Is Dong Mingzhu making a mistake by failing to diversify her cross-border business?

"There's no way I'm going to buy a Gree phone."

Mr. Zhu, a mobile phone enthusiast, told reporters that no matter how much he admires Dong Mingzhu herself, he does not want to wake up "just to see her face" - although the screensaver photo can be changed.

Ms. Li, who has held Gree Electric Appliances shares for a year, told the International Financial News reporter that her holding cost of Gree Electric Appliances shares was 21 yuan. She added to her holdings several times during this period and made very good returns, so even after Dong Mingzhu stepped down as chairman of Gree Group, she never wavered.

But now, she wants out.

On September 27, the share price of Gree Electric Appliances closed at 38.55 yuan, up 0.39%. Compared with Ms. Li's cost, she made a lot of money from the Gree Electric Appliances she held.

"A year ago, I thought Gree was an undervalued stock. As an industry leader, its price-to-earnings ratio and performance far exceeded some of the hyped 'high-quality stocks' in the securities market and were worthy of long-term holding. I planned to hold it for three to five years," Ms. Li explained. However, after getting to know Gree Electric in depth, she realized that her previous thinking was too simple and that she should choose the right time to exit before Dong Mingzhu stepped down.

On August 31, Gree Electric Appliances released its 2017 semi-annual report, with operating income of 69.2 billion yuan, a year-on-year increase of 40.67%. The revenue from air-conditioning products reached 54.6 billion yuan, a year-on-year increase of 30.14%, firmly sitting on the throne of the first place in the air-conditioning industry.

"Gree Electric is the best air conditioner company in China, bar none." Mr. Zhang, a returnee, told the reporter of International Finance News that Gree air conditioners are well-known even abroad. However, what puzzles him is that in China, as a leader, Gree Electric is always considered to have no way forward. What is even more strange is that Gree itself often thinks of "revolutionizing itself" and tries to cross borders.

According to a brief investigation by the International Financial News, many people, like Mr. Zhu, Ms. Li and Mr. Zhang, are now beginning to hold a negative or confused attitude towards Gree Electric's products or the company's future.

It is undeniable that Gree Electric is committed to transformation, and its future makes many investors uneasy. Some industry insiders even question that Dong Mingzhu and Gree Electric are "making mistakes."

So, what is the situation of Gree Electric Appliances? Does the cross-border business of Gree led by Dong Mingzhu bring more opportunities or risks?

"Ceiling" pressure

"I think in my lifetime, I will only make one air conditioner perfect," Dong Mingzhu once told the media.

"When it comes to the word extreme, technically speaking, it is certainly far from being achieved. Neither Midea nor Haier has reached it yet. But if we say that in the stage of corporate development, it has fulfilled its role as a main business in terms of profit contribution and scale contribution, then Gree's air-conditioning business has reached its peak." A manufacturing industry analyst told the International Financial News reporter that everyone knows that Gree's air-conditioning business has hit a ceiling in China.

Liu Buchen, a senior expert in the home appliance industry, told the International Financial News that the biggest problem for Gree Electric Appliances is that it has no future and it has no idea where its incremental market will be. "Due to various reasons, Gree's revenue will reach a peak this year, but it will definitely not maintain this growth rate next year, and its air conditioner revenue will definitely decline."

A venture capitalist said that this is a problem of thinking. Some European and American companies choose to make only one product and keep doing it for hundreds of years (such as Ford Motors). They can remain calm even if they encounter a ceiling. However, most Chinese entrepreneurs have a "scale complex" and hope that the company can maintain growth and find profit growth points. This is the instinct of the company and also a responsibility to investors. It is difficult to say right or wrong, just look at the results.

Therefore, it is not surprising that even Dong Mingzhu, who only wanted to "make an air conditioner to the extreme", has a "car-making dream" and the idea of ​​building an ecosystem empire.

No side job succeeded

Many people in the industry are worried about Dong Mingzhu: she and Gree Electric seem to be very determined to diversify, but Gree Electric has not yet succeeded in developing a side business.

Dong Mingzhu and Gree's diversified layout at a glance

Gree Electric's diversified expansion began when it became the leader in the air-conditioning industry, and during that period, the "ceiling" theory also quietly became popular.

Gree, which is overly dependent on air conditioners (more than 80%), has been engaged in small household appliances, finance, refrigerators, smart phones, smart delivery cabinets, robot research and development, military manufacturing, new energy vehicles, and rice cooker manufacturing since 2004 (officially announced its entry into the era of diversification in 2016). The most controversial of these are mobile phones and new energy vehicles.

For example, under Dong Mingzhu's persistence, Gree Electric Appliances is obsessed with manufacturing mobile phones. In March 2015, Dong Mingzhu "showed off" the Gree mobile phone in a high-profile speech.

▲ A user said that Gree mobile phones have some highlights in usage and the battery does not get hot, but overall they are mediocre. In the future, he will choose Xiaomi or older Apple phones at the same price.

▲ On JD.com, Gree Mobile Phone 2nd Generation has 76 reviews, while Xiaomi's Redmi 4X has 268,725 reviews.

Mobile phones are just one of Gree Electric's diversified layouts. Dong Mingzhu also has a special preference for new energy vehicles.

In 2016, when Dong Mingzhu was the chairman of Gree Group, she pushed Gree Electric to issue shares for 13 billion yuan to acquire 100% of the equity of Zhuhai Yinlong.

However, Gree mobile phones have not sold well so far. Gree Electric's acquisition of Yinlong ended in failure, and Dong Mingzhu eventually invested 1 billion yuan in her personal capacity to become a shareholder of Yinlong.

Is Dong Mingzhu "anxious"?

Regarding entering the new energy vehicle market, Zhang Jie, chairman and CEO of Baojie Holding Group, told the International Financial News reporter that this is laying out a "golden track."

"The policies of countries around the world are becoming increasingly clear. We are about to bid farewell to the era of traditional cars. In the future, the Chinese new energy vehicle market alone will have annual sales of 20 million. This is a big piece of cake. If you don't grab it, someone else will." Zhang Jie believes that Gree Electric has its own manufacturing capabilities and can definitely try to grab a piece, which will definitely boost its stock price.

Senior analysts in the automotive industry told the International Financial News that this is indeed a big market, and Dong Mingzhu is definitely going for the biggest piece of the pie. Yinlong does not have the qualifications to produce family cars, but only makes buses, so her investment in Yinlong should only be an initial layout. "But the problem is that even if she takes all her wealth, it may not be of any use."

"Whether it's technology or threshold, 1 billion yuan won't even make a difference." The person said that in Shanghai alone, there were more than 30 companies entering the new energy vehicle field by the beginning of this year, not to mention that many of them were senior entrepreneurs in the automotive industry with solid foundation.

"Everything is difficult. Wasn't it difficult to make air conditioners? As a company, it will encounter difficulties when entering a new industry. If she is determined and works together with Gree Electric to cross over into a new field, she may succeed." An investor close to Gree Electric said that it is difficult to judge whether Dong Mingzhu is right or wrong, and whether the direction she chose is accurate or not, but one thing is very clear: Dong Mingzhu is anxious.

Because Gree Electric Appliances may not give her time.

The term of office is about to end, so there is chaos?

The reason why the above-mentioned person said that Dong Mingzhu was anxious might be because Dong Mingzhu's term of office will expire on May 31, 2018, with only about 8 months left.

Since September 2017, news that Dong Mingzhu's term of office is about to expire and speculation about her successor have been rife.

Some industry insiders analyzed that perhaps time pressure made Dong Mingzhu confused.

In the announcement, Haili Group stated that "Gree Electric aims to expand its industrial chain structure and integrate high-quality industrial resources, leveraging Shanghai's international talent, information and innovation advantages to build an international enterprise with a more complete industrial chain."

However, Liu Buchen said that he really did not understand the action of raising the placard. He believed that gaining control of Haili or expanding Gree's industrial chain through Haili would not be of much significance to Gree Electric.

When the reporter of International Financial News relayed the industry's concerns to Gree Electric as an investor, the other party responded with certainty: "The purpose of holding Highly is to expand the industrial chain. We also make compressors ourselves. Gree's stock is very stable at present. As for cross-border and future strategic issues, please read our annual report directly."

An appliance analyst told the International Financial News that Dong Mingzhu seemed a little anxious to switch to new fields and make various strategic investments when the mobile phone business was not well established and the company was not firmly established. But she had no time to think about it. With her term of office coming to an end, she needed to produce results quickly and stabilize the morale of her employees.

Dong Mingzhu once said: "Yes, the person I nominated may be the second Dong Mingzhu; if not, I may not let go."

However, regardless of whether Dong Mingzhu is re-elected or lets go, regardless of whether Gree Electric transforms or welcomes a new helmsman, it is likely that Dong Mingzhu and Gree Electric will not have smooth sailing.

Regarding the bid for Haili, some media pointed out that Dong Mingzhu might be thinking of sending her direct subordinates to control the Haili board of directors to ensure that she can still exert influence after retirement, or using the banner of industrial collaboration to use Gree Electric's money to take over Haili.

An industry insider told reporters bluntly, "The above strategies are too difficult to implement."

"Congenital heart disease"

"Dong Mingzhu's biggest problem is that she doesn't know how to reflect on herself." Liu Buchen said that Dong Mingzhu has not achieved any success in various cross-border businesses so far, and she has refused to admit her mistakes and reflect on herself until now, and just insists on having her own way.

"Gree's biggest problem is the dispersed ownership," the above-mentioned investor told the reporter of International Financial News. Gree has always been unable to get rid of such historical baggage: dispersed ownership, shareholders' discord, and unclear actual control. This means that if Dong Mingzhu is not "ruthless" enough and not persistent enough, Gree will definitely not be what it is today.

The two also mentioned Gree’s old rival: Midea.

"When Gree Air Conditioner was doing the best, the revenue gap between the two (Gree and Midea) in the air conditioning business was 40 billion yuan, but in the first half of 2017, the gap was only 4.6 billion yuan. Moreover, this year Midea's air conditioning growth rate is much higher than Gree, and the gap is likely to narrow further." Liu Buchen said that although Gree is the leader, its competitors are also catching up. If they are not careful, it is not impossible for their main business to be overtaken.

"There are two biggest decision-making issues for a company at the highest governance level: one is the strategic transformation; the other is the successor issue. Midea won both of these issues easily and beautifully, while Gree lost helplessly." The investor said that the governance structure is the deep-seated dilemma of Gree Electric Appliances. The indisputable corporate dominance and the lack of "congenital heart disease" have become a huge strategic advantage for Midea (compared to Gree). However, Gree has too many internal constraints, and the board of directors and shareholders are not on the same page. For many years, the company's management has always faced a two-front situation with powerful opponents in front and major shareholders behind to seize power. Dong Mingzhu has been in a complex and changeable situation from beginning to end. It is difficult for her to win beautifully, and she is also involved in a lot of energy in the struggle for strategic dominance.

This is not without precedent.

On October 28, 2016, at the Gree Electric Appliances temporary shareholders' meeting, Dong Mingzhu was extremely emotional in front of small and medium shareholders: "Gree has not treated you unfairly! I am not exaggerating when saying this. Look at which listed companies pay you dividends like this? If I don't pay you dividends for 5 years, what can you do to me? I have distributed 18 billion to you in two years. Go and see which company gives you so much? Gree has grown from a company with 100 million yuan and no profit of 1% or even losses to today's 13% profit. Is it because of you?"

The investor said this was because Dong Mingzhu had to face the fact that Gree would lose its potential for greatness.

"Gree Electric will probably always (at least for a long time) just be an 'air conditioner manufacturer' and will not be able to achieve the leap 'from good to great'."

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.