Zhang Yue, the president and chief executive officer of Broad, a private Hunan-based manufacturer of air-conditioners, heating systems and air purifiers, is among China’s new generation of entrepreneurs. While many of China’s companies compete on price, Mr Zhang has put his faith in developing Broad’s technology and a strong service model to build his company.
Broad developed its first direct-fired absorption (DFA) chiller in 1992. The technology relies on energy sources such as natural gas or waste heat for power, rather than electricity, which is used in traditional air-conditioning systems. When Broad started to market its air-conditioning units in China, it had a key advantage: DFA chillers do not rely on the electricity grid, which was shaky and overloaded, and prone to widespread electricity shortages.
Broad did not invent DFA chillers. The technology has been in commercial use for decades. But Broad introduced it in China, and has been a global leader in its development.
Now Broad’s heating and cooling systems are installed in over 60 countries, including at sites such as the Madrid airport in Spain and the Con Edison power plant in Manhattan, the US. DFA chillers allow customers to save energy and reduce their environmental impact. Broad’s focus on providing systems that are relatively hassle-free has also allowed the company to expand in developing countries, where access to qualified engineers is often limited. Broad has also been a pioneer in developing a strong service for its products. To avoid costly malfunctions, Broad monitors all systems online from its Hunan headquarters. Its new generation of chillers also includes what Broad terms a unique water distribution system that allows its customers to cut installation time and combine servicing for water, cooling and heating systems.
As China’s government has restructured its economy to allow more private companies, Chinese entrepreneurs like Mr Zhang have thrived. Private ambition and profit have proven powerful incentives to innovate. Indeed, our survey suggests that there is still a large difference in attitudes towards innovation between China's state-owned enterprises (SOEs) and privately owned Chinese companies—only 76% of SOEs (state as well as municipal and provincial enterprises) consider innovation as critically important or important, compared with 90% for private Chinese companies. Senior management tends to be more supportive of innovation in private Chinese companies: 90% of survey respondents agree that senior management is "neutral, and focused on transforming good ideas into the most profitable innovations possible", compared with only 73% of respondents working at state firms. Pay-off rates also vary according to the type of companies surveyed: private Chinese companies expect a faster return on their investments, whether in innovation or capital expenditure in general.
Yet, even as China’s economic restructuring has provided fertile ground for the growth of entrepreneurial innovators, there is still ample room for internal restructuring within companies. Broad, like many Chinese companies, is top-heavy. Although the company employs some 2,000 people, Mr Zhang says that he is personally responsible for some 80-90% of the company's innovative concepts.
Allowing private initiative and enterprise has enabled China to develop a vibrant and innovative, non-state sector. Might the next generation of innovation in China be spurred as companies, like Broad, unlock initiative and enterprise among all their employees.
