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Haier Company’s Development Strategy and Challenges Case Study


Introduction

Haier is a global electronics company with its roots in China. The company started from humble beginnings in 1984. The founder and CEO, Zhang Ruimin, started the company as a small refrigeration plant in China. The founder began with product diversification in electronics with the view of capturing a huge market share. On top of refrigerators, the company began dealing with air-conditioners, laundry machines, and other home devices. In 1984, the company was struggling financially. By then, it was almost technically insolvent. However, the boss managed to turn it around by employing the right strategy. During this time, the company was operating without a clear policy framework. Haier Asia’s president, Du Jingguo, shifted from China to Japan with the objective of breaking this hard perception. As the paper reveals, despite the several challenges that the company has faced, it has made some recommendable milestones in terms of gaining a wider customer base. However, the paper also recommends the company to improve its reimbursement plan and its promotion strategies in America.

Haier’s Growth since 1984

Haier’s growth since 1984 can be explained by four expansion stages, namely, the brand building, diversification, internationalization, and global brand phases. The diagram below shows the company’s three major stages of its growth.

Haier
Source: (Leinwand, Mainardi, & Adolph, 2016).

The brand-building phase took place from 1984 to 1991. When the CEO took over, he discovered that corporate culture was lacking in the organization (Hawes, 2012). Staff discipline was low by then. Most of them reported working late while others left work early. Theft of the company’s goods by employees was also an issue then. Employees were mostly uneducated or undereducated people. The CEO began addressing these employees’ issues by developing a corporate culture that fostered discipline (Fischer, Lago, & Liu, 2015). He also introduced simple rules that would later become the policies and procedures, which guide the company. Haier established strategies that addressed late coming while prohibiting the issue of employees signing in on behalf of others at work. Haier emphasized product excellence to the extent that the CEO publicly destroyed defective products. This move endeared Haier’s’ products to the people of China.

It is also important to note that Haier faced stiff completion from well-established refrigerator manufacturing companies in China. By then, 300 companies were in the same line of business. Haier differentiated its products by focusing on product reputation. During this period, quality production was a rare concept among competitors. To build and develop quality and superior brands, Haier collaborated with industry leaders from other markets. Haier imported production lines from Derby in Denmark and Sanyo in Japan. The company also adopted one of the best technologies from Liebherr in Germany. Haier was able to advance technologically through joint ventures with Mitsubishi of Japan and Merloni of Italy. Through these collaborations, the business gained a competitive advantage over its competitors. It also positioned itself for the next phase of diversification and globalization. The brand-building strategies enabled Haier to start growing rapidly. According to Fischer et al. (2015), by 1990, it was the leading producer of refrigerators in China, enjoying a growth rate of 9.5 percent.

The company’s diversification stage took place between 1991 and 1998. After positioning itself as one of the best companies in China in terms of refrigerator production, it began venturing into product diversification. Haier approached companies that were performing poorly due to its weak management at a time when other businesses were reaping from advanced technology. Such companies were referred to as stunned fish. Haier managed to acquire 20 companies that were undergoing poor management. During the period of acquisition, Haier adopted a new management strategy that further improved its performance. The incorporation of the corporate culture into the newly acquired organizations made it easier for Haier to turn them around in terms of their performance (Fischer et al., 2015). The internationalization stage happened between 1998 and 2005. During this period, Haier ventured into the international markets. After the witnessed huge success in the local market, the company stepped out to fight for the share of the global markets. Haier kept its management strategy by using the locals in foreign markets to do marketing and sales of the new product (Crainer, 2015).

The company is currently at the global brand stage, which began in 2006. In the starting period, Haier focused on customizing its products to meet the needs of the local market. To meet these needs, the company had to adapt to adopt trends that have been brought by the internet era. The CEO adopted a new strategy, namely the win-win approach, to be competitive in the rapidly changing markets (Fischer et al., 2015). This strategy enabled the company to benefit from marketing using the latest internet technology. The strategy resulted in a close relationship between the clients and staff. It also ensured that customer needs were met. The strategy emphasized the customer as the most important element. The new strategy made Haier adopt the internet as a major tool of the trade.

The Special thing about Haier’s Current Management Strategy

Haier’s management strategy has rapidly changed since its inception in 1984. The company found itself in dire need of engaging its personnel who were operating in a growing network of overseas operations. It introduced a strategy that helped it establish systems that could link it to all its workers while keeping its customers intact through various sales and distribution platforms (Fischer et al., 2015). The management strategy is special since it has helped the company to keep a steady performance in its overseas businesses. The company adopted this first strategy during the internalization stage. The strategy was meant to lay emphasis on the production of high-quality products. The strategy emphasized the timely execution of all activities.

The current management strategy can be regarded as special since it has enabled the company to remain focused on the daily productivity of every employee. The company carries out performance tracking to gauge the total workforce output. The CEO also introduced a yield-based reward system, which ensured that every employee was compensated based on his or her contribution to the bottom line of the company. This strategy not only instilled hard work but also tremendously improved employee performance and its corporate culture (Hawes, 2012).

The second strategy, which is also currently in place, was adopted during the global brand stage. Haier adopted the win-win strategy, which is based on the use of the internet to carry out business. The CEO discovered that manual systems were causing delays and not effective in customer satisfaction. The CEO understood that the internet could lead to efficiency and ultimately cut on operational costs. He also wanted to centralize on customer feedback and needs. The CEO recognized the customer as the major driver of the business. The CEO used the model of a triangle to bring out this concept to employees (Fischer et al., 2015). This concept reorganizes employees into units of self-management known as ZZJYT in Chinese. The ZZJYT management theory goes against the tenets of conventional administration theory.

The conformist theory uses the normal triangle where it places top management at the apex. Hence, the conventional theory does not focus on the customer. It may not easily cope with and/or detect evolving customer needs. The Haier’s inverted triangle operates has three levels. The top-level consists of activities that affect customers directly. Hence, the customer takes the center stage in this model, which involves manufacturing, marketing, and distribution. Besides embracing quality products, the model also ensures that effective marketing and distribution channels are adopted where goods can reach the customer in time. In brief, the first level of the inverted triangle model that is currently in place at Haier makes the customer the basis of the business (Fischer et al., 2015). The second level consists of human resources and financial support. The departments here support the first level in achieving its target. In China, Haier first adopted this concept, which is now being rolled out to other countries of operations. Through this strategy, Haier is able to take care of both internal and external customers.

From the above expositions, it is clear that Haier’s current management is special because it goes against the conventional management system. The company created this system with the customer in mind. The system also motivates employees by making them in charge and/or appreciated. It also creates a conducive environment for growth but keeping up with the market trends.

CEO’s Role in Haier’s Development

Zhang, the CEO, has played a very important role in Haier’s development. To begin with, when he took over the company in 1984, it was on the verge of collapse. It was straining financially. The CEO employed several strategies to turn it around. He began establishing a very strong brand that laid emphasis on quality. Once the brand was established, the company became a market leader in China (Fischer et al., 2015). The CEO then diversified his products to include home appliances in order to increase market share and presence. When he took over the company, it was only dealing with the production of refrigerators (Ben-Jacob, 2013). He also facilitated the acquisition and mergers of 20 companies in China. The CEO then established Haier in overseas markets.

He also led the development of management strategies of the company during the period. For instance, he oversaw the implementation of OEC strategy, the ZZJYT plan, and the inverted triangle strategy. These strategies were adopted during different phases of growth. They yielded excellent results for the company, for instance, preparing the company to reap from the internet era. Secondly, he took over an organization that lacked corporate culture (Hawes, 2012). The employees were working without any clear guidelines. The CEO introduced rules that were later turned into policies of the organization. The CEO started a reward-based system that focused on performance. The system not only motivated the employees but also streamlined the company’s corporate culture. From the above developments, Zhang can be described as a strong and visionary leader whose management style is consultative and inclusive. He rewards performance while appreciating different cultures (Ben-Jacob, 2013).

Tensions that can arise when Haier Implements its Management Strategy in Japan

Tensions may arise from Haier’s implementation of its management strategy in Japan. The first one is the cultural differences (Mcnaughton, 2015). The Japanese prefer buying homemade products. They also prefer working for Japanese companies. Furthermore, the Japanese have well-established and superior brands. The Japanese culture focuses on a group’s well-being, as opposed to an individual reward-based system. Therefore, it is challenging to implement an inverted triangle system that rewards based on individual performance (Ben-Jacob, 2013). The Japanese are more interested in collective bargaining based on their belief in inequality. The Japanese culture also focuses on promotion based on seniority, as opposed to performance. On the other hand, Haier’s policy rewards and promotes performance. Hence, the company has to devise strategies for overcoming these tensions.

How Du Managed the Tension during His Haier’s Leadership in Japan

The president of Haier Japan, Du Jingguo, understood the Japanese culture very well. He introduced a new management strategy slowly in order to ensure a smooth integration into the local culture (Bondy & Starkey, 2014). Du wanted to introduce the performance reward-based system, although he faced resistance (Holston & Kleiner, 2015). He tried introducing it gradually. Du respected the Japanese culture to the extent that he even took his time to learn it. Du improved his relationship with his staff. Initially, a divide existed between him and the staff. He sought improved communication and working on mutual understanding. Du also allowed his team to make decisions while he provided support and resources. By so doing, he was able to achieve higher targets, which in turn motivated the team (Sanchez-Runde, Lee, & Reiche, 2013).

When the team achieved the set sales target, it could appreciate the inverted triangle strategy. To break the barrier of culture, Du started going out for drinks with his staff. He had split his taskforce of 160 people into 10 groups of 16 workers who he could comfortably engage in discussions when they went out to have drinks (Hajro, Gibson, & Pudelko, 2017). This strategy became an icebreaker since the workers started embracing transparency that Du was looking for. Since Du was able to win them, he could discuss issues more easily. In assessing Du’s approach to reconciling cultural differences, I can refer him to as calculative since he always adopted the best strategy. For instance, he knew that the open-door policy would make the staff open up to him by presenting their grievances, which he had vowed to act on accordingly (Sanchez-Runde et al., 2013). As a result, he gradually and successfully integrated the staff into Haier’s culture. I agree with Du in all his ways of managing cultural differences because he was able to strike a balance. He never forced change on his task force.

The Dilemma of whether Haier should adapt to the Japanese Culture

Haier should continue with its current management system. It should continue applying the ZZJYT plan whereby various groups manage themselves while carrying out diverse roles in an organization. Such groups are reimbursed in terms of their performance. Du will need to introduce Haier’s principles to the Japanese way of life. Haier should focus on introducing the system gradually for the Japanese staff to fully understand the benefits (Sanchez-Runde et al., 2013). Firstly, the strategy has so far yielded impressive results. Secondly, the management style enhances the company’s performance. Thirdly, the strategy is centered on the customer. The only way the company will be able to achieve this goal is through educating staff (Bondy & Starkey, 2014). Hence, it will need to embark on seminars, training sessions, and exchange programs. Abandoning the strategy and formulating a new one will not make Haier competitive in the market. The current management strategy not only makes Haier unique but also gives it an added advantage over its competitors. With this current strategy, Haier is destined for much prosperity in Japan.

Cultural Challenges that Haier Might Face in other Cultures

Haier might face various challenges in other cultures. Most cultures are used to the conventional management strategy. Hence, they may not adapt readily to Haier’s inverted triangle. According to Cullen and Parboteeah (2013), language is a cultural barrier. This obstacle can be resolved by employing locals who can interact better and closely with clients. Timekeeping is another cultural issue. Some cultures do not consider a late arrival to the workplace a serious offense. Other cultures consider it normal not to report to work due to unfavorable weather conditions such as rains in the morning. Another cultural issue that comes to play is traditions. Some societies may have their customs and taboos that are not in line with the company. For example, the punishment of non-performers may be considered a violation of human rights in some countries. Haier management should be keen when establishing its strategies to ensure that they (strategies) do not infringe on other people’s civil liberty. Perceptions also vary from one culture to another. While rewarding an employee with a gift is considered a bribe in some cultures, it may be considered normal practice in others.

Conclusions and Recommendations

The initial years on Haier were characterized by poor performance and low productivity because of the lack of clear policies and procedures. The founder and CEO, Du Jingguo, began introducing policies to guide the operations of the company. In the beginning, the company was only operating in Qingdao, in the Shandon province of China. The company then began investments in the neighboring country of Japan. It took time to penetrate the Japanese market, which is believed to be one of the hardest bazaars for external companies. However, the company’s boss made sure that the business grew by the day. Currently, it is not only productive but also has a stable customer base. However, it needs to improve in a few areas.

Firstly, Haier lacks a position-based remuneration plan. Hence, workers are not reimbursed based on their positions or titles but based on their production levels (Ben-Jacob, 2013; Daughters, 2017). This issue raises questions concerning the efficiency of the current payment system that the company has adopted. Workers who move out of the company often complain about the disproportionate earnings they were getting while working for the business (Wolf, 2016). Hence, the company should improve on its disbursement framework, a move that will reduce employee turnover while at the same time enhancing its workers’ morale and productivity. Secondly, according to Ben-Jacob (2013), Haier needs to enhance its promotion plans in America where almost 55% of its customers respond that they have a neutral opinion concerning the business products. It should aim at a level where customers confirm their satisfaction with the company’s items.

References

Ben-Jacob, T. (2013). The Haier Group: Improvement upon success. New York, NY: Mercy College.

Bondy, K., & Starkey, K. (2014). The dilemmas of internationalization: Corporate social responsibility in the multinational corporation. British Journal of Management, 25(1), 4-22.

Crainer, S. (2015). Haier calling. London Business School Review, 26(1), 24-30.

Cullen, J. B., & Parboteeah, K. P. (2013).Multinational management. Boston, MA: Cengage Learning.

Daughters, G. (2017). China, meet South Carolina. Site Selection, 62(2), 189-192.

Fischer, B., Lago, U., & Liu, F. (2015). The Haier road to growth. Web.

Hajro, A., Gibson, C., & Pudelko, M. (2017). Knowledge exchange processes in multicultural teams: Linking organizational diversity climates to teams’ effectiveness. Academy of Management Journal, 60(1). 345-372.

Hawes, C. (2012). The Chinese transformation of corporate culture. London, England: Routledge.

Holston, C., & Kleiner, B. (2015). Excellence in reward systems. Franklin Business & Law Journal, 2015(3), 29-40.

Leinwand, P., Mainardi, C., & Adolph, G. (2016). Growth needs to come from the entire company. Harvard Business Review Digital Articles, 1(1), 2-5.

Mcnaughton, N. (2015). Diversity: It’s more than cultural differences. Business in Calgary, 25(4), 68-74.

Sanchez-Runde, C., Lee, Y., & Reiche, S. (2013). Financial Times. Web.

Wolf, A. (2016). Haier America to shut HQ appliance operations in January. TWICE: This Week in Consumer Electronics, 1(1), 12-12.

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