China Consumer

Yada yada yadu

Why China’s filthy air could promise purer profit for an appliance firm

Yada yada yadu

Bad for you, good for Yadu

A cold November does not rank as the best time to see Beijing.

But as Barack Obama stepped off Air Force One this week, He Lumin will have considered the conditions far more ideal.

That’s because his company, Yadu, is China’s largest producer of indoor air quality (IAQ) products like air purifiers and humidifiers.

Obama would have been too polite to mention it, but Beijing has dirty air.

The average concentration of particulates in the capital in 2008 was six times the standard recommended by the World Health Organisation.

Beijing is also extremely dry in winter due to its location on the North China Plain, and the influence of the Siberian anticyclone.

Good news for He Lumin, who boasts that “Yadu in the air purification market is what Gillette is in the shaver market.” Like Gillette, Yadu wants to be the market leader within its niche.

An avid reader of military strategies, He Lumin insists that monopolising the market is key to Yadu’s success: “We first stake our claims; build a fortress; and raise some crocodiles to make it impossible for competitors to enter the market.”

Yadu’s crocodiles turn out to be patents, and it now holds over 1,000 of them, on 70% of the core technologies needed to make IAQ products.

The company was the first to develop technology that boosts the amount of vapour from humidifiers, says the Economic Observer, and it has gone on to prioritise R&D efforts.

“When I started the company in 1987, I was a firm believer that innovation is the primary productive force and nothing is more useful and more valuable than technology for an enterprise,” says He. “And I was right.”

Yadu now controls over 60% of the market share in China’s air purifier and humidifier market, says the CBN Weekly. This puts it ahead of global brands like Philips and Panasonic in China domestic sales.

Another factor in Yadu’s success is its after-sales service. The firm now offers free onsite maintenance, which is a big differentiator from its competitors, says Zhang Jingzhong, a manager at a Beijing appliance store.

And unlike the bulk of Chinese manufacturers – which have tended to rely on exports – 80% of Yadu’s revenue is earned domestically.

That might make Yadu an interesting case study for those who want China to “rebalance” its growth model away from export-dependency and more towards growing domestic sales.

How did He Lumin build his brand?

One key move: in 2007 Yadu spent Rmb41 million ($5.98 million) to become the exclusive supplier of air purifiers for the following year’s Beijing Olympics, providing over 200,000 air purifiers to thousands of athletes and visitors.

“We were a little hesitant to bid for sponsorship as our annual turnover at that time was Rmb500 million. Both shareholders and associated banks were seriously against the proposal,” says He. But trusting his business instincts, He decided to give it a go.

It turned out to be a judicious decision, as the sponsorship gave Yadu excellent media exposure. The brand was seen in Olympic venues everywhere – from press centres to the athletes’ locker rooms.

Next step? Yadu sees plenty of revenue potential in China’s IAQ market. In 2008 air purifier sales in the US hit 12 million units, compared to a mere half a million in China.

Today, wealthier Beijing and Shanghai contribute about half of Yadu’s revenue.

But as health awareness and spending power grows, Yadu believes that many more urban households across the country will want to invest in an air purifier.

So not everyone is complaining about Beijing’s bad air, it seems.

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