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Last year, Carrier announced its JV with China-based Midea. Carrier already has a name in the Indian market but brings only commercial ACs to the new JV, while Midea has a whole range of consumer electronics products, including ACs. Will Carrier be able to hold its own at the retail end or will it be overwhelmed by the Midea range?
Founder & CEO, Milagrow Human Tech
In Carrier, Midea saw an opportunity to enter a challenging market like India while Carrier saw a saviour in Midea
When I was the managing director of Electrolux India from 2003 to 2005, we built two new product categories into our portfolio — ACs and microwave ovens. Midea was the preferred supplier for both.
The quality, range, turnaround time and prices were all excellent. From that time on, I have become a believer in Chinese quality.
Initially, the cost of an India entry had scared Midea. India, with its vast landmass and diversity of languages, media, religion, etc, is a puzzle to most foreign organisations and especially those which are not already established brands or do not have a rich marketing DNA.
But first, there is a need to understand the mindset of the Chinese OEM/ODM manufacturer like Midea. These corporations have grown very big by supplying to the big and small brand owners across the globe. They have huge factories and their driving imperative is continuously running factories on a full capacity. These companies are good at manufacturing and cost-cutting. They can also do a very fast renewal of the designs, moulds, etc to give the product range a fresh look every six months. Their R&D, however, is not driven by path-breaking innovations but efficiencies and market mirroring.
Midea is a $25 billion organisation, with 150,000 employees, and is among the Top 25 public companies in Asia, according to Forbes. It has more than 25 successful product categories. Most of the categories have grown on the back of strong OEM/ODM relationships, and it is a major player in the contractual/OEM business. It’s only in the last 10 years that the company has woken up to the idea of the brand and profitability, having witnessed the success of brands like Haier, Lenovo, Huawei, etc. In smaller countries where the business volume is small, Midea does not need to do much – the local importers are already importing under the Midea brand and when they become successful Midea just moves in. Problem arises when they have to encounter well entrenched global and local brands in big markets like India.
Now let us look at Carrier. Once the preeminent air-conditioning brand worldwide, which still has substantial technology and heritage, it is struggling to compete with its Asian competitors in the retail segment on cost-competitiveness. So the best approach for Carrier, like Whirlpool or Electrolux before it, was to start to source from low-cost production centres like China. But once the Korean companies set up factories in China, they had the edge on brand as well as cost-competitiveness. As they started to get aggressive, brands like Carrier faced the heat. The best bet then was to make their suppliers like Midea their partners in the changing market. This provided the Chinese companies with opportunity to learn about the new markets without having to incur the huge cost and risk of building the brand, sales and distribution. In fact, Carrier and Midea had JVs in China, Egypt, Brazil, Argentina and Chile before the Indian market.
After entering India in late 1980s, Carrier became the overnight technology leader. By early 1990s, it was the market leader. But the advent of LG in the late 1990s changed the marketplace for ever. I headed LG sales and marketing at that time. The South Korean company was very aggressive and companies like Carrier were caught napping. By 2010 Carrier was almost bleeding in the retail market with its market share at an all-time low.
The market for air-conditioners, however, was growing rapidly and reached almost 5 million in 2011. Midea was the major supplier to Indian brands like Voltas, Onida, Videocon, etc. It was also eyeing the market under its own brand. In Carrier, it saw an opportunity while Carrier saw a saviour in Midea. Midea got the sales and distribution and Carrier got the low-cost manufacturing. It was a win-win. However, it's too early to say whether they still will be able to fight the might of the Koreans!
Associate Director, Ipsos Business Consulting
Carrier should look at utilising the technology expertise of Midea to introduce products targeted at the mass segment
India’s consumer durables market may have come a long way since the advent of Korean players such as LG and Samsung in the 1990s, however, consumers continue to be price-conscious and demanding. Falling gross domestic product (GDP), spiralling cost of raw materials due to depreciation of the rupee, and changes in the norms of star ratings by Bureau of Energy Efficiency (BEE) have made it challenging for the companies to grow profitably. While approximately 80 per cent of the country’s air conditioning market belongs to the residential segment, the rest makes up the commercial segment. Currently, Carrier India has only about 4 per cent of the former.
After a downturn in 2011, the residential AC market bounced back last year with a growth of approximately 6 per cent by volume. It is expected to witness a further growth of around 8 per cent this year on the back of increasing awareness of interest-free loans and severe summer this year.
Contrary to the industry trend, Carrier has been losing its already insignificant market share. As part of the JV, while Carrier is selling residential ACs for now, Midea is looking to introduce its range of consumer appliances, including ACs, water dispensers and microwave ovens.
I think the best way for both Carrier and Midea to take this JV forward would be to draw lessons from what has happened with both domestic and multinational companies in the consumer durables space in India. For instance, LG, which was the market leader till 2010 in the residential AC segment with approximately one-third market share, lost its leadership position by a long way to Voltas in 2012. The unique positioning of Voltas’ ‘All Weather’ AC, supported by aggressive marketing, increase in consumer touchpoints across the country, among other things, did the trick for them.
On the other hand, LG suffered due to product issues, after-sales service and lack of innovative marketing strategies. Also, Panasonic, which had bet on its ‘cube’ model and set itself a target of 15 per cent market share in 2012, could only marginally better their 2011 position as it could not live up to consumer expectations.
Over the years, consumer research has established that the Indian buyer is suspicious of the quality of consumer durables manufactured in China. For instance, Haier’s market share has been stagnant in India during the last few years. Carrier is considered as a premium brand; however, the company has failed to capitalise on their equity with the Indian consumers over the years and expand their presence in the residential AC segment.
With Carrier forming a joint venture with Midea, one of the leading residential air conditioning manufacturers in the world, it could be a win-win situation for both the companies.
Carrier should look at utilising the technology expertise of Midea to introduce products targeted at the mass segment (which they couldn’t possibly do till now) as the demand from the Tier II and Tier III cities is increasing whereas Midea can make use of the large distribution network (which is one of the most critical success factors for any foreign company in India) to successfully enter and establish in the Indian market for their wide range of consumer durable products.
Since the Indian consumer is not familiar with Midea, co-branding a few products could help the company in leveraging Carrier’s brand equity as well as counter players such as LG and Samsung who have well developed product range and brand in the consumer durable sector in India.
With the rising buying power of the Indian middle class and their appetite for such consumer durables increasing, both Carrier and Midea should invest in anticipation of the continued momentum to expand their footprint and become a ‘challenger’.
