The Hindu Business Line : The Haier order

“India is of great importance to us as a group, given its high potential in the markets today, and we want the country to have greater stake in the global group.”

Pranay Dhabhai, Wholetime Director and COO of the group’s Indian subsidiary, Haier Appliances (India)

Debdatta Das

Walking down the aisles of one of its 22 factories in Qingdao, China, seeing rows of steel being converted into stylish front-loading washing machines, one couldn’t help but marvel that only 23 years ago, Haier, China’s largest and the world’s second largest consumer durables brand, was on the verge of bankruptcy. In fact, the ‘Haier Group’ - as it is known today - did not even exist. What existed was a bleeding company called Qingdao General Refrigerator Factory that produced sub-standard refrigerators for local consumption.

What caught the eye was the pin-drop silence among the workers. The company’s Indian head, Pranay Dhabhai, explains later: “Each factory consists of several lines. And each line has targets such as 450 pieces of whatever product to handle in a day, leaving no time for small talk. Also, the work culture is such that it is self-stimulatory and that of assuming individual accountability of one’s work.” Quite the opposite of India where daily banter forms an integral part of work.

Actually, this is all the doing of the Group’s Chairman and CEO, Zhang Ruimin, very often referred to as the Jack Welch (once Chairman and CEO of General Electric, known for his uncanny business instincts and unique leadership strategies) of China. Three of the most unique management practices that Ruimin instilled in the company’s culture were that of individual accountability, the OEC model and that of attracting the ‘stunned fish’.

Under individual accountability, if a product doesn’t sell in the market or sells very poorly, everyone from design to manufacturing to sales is responsible for it. In fact, the employees’ salaries are directly related to the product’s market performance. OEC is an abbreviation for ‘Overall’, ‘Everything, Everyone, Everyday’ and ‘Control’, meaning control over everyone’s everyday performance in the company. And attracting the ‘stunned fish’ is Ruimin’s unique theory of mergers and acquisitions where the company buys out the ‘stunned fish’ or companies that have good products, facilities, equipment and distribution channels but poor management.

Put together, these theories and management practices have today catapulted the company from a one-room facility manufacturing low-quality products, 76 of which Ruimin sledgehammered to death in 1984, thus marking a new beginning for the company, to now one with a global revenue of around $16.2 billion, 240 subsidiaries, over 50,000 employees, over 7,880 patented technologies, with operations and facilities in countries such as the US, Jordan and Pakistan and 30 overseas plants and manufacturing bases. In fact, the group’s headquarters in Qingdao is spread across two estates of 1,500 acres and 2,500 acres, consisting of several manufacturing units and facilities, the most noteworthy feature being the completely automated warehouse with 21-ft-long compartments, operated by machines.

India and Haier

What importance does all this hold for India? Well, as Diao Yunfeng, the Managing Director of the Group’s Overseas Business Division, says, “Currently, Indian revenues comprise 2 per cent of the global revenues. However, India is of great importance to us as a group, given its high potential in the markets today, and we want the country to have greater stake in the global group.” In fact, Haier, which set up shop on Indian soil three years ago, is moving fast to make India a manufacturing and exporting hub given the convenient geographical location of the country and its proximity to the global headquarters in China.

However, not everything has been hunky dory. It entered the currently over-Rs 35,000 crore durables market in India almost seven years after rivals LG and Samsung did, and had to deal with the whole notion of being a ‘Chinese’ company. Pranay Dhabhai, Wholetime Director and COO of the Group’s Indian subsidiary, Haier Applainces (India) Pvt Ltd, says, “Well, we at Haier like to do things differently. We consider ourselves a global brand with the right product offering and good quality as well. It will be unfair to compare us to other companies because what others took to achieve in nearly a century, Haier globally has done in merely 23 years.”

Aggressive plans

Haier and there: Left: A Haier store in Shanghai

Having established the distribution network and understood the requirements of the Indian market over the past three years, it is now ready to get more aggressive. Dhabhai says, “So far we have been spending around 10 per cent of our revenues on promotions and brand building initiatives. We will be spending a lot more beginning this year.” The company will also start consolidating its distribution network, Dhabhai says. Industry watchers say it has spent around Rs 200 crore in India so far, having recently acquired the 40-acre Anchor Daewoo facility in Pune for manufacture of refrigerators, to be followed by televisions and washing machines.

Says Dhabhai, “Rather than expanding our distribution network, we will focus on consolidating it in such a way as to get more visibility in each of the outlets that we are present in. We want the brand to be a profitable proposition not only for us but also for our trade partners. Haier globally has been growing at 65 per cent on a yearly basis and we want to be able to do the same.”

Haier, as part of its expansion strategy in India, plans to not only launch new ranges of its televisions, air-conditioners, refrigerators and washing machines, but advertising campaigns also.

“We are already working on different campaigns that will run on TV as well as the print medium. Besides doing holistic range campaigns, we will also do season-specific campaigns,” says Dhabhai.

Haier is also going to invest substantially in R&D. According to the company, innovation based on localisation is one of the key strengths that it would continue to focus on. The company last year launched a refrigerator with the freezer at the bottom, based on consumer inputs. In fact, the company that clocked revenues of Rs 325 crore in 2007 hopes to touch the Rs 500-crore mark in 2008 and cross the Rs 1,000-crore mark before 2010.

Meanwhile, industry analysts who have been tracking the growth in the durables sector as well as in individual companies say Haier is a global company that has a very good reputation in terms of product quality and technology, but has low market share, similar to other big companies such as Sony and Sharp. This has nothing to do with the product quality, though, and one cannot even compare companies such as Sony and Haier to the likes of LG and Samsung as the ideologies are very different.

However, what Haier could do with right now is some aggressive marketing to catapult itself into more prominence, they add. That would not be very difficult to do considering the Chairman’s mission statement in 1984, soon after the company was created, comparing it to a sea.

He said in the statement: “Haier is like a sea. Like the sea it has no boundaries, it is a blue ambition. Haier wants to attract talent from the five lakes and the four seas to make it a success both in China and the overseas.”

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The Haier order