#以书之名#
In 1999, Midea acquired Toshiba Wanjiale (renamed Meizhi) and entered the field of compressors (upstream parts of air conditioners), the core components of air conditioners, becoming the only enterprise in China at that time that not only produced air conditioners, but also had the production capacity of air conditioning compressors, motors and other core components of air conditioners
In 2000, Meizhi became the second largest manufacturer of air-conditioning compressors in China, and with the increase in exports of air-conditioning manufacturers, the supply of compressors exceeded demand.
At the same time, its Welling Motor has the largest market share in China, and the profit growth rate has reached more than 30%.
Based on the upstream layout of the industrial chain, it not only enhances the cost control ability, reduces the impact of air conditioning price reduction on profits, drives the gross profit margin upward, but also becomes its new profit growth point
Since the compressor and motor are non-wholly-owned subsidiaries, we look at the profit and loss of minority shareholders from 2000 to 2003, the profit and loss of minority shareholders were 155 million yuan, 132 million yuan, 196 million yuan and 151 million yuan respectively, which is more than the net profit attributable to the parent company in the same period, that is to say, the profit of compressors and other products raised the overall profit.
However, this strategic adjustment only reversed the decline in gross profit margin.
However, net profit margins are still declining, so the core reason can only be due to selling expenses
Before 1998, with the price war, even though the profit margin of the industry continued to decline, in order to seize the market competition, Midea did not save sales expenses, and the sales expense rate rose as a whole, but it was controlled below 10%.
However, after 1999, the growth rate of selling expenses accelerated significantly, and the sales expense ratio exceeded 10%, and increased all the way to 16%.
Sales expenses are mainly used in channel marketing, especially to increase dealer rebates.
For example, in 1994, the promotion strategy of 1,000 yuan (34 million), and in 2001, 30 million yuan was awarded to dealers.
To sum up, due to the unfavorable competitive environment at this stage, price wars are frequent - price reduction, promotion, increased brand promotion - gross profit margin decline & sales expense ratio increase - sales net profit margin decline - ROE decline
Seeing this, there is a second detail that has not been resolved: why did the net profit margin of sales decline, but the ROE continued to rise in 1998 and 1999, diverging from the trend of net profit margin?
According to the DuPont analysis method, we split ROE into sales net profit margin, equity multiplier, and total asset turnover ratio, of which sales net profit margin and equity multiplier are declining, and it is the total asset turnover ratio that drives ROE
So, what's going on with the rise in total asset turnover?
At that time, Midea had five categories, including air conditioners, fans, and rice cookers, with hundreds of products, all of which were coordinated and sold by the company and carried out linear management
Due to the different product characteristics, the functional departments of the headquarters connect with different products, and the sales staff are also responsible for a variety of products, resulting in insufficient professionalism and unclear work priorities
Such an organizational structure made Midea lose in the price war, and the sales ranking of air conditioners fell from the third and fourth place in 1994 and 1995 to the seventh place in 1996
In 1997, the Asian financial crisis, its performance deteriorated further, and its revenue showed negative growth
As a result, under the suppression of many negative factors, Midea began to think about the way to change.
Predict the follow-up and listen to the next breakdown
It does not constitute any investment advice, the stock market is risky, and you need to be cautious when entering the market