SCENARIO:
How Haier gives insights into China’s radical transformation
From autarky to everywhere By Professor William A. Fischer
When the definitive history of the twentieth century is written, it is entirely possible that the brightest story of that war-torn and economically challenged century will be the return of the Chinese people to a prominent role on the world stage. In fact, today, in our time of petty economic bickering and trade war posturing, it is still worthwhile to reflect on all that has been accomplished by the realization of Deng Xiaoping’s re-engineering of what had begun as early as the 1960s, under Zhou Enlai’s guidance, as the Four Modernizations (agriculture, industry, national defense, and science and technology) and which today has grown into the modern Chinese economy .
I feel as if I have had a privileged view point of this saga, as my family and I first moved to China in 1980, just as the reforms were beginning in the industrial sector. I have also been fortunate to return to China in one form of work engagement or another for each of the following 40 years. Like all such stories, this is both about seeing the forest and the trees. While the changes in the forest are genuinely impressive, it is the individual tree stories that provide insights into what comes next.
In 1970, during the so-called Cultural Revolution period, China’s exports to the world accounted for only 2.49% of its diminished GDP ($92.6 billion in current US dollars), while imports represented only 2.46% for that same year. For a big nation, of then 818.3 million people, this was as closed as one might imagine that a closed economy might ever be. In 1990, ten years after the industrial reforms had begun, two-thirds of China’s population (755.8 million people out of 1.135 billion) were still living below the World Bank poverty line of $USD 1.90 daily.
Today’s China has moved way beyond these numbers: China’s GDP in 2018reached an estimated $USD 1237.70 billion, ranking it second in the world in nominal terms, and China is by far the world’s largest exporter as well. According to World Bank data, only .7% of the Chinese population was living below the poverty level in 2015. This is a story of national achievement that is unmatched in modern macroeconomic history, and which I believe is a testament not only to the labors of the Chinese people, but to the catalytic effects of opening-up an economy to external influences. But there is also a story unfolding at the microeconomic level that reinforces this.
BA (Hons) in Business Enterprise – u08 International Business MA ONE
In January of this year, in the city of Qingdao, at the annual innovation summit of the venerable home appliance giant, Haier Corporation, the 2018 Nobel laureate in Economics, Professor Paul Romer, observed that “We are better off being part of a bigger ecosystem. We are better off inviting others in!” To which he later added “Progress, then, is very much about “who we are” [as an ecosystem]. No longer dividing us versus them.” This is an important message in today’s “anti- Global” age.
Several years ago, I wrote a piece for Forbes, entitled “Made in China, Smarter Companies?”. The argument was that Chinese companies were building a new future on the basis of learning better and faster than their foreign competitors. At that time, I was referring to simple listening and responding. Today, however, at the level of the firm and below, what we are seeing are organizations that are attracting and harvesting more new ideas by virtue of being radically open and entrepreneurial.
At Haier, the firm that I know best in my role as one of their Management Innovation Consultants, the new frontier in innovation is Organizational, which has been best expressed in the development of a Platform Organization which attracts new ideas from anywhere, and then by relying on the Rendanheyi management philosophy which has evolved at Haier over more than three decades, and which encourages autonomous micro-enterprises to exploit these new ideas while relying on some support from the Haier platform to which they have chosen to rest upon. The range and rhythm of activity is astonishing and has led to the rapid infusion of new ideas into what has traditionally been a large, old-economy, incumbent market leader.
Haier’s latest experiment with Organizational Innovation has occurred in stages, each stage progressively stretching the idea-domains at work beyond the traditional center based on familiar home appliances:
Each of these waves of platform
innovation has opened Haier up
to participation in an
increasingly more valuable set of
ecosystems. Haier’s
participation in each is
characterized by self-evolving,
autonomous microenterprises, that typically are responsible for end-to-end development of their ideas. These are important choices as they increasingly bring in more ideas from the outside and power a continuous pursuit of the future by reducing the barriers between inside and outside.
China’s continuing long march from the autarky of the 1960s and 70s, doing everything by oneself, to establishing a presence of being everywhere today, is consistent in my mind with the experimentation that Haier is enabling, and this also affects the way that the rest of us will see our own organizations developing in the future. According to platform strategist, Simone Cicero, such organizations: find new growth at the edges of what they are involved in, develop organizations that facilitate emergence, rely on autonomous energies to take command (so that leadership devolves to the microenterprises), and transform their identify to that of the ecosystem. This is not easy, nor natural to do for most companies. Yet, openness to the world, and to new ideas is not only radically changing the Chinese economy but has the power to change corporate innovation as well.
William A. Fischer is a Professor of Innovation Management at IMD. He co-founded and co- directs the IMD program on Driving Strategic Innovation.
Source:https://www.imd.org/research-knowledge/articles/how-haier-gives-insights-into-chinas-radical-transformation/ [Accessed: 10/01/19]
REQUIRED: You are to prepare a ‘Briefing Paper’ of not more than 6,000 words based on the article reproduced above. The feelings and experiences that you write about should be based on your own perceptions so as to showcase to any potential reader why your answers to the following questions are significant on a larger scale:
TASK ONE: K&U1 ~ 5 marks
Give 5 highlights to explain how globalisation is impacting the economic development
of China.
Word Count: maximum 400 words
TASK TWO: K&U2, K&U3 ~ 10 marks
‘The plurality of points of view and the fact that the main players in the problems on the world economic agenda are represented at the G-20 make this group the most appropriate embryo for forging international agreements, which can later gain legal status through existing international organisations such as the IMF, World Bank, the WTO or the various agencies of the United Nations.’
a) Describe the role of the FIVE international institutions identified above. [K&U2]
b) Use the above observations to identify FIVE significant consequences that these emerging powers could have on global governance? [K&U3]
Word Count: maximum 1000 words
TASK THREE: K&U4, K&U5 ~ 10 marks
a) Identify FIVE factors that affect the activities of international business operating in the consumer appliances industry [K&U4]
b) Identify FIVE factors that are affected by the activities of international business operating in the consumer appliances industry [K&U5]
Word Count: maximum 1000 words
TASK FOUR: A&A1 ~ 7marks
Analyse the trade theories that help to explain China’s position as an international exporter?
Word Count: maximum 600 words
TASK FIVE: A&A2 ~ 7 marks
Use ‘PEST’ analysis to establish the potential of Haier’s decision to go global.
Word Count: maximum 600 words
TASK SIX: S&E1 ~ 10 marks
Compare and contrast the key developments in Haier’s growth and expansion strategy? Word Count: maximum 600 words
TASK SEVEN: A&A3 ~ 7 marks
Examine SEVEN functions performed by the foreign exchange (FOREX) market, its participants, size, geographic and currency composition.
Word Count: maximum 700 words
TASK EIGHT: S&E2 ~ 10 marks
Foreign exchange is very important to the Chinese exporting companies because it determines the value of their foreign investment. Evaluate.
Word Count: maximum 700 words
TASK NINE: A&A4 ~ 7 marks
Examine how future strategic decisions could be influenced by the various sources of finance currently available to Haier.
Word Count: maximum 600 words
