Thinking on a massive scale is nothing new for a country like China, which in many ways is a world on its own. Among the people, there is an underlying ethos to “go big, or go home”. More often than not, people go big, and this is reflected in everything from ancient ruins of immense proportions, modern sky-high buildings, vast residential developments and lavish dining halls.
The mentality may very well be borne from the country’s wealth of resources, both human and natural. For manufacturers, such as Midea, this is certainly the case, as throughout its 50-year history the company has leveraged the skill of its workforce to supply home-grown products to domestic and foreign markets. As Midea transitioned from a Chinese manufacturer to a worldwide solutions provider through strategic international acquisitions, the company has moved from thinking big to thinking globally.
“The major business of Midea group is still the air conditioner,” says Peck Zhao, Senior Specialist of Marketing, “which is 45%. The other 40% is home appliances, 10% is robotics and industrial automation, and then the rest would be logistics.” Though Midea supplies equally to Chinese and foreign markets, in the previous year, Zhao says, there was significantly faster growth in the Chinese market for air conditioners at 20-30%, compared with the overseas market, which was recorded at approximately 10%.
Automation: a necessity, not a privilege
Nevertheless, the company continues to innovate for both markets, says Zhao, adding that in order to cope, automation is playing a more important role in the company’s long-term strategy. “Now, air conditioners are developed on the same platform,” he says. “That means all kinds of products are available for both China and overseas market, depending on requirement.”
Midea’s Nansha factory in Guangzhou is an example of a factory, where products for the domestic and overseas market originate. The Nansha factory specialises in the production of residential air conditioners and components. Despite being one of the smallest factories under Midea, it is fully automated and houses the most number of robots. Every day, the factory produces 22,000 coils for evaporator and condenser heat exchangers, 1,600 indoor units and 1,800 outdoor units, with a total production capacity of 550,000 sets per month. Though fully automated, the facility houses workers for testing and connecting pipes.
For Midea, automation is a necessity, not a luxury, the company says. Automation, Zhao says, helps reduce the labour cost as well as component cost, allowing the company to maintain its prices from several years back. “Because we have a huge volume, not only in China but also outside,” Zhao says, “the average cost can be more competitive with others.”
The future, Zhao says, is heading towards automation, also in anticipation of trends among the youth. “They don’t really want to work in a factory anymore,” he says, “You have to invest in automation not just because of the cost but also because of people’s preference. This is a must.”
Innovation: the way forward
Automation is undoubtedly important for Midea, as evidenced by its implementation across its factories and acquisition of Kuka, a German robotics manufacturer. However, Zhao believes that innovation is still key to long-term survival, saying that as such Midea continuously invests in R&D to bring something different to the market. Four per cent of the company’s sales, Zhao says, goes to R&D, and for the last five years this has amounted to approximately USD 5 billion. Midea’s Innovation Centre, the company is proud to reveal, houses the company’s latest developments and the fruits of its R&D projects.
Not far is the CAC Shunde Factory, specialising in the production of Midea’s VRF and mini-VRFs. The production facility is automated, with personnel facilitating testing for quality control. Each production line manufactures approximately 120-160 VRF units a day for the Chinese domestic market and for export.
The Shunde factory is also the birthplace of the VRF systems Midea has supplied to a 5,000-villa project in the UAE, which also saw the installation of more than 30,000 indoor units. Zhao makes a case for VRF in the Middle East, which he believes is an ideal solution over chillers, gleaning from observations on areas in China, where water is considered a scarce resource. This, he says, is why the government is pushing VRF in Shanghai, where it has been applied to 80% of the buildings. An impressive uptake, he stresses, given that 30 years ago, there was no VRF, only chillers. This trend, Zhao believes, will be replicated in the Middle East.
Human capital
In the Shunde factory, men and women stand side by side with machine and musical automatic guided vehicles (AGVs) smoothly running through internal tracks. A vital part of the process includes testing for all parameters, and amidst the ambient noise of production, one can see the facility decorated with phrases in Chinese and English that read: “Creating opportunities for employees; bring value to customer”; “Attitude defines all”; “No details, no success”; “Dreams lead the future” and “Make arduous efforts”.
These seem to reveal not only the company’s philosophy but also its awareness and appreciation of its human work force. This consciousness extends across the organisational hierarchy since the company’s inception. “Our founder,” says Bill Song, Brand Manager (EU, ME & Africa), “is really a visionary. He believes the right people could bring more value to the company, so he invested a lot on people.” This ethos is reflected in the Midea History Museum, which chronicles the first group of employees, dubbed as the “Weekend Engineers”. As the highly educated people at the time were mostly from the city, engineers would bike from Guangzhou to Foshan during their weekends to work for Midea. These engineers were soon absorbed as the company grew.
Today, the avowed emphasis on excellence is palpable and is measured by patents, which are largely driven by incentives. “Patent means money,” Zhao says. “The engineer who developed and innovated the patent will get at least 1,000 RMB to up to one million RMB – very high incentives for R&D engineers, hence so many patents.”
The amount, Zhao says, is dependent on the value of the patent and innovation. Providing an example, Zhao says that the engineer who innovated fan control to reduce noise and optimise the refrigerant and air flow received up to one million RMB and a house. “Every year, there would be at
least 10 engineers we call technical stars,” he says. “On average, they would get a car amounting to maybe USD 60,000. For those that had a special contribution [to the development of] new products, the whole team might get one million, with the top engineer getting maybe RMB 100,000 and the others maybe RMB 50,000.”
The human touch
Given that visitors of the factories and headquarters are greeted by walls of framed patents, from floor to ceiling, the role of human capital in the company’s success is evident. It is no different in the Chongqing Chiller factory, which is home to large-tonnage chillers, magnetic chillers, inverter direct-drive centrifugal chillers, air-cooled screw chillers and water-cooled screw chillers.
Zhao says that chillers are still the technology of choice for big developments, such as airports and large-scale shopping malls, owing to their reliability and durability. Zhao says that Midea has sold the chillers not only in the domestic market but also in the overseas market, such as Saudi Arabia. Midea, Zhao says, sells approximately 500 units of chillers every year, which he says, is no small feat, given their large scale. Most recently, Zhao says, Midea installed 40 units of centrifugal chillers in Guangzhou’s Terminal 2, which is as large as 40,000 tonnes of refrigeration, with 150,000 kilowatts of cooling capacity.
Compared to the fully automated RAC factory in Nansha, the Chongqing factory employs more highly specialised people, owing to the technical skill required for the more meticulous assembly work.
Leveraging mindset to global expansion
Currently, Zhao says, Midea has been ranked 450 in the Fortune Global 500 list, is valued at approximately USD 46 billion and has 30 factories, 18 in China and 12 abroad, in addition to R&D centres and offices. The company, Zhao says, views the ASEAN region as a particularly booming and promising market. “We do believe we can benefit the local country,” Zhao says, touching on the company’s move to internationalise. “We can supply more job opportunities, the products can be locally designed, locally manufactured and locally [sold].”
Speaking of global expansion, a common refrain is the quality of products emanating from China. Referring to old perceptions of China-made products being of low quality, Song adds: “In the real world, China has changed. We don’t work on low-quality things. We don’t really guarantee the quality of the products 10 years ago, but China now is totally different. We also need distributors and companies, like Taqeef, that believe in Made in China.”
It would seem that Midea is not only exporting its products, it is exporting its mechanism for productivity, which in view of its size, has been a recipe for its success, in the move to offer a taste of the new China to the rest of the world.