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Transporting an air conditioner from our company to Henan Province may cost between 40~80 yuan, but building a factory in Henan solves the transportation cost. Consumers always hope for cheaper air conditioners, but costs are always limited, not just controlling manufacturing costs, but also managing costs. We have a say in our channel aspects because of the control of management costs.
Therefore, we have opened three production bases in the central region. One important reason is that Shandong and Henan are our sales hotspots, especially Henan, which is not very rich but is a large province. It sold over a billion RMB worth of Gree air conditioners last year alone. If we set up a factory, it would be easier to recruit workers and reduce logistics and transportation costs. Transportation costs are high now. Transporting an air conditioner from Zhuhai to Henan costs about fifty to sixty yuan, so for ten million products, the transportation fee is five to sixty billion yuan. Moreover, there are tax incentives in the investment promotion aspect.
As capable enterprises, they don't overly focus on the overall environment. The Mole Kart entered the top ten of the iPad list. Assuming the overall environment decreases by 10%, if the total amount is 80 million, now reduced by 10%, it becomes 72 million. If other companies decrease by 15%, I might not only not decrease but increase instead. If the total does not increase, some may need to decrease even more. Now it seems that some companies cannot make it and can't sustain. These companies not only have to reduce by 20%, but some may even collapse. Therefore, when this industry is not doing well, it depends on the capability of your enterprise. Because capable enterprises may do better than before under unfavorable overall environments. When conditions were good, everyone was competing. Now some can't make it, go bankrupt, and exit. The remaining ones are fewer. Thus, the overall share decreases, and manufacturers concentrate. This is an opportunity, but if you're not capable, you won't seize the opportunity when it comes. You say it's cold, a harsh winter, but I'm not afraid because I have a mink coat.
The home appliance industry is all doing channel penetration, and Gree will penetrate to third, fourth, or even fifth and sixth-level markets this year. First, Gree's channel penetration isn't due to the needs of the enterprise, but the needs of market consumers. The purposes of these two demands differ, and so do the results. You truly do this because of consumer needs, not because of the enterprise's needs.
Of course, compared with many old well-known enterprises in the world, our number of technology patents and invention patents is relatively small. We've only been around for 20 years, especially the first decade or so, we were mainly focused on the market. Later, we realized that competing in the market wasn't as effective as competing in technology. Only when the technology is good, even if you don't compete in the market, it's easy to succeed. That's when we started focusing on scientific research, especially in 2001, when we went to Japan to buy products and technology but failed, hitting a dead end. At that time, our minds became clear. We must seriously work on our scientific and technological endeavors.
When the cold season comes, we'd rather cut salaries than lay off employees.
Now the overall international economic situation isn't good, Gree's plan to build a factory in the US might be postponed until next year. We've only been in the US market for half a year, but we've already made 200,000 USD. This year will be even better. The European debt crisis has spread, and the US is facing a debt crisis. The US and Europe lack real economy. Many enterprises believe that the lowest cost place is advantageous, so they build factories in underdeveloped areas. However, considering comprehensively, from the development of the market, it's not necessarily correct.
Gree's 1Hz technology in the frequency conversion field is composed of multiple technologies. This technological breakthrough is self-developed and has received the second prize of the National Science and Technology Progress Award, which is very difficult. So far, this is the only National Science and Technology Progress Award in China's home appliance industry. 1Hz is not just a simple 1Hz, it embodies the hard work of countless R&D personnel. It's not just about developing a scientific and technological achievement but converting it into productivity, bringing more changes in benefits to consumers. It's not just about environmental contribution changes, but also about cost savings.
Counter-cyclical Expansion
In our home appliance industry, frontline employees' wages are 50,000 RMB. There are many layoffs, and recruitment is difficult. This contradiction doesn't exist for us. This year, we will expand greatly. Why expand? First, this isn't our need, but the market's need. Gree air conditioners sold over 30 million sets last year, and this year may exceed 40 million sets. Our production capacity is insufficient, so we must expand. Second, according to national development needs and our cost requirements, we follow the pace of national developmentâwestern development and central rise. We also contribute to poverty alleviation in the west, not just financial support, but more importantly, blood regeneration.
Besides, regarding the warning of resource scarcity for air conditioning raw materials, we see it as an opportunity to push forward with forward-looking research. For example, there is a lot of copper in air conditioners. If we can gradually replace it with something else, we could save a lot of copper resources. We are currently initiating research projects.
Apple's Gene
When the economic situation is bad, we must first protect our employees. Even if we cut salaries, we won't lay them off. We didn't lay off anyone in 2008, and we won't this year either. In fact, a company's cost isn't just labor cost. From design and manufacturing process to personnel management, it's a comprehensive management cost.
Winter is an Opportunity
(Interview Summary by Correspondent Shi Jun)
Since the beginning of the year, many home appliance enterprises have reduced production or even gone bankrupt. It's not due to external environment, but because they themselves aren't strong enough. When a typhoon comes, the trees that fall are those with unstable roots. When a flu outbreak occurs, the first to be infected are those with weaker constitutions. We won't complain about fate but strengthen ourselves.
At the same time, we also offer a two-year free replacement warranty for our frequency conversion air conditioners. This is a strategic change, hoping to call on home appliance enterprises in the industry to pay attention to consumer feelings and truly move consumers with our sincere technology. An expert said that Gree Enterprises has Apple's gene, and we are deeply moved. We must develop more advanced technology, leading international enterprises, not to become stronger, but to become excellent service providers.
The US market is still a very important market for Gree. Of course, technology is definitely a very important condition. Mainly because their energy consumption is huge, Americans are very non-energy-saving. This also meets their market needs. The US market is a high-end market and also the most competitive international seller's market.
Vice Chairman and President of Gree Electric Appliances Co., Ltd., Zhuhai
Of course, now our number of patents will increase more and more, especially since the second half of last year, both our patent application volume and historical breakthroughs have accelerated. The number of patents also depends on the content of the patents. We are relatively practical, applying one item at a time. But now we find that foreign enterprises are not like this. For one invention, they can apply for 10 or 20 patents. I remember a Japanese company had over 400 patents for just one refrigerant invention. So we think that in the future, we should learn from this experience, meaning for one invention, you can apply for many patents. The purpose of applying for so many patents is to prevent others from breaking your patent, no matter what angle, you can hold on. This is indeed an experience and a lesson for us.