Analysis: China Household Appliances Experience Ice AgeJust after looking through their financial report for the first half of 2001, many color TV industrial enterprises such as Changhong, Konka and Amoisonic, sounded the alarm one after another for deficits suffered.Instead of individual case performance, it is an indication of the whole industry. Due to a long-term profits decline and deficit resulted from the price war, the household appliance industry has become an industry with potential crisis. It encounters a long ice age instead of a cold winter. In a mature environment of the market economy, dominant enterprises often use price war as an effective means to reorganize market resources. However, since most of the top players of the war in China are key local enterprises, in spite of the low profits or even the deficit, local governments still try every means to keep these enterprises running on a basis of certain non-business considerations. These enterprises consequently lost their competitiveness. Those should quit the competition still hold the posts. Therefore, the balance between demand and supply cannot be reached for a long time. Price war also brought about unprecedented obstruction to the development of the diversification of household appliance enterprises. Since all the Chinese electronic appliance enterprises derived from products diversification following the development of single products, and the product lines are relatively long, it is in reason that the branching products should have had favorable capital support. However, due to the long-term price war, this kind of support has been extremely trifling and minute. As regards the product lines, Chinese household appliance enterprises are comprehensive electronic appliance enterprises. Nevertheless, a further investigation on the profits will show that these household appliance giants are still single-product enterprises. Most large enterprises achieved growth by selling single kind of products though some enterprises make profits by branching product sales. So far, no profits indeed have been achieved from branching product sales. After investing a large amount of money, the enterprises achieved nothing. On the contrary, the products have become a burden. Crops will die without water supply in branching period, price wars are just cutting off the water supply for the Chinese household appliance enterprises. In the past times, Chinese household appliance industry waste 5 years for positive development, for the coming times, without any selling point, it will probably waste more than 10 years. All the Chinese household appliance enterprises noted in their strategic presentation that technology is the solution for profits. Profits come from hi-tech products. They develop through technology. It is absolutely a correct philosophy. However, Chinese household appliance enterprises follow a completely different road that has nothing in common with their original target. The development of technology depends on solid capital. Capital comes from products. Yet Chinese enterprises make no profits either from low-grade products or high-grade products. Since almost all the high-grade products are made on the basis of the components imported from foreign original equipment manufacturers (OEMs), they cannot be sold well because of tiny price difference. Therefore, Chinese enterprises have no ability to produce high-grade products on a large scale. Hence, no profits. Without any profits realized, how to accumulate capital, how to develop advanced sci-technology? Since China's household appliances industry was immersed in a strange circle, foreign enterprises had been working busily to transfer their production lines to the hinterland of China's household appliances industry. An embankment of global prices of electronic appliances has been set up. Run on the same cost level, Chinese household appliance industry will be deprived of the only advantages, i.e., labor forces advantages. Without technological and cost advantages, it will be sitting on a volcano. Landing in deficit by major enterprises will only bring deeper pains and shock By PD Online Staff Du Minghua |
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