Unit Two
China'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 Two
China'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 Two
China'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 Two
China'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 Two
China'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 Two
China'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 Two
China'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 Two
China'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 Two
China'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 120acre 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 Two
China'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 Two
China'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 Two
China'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)