Case Study: How Haier handled foreign traditions

The story

Founded in China in the mid-1980s by Zhang Ruimin, after he was appointed to run a refrigerator plant in Qingdao, Haier has become one of the country’s leading brands. It designs, makes and sells home appliances such as refrigerators and washing machines around the world.

Since 2006, Haier’s aim has been to have a localised brand in each market, in which it is also the leader. Early in 2012, Haier acquired the home appliances business in Japan and southeast Asia of its long-term Japanese joint-venture partner Sanyo, in order to help it challenge dominant companies in those markets directly.

The challenge

In addition to addressing potential national cultural differences and retaining Sanyo employees after the acquisition, Haier wanted to extend to the Japanese workers the company wide management system that Mr Zhang had put in place in 2007. Haier had always had a performance culture that emphasised individual responsibility and meritocracy; Mr Zhang’s system put employees, such as those in sales, production and research and development, in direct contact with clients. This enables them to understand and respond to local conditions. The system also allows outstanding younger employees to be promoted over longer-tenured colleagues.

The system, however, was at odds with the Japanese company’s traditions of equality, deference to seniority and life-long employment.

The strategy

Du Gingguo, the Chinese manager appointed to head Haier Japan, was familiar with Mr Zhang’s ideas on how employees should be organised. In addition, he was already working with many of the Japanese employees at the Haier-Sanyo joint venture.

Mr Du adopted a pragmatic approach to achieve buy-in from his Japanese team. First, the Japanese staff felt uncomfortable expressing their ideas and opinions as openly as Mr Du wanted, so he devoted huge efforts to communicating informally. This involved lots of meetings and going for drinks after work for more than two years.

Mr Du allowed enough time for everyone to understand the Haier system. For example, when the Japanese workforce disagreed with the plan for bonuses for individuals instead of teams, the allocation was deferred until the rationale was understood and certain issues had been clarified.

His approach was similar when Haier wanted to promote junior workers above senior colleagues and to draw up individual sales targets contracts for salespeople. Again, Mr Du took care to explain why; he also implemented the new system on an individual basis so that workers would sign contracts only once they had understood and accepted them.

Mr Du demonstrated the new way he wanted staff to work while they were still technically employees of Sanyo. When the sales team presented him with a 2012 sales target of Y7bn, they listed the obstacles to achieving higher figures. Instead of just imposing a higher target, Mr Du asked them to “think like CEOs” – that is, work out how to overcome the obstacles they had identified. The team came up with creative answers that included starting the design and manufacture of new products before the takeover officially happened. Not only did they raise the target to Y35bn but the Japanese workers learnt how Haier wanted them to use their initiative. So far, they have met their targets.

The lessons

While companies are usually advised to respect local cultures after a cross-border acquisition, that does not mean simply imitating local practices.

Finding ways to implement a strategy and management structure in a culturally sensitive way is a continuing process that requires time and lots of communication.

Developing managers who not only know the company profoundly but are also “culturally intelligent” greatly enhances the chance of success in cross-cultural expansion.
- Financial Times, Apr 01. 2013