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Why China’s biggest online nut vendor Three Squirrels takes management lessons from Mao

Red banners, rousing slogans and striking posters can be seen everywhere at the headquarters of Three Squirrels, China’s leading online snack food seller, ahead of a year-end shopping festival.

Its main product is nuts, but there’s method to management’s embrace of Maoist morale boosters.

Employees, most in their early 20s, said the decorations were an everyday presence. Daddy Squirrel, the nom de guerre of company founder Zhang Liaoyuan, is a fan of late Communist Party chief Mao Zedong and is keen to apply his management model to Three Squirrels’ daily operations.

The company, set up in Wuhu, a small city in the east of Anhui province, in 2012, has made a name for itself among young consumers with “cute” sales campaigns for imported pecans, almonds and other nuts, which are marketed in cartoonish packaging.

To an outsider visiting the firm’s modern, three-storey office building, the coexistence of stuffed squirrel toys, cute cartoon images and radical propaganda reminiscent of Mao’s rule half a century ago can appear odd. But 25-year-old product manager Shu Xiaolu, proudly wearing a yellow armband, said she felt comfortable with the workplace culture.

“I’m a member of the Pioneer Team, a hallmark of Daddy,” Shu said, beaming and pointing to her armband as she shuttled back and forth to coordinate special production, sales and customer service task forces on a November afternoon. “Given this great honour, I take on additional responsibilities, and I feel proud.”

Professor Hu Xingdou, an economist at Beijing Institute of Technology, said many Chinese internet and e-commerce companies adopted strong corporate cultures to mobilise employees amid fierce competition at home and abroad as they sought to expand – developing from online to offline or integrating businesses in related industries.

“Interestingly, many Chinese entrepreneurs, to some extent, resort to the style of the strongman, such as Mao Zedong, as China has a deep-rooted culture of ruler worship,” Hu said. “Company owners want their employees to be both obedient and innovative, thus creating a paradox.”

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Sunflower seeds and peanuts were introduced to China around 500 years ago, during the Ming dynasty, and they went on to become popular snacks. But it was only in the past decade that nuts from the United States, Australia and countries in South America began flooding the vast China market, with imports growing exponentially. Macadamia nut imports more than doubled to nearly US$80 million last year from 2014, while almond imports grew fivefold.

Nuts and seeds accounted for 84 per cent of salty snack consumption in China last year, according to Mintel, a market research provider. Eyeing the increasing disposable income of Chinese consumers and a booming e-commerce sector in China, US-based Kraft Foods introduced its Planters Peanuts brand to supermarkets and online retailer JD.com earlier this year, intensifying the already cutthroat competition between thousands of Chinese brands.

Three Squirrels has sought to stand out from the crowd by appealing to younger customers, calling them masters and focusing on services. It was China’s biggest domestic, online nut seller last year, with sales of 2.5 billion yuan (HK$2.8 billion).

But its ambitions don’t stop there and it expects sales to more than double this year. It also opened its first bricks-and-mortar shop in September and plans to open 500 across the mainland in towns and cities across mainland China in the next five years. Cartoons and movies are being shot to entertain millennials and those who are even younger, while squirrel town theme parks are also being planned.

Zhang said Three Squirrels also wanted to build standardised factories for food material suppliers to ensure quality.

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“What we are doing is cross-boundary integration to meet the rising demand for products and services which provide health and happiness to China’s young consumers,” Zhang said in front of a portrait of Mao in his office.

Zhang, 41, said he adored Mao, a founding father of the Communist-ruled People’s Republic of China but also a controversial figure who cultivated a personality cult and initiated the 1966-1976 Cultural Revolution, which was marked by violent class struggle.

“Mao is a great man,” said Zhang, a heavy smoker like his idol, puffing on a cigarette throughout the one-hour interview. “His thoughts and practice in organising battles and management of the party are useful in today’s business operations.”

Zhang practises what he advocates. He said he “brainwashed” his employees from time to time, requiring them to be responsible, hard-working and clean from corruption.

“I prefer to hire fresh graduates from universities and colleges,” he said. “The average age of our employees is 24 and half years. Young as they are, they can be transformed to the model I need more easily.”

Pseudonyms are introduced to foster cohesion. Posters urging strength and wisdom crowd the walls, asking employees to “spare no efforts to achieve greatness”.

Zhang Gangfeng, an associate professor at Zhejiang University’s management school, said: “Sentiment-boosting efforts are designed to stimulate employees as they need to be aggressive and persistent while selling products or addressing customers’ complaints online, which is a typical culture for a sales-oriented company.”

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China’s first generations of private entrepreneurs were more likely follow the century-old theories of Frederick Winslow Taylor, an American engineer turned management consultant, who urged bosses keen on improving production efficiency to regard workers as machines and adopt a military-style command system. However, economists says, modern private companies, especially those related to the internet, rely more on a strong corporate culture to stimulate people.

“Nowadays, corporate culture in many Chinese internet companies not only reflects their founders’ personal preference, but more importantly answers the call of their businesses,” Zhang Gangfeng said.

However, attempts to cultivate such a culture at internet companies sometimes backfire.

Peter Zhang Sihong, Amazon’s China vice-president, said he left a Chinese internet company after just five months to return to the US e-commerce giant this summer.

In an August article posted on the WeChat social media platform, Peter Zhang said there were huge differences in corporate culture between private domestic companies and foreign ones.

What he had learned from more than a decade working for multinationals was that one should strike a balance between work and life, and that individuals should be respected and disagreements allowed.

However, at a Chinese internet company he declined to name, personal social media accounts were used to send out corporate public relation material and marketing campaigns were given great importance, with every one framed as a “battle” to win. Senior executives often made sensational presentations to boost morale, whipping employees into a frenzy that could see them become fanatical about a new product launch.

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“I’d like to share the boiling passion with my colleagues,” Peter Zhang wrote. “But I was born into an intellectual family … I despise all kinds of formalism. The real positive force to advance a society should be the wisdom of every individual with free and independent thinking.”

The article sparked heated online discussion. Some highlighted the weak points of foreign companies in China: bureaucratic management systems and limited promotion prospects for Chinese employees. Some attacked Chinese internet companies for resorting to “chicken blood injections” – behaving like pyramid sales companies as they boosted employee sentiment to irrational highs with “exaggerated presentations designed to overwhelm”.

Revenue in China’s internet sector grew by an average of 50 per cent a year between 2011 and 2014.

And according to the Boston Consulting Group, the sector directly created 1.7 million jobs in 2014 and is expected to create 3.5 million jobs by 2020. The number of jobs generated indirectly is believed to be even more impressive.

The average age of employees in the internet sector is just over 28, with more than a quarter planning to jump ship in a year, according to a survey by the consultancy, and just short of a third planning to do so in two to three years.

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Zhang Liaoyuan said it was a “big challenge to attract and keep young talent” at Three Squirrels. which employs around 3,000 people.

“I understand a tolerant environment is needed by any internet company,” he said. “Whoever my idols are, they will not stand in my way to create an innovative company.”

Professor Wang Hui, from Peking University’s Guanghua Management School, said that in the internet era, a company’s vision, business model and supporting departments should constantly adjust to the changing environment.

“Only when the strong culture can help the company adapt to the changing environment and better integrate internal resources is it a good corporate culture,” Wang said.