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Case #1: Hailing a New Era: Haier in Japan

As one of the most valuable brands in China, Haier designs,manufactures, and sells various home appliances, includingrefrigerators, air conditioners, and washing machines in over 100countries. Under the leadership of its well-respected and visionaryfounder and CEO Zhang Ruimin, Haier Group has rapidly grown from asmall refrigerator plant in Qingdao, Shandon province, China, to aglobal leader in home appliances. Haier’s 2011 annual sales reachedRMB151 billion. As part of its internationalization strategy, Haierentered the Japanese market in 2002 and formed a joint venture withSanyo in 2007 to produce and sell refrigerators and washingmachines in Japan. In 2012, after five years of collaboration withSanyo, Haier acquired Sanyo’s white goods business in Japan and therelated operations in six other Southeast Asian countries. DuJingguo, president of Haier Asia International, moved from China tolive in Japan in 1998 and learned the specificities of the Japaneseculture well. Knowing his role in realizing Haier’s globalizationstrategy that aims to turn each localized brand into a mainstreamproduct in its respective market, Du is pondering how he can moreeffectively lead the team based in Japan. In particular, he needsto instill Haier’s culture and innovative management system in itsJapanese operation.

Company Background and Its International Expansion

Established in 1984, Haier has experienced four stages ofexpansion over the past 28 years, each representing the formulationand execution of different strategies: brand building (1984–1991),diversification (1991–1998), internationalization (1998–2005) anddeveloping a global brand (2006–now).

1. Brand Building Period (1984–1991) When Zhang took control ofHaier in 1984 at the age of 35, the company was in financialdistress and lacked basic standards and procedures. It was notuncommon for workers to steal materials from company premisesor simply not show up to work. Zhang inherited a workforce that,due to the Cultural Revolution, was largely undereducated. Tofoster discipline and proper work processes, Zhang began bydefining a list of simple rules of conduct (see Exhibit 1) thatwould later evolve into sophisticated policies. This wasparticularly important because Haier faced fierce competition fromover 300 local refrigerator plants. At that time, demand in homeappliance products in China was growing, and customers were willingto pay for second-rate products. Quality was a rare concept. Zhang,however, believed that customers would be willing to pay more forhigher quality products and services. Hence, whereas itscompetitors strived to pursue economies of scale to meet increasingdemand and ignore quality control, Haier focused on themanufacturing of refrigerators and strictly emphasized productquality. To demonstrate his commitment to high quality, Zhang oncepersonally pulled 76 refrigerators with minor defects from theproduction line and smashed them in public. This event marked aninflexion point in Haier’s culture and is still the object ofcommentaries by current employees today, almost 30 years later. By1990, Haier had become the leading refrigerator maker in China withan average 9.5 percent growth rate over the past decade. At thisearly stage, Haier had also already started its internationalcollaborations. In 1984, Haier signed a technology licensingagreement with Liebherr, a German refrigerator maker. Later, Haierimported freezer and air conditioner production lines from Derby(Denmark) and Sanyo (Japan). Joint ventures with Mitsubishi (Japan)and Merloni (Italy) further introduced advanced technology andinnovation into Haier’s operations and culture.

2. Diversification Period (1991–1998) In its second phase, Haieradopted a stunned-fish tactic to diversify its product lines.“Stunned fish” referred to those companies that performed poorlydue to weak management and yet owned advanced technology andequipment. Haier actively identified and acquired 20 of thesecompanies and turned them around. Haier also started to demonstrateits capability in management innovation by introducing the OEC(Overall, Every, Control and Clearance) approach, referring toHaier’s practice of planning, executing, and clearing every taskand performance dimension on a daily basis. This practice proved tobe instrumental to Haier’s success in changing the mentality of itsworkers to the pursuit of high quality. Later, Zhang introduced theconcept of Miniature Companies within Haier, whereby eachemployee’s tasks and responsibilities would be understood in termsof income and expenses to be recorded in a personal bankbook thatserved as an individual profit and loss statement and determined aperson’s salary. Whereas the various acquisitions provided accessto advanced technology and sources of diversification, theyalso added a substantial number of workers with differentprofiles and who used different forms of work organization. Haierhad then to align the acquired companies with its increasinglysophisticated management systems. The formalization of Haier’ssystems helped provide a guiding frame, but it was insufficient byitself to unify the entire workforce. In fact, the pressure toquickly turn around the acquired companies meant that Haier had tosocialize the new workforce into Haier’s corporate culture andoperating systems, often within short periods of time. Haierstarted to provide formal training, which later led to the creationof Haier University. The company also deployed staff from itsCorporate Culture Center to the newly acquired companies to helpwith the integration. 3. Internationalization Period (1998–2005)After Haier’s refrigerators outperformed Liebherr’s in a blindquality test held by a German magazine, Haier decided to developits own brand globally. Influenced by successful Japanese andKorean companies such as Sony and Samsung, Haier also decided tobear the cost of building up the firm as an independent brandoverseas. Haier adopted a strategy to enter more difficult, maturemarkets first and leave the easier ones for later. Initially, Haierfocused on the European and U.S. markets, which contributed to over3 percent of group sales. In the late 1990s, China joined the WTO,and the government called on enterprises to follow its nationalpolicy of expanding operations overseas. In 1999, Haier establishedthe Overseas Promotion Division and aggressively pursued exportsand overseas production in Asia (Indonesia, Philippines, Pakistan,India, and Japan), the Americas (South Carolina), Europe (Italy andGermany), and the Middle East (Dubai, Saudi Arabia, Iran, Algeria,Syria, and Jordan). The internationalization period tested Haier’sability to effectively manage its workforce across an increasinglywide network of foreign operations. Although Haier had successfullyintegrated a host of different product divisions into its domesticorganization and created an overarching management system, movingacross borders meant that Haier now faced the challenge ofexpanding its systems abroad and managing across growing geographicand cultural distances. In contrast to many multinationals thatstaffed their foreign operations with managers from headquarters,Haier selected experienced local staff to manage its foreignoperations from the beginning. Haier was convinced that, to ensureproximity to local customers, the company needed local people todevelop the sales and distribution channels and better understandlocal customer needs. Although many aspects of Haier’s systems weresuccessfully transferred to other countries, Haier also adaptedspecific practices to the local context. For example, after thepractice of having low performers publically share their mistakesin front of their peers was deemed a violation of human rights inthe United States, it was replaced by having top performers sharebest practices. The European context required further adaptationsof Haier’s management practices. 4. Global Brand Period(2006–Present) Since 2006, Haier has continued to evolve itsbusiness models and extend its global reach. During the latestphase, Haier developed a global brand strategy. Unlike its previousinternationalization strategy, which saw Haier expand tointernational markets while maintaining a focus on its home market,the new strategy aims to make each localized brand of Haiera mainstream product in the respective local market with theultimate goal of leading local market trends. As the company grewlarger throughout the years, Zhang noticed that it was becomingharder for Haier to respond to the market in a speedy and timelyfashion. Recognizing the need to adapt to the Internet era with ahigh level of speed and responsiveness to customers, Zhangintroduced a new business strategy called a Win–Win Mode ofIndividual-Goal Combination to (1) link each employee more closelyto the clients he or she serves, and (2) satisfy clients’ specificneeds by consolidating R&D, manufacturing, and marketingresources through the Internet. To implement this strategy, Zhangproposed a restructuring that would organize employees intoself-managed units (called ZZJYT, the abbreviation of zizhu jingyinti— ???? ? in Chinese) with an inverted triangle structure. Haieralso made a conscious effort to develop the corresponding corporateculture. (The system will be discussed in more detail later.) Haierhas been experimenting with this model in China and aims togradually implement it overseas. It is in this context that Du wasasked to acquire Sanyo’s white appliances operations in Japan andSoutheast Asia and turn them into an integral part of the HaierGroup in building its global brand. Haier’s InnovativeOrganizational Structure and Culture Since 1984, Zhang hascontinuously proposed new strategies, most of which combinedWestern management concepts and Chinese philosophical thought.Although unable to receive a systematic, formal education due tothe Cultural Revolution, Zhang is a diligent autodidact and haseducated himself in different ways. He reads extensively,especially on topics related to traditional Chinese philosophy andliterature and Western management theories, from which he createdthe unique Haier management models. In many public interviews,Zhang has consistently maintained that it is the ancient Chineseteachings, such as Confucius’ Analects, Lao Tzu’s Tao-De Ching, andSun Tzu’s The Art of War, that helped him face Haier’s variouschallenges and form its management philosophy and corporateculture. As a result, Haier adopted Western management theories,infused them with Chinese ancient philosophy, and executed themaccording to local practice. These concepts emerged gradually anddeveloped by trial and error over time. ZZJYT is a vivid example.ZZJYT refers to a selfoperating, self-managing entity thatdetermines goals, recruits members, and formulates rules. Theconcept was already mentioned by Zhang in 2002, when he witnessedhow the Internet changed traditional business models in variousindustries. To address the essential transformation frommanufacturing to services and customer-centric models of operation,Zhang proposed an inverted triangle corporate structure to servecustomers in the future. With the aim of leading the company intothe Internet era, Haier formally adopted ZZJYTs in 2007. ZZJYT(Self-Managed Unit) and the Inverted Triangle Traditionalmanagement theory tends to see a company as a triangle that locatessenior executives at the top, followed by middle managers in chargeof different functional areas, and employees facing the markets andother external stakeholders at the bottom. In such a structure, topexecutives assume traditional roles as decision makers. Employeesthen follow managers’ instructions and guidance in their dailyoperations. By contrast, the ZZJYT concept subverts thisorganizational structure by adopting an inverse triangle. At thecompany level, Haier differentiates between three vertical levels.Each level consists of specialized ZZJYTs (see Exhibit 2). Thefirst vertical level consists of ZZJYTs of manufacturing,marketing, and R&D functions that directly face customers.Employees of this level will directly contact customers, assessdemand, and formulate and execute projects to efficiently satisfycustomer needs. For instance, with the support of marketing andsales colleagues, R&D staff will communicate with customers andidentify customers’ needs onsite. As a manager of Haier explained:“Employees don’t get orders from executives, but rather activelylisten to the market. They are their own CEOs.” In Zhang’s view,the most unique characteristic of ZZJYTs was their ability toshorten the gap between internal and external users. It would bethe employees who would closely coordinate with each other todirectly create value for their internal and external customers,achieving zero distance between Haier and its end users. The secondlevel of ZZJYTs comprises a number of platforms that providesupport to first-level ZZJYTs, including specific R&D, humanresources, and finance support. The third level, the same as theexecutive level in a traditional triangle organization, isresponsible for identifying and formulating strategicopportunities. It is expected to support the secondlevel platformsand facilitate resource allocation to the firstlevel ZZJYTs. Inother words, the second-level and third-level ZZJYTs, serving as aresource platform and resource allocators, stand behind thefirst-level ZZJYTs to integrate ZZJYTs and employees and achieveanother zero gap in Haier internally. This also translates into azero inventory policy that requires specific planning of userresources to avoid any inventory. Manufacturing only producesaccording to the specific orders that sales units provide—and thatis agreed upon in an internal order contract.

According to Zhang, ZZJYTs transform the company from a staticorganization into a network of units that can offer customizedsolutions to satisfy the unique, fragmented users of the Internetera. In Haier’s jargon, users and hence markets not only representexternal customers and stakeholders but also internal customers,that is, other ZZJYTs. The adoption of the ZZJYT concept goes asfar as replicating the three-level inverted triangle structurewithin each ZZJYT. By 2012, Haier had established more than 2,000ZZJYTs among its 80,000 employees. The ZZJYTs usually comprisedbetween nine and 30 members. Although the majority operates inChina, Haier aims to transfer the concept to its foreign operationstoo, notably to the newly acquired operations in Japan and the restof Southeast Asia. As independent and self-governed organizationalunits, ZZJYTs function in an open-system fashion to motivateemployees to reinforce this self-driven mechanism in theirrespective ZZJYT. Specifically, Haier implements this open systemin the following aspects. The degree of autonomy is such that it isbasically for tax purposes that each unit does not become a fullyindependent company by itself.

Win–Win Mode of Individual-Goal Combination (? ? ?? ? ?) It isthe founding philosophy of ZZJYTs. Here, “individual” referstoemployees; goal refers to customer orders in general but furtherimplies the needs and value of resources of both internal andexternal users. Thus, the Individual-Goal Combination focuses onthe integration of employees’ capabilities with the value theycreate for users and the user resources. Unlike traditionalmanagement theory that defines an enterprise in terms of thecontract relationships between the company and its employees, Haieruses this new concept to redefine its organization as a networkbetween users and employees. Thus, Haier becomes a dynamic andevolving organization that can meet end users’ changing andfragmented needs. The win–win principle is shown in the incentivesystem that is based on the ZZJYTs managing their own profit andloss statement, in close collaboration with other units (includinginternal and external clients), to create profit. As a result, eachindividual has to achieve key performance indicators that, in turn,determine their salaries. Ji Guangqiang, general director ofHaier’s Corporate Culture Center, explained:

Catfish Mechanism The team leader is elected through a votingprocess with each ZZJYT member exercising voting rights. The votingprocess can be initiated at any time. This results in a dynamicoptimization of operations and equal opportunities for allemployees. It also actively encourages internal competition forpositions. If a ZZJYT member showed higher performance levels thanthe current leader, he or she could then assume the leadership ofthe unit. In addition to the actual team leader, ZZJYTs alsocomprise a leader-in-waiting—a role that Haier, drawing from aNorwegian tale, referred to as the catfish. The team leader isresponsible for taking care of and developing the catfish so thatthe latter may be able to step in and substitute for the leader inthe future. Negative Entropy and Positive Feedback Loops.

Negative entropy refers to the constant influx of first-classtalent into Haier. For example, ZZJYTs are temporary organizationalunits in the sense that if they do not perform, they are quicklydisbanded. The positive feedback loop emphasizes the positivecorrelation between Haier employees’ capabilities and marketobjectives. Based on new talent and a positive loop between talentsand their market goals, Haier aims to form a self- managed,virtuous cycle in its ZZJYT structure (see Exhibit 3).

ZZJYT in Practice The ZZJYT and inverted triangle system iscontinuously evolving. Sometimes even managers at Haier’s Qingdaoheadquarters find it difficult to define how the system worksbecause it is constantly revised. Operationally, Haier uses threeforms to assess the performance of a ZZJYT: a Strategic IncomeStatement, a Clearance Form, and a People-Goal Incentive Form.Different from the traditional balance sheet, income statement, andcash flow statement, Haier designed its Strategic IncomeStatement to track the performance of each ZZJYT and eachindividual employee. Based on managerial accounting theory, theStrategic Income Statement emphasizes pre-budget and execution. Itcontains four quadrants: user value created, human resources,process (forecasting and accounting), and gap-closing optimization.The performance of each individual employee is thus determined bythe user value created rather than the completion of tasks orseniority in the organization. The Clearance Form comes from theOEC (Overall, Every, Control and Clearance) approach that wasimplemented by Haier several years before and referred to Haier’spractice of planning, executing, and clearing every task andperformance dimension on a daily basis. This form, in support ofthe Strategic Income Statement, tracks the progress of pre-budgetplans and pursues zero discrepancy between plan estimation andactual result. Finally, the PeopleGoal Incentive Form sets goalsfor each employee in relation to market factors (rather thaninternally determined targets). Employees’ salaries are calculatedbased on customer value recorded in this form. Ultimately, thismeans that the salary is paid by the market, not Haier. As Zhangexplained: “The ZZJYT concept completely changes traditionalincentive systems. Before, you were paid a salary from the company.Now, however, you are paid by the market, not Haier. There is noglass ceiling for what you can earn. If you want to get paid more,you need to develop your capability to meet more customer needs.People who leave the company often complain about the low salarythey received from Haier, but the main problem is that they don’tfeel comfortable with being their own boss.” Naturally, income canalso go down because of underperforming. For instance, in 2012, anew 24-hour delivery for all home appliances was established byHaier in China. If the goods are not delivered within 24 hours, thecustomer receives them free of charge, and the responsible employeeis made to personally pay for them. During the year, this actuallyhappened just four times, which is still considered a success.Similarly, if a given unit does not perform adequately, the unit isdisbanded and its members are left on their own to find a place inanother unit that is willing to hire them, or leave the company.This is no different from actually starting a new firm and failing.Nobody will give you any guarantees in case of failing in your newventure. Although the pressure to perform is relentless, Haierrecognizes employee loyalty. Employees who have served the companyfor a long time are often given less demanding jobs that allow themto still keep pace with the Haier rhythm. A Haier manager explainedthat “it is a bit like a chair. You don’t need four legs to sit onand yet you won’t cut off the fourth leg.” In the end, the CEOlikes to stress that the key to success is not in doing or notdoing something specific, but in being aligned with the majortendencies of the times. In that sense, Haier does not aim at beingsuccessful (such success comes and goes too easily) but at being a“company of the times,” thus moving in the flow of the overallcontext, worldwide.

Haier in Japan Due to a traditional preference for local brandsand strong competition among Japanese home appliances makers, Japanis one of the most difficult markets in the world for foreignbrands to step into. Haier officially entered Japan in 2002 when itestablished an alliance with Sanyo Electric Co. In 2007, thisalliance was formalized through a joint venture between the twopartners, in which Haier owned 60 percent. Under this alliance,Sanyo products were sold under both the Sanyo and Haier brand namesin China through Haier’s salesand-service network. The jointventure in Japan was responsible for sales of Haier products inJapan through Sanyo’s distribution and service outlet. This was thefirst time a major Japanese company ever promoted Chinese products.Such an alliance, however, was a smart move for both sides becausethey were able to take advantage of each other’s resources. Ithelped Haier break into the Japanese market and gradually establishits brand name through unique design and competitive prices. OnJuly 28, 2011, Haier and Sanyo Electric signed a merger andacquisition (M&A) memorandum of understanding. In October 2011,both sides agreed for Haier to acquire Sanyo’s white goods businessin Japan, Vietnam, Indonesia, the Philippines, and Malaysia. Thefirst delivery was made in January and the whole process wascompleted in March 2012. All remaining parts of Sanyo were acquiredby Panasonic. During integration, Haier implemented a system-wideM&A approach to maximize synergy among the various functionalteams in different countries and sustain its global brand strategy.Specifically, it rearranged resources in technology, manufacturing,marketing, and sales, and the service network. Ultimately, Haiercame to comprise two R&D centers; four manufacturing bases (inKyoto and Tokyo); four manufacturing bases in Hunan Motor (Japan),Vietnam, Thailand, and Indonesia; and six marketing frameworks forsix Asia-Pacific regions. The company adopted a dual brandstrategy, with Haier and Aqua brands focusing on different marketsegments.

The Leader in Japan–Du

Jingguo Du Jingguo, the current president of Haier AsiaInternational (HAI), has served at Haier since 1985. With anengineering background, Du started his career as an engineer on theproduction line before being promoted to manager and productdeveloper. He was then assigned to introduce the technologytransfer from Germany and became involved in operations managementin the refrigerator plant. Later, he was in charge of businessmanagement, including sales service and advertisement, and wasnamed president of the Haier Sales Company. In 1998, Du left Haierand moved to Japan for three years due to family reasons. Duringthis period, he learned the language, customs, and businesspractices of Japan. In 2002, at the age of 36, Du rejoined Haierand was responsible for the overall management of Haier’soperations in Japan, including sales and R&D. He has also beenthe key person leading the Haier-Sanyo joint venture since2007. In 2011, Du executed the acquisition of Sanyo’s white goodsbusiness and established HAI. As the presence of Haier in Japangradually evolved from a simple import center to a joint venture,and finally to acquiring Sanyo to enter the mainstream market, Durealized that he had to instill the Haier system and culture in itsJapanese operation, yet at the same time adapt to the localcultural values and traditions. Although for Western outsiders theJapanese culture may seem close to the Chinese, the invisibledivides can be huge. What is more, Haier is implementing anunconventional organizational structure and management system in anattempt to be an “enterprise of its time that can adapt well to thetrend,” in the words of Zhang. Du needs to introduce this system inthe units he leads in Japan and the operations in other SoutheastAsian countries.

Challenges in Leading the New Haier in Japan

Du adopted the following guiding principles in leading HaierJapan: respecting Japanese culture, integrating Haier culture, and,finally, shaping a unique local culture of Haier Japan. CEO Zhangcommented: “It is very easy to merge and purchase any enterprisewith capital, but success can only be achieved with culture andstrategy, and culture integration is the most decisive factor.” Asa keen follower of Zhang’s management philosophy, Du paid specialattention to cultural differences and made extra efforts tocommunicate with workers at different levels to ensure a bettermutual understanding and a smooth introduction of Haier’s system.In total, Du leads 350 employees in Japan and 6,700 workers inother Southeast Asian countries. In implementing the ZZJYT andinverted triangle system in Japan, Du faces huge challenges, whichare intensified by the many cultural differences. How can he lead aChinese brand to break into a market that has been traditionallydominated by well-known Japanese brands such as Hitachi, Panasonic,Sharp, and Mitsubishi? Also, customers in China and Japan, muchlike the employees in Haier and Sanyo, hold a differentunderstanding of quality. Although generally Haier enjoys areputation for its product quality, the quality standard in Japantends to be higher and customers are much more demanding, nottolerating, for instance, a slight scratch on the packagingmaterials of an otherwise perfect product. Internally, a strongcollectivistic culture in Japan prevents companies from adopting amore individual-based compensation system, which is the core of theIndividual-Goal Combination mechanism in Haier. While leading thejoint venture, Du once wanted to distribute individualizedincentives and encountered strong objections from Sanyo managers,who insisted on the importance of team spirit and equality.Moreover, traditional lifelong employment and senioritybased rewardand promotion systems, though gradually abandoned by some Japanesecompanies, still exist in big Japanese firms. This makesmerit-based promotions extremely difficult to implement. Finally,Du also faced the ultimate question of whether Sanyo workers wouldbe willing to join Haier, since they had the choice to staywith Sanyo, now part of the Panasonic Group. When Du first startedrunning the HaierSanyo joint venture, a Japanese director came tohim with a provoking comment: “Each Chinese individual alone issmart and competent, but when you put two Chinese workers together,they will not be able to perform. The Japanese are different—weplay collective games.”

Aiming High

One day, Du was reviewing the first post-acquisition annualsales target prepared by the sales team. “JPY7 billion seems a bitlow,” Du thought. But he didn’t want to impose a sales target onthe team. Du had always kept in mind the vision of CEO Zhang ofmaking Haier the number one brand in home appliances in the world,and he decided to move quickly toward this goal. He was determinedto revise the first sales target of JPY7 billion and push ithigher. As Du remarked: The goal is to one day be number one.Although we cannot reach it overnight, we need to start with numberfive, then number three, then eventually reach the place of numberone. I did a calculation based on the idea of being number five inthe market as a baseline for the discussion, but I did not revealit to the sales team. He then called a series of meetings with thesales team and asked them to explain how they derived the JPY7billion figure. The team pointed to the specific constraints theyfaced for a higher target. For example, the team emphasized thatseveral negotiations would still be ongoing, leaving uncertainty asto the overall project. It would take three months after theJanuary delivery date to withdraw all old products from the market.Furthermore, more time would be required to prepare the new productlaunch. Communication and coordination with the marketing teamwould also take time. In total, it would take another six months toimprove the products and develop new designs. Du then went throughthe list of constraints and asked the team for alternatives inovercoming them. Du explained, “I wanted them to operate as aninverted triangle. They would make decisions and I would offersupport and resources.” The R&D team originally planned tostart developing new products for Haier Japan after the initialdelivery of the M&A, with a possible launch date aroundMarch/April 2012. However, Du came up with a bold strategy; hedecided to launch all new products right after the M&Adelivery. To achieve this, he would need the R&D team to startworking on completely newly designed products even before the HaierR&D office and facility were ready and the employees had beenofficially transferred from Sanyo to Haier. Du rented an emptybuilding near Kyoto that would be the future R&D Center ofHaier washing machines and asked the R&D staff to startdesigning new products with the objective of launching new productson January 6. For some weeks, the building had no windows, yet theteam was already working inside. It was winter and extremelycold. “The team needed to wear heavy coats and worked very longhours in the building without the protection of windows in the coldwinter to meet the deadline,” Du commented. Finally, theyaccomplished the challenging goal and launched 33 new productsdesigned for Japanese customers on January 6 and had themdistributed all over Japan within two weeks. This “instant launch”was something never before seen and surprised Japanese competitors.When Du met with the sales team and they together found solutionsto overcome the obstacles one by one, they were able to move thetarget of JPY7 billion first to JPY27 billion, then to JPY32billion, and, finally, to JPY35 billion. All members of the salesteam expressed their commitment to reaching the target of JPY35billion in their own way, displayed as an inverted triangle in theoffice of the sales team in Osaka (Exhibit 4). In July 2012, thistarget was 100 percent on schedule, with the sale of Haier washingmachine and refrigerator brands occupying third and fourth place,respectively, in the Japanese market. Du remarked: In fact,Japanese workers are very diligent and hardworking. It is only thatthey could not imagine that reaching such ambitious goal withinsuch a short time was attainable. Once I broke these mentalobstacles and set up clear goals for them, they became committed tothe goals and did their best to make them happen. When they saw thefirst results, they knew that it was really possible and gained theconfidence to achieve future challenging goals.

Bridging Cultural Differences

Having lived in Japan for years and being married to a Japanesewoman, Du had learned about Japanese culture and was able toclearly see the cultural differences. When Du first took charge ofthe Haier-Sanyo joint venture in 2007, Japanese workers would oftennot express their feelings openly to Du. To communicate better withthe Japanese workers, he divided the 160 employees at that timeinto 16 teams of 10. Every few nights, he would go out drinkingwith a team. After two years of drinking, the Japanese workersfinally felt comfortable talking and drinking with Du in a moreopen way. “However,” Du said with a wry smile, “I got all kinds ofgastric and duodenal ulcers after that.” Little by little, in hisway, Du gained acceptance from the Japanese workers.

Merit-Based Rewards and Promotions

One of the core concepts of ZZJYT is to connect each worker’sperformance with the market and reward him or her accordingly(i.e., individual-goal combination and win– win). This means thatworkers do not receive equal amounts of incentive bonuses butrather receive rewards according to their contribution. ForJapanese workers, this practice was hard to accept. While leadingthe joint venture, Du spent six months communicating with theJapanese team on this issue. Finally, he decided to withhold thepart of the bonuses representing Sanyo’s share because his Japanesecounterpart did not agree with his approach, but insisted onimplementing the system in the Haier way and gave out 60percent of the bonuses that represented Haier’s share in the jointventure. Similarly, Du at one point wanted to promote a 35-yearoldworker to the position of director. However, it would go againstthe Japanese value of seniority if he got promoted sooner than anolder colleague. Over the course of a year, Du publicized theperformance of this young man in the company and indicated theproblem of the current appraisal system that failed to reveal theoutstanding performance of the young man. Two years later, Dupromoted the young man to director, at the same time assigning themore senior colleagues titles of Responsible Director with clearroles and responsibilities so that they would not feel ignored.Little by little, the merit-based system embedded in Haier’s ZZJYTwas accepted in Haier’s Japanese operation. After the acquisition,Du talked to former Sanyo salespeople and tried to convince them tosign an Individual-Goal Combination contract, offering them higherincentives for higher performance (win–win). Some of them did notfeel comfortable and refused to sign it in the beginning. Ratherthan pushing them, Du tried to help them understand the underlyinglogic of the contract.

Retaining Japanese Workers

When Haier was about to acquire Sanyo’s home appliancesoperation, Du and his management team estimated that about 30percent of employees might quit. Indeed, many workers had joinedSanyo with the idea of staying there until retirement. They wereafraid of moving to a Chinese company. At that moment, Sanyo hadvery limited new product development and resource investment, butDu kept communicating with the employees about the plan, system,and prospects if they stayed with Haier.

Cultural Integration as an Ongoing Process

Haier Japan seemed to be off to a successful start under theleadership of Du, who attributes his achievement to the welldevisedstrategy and management system defined by Zhang. “What I am doingis simply trying to understand the thinking and strategy of Mr.Zhang, trying to align my operation with it, and continuouslyadapting it to local realities,” said Du. Yet, cultural integrationis an ongoing process; challenges may persist and require furthereffort to handle them. For example, some Japanese workers continueto feel confused about the structure. They see Haier Japanfunctioning as a star (i.e., the juxtaposition of a normal and aninverted triangle). Du and Haier Japan will need to continuouslyexperiment with the ZZJYT system (still quite new and in afine-tuning stage back in China) and instill the Haier values intothe Japanese operation. Conversations among Japanese Employees Theday after a regular visit of Du to the washing machine researchcenter near Kyoto, three senior managers and two chief engineers ofthe center had lunch together. “We knew Sanyo was notperforming at the levels at which it used to perform some yearsago,” one manager said. “In fact, the company was putting itself inthe same position that other companies faced in the final years ofthe last century, when Sanyo bought them. In the end, it all workedout for the best, for the former independent companies and forSanyo. So we keep asking ourselves if this is not the samesituation.” “Yes, the situation is similar, but there are somedifferences. Haier is a Chinese company, and when we talk with Mr.Du we feel confident about his capabilities and his intentions. Butwhere will Mr. Du be in 20 years? With Sanyo, we did not have tothink about this, because we were confident that Sanyo was going tobe there for us always, forever. We used to say that we were Sanyoemployees the same way I say I belong to my family. Can we say thesame now? Are we going to ‘be’ Haier employees, or should we saythat we are ‘now’ Haier employees?” added another manager. “Thereis little we can do about that,” commented one chief engineer. “Wewill never see ourselves as Haier employees the same way we sawourselves as Sanyo employees, but Haier provides us with importantchallenges in developing new technologies, and the market willrespond to that. In fact, Haier is being very brave entering theJapanese market, competing head-to-head with the most advancedbrands and products. It shows an amazing drive to succeed in themost difficult environment. And this is our environment. If wesucceed here, we will succeed anywhere. There was a time when wefelt exactly the same with Sanyo, but that was gone well beforeHaier acquired us. We just might have an interesting combination: aresourceful company, strong market prospects, and the will to faceall the technological challenges. What else do we need?” The otherchief engineer responded, “Well, we need to combine those aspectsinto a new way of organizing ourselves through the invertedtriangle, and this does not seem easy. Mr. Du is telling us that weare an inverted triangle but he talks from his top position. Iwould like to see how that works in practice.” “Actually, Mr. Dusays that he is the one who wants to see how it works—that he ishere to see (not us) and we are here to act (not he),” explainedone senior manager. “Also, I find that the idea of an invertedtriangle is promising in helping us move beyond country issues. Sofar, it makes a difference for us to think in terms of whether ourboss is Chinese or Japanese. But if the inverted triangle ideaworks out the way it should, there is nobody above of us, neitherChinese nor Japanese, just our customers. It is just us figuringout the best way to produce something. Haier probably has anadvantage here in terms of how to deal with global and localtensions (as long as the idea really works, obviously).” “Actually,Sanyo had tried some empowerment approaches in the past thatsomehow remind us of the inverted triangle, but they never reallyworked. They seemed to be very fashionable in the United States,but not here,” echoed one chief engineer. “Indeed, but we need tobe careful. If possible, I would still prefer a Japanese boss,”said one manager. “On the other hand, the Chinese seem to behavedifferently from the Japanese. We prefer someone who is Japanesebecause we think of how Japanese leaders behave. But these peopleare not Japanese; they will behave differently, so it may notbe relevant at all whether they are Japanese or not. Mr. Du andmost of the Chinese Haier employees in Japan actually speak verydecent Japanese. They do not speak like us, but they are closer tofully mastering our language than anyone who has been around herein the past. It may actually be easier for them to adapt to us thanthe other way around. And yet, this idea of the inverted trianglecan be very powerful; it may relativize these differences. We needto see how it really works.” “That is up to us,” said a manager.“Remember, we are not here to see it happen, we are here to make ithappen. It is for headquarters to see that we, not they, do it.”Yet, another chief engineer commented, “A few days ago I performeda little experiment at home with my two kids. They are 16 and 14years old. I told them that we at Haier were going to begin to workunder a different system, the inverted triangle. I asked them howthat would work in their school. They could not understand at allwhat I was telling them. They were afraid their class would turninto total chaos if the teacher proposed something like that, andthat students would not know what to do. My wife nearly suggestedthat I was a little bit crazy. The question is whether we areprepared for this: to become our own bosses and answer not only forour work and hours, but for our initiative and creativity as well.It is like we have been under a school system, with someone alwaysmonitoring our work, and now we have to become the teachers. Thisis not going to be easy, at least not for the older people, andthey are our masters. Should we expect everybody, absolutelyeverybody, to be able to perform under this new system? I am afraidit may create a division between those who enjoy the system more,especially the younger people, and those who have worked too manyyears under the Sanyo system. How are Haier and Mr. Du going todeal with this?”

Case Questions

1. How far has Haier come since its creation in 1984?

2. What is special about Haier’s current management system? Whydid the company create this system?

3. What role has CEO Zhang played in Haier’s development? Howwould you describe him as a leader?

4. What kind of tensions could arise for Haier when implementingits management system in Japan?

5. How did Du manage the tensions during his leadership of HaierJapan? Please assess Du in terms of how he goes about reconcilingcultural differences. In which aspects would you agree with him andin which would you not?

6. Should Haier adapt to the Japanese culture and change itsmanagement system? Or should Haier impose its system in Japan?