The Globalization of Chinese Home Appliance Brands: A Long Way to Go

Abstract

China is one of the world’s largest manufacturers of home appliances. The country’s home appliances market is dominated by domestic brands, which have started to gain an advantage over foreign competitors. The industry chain exhibits a smiling curve, with brand globalization and upstream core electronic components being the high value-added segments into which China’s home appliance industry has yet to venture. In this report, we analyze the development and characteristics of the home appliance industry, and study opportunities and challenges presented by the globalization of the industry, with a view to shedding some light on the path to its future growth.

China is one of the world’s largest manufacturers of home appliances but has weak brand visibility globally. (1) The world has witnessed the shift of the home appliance value chain from Europe and the US to Japan and South Korea, and more recently, to China. However, the overseas home appliance market is still dominated by global brands from Europe, the US, Japan, and South Korea, with Chinese brands having a weak presence. (2) Low labor costs, strong domestic demand, and well-equipped supporting facilities of the industry chain were major contributing factors to the rise of China’s home appliance industry, which is now facing mounting pressure from rising labor costs and relocation of production capacity to other countries. This has prompted China to move to higher value-added activities by globalizing its brands. (3) China has a comprehensive home appliance industry chain, but relies heavily on foreign companies for the supply of some components (e.g., chips and raw materials of liquid crystal display [LCD] panels), and could face critical technological hurdles in extreme cases. A lack of brand awareness may also bring volatility in demand.

Globalization presents both opportunities and challenges. (1) The US is one of the most important home appliance markets. The US tariffs have led to the relocation of some home appliance production capacity to regions such as Southeast Asia, where home appliance industrial clusters could potentially emerge to compete with China. (2) The Indian home appliance market has great potential, and the country is attracting foreign investment through tariffs. However, Chinese companies confront certain restrictions, posing challenges to their presence in the fast-growing Indian market. (3) Chinese home appliance companies are striving to globalize their brands through a variety of formats. Following rapid growth in 2020 and 2021, China’s home appliance exports are facing downward pressure as headwinds, including high inflation and energy crises, erode purchasing power and reduce at-home consumption in Europe and the US.

Thoughts and implications: (1) We believe Chinese home appliance companies might follow the industry trend of going global: By leveraging domestic success in the development of industrial clusters, China could collaborate with Southeast Asian countries on cultivating new home appliance industrial clusters in a way that benefits Chinese companies, and encourage large home appliance groups to lead and share their knowledge and expertise with inexperienced companies regarding how to build a presence in overseas markets. (2) China could adopt a tiered deployment of production capacity while continuing its opening-up policy in a bid to achieve a higher degree of import substitution. Home appliance manufacturing spans a variety of industries, with core technologies mainly originating from upstream segments. The restraints on China’s high-end technologies may undermine the innovation of China’s home appliance industry. (3) China can also turn technological advantages into standard advantages through active participation in the formulation of international standards.

Authors of this chapter: HE  Wei, TANG Yawei, LI  Jingxi, ZHANG Jinyu, ZHANG Qinyi, WANG Changzhou, Sakura TANG. Translator: LI Wei. Editors: Kenneth HO, ZHOU Wanbo, ZHANG Jinyu, LIU Xinran.

In this report, we analyze the evolution of China’s home appliance industry to assess its current competitiveness and identify the direction of its future development. We also examine the characteristics of the industry to recognize the patterns of its development.

China’s home appliance industry started to develop in the 1980s, followed by the entry of a large number of foreign companies into China in the 1990s that brought with them advanced production technologies and management experience. Since China’s accession to the World Trade Organization (WTO) in 2001, the country has benefitted from free trade and witnessed rapid growth in both domestic and overseas sales of home appliances. Retail sales of home appliances and audio equipment in China increased from Rmb95.3bn in 2002 to Rmb934bn in 2021, fueling the emergence of national brands such as Haier, Midea, and Gree, which were later joined by innovative brands such as Roborock and XGIMI. China’s home appliance exports jumped from US$8.8bn to US$98.7bn over 2002–2021.

Chinese large appliance companies began to go global in 2010, but were in a weaker competitive position vis-à-vis their international rivals. By 2020, they had become more competitive globally, with home appliance production capacity increasingly concentrated in China. At the same time, Chinese companies made active efforts to expand their international presence via various strategies, catalyzing a trend of brand globalization. However, it is worth noting that Chinese brands are still struggling with international visibility, and facing the threat of industrial relocation caused by the deglobalization policies. China still has a long way to go before transforming itself from a home appliance manufacturing power into a global brand builder.

Low labor costs, strong domestic demand, and well-equipped supporting facilities of the industry chain were major contributing factors to the rise of China’s home appliance industry.

• The home appliance industry is moderately labor-intensive and moderately asset-intensive. Labor cost advantage was conducive, though not decisive, to its early-stage development. For example, home appliance companies moved some of their production capacity from Japan to Southeast Asia in the 1980s, which, instead of boosting local home appliance industries, has sustained the situation in which foreign companies produce locally even today in the absence of influential homegrown brands.

• Strong domestic demand can attract foreign investment, bringing advanced production technology and management experience to the host country during the early stages of development of local companies and paving the way for the growth of homegrown brands as the market expands. This is how Chinese firms have built up their economies of scale. In China’s home appliance industry, it is homegrown brands (e.g., Haier Smart Home) and innovative companies (e.g., Roborock) rather than original equipment manufacturing (OEM) service providers that have become globally competitive and continue to expand overseas. OEM companies rely heavily on orders from brand owners and tend to suffer from unstable supply chain caused by the bullwhip effect of weakening demand. For example, home appliance demand in Europe and the US has been falling since 2022. As a result, most of the companies that focus on providing OEM services to European and US home appliance brands saw significant declines in their revenue.

• Home appliance manufacturing spans a variety of industries, with core technologies mainly originating from upstream segments. China has a comprehensive home appliance industry chain with well-equipped supporting facilities, and some home appliance leaders have also built integrated value chains. For example, leading air conditioner (AC) manufacturers Gree and Midea have achieved domestic production of AC compressors, motors, variable frequency controllers, and microcontroller units (MCU). Japan and South Korea are also among the major industrialized countries in the world, and enjoy advantages in variety of industries. These two countries were once home to a major share of global home appliance production capacity. China has moved some of its home appliance capacity to Southeast Asia, but remains the exporter of core components.

The main force that drives the development of the home appliance industry is market competition, supported by industrial policies. Key industrial policies include:

• Consumption stimulus policies such as subsidized sales of home appliances in rural areas and home appliance trade-in programs;

• Policies aimed at adjusting the structure of consumption, including the granting of subsidies for energy-efficient home appliances and mandatory increases in efficiency standards for home appliances. The transition to a green and low-carbon economy has attracted increasing global attention and catalyzed the introduction of various supporting policies. Countries compete with each other in greening and decarbonizing their industry chains, where China enjoys a competitive advantage. For example, the AC refrigerants can be categorized into four generations.¹ Hydrofluoroolefins (HFOs) are the fourth-generation refrigerant, and have yet to be industrialized due to high production costs of fine chemicals. To date, the HFO-based refrigerant jointly developed by Honeywell and DuPont has been promoted in Europe and the US, and Chinese companies Zhejiang Juhua and Shanghai 3F New Materials are already capable of producing it. Gas boilers used to be the main source of heating that kept Europe warm in the winter. However, European countries began to encourage the use of air-source heat pumps due to natural gas shortage and a broader push to reduce carbon emissions. The REPowerEU plan, presented by the European Commission in May 2022, targets the addition of 10mn heat pumps in the next five years, resulting in a surge in China’s heat pump exports.

• Industrial policies in upstream industries, including panels and LED chips, can help overcome critical technological hurdles of core components. China’s policies for asset-heavy semiconductor sectors such as panels and LED chips are similar to those adopted by South Korea for the panel sector in the past – government-subsidized reverse investment – which have paid off. However, it should be noted that such policies are not suitable for the home appliance industry due to differences between the industries. So far, China has not achieved domestic production in the semiconductor industry, and still relies heavily on foreign companies for the supply of raw materials used to produce chips and LCD panels.

16.1 Industrial Characteristics of Home Appliances

16.1.1 Home Appliances Involve Multiple Industries, With Core Technology Originating From the Upstream Segments

Home appliances represent a comprehensive application of technologies from various upstream industries. The home appliance industry involves a wide range of upstream manufacturing industries (Fig. 16.1), such as electronics, machinery, new energy, and manufacturing equipment, as well as raw materials such as steel and non-ferrous metals. As smart products become increasingly popular in the Internet of Things (IoT) era, the computer and artificial intelligence (AI) industries have become an essential part of the upstream industry chain of home appliances. Core technologies from upstream industries have a considerable impact on the development of home appliances, and the sustainable development of the industry relies on the development of upstream technologies and processes such as chips, AI algorithms, and new materials.

Fig. 16.1

Source CICC Research

Home appliances are a comprehensive application of technologies from various upstream industries.

16.1.2 A Large Variety of Product Categories; Different Components

Home appliances have a wide variety of product categories and different components. Looking at AC, vacuum cleaners, TVs, and projectors as examples, their components vary from each other, but their upstream industries are similar. First, most home appliances are made of basic raw materials such as metal and plastic. Second, different types of chips are used to manufacture various home appliances. The R&D and manufacturing of select chips remain the challenges to be overcome in the industry chain. Specifically, the proportion of China-made intelligent power modules (IPM) applied in air conditioners, the CPU of vacuum cleaners, and the display chips in projectors remains relatively low. In addition, China still relies on foreign companies for the supply of display chips in projectors. Apart from the raw materials and chips mentioned above, the manufacturing of vacuum cleaners also involves AI algorithms, voice control, and lithium batteries.

16.1.3 The Home Appliance Value Chain Resembles a Smiling Curve

The distribution of value added along the home appliance industry chain resembles a smiling curve, with a relatively high gross margin at the two ends of the curve. The two ends are where China’s home appliance industry may be heading in the future. In 2021, the gross margin of branded manufacturers of large home appliances, kitchen appliances, small home appliances, and TVs was 28.9%, 46.6%, 38.1%, and 18.3%. In contrast, the gross margin of OEM businesses for these home appliances was only 8.7%, 11.6%, 15.9%, and 12.0%, much lower than that of branded businesses. In addition, in terms of upstream accessories and electronic components, the gross margin of mechanical components such as air conditioner compressors and refrigeration valves was 13.2% in 2021. In contrast, the gross margin of manufacturers of electronic components MCU, insulated gate bipolar transistors (IGBT), and IPM was 47.1%, 37.1%, and 28.2%.

16.1.4 Demand and Supply Equally Important; Visible Global Demand Risk

Both demand and supply of the global home appliance industry have a large impact on China’s home appliance industry. Therefore, demand and supply are considered crucial factors in the analytical framework of this report. Home appliances are a mid-tech industry, and efficiency varies among different countries. However, the supply of home appliances might be easily substituted if efficiency is excluded from consideration. Efficiency is a critical competitive advantage in the era of free trade. However, against the backdrop of deglobalization in some markets, efficiency may become less influential in determining the development of the home appliance industry.

16.2 A Home Appliance Manufacturing Power With a Well-Established Industry Chain

Since China’s entry into the WTO in 2001, China’s retail market for and exports of home appliances have been growing rapidly. China has become one of the world’s largest retail markets for home appliances. According to China’s Ministry of Industry and Information Technology, the revenue of home appliance firms above a designated scale (including their non-home appliance businesses) was Rmb1.7trn in 2021, with earnings of Rmb121.9bn. AVC data shows China’s retail sales of home appliances reached Rmb760.3bn in 2021. Data from China’s General Administration of Customs shows China’s export value of home appliances (including TVs, DVDs, and some white appliances) reached US$98.7bn in 2021. As a manufacturing power in the global home appliance industry, China has become the world’s largest net exporter of home appliances (Fig. 16.2).

Fig. 16.2

Source UN Comtrade, World Bank, CICC Research

Illustration of international trade of consumer appliances and audio-visual industry (2021); China is the world’s largest net exporter of home appliances. Note 1. We use the international trade data from UN Comtrade in 2021. The bubble size represents the net import and export value of each country or region; orange or blue marks each country or region as a net exporter or net importer, respectively; and the thickness of the line represents the net export value of the net exporter. 2. Consumer appliances include air conditioners, refrigerators, washing machines, vacuum cleaners, electric shavers, stand mixers, fans, massage apparatus, and electric heating appliances. The audio-visual industry refers to televisions, stereos, and set-top boxes.

China now faces few technological hurdles in its consumer appliance industry. The country remains reliant on foreign enterprises for the supply of some high-end electronic components. Chinese mainland companies have ramped up their production capacity in MCU, IGBT, IPM, and other electronic components. (1) MCU: China is now self-sufficient in core MCU components for home appliances, and some Chinese companies are able to produce components for 22nm and above processes. (2) Certain Chinese companies have reached a relatively leading position in signal chain analog chips² and power management integrated circuits³ related to home appliances. (3) IGBT and IPM: We expect the market share of Chinese mainland companies to rise rapidly amid the expansion of production capacity.

China is a global leader in the manufacturing and sales of panels and audio-visual equipment. However, the proportion of China-made cutting-edge core components used in audio-visual equipment remains relatively low. Looking at TVs as an example, the basic materials for TVs mainly include panels, backlights, driver ICs,⁴ and CPUs from a wide variety of sub-industries, as well as glass substrates, liquid crystal materials, and polarizers in the upstream industries. China leads the world in the production capacity of panels. However, the proportion of China-made core raw materials from the upstream TV industries remains relatively low.

Regarding core components: (1) The asset-heavy, capital-intensive LCD panel industry with high barriers to entry is dominated by Chinese mainland companies. By learning the counter-cyclical strategy from South Korea, Chinese mainland companies have been active in building their panel production capacity. The panel production capacity of the Chinese mainland exceeded that in Japan in 2016 for the first time and exceeded that in South Korea and the Taiwan region of China in 2018. (2) The supply of glass substrates is dominated by US and Japanese companies. Incumbent producers of glass substrates, a core component in manufacturing LCD panels, are protected by barriers to entry in terms of technology process, formula, and manufacturing equipment. The major global suppliers of glass substrates include Corning from the US and AGC and NEG from Japan. In addition, Chinese mainland companies also have production capacity for the component. (3) The supply of LED and TV chips is dominated by companies from the Chinese mainland and the Taiwan region of China. (4) Texas Instruments enjoys an exclusive digital light processing (DLP) patent. The light engine of projectors includes light source, light modulation, and lens. Specifically, light modulation has a large impact on major display indicators excluding brightness. Projectors are based on one of the three imaging technologies: Liquid crystal display (LCD),⁵ digital light processing (DLP),⁶ and liquid crystal on silicon (LCOS).⁷ DLP is widely used in the consumer projector market.

China is currently leading in industrial digitalization and Industry 4.0 practices in the home appliance industry. The World Economic Forum has been identifying and recognizing lighthouse factories⁸ that represent the best practices of Industry 4.0 globally since 2018. As of October 2022, 114 lighthouse factories were included in the list of best-practice examples, including 42 from China (accounting for 37% of the total count). Midea and Haier each have five lighthouse factories. Industry 4.0 is a continuous development process, and the world is still exploring whether the development of technologies such as humanoid robots will be able to replace human workers, reduce labor costs, and achieve highly efficient automated production. The use of industrial robots and automated devices at existing lighthouse factories has reduced labor costs, but it has notably increased fixed-asset costs. Therefore, lighthouse factories have not been rolled out on a large scale as they have yet to establish a distinct advantage in efficiency over traditional factories.

16.3 Relocation of the Global Home Appliance Industry Chain and Current Challenges From Deglobalization

16.3.1 Driving Forces of Industrial Relocation: Minimal All-In Cost and Local Supporting Facilities

The home appliance industry has undergone a series of relocations. In a world of free trade, companies mainly consider the following factors as they expand production capacity globally.

Minimal all-in Costs: (1) Labor costs: The home appliance industry was relatively labor-intensive before the shift to automated production. World Bank data shows the average monthly salary of workers in Southeast Asia and South Asia was less than 50% of that in China in 2021. The difference in labor costs has facilitated the relocation of the home appliance industry chain away from China, Japan, and South Korea.

(2) Supporting industries: Large amounts of raw materials and components are used by home appliance firms, highlighting the role of supporting industries in cost control, material supply, and upstream—downstream cooperation. China has a wide range of industries, offering abundant resources to support the development of the home appliance industry. To date, Chinese companies still rely on imports of core accessories and components from China when they build production capacity globally.

(3) Transportation costs: Manufacturing and selling large home appliances such as refrigerators, washing machines, and TVs entail high transportation costs, foregrounding the significance of transportation radius, especially for companies seeking capacity expansion overseas. This is the reason why North American home appliance manufacturers generally build their production bases in Latin America, and Western European firms tend to establish their production facilities in Eastern Europe or Türkiye.

(4) Tariff barriers: Tariffs and industrial policies can have a significant impact on the relocation of the global home appliance industry chain. The US imposes tariffs of about 7.5–25% on imports of Chinese home appliances—including ACs, refrigerators, washing machines, TVs, ovens, water heaters, and vacuum cleaners—but applies no tariffs on these products imported from Southeast Asia. As a result, firms have moved some of their small home appliance capacity targeting the US market to Southeast Asia.

Local supporting facilities: The success of a brand lies not only in effective control over costs, but also in the innovation, design, and marketing of products. Companies may have to compromise their minimal all-in cost principles in the stage of brand expansion to better meet local needs and preferences. Consumer demand varies regionally. Therefore, localized production and R&D enable a company to respond to local demand and adjust to specific needs and preferences in a timely manner.⁹

We divide the relocation of the global home appliance industry into four stages (Fig. 16.3). Stage 1: In the 1950s and 1960s, the home appliance industry chain in Europe and the US moved to Japan. Stage 2: In the 1970s and 1980s, the home appliance industry chain in Japan was relocated to South Korea and Southeast Asia. Stage 3: In the 1990s and 2000s, Japan and South Korea relocated their home appliance industry chains to China on a large scale. Stage 4: In the 2010s, China moved further up the global home appliance value chain thanks to factors such as industrial digitalization, market size, and rising market share of domestic brands.

Fig. 16.3

Source Corporate filings, company websites, www.cheaa.com/, Ministry of Natural Resources, CICC Research

History of global home appliance industry relocation.

China’s home appliance industrial clusters are mostly located in coastal regions, with the remainder in inland regions (Fig. 16.4). Two of China’s largest home appliance industrial clusters are situated in the Pearl River Delta (PRD) and the Yangtze River Delta (YRD), where a wide range of products are offered to meet both export and domestic demand supported by well-established facilities. Home appliance industrial clusters have been formed in Shandong, Anhui, and Hubei to meet domestic demand given factors such as transportation radius, and production bases focusing on white goods and black goods have also been founded in Chengdu, Mianyang, and Yibin in Sichuan province and Zhengzhou in Henan province but with less cluster effect. Export-oriented production capacity has been moving away from the PRD and YRD, where efforts should be made to offset the negative impact of capacity relocation on local employment and economy through industrial upgrading, in our view.

Fig. 16.4

Source Corporate filings, company websites, websites of local governments, Ministry of Natural Resources, CICC Research

Home appliance industrial clusters in China. Note Data as of 2022.

16.3.2 US Tariffs Leading to Relocation of Home Appliance Capacity Away From China

The US is one of the world's largest markets for home appliance consumption. The country’s tariff policy has a significant impact on the global distribution of home appliance production capacity, signaling the rise of deglobalization in the home appliance industry. Since 2018, the US has imposed tariffs on Chinese imports, leading companies to move home appliance production capacity out of China. Home appliance manufacturers are relocating some of their production to Southeast Asia and Mexico from China due to tariff differences despite higher production costs in these countries, with the pace of the relocation fluctuating with changes in US tariff policies. We foresee relocation of a majority of home appliance production to Southeast Asia and Mexico if the US maintains high tariffs on Chinese imports.

The US-China trade frictions have prompted home appliance manufacturers to relocate production to Southeast Asia to bypass US tariffs, though home appliance industrial clusters have yet to be formed in the region (Fig. 16.5). In the small appliance segment, Supor invested US$15mn in the construction of a cookware production base in Vietnam in 2008, and Dechang Electrical Machinery Made and Fujia Industrial built production bases for cleaning appliances in Vietnam in 2021. Kingclean Electric established industrial parks in Vietnam and Thailand in 2018 and 2019. Xinbao Electrical Appliances Holdings invested US$4.50mn to create a joint venture, PT Selaras Donlim Indonesia, in 2020, and Alton Electrical & Mechanical Industry built production capacity in Malaysia in 2022. Lighting companies (e.g., Tospo Lighting, and Leedarson IoT Technology) as well as home appliance accessories and parts manufacturers (e.g., Chunguang Technology, Hanyu Group Joint-Stock, and Dun’An Artificial Environment) have also established production facilities in Southeast Asia over the past few years. However, it is worth noting that global distribution of small appliance production capacity is affected by US tariff policy, while global distribution of large appliance production capacity is more subject to transportation radius and localized operations.

Fig. 16.5

Source Corporate filings, company websites, Ministry of Natural Resources, CICC Research

Distribution of Chinese home appliance companies’ production capacity in Southeast Asia has yet to form an industrial cluster.

16.3.3 India: Substantial Market Potential; Market Access Barriers Inducing Relocation of Production Capacity to India

With a large population and a low penetration rate of home appliances, India’s home appliance market has become one of the fastest-growing and most attractive markets in the world. Euromonitor estimates that India’s home appliance market grew a CAGR of 13% over 2016–2021, outpacing the growth in North America and China. However, foreign investment policy is gradually tightening. In 2014, the Indian government introduced reforms to foreign investment access, abolishing foreign investment permits, and setting up a negative list for foreign investment access, which greatly simplified the investment process. The tax reform in 2019 lowered the corporate income tax in India, and tax incentives were also introduced to support manufacturing industries. However, India’s foreign investment policy took a major turn in 2020, imposing special restrictions on investment by entities in countries that share land borders with India. The country initiated review of Chinese investment in 2021, adding to the uncertainty of Chinese home appliance companies’ investment and operations in India.

16.4 The Globalization of Chinese Home Appliance Brands: A Long Way to Go

16.4.1 A Long Journey Ahead for the Globalization of Chinese Brands; Overseas Expansion of Large Appliance Manufacturers Started in the 2010s

It took 30 years (1990–2020) for China to develop into a manufacturing power in the home appliance industry, and the country is now facing more challenges in taking its brands global. Large appliance companies in China began to explore overseas markets in the 2010s, and expanded their global presence through establishment of new production facilities and mergers and acquisitions (M&A). Large appliance companies such as Midea Group and Haier have built their own factories around the world considering transportation radius, and strengthened their footprint across the globe through M&A. So far, Chinese large appliance companies have established production bases spanning across multiple regions including Europe, the Americas, Southeast Asia, South Asia, East Asia, and Africa (Fig. 16.6). However, Chinese brands did not demonstrate competitiveness against peers and gain global visibility until after 2020.

Fig. 16.6

Source Corporate filings, company websites, xinhuanet.com, people.cn, Ministry of Natural Resources, CICC Research

China’s large home appliance companies have extensive global presence due to pursuit of geographic proximity to customers and M&A.

Midea Group: The company has an extensive global presence. As of end-2021, Midea had 20 R&D centers and 18 major production bases overseas, covering more than 200 countries and regions. Midea adopts a “China-based Supply for the World + Local Supply” model. The company builds smart manufacturing factories through its Midea Business System (MBS)¹⁰ business management system, automation, and informatization, and its T + 3 business model promotes an efficient business process across the entire value chain.

Haier Smart Home: The company aims to build a global brand while expanding its presence through establishment of new production facilities and M&A. As of end-2021, Haier had 122 manufacturing centers and 30 industrial parks around the world, serving 1bn households. As one of the first Chinese home appliance brands to go global, Haier has years of experience in operating factories in Pakistan, India, and Nigeria. It has further expanded global production capacity by acquiring GEA, FPA, Candy, and the white goods business of Sanyo.

16.4.2 Home Appliance Brands Increasingly Global Since 2020

Leading Chinese large appliance brands began their attempt to expand globally in the 2010s, which did not become a trend until 2020 when stay-at-home consumer demand surged after the outbreak of COVID-19. China’s home appliance exports grew considerably in 2020 and 2021 as China already took the lead in micro-innovation for many home appliance products and as e-commerce eroded traditional offline channels in Europe and the US. Companies vary in their brand globalization strategies and business models.

M&A: Haier has been widening its global reach through M&A for over a decade, and this has proven to be an effective strategy for large appliance firms given slow development of distribution channels. The company sells products that are locally produced considering transportation radius, and empowers acquired companies with better incentive systems, higher production efficiency, and faster R&D to boost their competitiveness. The acquisition of SharkNinja Technology, a US small home appliance leader, by Joyoung’s parent company has helped improve the efficiency of SharkNinja’s supply chain in China and boost its competitiveness in small home appliance markets in Europe and the US by introducing some leading Chinese product technologies (e.g., laser simultaneous localization and mapping [SLAM] algorithm for sweepers).

Product innovation: Roborock is a global leader in laser SLAM algorithms for robotic vacuum cleaners, offering more intelligent robotic vacuum cleaners than iRobot. The market share of Roborock rose rapidly around 2020, supported by Xiaomi’s distribution network and solid product performance in Europe and strong sales through Amazon in the US. iRobot, a leading robotic vacuum cleaner manufacturer in Europe and the US, has been losing market share in recent years as its products are less competitive than Chinese brands. In addition, Roborock has a different pricing method for its products compared to some traditional brands, selling products with similar configurations at lower prices in China and at higher prices overseas. With product upgrades, the price of Roborock’s highest-end product has exceeded that of iRobot’s highest-end product in the North American market.

Cross-border e-commerce: As global e-commerce expands rapidly, some cross-border e-commerce companies such as Anker Innovations Technology have stepped up investment in product R&D with their brands becoming more visible globally. In 2021, Amazon cracked down on illegal cross-border e-commerce operators on its site, resulting in large-scale store closures. Anker Innovations Technology, however, remained intact thanks to its successful transformation.

Production efficiency alone is not enough to push home appliance companies to take their brands global. However, China is now enjoying the fruits of its engineer dividend,¹¹ with continued product innovation. Combined with channel changes resulting from the impact of e-commerce on offline distribution channels, this has catalyzed the trend of globalization among Chinese home appliance brands. It is worth noting that Chinese home appliance companies still have a long way to go in terms of overseas brand operations.

16.4.3 Thoughts and Implications

Exogenous tariffs have affected the relocation of the global home appliance industry in recent years. However, we should pay more attention to endogenous factors that have been driving the development of China’s home appliance industry. It seems to be a natural and plausible choice for Chinese home appliance companies to expand their production capacity and brands globally as they become increasingly competitive in the international markets. Policies could be in place to support Chinese home appliance companies going global, in our view.

Leverage domestic success to cultivate coastal household appliance industry clusters in Southeast Asia. China has formed mature home appliance industrial clusters offering a wide range of products supported by a well-equipped industry chain. China can leverage this experience to collaborate with Southeast Asian countries on planning and cultivating new home appliance industrial clusters through trade agreements in a bid to strengthen industrial division of labor and cooperation. The government could take the lead in establishing industrial parks in foreign countries, and encourage Chinese home appliance companies to build factories there on a large scale. Efforts could also be made by the government to seek preferential treatment from local governments for the Chinese companies in the industrial parks, and leverage Southeast Asia’s advantages in labor costs and tariffs to benefit Chinese companies.

Cultivate and improve Chinese home appliance companies’ localization capabilities in overseas markets to help reduce risks in global expansion. Unlike Midea and Haier, which have rich experience in localization, the majority of Chinese home appliance companies are facing challenges from cross-cultural communication, lack of skilled professionals, and instability in overseas markets due to the lack of experience in overseas operations. Therefore, leading home appliance companies could be encouraged to share their experiences to help others localize their production and sales in overseas markets.

Adopt a multi-tiered capacity deployment approach in response to the relocation of the global home appliance. To strike a balance between capacity efficiency and supply chain security, China can deploy its low value-added production capacity in an efficient manner based on the principles of minimizing all-in costs and ensuring the availability of local supporting facilities, and retain the large-scale capacity that targets the Chinese and some overseas markets and most production capacity for core components.

Achieve a higher degree of import substitution in the home appliance industry chain through continued opening-up. The introduction of advanced technologies of global home appliance leaders through opening up the vast Chinese market marked the beginning of expansion of China’s home appliance industry. China continues its opening-up policy to reduce the long-term impact of technological constraints on innovation in the home appliance industry and mitigate the influence of certain policies in major overseas markets. The manufacturing of home appliances involves multiple industries, with core technologies mainly originating from upstream industries. The restraints on China’s high-end technology may undermine the innovation of China’s home appliance industry.

Turn technological advantages into standard-setting advantages through active participation in the formulation of international standards. International standards lay a technological foundation for global cooperation, and have become a lingua franca. The competition in standardization is essentially a competition in core technologies and innovation capabilities. China’s participation in international standards setting can help address the trade barriers facing China’s exports and holds the key to winning the international markets. It also plays a critical role in promoting advanced technologies of China and enhancing the visibility of Chinese brands. Large home appliance companies may be encouraged to participate in the formulation of international standards and supported to overcome technological barriers, thereby fully leveraging their advantages in core technologies to expand their capabilities.