Hailing a New Era: Haier in Japan (A and B)

DPOT-70-E
May 2014
Hailing a New Era: Haier in Japan (A and B): Teaching Note1

Case Summary
Founded in 1984 by Zhang Ruimin, currently the CEO of the company, Haier has rapidly grown from a small refrigerator plant in Qingdao, China, to a global leader in the home appliances industry. As one of the most valuable brands in China, Haier designs, manufactures, and sells various home appliances, including refrigerators, air conditioners, and washing machines in over 100 countries. Since 2006, Haier has aggressively expanded its international presence, aiming to turn each localized brand into a mainstream product in its respective market. In line with this strategy, in January 2012, Haier acquired the home appliances business of its long-term partner, Sanyo, both in Japan and in Southeast Asia, directly challenging dominant market players such as Panasonic, Sharp, and Mitsubishi.
In addition to addressing potential cultural differences between China and Japan and retaining former Sanyo employees after the acquisition, Haier needed to instill the new management system that CEO Zhang put in place in 2007. Haier has always promoted a performance-driven culture emphasizing individual responsibility and meritocracy. Recently, Haier developed a management system consisting of an inverted organizational triangle with self-managed units. This structure puts people in direct contact with clients and empowers them to take the initiative to serve the market instead of responding to orders from a boss. Furthermore, if their performance is superior, young talent can be readily promoted to higher positions than their senior colleagues. This system, however, is at odds with the Japanese tradition of equality, seniority, and lifelong employment. As a result, Japanese workers are faced with difficulties in both understanding and implementing this innovative system. The case presents key challenges that Du Jingguo, the general manager of Haier Japan, needs to confront in managing cultural differences and helping a Chinese multinational successfully enter into tough foreign markets such as Japan.
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This teaching note was prepared by Professors Carlos Sánchez-Runde, Yih-teen Lee, and Sebastian Reiche as an aid to instructors in the classroom use of cases DPO-264-E and DPO-265-E. May 2014.
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Last edited: 4/30/14
Audience and Learning Objectives
This two-case series can be taught as a segment in Cross-Cultural Management, International Management, International Business, and International Human Resource Management courses as well as in advanced modules in leadership. It is suitable for MBA, executive training, or graduate programs. Specifically, the case offers rich materials that can shed light on (1) the emergence and growth of Chinese multinationals; (2) emerging Chinese management thinking and systems; and (3) the introduction and integration of a management system into a different socio-cultural context. We have taught this case to MBA, Global EMBA, and executive professionals, focusing primarily on cross-cultural issues. The feedback has been very positive, and most participants are impressed by the level of sophistication of the emerging Chinese global players. The case can also be used in courses such as International Management or International Business to address the complexity of cross-border mergers and acquisitions (M&A) and the subsequent challenges of cultural integration (at the organizational and national levels).
More specifically, the case can serve the following teaching objectives:
• Help students understand the historical background of Chinese business and its evolution in the past decades;
• Illustrate the emergence of Chinese global competitors and their strengths and potential weaknesses;
• Demonstrate how to effectively implement the management system and organizational culture in international M&As;
• Develop students’ capabilities for reflecting on the deeper meaning of cultural adaptation;
• Show the importance of identifying and developing culturally competent global leaders to bridge cultural differences at both the individual and the organizational level.
Suggested Assignment Questions
1. How far has Haier come since its creation in 1984?
2. What is special about Haier’s current management system? Why did the company create this system?
3. What role has CEO Zhang played in Haier’s development? How would you describe him as a leader?
4. What kind of tensions could arise for Haier when implementing its management system in Japan?
5. How did Du manage the tensions during his leadership of Haier Japan? Please assess Du in terms of how he goes about reconciling cultural differences. In which aspects would you agree with him and in which would you not?
6. Should Haier adapt to the Japanese culture and change its management system? Or should Haier
impose its system in Japan?
7. What types of cultural challenges might Haier face in other cultures? What would you suggest that Haier improve in order to better manage the cultural complexity of its global footprint?
Case Analysis
Introduction
The case gives students the opportunity to take a closer look at emerging Chinese global players such as Haier. Many students may not have direct experience working with Chinese multinationals, nor are they familiar with how these companies are managed—and yet the likelihood of working for a Chinese company will arguably increase in coming years. Instructors can begin the session by asking students whether they had heard about Haier before reading the case and what other emerging Chinese multinationals they know about. Asking students follow-up questions such as “How likely are you to do business with these Chinese multinationals?” and “Can you imagine working for a Chinese multinational one day?” will help the instructor highlight the relevance of the case.
How Far Has Haier Come Since Its Creation in 1984?
Haier has emerged as a leading global player in the home appliances industry, back from the brink of bankruptcy, in less than 20 years. It is striking to see how basic the 13 rules are that Zhang introduced in 1984 (Exhibit 1). Instructors can also refer to the famous anecdote about how Zhang smashed refrigerators that only had minor defects. It is useful to discuss the socio-economic background of China in 1984. China began its economic reform under Deng Xiaoping, adopting the open-door policy only as of 1978. After living under the Communist regime for several decades, there was a general sense of a lack of accountability among workers. In addition, because of the Cultural Revolution, China did not produce any college graduates until 1977. As a result, product quality was not a central concern for workers. The challenge facing Zhang in turning Haier around had more to do with transforming workers’ mentalities than with resolving a financial issue.
Instructors can then draw a comparison between Haier in 1984 and Haier today, as it has become a successful leading multinational with a global presence.
What Is Special About Haier’s Current Management System? Why Did the Company CreateThis System?
According to the case, there are several important features in Haier’s management system, as described in detail in the case (see pp. 4–7).
1. ZZJYT and the inverted triangle Zhang structured Haier into over 2,000 selfmanaged units (ZZJYT) and an inverted organizational triangle. Each unit is given a
huge degree of autonomy in determining how to best serve its customers, either internal or external, instead of simply following the hierarchical commands as in traditional bureaucratic organizations.
2. Win–win mode and individual-goal combination Each employee has very specific personal objectives, which are closely tied to customers’ current or potential needs. Each employee needs to identify the best ways to fulfill customer needs in order to achieve his or her personal goals in terms of compensation and career progression.
3. Catfish mechanism and negative entropy At Haier, a leadership position is not guaranteed; those who can best serve the interests of the ZZJYT and contribute the most value can be elected as leaders. Moreover, Haier constantly aims to introduce better talent into the system in order to achieve more ambitious objectives. These mechanisms create a healthy tension, pushing all workers to strive for excellence in serving their clients, the raison d’être for the company’s existence.
Instructors can lead the discussion toward a more detailed understanding of this system to see the complexity and interconnection among the different pieces.
Despite its evolution over various stages, one key recurring component in the design of Haier’s management system has to do with holding people accountable when serving their clients. When the quality of workers improves, they take on more autonomy so that the increased responsibility is matched with increased decision-making power.
It is worth noting that since January 2013, Haier has announced a new strategic era and a corresponding organizational structure. Haier has developed the inverted triangle toward a closed-loop network organization, where the hierarchical relationship in the inverted triangle is further dismantled, and all the ZZJYTs and supporting functions are coordinated in a horizontal manner.
What Role Has CEO Zhang played in Haier’s development? How Would You Describe Him as aLeader?
CEO Zhang is definitely the visionary thinker and leader behind the creation of such an innovative system and, in a broader sense, behind Haier’s success. As described in the case, as a diligent autodidact and thinker with a high level of intellectual curiosity, Zhang read a wide range of both Chinese and Western philosophical thinking and management theories, which in turn influenced his thought process and his design for Haier’s management system.
If time allows, instructors can ask students to comment on Zhang as a leader. Possible points of discussion are: •The role of top management in shaping the organizational system, culture, and values.
• The Chinese-ness of Zhang: How Chinese is CEO Zhang in his managerial thinking and in the way he leads Haier?
What Kind of Tensions Could Arise for Haier When Implementing Its Management System inJapan?
It is fairly straightforward to identify areas of tension between Haier’s system and traditional Japanese cultural values. For example:
• Individual vs. group-focused reward systems: Haier’s system puts great emphasis on individual accountability and corresponding rewards, whereas the traditional Japanese culture favors groupbased rewards, where members of the same team are treated equally.
• Merit vs. seniority-based promotions: In Haier’s system, capability and merit can lead to a leadership position, whereas the traditional Japanese system values respect and seniority. Promotion is normally based on one’s seniority rather than on one’s actual performance.
• Self-management versus respecting a hierarchical line of command: Haier’s system encourages employees to take the initiative and make decisions as self-managed entities, whereas traditional Japanese culture demands a high degree of respect for hierarchy.
It would be useful to bring up the fact that the challenges facing Haier also involve managing the differences between two organizational cultures (in acquiring Sanyo), in addition to national cultural differences. The fact that Sanyo was a much more established brand, with its own culture and management system, renders the adaptation even more difficult. Furthermore, there was also a factor of national pride: Japanese companies had been accustomed to a reputation for prime quality in electronic products. It is easy to see how it might have been difficult for Japanese workers to accept that they would be acquired by a Chinese company and that they would need to be managed according to the rules established by that Chinese company.
A few participants may have had direct experiences with working in Japan or with Japanese companies. Instructors may encourage their contributions in terms of how these two cultures might clash.
How Did Du Manage the Tensions During His Leadership of Haier Japan? Please Assess Du in Terms of How He Goes About Reconciling Cultural Differences. In Which Aspects Would You Agree with Him and in Which Would You Not?
Instructors can start by listing the actions that Du took in handling the cultural differences. Concrete examples include:
• Drinking and trust-building with Japanese workers (over a period of two years);
• Ongoing communication without imposing one’s preferred way of doing things immediately; instructors may discuss the fact that Du allowed his sales team to decide whether they wanted to sign a new individual-goal combination performance agreement.
Although Haier and Du talked about respecting Japanese culture as one key principle in managing the acquisition of Sanyo, it is interesting to observe that, in the end, Du successfully implements Haier’s entire management system in Japan.
Assessing Du
• Some students might feel that Du’s approach is too time-consuming. Can companies spend two years having drinks with local employees before implementing the desired system? Instructors can open a debate over efficiency versus effectiveness in handling cultural differences.
• How much patience do companies have? This question can also lead to a reflection on the importance for country managers of staying aligned with headquarters and top management in order to secure necessary resources and support in dealing with cultural differences.
Leading by Example
The way Du encouraged the Aqua sales team to reset the sales target for 2012 is fascinating. One key feature is that Du embodied the very spirit of Haier’s ZZJYT system, not by imposing his own numbers as a sales objective but by using them as a supporting system. He then let his sales team come up with a solution for revising the final sales target themselves. That is what leading by example means. If Du had imposed his ideal sales objective on the team, the effectiveness of transmitting Haier’s system in Japan might have been compromised.
Du’s Personal and Cultural Competencies
One interesting line of discussion concerns Du’s competencies. What are the key factors that allowed Du to lead the Japanese operation with success? The following resources and competencies seem critical:
• Du’s close relationship with CEO Zhang and a deep understanding of Haier’s culture and management philosophy: When asked how he was able to manage Haier Japan so well, Du always gives credit to CEO Zhang’s vision and says that what he did was only following the blueprint set up by CEO Zhang. This close relationship offers Du strong support from headquarters and helps him play the role of a cultural bridge.
• Du’s personal background and cultural competencies: Du emigrated to Japan in 1998 and married a Japanese woman. In a way, he is bicultural: familiar with both Chinese and Japanese cultures. This knowledge and bicultural identity also enable him to connect with people from both sides and to communicate with them more easily. Du is also highly competent in handling cultural differences because he knows all the cultural norms and is ready to adjust his own behavior when needed.
Should Haier Ddapt to the Japanese Culture and Change its Management System? Or ShouldHaier Impose its System in Japan?
It is curious to see that, in the end, Du has successfully implemented Haier’s system in Japan without making compromises. In this sense, Haier has not adjusted to the Japanese culture. How can it claim to respect Japanese culture? Essentially, Du has respected Japanese culture in terms of processes and communication, building up mutual understanding and trust. However, this does not mean that multinationals need to single-mindedly adapt their management systems to local practices.
Instructors can open a mini-debate on the question of adaptation: Who should adapt to whom and to what extent? Should each side adapt halfway and meet in the middle? What does that mean with respect to managerial practice? Students will see the complexity of the issue and, with the help of the instructor, they will understand that there is no single valid answer to this question. Adaptation should be a judgment call based on a strategic assessment of the context.
What Types of Cultural Challenges Might Haier Face in Other Cultures? What Would You Suggest That Haier Improve in Order to Better Manage the Cultural Complexity of its Global Footprint?
This can be an optional question to be discussed if additional time is available. The discussion will be based mainly on students’ experiences rather than on the concrete information presented in the case. If the students possess rich cultural knowledge and experiences, the exploration may be stimulating and insightful.