In­ter­net means chal­lenges, op­por­tu­ni­ties for in­dus­tries

Man­u­fac­tur­ers find the In­ter­net isn’t just a tool for in­creas­ing sales— it’s also a way to im­prove cor­po­rate man­age­ment and ef­fi­ciency, re­ports Qiu Quanlin

China Daily (Canada) - - BUSINESS -

While many Chi­nese man­u­fact u r i n g com­pa­nies see the In­ter­net as a big chal­lenge to their businesses, a grow­ing num­ber of tra­di­tional in­dus­trial man­u­fac­tur­ers have found an­other tac­tic.

They’re pre­par­ing for op­por­tu­ni­ties cre­ated by the fast- de­vel­op­ing in­dus­try. They’re co­op­er­at­ing with In­ter­net ser­vice providers in a va­ri­ety of ways and us­ing the Web as a way to im­prove cor­po­rate man­age­ment and pro­duc­tion ef­fi­ciency, not to men­tion sell­ing their prod­ucts on­line.

In a typ­i­cal case, Guang­dong Al­pha An­i­ma­tion and Cul­ture Co, which has op­er­a­tions rang­ing from an­i­mated pro­gram pro­duc­tion to toy man­u­fac­tur­ing and comics, an­nounced plans in Fe­bru­ary to co­op­er­ate with Ten­cent Hold­ings Ltd, the coun­try’s largest and most vis­ited In­ter­net ser­vice por­tal, to de­velop on­line gam­ing prod­ucts.

“The In­ter­net has been grad­u­ally in­te­grated into al­most ev­ery tra­di­tional sec­tor. It will pose great chal­lenges, as well as bring about op­por­tu­ni­ties, to the tra­di­tional man­u­fac­tur­ing in­dus­try,” saidLei Jun, founder and chief ex­ec­u­tive of­fi­cer of Chi­nese smart­phone pro­ducer Xiaomi Corp.

The na­tion’s In­ter­net in­dus­try has grown to a huge scale, with three Chi­nese com­pa­nies rank­ing among the world’s top seven In­ter­net ser­vice providers, ac­cord­ing to Lei.

The value of China’s In­ter­net ser­vice in­dus­try in­creased by 42 per­cent last year to 647 bil­lion yuan ($105.3 bil­lion), and it is ex­pected to sur­pass 850 bil­lion yuan in 2015, ac­cord­ing to the Min­istry of In­dus­try and In­for­ma­tion Tech­nol­ogy.

“The In­ter­net pro­vides sym­met­ric in­for­ma­tion to cus­tomers and brings high ef­fi­ciency to busi­ness. As a re­sult, it de­vel­ops very fast,” Lei, also a deputy to the Na­tional People’s Congress, said dur­ing the an­nual leg­isla­tive ses­sion.

Xiaomi’s model— fo­cus­ing on prod­uct re­search and sales while out­sourc­ing man­u­fac­tur­ing— has proved suc­cess­ful, ac­cord­ing to Lei.

The mo­bile In­ter­net com­pany of­fers high-ca­pac­ity smart­phones at a price be­low 2,000 yuan, not much above fac­tory cost.

“We are not mak­ing or­di­nary phones, which are only used for call­ing and send­ing text mes­sages,” Lei said.

Lei noted that Xiaomi’s prof­its come from broad use of on­line ap­pli­ca­tions by cus­tomers.

“Ro­bust In­ter­net de­vel­op­ment in re­cent years has pro­vided huge op­por­tu­ni­ties for tra­di­tional businesses. Like many other businesses, we are tak­ing this op­por­tu­nity to en­ter the smart­phone in­dus­try,” Lei said.

The busi­ness model, which re­lies mainly on the In­ter­net at ev­ery stage from de­sign­ing to de­vel­op­ing ap­pli­ca­tions to

im­prov­ing users’ ex­pe­ri­ence, has helped greatly boost rev­enues for Xiaomi, ac­cord­ing to Lei.

“We are to­tally dif­fer­ent from tra­di­tional mo­bile phone man­u­fac­tur­ers, which only fo­cus on de­sign, pro­duc­tion and sales while ig­nor­ing on­line ap­pli­ca­tion de­vel­op­ment and com­mu­ni­ca­tion with users,” Lei said.

Xiaomi, which was es­tab­lished only in 2010, has set an ag­gres­sive tar­get of 100 bil­lionyuanin salesnext year. Sales last year rose 150 per­cent to 31.6 bil­lion yuan, Lei noted.

“Our smart­phones are not only de­vel­oped by the com­pany but also by an in­creas­ing num­ber of users, who are al­ways help­ing us im­prove the qual­ity,” Lei said.

In a pro­posal to the an­nual NPC ses­sion, Lei said the govern­ment should ex­pand free Wi-Fi fa­cil­i­ties and fourth-gen­er­a­tion net­works to fa­cil­i­tate wide use of the mo­bile In­ter­net.

“From users, oper­a­tors and smart­phone mak­ers to on­line ap­pli­ca­tion de­vel­op­ers, there has al­ready been huge mar­ket po­ten­tial brought about by the mo­bile In­ter­net,” Lei said.

Lei also sug­gested the govern­ment should use the In­ter­net in­dus­try as part of the na­tional de­vel­op­ment strat­egy.

“The In­ter­net will help up­grade the tra­di­tional man­u­fac­tur­ing in­dus­try,” Lei said.

Lei en­cour­aged tra­di­tional Chi­nese man­u­fac­tur­ers to op­ti­mize their busi­ness mod­els by be­com­ing ac­tively en­gaged in the In­ter­net, as “the boom­ing in­dus­try will bring huge busi­ness growth”.

In ad­di­tion to open­ing more flag­ship stores this year, Gree Elec­tronic Ap­pli­ances Inc, one of the most com­pet­i­tive man­u­fac­tur­ers of air con­di­tion­ers in China, will bet­ter pro­mote prod­ucts on­line and use the In­ter­net to im­prove its pro­duc­tion and man­age­ment ef­fi­ciency, said Dong Mingzhu, pres­i­dent of Gree.

“No­body can ig­nore the pow­er­ful chal­lenges and op­por­tu­ni­ties that the In­ter­net in­dus­try has brought about. For Gree, we’re us­ingthe In­ter­net ser­vi­ceno­tonly in sales­but also in cor­po­rate man­age­ment and tech­nol­ogy re­search in the past fewyears,” Dong said.

Rais­ing ef­fi­ciency by us­ing the In­ter­net is the only way to meet the needs of in­creas­ingly de­mand­ing cus­tomers, and man­u­fac­tur­ers need to turn to the In­ter­net and tech­nol­ogy to cope with rapid change, ac­cord­ing to Dong.

Al­though Gree’s growth plan will fo­cus more on in­no­va­tion and tech­nol­ogy to im­prove prod­uct qual­ity, Dong said Gree won’ta­ban­done-com­merce, since the­com­pany has started to sell prod­ucts on its web­site.

“As an emerg­ing sales chan­nel, e-com­merce would com­ple­ment, rather than re­place, the tra­di­tional model,” she said.

Me­dia re­ports have said Gree will co­op­er­ate with mo­bile In­ter­net com­pa­nies, in­clud­ing smart­phone maker Meizhu Tele­com Equip­ment Co and Huawei Tech­nolo­gies Co, to de­velop an on­line to off­line plat­form.

“So far, we have not reached any deals with these In­ter­net ser­vice providers. But we will def­i­nitely in­tro­duce strate­gic in­vestors to help ex­pand our busi­ness in the near fu­ture,” Dong said.

Dong­said the­com­pany“won’t give up” on the In­ter­net, since it helps greatly im­prove pro­duc­tion and man­age­ment ef­fi­ciency.

“We have de­vel­oped a big pro­duc­tion and sales net­work, which can be thor­oughly mon­i­tored by a live on­line data sys­tem,” Dong said.

At the com­pany’s head­quar­ters in Zhuhai, Guang­dong prov­ince, cus­tomers’ use of Gree’s air con­di­tion­ers across the globe can be recorded.

“We can de­tect faulty prod­ucts in a timely way through the data sys­tem and pro­vide prompt main­te­nance. In the past, con­sumers were only of­fered such ser­vice af­ter they re­ported prob­lems,” Dong said.

Dong said man­u­fac­tur­ing still has ad­van­tages if it is well in­te­grated with the boom­ing In­ter­net in­dus­try.

“In the In­ter­net era, I don’t think man­u­fac­tur­ing is at the lower end of the in­dus­trial chain. For tra­di­tional man­u­fac­tur­ers like us, giv­ing pri­or­ity to tech­nol­ogy and in­no­va­tion by us­ing the In­ter­net will help main­tain sus­tain­able busi­ness growth,” Dong said.

Gree’s sales rose 20 per­cent last year to 120 bil­lion yuan, ac­cord­ing to the com­pany. Sales are ex­pected to in­crease by 20 bil­lion yuan an­nu­ally in the next four years, lifted by ef­forts to im­prove the qual­ity of its core prod­uct of air con­di­tion­ers, ac­cord­ing to Dong.

Gree’s own-brand air con­di­tion­ers have been shipped to more than 100 coun­tries and re­gions, ac­cord­ing to Dong.

“We are no longer en­gaged in orig­i­nal equip­ment man­u­fac­tur­ing. As a tra­di­tional man­u­fac­turer, build­ing an in­ter­na­tion­ally rec­og­nized brand is one of our ma­jor tar­gets,” said Dong, who is also an NPC deputy.

Dong said the com­pany will also open more flag­ship stores, given that Gree’s prod­ucts are quite dif­fer­ent from some other con­sumer goods.

“Shoes and gar­ments, for ex­am­ple, don’t need in­stal­la­tion or af­ter-sales ser­vice,” said Dong, adding the com­pany will in­tro­duce more tai­lored ser­vices for cus­tomers at its flag­ship stores.

“For tra­di­tional man­u­fac­tur­ers, In­ter­net ser­vice should not only be used in sales but also in cor­po­rate man­age­ment and prod­uct re­search to im­prove ef­fi­ciency,” Dong said.

Li Dong­sheng, a na­tional law­maker and chief ex­ec­u­tive of­fi­cer of TCL Corp, one of China’s leading con­sumer elec­tron­ics mak­ers, said do­mes­tic man­u­fac­tur­ers should fo­cus more on in­no­va­tion, not only in tech­nol­ogy but also the emerg­ing In­ter­net busi­ness model.

“Fac­ing the chal­lenge of the boom­ing In­ter­net in­dus­try, we need to give pri­or­ity to im­prov­ing the qual­ity of our prod­ucts by in­vest­ing more in tech­nol­ogy. More­over, we need to de­velop new busi­ness mod­els that are well in­te­grated with the In­ter­net,” Li said.

At a panel dis­cus­sion dur­ing the an­nual NPCses­sion, Li said the com­pany, which has a large mar­ket share in TV sets, has also de­vel­oped smart­phones.

The­com­pany’s sales of smart­phones grew by 56 per­cent year-on-year in 2014, ac­cord­ing to Li.

TCL’s ex­ports rose 37 per­cent last year, be­com­ing an en­gine of the com­pany’s growth. Sales were up 23 per­cent to 85.5 bil­lion yuan, ac­cord­ing to Li, and the com­pany aims to record sales of more than 100 bil­lion yuan this year.

In the Re­port on the­Work of the Govern­ment, Pre­mier Li Ke­qiang said China will pro­mote in­for­ma­tion con­sump­tion and im­ple­ment China’s broad­band strat­egy.

“We will en­cour­age the cre­ative de­vel­op­ment of e-com­merce,” said Li, while de­liv­er­ing the re­port to deputies to the NPC and mem­bers of the Chi­nese People’s Po­lit­i­cal Con­sul­ta­tive Con­fer­ence.

China’s e-com­merce mar­ket grew more than 25 per­cent last year to sur­pass 10 tril­lion yuan, ac­cord­ing to the Na­tional De­vel­op­ment and Re­form Com­mis­sion.

That grow­ing mar­ket means fur­ther chal­lenges to the tra­di­tional busi­ness model of man­u­fac­tur­ers, an­a­lysts said.

“It also means po­ten­tial op­por­tu­ni­ties for man­u­fac­tur­ers that are will­ing to be ac­tively en­gaged in the boom­ing e-com­merce, sec­tor” said Feng Sheng­ping, chief re­searcher of the Guang­dong Provin­cial Sit­u­a­tion Re­search Cen­ter.

Feng urged do­mes­tic man­u­fac­tur­ers to fo­cus more on the over­seas mar­ket by pro­mot­ing and sell­ing prod­ucts on the In­ter­net to help re­duce op­er­at­ing and sales costs. Con­tact the writer at qiuquanlin@chi­

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