Haier Acquisition Interest in Ge Appliance
It is ironic and coincidental this memo comes on the heals of the massive Anheuser-Busch/InBev acquisition. The leak of our interest in GE Appliance by Wall Street Journal blog “Deal Journal” has not sullied our position or interest. It is strongly recommended Haier begin to line up financing for an asset purchase of GE Appliance.
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Louisville, KY-based GE Appliance is an attractive acquisition target for Haier.As the US market continues to be brand driven, Quingdao Haier (and Haier America) is looking at its best chance to move full steam into the US market.
Haier has showed initial success moving into niche areas of the US market through compact refrigerators and air-conditioners. The acquisition of GE Appliance, a 101-year old titan in the U. S. white goods industry will fulfill Haier CEO Zhang Ruimin’s belief that “All success relies on one thing in overseas markets—creating a localized brand name. We have to make Americans feel that Haier is a localized U. S. rand instead of an imported Chinese brand.
The acquisition of GE Appliance will not be a quick, slam dunk in the U. S. market. Haier will not be able to simply slap a Haier sticker on a GE product. Haier will not be able place a GE sticker on a Haier product. To fully take advantage of the opportunity, Haier must be strategic about the rollout of the acquisition, significant changes to the GE brand and the homogenization of brands. Bringing GE Appliance under the Haier umbrella may remove some of the substantial roadblocks to getting top tier retailers and “big-box” stores to market Haier products.
Bringing GE Appliance under the Haier umbrella may help alleviate the stigma Haier endures as a Chinese import. Haier is no slouch in the global white goods market. To be clear, Haier boasts incredible volume. However, Haier’s American brand quality reputation would obviously be helped by fusing GE’s track record of customer satisfaction. The GE brand not only has incredible longevity but is still an industry leader in well-crafted appliances. Caution must be paid to the reality that Haier-GE may suffer initially as reputations of high-quality and low-quality are married together.There is intense pressure in Washington, D.
C. and across the US market to alleviate the amount of US holdings owned by Chinese-backed organizations. As the US economy continues to struggle more and more media sources are highlighting the fact China owns $ billions of US debt. From a public policy standpoint, this fact merely highlights how important US-China relations are. But from a public relations standpoint, a multi-billion dollar purchase of a long-standing, trusted US company by a relative new-coming Chinese firm will be difficult enough overcome politically.It might be near impossible to do if the purse strings are attached directly to the Chinese government or the major financing banks. A move similar to Lenovo’s slow-play transition from IBM computers to Lenovo may not have the same positive result.
Recent massive recalls of Chinese-made products, food and cosmetics have created unease about imported goods. One of the strongest assets Haier will purchase is GE’s public image as a long-standing industry leader. The US market for appliances is still brand driven.Haier America has made great strides infiltrating the market through small appliances like dormitory refrigerators and window-sill portable air conditioners. But the cost of developing and marketing a full-line of products in major retailers without an industry reputation behind your name (as Samsung and LG already boast) may exceed the capital outlay needed to fund an outright acquisition of market share. It is believed other named bidders may not be in the same advantageous position as Haier.Electrolux, LG and Bosch are already heavily marketing a full range of appliances in every major market.
Moves by any of these manufactures might cannibalize their market share as consumers opt between the GE brand and other established brands. Haier’s small market share serves as an advantage in that consumers choice of a GE (and eventually Haier) product will only enhance value to Haier. At the same time, Haier must stress the quality of product gained through the acquisition of GE. LG has already attained a number one customer satisfaction rating from fickle J.D. Power and Associates for washers and dryers. There is immense value in Haier’s ownership of the GE brand.
Such value may warrant a higher-than-expected winning bid for the assets GE is the standard bearer in the US appliance, manufacturing, advanced technology, energy and healthcare industries. The GE philosophy of treating efficiency and cost-conciousness like a martial art coupled with an intense drive for innovation can only be an asset to Haier. On an initial pass, the strategy and vision of Haier are perfectly matched.Taking a page from Haier’s playbook, increasing global brand awareness, achieving global expansion of operations using a localized approach for each new market and establishing a foothold in new markets to eventually introduce full line of products can be accomplished with the right recipe following a GE-Haier Merger. This acquisition represents a great deal to be gained by both sides. In a recession crunched 2007, GE Appliance generated $7. 2 billion in gross revenue.
An impressive statistic by itself made even greater by the immense drain of medium manufacturing the U. S.This strength means GE can command a price at the higher end of the industry-estimated $5 billion to $8 billion price tag. The ability to respond quickly to market demands is a strength Haier already possesses. It is thanks to this fast-acting product development that Haier has staved off intense competition in China and Asia. In addition to that, the Haier group’s Haier Logisitics is a gem in the organization which will only be enhanced with a GE/Haier merger. Haier Logisitics “just-in-time” distribution may provide incredible value to the labor-cost-heavy American white goods giant.
CEO Zhang’s (and indeed the entire organization’s) focus on localizing manufacturing, development and distribution plays into this merger. GE Appliance already has an incredibly interconnect channel for manufacturing-to-point-of-sale. Why would Haier not want to tap into such a resource? There is not a retail point in the U. S. which does not carry GE products. Without a full line of products introduced in the market, even if every store that carried a GE product carried a Haier product, the unrealized market share would be tremendous.This acquisition gets a full, multi-faceted line of GE/Haier products (which have already met stringent U.
S. manufacturing standards) in the stores much more rapidly. Haier would be wise to slowly homogenize the GE brand with Haier. At all costs, this merger should avoid following the path of U. S. -based Whirlpool. The conglomerate is managing a dozen brands of a wide variety of price points.
The purchase of a steady, tried-and-true name like GE, while trying to get greater volume purchase from Chinese-made plants, requires Haier to consider re-badging Haier America’s products as GE lines.Haier’s very own CEO Zhang Ruimin summed up our recommendation for the acquisition of GE Appliance best, “This may be our best and last opportunity to get solid footing in the U. S. market. ” Source consulted Chen, George and Michael Flaherty, “Haier reportedly sniffs U. S. opportunity in GE unit” International Herald Tribune from Reuters News Service.
May 22, 2008 Gerard, Kim “What to make of LG and Haier eyeing GE’s appliance unit” cnet. com May 27, 2008