Behind Midea's rare absence from AWE: the battle for upgrading among home appliance giants has begun

Recently, AWE2023 (China Home Appliances and Consumer Electronics Expo), one of the world's three largest consumer electronics exhibitions, opened in Shanghai. Many home appliance giants such as Hisense, Changhong, and TCL set up booths to showcase cutting-edge technology products and compete for the attention of the industry and consumers. However, as a leading company in the white appliance field, Midea was rarely absent from this annual event.

Previously, Midea was one of the bright spots at the AWE home appliance exhibition every year. Why did it suddenly stop participating this year? It is said that this is due to Midea's strategic redirection. Midea wants to transform from a traditional home appliance company to a global technology group. In other words, Midea believes that it is no longer a home appliance brand, but a pure technology company.

In fact, as early as 2020, Midea's business structure and strategic axis upgrades had already shown signs of happening. At that time, Midea Chairman Fang Hongtao disclosed for the first time that Midea's business layout had expanded to five major areas: consumer electronics, HVAC and building systems, electromechanical business group, robotics and automation, and digital innovation.

In 2022, Midea further clarified and upgraded its strategic axis, proposing four major strategic axes of "technological leadership, direct access to users, digitally driven, and global breakthroughs", and thereby positioned the company as a global technology group with businesses spanning smart homes, industrial technology, building technology, robotics and automation, and digital innovation.

It is not difficult to find from Midea’s transformation that Midea’s focus is no longer limited to the home appliance industry, but is moving towards broader fields, kicking off a battle for dimensional upgrading among home appliance giants.

In the field of white goods, Midea is not the only one that actively embraces transformation. White goods giants such as Haier and Gree are also constantly increasing their transformation. For example, Haier, while focusing on smart homes, has also simultaneously explored the industrial Internet.

In this context, there are several questions worth asking. First, why are Midea and other companies so eager to transform? Second, what are the characteristics of their transformation? Third, what are the quality and difficulties of their transformation? And whether it may lead them away from the main battlefield of home appliances?

Why are white goods giants stepping up their transformation efforts?

When talking about the reasons for a company's strategic transformation, most people may first think that it is due to the decline in corporate performance.

Looking back at Midea's development history, we can see that there are many cases of ship turning around due to declining performance. In 1997, Midea fell into a major crisis, its air-conditioning business declined sharply, and it faced the fate of being acquired. At that time, Fang Hongbo helped Midea overcome the difficulties by laying off members of the air-conditioning division and establishing a systematic marketing model.

In 2011, Midea's revenue increased by 21.6% to 134.1 billion yuan, but its net profit fell by 7.3%. Faced with the dilemma of increasing revenue but not profits, Midea was once again forced to upgrade and transform.

However, Midea's transformation and upgrading in 2022 was not a forced move, but was more the result of the two-way promotion of external and internal factors.  

Judging from the performance data, in fact, whether it is Midea, Haier or Gree, the growth momentum is quite clear.

Midea's revenue in the first three quarters of 2022 was 270.4 billion yuan, a year-on-year increase of 3.5%, and its net profit attributable to shareholders was 24.5 billion yuan, a year-on-year increase of 4.3%. Haier also achieved revenue of 184.749 billion yuan, a year-on-year increase of 8.91%, and its net profit attributable to shareholders was 11.666 billion yuan, a year-on-year increase of 17.26%; while Gree achieved revenue of 147.489 billion yuan, a year-on-year increase of 6.77%; and its net profit attributable to shareholders was 18.304 billion yuan, a year-on-year increase of 17%.

But while the giants are "eating meat", the industry may not be able to "drink soup". Due to factors such as the decline in real estate and sluggish consumer demand, the home appliance industry is almost facing a dilemma of a full-line decline in 2022. According to data from the China Academy of Information and Communications Technology, the total retail sales of China's home appliance market in 2022 was 835.2 billion yuan, a year-on-year decrease of 5.2%.

By 2023, this downward trend has not improved significantly. According to the data from Aowei Cloud Network, the retail sales volume of China's home appliance market in the first quarter of 2023 decreased by 3.5% year-on-year.

Although Midea and others have maintained their growth momentum, Fang Hongtao pointed out at a Midea Group management exchange meeting some time ago that "the next three years will face relatively great difficulties and an unprecedented cold winter." It is precisely because of the pressure on industrial development that the giants have been forced to speed up their exploration of transformation.

In addition to external forces, internal factors are the key factors in the transformation of home appliance giants. Take Midea for example. As early as 2018, Midea's founder He Xiangjian pointed out that "Midea's future revenue target is to sprint to 500 billion yuan." To achieve this ambitious goal, it is obviously difficult to rely on smart home appliances. Therefore, finding more driving points to support the market scale of hundreds of billions is an inevitable move for Midea to move forward.

The reason behind Gree's strategic transformation to diversification is actually due to the need for corporate breakthroughs. During the two sessions last year, Dong Mingzhu said frankly, "Gree Electric is now trapped by air conditioners. When we talk about Gree Electric, we always talk about air conditioners." How to take Gree's development to a higher level? Diversification has become a direction that Gree is actively exploring.

Transformation of home appliance enterprises: three characteristics of three giants

On the road to transformation, the common feature of the three giants is that they attack everywhere based on their own capabilities.

For example, Midea not only combines its deep cultivation in smart home appliances to expand into areas such as building technology and digital innovation, but also combines its own intelligent manufacturing capabilities to extend to more fields such as robotics and automation, industrial technology, etc.

Haier and Gree are also combining their own technological capabilities to make deeper changes. For example, Haier is exploring new models of scenario consumption by building a smart home brain platform, and Gree is realizing the linkage between old and new industries by combining air conditioners with new energy.

But at the same time, the transformation characteristics of the three giants are far more than the commonalities. If I were to use three words to describe the three companies, in my opinion, Midea is resolute, Haier is continuation, and Gree is small steps and fast progress.

Midea has always been regarded as a typical "hardware company". In the previous strategic axis, the first one was product leadership. Now, in the new strategy proposed by Midea, technological leadership has become Midea's top priority. Behind this change is that Midea has changed from focusing on hardware and functions to focusing on the simultaneous improvement of software, hardware and other dimensions. It can be said that a drastic change has taken place.

In addition to the change in strategic thinking, Midea's determination to transform can also be seen in its business layout. Taking industrial technology alone as an example, since 2017, Midea has been continuously acquiring related companies to strengthen itself. First, it acquired Gaochuang Transmission, then MR Meiren Semiconductor, and then acquired Hekang New Energy and Dongling Technology. By 2021, Midea's industrial technology has extended to many fields such as automobiles, industry, and chips, and has set a goal of 100 billion yuan in revenue in 5 years.

In contrast, Haier's transformation emphasizes staying on the main course. In January this year, Haier Chairman Zhou Yunjie clearly pointed out that "a company without strategy has no future, so what it does is important; deviation from strategy will bring devastating disasters to the company, so what it does not do is more important."

Today, Haier is vigorously stepping up its strategic transformation. On the one hand, it is using Haier Smart Home as a vehicle to strive to realize smart homes in the era of the Internet of Things; on the other hand, it is based on the Caos Industrial Internet platform to focus on vertical fields such as the big health industry, urban governance, automobile industry, and new energy industry to create a corporate ecological transformation.

Gree is betting on new business areas. Although it has also made great progress in industrial products, new energy, and intelligent equipment, it is still in the strategic layout stage. For example, in the field of new energy, Gree has gradually made efforts to build the entire industrial chain by acquiring companies such as Yinlong New Energy.

The joy and sorrow of the giants' strategic shift

In recent years, as consumer consumption has become increasingly weak, white goods giants such as Midea, Haier, and Gree have all been seeking growth from the B-end. So, in this battle of upgrading dimensions, how do the giants perform, and what problems do they face?

As a representative of the strategic transformation of white goods giants, Midea's transformation results can be said to be far ahead. In the first half of 2022, Midea's business revenue from the B-end accounted for nearly 25%, and the proportion of total revenue increased by 3%. Among them, industrial technology, building technology, robots and automation all exceeded 10 billion yuan in revenue, and building technology soared 33.09% year-on-year.

The same rapid growth actually happened to Gree. In the new business area, Gree's industrial product revenue in the first half of 2022 was 2.888 billion yuan, a year-on-year increase of 57.79%, and green energy revenue was 1.926 billion yuan, a year-on-year increase of 131.57%.

But whether it is Midea or Gree, compared with their huge scale of home appliances, their incremental growth in the direction of transformation still has a long way to go before a real explosion.  

To be honest, the road to transformation for home appliance companies is destined to be full of thorns. First, in some new business areas, there is also uncertainty in demand, which brings certain obstacles to the transformation of white appliance giants. For example, in the field of robots and automation, where Midea has made great efforts, data from the National Bureau of Statistics showed that the domestic production of industrial robots in the first half of 2022 was 202,000 units, a year-on-year decrease of more than 11%.

Second, the competition in some areas is fierce. A typical example is that in the field of smart building technology, competition in central air-conditioning and elevators is becoming increasingly fierce. According to data from institutions such as HVAC, foreign brands accounted for about 48% of central air-conditioning in 2021, and only four manufacturers had a share of more than 10%. According to data from Changjiang Securities, foreign and joint venture brands accounted for as much as 70% of the elevator market. It is not easy to get a piece of the pie in such a fierce market.

Of course, in the long run, the transformation of white goods giants is still worth looking forward to. On the one hand, it is because the fields that Midea and others are transforming hide huge market potential. For example, in the automobile manufacturing industry, which Midea, Haier and Gree are all optimistic about, according to the forecast of the Forward-looking Industry Research Institute, by 2026, the main business income of my country's auto parts industry will exceed 5.5 trillion yuan.

On the other hand, the major giants have accumulated considerable technical strength in new business areas based on long-term manufacturing and R&D accumulation, as well as related corporate mergers and acquisitions, laying the foundation for their transformation battle. For example, Midea has made great achievements in robots and automation by acquiring Kuka. It has built the first MEB production line in China for FAW-Volkswagen, upgraded the door cover and assembly production line for Changan New Energy, and built a flexible welding workshop for BYD.

Conclusion

Looking back at the history of the home appliance industry, the drama of prosperity turning into decline has been staged in Japan and the United States. Once upon a time, home appliance giants such as Sony, Panasonic, and Sharp explored different fields and gradually abandoned the home appliance business. This time, the battlefield for the transformation and upgrading of home appliance companies has come to China.

Giants such as Midea, Haier, and Gree have also stepped up their transformation efforts and even repositioned themselves in a number of new fields, such as industrial manufacturing, building technology, industrial Internet, and new energy. Although it remains to be seen whether Midea and others can break out a new path, what is certain is that with the support of a huge market and the increasingly advanced technology of the giants, the path of upgrading for Chinese home appliance companies is worth imagining!

The pictures in this article are all from the Internet

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.