March 10,2009

Haier Says It's Quitting Manufacturing

By CSC staff, Shanghai

Facing steadily declining profits from its electronic appliance manufacturing, Haier Chairman and CEO Zhang Ruimin has declared that Haier was planning to quit most of its manufacturing to cut costs, better serve its clients and more quickly respond to market trends. He said Haier will transform from a manufacturer to a service company.

With 29 manufacturing bases, 8 comprehensive R&D centers and 19 overseas trade companies, Haier became the world's fourth largest white goods manufacturer last year, its accomplishment led by its quality guarantee and its positioning as a manufacturing enterprise.   

However, since becoming China's No. 1 electronic appliance maker, with annual operations income of 101.6 billion yuan, in 2004, Haier's development, in China and out, has slowed. 

Haier's annual operations income totaled 118 billion yuan in 2007, 20 billion yuan and more lower than that of Lenovo. That same year the company's profit was only 1.8 billion yuan, with a profit ratio of merely 1.5%. 

Haier's manufacturing halo has faded in extremely fierce competition. Zhang Ruimin admitted bitterly that, due to disappearing profits in white goods manufacturing, the company’s transformation looked unavoidable.  

Zhang Ruimin said Haier saw outsourcing as a way of coping with the current situation. Haier is negotiating with Taiwanese manufacturers to operate some or most of the company's factories so that it can focus on the development and marketing of its own products.

With factories on the Mainland, many Taiwanese Original Equipment Manufacturers (OEM), such as AOC, Proview and Quanta, have significantly cut their costs. Haier's earlier advantage in production costs has vanished.  

Haier began to cooperate with OEMs in recent years. Haier's desktops and laptops are already mainly produced by Taiwanese OEMs including Quanta, Foxconn, Allreach, and Pouchen. Some of Haier's kitchen appliances are also produced by outside manufacturers. For Haier, the most important point is to provide solutions to better satisfy its users, not producing everything itself.

Although Haier has its own LCD factory, it has also begun to outsource some of its production. AOC is cooperating with Haier, besides making LCD TV sets for foreign companies such as Sony and Philips.

Other big Chinese appliance makers, such as TCL, Changhong and Hisense, have all disavowed any moves away from the manufacturing sector to follow Haier's example, since they still see manufacturing as the basis and key advantage of Chinese enterprises. 



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