High growth in fridges for Galanz in Zhongshan

Chinese appliance maker now has 5% of China's refrigerator market and is adding capacity inland

By Liz White, editor

Chinese appliance maker Galanz has given its executives a tall order: top management's strategy is for Galanz to double its sales to Rmb 100 billion ($16 billion) in three years, across the whole range, according to DingLian Ma, refrigeration department general manager.

As a result, its relatively new fridge business will have to play a major role in the expansion since fridges are rather higher value products - average sales price Rmb 2000 - than other Galanz products such as induction cookers (say Rmb 50) or microwave ovens (at Rmb 500).

This may be possible, because despite reports that a brake has been put on China's rapid economic expansion, Ma said: "Orders for fridges do not appear to have slowed." In domestic refrigerators, growth may still be 50 percent annually, he said, in a 17 Sept interview at Galanz's Zhongshan facility.

Such dramatic rates are possible because fridge ownership per household in China is still quite low.

Galanz was set up 25 years or so ago as a textile company, later expanding into electrical goods. Its location on the Pearl River Delta is ideal for moving goods around, and also for export via Hong Kong's port facilities.

It has become a huge producer of microwave ovens, with perhaps 50 percent of the world's microwave ovens now made by this one Chinese producer.

It also makes washing machines, dishwashers, air-conditioning units, rice cookers, and five years ago moved into refrigerator production, building this up to 3.5 million units a year at present, said Ma. Its turnover in fridges is now some Rmb 2.8 billion a year, out of total Galanz turnover of Rmb 50 billion.

The company's 100 000-m2 fridge plant, on a massive complex in Zhongshan city, in Guandong province, employs 1000 out of Galanz's total of 50 000 employees.

 New plant planned for Anhui

Galanz plans to invest more in the fridge operation, and is currently spending Rmb 10 billion to build a new fridge plant in Anhui province. Many major fridge makers have already invested in Hefei, in Anhui, and it is now the refrigerator hub of China, but Galanz is building in a nearby town, Ma said.

Galanz has bought and cleared the land, but has not yet set a timetable for start-up. The plant will be bigger than the Zhongshan fridge one, and Galanz will move production of its bigger refrigerators there, Ma said.

Galanz fridge production is about 5 percent of China's total production of 70 million units, but Ching Kwock Leong, deputy general manager of Cannon Far East Pte Ltd, noted that the current installed capacity for fridges in China may be double or 2.5 times that.

Galanz exports about 50 percent of its production, with 60 percent going into the Americas, and 40 percent into Europe. A tour of the plant showed the range of European fridge makers that Galanz supplies OEM equipment for: Philco, Proline, Frigidaire, Nostalgia, and more.

Ma said Galanz also sees good growth opportunities in Africa, where one of its competitors, Hisense, has set up plants, one in South Africa and a JV in Egypt.

China's government has stopped direct consumer subsidies for fridges, but a new scheme means Galanz gets an Rmb 200-400/appliance subsidy if models have an A*** ranking, signifying low energy use.

Ma said Galanz uses cyclopentane (CP) as blowing agent, which does not give the highest level of thermal insulation, but its ozone depletion potential is good, so it is a compromise.

In future, most appliances will be produced to meet the top energy ratings, since these are the only ones that consumers will buy, he feels.

For systems, Galanz buys in pre-blended polyols from two major suppliers, BASF and Yantai Wanhua, and uses Cannon equipment to premix CP into the materials.

 Pushing up exports

Galanz does not make freezers at present, or industrial/commercial refrigeration equipment.

Its current strategy is to maintain its position in the domestic market and grow the export business, since it has a lot of sales and marketing routes here already, for its various white goods.

The group also wants to sell more own-brand models, and raise the brand profile globally. Domestically it uses the Galanz name, which is well known within China, but overseas, brand recognition for Galanz is much lower, Ma thinks.

The company has investigated the possibility of setting up plants outside China, in Russia or India, where cost of labour is one consideration, as is the condition of the outlet market, Ma said. Galanz has not yet made a decision on going down this route, he said.

Galanz remains privately owned, Ma pointed out, and is also cash rich, so the local authorities would like it to go public, Ma commented.

Local government in Zhongshan is relatively liberal and helpful to industrial groups, Ching said, with manufacturing permits relatively easy to obtain.

But labour is now cheaper in the inland regions, for example in Anhui province, where all Chinese refrigerator groups - Hisense, Haier, Meiling etc - have plants.

Manufacturing wages have risen to Rmb 3000/month, while 20 years ago they were only Rmb 300/month, Ching said

As with many Chinese groups, about half of Galanz's workforce is from inland China. Ma said they have good conditions and Galanz provides them with housing and food.

There is pressure on companies as salaries rise, and both Ma and Ching also referred to the "pampered child" phenomenon, where educated youngsters no longer want to work in the family business, or in manufacturing.

Galanz does all its own part making, buying in raw material for the plastic and metal casings, Ching pointed out. That means it can control costs much more than competitors who buy in pre-formed fridge liners, for example.

It has some 50 000 units in stock, and ships out 7000 fridges a day, working two shifts a day, in fridge making.