Haier, World Brand Refrigerator from Qingdao

"There can be no name brand without going overseas." That's what Zhang Rui-mian stated when he took over as the plant manager of a small, beaten up, and filthy ice box factory in Qingdao.

The then Qingdao Electric Ice Boxes Factory employed 820 persons, producing 740 refrigerators a year and lost 1.47 million RMB on sales of 3 million. That was the last year the factory saw any losses since Zhang took over in December 1983. His first order to the worker was - "No urinating or excreting inside the factory."

Next, Zhang borrowed money to pay the workers' salaries.

Zhang's next task was to order a quality inspection of all 400 refrigerators in the ware-house. Seventy Six of them were found to contain defects to various degrees. He ordered all 76 refrigerators to be hammered into scrap in front of the shocked workers. That put his message across. Then he put his "zero defect" policy into place. "Our products must be without any defect or it will be regarded as scrap" was the clear message.

He has since become known as the father of the OEC management. OEC stands for Overall, Everyday, Everything, Everybody, Control and Clear. The production process for a typical refrigerator is divided into nearly 2,000 check points, each with a person in charge. Thus defects, if detected, can always be traced to a responsible individual.

Typical of Zhang's system of absolute accountability is the attention to plate glass windows in one of the supply warehouses. All 2945 plates of the glass have a small paper label with a printed serial number. Each plate of the glass windows can be traced to a responsible individual if any dust is ever found on it for an extended time. At Haier, every step or every kind of work can be traced back to the person responsible. This is how this once humble factory came to stun the world with its quality and reliability.

If the staff errs, punish the boss: Once, in order to demonstrate a work process shortcoming, a Quality Inspection supervisor quietly put a small piece of paper in an ice box from the production line. When that ice box got through the Quality Inspection, the paper was still in there. The supervisor showed that piece of paper to his staff to alert them of the flaws in their work and as a result, the supervisor himself was punished for the flaw. This is yet another distinctive feature of Haier's system of management. If the staff errs, punish the boss, - because supervisory flaws lead to staff making errors.

In 2000, Haier's aales amounted to 40 billion RMB. It produced 9200 electrical products in 46 factories in China and 7 countries. It claims to have a 22% market share for refrigerators under 200 litres capacity in the U.S. in 2000.

Zhang Rui Mian is now the President of the Haier Group of Companies.

"San Zhu" the Health Potion's Shooting Star

From an initial investment of 300,000 yuan, a "secret" biological formulation, decades of sales experience and 30 years of political education, Wu and his son started San Zhu Oral Health Potion in 1994 and reached sales volume of 8 billion yuan RMB within 3 years.

Wu pledged his commitment to Chinese society by announcing his company's plan to become the nation's biggest taxpayer, to be among the world's top 100 firms, and to increase the average life expectancy of all Chinese citizens 10 years longer within 20 years with its Drinking Health Potion.

Yet the company's own life lasted only 7 years.

Testimonial Effects: Experienced from the marketing of health potions in this newly opened consumer market of China, the Wu's chose to publicize their products by the use of expert testimonies from health experts. They provided gifts to medical schools, hospitals, and medical research centers in return for their testimonial and approval of San Zhu Health Potion. This gave them a flying start in the minds of health conscious Chinese consumers.

Nationalistic Propaganda: The older Wu was a faithful party member with 30 years of party membership. Using propaganda slogans like "Revitalize the Nationalistic Industry", and "Strive to Be the No. 1 Taxpayer",, San Zhu gained rapid recognition deep into the most remote rural communities. To reinforce his show of strength, hundreds of thousands of painted advertisements were put up every where, including rural public toilet walls. He also initiated tens of thousands of free health clinics throughout the country with medical personnel from state hospitals visiting each week. His sales team grew to 150,000 at it's peak.

The company claimed to have conducted large scale Research and Development work in life sciences at its Research Center. It also received hundreds of Certificates of Recognition and awards for its products in return for its sponsorship of various research and government agencies.

The Secret Formula: The older Wu himself was regarded as the formulator of the original Health Potion. However, Wu evaded questions as to the nature, rationale, or history of his "secret potion". And soon, his fortunes changed dramatically.

Eight Bottles, a Dead Man, and a Bankrupted Empire: Due to explosive growth in sales and personnel, San Zhu Company was unable to assert effective control of it's 150,000 sales persons. As a result, in many areas sales men were pitching the product as something not less than a cure-all solution. TV advertising in Guangdong was banned following an official investigation into the use of unapproved and unproven claims.

On June 3, 1996, an old worker in Hunan with a long chronic health problem history bought 8 bottles of San Zhu Health Lotion with a good part of his life-time savings in hope for better health. After consuming eight bottles, he died. His family sued San Zhu Company for compensation. The Court of First Hearing judged for the plaintiff, pointing to believable links between the products and the man's death. By the time the company won it's appeal in 1999, 200 of its subsidiary company and branches had already closed due to a drastic drop in sales. It has already filed for bankruptcy.

China's Health Food Market and Health Food Product Life: According to unofficial statistics, China's health food market is worth approximately 50 billion yuan per year while the average life time of health food products is 2-3 years.

Wu and his son have both summarized the flaws in their idealistic management systems. However, there seems to be no likelihood of any revival of this once glamorous potion or it's firm in sight.

Yuan Hua: The Modern Day "Dream of the Red Chamber"

On the third floor...

The city council's vice party secretary general (more senior than the mayors) is handed a white envelope containing half a million HK dollars while in the sauna being massaged by young ladies wearing only sweet smiles. The scene has become a routine - repeated uncounted times - of catching a senior official in being entertained courtesy of the leader of one of the largest smuggling rings in recent Chinese history.

In the Presidential Suite on the sixth floor, a vice mayor of that same city, reputed for his toughness against bribery, has had just a few drinks too many. He is helped to the bed where he finds another young lady, already half-undressed lying there waiting. In her and other women being sent to serve him, he found himself on the path of the River of No Return to the firing squad for corruption.

A luxurious karaoke was on the fourth floor. This is the mid-way station where fully fed "guests" are handed over to 15 to 20 young female singing companions who loosen and warm them up before being "escorted" into the individual bedrooms on the fifth floor.

The second floor contained four separate dining rooms. The most expensive food and drinks are served here to the "respected" "captive" officials to demonstrate the owner's gratefulness for their help in things such as the smuggling of automobiles, petroleum and cigarettes. A preliminary estimate by an investigating team put the amount of damages to the nation's treasury in terms of lost import duties at 53 billion yuan RMB. Naturally, the guests were never allowed to leave with empty hands. Envelopes containing from $1,000 to HK$100,000 are routinely handed over for "sundry" expenses from "Fatty," the boss.

On the seventh floor was the boss' private office where he acquired the royalty of hundreds of officials to help smooth out his "business channels".

Once, a middle ranked custom official was summoned there by phone and told - "...I am sorry that the position is full for the moment.... I cannot make any room for your promotion at this time. Please just take this HK$100,000 and buy something for your family for the time being..." He acted as if he was a very kind and considerate chief in charge of personnel for that city's customs department, when he was only a smuggler.

On the ground floor was the reception hall.

A calligraphy hung on the wall with four large Chinese characters with one variation from an old famous adage, perhaps by deliberate change or the owner's lack of formal education. He only finished grade 3 of the elementary school in his farming hometown.

The Red Mansion served as the commanding headquarters of a man currently still seeking refuge in Canada. The extent of his payroll and gratuities may never be fully disclosed. However, among those investigated 160 were officials of that city's custom department, and 70 are already sentenced. Of the four heads of that city's custom department one is sentenced to death and two others were given sentences of 20 and 15 years respectively. The three city leaders (a party deputy secretary general and two vice mayors) were also given sentences from life imprisonment to the death sentence.

Now the dream is over. The seized Red Chamber has been remodelled into an exhibition hall displaying the history and the investigation of the largest corruption case in China.

The Modern Day Wizard of Handling Bureaucrats: Lai Cang-xing had only 3 years of education from his remote farming home town. Yet according to investigators' reports, he used an assortment of approaches and almost flawless skills of taming of the targetted officials. If he were not involved in such gigantic criminal offenses, he certainly deserved a recognition for his PHE - "People Handling Expertises".

Sexual Traps: Probably one of the oldest, widely used and effective tactics in gaining control by corrupting a person's discipline and any sense of duty is in offering beautiful baits. Many seasoned and senior officials in the Xiamen case stubbornly resisted Lai's friendly approaches until they were finally tactfully delivered into the arms of Lai's crew of beautiful baits.

Lai personally sought and selected a "dream mistress" for one official, for whom he bought a luxurious house in Hong Kong and paid the divorcee to fly into Xiamen several times a week to meet with her new "boy friend". He also gave her at least 14 million HKD prior to the arrest of her lover - a senior official who was later sentenced to face the firing squad for a long list of breaches of official duties.

Drinks and Cash: Several of the prosecuted officials admitted to being drowned by their sense of gratefulness to Lai's continuous and consistent flows of gratitudes to them in terms of expensive feasting, drinks, cash and, of course women. It was reported that on the 7th floor Lai had stocked up cognac that are estimated to have cost about 2000 USD per bottle to keep his official friends drowned and tame.

Calligraphy: One of the custom officials refused all of Lai's gifts, invitations and friendly approaches for a long time until Lai discovered his favorite pasttime, calligraphy. With that knowledge, Lai moved on to invite famous calligraphers to put up their exhibits in Xiamen and invited this official, Mr. X to attend. As this gave Lai a chance to make friend with Mr. X, he proceeded to send him calligraphy master pieces as gifts. Then invited Mr. X to "title" (Write and allow his writing to be used as logo) Lai's brand of cigarette. Thus, bit by bits, the defense subsided, the friendship grew, and bloom as the expensive gifts increased. That's how some of the most stubborn "no-non-sense" officials also were captivated by Lai.

The Software Side of The Digital Dragon

Directive No. 18: Recently announced Council of State Directive No. 18 aims to stimulate and promote software industries in China. Among the attractions are the reduction of VAT for software exports from the usual 17% to 3%. It further stipulates that the VAT collected will also be refunded immediately at the time of export, comparing to other industries where that might take months or years.

Software Parks: Under the same directive, 10 of the 43 Software Industrial Zones in China were selected for recognition as National Software Development Centers. In Xi'an, 300 firms have already moved into the brand new Software Industrial Park, among them IBM with its China Software Headquarters. The number of enterprises in the 666,000 square metres of the Software Industrial Park in Xi'an is expected to increase to 1000 within the next few years.

Under the scheme, China aims to boost its software development industries' revenue from the current 4 billion USD to 20 billion USD in 5 years. The directive also encourages and gives priority for listing in China's stock markets for any software development firms that meet the listing qualifications.

30 New Software Colleges: China currently has 335,000 people working in the software development industry. The Ministry of Education has announced the establishment of 30 software development and programmer colleges throughout the country that will increase the current enrollment in software-related majors to 145,000 students. The graduate programs to be opened at 10 of these software colleges will be taught entirely in English.

Experts admit China's disadvantages in software industries compared to English speaking countries such as Ireland, India and the U.S. However, the director of China's National Planning Board and The National Information Technology Ministry also notes that China itself has a huge domestic software market potential.

Piset Wattanavitukul
Shanghai, China

Piset Wattanavitukul is Managing Director of P. W. Consultants specializing in Investment, Management and Trade in and with China and Human Resource Development in Shanghai and Ningbo.