A Change of Game Plan

　　The low-price strategy is losing ground in China’s home appliance market while industrial upgrade offers the only way out

　　At midnight on April 14， over 2，000 angry workers of Galanz Group， a home appliance maker， violently smashed everything in the canteen， workers’ dormitory， production lines and supermarkets in a Galanz factory located in Zhongshan， south China’s Guangdong Province. All of the factory’s security guards became too frightened to deal with the mob and fled. It was not until six o’clock in the morning that the riot was stopped by local police.

　　The next day， a microblog describing the riot vividly with words and pictures， was reposted tens of thousands of times. Although an ensuing statement from Galanz claimed only 200 workers were involved and that the riot was caused by irrational behavior as a result of drinking， people who were at the scene have claimed otherwise.

　　“The riot occurred because the workers are seriously underpaid. When the company recruited us， it promised 3，000 to 4，500 yuan ($480-720) a month and weekend breaks. However， after coming here， we have to work for more than 10 hours a day. The company offers zero compensation for the night shift. We can only take one day off each week and only get paid a little bit over 2，000 yuan ($320) a month，” a worker surnamed Huang told The Beijing News after witnessing the riot. Huang， along with several hundred other workers， quit their jobs after the riot.

　　Rainy day

　　China’s domestic household appliance makers are going through tough times.

　　China used to boast a low-cost advantage. However， as the country moves toward being an aging society， the demographic dividend is fading away and labor cost is surging. That， combined with sluggish domestic and external demand， have made the growth targets of domestic appliance makers hard to achieve.

　　Galanz is a private firm dedicated to the production of microwave ovens， air conditioners， refrigerators and washing machines. The company was at first famous for its good-quality yet affordable microwave ovens and was the top seller of the appliances in China for 12 consecutive years. Up until today， the major competition strategy adopted by the company was a low-price model. Therefore， the company has been dubbed a “price slaughterer” by its competitors.

　　Although the cutthroat price war helped Galanz eliminate most of its competitors， the strategy also substantially slashed the company’s profit margins， which required the company to ruthlessly cut costs by lowering employees’ salaries. As residents’ income and price of raw materials are rising faster than ever in China， the company’s low-cost strategy seems to have lost its foothold.

　　“Galanz still sees the price war as its major competitive strategy， which has been proven unsustainable for today’s home appliance market，” said Liu Buchen， an expert in the home appliance industry.

　　“Microwave ovens used to be the pillar industry for Galanz. However， the period of fast expansion is now over. Although Galanz later made efforts in exploring the air conditioner and washing machine markets， it failed to attain a satisfying market share. Galanz doesn’t have the pricing right and always follows the low-price strategy， leaving the company in worse and worse financial condition，” Liu said.

　　“Galanz is mired in a vicious circle. No input in research and development led to no breakthroughs in its product portfolio， which in turn forced the company to further cut product prices to attract customers. Then， the company’s profitability was affected and its promises to employees were broken，” Liu added.

　　Galanz is by no means the sole example of this type of employee-related trouble in the home appliance market.

　　A microblog said that from April 13 to 14， a strike took place in a factory owned by Gree Electronic Appliances， located in Zhuhai of Guangdong， to protest low wages and harsh working conditions. Although the company later denied that a large-scale strike or production halt occurred， it admitted that some employees had engaged in disputes with the company on their low salaries and that the two parties were still negotiating with each other. Earlier， the company was reported to have docked several millions of yuan in bonuses from its employees.

　　The days when domestic manufacturers were able to rely on cheap labor to gain strong profits are gone for good. Employees will become more and more insistent in their demands for wage increases and corporate benefits. In the face of faltering domestic and external demand， waning demographic dividend and rising wages， similar incidents are likely to occur in China in years to come， analysts say.

　　Pang Kun， a lawyer from the Guangdong-based Hantai Law Firm， said strikes and disputes on wages had frequently occurred in the Pearl River Delta in years past. “Sometimes， there were even several incidents within the space of a month. It usually happened in labor-intensive manufacturers.”

　　Time to change

　　Are there any survivors left in the home appliance market？ The answer is yes. Some domestic appliance providers have managed to climb up the industrial value chain and have broken out of the vicious circle.

　　In 2013， the business revenue of China’s household appliances totaled 1.28 trillion yuan ($204.7 billion)， up 14.2 percent while net profits amounted to 78.4 billion yuan ($12.5 billion)， surging 28.7 percent year on year， according to data from the Ministry of Industry and Information Technology.

　　Jiang Feng， President of China Household Electrical Appliances Association， attributed the better-than-expected profit growth to accelerated technology innovation and industrial upgrade.

　　Most products are too similar to one another. Only by upgrading product functions and meeting differentiated user demands can China’s appliance companies make breakthroughs， Jiang said.

　　Stirred up by the fact that many Internet companies are making forays into the home appliance market， traditional appliance makers are changing their game plan to keep up with the times. Internet-based smart products would appear to be the future of the market.

　　Founded in 1958， the Sichuan-based household appliance maker Changhong was devoted to the research and development of smart appliances. In March， Changhong released an air conditioner model called CHiQ. Combining human-status-sensing technology， cloud computing and big data analysis， the air conditioner can automatically adjust functions to bring about the best user experience while at the same time lowering energy consumption.

　　“Traditional air conditioner makers have always emphasized energy saving， quietness and constant temperature but ignored that different consumers have different needs，” said Liu Tibin， General Manager of Changhong.

　　On March 17， appliance maker Haier released a smart household operation system. Users can employ the system to connect all their smart terminals at home. The same day， leading market player Midea released eight smart air conditioners based on its cooperation with e-commerce leader Alibaba in cloud computing. Earlier in April 2013， Midea announced that the company would stop producing and selling microwave ovens priced at less than 599 yuan ($96) and focus exclusively on high-end appliances.

　　Some companies are in the process of transformation. Some have had a clear target since their foundation.

　　Established in 1993， the BOE Technology Group is a supplier focusing on semiconductor display technologies， products and solutions. To date， BOE has 18，000 patents in hand. BOE is the only domestic firm that has acquired the core technology of thin-film-transistor liquid-crystal display (LCD). Relentless efforts in research and development on LCD core technology have made the company the world’s fifth largest LCD panel maker in terms of shipment.

　　In July 2013， BOE raised 46 billion yuan ($7.36 billion) in the equity market to expand construction of high-generation panel production lines and carry out acquisition. To date， BOE has invested over 100 billion yuan ($16 billion) in LCD research， development and production.

　　Lu Renbo， Deputy Secretary General of the China Electronics Chamber of Commerce， said product homogeneity is a very serious issue nowadays.

　　“Home appliance makers should always keep two things in mind—technology innovation and better branding.”

　　Liang Zhenpeng， an analyst for the industry， said China’s home appliance sector is transforming toward being smart and IT-based.

　　“Industry players are transforming from mere hardware manufacturers toward being user-centered system integrators， software developers and service providers. Their connections with the Internet will be closer than ever，” Liang said.

　　By Zhou Xiaoyan