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issue: June 2009 APPLIANCE Magazine

International Report - China
Haier’s Recession Strategies


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Gu Qing and Chan Li, China correspondents

For Haier, the keys to minimizing recession are innovative technology, inventory control, and localized designs.

Haier’s new water heaters, available in two designs, combine the advantages of storage-tank and tankless heaters to deliver fast heating speed and high energy-efficiency.

The global financial crisis has made the year 2009 a very chilly one for Chinese appliance OEMs, many of whom are still struggling to find ways to survive the challenge. For Haier, China’s largest appliance manufacturer, the answers lie in technological advances, cautious inventory policy, and localized designs.

Keeping the Technological Edge

Su Ming, marketing director of Haier Air Conditioning, says, “In this chilly economic environment, Haier is concentrating on two markets: the foreign market and the rural market. And one thing those two markets have in common is that they both demand high-efficiency products. Our SVE technology answers the needs of both customer groups.”

As early as 2003, Haier’s Air Conditioning Division discovered from the results of a large-scale market study that customers ranked energy-efficiency as the top feature they desired in air-conditioners. In response, Haier restructured its research teams and put more than 100 engineers from its eight global research centers to work on developing high-efficiency technology. In early 2008, Haier introduced its Smart Variable-Speed Energy-Efficient (SVE) technology, which is reportedly 59% more energy-efficient than standard models. Its auto-sensing feature enables the compressor and the motor to automatically adjust to the ambient weather, reducing power waste. The air-duct system, evaporator, condenser distribution system, and the heat transfer coil have all been optimized for better energy-efficiency. The technology uses 180° sine wave controls and consumes only 0.8 W of standby power.

Haier’s focus on the foreign market might be paying off. Statistics indicate that in January 2009, exports of Chinese air-conditioners to the United States fell by 9.65% compared with the previous year, but Haier’s exports to the United States have actually increased by 20%. What’s more, its energy-efficient models account for 70% of those orders. Haier attributed this to U.S. consumers’ demand for energy-efficient air-conditioners. Wal-Mart, the world’s biggest retail chain, has already announced that it will be increasing its orders from Haier by 5%.

Sales of Haier’s air-conditioners in India are also growing rapidly. The OEM says its first Indian air-conditioning factory has already reached its production capacity, and work has begun on a new factory 300 km from New Delhi.

 

Haier’s new air-conditioners employ the firm’s proprietary Smart Variable-Speed Energy-Efficient (SVE) technology and is reportedly 59% more energy-efficient than standard models.

Localized Designs for India

To promote the SVE technology in foreign and rural markets, Haier has carried out extensive research on the needs of consumers in both markets. For example, when Haier Air Conditioning first set up its R&D team in India, one of the engineers’ tasks was to make a thorough survey of consumer preferences.

They discovered that one of the ways some Indian households fought the scorching heat of summer was to use thick drapes and even blankets to block out the 40°C or higher winds coming from the desert. This, however, could keep the air from circulating and make the indoor environment unbearably humid and muggy, especially noticeable when someone enters from the outside. This makes quick cooling one of the most popular air-conditioning features for Indian consumers. Haier’s research team consequently tailored its SVE technology models to incorporate fast cooling capacity.

In the domestic Chinese market, Haier has benefited from the government-financed program to subsidize rural purchases of home appliances. The program stipulates that only products that meet or exceed Class 3 of China’s energy-efficiency rating are eligible to participate. There are five classes in total, with Class 1 being the most energy-efficient. This rule gives Haier a big advantage—all of the 15 models it entered for the bid were accepted. Those models all feature the SVE technology to lower operation costs for the users.

Localized Designs for Rural China

Moreover, some modifications were made to better accommodate the rural environment. Taking into account the shaky electric grid in many remote areas, Haier designed those models to operate on a wide range of input voltages, so they can run smoothly without a voltage stabilizer. The exterior of the air-conditioners were also protected to keep farm rats from climbing in and damaging the parts. Since rural users are often not as tech-savvy as urban users, Haier did away with the complicated setting options on a regular remote control and designed a “one-button-does-it-all” interface. Depending on the weather condition, the air-conditioners will adjust the temperature automatically to choose the optimal comfort setting.

Haier seems fully prepared to serve the rural market. Over the past decade, it has set up an elaborate sales and distribution network, with 6500 exclusive stores across China’s more than 2000 counties. The OEM boasts that it is capable of delivering services and products to any Chinese household within 24 hours after the order is placed, no matter how remote the destinations might be. In addition, more than 38,000 trained personnel are in place across the country to offer speedy maintenance and repair services.

Inventory Management

Another reason that Haier seems to fare better in this economy than many of its fellow appliance OEMs in China is because it exercises a more cautious inventory policy. Many Chinese appliance OEMs are hurting from the hundreds of thousands of air-conditioners still sitting in their warehouses from the 2008 production cycle.

“But Haier doesn’t have inventory pressure. At present, every air-conditioner that comes off of our production line has a buyer. Otherwise we wouldn’t send production orders to our operations division,” says Su Ming.

“You should sell an air conditioner like you might sell seafood,” says Haier CEO Zhang Ruimin. “That is, we have to guarantee that at any given time Haier air-conditioners are using fresh technology, and this ultimately means that inventory is supplied on demand. Actually, this has been Haier’s best line of defense during this economic storm we are experiencing.”

 

Water Heaters Combine Technology and New Look

Things are equally busy in Haier’s water heater business. In February 2009, Haier announced a shift in brand positioning for its water heaters. Less than two months later, it unveiled the Chang Xiang series consisting of six electric water heaters, marking the firm’s official entry into China’s high-end water heater market.

Priced at around US$560 to $800, the heaters employ “3-D Super Fast Heating” technology, an improvement over the dynamic heating technology that Haier developed with the Chinese Academy of Sciences. First used in Haier’s TT series water heaters, the 3-D dynamic heating technology uses two heating modules that work independently or jointly to offer the combined advantages of the storage-tank and on-demand heaters. A small tank holds warm water, which heats up instantly when the switch is turned on, so users will not experience inconsistent water temperatures as more water is being heated up. While the original technology can raise the temperature of 3 L of water by 15°C (59°F) in a minute, the improved technology can now deliver a heat rise of 3 L per minute at 24°C (75.2°F).

To make sure the water heaters can stand up to the varying quality of water sources in China, the tanks of the new water heaters are made with decarburized enameling steel coated with porcelain enamel powder fired to extremely high temperatures to deliver durability and resistance to stress and acid. The tanks are also heavily insulated to minimize heat loss and the energy wasted on repetitive reheating.

The water heaters come in white and black, with three models available for each color. Contrary to the bulky look of traditional storage-tank water heaters, the new models are compact and are designed to be an elegant addition to modern bathroom decor. “Those models are compact because even the biggest inner tank only has a capacity of 30 L,” says a Haier engineer. A 30-L tank, however, can produce 196 L of hot shower water, thanks to the fast heating technology. Even in winter, Haier says, when water temperatures are below 5°C (41°F), hot water can be available in less than 30 minutes. The water heaters also allow users to program shower time in advance and input the number of users. By detecting the current indoor and groundwater temperatures, the heaters can calculate the time it takes to heat up enough water and determine when to start heating. Compared with traditional water heaters, Haier says the Chang Xiang series can reduce energy consumption by more than 30%.

Inspiration Comes from Customer Complaints

“Haier got the ideas for those groundbreaking products from customer complaints,” reveals a Haier technician. “Before we began development we surveyed more than 1000 consumers in 20 cities, and discovered that customer complaints focused on issues like ‘bulkiness,’ ‘designs hard to incorporate into bathroom decor,’ and ‘complicated buttons.’ So during the design process we addressed those issues.”

Each week, 10% of the employees from Haier’s Water Heater Division were in the field learning about the market and learning what customers want. The black and white exteriors were also based on customer suggestions. “This time we designed a total of 10 prototypes and finally narrowed it down to two designs based on poll results.”

Li Shengjun, China regional sales director of Haier Water Heater Division, says: “For many years Haier’s water heaters have been at the top of the domestic market, but have lagged in the high-end market. Now, with the Chang Xiang series and a brand makeover, we are expecting to reach a growth rate of 50% in the high-end market.”

 

Read more about China’s appliance industry:

ApplianceMagazine.com/china

http://ApplianceMagazine.com/china

Design for the High End in China

ApplianceMagazine.com/content/2210

Designs for Chinese Kitchens

ApplianceMagazine.com/content/2163

 

 

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