Internal Environment of Haier Company - Assignment Example

Running heading: Global knowledge economy Student’s Name: Instructor’s Name: Course Name and Code: University: Date of Submission: To what extent does the internal environment of "Haier Company" enable it to survive and prosper in a global knowledge economy? Introduction The business world in changing in this new era where there is an outpour of information and knew knowledge. The contribution of technology, globalization and information technology cannot be emphasized; beyond how it is evidenced to influence the operation of today’s companies. This issues have brought in the concept of the knowledge economy; an economy that depicts great capacity to learn through the work processes; learning on how to use newer approaches to tasks to better the output. An economy that has fully embraced innovation, not as a just as a value but as a skill that is put to use to boost performance and therefore, it enhance competitive advantage of an organization against its competitors (IMF 1997 p.43-54). The new knowledge economy requires that organizations have to come up with newer strategies to speed up decision making processes so as to gain a competitive edge in the market. The global market has changed to the extent that if companies have to survive in the market, they have to offer timely response to their customers as well as their employees (Bairoch 1993 p.49-63). This research will examine these and other issues that revolve around the knowledge economy, with regard to the internal factors of Haier Company. Executive Summary This research paper has discussed a number of issues related to the global knowledge economy; and with particular regard to the relevance of the internal environment in Haier Company that has made it survive in the global knowledge economy. The paper has covered the details about the background of Haier Group Company; it has outlined the global knowledge economy concept also the internal environment challenges, and corporate revival of the company. Additionally, the research has encompassed an analysis of the internal environment of Haier Company and its contribution to its survival of in the global knowledge economy. Finally, it has a conclusion that captures the concepts discussed through the research. Background to Organization Haier Company is a China based multinational company that deals with the production and sale of home appliances electronic tools and equipment. The company has situated its headquarters in Quigdao, Shandong, found in the People’s Republic of China. Over the years, the company has engaged itself in the production, sale and distribution of home appliances such as the washing machines, refrigerators, air conditioners, televisions among other home appliances. Currently, in white goods the company has developed the Haier brand to be the largest market share in the globe; maintaining a 6.1 per cent share value last year [2010]. The origin of Haier as a company is traced back long before it was actually founded as a company. In the year 1920 a factory that produced refrigerators was built in Quigdao to supply the refrigerators to the Chinese market then. In the year 1949, just after the establishment of the People Republic of China, the company was taken over by the state therefore; it became a state owned enterprise, though the employees as well as individuals owned some shares in it. A study into the ownership structure reveals that the company though still under partial public ownership, the company is still technically a collective company in which the employees are supposed to own it. A detailed look into the company, exposes the fact that the actual ownership of the company is opaque for the employees do not receive the dividends and are ignorant of the share of the company that they are said to own in reality (Haier Group Company Overview 2004, p.4). Being a state owned enterprise, the interference by the officials has been a great risk to Haier Company. The various levels of Governments previously have pushed ailing companies upon successful ones; and this affected Haier Company at once, where it was said to acquire a pharmaceutical company, yet it had neither prior infrastructure in biotechnology nor experience in this field (Danzon 1997, p.44-57). Haier Company is a group company that owns many other subsidiaries which carries the following functions. First, Haier group companies fully engage in business technology research. They endeavor to carry out the research findings aimed at improving the current technology that is used in most of their products. Secondly, they involve themselves in product development and manufacturing. The company has a number of manufacturing plants that develop its products to be distributed to the local Chinese market as well as to be exported to the international markets. The Haier group companies engage in trade and financial services of through the sale of its products to the wider markets. The main function that the company has centered on is the manufacture of white goods home appliances that include the commercial air conditioners, refrigerators both for household and commercial ones, washing machines, vacuum cleaners, freezers, water heaters, dishwashers, kitchen wares among others that are used in the market. The company has too heavily invested in the production of audio and video products which may include DVD players, televisions and other audio music devices. Additionally, it has been involved in the provision of communication and information products such as mobile phones, digital information products, computer and its appliances, the medical raw materials such as capsules, tablets, granules, injection medicine powder, the oral liquids and lyophilli8z among others. From the products, it offers in the market, we can see that the company has diversified its products, its target markets, and its employee’s workforce so as to deliver efficiency in its manufacturing processes. The financial prospects of the company have been on progress. Initially, as a Governments entity it was barred officially from getting involved in the stock exchange. However, the need for more funds to expand caused the company to sought loopholes which made it access the private equity. This made it to be listed on the Shangai Stock Exchange as a subsidiary of Quingdao Haier Refrigerators Co. Later in 2005, the company entered the Hong Kong Stock Exchange by means of a ‘backdoor listing’;  after it acquired majority shares in Haier-CCT Holdings Ltd which was a publicly listed joint venture (Haier’s Purpose 2004, p.47-59). In addition, the company is also an index stock of Dow Jones China 88 Index (Enright & Dodwell 1997, p.51-68). The concept of Global knowledge economy The concept of the global knowledge economy is widely practiced today among many organizations in their efforts to acquire a competitive edge over their competitors. The global knowledge economy is based on the new management approaches that have come into the market which are inclined to appreciation of attributes such as innovation, capacity for learning, speedy and dynamic decision making as well as strategies aimed at improving the organizations responsiveness to its customers as well as its employees (Sheehan & Tikhomirova 1998, p.49-57). In simpler terms, is that it involves the incorporation of knowledge into the economic activities that companies that involve both goods and services those companies produce. The knowledge gets to be incorporated into the economic activities that the organization is involved in through promotion of learning by doing. Learning also gets incorporated through the formal processes of knowledge generation and application that encompasses training of investment in advanced equipment. The economic value of knowledge that is applied in the manufacture of a drug, an advanced aircraft or a smart card is far beyond the materials that were used to make them; this is an appreciation of the knowledge that is embodied in the final product that is produced by a company. In many areas that organizations are involved in, through the provision of its services requires significant knowledge for quality to be evident (Deloitte Consulting 1998 p.34-48). An organization is said to do well when it has incorporated knowledge in its economic activities, this acts as a competitive tool for the organization. Services such as medical treatment and diagnosis, training, education and business consulting rely on a body of knowledge in which the practitioners or employees of the companies which provide these services have to be provided with. Therefore, global knowledge economy, encompasses the all the process of increasing the intensity of knowledge of economic activity. This involves increasing both the knowledge intensity of individual goods and services provided by the company and increasing the value of those goods and services that already rely on embodied knowledge. The knowledge-based economy is based on the emergence of a new set of activities, arrangements and structures due to technological change. Essentially, the global knowledge economy has its roots from the revolution in information technology. This has led organizations today to be able to deliver codified knowledge that is assembled on a global basis; often it can be quickly accessed and cheaply applied to the area where it is relevant. The knowledge put in that area is used to transform the knowledge to be effective in the production and delivery processes, as well as on the machines used by the companies (Arndt 2002, p.57-69). The central policy fact that has supported the global knowledge economy is the deregulation of the flow of capital, goods, technology and services. This has been a force that has shaped the global knowledge economy. The term ‘global knowledge economy’ makes explicit reference to what the characteristics of the world economy that has emerged as a result of the rise in the knowledge intensity of economic activities as well as the increase in globalization of economic affairs. However, the term refers to overall economic system that is emerging, instead of regarding these characteristics alone. Therefore, it is evident that the factors that drive the knowledge economy may include innovation, the capacity for learning, instituting speedy decision making processes, and increasing the company’s responsiveness to its customers and/or employees (Hatzichronoglou 1996, p.39-51), Internal Environment challenges & corporate revival of Haier Company A number of internal environments made Haier Company to experience great challenges and losses as at 1980’s. In fact, in 1980, the company has amerced a huge debt of over CNY ¥1.4 million, the debt was attributed to some internal environmental factors such as poor management, existence of dilapidated infrastructure and lack of sufficient quality controls. (a)Poor Management Poor management style by the managers led to the employees losing focus to the objective of increasing production to working so as to maintain their jobs. Management emphasized on the day to day work procedures to the extent that if employees tried something out of the norm, it would be condemned. This management approach led to many employees resorting to tore the line, and this led to minimal output in terms of the refrigerators manufactured; for then it carried the largest proportion of the goods produced by the company. Poor management in Haeir Company involved managers being an end to them; when it came to policy and decision making, and this led to employees to be left as implementers. This denied employees corporate responsibility, and it contributed to decreased productiveness of the company. Additionally, this deprived motivation from the employees, and the company having the bulk of its employees in its manufacturing plants, then these affected the quantity of products produced by the company. This resultant, affected the sales, for they dropped. A drop of sales, yet the company had to maintain the staff as it looks for a way forwards significantly contributed to the loss and the debt that accumulated. Management is such a critical internal factor that if not kept in check can drastically lead to poor performance by an organization, like it was the case for Haeir in the 1980’s. (b) Existence of dilapidated infrastructure Communication between managers was decaying with time. The company was run on a management policy that regarded the managers to be bosses on their own. Therefore, the communication channels between the employees who were based on the company’s manufacturing plants were strained. The sharing of information between managers and the employees was limited. The employees were fed with orders which they had to comply with. The company didn’t have any formal procedure for communication and/or complaint management. This decaying infrastructure led employees to do as told, thus it minimized innovation in the process of manufacturing the products. This made the company not to competitively compete in the market through appreciation of innovative skills that was within its staff. The poor infrastructure made the internal management processes to slow and thus fewer products were produced for sale in the market. (c) Lack of sufficient quality controls. More harm is attributed to the insufficient quality controls by the company that made the company to incur great losses; which came as a result of the consumers buying similar type of products from competing companies. The kind of products that the company deals with such as refrigerators, freezers, air conditioners are regarded as fixed household assets, which consumers are very sensitive to buy. Rational consumers would even make sacrifices to suffer on price but be certain on quality particularly the quality that relates to durability. The lack of sufficient quality controls, led to some products reaching the target market when their quality was not up-to date; this led to decreased public confidence which affected the sales volume negatively, as fewer refrigerators were sold. These factors and other led to the production level at the time to trickle down and made the company to rarely surpass producing 80 refrigerators a month; this led to the company getting closer to being declared bankrupt. As the situation grew from bad to worse, the Government of Quingdao had to do something to rescue the situation, and this it did when it opted to appoint Zhang Ruimin, a young assistant city-manager as the managing director of the company. Zhang was said to be an avid reader of Japanese and Western businesses practices as well as their management techniques. He was very knowledgeable in matters of management and was open to innovation and new ideas from other quarters. On his arrival, he realized the survival of the company is threatened greatly due to lack of quality controls. This is because some of the refrigerators that were of questionable standards and were selling a bad image to the companies target market. Interestingly, in the year 1985, a certain customer brought back a faulty refrigerator he had bought earlier on and showed it to Zhang. This compelled Zhang together with the customer to check through the company’s entire inventory of 400 refrigerators looking for a replacement to sort out the customer. In the process of searching for the replacement, he discovered a 20 percent failure rate in his merchandise. To emphasize how important the product quality is for both the company and the customers, Zhang lined up 76 dud refrigerators on the factory floor. After lining up the faulty refrigerators, he distributed the sledge hammers to employees and gave them orders to destroy those refrigerators. This was a costly affair, for at that time, the cost of a refrigerator would have paid off the wages of employees for two consecutive years. The employees were distressed, when he saw their emotion, he told them to destroy them further, for if the refrigerators are passed on to the market, they would lead to poor image that will lead to poor sales, therefore, increase bankruptcy of the company. Those refrigerators were smashed to pieces; one of the hammers that5 was used is kept at the company’s headquarter as a reminder to what occurred that lead to posterity of the company today (Tung-lung & Ping Li, 2003, p.32-47). The company began to take new shape with better refrigerators being manufactured. In 1994, Haier had been established as Qingdao Refrigerator Co. At this time, China was opening up to the wider world market and many foreign corporations entered China to search for partnerships with the local companies. Germany's Liebherr Group, a worldwide leader in premium refrigeration signed joint-venture contract with Qingdao Refrigerator Copany. This was to enhance technology and equipment to its Chinese counterpart. The refrigerators that were manufactured after signing the deal were to be under the name Qingdao-Liebherr simplified as traditional Chinese. Installation of Liebherr's equipment and technology came with a new and rigorous commitment to quality. This combined with Zhang's disciplined management techniques, the company began to turn around. Amazingly, by the year 1986, the company had returned back to making profits and had an average sales growth of 83% per year. With the sales revenue, for 1984 being CNY ¥3.5 million; this figure rocketed to CNY ¥40.5 billion by the year 2000; a growth of more than 11,500%. The company went on to do well; this caused the municipal government to request the company to take over some of the city's ailing appliance makers. The company complied and in 1988 it assumed control of Qingdao Electroplating Company that manufactured microwaves. In addition to this, in the year 1991 the company took over Qingdao Air Conditioner Plant as well as Qingdao Freezer. The company then developed its product as the ‘The Haier brand’ that included the Haier refrigerator, dish drier, microwave, clothes washer and exhaust fan. This meant that the products were diversified, and a new name was necessary; this made the company to adopt a new name ‘Haier’ in 1991, which was adjusted to ‘Haier Group’ which is its current name (Wu, 2003,p.48-54). The company has been doing well after the internal environmental factors were solved; and new management styles of Zhang were embraced. Actually, Zhang’s new management style encompassed the concept of the global knowledge economy, for he had a dynamic approach that promoted innovation, and use of knowledge to run the economic activities of the Haier Company. Currently, the company is establishing itself as the country’s leading brand through its focus on boosting reliability and product quality. Diversification plays a crucial role in allowing Haier as a company to spread its risk among the various product lines it currently is involved in. The company has made conscious efforts to diversify its product lines. For instance, In 1995 the company bought out Red Star Electric Appliance Factory (its chief rival in Qingdao), In the year1997, the company shifted its investments into television manufacturing and acquired Huangshan Electronics Group. By late 1990’s, Haier had become the most recognized brand in the country; and its products ranged from mobile phones to computers; in addition to capturing a dominant market share in its white goods division. Analysis of the internal environment of Haier Company & it has contributed to its survival of in the global knowledge economy The application of global knowledge economy concept in Haier company may be first exposed by the popular way the company is identified with, and that is “Haier: A Chinese Company That Innovates”. The new approaches of innovation in the company through proper management of knowledge, and incorporation of the knowledge of employees to the economic activity of the organization; has made the company to expand in terms of its product lines as well as in the quality of its products. Zhang’s new management was characterized by the following management traits that are closely linked to global knowledge economy. (a)First, he allowed employees to be part and parcel of the processes and decisions of the company. This meant that the employees were to apply their diverse knowledge and skills to better the company’s productivity. (b)He prompted the company to form partnerships and at the time bought other competing companies so as to absorb the knowledge that the employees of the other companies had. This increased diversity of knowledge as well as diversity of the additional economic activities that the company, had to be involved in. The incorporation of the two led to the company to don very well. (c)Zhang cultivated the importance of innovation through the process of manufacturing the product rather than putting efforts in repairing a failed project. This was evidenced when he destroyed the faulty refrigerators after taking over as the new Managing Director. The new management by Zhang, emphasized innovation, innovation is knowledge based, reason why he encouraged employees to come up with newer ideas of how the product can be made alongside opening up additional product lines of the company. (d)The current move, by the company to diversify its product lines; for instance, in the year1997, the company shifted its investments into television manufacturing and acquired Huangshan Electronics Group; is a move that would best pave room for more competitiveness of the company. This is because more expertise and knowledge will be incorporated to the company’s diversified economic activities, and this would result in increased productivity, which would create, a competitive edge between the company and its competitors. The article on the business weekly magazine captured Haier as one of the company that has a big existing and future capacity in the production of global brand that would competitively sell in the international markets. The question if China is capable of producing international brands,and if it can foster domestic innovation without transferring technology from the multinationals in the West; have led to Chinese local innovation to be evidenced in Haier Group Company. Haier Group Company has grown to be a company with a global presence (Hu-Angang 1999, p.61-74), It consistently has been coming up with particular innovations targeting the largest consumer group i.e. the rural consumers. Reports indicate that no other company in China is better at innovations that are apt in meeting the needs of the consumers than Haier, the appliance maker. This innovation has promoted the use of knowledge from its employees which is incorporated to the companies economic activity of producing household appliances and it has paid off in increasing production as well as sale of more household electronic appliances in China as well as the other parts of the globe (Sprague 2002, p.43-49). The Government of China acknowledging the Global knowledge economy has made all it can in promoting the application of local knowledge among the Chinese, so as to foster more production of the appliances (Sheehan, P), As more appliances were produced by Haier, the Government of the Republic of China, went further to promote the sale of the company’s product in a bid to promote the rural residents to purchase locally produced appliances. This it did through offering subsidies that were aimed at increasing the domestic consumption so as to diversify economic growth. This was reported to lead to more the rural consumers to purchase 41.7 billion RMB in the household appliances in the first four months of the year 2010. This accounted to doubling the sales revenue of Haier in the first quarter of last year (2010] The company has appreciated the global knowledge economy concepts through application of information collected from both the customers as well as its employees. The company listens to their views, with an aim of applying the knowledge gathered in the manufacture of better and more relevant household appliances for its market. Essentially, the Haier Group Company has been successful in making huge sales to the rural consumers in China in particular and other external markets because does what every good company should do learning that we are living in the global knowledge economy and therefore, this made the company to listen more to its customers’ complaints, that helps the company to apply the knowledge and therefore deliver appliances that address these needs mentioned by its customers. A practical application of the company has applied the concept of global knowledge economy is outlined in the following two complaint cases of customers that the company handled in the past (Raskin 2003, p.62-73). Customer Complaint 1: A customer once complained that his washing machine has failed to work after he used it to rinse the morning’s harvest. This complaint reached the company when a rural farmer called the Haier call center ten years ago; complaining that his washing machine he had bought from the company was full of dirt and does not function well. The company’s technician visited the home of the customer and realized that the dirt was not (as assumed) from the farmer’s clothes that he wore as he harvested potato but instead it was from the harvest itself. The man was using the machine to wash both the potatoes and the clothes. The technician didn’t stop at educating the man on how to use the machine but went further to give this feedback to the company. The company didn’t file the case on its shelves, but used the information as an invested its efforts in gaining knowledge that would help the company to offer a solution. In 2009, the company released a machine capable of washing both potatoes and clothes. This made, by 2009, the company to have an upgraded version of the appliance, thus enabling the company to rise and become the number one provider of laundry equipment in the globe. Complaint management can be an asset to knowledge development therefore, better production (Quinn 1992, p.46-57), Customer Complaint 2: The second complaint took the shape of a customer complaining that her refrigerator was out of food for rodents ate them all. This complaint was featured by many more customers who complained that rodents got into their refrigerators. The company did a study and realized that customers often plugged the appliance into the wall, and as the compressor gets to be switched on, the warmth attracted the rodents to find better comfort in it. This made the company to realize that the needs of the rural consumer were different from the urban one; it then invested this knowledge into production and came up with its second innovation, a rodent proof fridge which was specially designed with metal proofs that covered holes in the fridge in addition to having a thicker, bite proof wiring. The positive application of knowledge gained from customer’s complaints as well as employees concern has made the company to competitively perform well in the market both in the local and global market. More domestic innovation continues to happen, making the company to currently produce washers that can peel potatoes, wash clothes and has additionally, produced a model for Mongolian and Tibetian headers that help them produce yak butter. The company has reached out to the different markets of both the urban and rural, the average and super rich (Gottschalk 1997, p.21-40). Form the analysis, it is evident that the internal environment of Haier Company has greatly contributed not only to its survival in the global knowledge economy; but has made the company to shine and to rise to produce global brands. This is because it has invested more effort in its internal environment; through appreciating the knowledge and advice of its technicians who bring in feedback from the customers, as well as the customers who call the company’s call center or visit the company (OECD 1996, p.51-67). The management is open to change and innovation. The working culture appreciates contributions from all stake holders, leadership is on the ground to see to it that better products are manufactured for customers, and the politics that the company is associated with is used positively to improve the company e.g. it got subsidies from the Government. The company has shunned from the traditional managerial approaches of explicit instructions to employees; and instead it has empowered it employees technicians] in its operations for future its benefit (Sheehan & Tegart 1998 p.45-51). This has made it do well in the global knowledge economy (Johanson, Loof & Grojer 1997, p.47-61). Conclusion In conclusion, the paper has addressed a number of issues relating to the global knowledge economy, from its start in the introduction. It has detailed the background of the organization on the spot, which is the Haier Group Company. The research has also given a descriptive explanation of the concept of global knowledge economy. In addition to this, research has outlined the internal environment challenges that the company faced initially that almost led the company to almost run bankrupt, and how it was revived through addressing the internal environment factors that ate the company such as poor management. 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