Last week marked a major inflection point for two renowned household appliance brands. General Electric, once the world’s largest company by market size, announced it would split into three specialized businesses. Meanwhile in China, Zhang Ruimin announced he was stepping down from Haier Group, the electronics giant he founded. 

The two companies’ trajectories are not unrelated: GE sold its household appliances division to Haier in 2016, one of many businesses the American conglomerate has spun off. That acquisition helped Haier consolidate its position at the top of North America’s appliances market. For 12 consecutive years, Haier has ranked as the world’s largest appliances brand by retail sales value, according to Euromonitor International. These days, when you buy a fridge, an AC unit or a washing machine, it’s more likely the seller will be Chinese than American.

This week, The Wire looks at Haier Group, following its rise, and how Chinese companies have come to dominate the appliances industry. 

FRIDGE SMASHER

In the spring of 1985, Zhang Ruimin was smashing fridges. The newly-appointed managing director of Qingdao Home Appliances Company had reluctantly agreed to take a leadership role at the debt-strapped state-owned enterprise, then struggling to deliver even 80 units a month. 

A customer had complained to the Qingdao factory about its malfunctioning fridges. In an episode that’s now part of company lore, Zhang summoned his employees onto the street outside and instructed them to publicly destroy 76 defective fridges with sledgehammers. 

It was a turning point for the company. “I had to change the perception [of our quality]: if the products left the factory, they should be first rate,” Zhang recalled in Reinventing Giants, a management book profiling Haier.

Management practices also changed. Haier was one of the first companies in China to tie workers’ pay to performance, a step intended to imbue individual accountability at the firm. 

Zhang would come to spearhead multiple reinventions at Haier over the next 36 years. Also in 1985, the company formed a joint venture with German refrigerator maker Liebherr, gaining access to its advanced technology. (The Haier name is derived from the last two characters in Liebherr’s Chinese transliteration.) 

Haier’s attentiveness to customers and culture of individual accountability made it unique in China early on. It also soon became known for its customer-responsive designs. After a farmer complained to Haier that his washing machine was clogged with dirt, a company technician discovered he had been using the machine to clean his vegetables. The company soon released a produce-washing machine that could deal with soil and grime, according to Reinventing Giants. 

Later, after observing that many Chinese households preferred to hand wash their underwear at home rather than mix them in communal washers, Haier developed a miniature washing machine suitable for compact apartments (unsurprisingly, it’s also a hit among square-footage strapped New Yorkers). 

The company’s one-of-a-kind structure has made Haier the topic of many a management case study and Harvard Business Review article. Haier divides its over 75,000 employees into more than 4,000 “independent operating units” (自主经营体), creating a modular company structure with little central direction. Units are responsible for their own profits, and compete with each other to develop new products. Marketing units vie against external competitors to provide services to product teams. 

WHITE GOODS

Haier’s unique business model appears vindicated by its market share. In 2020, it held 15 percent of the global market for white goods, ahead of South Korea’s LG Electronics and U.S.-based Whirlpool. 

Haier has held on to its leading position despite intense industry consolidation over the last decade. Between 2011 and 2018 it took part in a global acquisition spree, picking up household brand names including New Zealand’s Fisher & Paykel, Italian washing machine maker Candy, and the Japanese and Southeast Asian divisions of Sanyo Electric. 

Other prominent Chinese firms in the sector include Guangdong-based Midea, the world’s fourth-ranked appliance maker. Having started out as a bottle cap manufacturer, Midea’s range is now broader than Haier’s, with products in robotics and medical equipment. Guangdong-based Gree is another major rival for Haier, particularly in the air conditioning market. Just one U.S. company, Whirlpool, remains among the top nine global white goods manufacturers, although Haier subsidiary GE Appliances maintains several manufacturing facilities in the U.S.

Zhang, 72, is now handing the reins to company president Zhou Yunjie, in a seemingly long-planned transition. His departure comes with analysts generally bullish in their outlook for China’s appliances sector. Rising disposable incomes and a Chinese government subsidy scheme for purchasing new appliances should help the market to grow further, says ratings agency Fitch.

Haier did not respond to a request for comment for this article.

INVESTORS

Haier’s parent company is private, but a subsidiary is listed on the Shanghai and Hong Kong stock exchanges. It first went public in Shanghai in 1992 as Qingdao Haier Co., and then entered the Hong Kong Stock Exchange via a backdoor listing in 2005 as Haier Electronics Group Co. A restructuring in 2019 saw Haier Electronics Group taken private while the Shanghai-listed company was dual-listed in Hong Kong. 

The current publicly listed company is known as Haier Smart Home. These are its biggest investors:

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