China Consumer

Time to cool down

Why Gree is betting against Xiaomi’s prospects

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Dong: not a huge fan of Lei Jun’s Xiaomi

In 2012 Dalian Wanda chairman Wang Jianlin and Jack Ma, the boss of Alibaba Group, made a famous bet of Rmb100 million ($16.13 million) on national TV about whether e-commerce would account for half of China’s retail sales by 2020.

Wang later suggested it was a publicity stunt arranged by the show’s producers. But no matter, the wager has generated a lot of buzz for the two tycoons.

A year later, a new duo decided that they wanted a piece of the action. Lei Jun, chairman of Xiaomi, and Dong Mingzhu, chairwoman of appliance giant Gree, were sharing the stage at the same event, which is hosted annually by state broadcaster CCTV. The two were trading barbs over the business models of their respective companies. Dong said Xiaomi relied on cheap prices to sell its products, while Lei singled out Gree’s customer service as a weakness. The discussion grew more heated and led Dong to challenge Lei. Would Xiaomi overtake Gree in sales within five years, she asked? If so, Dong would pay Lei Rmb1 billion. If not, he would have to pay her.

At the time the challenge looked like an easy win for Dong. In 2013, Xiaomi’s revenues were probably about Rmb30 billion, a quarter of Gree’s. But just 12 months later, the gap between the two has narrowed rapidly. Xiaomi made sales of at least Rmb70 billion last year, half of Gree’s Rmb140 billion, and Lei boasted to Beijing Times last month that he is “99.99% certain” that Xiaomi’s revenues will exceed Gree’s in 2018.

In response Dong is trying to boost sales and last week Gree announced a new strategic cooperation with Dalian Wanda (perhaps it’s no coincidence that Dong has tapped the wager-prone Wang Jianlin as a partner). The alliance means that Gree will be lead supplier of household appliances for Wanda’s residential developments. Gree, the market leader in air-conditioners, will also supply cooling systems to the developer’s mega-shopping malls.

Gree isn’t the only manufacturer making alliances with a developer. Its rival Haier has partnered with Evergrande to become lead supplier of appliances at Evergrande developments, and it hopes the partnership will extend to offer furniture and other home improvement products to Evergrande, says CBN, including the development of smart-home devices, which link up with smartphones and across household Wi-Fi networks.

Haier has already unveiled an operating system named “U+ Smart living” through which users can operate smart home appliances wirelessly. For instance, smartphone users can turn on air conditioners before they arrive home at their apartments.

Liu Buchen, an industry expert, told China Business Journal that partnerships between appliance makers and property firms have tended to concentrate on sales and distribution in the past. But the collaboration between Haier and Evergrande is different because of its ambitions for cracking the “smart-home” market.

Midea – another rival of Gree’s – is also hoping to benefit from new technologies, after receiving Rmb1.3 billion in investment from none other than Xiaomi.

“Our partnership will allow us to develop a digital ecosystem in which Xiaomi’s devices and Midea’s home appliances can be perfectly connected,” Xiaomi’s boss Lei explained. Xiaomi also launched a new range of air purifiers in December as part of the push into home appliances connected to the internet. It says they can produce up to 406 cubic metres (14,000 cubic feet) of clean air per hour. Controlling it with an app on a Xiaomi smartphone, users can check the air quality in their homes when they are away and set filters depending on outside conditions.

The race to develop smart-home devices comes at a time in which many white goods makers are having to resort to price wars to defend their market share, with Gree kicking off a round of aggressive discounting against Haier and Midea back in October in the air-conditioner market (see WiC256).

“But price wars are a double-edged sword. While they help grow the top line, gross margins are severely affected. So the only way to improve profitability is to transition to smart-home products. The pressure to ‘go smart’ is definitely mounting,” another industry insider told China Business Journal.

In the meantime, Gree’s boss Dong is pouring scorn on Xiaomi’s tie-up with Midea, calling the two companies a “pair of thieves”.

“Putting two second-class firms together will not make a great giant. Midea is a firm whose success is built on patent infringement and false advertising, and Xiaomi’s success comes from endless marketing without any important innovation,” she warned, referencing an earlier court case in which Midea was ordered to pay Rmb2 million in damages after being found guilty of stealing Gree’s product designs.

Meanwhile only days after Xiaomi launched its new air purifier, a Japanese company was also crying foul about potential patent infringement.“It was discovered that Xiaomi’s air purifier is surprisingly similar to a product that we released in 2012,” the company’s head of product design complained on weibo. “I personally was very bewildered by this.”


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