China's Haier eyes U.S. living rooms

It was a sales call saved by leftovers.

An executive at an electronics distributor brushed off a pitch for a meeting, recalled Richard Hasenfus, director of business development at Haier America. A few minutes later, he called back and told Hasenfus to come in. He had something to show him.

After the first call, the executive went to heat up his lunch and saw that the brand name on the company microwave was Haier. Back at his desk, he looked at the mini-fridge: Haier again.

Although few Americans recognize the name, there's a chance that the name could become more familiar to shoppers over the next five years. The fourth-largest appliance maker in the world (and a producer of cell phones and other devices in China and other emerging nations), Haier is trying to expand its presence globally and go upmarket. The company has been selling air conditioners, fridges, and other household items in the U.S. since 2000. But in 2006, it began selling LCD televisions. In November, it began selling music players.

Haier at a glance

• The company was founded in 1984 in Qingdao, China, but its actual history goes way back. Its roots can be traced to a fridge factory in the early part of the 20th century. The government then turned it into a state-owned enterprise, which formed the basis of the current Haier.

• In 1999, it opened a U.S. division and became the first Chinese company to open a factory in this country (in Camden, S.C.).

• In 2006, it signed a deal to be a sponsor for the NBA to help promote its TVs in the U.S.

• The CEO is Zhang Ruimin, a former party official. One of the turning points in Haier's history came early on when he ordered the destruction of some defective fridges. He even smashed a fridge with a sledgehammer on his own. Quality since then has been a constant company theme. Interestingly, Samsung executives often attribute their company's turnaround to a similar cell phone smashing event.

• In November, it signed a strategic alliance with Intel to boost its PC division. The deal may become a prelude to more actively export PCs.

Some analysts say the company may also try to branch into PCs here. In China, Haier is ranked seventh, but it saw shipments rise 67 percent in the third quarter.

Graduating from washing machines and Chinese cell phones to consumer electronics in the U.S. won't be easy, but it's also not impossible. Back in 1999 and 2000, Americans viewed Samsung as a low-end purveyor of tube TVs. By 2004, it started competing for primacy in consumer electronics with Sony.

A few years later, LG went from the back shelves at Home Depot and Fry's Electronics to fashion shows. The Legend Group tried for years to break out of its domestic Chinese market. Finally, by buying IBM's PC unit, the company, now called Lenovo, pulled it off.

"Haier has a fairly good reputation in China, but that is among local brands, whereas multinational brands are often viewed at a premium," said Bryan Ma, an analyst at IDC. "In that sense, one could argue that it is similar to Lenovo's position before the IBM acquisition as one of the best local brands in the market."

So far, Haier's moves follow lockstep into the strategies forged by its predecessors. Like Samsung and Lenovo, Haier has sought out visible sports partnerships to market its products. In 2006, it became an official sponsor of the National Basketball Association. (Haier also tried to make a name brand acquisition in appliances, but its attempted takeover of Maytag in 2005 was foiled by Whirlpool.)

Similarly, Haier is trying to incorporate novel technologies and features into its products rather than emphasize the low-cost advantage it derives from being a Chinese company.

The Ibiza music player, for instance, contains a Wi-Fi chip that directly streams music from Rhapsody, the online music service from RealNetworks. This puts it one step ahead of Microsoft; the Zune only has Wi-Fi synchronization, according to Haier. Only a few other manufacturers actually have direct streaming so far. (Haier beat Philips in that regard by a few months.) In addition, Haier's high-end LCD televisions come on a swiveling base, a small plus.

Another product, due in China soon, is a cell phone that can conduct two calls simultaneously. It has two SIM cards and two standby modes. If you own two cell phones--which a large number of people in Asia and Europe and a growing number of Americans do--this reduces your hardware burden by half.

But Haier's push isn't completely identical to its predecessors. Before their meteoric rises, both Samsung and LG were two of the dominant producers of memory, flash chips, and flat panels, some of the most crucial components required for PCs and TVs. The two emerged by marrying their components to industrial design and carpet-bombing style advertising.

Haier doesn't have nearly the same back-end expertise. Nonetheless, it can't be dismissed as a lightweight. The company has 240 subsidiaries and 30 design centers and production facilities. It even has a U.S. factory, a facility in Camden, S.C., that's been making air conditioners for more than seven years.

"We were the first Chinese company to open a factory in the U.S.," said Shariff Kan, executive vice president of marketing for Haier America. "We created jobs here."

Haier also sits on many of China's national technological standards boards as well as produces some types of chips. The company even serves as a contract manufacturer. Some of its phones and TVs are actually already in the U.S.--they are just sold under different brand names.

And despite a common belief that it takes years for an Asian company to understand western markets, Haier has already achieved a few small successes in reaching middle-class and upper middle-class Americans. After margins began to erode in the mini-fridge market in the early 2000s, executives huddled and came up with the household wine cellar, which essentially is a modified mini at a higher price.

"We created a category. You can put them in the kitchen with no install required," Kan said. "This wasn't a product from China. Haier America came up with it."

Haier also introduced portable air conditioners to the market.

Right now, Haier has a long way to go to become a global brand. It does not have deals in place with major electronics chains like Best Buy for its TVs. It doesn't even have many deals with large, independent retailers. Instead, it sells its TVs through Web sites like PC Universe.

Getting into the phone business presents challenges, too. Carriers in the U.S. typically only want to resell phones from the big brands. If and when networks become unlocked, Haier will gain its chance to break into the U.S.

In the meantime, it has concentrated on Central and South America. Although networks are locked in those countries, the carriers are more open to new brands, Hasenfus said. In Venezuela, the company is marketing its more upscale phones, like the shiny Sterling. Its distributor went through 10,000 of the high-end phones in the first month, the company said. By contrast, in Guatemala and Mexico, Haier is aiming for the low-end market.

"They want phones that cost $20, $25," Hasenfus said. "Sixty-five percent of the market for Latin America is for low-end phones."

More importantly, the company will have to overcome the perception of products designed and made in China. (Western companies get products manufactured in China, but they oversee much of the design and engineering.)

"You really know how to ask a question where it hurts," Kan joked. But watch and wait, he urged. The panels on the company's LCD TVs are from Samsung and LG, so there's a good chance Americans will find the quality acceptable. The company is trying to establish further partnerships, and many reviews so far are generally positive.

Still not convinced a company based in China is ready to go mainstream in America without a Lenovo-IBM type deal? Go into the Cellar at Macy's, where the department store sells appliances as lifestyle accessories, and look closely at a few of the coffee and panini makers. Then go to electronics and examine the DVD players.

You might recognize a name.