26 October 2016
Zhang Ruimin is driving production and sales closer to customers, using advanced manufacturing technology. Photo: Reuters
Zhang Ruimin is driving production and sales closer to customers, using advanced manufacturing technology. Photo: Reuters

Haier chief swaps acquisitions for innovation

A Chinese businessman who built the world’s second biggest white goods empire is puling back from overseas acquisitions to focus on smart home appliances.

Zhang Ruimin, the 66-year-old chief executive of Haier Group which makes refrigerators, washing machines and air-conditioners, said the decision was prompted by global overcapacity and a shift to advanced manufacturing.

In recent years, Haier has bought New Zealand’s Fisher & Paykel Appliances and Japan’s Sanyo Electronics to compete against worldwide home appliances leader Whirlpool Corp. and other global brands including Electrolux A.B., Reuters reported Wednesday.

“We used to think: maximize quantity, export more and manufacture more. This isn’t working,” Zhang said.

He is now driving production and sales at one of China’s most successful consumer brands closer to customers, flattening the management structure and streamlining the workforce, in a battle to maintain profitability as China’s growth slows.

“It’s survival of the fittest,” said Zhang. “[Haier] must transform from a traditional manufacturing enterprise into an internet business.”

Haier, which includes Hong Kong-listed Haier Electronics Group and Shanghai-listed Qingdao Haier Co., has shed 10,000 workers, about one-seventh of its workforce, in the past year while building out China’s biggest home appliance sales and logistics network.

Haier Group sales rose 11 percent last year to US$32.6 billion and net profit jumped by almost a third to US$1.9 billion.

But net margins at Haier Electronics remain thin, at 3.6 percent and a weak property market and slowing appliance sales are squeezing profitability.

Zhang has brought home all the Chinese executives from 24 worldwide production locations, leaving local managers in charge.

“We found that when we sent people, they were always using Chinese thinking to manage overseas,” he said.

“We were using Chinese recipes to make western food.”

Haier is applying advanced manufacturing to mass produce customized appliances that can be ordered online from four “smart” factories.

It is developing an app that will allow customers to watch their products being made on a live video feed.

The ultimate aim is for Haier to become a full-service company for the wireless age, where customers place orders for tailor-made appliances, and communicate directly with their home appliances via smartphone or controlling device.

Last year, Apple Inc. announced that Haier was among the first home appliance makers it partnered with for its smart home platform.

While Zhang is pausing big offshore buys, Haier is still pushing ahead with global investments, adding production lines in India, and last month offering to buy an industrial site in Wroclaw, Poland, which could become a manufacturing hub for the European and Russian markets.

Haier’s success has been as unexpected as Zhang’s emergence as a national industrial leader.

A native of China’s northeast Shandong province, Zhang was a township official when he was appointed to head Qingdao Refrigerator Factory in 1984, then a collective enterprise with 800 workers and 1.47 million yuan in debt, a huge sum at the time.

“We didn’t have a penny, we were losing money, and we couldn’t pay wages,” Zhang said. “Every day was perilous.”

Zhang soon famously picked up a sledgehammer and passed it among his workers, telling them to publicly destroy 76 defective refrigerators. His message was clear: quality and brand were the way forward. Today, the sledgehammer sits in China’s national museum in Beijing.

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