brand, and its attitude is likely to make a 180-degree turn. Whether Haier can seize this opportunity and become bigger to stronger, we are eagerly waiting.

Zhou Naiping, Editor-in-Chief of World Manager, Visiting Professor of School of Media Design, Sun Yat-Sen University. Ms. Zhou taught East Asian history at American University and financial news at Hong Kong University. She was a senior reporter for Reuters, the founder and director of the Global Finance Project at the School of Journalism and Communication of Tsinghua University, and the author of International Financial News Knowledge and Reports. Op-eds represent personal views only.