Wolf Richter — Even The Ceo Of China’s Largest Appliance Manufacturer Gets Cold Feet

[Zhang Ruimin, CEO and founder of China’s largest appliance maker, Haier Group] fired a warning shot in October 2011, when he explained how he was trying to refocus Haier’s two listed subsidiaries, Qingdao Haier Co. (R&D and manufacturing) and Haier Electrics Group Co. (distribution and channel management). “I’ve been thinking how we could change the operations into a new model that ties R&D directly to the markets, while manufacturing would be taken care of via outsourcing.”

Offshoring!

“In the next 10 years, a major part of our development strategy will be the globalization of our brands and the integration of global resources,” he added. Globalization was suddenly no longer a one-way street for Chinese manufacturers. Now they’d look for the corporate greener grass – lower costs – in other countries. That was October 2011.

“China’s model, which depends on the export of lower-priced products, is coming to an end,” Zhang confessed a few days ago. It wasn’t just wages but the cost of doing business in China. “The world’s factory,” was getting too expensive. The conditions that were the impetus behind China’s phenomenal economic ascend were collapsing.

“We have production plants in 24 locations all over the world,” he said. “But production costs are currently higher only in Japan, the United States, and Italy, compared to China.” These costs would become “a major problem” for his company unless it started building plants in “Southeast Asia and elsewhere” to offshore production. As part of its growth strategy, Haier has acquired appliance makers around the world, including Sanyo Electric Co.’s appliance business in Japan.

Other Chinese manufacturers are doing the same. It shows up in the numbers, from weakening GDP figures, however dubious they may be, to lousy purchasing managers’ indices. Manufacturing, one of the engines of the Chinese economy, has stalled for structural reasons.

The Testosterone Pit
Even The Ceo Of China’s Largest Appliance Manufacturer Gets Cold Feet
Wolf Richter