Losing their cool

Fierce rivalry with Gree

China’s largest air conditioner maker Gree Electric rarely backs down from a battle. Against Xiaomi, its boss made a Rmb1 billion wager about whether the smartphone-to-air purifier firm would overtake Gree in sales (see WiC266). Against lesser rival Aux, it alleged intellectual property theft and the selling of substandard products (see WiC457). And more recently it has been squaring up to its neighbour Midea Group, a long-time rival.

On July 6 Gree accused Midea of fraud in its bidding for a Rmb408 million ($52.62 million) contract with China Mobile for centrifugal chillers, an important piece of equipment in centralised air conditioning.

In a statement Gree said that it had evidence for how its Foshan-based rival had referenced a false invoice in its tender documents. It also suggested that Midea’s products were unlikely to meet the bidding requirements, because of their inferior technical parameters.

“Regarding the aforementioned issues, which are apparent, we have made repeated enquiries to the tenderee. We would like to know how Midea, given its many problems, can still win projects [from China Mobile] time and again, and even become the sole selected bidder,” Gree countered, adding that it was trying to foster a “benign business environment” by drawing attention to potential scamming and bid-rigging.

The row has its roots in a decision by China Mobile in June to nullify Gree’s bid for the same project, citing improper behaviour. Vying for the same piece of business, Gree and Midea had been awarded 30% and 70% shares of the contract respectively in March. But the nullification, prompted by a complaint from Midea, meant that Gree was stripped of its portion. In an additional censure, it was warned that it would start with a points deduction when bidding for other China Mobile projects in the same category over the next three years.

Gree objected furiously, saying that the accusations were overblown. It said its error was merely in mixing up the name of one of the 33 projects that it referenced in its tender documents. It also suspected that it was a victim of libel by its bitter rival Midea.

Midea and Gree have been trading jabs for more than a decade and the costs of settling their various disputes over patents and trademarks is estimated to be in the hundreds of millions of yuan, according to Jiemian, a local media outlet. A physical altercation between staff members during a promotion campaign in 2010 even led to the death of one Midea employee.

The latest round of the rivalry comes at a time when Midea is trying to draw level with Gree in airconditioner (AC) sales by 2021, China Business Journal reports. Last year its AC revenues reached Rmb119.6 billion, not far back on Gree’s Rmb138.6 billion. The gap had narrowed from Rmb46 billion a year earlier.

Midea has been the more nimble of the two at marketing its products online. Between January and May this year it grabbed 41% of online sales of air-conditioners versus Gree’s 23%, according to All View Cloud, a Beijing research firm. Offline, Gree is still the leader, with a 32% share compared to Midea’s 26%.

Gree has been trying to restructure its distribution network to focus more on e-commerce. Its boss Dong Mingzhu – who made her name as a saleswoman earlier in her career – has led the charge with a series of appearances on livesteaming sales platforms (see WiC494).

The switch in strategy is all the more pressing at a time when revenues have been curtailed by the coronavirus outbreak, and the subsequent slowing economy and sluggish property market.

Sales of ACs for residential use fell 51% to 4.77 million units during the first quarter (and by 61% in revenue terms to Rmb13.8 billion), All View Cloud data suggests.

Sales of the bigger chiller aircon units were supposed to be buoyed by the building of more data centres, as well as a new series of technical hubs for the 5G rollout. But sales of centralised ACs actually fell last year from a year earlier. Covid-19 made things worse, with a 54% drop in the first quarter, the largest decline in more than a decade.

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