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Haier Group CEO Zhang Ruimin

A Confucian Capitalist Goes Global


A Confucian Capitalist Goes Global

Source:Domingo Chung

Haier is China’s most respected brand, and its CEO is the country’s most respected business leader. With a determined dedication to quality, China’s premier home appliance brand has now cast its eyes on the world…



A Confucian Capitalist Goes Global

By Editorial Department
CommonWealth Magazine

Over the past year, Haier Group CEO Zhang Ruimin of ShandongProvince has been promoting New York Times columnist Thomas L. Friedman's book The World Is Flat every chance he gets. The book details the challenges individuals, businesses and nations must face with the coming of globalization, and it has filled the most respected business leader in China with a great sense of crisis.

This is why Zhang set up a reading club for his top executives to discuss Haier's future in the face of globalization.

This is Zhang's style: a lover of books, highly aware of global politics and commercial trends, yet not one to go with the flow.

Great Tasks, Not Great Positions

In China's business world, Zhang Ruimin is known as the “Confucian businessman.” He has strict expectations for his employees and himself, and tries to balance business and personal matters in all affairs. He is given to abstract thinking, and can simplify complex concepts into a few simple words. In an industry focused on the pursuit of personal profits, he is always encouraging younger businessmen to take on great tasks, not great positions.

In 1984, Zhang took over as head factory manager for Qingdao Refrigerators Co., and waged a revolution that by 2005 had turned a small factory with losses of RMB1.47 million into China's premier household brand, with a global operating turnover of RMB103.9 billion. That same year, Zhang placed 26th on the list of the World's Top 50 Business Leaders compiled by Britain's Financial Times – the only mainland Chinese businessman to make the list.

The 735-acre HaierIndustrial Park is located in one corner of QingdaoCity. Like a small town unto itself, the park buzzes with activity from morning to night. Visitors come from around the world every week to learn how Haier became number one in the world's fast-growing home appliance market.

A Japanese comic book on the legend of Zhang Ruimin has already hit the shops, and Haier is included in many textbook case studies for Harvard and other famous business schools in America, Europe and Japan.

Despite a world-class international reputation, Zhang still maintains an air of mystery and a frugal lifestyle.

He does not smoke or drink, and has no bodyguards. He only moved out of the old, dilapidated employee dormitory a few years ago into a spacious yet not luxurious house, where he is accompanied by countless books, and likes to write essays himself.

Deep Thinker on Thin Ice

Haier employees often see Zhang, a man denied proper schooling by the Cultural Revolution, dining alone in the employee cafeteria, deep in thought. These words hang in his office: “As if standing on the edge of a precipice, as if walking on thin ice”—a testament to his constant caution and diligence.

In 1985, businesses began vying for the top spot in China's refrigerator market, and an era of intense price competition began. In that fight, Zhang sided with quality, and made it his brand's distinguishing feature. Once, when an inspection uncovered 76 flawed refrigerators, he ordered the names of the workers who were responsible to be placed on them, and made the teary eyed employees personally demolish them with sledgehammers.

Zhang punished himself as well, foregoing a month's salary to take responsibility for bad management. The entire process was photographed and recorded, and the sledgehammers kept as a reminder to employees, and as a demonstration to consumers that Haier will sacrifice profit before quality.

Aside from smashing refrigerators, there is also the Sichuan yam-washer story. When a farmer in SichuanProvince was said to have broken his Haier washing machine by using it to scrub his yams, Haier engineers not only fixed the machine, but also, to ensure customer satisfaction, created machines that could wash yams and shrimp.

Zhang loves to read Western management books, learning from management gurus like Peter Drucker and Peter Senge, Japan's Matsushita Konosuke and Akio Morita, Jack Welch of General Electric, and companies like Toyota, Dell Computers, and Whirlpool.

Thoughtful Adaptation

Taking example from the famous Zen Buddhist phrase he often quotes, “One cannot ignite himself with borrowed fire,” Zhang always thinks deeply before adapting Western management tools to the Chinese context.

The iron-fisted system introduced by Jack Welch, whereby a company removes its poorest performing employees and awards excellent workers each year, regardless of how the company is doing, was transformed by Zhang into an “everyman is a talent” human resource management policy.

In practice, promotions are based entirely on performance, not on academic background. The bottom 10 percent in performance are retrained on the company dime in the first year, and on the employee's own dime in the second year if there is little improvement. Finally, they are fired if they still show no improvement in the third year.

At the September 2005 Global Haier management conference, Zhang announced the implementation of the ever more stringent “man-to-order” management model, which will influence each and every employee. “Everyone in the company has to deal with the market. Everyone has an order form they are responsible for. The factory manufactures and ships according to its orders, and every order has a person who's responsible for it.”

Under the man-to-order model, the relationships among employees are transformed into supply-order relationships; downstream of the production line are the clients of the upstream production line – every employee provides services or products to someone else, has his own orders to fill, and is a part of another order.

Zhang believes that the only way to face the competitive nature of globalization as detailed in The World is Flat is for each and every employee to become a “man-to-order” platform.

To dispel employee resistance due to the constant implementation of new policies, Haier not only upholds its reward system strictly, but also openly lauds internal success stories and discloses failures through Haier's internal publication, Haier People.

China's No. 1 Looks Outward

Zhang's goal has always been to make “Haier: Made in China” a globally recognized slogan. Soon after the implementation of Haier's brand and diversification strategies, internationalization and global brand strategies were also introduced.

Haier ranks foremost among those Chinese enterprises that are promoting their own original brands in the global market. Zhang's efforts and his belief in making China an industrial powerhouse dovetail with the zeitgeist of economic resilience, nationalism, and participation in international affairs that has held sway in China for the past two decades, and he is highly regarded both in public and private life.

In order to participate in local consumer cultures, Haier has established 30-some production bases abroad, setting up design, production, sales, and operation systems in 10 customs unions, including the EU and NAFTA. R&D accounts for 6 percent of Haier's annual operating budget, which is 4 to 5 percent higher than average among Chinese businesses.

In 2006, Haier successfully established and obtained control over Haier Sanyo Co., a joint venture with Japan's Sanyo. The new entity will include Sanyo's refrigerator R&D and design departments, and Haier will manufacture Sanyo refrigerators. Haier believes that the expertise Sanyo's R&D personnel possess in Japanese and international market tastes will help Haier make great strides in those markets.

Haier's former adversaries were domestic Chinese businesses. However, with globalization looming and China joining the World Trade Organization, Haier is now engaged in intense close-quarter combat with major international competitors such as Panasonic, GE and Whirlpool, as well as major competitors and imitators in China.

The Competition Bottleneck

With their advantage in established channels of distribution, China's Sunning Electronics and Gome Electronics, America's Wal-Mart, France's Carrefour, and Taiwan's RT Mart are applying immense pressure to Haier; and the company that has never engaged in price warfare is now showing signs of financial strain. One board member of an association of Taiwan-backed businesses with a long history of cooperation with Haier reveals that Haier's rate of payment on debts has markedly slowed in the past year.

Haier exports to the U.S. grew by 40 percent in 2005, but their total operating budget of RMB103.9 billion grew by only 3 percent from 2004 – the slowest growth year in the history of Haier, which seems to have hit a domestic market bottleneck as well.

Intense market competition has been detrimental to company share prices, and Zhang has been keeping a low profile this past year. Yet one senior media professional contends that Zhang will never stray from his goal to establish Haier as a global brand: “He is an entrepreneur to whom profits come second.”

In a recent interview, Zhang was unfazed by speculation, answering calmly that the world is flat, and suggesting that venturing out of the Chinese market could mean either triumph or annihilation, “but not venturing out will mean certain death… Haier's goal is to create a global brand.”

When speaking of Zhang, executives of China's industry sector and Taiwan-backed Hon Hai and BenQ show nothing but respect. Gome Group's president Huang Guangyu, who has put Haier under great pressure to lower prices over the past few years, also commends his leadership abilities, and praises his ability to consolidate Haier's corporate culture, which few businesses have achieved.

Compared to other business leaders, Zhang has great political clout. He is an alternate member of the 16th National Congress of the Communist Party of China (NCCPC), and enjoys the privileges of a deputy minister. A Confucian businessman cares about political and social development, and Zhang is just such a man.

It is an open question whether the Confucian ideal of an affluent and polite society can be gradually realized in China's economic modernization process. Many are looking to this son of Shandong for clues to the answer.

Translated from the Chinese by Ellen Wieman