Haier's quest for the perfect egg

White goods maker Haier is trying out ideas from manufacturing and internet technologies to egg production. Result: Efficiency at China's egg farms has improved tremendously

Neelima Mahajan

[Photograph by Angelo Giordano under Creative Commons]

I don’t think much when I buy eggs. I just pick up whatever looks like a decent tray of eggs off the supermarket shelf. Since this is China and not everything is labelled in English, I would also only buy an egg tray with the picture of a hen on it and/or something that looks like it came out of a hen—there’s a dizzying array of eggs here in different colours and sizes so one can never be sure.

Imagine my surprise when someone talked of Egg 4.0. I had never given any thought to Egg 1.0 or 2.0, and I didn’t know of the existence of an Egg 3.0 and here they were talking of an Egg 4.0.

A bit of context. White goods giant Haier organizes something called the Haier Global Forum on Business Model Innovation. Leading global thought leaders (this year it was Jeremy Rifkin, author of The Third Industrial Revolution) deliver lectures at the forum and there is much deliberation and discussion on Haier’s own out-of-the-box ideas on management, now the subject of business school case studies and books, and finally there is a customary keynote address by Zhang Ruimin, chairman and chief executive of Haier.

At this year’s forum, I was expecting to hear about washing machines, refrigerators, high-tech manufacturing, connected factories, Internet Plus, etc., when suddenly someone on the stage started talking of eggs.

“We need to build an Egg 4.0 era,” he declared in Chinese, and the interpreter’s raspy voice immediately crackled those magic words into my earpiece.

Long story short, Haier, essentially a white goods manufacturer, has embarked on a revolutionary journey to spur innovation across the organization. It involves, among other things, breaking down hierarchies and creating an atmosphere where self-organizing teams will come together on new product ideas, and much like start-ups, be responsible for generating funding, assembling the team, and then the creation, execution and delivery of innovative new products that would otherwise not grow out of a large hierarchy-driven company. (More on Haier’s daring reinvention in a future piece.)

During this experiment, Haier’s financial services division made a 180 degree turn away from white goods and got into the unlikely area of agricultural finance, and hence eggs.

Why? There are a couple of reasons. One, the Chinese love eggs in whatever form they may be in—tea eggs, hundred-year eggs or the regular boiled, fried or scrambled eggs that you and I are more familiar with. Apparently the per capita consumption of eggs in China is one egg a day. But then the business of producing eggs and getting them to the plates of the final consumer is not efficient. Since this industry is dominated by an overwhelming majority of small players, no one company has a market share of over 0.3%. Prices fluctuate wildly so profitability is low. Plus there are challenges with regard to heavy investment in assets, long investment cycles, logistics and, of course, food safety and poor knowledge of modern breeding technologies.

So this is where Haier steps in, and apart from financing, it sets up a platform for producers that helps them with things like modern (and clean) technologies, site selection, connecting with equipment providers from across the globe, etc. In the process, it brings in newfangled concepts like ‘OEM breeding’ and ‘Cloud breeding’, essentially bringing in ideas from manufacturing and internet technologies into egg production.

The experiment is very new: it began only in 2013. According to the company, with the implementation of new technologies thanks to Haier’s intervention, efficiency at the egg farms has improved tremendously. Earlier it took three years for “traditional breeding”: from site selection to assembling the facilities and getting things working. Now it takes 270 days. The investment in fixed assets is down to 10%.

The improvement in productivity and quality has apparently led to a drop in the “production cost” of a single egg from Renminbi (RMB) 0.61 to RMB 0.52 (I wonder though: what about the hard work put in by the hens?), the logistics cost has gone down and profits have risen. A single egg now sells at an average price of RMB 0.83. Apparently the special eggs used in egg facial masks, because of the higher quality, now enjoy higher margins: 500% as opposed to 200% earlier.

I am no expert on the egg production industry, but the experiment struck a chord.

At one level, the experiment shows what can be achieved if we blur the boundaries between two industries ever so slightly, so that best practices from one industry can cross over into the other. So Haier is able to translate ideas it has mastered in manufacturing for agriculture. Think of what Devi Shetty of Narayana Health (earlier called Narayana Hrudayalaya Hospital) is able to achieve in cardiac care (success rate of 95%, low error rates, low costs and huge scale) by incorporating simple concepts from the world of business. As the late CK Prahalad said, “Think about applying TQM (total quality management) principles to surgery.”

A simple initiative by a large enterprise can help small producers raise the levels of overall efficiency in the market and make more money while raising the quality of the produce and making customers happy. For Haier, I am sure it didn’t cost much. But in the end, everyone wins. Hopefully, the hen too.

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About the author

Neelima Mahajan
Neelima Mahajan

Senior Journalist

Beijing

When I landed in Beijing in 2012, I gave myself six months to either survive China or let it overwhelm me. I hadn’t been here before, yet I jumped at the opportunity to head the management publication of a leading Chinese business school with decidedly global ambitions. I was, after all, intrigued by the question: "What makes Chinese companies tick?"

Settling in wasn't easy with challenges ranging from language and food to biting cold winters and Beijing's infamous smog.

Before I knew it, the six months had become three years. While my decade-long experience in India, with publications like Businessworld, The Times of India and Forbes India, familiarized me with how Indian companies behave and view opportunity, my China stint gave me a completely different worldview. If anything, these three years here have challenged my preconceived notions about the Middle Kingdom.

For instance, the popular perception outside of China is that the state is dominant in the business sector here. I found, much to my surprise, that it is not true. If anything, China’s growth miracle owes its success to private enterprises. And Chinese entrepreneurs go through the same trials and travails as their counterparts elsewhere. So what makes them so successful? How is it that Alibaba’s Jack Ma has built a $251 billion enterprise in just 15 years? How did Pony Ma at Tencent lead his company to such a mammoth scale? I can’t say with certainty that I have fully cracked that question yet, but in my observations so far, a couple of things stand out: thinking big, relentless drive, tenacity , a difference in the way they view and crack opportunities, and loads and loads of spunk.

The other popular notion about China is that Chinese companies are simply clones of their Western counterparts. Once again, it is not entirely true. I have visited both the Google headquarters in Silicon Valley and Baidu’s headquarters in Beijing, and I can say with certainty that Baidu is not a copy of Google.

A third notion that I have seen crumble before my eyes is that China is all about cheap, low-quality products. While I don’t deny that there are cheap, fake products proliferating the market, I would urge you to look at the other side: Chinese companies that are leading the game in innovation. Walk into the innovation center of a Lenovo or a Haier, and you’ll know what I am talking about.

I have an avid interest in multinational company strategy as well as the so-called 'emerging giants'. It is fascinating to see how MNCs are navigating their way around this hard-to-ignore country and also how homegrown giants like Lenovo, Huawei, Alibaba, Baidu and Haier are approaching global markets.

I also have a keen interest in management thought. I have interviewed thought leaders like C.K. Prahalad, Michael Porter, Philip Kotler, Clayton Christensen, Henry Mintzberg, Henry Chesbrough, Marshall Goldsmith and Gary Hamel, and Nobel Prize winners John Nash and Amartya Sen.

Before coming to China, I was an International Visiting Scholar at the University of California Berkeley. There, I explored how publications need to evolve with changes in technology and reader habits, and business journalism in Silicon Valley. I was awarded a Bill and Melinda Gates Foundation fellowship as part of the Africa Reporting Project to write about coffee and climate change in Uganda, Africa.

In 2010, I received the Polestar Award for Excellence in IT and Business Journalism. I have researched and edited two books: Leading with Conviction (Jossey-Bass) by Shalom Saada Saar and Michael Hargrove, and Culture of the Sepulchre (Penguin India) by Madanjeet Singh. The second book is closely linked to my family’s personal history in East Africa.

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