It’s been a tough year for ties between the US and China, the world’s No. 1 and No. 2 economies. Although the tone has improved since a meeting between President Joe Biden and President Xi Jinping in November, points of tension such as geopolitics, Taiwan and technological controls remain.
Midea Group, China’s largest home appliance maker, is not deterred. US revenue grew from less than $100 million in 2015 to more than $1 billion last year, helping make the United States the company’s second-largest market after China. Midea is keeping its options open on a new North American plant and plans to increase the number of employees at its US headquarters next year by 20% from the current 173, Midea America president Kurt Jovais said. in a recent interview in New York.
“The United States is the main growth driver in Midea’s portfolio,” Jovais said. “Even in the near term, where we are seeing a temporary weakening in demand, we still expect to see a lot of growth.”
“The fact that we have such a significant stake in China means that Midea Group is looking globally for the vast majority of its growth to come from there,” he said. “That’s why we’re seeing all the investment in research and development, and expanding our marketing, workforce and logistics,” Jovais said.
Behind Jovais’s optimism: Changing technology and designs that open the door for shoppers to try brands like Midea’s. There’s also Midea’s in-house manufacturing weight: it makes everything from air conditioners to dishwashers. “There are a lot of people who make a refrigerator or a stove,” but not the entire suite, Jovais said. “Obviously, there is a cost advantage” to manufacturing items in-house; it also helps products get to market faster, he said.
Midea’s localization efforts include, notably, the hiring of Jovais himself, a Texas-raised American with more than two decades of experience in the appliance industry. Unlike many of Midea’s overseas businesses, the US operation is established as a subsidiary, not a joint venture. “This is a 100% pure Midea business,” he said, noting the contribution of a Louisville research center of more than 60 employees creating products for American tastes. Among the company’s marketing efforts aimed at American consumers is an ad campaign featuring the cheerful actor Sam Richardson playing on Midea’s Chinese name by pronouncing it as “My idea.” Richardson playfully claims credit for such innovations as a portable air conditioner made by himself, the company, or both, depending on how you look at it. “It was a great success,” Jovais said. Midea sells its products at Walmart and Amazon, among other chains.
Midea traces its roots back to 1968, when the main founder, He Xiangjian, led a group of 23 residents of Beijiao City in Guangdong Province to form a cap production workshop that became Midea. It has come a long way since then. Global sales in the first half totaled $26.2 billion, the vast majority coming from its large home market. Midea’s shares are listed on the Shenzhen Stock Exchange, where its market exceeds $50 billion; Whirlpool, by contrast, is $7 billion.
Midea has more than 166,000 employees around the world; foreign investors include Canada Pension Plan and Singapore’s Temasek Fullerton Alpha. The company’s former chairman, He Xiangjian, 80, was ranked No. 7 on Forbes’ China Rich List, released in November, with a fortune valued at $24.8 billion. Midea is led by a non-family CEO: Paul Fang, who is also a billionaire worth $1.2 billion. Foshan-based Midea was ranked No. 219 in the Forbes Global 2000 ranking of the world’s top listed companies this year. His son, He Jianfeng, is the heir apparent to the management of the business.
Jovais joined Midea in 2015. Previously with Samsung for nearly a decade and a half, he joined the Korean company in 2001 as a strategy consultant after earning an MBA from Columbia and a prior stint at PwC Management in Washington, DC. in 1994. 99 He worked with Samsung in Seoul and Australia before moving to New York as the company’s vice president of marketing from 2009 to 2014.
It was at Samsung that he “fell in love” with home appliances, Jovais said. “There is a lot of emotion that is actually tied to a washing machine or a refrigerator. It is more than the utility of it. It is how people perceive how they care for the family. There is a state associated with it. There are many complex emotions that come from a marketing environment. I like that.”
Jovais took on the challenge of working with a Chinese newcomer because of a shared belief with the company that it could disrupt a relatively stable home appliance market. Appliance sales in the United States “had been through a turbulent period about 10 to 15 years ago when the Koreans came,” he said. So, “things had calmed down a bit.”
“When a manufacturer like Midea comes in and says, ‘Hey, we want to come in with our own brand, with our own influence, with the influence that we have as an organization,’ it was very exciting for me to see.” Digitization and other changes are creating new opportunities today, believes Jovais, who runs the US business from a headquarters in Parsippany, New Jersey.
Although Midea makes robots and other industrial products, Midea America focuses on smart home products, including room air conditioners. That “marquee” for the Midea brand is No. 1 in the US, based on dollar and unit sales, according to NPD Group/Retail Tracking Service, for the year through August 2022.
Jovais cited the company’s research center in Louisville, Kentucky, where it employs 63 people, for much of its success in winning over American buyers. Local knowledge is key because consumers differ around the world, he noted. “The appliance space, specifically, is very specific to the local market,” with different technologies being favored in different markets, he said. “People in the US use refrigerators differently than people in Europe. For example, the induction cooker in Europe is very, very common. Here, it’s still very special, very premium, even though it’s superior cooking technology. It’s hard to find an oven in Chinese cooking.”
“One of the biggest factors (in the US) is size. American products tend to be larger. We have more space and tend to buy a lot more in bulk. We are buying in bulk instead of doing multiple shopping trips throughout the week, (which) means you have a different storage need,” Jovais said. “Asia is clearly an early adopter of the technology. Americans tend to be a bit slow to adopt new technology. I think that’s borne out by the proliferation of gimmicks and concerns about the longevity of any kind of technology, especially in the appliance space, where a lot of these appliances will be in your home for seven to 10 years.”
He is particularly hopeful about the smart home appliances that will eventually become more common in clothing tags, floor cleaning and home climate control. Smart items will account for 25% of Midea’s top appliance and air treatment sales in 2023, up from an overall 8% of all items sold in the US this year, Jovais believes.
Will all that sensor-laden manufacturing lead Midea to invest in semiconductors, like automakers have? “We are going to see Midea investing in semiconductor capacity somewhere. Midea has a history of being very vertically integrated, but I can’t speak to what the plans are around semiconductors,” Jovais said.
The Covid pandemic in the last three years “was serendipitous” in a business sense because people have been spending more time at home or remodeling. On the other hand, he highlighted the vulnerabilities of the supply chain.
To that end, wouldn’t local manufacturing in the US help? I asked. “We are always looking at our options,” Jovais said. “We believe we have a very strong growth path in North America. However, the biggest benefit would be to “shorten the supply chain. Inventory sitting on a ship doesn’t do anyone any good. If we can shorten that supply chain and respond more quickly to the needs of retailers, we can have a bit of a bullwhip effect,” he said. “The shorter and shorter we make that supply chain, the better it is for us.”
Midea has also won despite Trump-era tariffs on some of its Chinese-made products, Jovais said. “I think we have learned to deal with it. That said, I think a lot of people would say that free trade wins in the end.” And for now, he believes that’s how most consumers view their appliance purchases.
“Consumers are smart and practical, and most understand that the world is a very globalized place and everything you buy will come from anywhere,” he said. More manufacturing in North America could be a hedge so buyers don’t change their minds.
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