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WhiteGoodsCompetitorAssessment–HaierSamsungElectronicsChina(SECChina)August,2001CONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.Samsung010620BJ-HaierCONTENTS1.BackgroundinformationLocationStartingyearIPOdateNumberof

employeesBrandvalueMarketshareSalesrevenueEquitystructureEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureSalesProfit2.Strategy3.Product/marketCorporatestrategyKeyproductofferingsMarketpositionKeycustomersValuepropositionGeographicfocusPricing1Samsung010620BJ-HaierCONTENTS1.BackgroundinformationLocationStartingyearIPOdateNumberof

employeesBrandvalueMarketshareSalesrevenueEquitystructureEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureSalesProfit2.Strategy3.Product/marketCorporatestrategyKeyproductofferingsMarketpositionKeycustomersValuepropositionGeographicfocusPricing2Samsung010620BJ-HaierBACKGROUNDINFORMATION

Source: Annualreport;analystreports;website;YuegangInformationDaily Location:QingdaoStartingyear:1984IPOdate:ListedrefrigeratorbusinessinNovember,1993Brandvalue(2000):~RMB30billionMarketshare:Refrigerator:31%;Washingmachine:29%;AirConditioner:20%;Microwave:2%Numberofemployees:30,000Equitystructure:KeyshareholdersPercentageHaierGroupHaierElectronicInternationalCo,.Ltd31.44%17.93%SalesRevenue(2000):RMB40.6billion3Samsung010620BJ-HaierHAIER'sDEVELOPMENTWENTTHROUGHTHREESTAGES

Source: Haier'swebsite,literaturesearchBrandingDiversification

andexpansionGlobalization1984-19911992-19981998-KeyinitiativeBuiltastrongbrandnameinrefrigeratorsthroughawelldeve-lopedTQCsystemDiversifiedtheproductportfolioto"avoidhavingallthecom-pany'seggsinonebasket"throughmer-gersandacquisitionsTobuildaninternationalbrandnameAspirestobecomefortune500KeyresultsWonthefirstprizein"themostfavoritelightindustryproductsrefrigerators”5yearsinarowWonthestateprizeforqualitymanagementPresentedwiththecustomersatisfactioncupbyChina'scustomersatisfactionmovementcongressAcquired14enterprisesunderthe"eatingdormantfish"strategy.SuccessfullyturnedthesebusinessesaroundbyleveragingHaier'sbrandandintroducingHaier'sOECmanagementExpandedproductportfoliofrom1producttoover9,000productsin42categoriesSoldproductstoover160countriesandregionsandestablishedmorethan38,000salesoutletsacrosstheworld4Samsung010620BJ-HaierHaier'sbrand

valuein2000:

~RMB30billionHAIER'sBRANDBECAMETREMENDOUSINTANGIBLEASSET

Source: Literaturesearch,websiteExamplesofHaier'ssuccessfulinvestmentwithitsbrandAcquiredQingdaoRedStarElectronicCompanyandchangeditswashingmachine'sbrandinto"Haier".WiththehelpofOECmanagement,quicklyturnedthecompanyintoaprofitablebusiness.HaierbecametheNo.1brandforwashingmachinethenextyearandenjoyedthehighestmarketshareAcquiredcontrollingsharesofShundeWashingMachineFactorywithHaierbrandandquicklyturnedaroundthebusinessTookcontrollingsharesofHangzhouHaierElectronicCompanywithHaierbrandanddevelopedHaierseriesofcolorTV5Samsung010620BJ-Haier

Source: Website KitchenappliancesRefrigeratorFreezerMicrowaveGasrangeSmallappliancesElectricironVacuumcleanerVentilatingappliancesAirconditionerRangehoodAirpurifierCleaningappliancesWashingmachineElectricwaterheaterHAIEROFFERSBROADRANGEOFPRODUCTSHaier'skeyproductofferingsMobilehandsetTelecommunicationsBrowngoodsColorTVVCDTelephonePCPDAIT6Samsung010620BJ-HaierHAIERHASSUCCESSFULLYEXPANDEDINTOGLOBALMARKET

Source: AnnualreportDevelopglobaldistributionnetwork62distributorsandaround38,000outletsacrosstheworldSetupproductionfacilitiesoverseasSetupplantsinIndonesia,Philippines,Malaysia,EastEurope,US1999exportsRefrigerator:568,000unitsAirconditioner:200,000unitsWashingmachine:190,000unitsRefrigeratormarketshare

inUS(2000)<124L:30.1%183-266L:35.88%7Samsung010620BJ-HaierCONTENTS1.BackgroundinformationLocationStartingyearIPOdateNumberof

employeesBrandvalueMarketshareSalesrevenueEquitystructureEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureSalesProfit2.Strategy3.Product/marketCorporatestrategyKeyproductofferingsMarketpositionKeycustomersValuepropositionGeographicfocusPricing8Samsung010620BJ-HaierHAIER'sSTRATEGICFOCUSIN2001

Source: Haier'sannualreport"Valuewar"insteadof"pricewar"FocusonimprovingtechnicalcontentsinproductsProduce"individualized"productsGlobalcompetitiveadvantageArrangeallbusinessprocessesaroundorderflowBuildcompetitiveadvantageinquality,costandleadtimethrough"OEC"managementProductdevelopmentDevelopproductsthataretailoredfordifferentcountriesandregionsImprovetechnologyinlargecapacityrefrigeratorsandnetworkrefrigeratorsImproveproductioncapabilityforspecialrefrigeratorsHumanresourceProviderigoroustrainingstoemployeesanddevelopthemintoindustryexpertsandmanagementexpertsServiceBuildextensiveandexclusiveservicenetworktoensurestrongreputationofbeingaserviceleader9Samsung010620BJ-HaierCONTENTS1.BackgroundinformationLocationStartingyearIPOdateNumberof

employeesBrandvalueMarketshareSalesrevenueEquitystructureEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureSalesProfit2.Strategy3.Product/marketCorporatestrategyKeyproductofferingsMarketpositionKeycustomersValuepropositionGeographicfocusPricing10Samsung010620BJ-HaierHAIERS'sKEYWHITEGOODSOFFERING

Source: LiteraturesearchWhitegoodsWiderangeoftypesSide-by-sideRefrigeratorWashingmachineAirconditionerMicrowaveProducttypeDoublechamberDrumPulsatorWindowSplitPackagedCentralairGrillandnon-grillMechanicandelectronic11Samsung010620BJ-HaierHAIERWHITEGOODSMARKETSHARE,2000RefrigeratorWashingmachineAirconditionerPercent

Source: LIICMicrowave12Samsung010620BJ-Haier * RongshengandKeloncombined

Source: SINO-MR,GfK,LIIC 100%=1998Others1999200037.432.435.75.728.030.912.38.610.08.826.1Samsung

ElectroluxMeilingKelon*HaierSiemensHaierandKelonaretheleadingplayers.However,theirmarketsharesaredecreasingAlthoughlatecomerstothemarket,ElectroluxandSiemensarequicklybuildinguptheirpositionsbyfocusingonmid-tohigh-endandhigh-endmarketsComparedtootherMNCplayers,Samsung'sgrowthinthemarketisratherslowMillionsunits,percentRefrigeratormarketshareofmajorplayersinmajorcities4.5-6.215.6270.7101.23.9-6.9-5.0CAGR(98-00)

PercentSamsungHaier/Kelon/MeilingSiemens/Electrolux0.7HAIERISALEADINGPLAYERINMOSTOFWHITEGOODSMARKETSREFRIGERATOREXAMPLE13Samsung010620BJ-Haier * KelonandRongshengcombined

Source: SINO-MR,GfK,LIIC 100%=North

ChinaOthersSamsungElectroluxMeilingKelon*HaierSiemensElectroluxandSiemensaredoingparticularlywellinSouthwestApartfromSouthwest,MNCplayersaredoingbetterineastChinaandSouthChina,relativelymoreaffluentareasSamsungisrelativelystronginEastChinaandSouthChinaNorth

EastEastChinaCentral

SouthSouth

WestNorth

West32.05.31.730.836.65.90.421.926.031.010.53.324.420.411.09.820.833.8Refrigeratormarketshareinmajorcitiesbygeography,2000Millionunits,percentSamsungHaier/Kelon/MeilingSiemens/ElectroluxHAIERHASDEMONSTRATEDSTRENGTHINMOSTGEOGRAPHICREGIONSREFRIGERATOREXAMPLE14Samsung010620BJ-Haier * AnotherKelon'sbrand

Source: SINO-MR,GfK,LIIC 100%=<1,500OthersSamsungElectroluxMeilingKelonHaierSiemensSiemensisfocusingonveryhigh-endmarketwhileElectroluxisfocusingonmid-to-highendmarketSamsungdemonstratedstrengthinlow-pricemarketKelonusesmulti-brandstrategytotargetbothlow-to-midendmarketandmid-to-highendmarket1,500-

2,5002,000-

2,5002,500-

3,0003,000-

4,000>4,0002.01.92.017.819.624.80016.04.145.713.828.310.01.318.736.32.03.82.919.326.09.40.44.70.348.10.312.5Rongsheng*0Refrigeratormarketshareinmajorcitiesbypriceband,2000Millionunits,percentElectroluxKelon/RongshengSiemensSamsungHAIER’SPRODUCTSCOVERALMOSTALLPRICESEGMENTSREFRIGERATOREXAMPLE15Samsung010620BJ-Haier * AnotherKelon'sbrand

Source: SINO-MR,GfK,LIIC 100%=<100LOthersSamsungElectroluxMeilingKelon*HaierSiemens0.21.00.7HaierisleadinginmostmarketsElectroluxandSiemenshavestrongpositioninmid-to-largecapacitymarketsSamsungisverystronginsmallcapacity

(<100L)marketandisrelativelystronginmidcapacitymarket100-

150L150-

180L180-200L200-

225L225-

250L250-

300L>300L2.60.03Rongsheng*40.47.8051.213.401.49.602.821.424.80.84.229.735.511.010.12.91.17.834.45.013.730.4019.00.20Refrigeratormarketshareinmajorcitiesbyproducttype,2000SamsungHaier/Rongsheng/KelonSiemens/ElectroluxHAIER’SPRODUCTSCOVERBROADRANGEOFTYPESREFRIGERATOREXAMPLE16Samsung010620BJ-HaierCONTENTS1.BackgroundinformationLocationStartingyearIPOdateNumberof

employeesBrandvalueMarketshareSalesrevenueEquitystructureEraanalysis4.Valuechainstrategy5.Organizationandownership6.FinancialperformanceFocusonMarketing,

advertisingand

promotionDistribution(channel

andsalesforce)OrganizationstructureSalesProfit2.Strategy3.Product/marketCorporatestrategyKeyproductofferingsMarketpositionKeycustomersValuepropositionGeographicfocusPricing17Samsung010620BJ-HaierAPARTFROMSTRONGBRAND,HAIER’SKEYSTRENGTHSLIEINSTRONGATTENTIONTOR&D,SUCCESSFULSUPPLYCHAINANDLOGISTICSMANAGEMENT,WIDEDISTRIBUTIONNETWORKSANDQUALITYAFTER-SALESSERVICESKeystrengthsR&DLeadingtechnologiesinhighefficiency,inverter,energy-saving,environmentalprotection,etc.StrongR&Dresource(R&Dspendingaccountsfor45%ofrevenue)Quickcommercializationofnewtechnologies(75%commercializationrate)ProductdesignreflectingindividualizationFoundedHaierCentralInstituteofResearchwithpartnersfromUS,Japan,Germany,etc.Setup48R&DentitiesworldwideSetupnewproductexperimentcenterineachkeybusinessunitBuildtechnologyalliancewith15researchinstitutesincludingPhilips,C-MoldandNetscreenRecentdevelopmentLogisticsSophisticatedsupplychainmanagementandhighlyefficientlogisticsmanagementLaunched“Idesignmyownrefrigerator"marketingstrategyBuiltERP,BPPandCRMsystemsBuiltChina’slargestandmostadvancedlogisticscenterinQingdaoSalesandmarketingStrongbrandrecognitionInvestedRMB0.5billioninA&PDistributionHighlyefficientdistributionnetwork

(42distributioncenters,andover

9,000salesoutlets)Improveddeliverytimeto8hoursinhubcities,24hoursinsurroundingareas,4daysanywhereinthecountryAfter-salesserviceStrongreputationinofferingexcellent

after-salesserviceContinuepromotetheconcept"customersarealwaysright"18Samsung010620BJ-HaierHAIERLOGISTICSHASGAINEDRICHEXPERIENCEINSOPHISTICATEDSUPPLYCHAINMANAGEMENT

Source:Literatureresearch OptimizedsupplychainmanagementHaier’soperatingobjectiveZeroinventoryZerodistanceZeroworkingcapitalHaierlogisticsmanagementmodel:“one-flowandthree-net”Oneflow:orderinformationflowThreenetGlobalsupplierresourcenetworkGlobalcustomerresourcenetworkITnetworkCurrentcapabilitiesHaier’sorderflow~6,000orders/month~15,000sourcingpartsSupplierbase978supplier(58%lowerthanbefore)20%internationalsuppliersincludeGE,Emmerson,etc.Internetusage100%purchasingordersonline20%onlinepaymentPurchasingleadtime3dayscomparingwith10daysbefore19Samsung010620BJ-HaierHAI昏ER’拉sD忆IST逮RIB密UTI紫ON她CEN写TER纠HA嗓SA唯LA腰RGE神GE错OGR漏APH死YC鸣OVE食RAG党EI龄NC恳HIN团AHai志er’川sd粪ist灯rib跌uti扩on烘net挤wor竹kHai位er惨log共ist夜ics雀ce雾nte紧r(蹦Qin馅gda仓o)42dis最tri反bu-册tio秩nc机ent责ers1,55该0spec秤ialt槽yst逮ores象and些~9,央000平sale姨sou韵tlet丝式sDis造tri烫but谱ion既ne劳two口rk裙in沟Chi物naInte昆rnat次iona堡lpr丘esen旦ce:斑DG响for干air-启con筐rela次ted执prod业ucts苏at希Hamb逆urge携rHa暖rbor任,Ge逢rman同y,p铃artn互erin劣gwi梳thH愧HLAShan砍ghaiBei聪jin夜gWith帆est帐abli项shed袜net驾work役,Ha秩ier绩has林prom蝴ised疼ac属ompe扰titi雁vet取ime狱ofd妻eliv混ery8ho剧urs馋with恰inc蛾ore址citi唤es24h持ours猛in浓adja植cent托are庭aso翼fco怨rec淹itie相s4d况ays控fo碧rn行ati栽onw质ide丽di配str坦ibu皱tio狠nTra事nsp欧ort员ati伤on反equ途ipm值ent险:o贞ver谋10嗽,00限0t释ruc困ks纵in池Chi渔naHai隆er’壁sf侵aci祝lit浊ies20Sams蝇ung0统1062靠0BJ-鸽Haie清rHAIE寇RHA葡SA贱DIST借INCT细IVE斜DIST污RIBU牵TION挪APP选ROAC论HWH荐ICH群ISH滩EAVI疏LYF挖OCUS异ING无OND欺IREC幅TRE润TAIL寻SAL猎ESF漫ORB决ASE泳AND佳HUB访CIT诱IES..Sour潜ce:瞒Fie嫁ldi花nter愤view既;Mc盼Kins激eya保naly垫sisSpec族ialt坐ysh硬oresFir郊st甘tie谣rc躺itySec汗ond赶ti塑er柱cit鉴yThir易dti付erc辛ityHai芹er烧sho床p-i汗n-s内hop合sReta货iler止sin钱fir游stt民ier披citi辛esReta抽iler确sin被som年ela昌rge夸seco阀ndt准ier渣citi屿esSpec扣ialt回yst乒oreHaie摄rsh剂opi煮nsh掘opsReta求iler纽奉sin饶sec陪ond字tier还cit奸iesSpe株cia照lty蔽st物oreHaie准rsh咱opi废nsh堵opsRet扫ail脖ers浩in赌th也ird通ti透er稍cit造iesSpe压cia悄lty房诚st碍ore戚sHaie织rA/梨Csa摔les滤Co.Haie叔rsa纷les成bran递ches啦in蓄smal霉lse止cond剪tie蜻rci姐tiesWho伙les开ale木si亭ns胁ome饿th舰ird从ti披er婚cit音iesHaie冤rsa察les烦cent嘴eri脆nfi掩rst奇tier班cit刻iesHaie炸rsa仁les届cent激eri青nso侧mel忘arge昌sec哲ond率tier悦cit壤iesHaie赤rsa伯les聋cent邮ers镇inf枝irst鸭and顷sec招ond堤tier猾cit率iesHai伴er处sal皮es真bra记nch秘es法in队big烦th手ird批ti物er受cit花iesEas琴tr抓egi迁onNor安th妻reg驼ionWest坟reg美ionSout街hre丑gion21Sams梦ung0清1062在0BJ-界Haie崭rCONT择ENTS1.Back释grou青ndi衰nfor蒙mati优onLoca驼tionSta怪rti考ng蛮yea仔rIPO朱da喷teNum产ber被of铲e笔mpl乎oye绳esBran况dva金lueMar磨ket知sh帖areSal立es激rev悟enu存eEqu吧ity法st工ruc杏tur晓eEra招anal碍ysis4.Valu吴ech斩ain捐stra贩tegy5.Orga盈niza旷tion辰and赶own宝ersh匀ip6.Fin伐anc业ial悄pe病rfo躲rma蒜nceFocu护sonMark隶etin吧g,践adve驻rtis丢ing留and节pro猪moti乌onDist腿ribu孕tion粘(ch凉anne坦l

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