Shanghai Daily news

What's the position of Chinese companies in the world? How should Chinese companies implement an international strategy? These are the two questions that domestic companies are concerned or puzzled with now that the WTO era is under way.
Once upon a time these companies focused on the domestic market. But after China became a WTO member, domestic and foreign markets have integrated. Now it's time to reposition ourselves as international players. This is a necessity, not an option.
Chinese companies have yet to prepare well for this international game, but the top foreign players are already here. This is not the Olympic Games where we can opt not to participate if we feel we are not qualified. In this game, there is no way to escape. Today top managers from Nokia, Sony, Phillips and Kodak are at the conference. In my eye, they are like senior teachers, while I am like a high-school graduate. How can I compete with them?
When I opened my company 20 years ago, I regarded Phillips as a miracle. You may wonder what my company looked like at that time. Let me tell you: The first regulation I made for company employees was that no one should urinate outside the toilets.
This embarrassing situation would not have popped up in the mind of Nokia or Phillips managers. But that was how I started.
It is against this background that Chinese companies are competing with global giants. The central government has put forward a strategy of "going abroad," but I think a three-step strategy is more desirable: going out, going in and going up.
Simply "going out" is not enough. You have to become a local citizen, which is what I mean by "going in." Finally, you should incorporate yourself into mainstream society and be respected - which is "going up."
Now the first question - what advantages do we have that would help us go out? Many people think cheap labor and cheap expenses are the two things domestic companies rely on the most. These are advantages, for sure, but they are not something to be totally relied on anymore. All multinational companies that set up in China have the same access to low labor and low costs.
Chinese companies have to find a unique advantage, which I believe is to establish our own name brands in foreign countries. Without our own name brands, we will never become bosses, but always work for others. This is not a desirable way to develop or make profits.
When Haier entered the foreign market, it adopted a different strategy from that of many Chinese companies. It didn't adopt the low cost, easy processing or simple export strategy. Unlike its fellow domestic competitors, Haier chose to accomplish difficult tasks - entering developed countries - first. It then moved to easier tasks like entering developing countries. The strategy proved to be very successful.
Among household electronic products China exports to foreign countries, Haier has the most products under its own brand name.
Once Chinese companies go out, how do we "go in" and localize? Last year China saw a great deal of complaints of anti-dumping. Obviously, exports based on domestic manufacturing is a dead end. Chinese companies should build factories in foreign countries. Haier built a factory in South Carolina in 1999. Many questioned that decision. In the first two years the factory didn't make a profit, but it hung in there. Now it has more or less broken even.
Building factories, however, is not enough. Chinese companies should endeavor to go into the local market. Haier's goal in the United States is to enter the top 10 electronic appliance retail outlets and it has realized this goal.
Finally, to "go up," Chinese companies must create a brand name that is fully accepted by the local market and can compete with world famous brands. It's difficult, but not impossible. Here is the solution: create customer needs.
For instance, there used to be only two ways to store wine in American households: cellars in big houses and kitchens in apartments. Haier invented a third way: wine cabinets that can be placed in living rooms. The cabinets fulfilled the need of middle-class people and therefore opened up a large market. It didn't get a piece of the pie that already existed; instead it created a new pie.
The wine cabinet example shows that selling a solution is better than selling just a product.
One woman inspired me when I was in Germany some time ago.
I asked if she knew Haier. She said yes. Then I asked whether she would buy one. She said no, and would opt for another brand, which in her eye had become an art piece and not just an electronic product.

(Zhang Ruimin is chairman and CEO of Haier Group. He made this speech at the Harvard Asian Business Conference in Shanghai on August 21.)