Hailing a New Era: Haier in Japan

Hailing a New Era: Haier in Japan

1. How far has Haier come since its creation in 1984?

Before an answer to this question is given, it is imperative to understand the history of the Haier Group. Started in 1984 by CEO Zhang Ruimin, the Haier Group started as a small refrigerator plant in Qingdao, China and has since expanded into a global leader in home appliances. (Deresky, PC2-11). As referenced in the case, “Haier designs, manufactures and sells various home appliances, including refrigerators, air conditioners, and washing machines in over 100 countries” (Deresky, p. PC2-11). Haier has come a long way since its inception and experienced 4 stages of expansion which eventually led the company into the global market. Shang Ruimin implemented different strategies in each of these four stages which led to entering the Japanese market in 2002, forming a joint venture with Sanyo in 2007, and finally, in 2012, acquiring Sanyo in Japan with its related operations in other countries. Haier’s four stages of expansion which will be discussed in detail in the forthcoming paragraph included the Brand Building Period, Diversification Period, Internationalization Period, and Global Brand Period.

The Brand Building Period (1984-1991) was the initial period of expansion that started when Zhang took control of Haier. Faced with a company that was struggling and lacked basic standards and procedures and a market that had a high demand for home appliances in China and fierce competition from local refrigerator plants who just produced mediocre products to meet demand, Zhang Ruimin had a strategy that focused on building his brand name by focusing on producing high quality refrigerators at a higher price point. Because his workforce didn’t have proper procedures or standards in place and were highly undereducated, Zhang Ruimin implemented a code of conduct. As detailed in Exhibit 1 of the case (Deresky, 2017, p. PC2-12), the code of conduct laid out the rules Zhang expected his employees to follow. In this time period, Zhang also signed a technology licensing agreement with German refrigerator maker Liebherr, and, become the leading refrigerator maker in China by 1990, an average 9.5% growth rate over the past decade (Deresky, 2017, p. PC2-11). Which leads into the second period called the Diversification Period (1991-1998). In this period, Haier focused its attention on diversification tactics and bought out “stunned fish” companies or what Deresky (2017) describes as “those companies that performed poorly due to weak management and yet owned advanced technology and equipment” (p. PC2-11). They did this in order to get an upper hand on the competition. Moving forward, the next stage of expansion occurring from 1998-2005 was called the Internationalization Period. Happy with their outperformance of Liebherr is blind quality tests done by a German magazine, this period saw Haier develop its own brand globally with the strategy of entering the more difficult, mature markets first and targeting the easier markets later on (Deresky, 2017, p. PC2-12). The fourth and final period is referred to as the Global Brand Period (2006-Present) where “Haier continued to evolve its business models and extend its global reach….. while maintaining a focus on its home market. (Deresky, 20017, p. PC2-12). According to Helen Deresky (2017), this “new strategy aims to make each localized brand of Haier a mainstream product in the respective local market with the ultimate goal of leading local market trends” (p. PC2-12-PC2-13). Lastly, this period also saw the introduction of a new business strategy called a Win-Win Mode of Individual-Goal Combination which will be discussed in detail in question number 2. This strategy would see employees broken down into self-managed units called ZZJYTs that would “link each employee more closely to the clients he or she serves, and satisfy clients’ specific needs by consolidating R&D, manufacturing, and marketing resources through the Internet” (Deresky, 2017, p. PC2-13). 2. What is special about Haier’s current management system? Why did the company create this system?

Before the management system is discussed, it is important to remember that upon acquiring Haier, Zhang implemented rules of conduct because of the lack of proper standards, procedures, and education in the workforce. These rules of conduct are important because they explicitly let the employees know what was expected of them. Taking these basic rules of conduct and implementing them into their current management system was meant to motivate employees to increase productivity through the incentives they would receive which will be explained in the current management system.

Haier’s current management system is known as the Self-Managed Unit- ZZJYT and the Inverted-Triangle Organizational Structure as shown in Exhibit 2 (Deresky, 20017, p. PC2-13) of the case. This new strategy was developed to not only lead the company into the Internet Era but most importantly to expand its business, take over market share, and become # 1 in the home appliance industry. What makes this management system special is that “Haier adopted Western management theories, infused them with Chinese ancient philosophy, and executed them according to local practice” (Deresky, 2017, p. PC2-13). This system is not like the traditional management pyramid where senior executives are at the top, followed by their employees following orders in daily operations, but, rather has a 3 level inverse triangle approach. Helen Deresky (2017) reports that:

The top or first vertical level consists of ZZJYTs of manufacturing, marketing, and R&D functions that directly face customers, hence, employees here will directly contact customers, assess demand, and formulate and execute projects to efficiently satisfy customer needs… the second level comprises a number of platforms that provide support to first-level ZZJYTs….and the third layer, equivalent to the executive level in a traditional triangle, is responsible for identifying and formulating strategic opportunities (PC2-13 - PC2-14).

This strategy would see employees broken down into self-managed units called ZZJYTs that would “link each employee more closely to the clients he or she serves, and satisfy clients’ specific needs by consolidating R&D, manufacturing, and marketing resources through the Internet” (Deresky, 2017, p. PC2-13). This system is an incentive system where each ZZJYT manages their own profit and loss statement and collaborates with internal and/or external clients to generate profit. In return, each employee has to meet key performance indicators that would then determine their salaries. Ji Guangqiang (Deresky, 2017) general director of Haier’s Corporate Culture Center explains it best when he explains: