Af2108 Financial Accounting

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Dr. Sunny Sun, Poly U., Only for use in AF2108 Financial Accounting, Second Semester 2010/2011.

AMY LAU JUN HAN

HAIER: MANAGEMENT CONTROL ON A TACTICAL LEVEL
The Haier Group started out as a refrigerator manufacturer in China in 1984 with imported refrigerator production technology from the German Liberhaier company. In the following two decades, Haier grew to become one of the world’s leading white goods home appliance manufacturers and was constantly regarded as an aspiring, fast growth Chinese global brand in the international arena. 1 The company’s brand recognition was in drastic contrast to the time when Zhang Ruimin, the current CEO, first took over the company in 1984. The company had been in a poor condition with a group of low-skilled and undisciplined workers; it had low productivity and inferior product quality and was a loss-making business. It was a time when China was starting to adopt a market economy and the majority of the companies were still too handicapped with poor financial resources and technical capabilities to carry out management reforms. The workers at Haier also lacked the concept of discipline, tended to ignore rules and did not pay enough attention to details. Zhang was faced with a tough mission to rescue the company from its financial burden and management turmoil. Step by step, Zhang established a corporate culture and rules, and revamped the business strategy to set up an incentive-based management control system; all of these transformed Haier into a world-class brand name. 2 Haier Electronics Co. Ltd was listed on the Hong Kong Stock Exchange and Qingdao Haier Co. Ltd was listed on the Shanghai Stock Exchange. 3 In 2005, Haier’s global revenue was US$12.8 billion [see Exhibit 1]. Although Zhang was proud of Haier’s growth and wellestablished organisational structure, he believed that one of the imminent challenges facing 1

Haier earned world-wide recognition through many awards, namely a World Climate Award from the United Nations Development program and the U.S. Environment Protection Administration in 2000; it was ranked first among China’s Top Global Brands by the China State Bureau of Quality and Technical Supervision for refrigerators and washing machines in 2005; it was ranked first among China’s Top 10 Global Brands by the Financial Times in 2005; it was ranked first among Chinese brands with the most potential by Glebors Global Financial Reports of China in 2006; it was ranked 83rd among the world’s 500 Most Influential Brands by World Brand Lab in 2007. 2 Zhang Ruimin was ranked 6th among Asia’s 25 Most Influential People in Business by Fortune Magazine in 2004 and ranked 26th among the World’s Most Respected Business Leaders by the Financial Times in 2005. 3 Haier Electronics Co. Ltd. And Qingdao Haier Co. Ltd were subsidiaries of Qingdao Haier Group. Emily Ho prepared this case under the supervision of Professor Amy Lau and Dr Jun Han for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2007 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 07/356C

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Haier: Management Control on a Tactical Level

the company was how to adjust its structure and processes to confront the ongoing changes in global markets. Zhang once said that for Haier, “every year is like a marathon and every day is like a hundred-metre dash”. 4 For Haier to become a truly global player, Zhang believed it was essential for its employees to have an enduring drive for sustainable results. In order to sustain growth in the future, how could Haier motivate its employees to reach higher performance goals? How could Haier evolve the management control system to adapt to...
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