additional content eyes on China ’ s emerging market . Most Chinese families lacked basic home appliances , and the offerings from local manufacturers did not meet basic standards for quality or consumer appeal . With their strong brands and relatively sophisticated technology ( the automatic refrigerator icemaker and microwave oven had recently been introduced ), overseas manufacturers believed that they would have an easy time in cities like Guangzhou , Beijing , and Shanghai . But Chinese domestic firms fiercely defended their home markets by drastically reducing prices . Most of the foreign competitors , and quite a few of the emerging Chinese manufacturers as well , could not compete . General Electric chose not to enter the China market at all because it foresaw the price war . One of the Chinese companies that won this round was the Qingdao Home Appliance Company , a small collective enterprise that had made various electronic devices , including washing machines , but had recently settled on refrigerators . It had changed its name repeatedly over the years , but had always been located in Qingdao , a port in the Shandong province of northeastern China , midway between Beijing and Shanghai .
The appetite for refrigerators was so strong in China that Haier sold just about everything it produced . The Chinese consumer in those days expected poor quality and was prepared to have any new product repaired almost immediately . Nonetheless , the company was moribund . Its production line delivered only 80 units per month , including many that didn ’ t work . The factory was so run-down that workers had to be told not to relieve themselves on the floor , and they burned parts of the walls for heat . After three managing directors resigned in rapid succession , a 35-year-old deputy manager in the company named Zhang Ruimin was asked to find a replacement . He found no acceptable candidates , and reluctantly
A refrigerator from the early 1980s , when Zhang became managing director
took up the challenge himself . But this appointment turned out to be fortuitous . Zhang was a visionary who saw that a middle class would emerge in China , a public interested not just in refrigerators , but in high-quality , branded , innovative products — made in China , but as good as or better than their Western-made counterparts .
Soon after Zhang took the role of managing director , a customer wrote a letter to the factory complaining about a faulty refrigerator . This led Zhang to one of the most famous episodes of his career . “ I called people from quality control down to the warehouse with me ,” Zhang later recalled . “ We had just over 400 refrigerators in the warehouse . We inspected them one by one . If they had any problem whatsoever , we pulled them out . We ended up pulling out 76 problem fridges . I had to change the perception [ of our quality ]: If products left the factory , they should be first rate .”
Zhang had his incredulous employees line up those 76 defective refrigerators in the street outside the factory and publicly smash them to bits with sledgehammers . They all knew he could have sold them , or given them as political favors to local officials . But the message was clear . Never again would the Qingdao Home Appliance Company sell products it could not be proud of . Instead , it would build appliances that solved problems for its customers — the first problem being the unreliability and poor quality of refrigerators in China .
Soon after , in 1985 , the company reestablished itself as a joint venture with the German manufacturing company Liebherr , thus gaining access to advanced technologies . It changed its name to Qingdao-Liebherr to evoke the prestige and quality of German manufacturing . In 1992 , it solidified this association by renaming itself Haier , a name the company kept even when the joint venture ended . Haier , a simplified Chinese transliteration of the second part of the German Liebherr , was chosen in part because it was easy to remember and euphonic in both Chinese and English . As part of the company ’ s first reinvention , a number of mutually reinforcing , granular management choices provided guidelines for day-to-day practice that made change easier to accept . To improve quality , for example , Zhang set out to foster a mind-set oriented toward performance and accountability . He borrowed routines and practices for continuous improvement from the quality movement — which was then , in the mid-1980s , first becoming visible in industries outside Japan . Zhang also linked pay to performance
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