Beating the Heat

2 March 2012

Zhuhai air-conditioner maker

becomes global giant

By Mark O´Neill

Twenty years ago, it was a small-town firm,

in Zhuhai – the neighbouring Special Economic Zone to Macao.

It made less than 20,000 air-conditioners a year.

Now Gree Electrical Appliances is the world’s largest manufacturer of them.

A multinational company, it employs 80,000 people around the world,

and has factories in Brazil, Pakistan and Vietnam as well as China.

In 2011, its revenue was more than 80 billion yuan, compared to 60.8 billion in 2010, and it produced 40 million units. It has been the world’s largest air-conditioner manufacturer since 2005, and China’s largest since 1995.

It sells its products and services in more than 100 countries and regions worldwide, boasting 150 million customers. It made central air-conditioning systems for seven of the stadia in South Africa for the World Cup in 2010, and for a large shopping mall in Sochi, Russia, host of the Winter Olympics in 2014.

In June 2010, it set up a US headquarters in a suburb of Los Angeles and is considering a factory in the US. It sells 1.5 million units a year to the American market, and is seeking to expand that share, through Wal-Mart, Home Depot, Target, and other major retailers.

“Our historic mission is to move from ‘made in China’ to ‘created in China,’” said company president Dong Mingzhu.

Gree is one of a growing number of Chinese multinationals who had their first successes at home and are trying to repeat this in the global market. It has much to do. Of its exports, only 25 percent use the Gree brand. The rest carry the names of the famous companies in this sector – like General Electric, Electrolux, Daikin and Sanyo.

“We want to increase our OBM status (original brand manufacturer),” said Peng Hong, deputy marketing supervisor of overseas sales. “We must improve our name and our reputation.”

To this end, it has set up three research and development centres, employing 5,000 people, to develop new components and systems and create products unique to Gree. It invests heavily in R & D.

Soaring sales

The company was born in 1991 in Zhuhai, a special economic zone which borders Macao. It’s creation followed the merger of two small firms, Haili and Guanxiong. The new company produced air-conditioners to combat the sweltering heat that covers China over the long summer months. The Chinese name is Ge-li and the English name Gree, close to ‘green’.

Sales grew rapidly, from 103 million yuan in 1991 to 2.84 billion in 1996, when it was listed on the Shenzhen stock market. Today the government holds a 20 percent controlling stake.

By 2000, sales reached 6.34 billion yuan. The company broadened its range of products, from domestic use to units for offices, shopping malls, trains, subways, yachts and container ships. Today it boasts that it can make air-conditioners for any scenario except an aircraft.

In 2000, it opened its first overseas factory, in Manaus in northern Brazil. The next year it opened a plant in Pakistan and in 2008 one in Vietnam. It has five factories in China – in Hefei, Chongqing, Zhengzhou and Wuhan, in addition to the main plant in Zhuhai.

In 2005, sales exceeded 10 million units, becoming first in the world. It has invested heavily in energy saving and environmentally friendly models.

Gree also makes electric fans, water dispensers, rice cookers and other household appliances, as well as having a property-development subsidiary. But air-conditioners continue to account for the vast majority of its output and sales.

Of the 200 million air-conditioners in the world, 110 million are in China. Economists say that this mass introduction of cooling devices has been an important factor in China’s economic miracle. The productivity of people in offices and factories rises as they are less and less hampered by heat and sweat. It is inseparable from the rise of the middle class and the country’s rapid urbanisation.

Braving Brazil

When choosing its first overseas factory, the company decided on Brazil. The country has the largest market in South America for cooling systems, after the government imposed a tax of 60 percent on imported air-conditioners.

For a company that had never manufactured outside China, this was a major challenge. The investment environment in Brazil could hardly be more different to that at home. Brazil had strong unions and laws favourable to workers, as well as a high level of taxes, workers’ strikes, and a culture that placed more importance on quality of life than on jobs.

The company picked for the site of its factory not a city in the southeast where most of the population lives, but Manaus, capital of the Amazonas State, in the far north of the country.

It chose the city’s Free Economic Zone, which offered tax advantages unequalled in the rest of the country. The zone is home to all of Brazil’s air-conditioner manufacturers. But Manaus is 3,900 km from the capital Brasilia and even further from the main centres of population in the south.

Early obstacles included an unstable power supply and a complex tax regime involving taxes being levied at city, state and federal level.

The first general manager of the Manaus plant was Zhang Yuechao, who spent a total of nine years there, over two different stints.

“We started out with no experience of Brazil. We had to learn the local laws and customs,” he said. “Chinese like to do overtime. The Brazilians may not, even if they are paid for it. You cannot order them to do it. We told one outstanding worker that he was doing very well and that we wanted to promote him. If he had been Chinese, he would have thanked the managers and said how happy he was. But the Brazilian worker said: ‘How much more will I earn?’”

If Zhang wanted a meeting at nine o’clock, he would ask his guests to be there at eight. Those arriving late would routinely say that their wife had just given birth to a child. If the Brazilian soccer team was playing a match, Zhang had to schedule production at a different time.

“On the positive side, Brazilians are very warm, open and easy to deal with, said Zhang. “They tell you what they are thinking. They follow the instructions, while a Chinese person might try to think up his own way of doing it. Chinese people are more shy and cautious and do not tell you directly what they are thinking.”

South American success

From a modest beginning, the factory now has 300 workers, and an annual output of 300,000 units. Gree has a sales company of 130 in Sao Paolo, the country’s largest city in the southeast, and a distribution network in 24 provinces across Brazil. It has become an international brand in South America. Gree owns 100 percent of the venture, whose workforce is 95 percent Brazilian, with Chinese people holding only supervisory roles.

It transports the products via the Amazon to Belem, 100 km from the Atlantic. From there, some go by lorry and some by ship to customers all over the country. Most of the output is sold in Brazil, and the rest exported to other South American countries.

The Brazilian currency, the real, is erratic. In 1994, it was fixed at one to one to the US dollar. It fell to about two in 1994 and almost four in 2002. In 2010 it was about 1.6.

By sourcing most raw materials locally, Gree has been able to insulate itself from these fluctuations. Brazil was little affected by the global financial crisis of 2008, thanks to strong domestic growth and the World Cup and Olympics to be held in 2014 and 2016.

Going global

The Brazilian plant is one of three overseas factories. The others are in Vietnam and Pakistan.

In 2009, the firm established two joint ventures with Daikin Industries, involving a total investment of US$133 million, to increase its sales in the Japanese market. Founded in 1924, Daikin is one of the world’s leading brand names in the air-conditioning industry

The US is one of Gree’s major export markets, with annual sales of 1.5 million units. On 18 June 2011, it set up its US headquarters in Industry, a district of Los Angeles that is home to nearly 900 Chinese and Taiwan firms, mostly in shoes, garments and information technology.

It has established a joint venture with an American partner, of which it holds 51 percent while the partner holds 49 percent. Nearly 100 people attended the opening ceremony, including district mayor David Perez and China’s consul-general in Los Angeles.

“We aim to enter Wal-Mart, Home Depot, Lowe’s, Sears and other big American stores,” said President Dong Mingzhu at the opening ceremony.

“Our products are 30 percent more environmentally friendly than traditional products, and I believe they will become favourites of American consumers.”

Peng said Gree was considering a joint-venture plant in Indonesia, which has a population of 240 million but only 1.2 million air-conditioners. Other possibilities are India, Turkey and the Middle East. “Many places in India have no electricity,” said Peng. “When it is introduced, the first product they will choose is a fan, then a television, a refrigerator and a washing machine, with air-conditioners as the final choice. The arrival of electricity will reduce the birthrate – it will provide alternative kinds of entertainment in the evenings.”

Tiger lady

The creation of Gree as a global brand has much to do with Dong Mingzhu, who has been its president since 2001 – the decade which has coincided with its period of fastest growth.

Born into an ordinary family in Nanjing in 1954, she graduated in statistics from a college for officials in Wuhu, Anhui, in 1975. In 1984, her husband died of an illness, leaving her and a son aged two. In 1990, she gave up her job in Nanjing, left her eight-year-old boy in the care of his grandmother and went to seek her fortune in Guangdong. It was here that she was introduced to Gree, then known as Haili.

She had no background or experience in sales but threw herself into the field. In 1992, she achieved sales of 16 million yuan in Anhui, the province for which she was responsible. It represents 12 percent of the company’s national sales. Dong moved to Nanjing, where she achieved sales of 36.5 million yuan in one year. By 1996, she had become the manager of the firm’s sales division, and the following year vice general manager.

From 1997 to 2001, Dong served as vice general manager, and then from 2001 as chief executive. Since 2006, she has also been chairman. In 2004, 2005 and 2008, Fortune named her as among the 50 most influential businesswomen in the world. She devotes herself to her work and has not re-married.

China’s corporate world is dominated by men. Such a successful and high-profile lady chief executive is rare; she has become a role model for thousands of women who want to make it to the top in business.

“Our foreign strategy is not to spend a large amount on a big acquisition, but to grow steadily,” she said. “We want to build Gree into a very famous brand.”