Six years after it came to India, Haier is ready to spread its wings
Haier of China entered India in 2004. By then, Korean consumer electronics giants LG and Samsung had established themselves firmly in the country. As a result, the going was tough for Haier from day one. In 2009-10, it reported a turnover (net of excise) of Rs 350 crore. With the size of the consumer electronics market pegged at Rs 30,000 crore per annum, this translates into a market share of 1.2 per cent — just a drop in the ocean. Pranay Dhabhai, who brought Haier to India and is now associated with Akai of Japan, says this was because India was just a distribution business for the Chinese company. “All decisions on the initial product offering were taken in China at the head office in Quindow,” says he. The added challenge was the perception of Chinese products. Three brands from across the Great Wall had come to India during those years: Haier, Konka and TCL. Of the three, only Haier has any noteworthy presence in the country. And Haier’s market share remains in single digits across product categories.
New beginning
But the baggage doesn’t deter Haier Appliances India President Eric Braganza who joined the company in September last year. His target is to leapfrog the company’s turnover to Rs 1,000 crore in 2010-11. What is more, he has decided to go after the top-end of the market — the value-conscious buyers who are willing to pay a premium for a superior product. “We always think about which products we should bring to the Indian market. There is a product-development team at the head office; we also have a team here. It’s a question of deciding if product A will sell in India or product B will work. Every month, we launch two or three new models,” says he.
One thing is for sure — it’s not going to be a cakewalk for Haier and Braganza. The market leaders have dug in their heels. LG, for instance, wants to raise India’s contribution in its global turnover from 6 per cent in 2009 to 10 per cent by 2012. By 2015, India will become its second- largest contributor after United States, ahead of South Korea. Samsung is no less aggressive, having hit a turnover of $2 billion in 2009. Japanese companies like Sony, Panasonic and Akai too have turned active. Indian street fighters like Videocon and Onida cannot be ignored. Moreover, the Indian consumer electronics market is skewed heavily in favour of televisions — almost 60 per cent —, whereas Haier’s strength is in refrigerators and washing machines: The two account for 48 per cent of its business in India. If it wants to be in the big league, it will have to crack the television market. The problem is that incumbents in the television market are strongly entrenched. “In television, LG is the market leader with a share of about 28 per cent followed by Samsung at 19 per cent, while Videocon is the third largest,” says PricewaterhouseCoopers Managing Consultant (transaction services strategy) Rashmi Upadhya.
Braganza is only too aware of the challenge. “In the consumer electronics market, television is a tough nut to crack as everyone is shifting to flat panels,” says Braganza. To create excitement in the market place, he wants to launch several new products in the near future. Thus, Haier will launch five new refrigerators (two direct cool and three frost-free) and five new front-load washing machines in the next two months. It’s also zeroing on deep freezers, as it’s a good business right now, says Braganza — ice-cream makers are buying these in large numbers. Haier plans to launch dish washers before Diwali. It launched water heaters in August and small kitchen appliances like blenders, toasters, citrus juicers and electric kettles in June. It has plans to bring cameras and laptops also. Next could be mobile phones. That will be big because India is the biggest market for mobile handsets in the world. Haier has had a relationship with Tata Teleservices in the past — it used to supply Tata Indicom handsets earlier. The company is keen that Haier should start selling mobile phones as well. However, the deal is not yet finalised. Haier will enter the 3D-LED TV market by this month-end.
| HAIER IN INDIA | |
| Market share | (in per cent) |
| Refrigerators | 6 |
| Washing machines | 3 - 4 |
| Televisions | less than 3 |
| Air-conditioners | 2.5-3 |
| Source: Industry and company | |
Not a cakewalk
The issue here is that small appliances and mobile handsets are sold through different channels than consumer electronics in India. So Haier cannot leverage its existing dealer network to sell them. And both the markets are intensely competitive. There are over a dozen well-known brands in the mobile handset market and prices have touched rock bottom. It is not easy for a new entrant to create a unique selling proposition around its products. In consumer appliances, there are several small players who sell at very low prices. Then, of course, there are national brands like Philips, Bajaj and Murphy Richards.
The second task for Haier is to get consumers to see and experience its products. Thus, it has come out with Haier Experience Centres. “We have increased our visibility in the last 10 months. Haier Experience Centres showcase a wide range of products, which is not possible at multi-brand outlets due to space constraints,” says Braganza. Typically, a multi-brand outlet is 1,500 sq ft, where it’s not possible to accommodate a lot of brands. This is where the experience centres fit in. These are franchisee stores that operate on revenue-sharing. “It’s about 5 per cent of Haier’s turnover right now. Towards the end of the year, we hope to get almost 12 per cent of our turnover from these centres,” says Braganza. The size of an experience centre is at least 1,200 sq ft. So far, the company has set up 26 such centres.
To add to the buzz, Haier has got Bollywood actor John Abraham on board with the campaign, ‘You Inspire Us’. “Haier’s advertising budget in the above-the-line category is Rs 35 crore, which is small compared to a lot of other brands,” says Braganza. That is true. From Rs 550 crore in 2009, LG Electronics has a budget of Rs 800 crore for 2010. Sony has allocated an advertising budget of Rs 50 crore to promote only its 3D range of products in India. What perhaps has helped is that consumers do not see Haier as a Chinese brand, says Braganza; most of them think it is European. Of course, all Haier communication does not mention China.
In a price-sensitive market like India, the key of course will be the price tag. Too high a price won’t find enough takers, and too low will discount the brand. “We are in the middle right now. We are above all the price-fighter brands. We are expensive than Videocon. In some product categories, we are more expensive than Godrej. We are slightly cheaper than LG and Samsung products,” says Braganza. It imports the high-end products from the US, Italy, Thailand and France. The large-volume products — refrigerators and washing machines — are made locally. “This year, we should end up with the production of half a million direct-cool refrigerators. We have a plant in Pune for direct-cool refrigerators. Our second line in the Pune plant will be operational by October that should take the refrigerator volumes to 1.5 million (out of which 70 per cent will be direct-cool refrigerators). The semi-automatic washing machine is made locally,” he adds.
Haier has 1,200 direct dealers and a network of another 4,000 dealers. Braganza believes that it is the distributors who have done the trick, so far. He says: “We offer 10 to15 per cent gross margin to our dealers. The industry standard is between 10 per cent and 12 per cent.” What helps is that Haier products, claims Braganza, are hassle-free, which calls for lesser after-sale headache for the dealers. Still, Haier wants to have its after-sale service in place. “We are looking at setting up our service centres across all state capitals. We have identified eight cities. We will take over the service. We will have to improve more on the service-franchisee network. We are trying to deliver a six-hour service in all metro cities (involves from the time of the call till the problem gets solved),” says Braganza. Rivals like Samsung have turned after-sale service into a USP. Will Haier’s efforts be good enough? Wait and watch.
