Ji Junhui is the engineer-in-chief of the materials research center of Chinese appliance giant Haier Group. He also leads a research lab at the Beijing-based Technical Institute of Physics and Chemistry of the Chinese Academy of Sciences.
Ji was in charge of Haier's project on developing antibacterial material, which helped boost Haier to No. 1 in the refrigerator market in China several years ago.
Haier now considers the United States a key market, and started local production in the U.S. in 2000. The company is reported to produce 500,000 refrigerators a year at its plant in Camden, S.C.
Plastics News recently interviewed Ji in his Beijing office about Haier's use of plastics.
Q: The formal name of the materials research center is HKH National Engineering Research Center of Plastics Co. Ltd. How is this company related to Haier?
Ji: HKH is a joint venture between Haier Group and the Chinese Academy of Sciences. The true story is, back in the mid-1990s, Haier Chief Executive Officer Zhang Ruimin intended to acquire the National Engineering Center of Plastics under the Chinese Academy of Sciences. But the government would not let a private enterprise acquire a government research institute, so a joint venture was the best choice.
Founded in 1998, HKH now has a factory at its Beijing headquarters, sales offices in Qingdao, Shanghai and Shenzhen, as well as [joint venture] factories in Yangzhou and Guangzhou.
Haier President Yang Mianmian, who ranked in Fortune magazine's list of most powerful women in business, also is chairwoman of HKH.
HKH is short for Haier Kehua (meaning ``technology and chemical'' in Chinese).
Q: Haier also has a subsidiary named Haier New Material R&D Co. Ltd. How is its function different from HKH's?
Ji: Haier New Material was coinvested by Haier Group and HKH in 2001. Haier Group holds the majority share. Haier New Material is a compounding unit, with a workforce of over 100, supplying 95 percent of its 882 million-pound annual production to Haier. HKH serves more as a research center for Haier, while selling its own compounds and masterbatches to Haier and the outside market.
The different roles make sense, since Haier New Material is located in Qingdao, where Haier molds components in-house and assembles finished appliances. HKH does not have a plant in Qingdao.
Haier Group consumes about [$126 million] worth of compounds a year, and 30-40 percent is from Haier New Material, whose line includes polystyrene, high-impact PS, ABS, polypropylene, nylon and polyester.
Q: What is the best example to illustrate the role of materials on Haier's path to success?
Ji: That would be antibacterial materials. HKH invested millions of yuan to develop the technology, and Haier successfully commercialized the material and marketed the concept.
The late-1990s already saw endless battles for appliances market share in China. Haier was determined to throw out a line of anti-bacterial refrigerators in 1999, while competitors expressed doubt since the concept was foreign to average consumers.
Haier spent about 100 million yuan [$12.6 million] on advertising to educate consumers about antibacterial material and guide their purchasing preferences. It was like a bomb to the market. In three months, Haier's share in Beijing's refrigerator market skyrocketed from 20 percent to 90 percent. The company finally grabbed the lion's share in the refrigerator market nationwide.
Q: What else has HKH done to help Haier develop products?
Ji: Half of Haier's new products use materials developed by HKH. ... But innovative products in the appliance industry do not necessarily require use of new materials. Many of Haier's signature products win for their unique functions. Haier's line of sanitizing washers was introduced during the SARS crisis in 2003, so people can disinfect clothes easily at home. Haier's environment-friendly washers use electrolyzed water technology to clean the laundry without detergent.
Q: Haier seems to be facing pressure on profitability. For example, its sales of washers went up 20 percent in 2005, but profit fell 25 percent. How will Haier cope with rising material costs and maintain a decent margin?
Ji: Cost control on materials has been a very important task. Before HKH was established, Haier lacked expertise on plastics, overpaid for raw materials and failed to use different types of plastics efficiently. ... With HKH and Haier New Materials, Haier has overcome these problems and beefed up profitability.
But in recent years, the price war in the appliance market and material price hikes are further pushing us to cut costs. On the one hand, we are substituting metal with plastics, making washer tubs of plastics instead of stainless steel; on the other hand, when quality is assured, we are using cheaper plastics to replace more expensive ones.
For example, we use PS instead of ABS for white goods frames, which can help save up to [17 cents per pound]. Another strategy is to use one material for multiple components for better cost structure and quality control. We are also developing new materials like low-cost but high-heat-resistant materials to make rotational carousels in microwave ovens. We understand cost management as an ever-going project.