Haier bought GE Appliances for US$5.6 billion. Now it’s working on fixing it

PUBLISHED : Monday, 23 October, 2017, 7:01am
UPDATED : Monday, 23 October, 2017, 12:07pm

Chinese home appliance manufacturer Haier is seeking to accelerate the turnaround at its recently-acquired GE Appliances, deploying a strategy that will leverage a data platform and the connectivity of appliances based on the internet of things, according to company chairman Zhang Ruimin.

“We are targeting double the revenue and profit in the next five years,” said Zhang.

Zhang who is also a delegate to the 19th party congress, shared his views with the South China Morning Post on the sidelines of the meeting underway in Beijing. 

Haier acquired the home appliance unit from General Electric for US$5.6 billion in June 2016.

General Electric had been seeking a buyer for the struggling business amid profit growth in the low single digits, lagging behind GE’s other business units.

GE had initiated proceedings to spin-off the appliance unit eight years before the sale to Haier.

Zhang said a strategy to help turnaround the business has begun to find traction, as profit growth has risen 10 per cent on year during the first nine months of 2017.

Zhang, 68, said profit will continue to improve amid a push to embrace the internet of things.

“Imagine by touching the screen on your fridge, you can buy things from online shops,” said Zhang, who gained notoriety in the business community by transforming an ailing fridge factory in Qingdao into Haier, one of China’s biggest white goods makers.

He added that consumers would also be able to use apps of their smartphones to find out useful information when more appliances are web-enabled.

“By using apps on your cellphone, you can check which laundry room close to you has washing machines available,” he said. 

Zhang said a one-time purchase of an appliance actually opens the door for more consumption on the data platform operated by Haier. For example, the smart laundry room model, which makes use of big data, has been successful on the Japanese market.

“We learned from GE, particularly its famous “six sigma” quality control discipline in the 1990s. 

“But I believe the key to success in business is always quickly switching to the right track. Haier is on the right track now, with our grip on the internet, and we will bring the know-how to GE,” he said.

Zhang has applied his out-of-the-box thinking to Haier’s own human resources,  

breaking the gigantic company with 60,000 employees into more than 1,000 business units that act like customer-focused start-ups. 

“The governance structure, performance and payment system has been overhauled,” he said. 

“In the past, different departments like research and development, production, and sales work in a linear relationship. But we have broken that structure, and create many small, nimble work units, which can better respond to consumers' demand,” Zhang said. 

Haier eliminated a middle management team of more than 12,000. Among other incentives, the company offers financial rewards for employees who pitch winning ideas for new products and services.

The payments are determined by the market performance of the products.

He says the employee reward model will be introduced to GE Appliances, even as the adoption will be gradual because of different rules and the influence of trade unions. 

Zhang described GE’s management system as “comprehensive and rigid”, adding that “they need to embrace the changes, otherwise they would not survive”.

“The times are different. We are in the internet age,” he said. 

Zhang said he was optimistic about the European market and has potential merger and acquisition targets under consideration, but the priority for now is to “establish GE Appliances”. 

“Many people are watching us. I was told by a Harvard Business School dean that they have hope for us and expect GE Appliances to become a role model for large US companies seeking transformation,” he said. 

In 2011, Haier bought Panasonic Corp’s Sanyo Electric washing machine and refrigerator units in Japan and Southeast Asia for US$130 million. 

A year later, it took full control of New Zealand's biggest white goods maker, Fisher & Paykel Appliances Holdings, in a deal worth US$766 million. 

Haier holds 1.1 per cent of the US appliance market while GE Appliances claims nearly 14 per cent, CNET reported last June. 

In 2016, Haier’s profit rose 12.8 per cent on year to 20.3 billion yuan (US$3.1 billion) while revenue increased 6. 8 per cent to 201.6 billion yuan. Transaction volume on its business-to-business and consumer-oriented internet platforms rose 73 per cent to 272.7 billion yuan.

Haier accounts for 10.3 per cent of worldwide home appliance sales, according to a 2016 survey by Euromonitor.