Haier: Will It Clean Up or Be a Washout?

Case Forum in IESE Insight magazine

21/02/2013 Barcelona


In 1985, when the German appliance maker Liebherr agreed to enter a joint venture with the Qingdao General Refrigerator Factory, one would have been hard-pressed to foresee the stellar rise that the Chinese company, later to be renamed Haier, was to experience over the ensuing decades.

Haier may now be a household name for appliances and white goods, but in 1985 it had narrowly escaped bankruptcy. The joint venture with the German company had one important aim for the ailing company: the transfer of technology in order to produce quality refrigerators.

Since then, Haier swiftly established itself as China's leading maker of refrigerators. It also began to take advantage of the incremental opening up of the Chinese economy to expand beyond its national boundaries. By 2011, Haier had become a global leader in home appliances, with annual sales reaching RMB 151 billion (well over $20 billion).

"Difficult First, Easy Later"

Under the visionary leadership of Zhang Ruimin, Haier's internationalization strategy was founded on the principle of "difficult first, easy later." In other words, Haier opted for developed countries, such as the United States, before entering countries with potentially easier access to the domestic market, such as India.

Zhang's rationale was that "only by playing chess with the grandmasters can one make progress." By competing with world-class companies in mature markets that demanded strict product requirements, Haier was forced to up its game and improve its own technical capacity in the process.

Haier also invested heavily in local R&D and design centers, in order to boost product localization. In Pakistan, for example, the traditional garbs and large families there meant that standard washing machines were unable to meet the needs of local consumers. This led Haier to develop a washing machine that could handle more than 30 large garments at a time.

Besides product localization was the localization of management. Many multinational companies initially staff their foreign operations with expatriate managers from headquarters. Haier, on the other hand, selected experienced local staff to manage each foreign operation from the outset. To ensure proximity and attention to local customers, Haier believed that the company needed local people, who understood local customer needs, to develop its sales and distribution channels.

Big in Japan?

In 2011, Haier raised the stakes when it acquired Sanyo's white goods business in Japan, which also covered Indonesia, Malaysia, the Philippines and Vietnam. The person who would oversee the new company's transition was Du Jingguo, a long-serving Haier executive.

Although he was Chinese rather than Japanese, Du had managed a previous joint venture with Sanyo and had lived in Japan for many years. He understood that the success of Haier Japan hinged on his ability to integrate Japanese culture with Haier's corporate culture -- a blend of Western management theories, infused with ancient Chinese philosophy, and executed according to local practice.

Du quickly realized he had his work cut out. With pressure on him to hit ambitious sales targets, he faced a host of challenges. How could he streamline Sanyo's homegrown organizational culture? The Japanese focus on seniority, lifetime employment and annual salary increases irrespective of individual performance stood in stark contrast to Haier's management system based on performance.

Japanese workers were accustomed to a paternalistic style of management. How would they adapt to Haier's inverted triangle approach, which put opportunities, responsibility and rewards in the hands of self-motivated employees?

Sanyo's employees were given the choice to join the Haier venture or stay with Sanyo as part of the Panasonic Group. How could Du dispel the general mood of distrust among Sanyo's employees and convince them to sign up to Haier's vision, especially against the backdrop of deteriorating relations between China and Japan?

Even though Haier had previous experience of entering firmly established markets, it didn't mean that the process of breaking into the Japanese market was going to be any easier, especially given the strength and dominance of the local players with which Haier would be going head to head, including such household names as Hitachi, Panasonic, Sharp and Mitsubishi.

What would it take for Du to fulfill Zhang's vision of making Haier the No. 1 home appliances brand in the world?

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