Haier

FORTUNE: Haier Reaches Higher Thinking out loud one day last year, Michael Jemal created the freezer of his dreams. It would open from the top but also have a bottom drawer that kids could reach into to grab an ice cream. The two compartments would have different temperatures--very cold for storage and not-so-cold for more frequently used products. And the whole unit would be small and stylish enough to be in the kitchen rather than banished to the basement or the garage. It was just a back-of-the-napkin sketch that Jemal, who heads the U.S. sales arm of Chinese appliance maker Haier, outlined to Zhang Ruimin, the company's chairman and chief executive, during a visit to headquarters. Engineers, designers, and marketers, Jemal knew, would have to consider the idea first, then flesh it out, a time-consuming process. But the next day Zhang, barely able to control his glee, ushered Jemal into a conference room and unveiled a working model of Jemal's fantasy freezer. "I knew he liked to work fast," Jemal says, "but I was still amazed." Ten months later the waist-high Access Plus freezer, in an array of vibrant colors, was on sale at the Lowe's retail chain across America. And while the product went from concept to kitchen improbably fast, it is no rush job. Good Housekeeping has given the freezer its seal of approval. Haier is a company in a hurry. Seventeen years ago Zhang, now 53, took over a nearly bankrupt refrigerator factory in Qingdao, a city on China's east coast best known as the home of Tsingtao beer. Today Haier is the world's No. 2 refrigerator maker, after Whirlpool, and has expanded into washing machines, air conditioners, small appliances, televisions, even computers and cellphones. It conquered its home market (29% market share for refrigerators, 26% for washing machines) by emphasizing product quality, studying customer needs, and relentlessly pressing its brand--unusual strategies for China. Now it is spreading across Asia, opening factories in Indonesia and the Philippines. With global revenues topping $7 billion, Haier has set its sights on Japan, Europe, and the U.S. As shelf after shelf of made in china cuddly toys attest, Chinese exports are hardly uncommon in the U.S. But a Chinese company exporting under its own brand name is. "It's very difficult to set up a name brand," says Zhang. "But if you don't take this road, you will always work for others." As for a major Chinese company manufacturing in the U.S. for the U.S. market--well, that had never been done before. The company isn't starting from scratch. Since it began exporting to the U.S. in the early 1990s, Haier has captured about half the U.S. market for compact refrigerators, the kind seen in college dorms or hotel rooms. It also pioneered electric wine cellars--those inexpensive stand-alone cabinets for wine lovers who lack drafty chateaus in which to store their treasures. By finding such niches, Haier racked up U.S. sales of about $200 million last year and says it earned a profit, though it won't reveal how much. But the college dorm and oenophile markets will take Haier only so far. To reach his goal of $1 billion in sales by 2005, Jemal says, "we need core products to attain mass retail presence." That means mainstream items like air conditioners and washing machines and, especially, family-sized refrigerators, the product with which Haier got its start. But while Asian brand names have become common on everything from televisions to cars, the major-appliance market in the U.S. is still dominated by Whirlpool, General Electric, and Maytag. The biggest foreign player is Sweden's Electrolux, which got into U.S. kitchens by buying Frigidaire. The four companies together make 98% of the nine million standard refrigerators sold in the U.S. each year. Haier's goal: 10% of that market by 2005. "Given what we've done in other categories," Jemal says, "I don't see why we can't achieve that." Whether he succeeds depends in large part on what's happening in Camden, S.C., a small town best known for the annual Carolina Cup steeplechase and a Revolutionary War battle the Americans lost. In 2000, Haier became the first Chinese company to open a major manufacturing facility in the U.S. Last year its first products went on sale. And this year the $40 million factory expects to turn out 200,000 family-sized refrigerators. If it seems odd for a Chinese company to open a factory in the U.S.--the traffic is typically in the other direction, since labor costs are so much lower in China--Haier has its reasons. First, it is expensive to ship big, hollow refrigerators from China. Second, Haier likes design and production to be close to its markets. (The group has eight design centers and 13 factories outside China.) A U.S. factory also allows Haier to stick a made in the u.s.a. label on its products and is a sign to retailers that the company is in America to stay. Haier is not assembling parts just from China in South Carolina. Most of the plastic parts are locally sourced. The compressor is from Brazil. Allan Guberski, a former Amana factory manager who oversees daily operations, says local content is nearly as high as that of U.S. rivals, but Haier can offer greater value through better designs and production techniques. He's putting more equipment in place to reach 300,000 units next year. "It's going to be tough for anyone to catch us once we get going later this year," he predicts. The factory walls are lined with banners in Chinese and English: a product with defects is useless or innovation is the soul of haier culture. Also ubiquitous are posters featuring drawings and aphorisms by Haier workers in China. One poster, featuring a ship, reads, "An enterprise, its management system, capital, and brand are likened to a man, a soul, a boat, and a sail." A large open space on the factory floor has a number of boxes drawn with yellow paint. Work team members take turns standing inside the boxes to relate news or offer insights. FORTUNE INTERNATIONAL: COVER STORY FORTUNE Monday, September 16, 2002 By Jonathan Sprague