Posted: June 15, 2016 |  AUTHOR: KEN FOX | CONTACT ME

 

headquartersDavid Aaker, Professor Emeritus of Marketing and Public Policy at the University of California-Berkeley, gave a recent graduate class lecture on the value of storytelling. Using a strategic story about a company or its brand can be very effective in communicating company values and imagery. Professor Aaker claims the use of storytelling clarifies and inspires demand and loyalty for a company’s products. Stories in this way are memorable, are likely to be retold and can be persuasive.

Emphasizing Haier, Dr.Aaker cited great storytelling examples in his lecture, which also included: L.L. Bean, Nordstrom and Molson. The Haier story went something like this:

A Chinese company called Haier, which manufactures household appliances such as air conditioners, refrigerators and washing machines was in poor shape. It’s sales were so low the owners were thinking of closing the company. It’s main factory was dirty, not well organized and suffered from high product returns. The Qingdao city government (where it is based) appointed a middle manager, Zhang Ruimin, as the new head of the main factory to try to turn around the company.

Zhang immediately assessed the current final production and found 20% of the refrigerator products defective. He immediately stopped further production, gathered the finished products together along with all factory employees around it. He passed out sledge hammers and along with the workers then began smashing all the products and told those assembled to start over. This starting over included a “Zero Defect” quality standard, new production techniques, quality controls, new supervision, employee training, entrepreneurship and recognition opportunities.

haier ceo Today, Haier is the largest home appliance manufacturer in the world, and has received many international awards and accolades.

Haier has transformed from an enterprise that manufactures household appliances to a platform which incubates entrepreneurs for society. It has empowered its employees in new ways. Haier’s innovation and management models have been recognized worldwide. Harvard University published a case study on Haier, and Zhang Ruimin made Fortune Magazine’s “The World’s 50 Greatest Leaders” list in 2014.

Company Overview

Haier was founded in 1984 and is based in Qingdao City, China. The company entered the competitive U.S. home appliance market in 1999. Over time, it made headway in the market, with Haier household alliances (initially mini refrigerators) being sold at Walmart, Best Buy, Target and other retailers.

Haier adopted a clear strategy to build its business including  four phases:

Phase 1-Brand Building Phase (1984-1991)

This phase included the company implementing its “Zero Defect” quality standard,      reaching beyond a refrigerator line, and emphasizing its service component.

Phase 2-Diversification Development Phase (1991-1998)

Haier became more competitive in this phase, as it faced new aggressive pricing and  product entries.  The company expanded its product lines beyond refrigerators, including heaters, air conditioners and televisions. Haier became the number one home appliance brand in China during this phase..

Phase 3-Globalization Phase (1998-2005)

Haier started international expansion in conjunction with the beginning of the 21st century. It targeted six key regional markets: North America, Europe, Middle East/Africa, Asia-Pacific, ASEAN, and South Asia. The company now sells in over 160 countries.

Phase 4-Global Brand Building Strategy Phase (2005-Present)

Screen Shot 2016-06-23 at 11.56.54 AMThe company aims to build a local Haier brand in each geographic market. This includes building design centers, manufacturing facilities and trading companies. Haier set a stronger “low price” strategy than its main competition in order to raise awareness and build market share. It also launched Tianzun (“heaven” in Chinese) a new all-in-one advanced household heater/air conditioner and air purifier in 2014. Unlike previous Chinese air conditioning units, the vertical Tianzun is not noisy, the air  is not dry and does not spread disease or dust, and it looks different. It has a small wind tunnel which draws air through it. Based on market research, the unit provides cool not cold air, which Chinese consumers seem to prefer.  It also has an internet connection.

The Haier Tianzun Units

Haier generated worldwide sales revenue of approximately U.S.$32.6 billion (2014) and has approximately 70,000 employees worldwide (2014). The company has four R&D Centers, 24 trading companies and 24 manufacturing plants outside of China.

Accelerated Growth

Haier lost its bid in June 2005 to acquire the Maytag Corporation for U.S.$1.28 billion. The Whirlpool Corporation later acquired Maytag for U.S.$1.7 billion.

Haier has been on an acquisition path since 2012, when it acquired the consumer household appliance business from Japan’s Sanyo Corporation for the markets of: Japan, Indonesia, Malaysia, The Philippines and Vietnam. This included their electric refrigerators, washing machines and other consumer appliances.

Screen Shot 2016-06-23 at 11.57.01 AMHaier established a Research & Development Center in Camden, South Carolina, USA where they have been assembling Haier products since 1999. However, Haier’s biggest claim to fame is the acquisition of GE’s home appliance business in January 2016 for U.S.$5.4 billion. This will help expand Haier’s U.S. and global presence.

The GE acquisition will help facilitate Haier’s transformation to a premium brand. The two companies also agreed to form a strategic partnership to work together in areas such as the Internet, healthcare and advanced manufacturing. GE’s management sees the opportunity to work with Haier to help build the GE brand in China. The GE appliance division is headquartered in Louisville, Kentucky, USA and reported annual revenue of U.S.$5.9 billion in 2014. It also had 12,000 employees, with 96 percent based in the U.S.

Unique Corporate Culture

Gary Hamel, professor at the London School of Business & Economics, and a leading expert on strategy says:

No company is promoting management innovations on such a large scale and in a systematic manner like Haier. Each employee of Haier has the opportunity to become an entrepreneur who can start up his or her business on Haier’s platform to directly create value for customers.

Haier adopted a unique organizational strategy in 2005 called Rendanheyi, which is loosely translated as “integration of people and goals.” This strategy led to a re-organization of the firm’s corporate structure into a network of independent micro-enterprises. Haier encourages employees to establish separate micro-enterprises. Each enterprise typically has a leader and 6-8 members, who have an ownership stake in the enterprise. Haier is a shareholder in each micro-business, along with all of its employees, who share in their profits

Almost 200 such internal micro-start up companies have been established as of June 2016, with 77% of these realizing more than U.S.$15.7 million in 2015 revenue.  The intent of these micro-enterprises will help the company to be more innovative and responsive to customers. It allows greater autonomy and decision making authority to front line employees in order to respond quickly and faster changing user demands.

CEO Zhang adds “Not every single employee could be an entrepreneur, we are not trying to turn every employee into an entrepreneur, but we want to attract all entrepreneurs to become our employees.” The company is now looking to co-creation as the next phase of its long term strategy.

Commentary

Haier has strengthened its quality image as a successful Chinese brand. Its brand path seems similar to South Korea’s LG brand, reaching a higher status than ever believed. Haier’s CEO has taken lessons from strategy leaders such as Peter Drucker and reinvented the company several times. One wonders how influential the Chinese government has been to facilitate Haier’s growth and GE acquisition.

Sweden’s Electrolux tried to acquire GE’s appliance division in late 2015 but was denied the acquisition after the U.S Justice department objected due to antitrust concerns. Haier soon after went for the acquisition and was granted it by January 2016. GE may have also  preferred Haier as the acquirer, recognizing the benefit of having a Chinese partner to gain growth in that important market.

Haier will continue to grow globally, leveraging its rendanheyi and acquisition strategies.  For example, it is hypothesized that Haier and GE may work together to launch medical devices relating to heating and cooling patients and offering new filtration systems for the healthcare and other industries. Longer term, Haier will continue to re-invent itself, grow its businesses and win recognition for innovation and optimizing workforce productivity.

Resources:

1. Haier website and 2015 annual report.

2. Haier Group Announces Phase 2.0 of its Cornerstone “Rendanheyi Business Model,” Yahoo Finance, June 13, 2016.

3. GE Selling Home Appliance Business to Chinese Company, Associated Press, January 15, 2016.

4. The Haier Road to Growth, Strategy+Business, by Bill Fischer, Umberto Lago and Fang Liu, April 27, 2015.

5. Term paper. A Marketing Plan for Haier, High-Tech TV Sets in the U.S., Zheng Jing, Webster University Graduate Student, Charleston, South Carolina, USA, March 2011.

5. Haier, Wikipedia

6. General Electric-Haier Appliance Deal Likely to Avoid Antitrust Hurdles, by Rich Duprey, The Motley Fool, January 28, 2016.

7. Rendanheyi: What Can the Managers of of Tomorrow Learn from Chinese Approaches to Management, Dr. George Frynas, Middlesex University, London, October 15, 2015.

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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