Investing in China’s Urbanisation Opportunities - KKR Takes a Stake in Haier

A strong sign here of the increasing competitive strength of businesses based in China that wish to expand into other markets around the world. US-based venture capitalist KKR has invested around $550m for a 10% stake in Qingdao Haier, China's largest refrigerator and washing machine maker.

We have mentioned Haier before on the Business Blog as a good example of an emerging markets multinational corporation (EMMC) and Haier is also recommended as a case study for students researching China & Emerging Markets for AQA BUSS4.

Haier has said it aims to build a premium brand in Europe rather than compete purely on price at the lower end of the market.

In return for its 10% equity investment investment, KKR will get one seat on the nine-member Board of Directors at Haier.

International expansion is a vital part of Haier's strategy. It already has a 27% market share in China compared with the next largest competitor (Midea Holdings) which has a market shar eof 13.5%. Haier's global market share of the "white goods market (washing machines, fridges, freezers etc) is estimated at around 9% (which is about the same as the other global market leader - US-based Whirlpool Corp).

The rationale for KKR's investment was outlined by their China CEO David Liu in a press release. It said that KKR would help Haier ...

"in its next phase of growth by capitalizing on the opportunities created by China's continued urbanization and increasing consumer-income trend".

This is a great example of an investor that is attracted by the opportunities arising from China's dramatic urbanisation programme. That influx of rural residents into cities is expected to dramatically boost demand for many consumer items that Haier makes and sells.

The scale of China's rush to urbanisation is illustrated below. Recent forecasts indicate that China will soon have an urban population of over 1 billion people and 200 cities with a population of over 1 million in each.