Mr Zhou | President, Haier Group ...

I'm very delighted to have this chance to have this meeting with you. So the company of Haier was founded back in 1984. Its predecessor was a very small-scale home appliances factory in Qingdao. Our founder, Mr. Zhang Ruimin, himself came to the company in the year of 1984, and then he introduced the technology from the German company Liebherr, and that basically started our journey of entrepreneurship and the development of the company. So as you can calculate, it has been 35 years since it was founded back in 1984. So previously, we were solely a refrigerator manufacturer, and then since 1991, we started making other appliances including washing machines, water heaters, air conditioners, even TVs, covering all different areas of the appliance business. And in that process, we tried to replicate our model and our culture by acquiring many different businesses in the sector so as to become a diversified and comprehensive appliance manufacturer. And that way, we end up becoming the number one appliance maker in the country.

Yes, I think the reason is that in this world currently, the Internet age and upcoming IoT era, the demands from consumers or from users have been evolving all the time. They're changing and they become increasingly more personalized, individualized. Therefore, it's becoming increasingly more difficult, challenging for any business to satisfy those individualized demands. Therefore, we had to transform our organization to adapt to those new demands from the users, to making sure that every employee of us can be connected directly to the market, to the users, to respond to users' evolving and fast-changing needs all the time so that we can iterate our products and services to satisfy those needs. On the other hand, when our company is getting bigger and bigger, inevitably we might suffer from the typical disease of big business when we have a lot of bureaucracy. Therefore, we need to transform our organization into many different micro-enterprises so that we have the agility of the small business. But when we have so many micro-enterprises, how can we maintain that all enterprises can move in a similar direction? That's why we have this platform which can on one hand have the scale of economy, on the other hand it can coordinate among different micro-enterprises so that all this army can move forward in a similar direction. That is why we have this ren dan he yi model which plays this role of coordinating among different micro-enterprises to move forward. So that way, on one hand we do have the benefit of the agility of small business, on the other hand we have the scale of economy of a big business. That is our platform, and that's how we making these changes.

Right. I think it was mainly thanks to the resolve and determination of our chairman, Mr. Zhang Ruimin, himself. He insisted upon such changes. In the decision-making process, there were different opinions in the boardroom. You know, many people were concerned that such drastic changes might result in some instability or volatility in this business. And in fact, when we were trying to do this network transformation, making the company flatter, we had to remove more than 10,000 mid-level managers. That obviously resulted in people's dissatisfaction and a lot of different voices were expressed for such big changes. But again, our chairman was quite insistent upon such reform, and we as the team have been supportive of his decision. So after maybe one or two years of transformation, I think now the workforce of Haier has embraced that changes. And because we have a very action-oriented culture within the organization, despite those different voices, eventually we garnered the support of the employee and the team within the management, and we have moved forward along the line of such transformation. So far, it looks like this transition has been turning rather well.

The literal translation is as you said just now: that means employee, then literal translation is dan, here we use that to refer to user value. Okay, so every employee can only have value when he or she can create value for the users. So that is the literal translation. But to give you some examples to illustrate this idea: for example, for any people in the R&D department, previously their job was to do some research and development of a particular product. When the product was developed, then their job was done and we got paid according to whatever mechanism of compensation. But now in our ren dan he yi model, they will only get paid if the product they have designed or developed turns out to be popular or at least available to market and get purchased by some users. That is the test, right? If they have developed a product but the product is not welcomed by the consumer in the market and no one actually pays for the product, not only will they not be compensated at all, they might have to be held liable for the investment that goes into the development of that product. They should be totally accountable for this product. An example is, let's say, a person in the sales team. Previously, in any organization, the expenses for business trips have been a very big dilemma for all companies. If you have no particular standards or guidance for such expenses, then people will spend a lot of money on business trips, leading a very luxurious lifestyle. But if you have too much constraint on their budget, then they have no incentive of going on business and they will not work very hard to generate big sales revenues. So it has been a dilemma for many companies. The way we do it is to apply the ren dan he yi model, which means we'll set some marketing goals for them and then all the expenses will be borne by those who incur them. So there will be their own cost; if they save on the business trips, then they will get the profit out of those sales as their own money. So they have to conduct their own cost-benefit analysis for such business trip expenses. That way, we don't need any approval process, but eventually we can save a lot of unnecessary business or travel expenditures. The same logic goes to all employees, even the people working in the financial department. Previously, they just did some accounting and got paid, but now they have to create value for people working on the front line, otherwise they do not get paid. So everyone has to earn their keep in the sense that they have to serve someone before they get compensated.

A traditional product brand is focused on providing high-quality products. A service brand is to provide high-quality service. A platform is all about traffic; they want to attract more traffic and then monetize those traffic. But for us at Haier, we want to build this ecosystem brand. The idea is to create more ecosystem value, including the value for the users and for the stakeholders, so that everyone can benefit. We get more added value so that we can share among all stakeholders and with more users, and that way we can evolve all together. That is what we're trying to do, and we believe this ecosystem brand idea is helpful to our business and conducive to our transformation under ren dan he yi.

Indeed, we do have some innovative measurements. Because traditionally, we simply look at the revenue or profits or maybe ROE or even market share, but we believe that in this ecosystem era, we want to measure the ecosystem value of our business. Because we want to create more added value that can be shared among all participants of the ecosystem, among all the stakeholders and the users. And we want to create lifelong users, not just one-time transaction consumers, so that they can also share our ecosystem values. Therefore, the way we measure this whole system is innovative: we try to use the new metric called ecosystem return ratio, which we use to measure the value we can generate to all partners. So other than that ecosystem return rate, we also have something novel in our system which is also different from traditional financial accounting indicators. We know traditionally in macroeconomics, we have this monetary multiplier for the macro economy, but we have this new idea called the user multiplier, with which we can measure the number of interactive users you have and the number of lifelong users you have as a yardstick to measure how successful your ecosystem is.

I think that decision was made because, again, we need to adapt to the trending times and adapt to the new development of our business, our company. I believe the decision was made after the relevant decision-maker conducted very careful, thorough analysis and deliberation among herself. So that thinking process was indeed very complex and sophisticated, but the decision itself was made in a resolute manner, very prompt manner after long-time thinking.

Well, I think this high-ranking performance of Haier has been attributable to many factors. First of all, Haier has always attached great importance to branding. From our beginning, we always take branding very seriously. And I think for this year, indeed, we have made lots of progress, especially when we have our new idea of ecosystem brand, because when we create this ecosystem, we were able to create great shared value with the users and with our stakeholders, as I mentioned many times. And also, I think last year, guided by this philosophy, we were able to achieve a very healthy growth in other parts of the world, in other markets. I think all these factors strongly have resulted in a pretty strong performance of our brand ranking. No, brand ranking, and I think on the whole, the ecosystem is a very big system. So the way we're trying to build this ecosystem brand is that we really want to create more values for the users, and to do that we really need to attract all the best stakeholders across the world to join our platform. So that way, on one hand we can keep building our brand to an even stronger position; on the other hand, by joining our platform, our partners' brand can also be solidified, can also be strengthened. So that way it's also a win-win process, and our consumers or users may also benefit from those partnerships.

I think Haier currently is no longer a home appliance manufacturer. We rather say we're a solution provider of smart home solutions. We provide our smart home solutions; we don't just provide hardware. Rather, we provide lifestyles, we provide solutions. We hope that we can continue providing such solutions for a better life for consumers across the whole globe.

I think the idea of IoT was first proposed back in 1999. It has been 20 years. According to the experts' forecast and analysis, this year, again 2019, should be the year for IoT to truly catch on, to become the big thing of this year. Well, I personally believe the era of IoT is moving to us closer and closer, and it should be around the corner. In fact, the person who proposed the idea of IoT, Professor Ashton, once visited the company of Haier and witnessed us. Having seen everything we've been doing, he believes we're the one company which is closest to the IoT era, and we believe it's quite ready; it should happen anytime. And if it happens, it should definitely revolve around the smart home solutions because that's most relevant to IoT. And fortunately, we have done lots of preparation in providing relevant solutions and possibly software in this smart home solution. I hope we will be the one company which plays a leading role in the IoT era.

Well, firstly, we hope that the brand of Haier will become even more global in the sense that of global consumers, in the mere mention of the brand of Haier can create value for the consumers in the world. Well, secondly, I hope that the organization of Haier, Haier company, will become more ecosystem-based because, you know, we're so big and it will be a nice thing for such a big organization to become a self-organized entity and self-evolving, thus into an ecosystem all the time. Well, thirdly, we hope that this model of ren dan he yi will make its new contribution to the business community in the whole world, facilitating their transformation and growth.

Thank you.