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Why It's Okay To Wash Potatoes in a Haier Washing Machine and Other Lessons From Philip Carmichael

Haier's Asia President, an American, Is Helping the Chinese Appliance Giant Create a Global Brand

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HONG KONG (AdAgeChina.com) -- China has evolved into the world's factory, but local companies are less successful at building brands, particularly on a global scale. Haier Group is often tipped to be the first. Haier is the largest home appliance brand in China, and the world's biggest by volume. The Qingdao-based company sells in over 160 countries but Asia/Pacific is the main growth engine.

Building a global brand "means investing continually in brand advertising year in and year out, regardless of the current economic cycle," said Philip Carmichael, the company's president, Asia/Pacific, in a speech last month at the Foreign Correspondents' Club in Hong Kong. "It also means playing on the global stage, not just playing on the China stage."

Mr. Carmichael, an American who joined Haier in August 2008, is responsible for marketing, sales and customer service in Asia.

He previously held senior positions at Fusion Systems, Lexmark, Rockwell International Corp. and McDonnell Douglas Corp. He first visited China in the mid-1970s and speaks fluent Mandarin. Below is an edited version of Mr. Carmichael's conversation with Ad Age China Editor Normandy Madden as well as questions posed to Mr. Carmichael during his FCC speech.

What's it like to be an American working for a Chinese company?
There's an unwritten rule. On Saturdays at the corporate headquarters, you have to work, but you walk the corridors and talk to other executives informally.

The main difference is face-to-face food. Like an overly aggressive mother-in-law, Chinese are obsessed with food. A lot of activity happens over dinner tables talking to somebody. Decisions or agreements made in social settings supercede all other decisions.

How is the operating style of western companies different from a state-owned business in China like Haier?
Chinese politics are not run in a top-down Confucian style, it's by consensus.

Haier's Philip Carmichael
Haier's Philip Carmichael

Sitting at that oval table, the highest ranking person cannot unilaterally say "yes" for the entire table. But anybody at that table can say "no" for the entire table. You have to understand that concept if you want to understand how large Chinese companies operate. Chinese look first at relationships, then at what's logical to do, and then what's the law. It's basically backwards to the western world.

A lot of Chinese companies initially going global have tried cloning this Chinese paradigm to try building businesses in the U.S. and Europe. The results are pretty mixed. You don't get successful in the highly sophisticated and competitive U.S. marketplace by having a Chinese person who's loosely affiliated with someone else in your company running your business in the U.S. You get successful by blending your company's unique value proposition with strong, international A-list management talent. Chinese ethnicity is not really relevant in that equation.

What is Haier's approach?
One of Haier's unique DNAs is really great world-class after-sales service in China. A call needs to be answered within three rings in Mandarin across the country, and if you're in a city, a service person has to be in your house within three hours, even if it's Sunday. That's the best level of service in China full-stop among any company.

A call came in to our nationwide call center in Sichuan. A customer complained there was dirt in the washing machine after the cycle finished. Haier sent a technician to take a look at it in this small village in Sichuan. The farmer showed him the washing machine located behind the house which had a load of freshly harvested and washed potatoes.

Most companies would react by saying, "This machine is not designed for this purpose." Haier's approach was to say, "This guy probably isn't the only one who's tried to wash potatoes. Is there a way for us to adapt this product to this requirement? Maybe we can make a machine that actually washes potatoes and clothes."

This example happened ten years ago and the machine we came up with still does a great job on potatoes and clothes. Last year, Haier introduced a machine that washes clothes without detergent using electronics. That machine helped us become the number one provider of laundry equipment across the world, not just in China.

Is Haier looking at opportunities to diversify?
Our particular industry is quite fragmented. We are the world's No. 1 appliance company and we have 5.1% of worldwide share, based on Euromonitor's December [2009] report. The next guy in line is Whirlpool who has 4.7%. In China, we're running overall around 30% and about 40% on high-end products. There's a lot of delta between 5% and 40%, so I think we have a fair piece to go before we think about diversification.

Has China emerged from the global economic slowdown?
I thought we took a pass on the economy crisis. We did not have a recession in China. We posted year-on-year actual gain in 2009 and I don't think a lot of economies in the world did.

There are around 45 cities in China with over five million people. It's a booming vibrant economy. The countryside continues to be a conservative place but also where people save their money and have money to spend now. Is the export boom over? I don't know, but the consumer and domestic opportunities in China continue to be tremendous.

Do you think Haier's top management in China understand the concept of brands beyond just name recognition?
Haier has become one of the top recognized brands in China and it has embraced the concept of branding. They know what they don't know [and] they know what made them successful in China will not work overseas They came from a product manufacturing and technology base. They are changing, but it won't happen overnight. It will take time.

Which ad agencies does Haier work with in Asia/Pacific? Agencies are chosen independently by managers in each country, so we work with quite a few in each market for product advertising, corporate advertising and endorsements...Should we put it together in one budget to get a better price? Maybe we should have one global agency.

In 2009, the budget I had for branding in Asia/Pacific was double what it was in 2008. That's what helped drive us. Every company in the world in our industry lost market share on a worldwide basis last year except for Haier, because we understand the importance of investing even in the tough times.

We have to be well known to consumers but how to do that differs. It's usually a woman 25-to-35 who decides which fridge to buy. Is involvement in women's magazines or cooking shows better than running a billboard inside an airport? New media is also important. In our demographic, everyone has cell phones and uses the internet.

For many consumers around the world, "made in China" means melamine and lead paint. How does Haier cope with this image problem?
Consumers want great quality but they also want kind of a complete peace of mind. When I introduced Haier-brand flat-panel TVs in Malaysia in late 2008, everyone in the industry was giving a six-month warranty on the machine and a one-year warranty on the panel. So Haier offered a two-year warranty on both and we grew about three times the marketplace. The next year, our competitors decided they had to follow us, so we took it a step further. We're offering a three-year all-risk warranty, which means if your dog pulls your LCD screen off the shelf and it breaks or your house is flooded, you're covered for three years. The important message is that because the quality really is there, a one-year warranty and a three-year warranty are the same.

What's the biggest challenge facing Haier in its efforts to build a global brand?
The real challenge facing Chinese companies going global and becoming a global brand is understanding how to play in the global business field by the global rules of transparency, the speed of technology and international decision-making. It's not about the produces or services per se, it's about how to operate. It will mean a commitment and a willingness, to invest in intangibles like branding for decades. Not one year or two years but decades. It will mean delegating decision making across the globe without being face-to-face with Chinese colleagues over a banquet table.

Where will the first global Chinese brand emerge?
It will likely come from IT, auto, white goods or cement, which are actually areas where China is already today the largest market in the world, and it will be a company which has the culture to embrace some of these key global concepts.


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