Haier

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Haier Group
Type Government Owned
Founded 1984 (adopted current name in 1992), Qingdao, People's Republic of China
Headquarters Flag of the People's Republic of China Qingdao, People's Republic of China
Key people Zhang Ruimin: Chairman and CEO
Yang Mianmian: President
Wu Kesong: Vice-Chairman
Industry Electronics, White Goods, Financial Services
Products Major appliances
Small appliances
Commercial heating and cooling systems
Consumer electronics
Revenue ▲ $13.3 billion (2005)
Employees 50,000
Subsidiaries Haier Electronics Group Co. (SEHK: 1169)
Qingdao Haier Co. (SSE: 600690)
Website www.haier.com

Haier (traditional Chinese: 海爾; simplified Chinese: 海尔; pinyin: Hǎiěr) is a producer of household appliances ("white goods"), including air conditioners, laptops, refrigerators, etc. Its headquarters are in Qingdao, Shandong, People's Republic of China. As of 2008 Haier is the third largest white goods manufacturer in the world. Haier Group reported sales of over $12 billion across all divisions in 2005. [1]

Contents

[edit] History

Haier's history begins long before the actual founding of the company, in 1920's Qingdao where a refrigerator factory was built to supply the Chinese market. After the 1949 establishment of the People's Republic of China, Haier was then taken over and turned into a state-owned enterprise. By the 1980s, the factory was in debt for over CNY ¥1.4 million and suffered from dilapidated infrastructure, poor management, and lack of quality controls; resulting from the planned economic system and relevant policies. [2] Production had slowed to a trickle, rarely surpassing 80 refrigerators a month, and the factory was close to bankruptcy. In desperation, the Qingdao government turned to a young assistant city-manager, Zhang Ruimin, responsible for a number of city owned appliance companies. Zhang was appointed the managing director of the factory in 1984.

[edit] Zhang Ruimin and the corporate legend

Zhang was an avid reader who had studied Western and Japanese business practices and management techniques. When he arrived in 1984, Zhang realized that the poor condition of the factory's quality controls was endangering its continued survival.

In 1985, a customer brought a faulty refrigerator back to the factory and showed it to Zhang. Zhang and the customer then went through his entire inventory of 400 refrigerators looking for a replacement. In the process he discovered that there was a 20 percent failure rate in his merchandise. To drive home the importance of product quality, Zhang had the 76 dud refrigerators lined up on the factory floor. He then distributed sledgehammers to the employees and ordered them to destroy the refrigerators. The workers were hesitant; the cost of a refrigerator at the time was about 2 years worth of wages. [3] Seeing their distress, Zhang said: "Destroy them! If we pass these 76 refrigerators for sale, we'll be continuing a mistake that has all but bankrupted our company." The refrigerators were smashed to pieces. One of the hammers is on display at company headquarters as a reminder to posterity.

[edit] Founding a new company

Haier was founded as Qingdao Refrigerator Co. in 1984. With China opening up to world markets, foreign corporations began searching for partnerships in China. One of these, Germany's Liebherr Group, entered into an agreement with Qingdao Refrigerator Co., offering technology and equipment to its Chinese counterpart. Refrigerators were to be manufactured under the name of Qingdao-Liebherr (traditional Chinese: 青島-利勃海爾; simplified Chinese: 青岛—利勃海尔; pinyin: Qingdao-Libohaier). Combined with Zhang's disciplined management techniques, which broke from the tradition of the Iron rice bowl in Chinese state-owned enterprises, the company began to turn around. By 1986, Qingdao Refrigerator had returned to profitability and sales growth averaged 83 percent per year. With sales of just CNY ¥3.5 million in 1984, sales rocketed to CNY ¥40.5 billion by 2000; a growth of more than 1,150,000 percent.[4]

With the success of Qingdao's refrigerator company, the municipal government asked it to take over some of the city's other ailing appliance makers. In 1988, the company assumed control of Qingdao Electroplating Company (making microwaves) and in 1991, also took over Qingdao Air Conditioner Plant and Qingdao Freezer.

[edit] The Haier Brand

Having diversified its product line beyond refrigerators, the company adopted a new name in 1991. Borrowing from the German name of its partner, "Haier" came from the last two syllables of the Chinese transliteration of Liebherr (pronounced "Li-bo-hai-er"). Qingdao Haier Group was further simplified in 1992 to Haier Group, the company's current name.

The company set out to establish itself as the country's leading brand, focusing upon reliability and product quality. Diversification would also allow Haier to spread out its risk among various product lines. So, in 1995 Haier bought out its chief rival in Qingdao, Red Star Electric Appliance Factory. In 1997, the company moved into television manufacturing with the acquisition of Huangshan Electronics Group. By the end of the 1990s, Haier was the most recognized brand in the country with products ranging from mobile phones to computers; it had also captured a dominant market share in its core white goods division.


[edit] Ownership structure

Although under partial public ownership, Haier is still technically a "collective" company, meaning that it is supposed to be owned by its employees. However, its actual ownership situation is opaque; the employees receive no dividends and do not know how much they own in reality. Interference from officials is also a risk for SOE's like Haier. Various levels of government often try to push their ailing companies upon successful ones, often resulting in failure; Haier was once talked into acquiring a pharmaceutical company, even though it had no prior experience or infrastructure in biotechnology.[5]

As a government entity, Haier was also officially barred from entering the stock exchange early on. However, the company needed funds for its expansion and therefore sought loopholes to access private equity. In 1993, it listed a subsidiary Qingdao Haier Refrigerator Co. on the Shanghai Stock Exchange, raising CNY ¥370 million. In 2005, Haier entered the Hong Kong Stock Exchange through a "backdoor listing" by acquiring a controlling stake in a publicly listed joint venture Haier-CCT Holdings Ltd. (SEHK: 1169). Haier is also an index stock of the Dow Jones China 88 Index.

[edit] Maytag bid

In June 2005, Haier made a bid to acquire Maytag Corporation, backed by private equity funds Blackstone Group and Bain Capital. The bid was for USD $1.28 billion, or $16 per share, topping a previous offer of $14 per share made by Ripplewood Holdings. [6] In the end however, Maytag was bought by Michigan based Whirlpool Corporation which offered $1.6 billion in cash and stock, or $20 per share, plus assumed debt.[7]

[edit] See also

[edit] External links