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Market Insight

Turbulence Expected from Haier’s Planned Acquisition of GE Appliances

February 03, 2016

Dinesh Kithany Dinesh Kithany Lead Industry Analyst, Wireless Power & Power Supply, IHS Markit
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Haier has been persistent in its attempts to acquire GE Appliances business. The company’s perseverance finally seems to be paying off, so it could now be time for Haier to shift gears and become more aggressive in the marketplace. This acquisition would not only increase Haier’s footprint in the United States and global markets, but also change the overall landscape of the global home appliance market, including the U.S.

Keeping in mind the current volatility of the home appliance market -- and the fact that many global appliance makers are trying to grow market share in the U.S. -- the effects of the acquisition of GE Appliances by Qingdao Haier are many.

Following are possible outcomes in the U.S. and global home appliances markets, if this acquisition receives regulatory approval:

  • Haier to shifts gears: Haier would possibly switch gears from being a persistent player to an aggressive player. This post-acquisition market scenario has already started to make the market more volatile, with competitors on high alert, possibly working on aggressive strategy as well.
  • Haier gains global footprint: Haier for long have being aspiring to grow business outside of Chinese market, which has recently shown signs of slower growth. This acquisition would make it easier and faster for Haier to increase its global footprint, in the U.S. and also other regional markets.
    • Haier also gains footprint in Latin America: Haier would also gain more access and share within the Latin America market, especially in Mexico, due to GE’s majority stake in Mexican-based Mabe appliance company.
  • Haier might take ‘Made in America’ brand global: This acquisition allows Haier to use GE’s “Made in America” brand for 40 years, there is a possibility that Haier might take the GE brand global; until now GE Appliances have only focussed on the U.S. market.
  • Haier gains share of premium segment: With the GE Appliance brand, Haier would immediately gain a major premium-segment share of the home-appliance market, which Haier has not achieved with its own brand. There doesn’t seem to be any kind of clash between GE Appliances and Haier’s brands across the various product segments, which gives Haier greater leverage across price-segments in the total market.
  • Haier also gains share and expertise of “builders” segment: Haier would suddenly become a key player within the U.S. builders segment, not only promoting the well-established GE brand, but also leveraging the acquisition benefits and promoting its own Haier brand among a new audience of builders, property managers and architects. With this added expertise, Haier would also grow its share among builders in other regions catering to additional segments of the housing market.
  • Haier to retain GE business in totality: The acquisition may not result in any closed factories or employee lay-offs, as Qingdao Haier plans to run the GE Appliance division independently from Haier America operations, which have a limited presence in the U.S. market. In fact Haier America and GE Appliance may actually compete against each other in the marketplace.
    • Using open “entrepreneurial platforms” that serve small enterprises within the company, Qingdao Haier would continue to adopt a decentralized management style developed by Zhang Ruimin, founder, chairman and CEO of Haier Group.
    • Haier might approach this acquisition as it did with its acquisition of Fisher & Paykel, providing GE Appliance the same level of management independence and empowerment. It appears that the Fisher & Paykel ship continues to sail quite smoothly, thanks to the empowerment and support from Haier Group.
  • Haier gains GE expertise and access to their loyal customer base: Haier, which is developing localized products and services for the U.S. market, would immediately gain access to GE’s vast knowledge and expertise running a sustainable appliance business, with a loyal customer base, a large supplier network and a large distribution network in the United States.
  • Haier becomes a consumer electronics giant. Over the past few years, Haier has gradually tried to increase its business beyond the home appliance market, launching smartphones, smartwatches, tablets, smart TVs and other consumer electronic devices. With access to the largest and wealthiest consumer electronics market, Haier’s ambition could be achieved sooner than expected.
  • Haier gains technology edge: Haier has already been reasonably successful in promoting its smart connected appliances in China, and the company would further gain from GE Appliances’ cutting-edge technological standards -- leveraging them into some breakthrough developments in the connectivity segment, due to GE’s decade of expertise in this area.
    • Haier could transform into a technology and service provider company much faster than expected. As Zhang said, “it’s survival of the fittest. Haier must transform from a traditional manufacturing enterprise into an Internet business that embraces technology.”
  • Haier becomes a key strategic partner with GE Group: Aside from the $5.4 billion purchase offer by Haier to acquire GE’s appliance business, Haier gains even more value in being a strategic partner with the wider GE Group – jointly expanding into automotive, healthcare, industrial Internet, advanced manufacturing and other high-tech industry sectors.
    • Haier will use this partnership with GE to transform itself froma local player to a global giant and from a manufacturing company to a technology giant.
  • Haier becomes a front-runner: This acquisition would make Haier an aggressive front runner among other Asian competitors such as Samsung, LGE, Panasonic and Midea in the United States.
    • Whirlpool, Electrolux, Bosch, Arcelik and other global appliance makers, that are already facing tough competition from Samsung and LGE in the U.S. market, would have another strong and aggressive player to compete against.
  • Change in the overall market landscape: Post-acquisition, the market dynamics and the landscape of the home appliance market would change in the US and globally, as Haier, Midea, Hisense and other Asian players aggressively push to gain market share. This would encourage Whirlpool, Electrolux, Bosch, Arcelik and other Western players to respond accordingly.
  • Market turns price competitive: The home appliance market would get more competitive on price, which would benefit consumers.
    • While Samsung and LGE are being accused of price dumping in the U.S. market, Whirlpool -- the closest competitor to GE Appliances -- has reason to worry. This change in market landscape would also make the Electrolux plan to gain share in the U.S. market tougher.
  • Haier may replicate its TV strategy: An example of how aggressive Haier can get can be seen in its recent approach in the Korean TV market, where it launched lower-priced TVs with updated technology against global stalwarts, Samsung and LGE.
  • Haier may take the lead in the display market: Haier’s entry into the TV business could also affect how display technology would be used in home appliances. Use of display technology within the home appliance market, which is already set to evolve rapidly, would grow faster with more use of displays, larger displays, multi-colour displays, touch displays, and much more.
After the sell-off of the GE Appliances business, there will not be many companies left to acquire. It will be interesting to see the strategies appliance makers come up with to gain market share. 

Geography
China Global USA
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