International Human Resource Strategy of Haier Group - Case Study Example

International human resource strategy of Haier group Name of the Student: Name of the Instructor: Name of the course: Code of the course: Submission date: International human resource strategy of Haier group Introduction The origin of this successful company dates back in 1984 when Zhang took over a deteriorating factory engaged in the production of refrigerators in Qingdao, a Chinese Port city. It was previously known as Qindao Refrigerator Plant and since its decline to the verge of bankruptcy in the 1980s, this company has in the recent decades reestablished itself into becoming a globally renowned brand in the production of white goods. In the present China, this company is the largest appliance producer with a wide alley of products ranging from refrigerators, microwaves, dishwashers, vacuums, freezers, televisions, air conditioners, computers and cell phones among other products (Hunt, 2005, p. 1). Palepu et. al (2005, p. 5) noted that the market liberalization processes, or formerly the entry of China into the World Trade Organization (WTO) back in 2001 played a major role in adding pressure on Haier. This is founded on the fact that in the preceding years before this shift, the competition of this company was purely domestic but after the ascension of China into the WTO, this heightened the magnitude of competition at the international scale, with competitors like Siemens, Samsung, Sony, GE, Electrolux and GE among other global brands posing enormous threat not only in the international market but also in the domestic market, previously dominated by Haier where they were trying to gain entry and capture a sizeable share in the domestic market. This meant a paradigm shift in the strategic approach of Haier moth in the domestic as well as in the international market which greatly featured aspects in the human resource aimed at maintaining a sustainable competitive advantage in the market. Against this backdrop, this paper will critically analyze the international human resource strategy of Haier group aimed at not only enhancing its performance but also maintaining a competitive niche in the market. Nonetheless, it is imperative to gain an insight into the background of this company aimed at gaining a comprehensive understanding of some of the dynamics shaping the international human resource strategy of this company. This is explored in the subsequent section. Background As previously mentioned, this company instigated its operations in 1984. In this particular period, there were about 300 companies engaging in the manufacturing of refrigerators in China, but majority of them were characterized by the production of poor quality products. Zhang saw this an ideal opportunity in the market based on the fact that he robustly believed that the consumers had the willingness to pay more for top class quality products as well as services which were endowed with high reliability and effectiveness (Palepu et. al, 2005, p. 5). This called for a strategic approach which is best epitomized whereby Haier instigated with establishing technology licensing agreements with Liebherr, a refrigerator manufacturer Germany and the subsequent importation of freezer and air conditioner manufacturing lines from Sanyo in Japan and Derby in Denmark. In addition, the establishment of joint ventures (JVs) with companies like Merloni from Italy and Mitsubishi in Japan has been credited for being integral in the infusion of technological capital and designs into Haier Group (Palepu et. al, 2005, p. 2). Nonetheless, in relation to human resource, perhaps the most notable obstacle for the owner of this firm was making the employees understand that the commitment of the company to the production of quality products was unlike that which had been previously seen in other companies in China. This required a strategic approach even to the extreme of ordering the employees to smash to bits 79 refrigerators pulled from the lines, some with minor defects like a scratch. However, this played a vital role in convincing the employees that the company was not willing to compromise its quality production through selling practically anything to the consumers just like the competitors all in the aim of inflating the profit margins (Palepu et. al, 2005, p. 2). In addition, personal accountability was promoted at Haier, for instance, making the poorly performing workers stand in front of their colleagues at the end of a work day and explain their failing to the assembled workforce (Palepu et. al, 2005, p. 2). These among other practices became entrenched in the organizational culture of the firm as well as laying a robust foundation of human resource practices like performance management. In an overview, the development of Haier as a company has been summarized into three basic stages by Hunt (2005, p. 1). Firstly, there was a stage of developing a domestic quality reputation. As aforementioned above, the periods after the establishment of Haier in 1984 saw the company instigate diverse processes aimed at developing a strong reputation for its refrigerators. Hunt (2005, p. 1) cited that his was facilitated by the utility of Total Quality Management system (TQM) as well as the meticulous standards geared towards developing a robust brand name in China. The thorough execution of these novel quality standards greatly assisted Haier in turning back into profit making trends just a year after being confronted by the threat of a possible bankruptcy. Secondly, there was the stage of diversification. According to Hunt (2005, p. 1), this stage was characterized by profound efforts through creativity and innovations towards the expansion of its products base as well as diversification of its business to other regions. This is founded on the fact that Haier had already successfully established its brand name for refrigerators in China and thus the necessity to seek for other products and extend this brand name. This marked the incorporation of other appliances like freezers, microwaves and dishwashers into the Haier’s portfolio based on their close association with refrigerators (Hunt, 2005, p. 1). The third and the final stage for this company was global expansion. This was mostly in the periods just before and after the entry of China into the WTO and Haier became cognizant of the fact that to guarantee its continued growth, there was a necessity to expand to the global spectrum. This was facilitated through seeking opportunities which will enable the transfer of its quality reputation as well as its brand name to both the developed and developing countries around the world (Hunt, 2005, p. 1). All these stages played an integral role in shaping Haier Group into the company it is today. Its exemplary performance both in the domestic and international market saw Haier Group being ranked the number one company in China by the Asian wall Street Journal on 26th December 2004. This was concurrent with the marking of the 20th anniversary by the company with a cumulative annual sales exceeding RMB 100 billion in the same year (Palepu et. al, 2005, p. 1).In the same period, the company was credited for having built a strong network comprising of 18 design centers, 30 overseas factories and manufacturing bases, 10 industrial parks, 58, 800 sales offices as well as 96 product group categories (Lu et. al, 2009, p. 1). The following figure shows the strategic phases at Haier Group which are divided into different evolution epochs. Figure 1.0: Haier’s strategic phases Source: Lu (2009). Today, Haier Group has established 24 manufacturing factories,21 industrial park, 10 complete research and development centers, 19 overseas trade companies as well as being an employer of more than 70000 people. International human resource strategy of Haier group It is an apparent fact that in the contemporary extremely competitive global market, any company ought to be endowed with clarity in terms of understanding about itself as well as the external factors impacting on its operations aimed at attaining effectiveness in strategic corporate planning as well as decision making processes (Chan, 2011, 147). This entails profound consideration of the human capital tenet of the business operations in order to attain sustainable competitive advantage. Haier Group has utilized several human resource strategies at the international platform aimed at achieving the above goal. These are explored in the subsequent section. International training and development This is one of the most novel international strategies which have contributed to the success of this company. According to Duysters, Jacob and Jintian (2009, p. 329), Haier established a strong, active research and development (R&D) strategy following up on the licensing of the four-star technology of Liebherr. In this regard, Haier formed a complex R&D department and eventually dispatched 40 of the top managers and engineers in to the company to Liebherr for training and the latter company demonstrated itself as a highly successful training institute for the top R&D talents from Haier. In this particular training, Duysters et. al (2009, p. 329) noted that these trainees engaged in comprehensive studies in regard to the development of four-star refrigerators and had enormous success in mastering the chief technological knowledge and skills used in the making of four-star refrigerators. This was succeeded by a development in 1985 whereby Haier was able to launch its first four-star refrigerator in the Chinese market. This particular product helped in positioning Haier as the leading refrigerator manufacturer in China. These technologies, among others developed in subsequent years were disseminated into the operations of international branches of this company. This international human resource strategy has been instrumental in the products diversification efforts of the company. Training and development has been central in the expansion of Haier’s products portfolio with these training being integral in prompting immense innovation and creativity among the employees. This has been key in transforming Haier from being a state-owned refrigerator factory into an extremely innovative international giant (Chen et. al, 2004, p. 15). In addition, continuous training by this company which is spear headed by the R&D departments in different branches poses both direct and indirect contribution to the entrenchment of a strong organizational culture of training both the new recruits as well as the old employees in the entire business undertakings at the international level. Thus, the employees have been empowered with the capacity of keeping in touch with the latest technological advances in the industry which has been fundamental in guaranteeing sustainable competitive advantage of Haier at the global spectrum. Localization of the company’s operations This is whereby the company has permitted the local management structures in various branches to semi-autonomously run their operations whereas in line with the objectives of the company. This is best exemplified by the fact that Haier has made full utility of its staff’s ability to build their own overseas sales network, after-sales service as well as the creation local products in every country. As a human resource strategy at the international level, the company has been strategic in appointing the management personnel for its various branches in different countries from the local populations. This is based on the rationale that these local personnel are well versed with the consumer dynamics at the local levels, for instance, the product preferences, shopping patterns as well as the spending power which has been key in meeting the unique needs of these local populations. This is key in improving the overall effectiveness and efficiency of the company (Chan, 2011, 152). This reflects the host-country national (HNC) policy in staff management at Haier. In addition, the management structures in these local branches are mandated with the fundamental role of hiring and recruiting other subordinate employees in various categories which is imperative in improving the local outlook of this company. Thus, the company has been able to capture majority of these local markets through extensive utilization of the local knowledge of these employees in regard to the consumer dynamics previously mentioned. The hiring of local talents in the operations of the different branches of this company has been coupled with good remuneration package for these employees which has been key in human resource retention. This fact is revealed in the Haier annual report (2010, p. 14) whereby it is cited that the company makes sure that there is competitiveness in the remuneration of its employees which is generally based on fixed monthly income. This is usually subjected to annual reviews aimed at keeping in line with the prevalent trends in the market. In addition, these employees are usually entitled to discretionary performance related bonuses which are coupled with benefits which include but not limited to medical insurance as well as the provident fund. Moreover, the company has also put in place share option scheme for its employees in various branches. All these are robust incentives which have been influential in the efforts towards the attraction and retention of talented employees in the company (Haier annual report, 2010, p. 14). Organizational culture Haier has established a robust organizational culture of manufacturing quality products which meet the consumer demands in the market. This organizational culture is solidly embedded in an 80-page handbook regarding the Haier enterprise culture and includes basic tenets which include but not limited to quality focus, Haier’s working style and market competition concepts among others. In addition, the company has established an enterprise culture department which is mandated with the role of being proactive educating and promoting the employees (Lin, 2005, p. 2). This organizational culture is also reflected in the banners in diverse branches around the globe, for instance, some banners spotted at the Haier High-Tech Industrial Park at Yellow Island reading ‘Innovation is the Soul of Haier culture’ (Lin, 2005, p. 2). This reveals the extent under which the imperative role of promoting innovation and creativity towards continuous improvement of the products quality is entrenched in the organizational culture of this company. A strong organizational culture has been identified by various scholars as a fundamental mechanism through which the leadership in an organization can use to grow a dynamic organization (Madu, 2007, p. 2), a fact which is evident at Haier.  Implementation of international performance management Haier has been credited for using some robust performance management strategies at the international level which have been key in improving the performance of the employees. This includes the use of standard management evaluation forms in annual reviews, time management, organizational skills, job knowledge as well as problem solving ability among the employees. The implementation of the feedback from these evaluations has posed a massive boost to the performance of the employees (IMD, 2003, p. 2). Even the infamous ‘standing before the colleagues’ strategy of performance management previously mentioned has found application outside China, with the best in the US branch, despite some earlier resistance, but was eventually adopted after its proven effectiveness (IMD, 2003, p. 1). Theoretical foundation and concepts It is imperative to mention, albeit briefly some of the theoretical foundations which have underpinned some of the above international HR strategies. Chief among these theories is the OEC Management control system which is utilized at the firm. According to Lin (2005, p. 2), this theory is aimed at the overall control of everything which each employee manages to finish in his/her job every day with a 1% increase when juxtaposed with what was done the previous day. This theory has been considered to work based on the continued performance improvement of the company in regard to the overall output. In addition, there is the concept of strategic business unit (SBU). This is whereby all the employees in the company make extensive efforts to reach their targets which are outlined in the SBU in terms of profit generation. The main objective of SBU is to ensure that all the employees are key cogs in the innovation processes, demonstrating their own value while they at the same time create value for the consumers (Lin, 2005, p. 2). Both of the above have been heavily embedded in the international human resource strategy at Haier, which can be credited for the continuously improving performance and innovation levels. Findings and conclusion From the preceding discourse, it is apparent that Haier Group has utilized a strong international human resource strategy. Further findings have revealed a sequence of phases through which Haier has undertaken in its evolution trend since its instigation in 1984, as depicted in Figure 1.0. Lastly, it has been evident that the high focus on quality of products as well as heightened creativity and innovation has been central in the upward reputation of this company, both at the domestic and international markets. In conclusion, several international human resource strategies as used by Haier have been detailed in the above discussion. These are organizational culture, training and development, localization of the company’s operations, as well as implementation of international performance management among others interweaved in these major ones. Recommendations This company ought to increase its presence in regions with enormous market opportunities where it has limited investment. This mostly includes developing countries in Africa, Latin America and some parts of Asia. Based on the socio-economic as well as political dynamics of the regions which are characterized by high volatility, Haier can utilize alternative entry modes which are characterized by lower risks, for instance, joint ventures as well as licensing. References Chan, X., 2011, ‘A SWOT Study of the Development Strategy of Haier Group as One of the Most Successful Chinese Enterprises’, International Journal of Business and Social Science, Vol. 2, No. 11, pp. 147-153. Chen, J. Lin, B. Li, L. & Chen, P., 2004, ‘Logistics management in China: A case study of Haier’, Human Systems Management, Vol. 23, No. 1, pp. 15-27. Duysters, G. Lemmens, C. Jintian, Y. & Jacob, J., 2009, ‘Internationalization and technological catching up of emerging multinationals: a comparative case study of China's Haier group’,Industrial & Corporate Change, Vol. 18, No. 2, pp. 325-349. Haier annual report, 2010, ‘Haier’, retrieved 06 November, 2012 . 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