Text/Xiang Zhen
Edit/Midnight
On April 10, Li Bin, founder, chairman and CEO of NIO, and Fang Hongbo, chairman and president of Midea Group, appeared at Midea's Welling Auto Parts Anqing factory, and the two filmed a short video to officially announce that they had reached a strategic cooperation agreement. In the video, Fang Hongbo said with a smile: "I hope that in the future, every NIO car will have auto parts produced by Midea in Anqing."
Including NIO, Midea has received orders from large automakers such as Xpeng, Li and JAC in recent years. This may be a little different from the well-known Midea, from home appliance brands to parts suppliers, Midea is exploring more and more.
Not only the new energy auto parts business, in the past ten years, Midea has either invested in acquisitions or personally laid out a series of B-end businesses such as robots, building technology, heat pump systems, etc., gradually getting rid of the label of "home appliance brand", and has become one of the most successful representatives of diversified business transformation among many old home appliance companies.
According to the latest financial report in 2023, Midea's three major B-end businesses - new energy and industrial technology, intelligent building technology, and robotics and automation accounted for 22.7% of the revenue.
The To B business has not only become a new growth engine for Midea, but also allows Midea to have greater imagination. The current phased success is inseparable from Fang Hongbo's precautions. Since taking over from founder He Xiangjian at the helm of Midea in 2012, Fang Hongbo has promoted the steering and acceleration of the giant ship of Midea with his strategic determination and executive endurance.
From the perspective of the overall market, Fang Hongbo has been at the helm of the United States for more than ten years, and the company's revenue has climbed from more than 100 billion yuan in 2012 to 373.7 billion yuan in 2023, an increase of nearly 4 times; Net profit increased from 6.1 billion yuan to 33.7 billion yuan, more than five times.
The media is full of curiosity about this "best manager", but Fang Hongbo's low profile has always made it difficult for diligent reporters to restore his full picture. "Killer, hermit, dreamer and passerby", "iron-blooded gentleman", "scholar who kills decisively", the media's portrait of Fang Hongbo always seems contradictory and ambiguous.
Fang Hongbo delivered a speech at the 2024 Midea Group Management Annual Conference, the source of which is the official public account of Midea Group
However, some facts are enough to prove that Fang Hongbo is multifaceted and complex. He is rational and decisive, and the largest layoffs and largest acquisitions in the history of the United States were initiated by him, and it was proved afterwards that he helped the United States reverse the decline in time and stuck the commanding heights.
He is good at forbearance, and internally, he cautiously grasps the relationship with the founder He Xiangjian, maintains his trust for more than ten years, and completes the first 100-billion-level private enterprise in China that is not passed from father to son, but is succeeded by professional managers; Externally, in the face of the "old enemy" Gree's article "What Midea Has Done Over the Years" directly provoked trouble, he ordered all employees to "spit on their own faces".
Studying history, working as an editor of an internal magazine, and not understanding management, Fang Hongbo's career starting point is completely different from the growth path of the traditional definition of an excellent professional manager, but it is precisely such a person who has achieved a rare successful succession case of professional managers. At the moment when the second generation is generally succeeded, Fang Hongbo's beauty may be just a coincidence, and it is difficult to be replicated.
Since he took over Midea, the diversification of the trader's business, going overseas, organizational changes, etc., have gradually made it difficult to replicate Midea.
1. How to go through the cycle of beauty is something that Fang Hongbo has been thinking about
When Fang Hongbo took over Midea in 2012, Midea was experiencing a "100 billion curse".
In 2010, Midea's revenue exceeded 100 billion yuan, and in October of that year, Midea's new headquarters building was completed, inviting people from all walks of life to hold a grand celebration. At this highlight moment of Midea, Qin Shuo, a well-known media person, published an article titled "The Danger of Midea's Prosperity", attributing Midea's achievements to excessive incentives on the sales side, believing that it is not sustainable.
As predicted, only a year has passed, and the situation of beauty has changed abruptly. With the weakening of the stimulus effect of policies such as home appliances going to the countryside and trade-in, Midea's profit shortcomings have begun to appear.
In the middle of 2011, Midea's financial data declined for the first time in three years, although the sales scale increased by nearly 60% year-on-year, but the profit increased by only 14%, and all products except refrigerators saw a decline in profits. By 2012, the decline was more obvious, with revenue falling by 26.89% year-on-year, directly less than 30 billion, and net profit attributable to the parent company falling by 6.25% year-on-year.
This is a problem that plagues many large enterprises, when the scale grows to a certain extent, the scale becomes everything, the organizational structure is inevitably "fat", and the business development is also to benefit the scale of growth, and the enterprise has gradually become "big but not strong".
In this context, Fang Hongbo took over Midea and carried out a series of actions to "survive with broken arms": starting the largest layoff in the history of Midea, cutting 70,000 employees a year; Closed more than 10 industrial parks and manufacturing bases, and sold a large number of plants and equipment; Midea reduced the number of electrical product models from 22,000 to 15,000, and the number of SKUs by 50%.
In addition to subtraction in business, product and organization, Midea also launched a major strategic transformation in 2011 with "product leadership, efficiency driven, and global operation" as the three main axes, from the pursuit of quantity to the pursuit of quality and efficiency.
By 2015, Midea's revenue had basically recovered to the level of 2011, and more importantly, its profit was almost three times that of 2011, and its profitability increased significantly.
Fang Hongbo successfully dragged Midea out of the quagmire of "big but not strong", but the problem soon struck again. Although white electricity is a rigid necessity, the replacement cycle is long, and with the increase in popularity, the market growth slows down. According to Euromonitor data, from 2015 to 2022, the average annual compound growth rate of China's household appliance market is only 4%, and the growth rate is hardly impressive. Because of this, in addition to the policy dividend period of "home appliances to the countryside", everyone can benefit, and the home appliance track is in a state of white-hot competition all year round, and the fierce battle between Midea and Gree in the field of air conditioning stems from this.
Fang Hongbo knows that if you only compete in scale and price in the home appliance track, even if you have a short-term lead, it is easy to be surpassed, in order to establish a real moat, he decided to grasp both To C and To B.
In addition to the home appliance business, Midea began to shift its strategic focus to To B. This may also be the reason why Midea has been absent from AWE for two consecutive years, as a global event in the home appliance industry, AWE is mainly focused on consumer electronic products. While Midea has been absent for two consecutive years, Haier and Gree attach great importance to AWE. From here, it is enough to see that the three major appliance giants have different strategic positioning for the C-end and B-end businesses.
Judging from the results, among the three giants, the To B business of the United States has developed the most maturely, and the revenue contribution is also the largest. According to the latest financial report, in 2023, the revenue of the U.S. commercial and industrial solutions business will be nearly 100 billion yuan, accounting for more than 26% of the total revenue, compared with only 18.5% in 2020. This means that in 2023, Midea's To C business will account for less than 74% of Midea's revenue, and the To B business is gradually becoming a new revenue growth engine for Midea.
In terms of business, Midea's To B business has grown rapidly. In 2023, the revenue of new energy and industrial technology will be 27.9 billion yuan, a year-on-year increase of 29%; the revenue of intelligent building technology was 25.9 billion yuan, a year-on-year increase of 14%; The revenue of robotics and automation was 31.1 billion yuan, a year-on-year increase of 12%, and both maintained a double-digit growth rate. In contrast, Midea's HVAC and consumer appliances business revenue increased by only 6.95% and 7.51% year-on-year respectively.
Whether it is new energy or automated robots, it is the current hot To B track. Midea's early entry into the game has won it a head start, and in addition to strategic vision, Midea's brilliant performance on the B-side is inseparable from Fang Hongbo's use of capital means.
At the beginning of the 21st century, Fang Hongbo led Midea's acquisition of home appliance brands such as Royalstar and Little Swan, and successfully made up for Midea's shortcomings in refrigerators and washing machines. After deciding to make efforts to B, Midea reappeared in the wave of mergers and acquisitions: in 2016, it acquired 85% of the shares of KUKA, one of the world's four largest industrial robot companies; In 2017, it acquired Israeli Gaochuang; In 2020, it acquired Lingwang and Hekang New Energy. After a series of actions, Midea has become a To B industry giant covering auto parts, industrial robots, elevators, compressors, inverters and other businesses.
Midea's brand matrix (smart home business is a C-end brand, and commercial and industrial solutions are B-end brands), the source of Midea Group prospectus
Among them, the acquisition of Kuka by Midea in 2016 is the most representative. At the beginning of the acquisition, the high multiple PE that far exceeded its peers, the acquisition scale of more than 30 billion yuan, and the acquisition target with a low degree of business relevance made this acquisition case not optimistic both internally and externally in the United States. One year after the completion of the transaction, KUKA's profit plummeted by 80%, which made the industry full of doubts about Midea's To B layout.
KUKA KMP600I autonomous mobile robot was unveiled at CeMAT ASIA 2021, the official official account of the group
But after five years of running-in, KUKA's strategic significance began to emerge. In 2021, KUKA's global revenue reached 3.3 billion euros, and internally, KUKA delivered more than 10,000 robots to various business units of Midea. Externally, KUKA has established cooperation with BYD, Tesla, NIO, CATL and other enterprises. By 2022, KUKA China will set a record for orders and shipments, and according to the forecast and analysis of MIR Rui Industry, the share of domestic shipments of KUKA China's industrial robots will reach 8% in 2022.
So far, KUKA has become one of the most imaginative businesses of Midea in the next decade. In the face of the next round of cycle, Midea also has more ways to deal with it.
2, with the United States to go public in Hong Kong, what is Fang Hongbo thinking?
In addition to mergers and acquisitions, Midea has recently made a big move in the capital market: listing in Hong Kong.
On October 24, 2023, Midea Group officially submitted a prospectus to the Hong Kong Stock Exchange to be listed on the main board. At this time, 10 years have passed since Midea was listed on the main board of the Shenzhen Stock Exchange, and in the past 10 years, although the operating conditions have fluctuated from time to time, Midea's cash flow has been very stable and has always been a major cash flow player in the A-share market.
According to the latest financial report, as of December 31, 2023, Midea's own funds were 81.673 billion yuan, and the cash flow from operating activities exceeded 57.9 billion yuan. Because of this, Midea is not short of money.
So, what does Fang Hongbo want to go public in Hong Kong at this time?
Judging from the prospectus, the net proceeds from Midea's Hong Kong IPO will be mainly used for global technology research and development; the continuous construction of intelligent manufacturing system and the upgrading of supply chain management; Improve global sales channels and networks, as well as increase overseas sales of private labels; and working capital and general corporate purposes.
In short, technology research and development, intelligent layout, overseas market expansion, and meeting daily operations are the main reasons for Midea to seek fundraising in Hong Kong.
From the perspective of technology investment, according to the new four strategic axes released by Midea at the end of 2020, "leading technology" ranks first. Driven by this, Midea has invested more and more in technology in recent years. Even in 2018 and 2019, when the To B business has not made significant progress, Midea has never reduced its investment in technology, and since 2019, Midea's R&D expenses have exceeded 10 billion yuan and continue to increase, and by the end of 2023, Midea's R&D personnel have accounted for more than 50%.
Attaching importance to technology research and development has indeed helped Midea establish technical barriers. According to the Frost & Sullivan report, by the end of 2022, Midea had more than 28,000 invention patents, ranking 7th in the world and ranking first among Chinese enterprises and the global home appliance industry.
Midea's appearance at the American Kitchen and Bathroom Show (KBIS), the official public account of Midea Group
In particular, Midea's focus in recent years is a technology-intensive track, and Midea's elevator, intelligent control, motor, compressor, chip, auto parts and other businesses have a large number of patented technologies. As Midea continues to increase its To B, R&D investment will continue to rise, and it is also a rainy day to go public in Hong Kong to raise funds.
From the perspective of intelligent layout, from promoting digital transformation in 2012 and building the "632" system to releasing the "Digital Beauty 2025" plan in 2022, Midea has become more and more digital, and its operational efficiency has also been continuously improved. Fang Hongbo once publicly shared a data: from 2012 to 2022, Midea's cash cycle has shortened from 26 days to -2.5 days. This means that in 2022, Midea will achieve nearly 350 billion yuan in revenue without using any of its own funds.
According to public data, Midea has spent more than 20 billion yuan since it was put into digitalization in 2012, which also explains why Midea needs a large amount of capital reserves.
However, whether it is technology or intelligence, it is a long-term continuous investment, which cannot explain the urgency of Midea's current rush to go public. In April this year, after the first submission of the prospectus expired for 6 months, Midea submitted the prospectus again non-stop, sprinting to the Hong Kong Stock Exchange for the second time. Behind the vigorous promotion of the Hong Kong listing, it is actually the practical dilemma faced by Midea.
This is especially evident in Midea's overseas layout. Unlike the domestic market, overseas acquisitions and market expansion usually require foreign currency funds to carry out, while Midea has sufficient monetary funds, but foreign capital is relatively scarce. According to the financial report released by Midea, as of June 30, 2023, the balance of foreign currency monetary items on Midea Group's account was 51.673 billion yuan, while the balance of foreign currency monetary liabilities was 66.26 billion yuan, and foreign currency monetary assets were nearly 15 billion yuan lower than liabilities.
Some market analysts have pointed out that this means that there is an obvious gap in foreign currency funds in the United States, and it is more cost-effective to directly attract foreign capital under the background of the increasing demand for overseas markets in the United States and the exchange loss of RMB to foreign exchange. Combined with the location of the secondary listing, Hong Kong is an important market to promote Midea to overseas investors and raise overseas funds. Therefore, Midea's listing in Hong Kong is directly conducive to the financing of overseas business, which in turn promotes the long-term development of overseas business.
"Go to the high-end and go outside" is the solution given by Fang Hongbo to deal with the development of the times, and it is also to keep Midea from falling into passivity in the iteration of the industry cycle.
3. How big will the steps of beauty go when exploring the sea?
The overseas market that Midea focuses on investing in is a piece of fat that all home appliance giants are keeping an eye on.
Since the establishment of its first overseas factory in Vietnam in 2007 and the official overseas layout, by 2023, Midea has 17 overseas R&D centers, 22 major production bases, more than 35,000 overseas employees, and overseas revenue has accounted for more than 40%. However, in terms of layout time and depth, Haier is Midea's fierce rival overseas - Haier has set up a factory in the United States in 1999, and more than 50% of its revenue in 2023 will be contributed by overseas.
The two also have different ideas for overseas layout, Midea's early overseas expansion was mainly the OEM model, and later turned to the acquisition and self-construction of overseas factories, while Haier started to build factories and make brands at the beginning of its overseas expansion. This is also the reason why, until 2023, in Midea's smart home overseas business, the revenue of ODM/OEM business (OEM products) will still account for 60%, and the OEM business (private brand) will account for only 40%.
On the one hand, since the acquisition of Toshiba Life and Clivet, an Italian commercial air conditioning company, Midea has established a multi-brand matrix through large-scale mergers and acquisitions, and up to now, Midea's overseas brands have formed Toshiba, Midea, Comfee three full-category brands, as well as 13 sub-category professional brands such as Carrier and Eureka.
On the other hand, in order to strengthen its global supply chain capabilities, Midea has also accelerated the construction of overseas factories. In 2022, the construction and operation of the Egyptian production base and the new air conditioning base in Thailand will be completed, of which the Egyptian dishwasher factory will cost 25 million US dollars and the planned annual production capacity will be up to 1.5 million units. In 2023, Midea will spend more than 700 million yuan to build a new factory in Brazil, with an annual production capacity of up to 1.3 million units. From 2024 to 2026, Midea plans to build factories in India, Thailand, Egypt, Italy, Brazil, Mexico and other countries are also being planned.
Midea's overseas factory construction plan, the source of Midea's prospectus
It is worth noting that Midea's overseas expansion is not only limited to C-end brands, but also brings the advantages of B-end overseas. As can be seen from the figure above, the overseas factory construction plan of Midea's To B business is also in close progress.
From the perspective of specific business, the revenue of the smart building technology business will soar by 13.8% in 2023, which is due to the hot sales of heat pump products overseas. According to the Frost & Sullivan report, in terms of sales volume in 2023, Midea's export share of air source heat pumps in Chinese mainland is as high as 23%.
In addition, the robotics and automation business also has a powerful tool to go overseas. As a global robot leader, the main source of revenue for KUKA acquired by Midea in 2016 is itself overseas markets, and international companies such as General Motors, Ford, Porsche, Mercedes-Benz, Walmart, Budweiser, and Coca-Cola are all long-term customers of KUKA. After being acquired by Midea, KUKA has achieved revenue in both China and overseas, and nearly 80% of KUKA's revenue of more than 4 billion euros comes from overseas and continues to grow.
In order to develop overseas, in recent years, in addition to products and business, Midea has also matched strong marketing methods. In the past few years, Midea has invested in sponsoring top European football competitions such as the Premier League and La Liga, as well as well-known football clubs in South America and Southeast Asia, in order to strengthen its brand awareness in the corresponding markets. In 2020, Midea became the official global partner of Manchester City Football Club, and in 2023, it was officially announced that Manchester City FC player Erling Haaland (Erling Haaland) will become its global brand spokesperson.
Now Midea is difficult to define with a simple "Chinese brand" or "home appliance brand", and becoming a global technology giant may be the label that Midea really wants.
Fang Hongbo delivered a speech at the 2023 Midea Group Management Annual Conference, source: Midea Group's official public account
Over the past few decades, Midea has taken the initiative to change to gain an advantage and lead at the poker table, but challenges still exist, as in the "To Shareholders" letter in the 2023 annual report, Midea asked itself four questions:
"In the context of low global growth, how can Midea achieve growth? Under the impact of the wave of technology and the drastic changes in business models, how can Midea form new competitiveness? Against the backdrop of overseas challenges, how can we further accelerate our global business layout? In the anxiety and confusion of adjusting the economic structure and growth mode, how can we break through the cycle? ”
These questions will also continue to test Fang Hongbo, who has led Midea through several cycles.
(The header picture of this article comes from the official WeChat account of Midea Group.) ）