Foreign Acquisitions and What Everyone Got Wrong About Haier’s Purchase of GE Appliances


Haier’s acquisition of GE Appliances in mid-2016 resulted in the usual stories about Chinese outbound M&A – and about China’s global ambitions. Such foreign acquisitions are almost always regarded as a type of ambition or strength. Chinese companies are going global!

But sometimes such acquisitions can be a type of surrender, an acceptance that there was no other way to succeed in a market. I think Haier’s purchase of GE Appliances was, in fact, a great example of some of Chinese manufacturers’ weaknesses in the West. It was an example of when “Made in China” came up short.

Here’s my argument:

#1: After 16 years of effort, Haier had only 2-3% of the US market.

I occasionally write articles titled “What To Do When You Fail in China“. They detail the experiences of companies such as Carlsberg, Danone, Morgan Stanley and Ford in China. All of whom failed at some point. Some later came back and succeeded. Others just went home.

Haier in the USA is a similar story. They entered the US in 1999. They opened a $30M South Carolina factory. And they initially focused on low-cost, niche markets such as mini-fridges. All of this was consistent with how Chinese manufacturers often go abroad. And Haier did have some success in the value segment of large appliances (air conditioners, washing machines, etc.).

But by 2015, they still had only 2-3% market share. And their US revenue in 2014 was only about $500M. Despite being the world’s largest appliance manufacturer, they were ultimately unable to take any real US market share from dominant incumbents such as Whirlpool, GE, Samsung and Maytag (later acquired by Whirlpool).

#2: Haier had all the strengths of a big Chinese manufacturer. But they didn’t help much in US large appliances.

This is an important point. Chinese manufacturers have big strengths, including a large domestic market, economies of scale in manufacturing/production, low cost labor (fading) and R&D capabilities (increasing). There is a reason why “Made in China” is such a common term everywhere in the world. The vast majority of toys, socks, laptops, and cell phones are made in China. China is also called ‘the place where underwear comes from”.

Yet, none of this mattered in the US large appliances market, mostly washing machines, refrigerators and stoves. Haier’s experience is an example of the limitations of Chinese manufacturers in the West.

At first glance, you would think large appliances would be an area where Chinese manufacturers would have greater than normal strengths. For example:

  • These are not advanced machines. They do not require leading-edge technology or R&D.
  • Brand equity, the usual Western firewall against Chinese manufacturing scale, is not particularly strong in this situation. Refrigerators are mostly about price and features. And they are purchased infrequently and in a fairly rational manner.

So simple manufactured products with fairly weak brand power is an area ripe for the strength of Chinese manufacturing scale. But there are a couple problems with this.

  • First, these are large and heavy machines that are mostly manufactured locally due to the transportation costs. Being big in China doesn’t help you as much as in toys and bicycles, which you can ship easily.
  • Second, route-to-market is important here. Large appliances also have large inventory and retail costs. You can find 30 different candy bars stocked in every corner store. But washing machines are probably only stocked in 1-2 local stores in your area – and each store probably carries only 3-5 brands.
  • Third, the main buyers include builders, property developers and national trade buyers, such as IKEA and Best Buy. These are big, smart and aggressive buyers. You don’t want to be a small seller (i.e., 2-3% market share) in this situation.
  • And fourth (and most fundamentally), this is not an easy market for anyone. Nobody really has any big advantages in this business. The only real advantages you can have are size and operational efficiency, neither of which Haier had in the USA. More on this in the next point.

#3: The large appliances market is ultimately an “operational marathon” with low barriers to entry and few competitive advantages. Haier was always unlikely to win organically in this game of scale and efficiency.

A business school professor of mine used to say, “Over time, everything becomes a toaster.” Still to this day, whenever I see sexy new hardware companies like Xiaomi, GoPro or Fitbit, I always think “toaster”.

This is not true for every manufactured consumer product. But it is for many. The technology becomes commonplace. The production costs drop. And the brand doesn’t matter that much.

In large appliances, you don’t really get any big advantages or barriers to entry. Any big, well-funded company can enter the race and can mostly do what you do. Your only strategy is to keep running real fast operationally. So every year, you keep adding features. You keep optimizing your route to market. You keep hunting for efficiencies. And, most importantly, you keep trying to drive down your costs, mostly by productivity increases.

Ultimately, your financials probably show a low operating profit (say 5%), much of which must then reinvested in capital expenditures, R&D, and operational improvements. Note: both GE Appliances and market-leader Whirlpool have about 7% operating cash flow, of which half goes then back into capex. Operational marathons don’t usually throw off a lot of cash for shareholders.


So Haier had an interesting conundrum with the US market. The barriers to entry were low enough that it was actually easy to enter. It would have been much harder to enter a sector like semi-conductors or credit cards.

But once in, they found it very difficult to actually take market share from the leaders, most of whom have been in this operational race for 50 years. Every year, GE and Whirlpool add features, grind down operational costs, fine-tune their supply chain, renegotiate their buyers and so on. Unless one of them stumbles, it’s really hard to take market share.

Haier was simply unlikely to win organically any time soon. It is a tough market (Point 3) and their big strengths didn’t really help (Point 2).

One strength Haier did have was access to financing from China. They could buy market share. Haier’s acquisition of GE Appliances was supported by State-owned China Construction Bank and government-policy bank China Development bank. And, unsurprisingly, their $5.4B bid was significantly above everyone else.

So, yes, they made a large foreign acquisition. But it wasn’t necessarily a sign of strength.

Thanks for reading. – Jeff


I write and speak about “how rising Chinese consumers are disrupting global markets – with a special focus on digital China”.


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