Oct 1st 2011 | from the print edition | The Economist
THE biggest in the world; tentacles in every continent abroad and every village at home; a magnet for foreign investors; yet its culture remains distinctive and it is not clear who really controls it. Haier, a Chinese company that has for nearly three years been the world’s biggest seller of domestic appliances, might almost be a metaphor for China itself.
It is difficult to write about the firm without recounting the legendary birth of its management cult. One day in 1985 Zhang Ruimin, appointed a year earlier to rescue an ailing state-owned refrigerator factory, tackled its quality-control problems by joining his workers in taking sledgehammers to 76 defective fridges (in a big parade, one wonders?). In the official history of the company that became Haier, the episode is treated as hallowed proof of its commitment to quality and to its customers. It also demonstrates a gift for the flamboyant symbolic gesture (with photographer on hand) that charismatic Chinese leaders love: Mao Zedong swims the Yangzi! Deng Xiaoping dons a ten-gallon hat!
In the West, such flair is known as public relations. Mr Zhang’s hammer is now in China’s national museum in Beijing, and Haier has reached stage four of his strategy for global domination. After seven years apiece of “brand-building”, “diversifying” and “globalising”, the company has entered the “Global Branding Strategy Stage”. Haier has come to a shop near you.
A group of foreign journalists (including Banyan) recently invited to Qingdao, the port in Shandong province that is Haier’s hometown, saw its latest offerings. The original take-it-or-leave-it fridge now has versions with computerised displays to tell you the milk is off; ones with a video-message facility so you can tell your housemates the milk is off; others with six doors for fastidious Japanese customers who abhor the idea of keeping the frozen fish with the ice-cream; and freezers that stay cold for 100 hours without electricity for those relying on an African grid.
Haier produces air-conditioners, washing machines and every other white good, as well as some “brown” ones. Among its televisions is a cordless one, plus a device which allows you to change channels by donning a headset and thinking hard about it. And there is a see-through computer monitor (“brilliantly barmy” was the conclusion of a review on one techie blog).
Such inventions underline that Haier has graduated faster than did, say, Japanese and South Korean companies from the bargain basement to the swish mall. Through acquisition and investment in its own research and development it boasts 9,258 patents and 2,532 certified inventions. In July it acquired some units of Sanyo, a Japanese white-goods maker, from Panasonic.
From its shabby, demoralised origins Haier has grown to a group with 70,000 employees, annual turnover of $21 billion, and 6% of its global market. In the first half of the year its listed subsidiary in Hong Kong reported increases of 68% in turnover and 77% in net profit over the same period in 2010. The company has been one of the biggest corporate beneficiaries of the huge injection of Chinese government money into the economy after the 2008 financial crisis. A chunk went on subsidising purchases of Chinese-made consumer durables by rural households.
Haier can claim to have become the best-known Chinese brand all round the world. And Mr Zhang, who is still chief executive, is feted as a business visionary. His management theories are analysed in case studies at American business schools. Papers are written about “activating stunned fish”, his epigrammatic summation of the post-merger integration of the succulent but ill-managed morsels that Haier has taken over.
Yet Haier’s factories in Qingdao still have echoes of China’s communist past. Exhortatory slogans are everywhere. These days they urge not the “Smashing of the right-deviationist wind” but such Zhangist goals as “Innovate and Transcend! Succeed in Refrigerator Factory One!” Others range from the plodding (“External we focus on customer value and internal care about own value-added”) to the gnomic (“Unity of Individual and Goal”). As in the Cultural Revolution, posters of model workers hang everywhere, though they are now known as “Stars of Innovation”. But executives say the firm has abandoned its old practice of humiliating underperformers in public criticism sessions.
They insist the firm is no pre-reform state-owned enterprise. Liang Haishan, the group’s executive vice-president, says that 90% of the business is covered by two subsidiaries, the Hong Kong one and another listed on the Shanghai stock exchange. He says that 51% of the Hong Kong firm and 44% of the Shanghai one are owned by the Haier group. As to who owns the group itself, things get murky. It is a “collective”, which he calls a “very special economic entity”. So special that it is not possible to say who the collective’s members are. Mr Liang suggests they include Mr Zhang and his “leading group”, parachuted to the rescue in 1984.
Does it matter if the goods are white or black?
Some collectives in China are in effect disguised private operations. Others are hard to distinguish from state-owned enterprises. It is hard to say which category, if either, Haier fits into. This opacity gives rise to rumours about its true owners and controllers. Certainly, the Communist Party takes up plenty of floor space in its headquarters, but it often does even in “private” ventures. Some other Chinese multinationals find uncertainty about their controlling influence a handicap overseas. For example Huawei, a telecoms outfit, is viewed with suspicion in such places as India because of its perceived links with the Chinese army. But consumer durables do not enjoy the strategic significance of telecommunications infrastructure. Those who use Haier’s fridges and washing machines do not really need to worry about who controls the firm. Nor, so long as it is well managed, need its shareholders. Haier’s collective, it seems, can go global and retain control, just like the Communist Party.
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