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Friday, October 10, 2003

The Chinese Rustbelt

Today is the day of the hard-look at potential problems in China. Obviously this article identifies one possible negative mix: Lack of marketing experience, bureaucratic state management influence, and absence of propriety technology. Still, learning is the name of the game.

China tumbles in white goods

Many of China's leading washing machine makers have been bought out or gone bankrupt in recent months, confounding expectations the mainland's low-cost manufacturers would become dominant international players. With the exception of Haier, the country's largest white-goods company, Chinese washing machine manufacturers have fallen by the wayside as foreign brands have doubled or in some cases tripled market share in China since 2000.

The foreign share of total washing machines sales in China has gone from about 15 per cent in 2000 to more than 25 per cent in the first six months of this year. But in some of the most profitable lines, such as fully automatic machines, the foreign share has gone from 15 per cent in 1999 to 42 per cent of the national market now. "A few years ago, foreign companies were not very familiar with the Chinese market, but they have made great strides in brand recognition and service," said Xu Jun of China Securities in Shanghai. The foreign brands that have carved out significant market share include Whirlpool, LG Electronics, Samsung, Siemens and Matsushita's National Panasonic.

Even with nearly 20 per cent of the market, Little Swan, one of China's best known brands, plunged into the red this year and the government's controlling stake was sold to a private entrepreneur in Nanjing. "Competition in the home appliance market is cut-throat - it is very hard not to lose money," said Chen Weinong, an investor relations official at Little Swan, in Wuxi, near Shanghai. Royalstar, whose brands are the third-largest sellers in China, has been bought by Elco Industries, an Israeli company, after struggling to maintain profitability for some years.

Another brand, Little Duck, a listed manufacturer in Shenzhen, southern China, is in talks with a local lorry making company after two consecutive years of losses. "We are still doing well in terms of market share, but several years of price wars have cut our margins very thin," said Wang Jinxia, a spokeswoman. "On top of that, since last year, prices of raw materials have risen; steel prices have gone up 40 per cent and plastics by 20 per cent."

Until recently, growing Chinese exports of goods such as washing machines, fridges and television sets had prompted speculation that local companies could become global players in consumer electronics and white goods. While China might still create some global champions, weak brand management, state ownership and lack of proprietary technology has made it difficult for its companies to be anything other than low-cost producers, and vulnerable to aggressive foreign competitors, even in their home market. The restructuring of Chinese industry, however, has been made easier by Beijing's backing of sell-offs of state-owned shares by city and provincial governments.
Source: Financial Times

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