Unit TwoChina's Haier Power —Antony Paul

TEXT In the archives of China’s modern

management lore, the events at a Qingdao appliance factory in the summer of 1985 have begun to acquire the dimensions of legend. Something like, say, the day Henry Ford separated the manufacture of a valve into 21 steps or when Akio Morita made Sony’s first length of recording tape in a frying pan.

Unit TwoChina's Haier Power —Antony Paul

Zhang’s next goal is to crack the FORTUNE Global 500. He has a long way to go. In 1998 the group’s sales totaled $2.3 billion; that’s more than 5000 times as much as in 1985, but less than a third of the revenue of No. 500 on FORTUNE’s global list.

Unit TwoChina's Haier Power —Antony Paul

Haier is growing fast: Since 1984 it has averaged an increase of 83% a year in revenues. Haier now has 50 units (18 are wholly owned, 23 are holding companies, and there are nine joint ventures). Its products are sold in 87 countries, and it is building factories in Indonesia, the Philippines, Malaysia, and Iran. Nor is Haier just a Third World wonder. In the U.S. it says it has nearly 20% of the market for small refrigerators. Haier air conditioners have made inroads in Europe.

Unit TwoChina's Haier Power —Antony Paul

“We work in a mixed economy,” Zhang says. “You have to have three eyes: one on the market, one on the workers, and one on policy.” The larger point is that Haier’s success shows that even within these constraints, it is possible to resuscitate collective and state-owned enterprises.

Unit TwoChina's Haier Power —Antony Paul

Zhang, the only son of a worker in a Qingdao shirt factory, says his first love was ancient Chinese literature. As he tells it today, Lao-tzu (a sixth century B.C. philosopher) and Sun Tzu (a military writer of the fourth century B.C.) provide food for thought for modern businessmen as well as ancient warriors. With an eye on the future, he also absorbed, discreetly, Western and Japanese management texts.

Unit TwoChina's Haier Power —Antony Paul

His chance to put his gleanings into practice came unexpectedly in 1984. As China opened to the West, foreign companies sought out Chinese factories to do business with. Liebherr-Haushaltsgerate, a leading German white-goods manufacturer, offered to sell the factory modern refrigerator-making technology. The city accepted. Zhang, by then vice manager of the municipality’s Household Appliances Division, was given the job.

Unit TwoChina's Haier Power —Antony Paul

But by then China’s agricultural reforms had made it possible for farming cooperatives to accumulate cash reserves. With loans from farming friends on Qingdao’s outskirts, Zhang paid workers some of the back pay. His most popular move was the purchase of a bus. A bus was a luxury and a promise of better things. Zhang shocked his workers by commuting with them every day.

Unit TwoChina's Haier Power —Antony Paul

As the Liebherr technology was introduced, Zhang placed samples of the German company’s products in sight of his assembly-line workers so that they could see what quality looked like. By 1986, Haier had broken even. The refrigerator company took over three other Qingdao white-goods enterprises, and turned the whole lot into the Qingdao Haier Group in 1991.

Unit TwoChina's Haier Power —Antony Paul

The Haier turnaround is a case study of the art—and is used as such at Harvard Business School. There were two major strategies: expansion and management. First, the Haier style. A visitor to the 120-acre Haier Industrial Park in suburban Qingdao finds an assembly-line culture that appears to be a mix of foreign management practices and Chinese nationalism—with a whiff or two of Maoist-era self-criticism.

Unit TwoChina's Haier Power —Antony Paul

Zhang has clearly absorbed the works of Masaaki Imai, a leading guru of Japanese quality control. Imai’s “5-S movement” takes its name from the initials of five Japanese words whose romanizations start with “s.” Their rough translations: seiri (discard the unnecessary); seiton (arrange tools in the order of use); seisoh (keep the work site clean); seiketsu (keep yourself clean); shitsuke (follow workshop disciplines). Haier has added a sixth item, “safety,” and instills the system through the “6-S self-check station.”

Unit TwoChina's Haier Power —Antony Paul

A look at the ubiquitous wall posters in Haier factories spells out the “Haier spirit” (HARDWORKING AND MAKING SACRIFICE TO THE NATION) and the “Haier style” (PROMPT REACTION TO THE MARKET). Helping facilitate the transfer of these management concepts to new acquisitions is the Haier Enterprise Culture Center, headed by Su Fangwen.

Unit TwoChina's Haier Power —Antony Paul

One example: The proliferation of five-star hotels has given Su an opportunity to dramatize for assembly-line workers the higher standards the global market-place demands.

One stark message informs the factory floor:(1) SOME WORKERS LACK A SENSE OF QUALITY. (2) SOME FOREMEN HAVE TOLERATED SLOPPINESS. (3) SOME DIRECTORS ARE SLACKING. COOPERATE TO IMPROVE!

(excerpted from Fortune, February 15, 1999)