Internet means challenges, opportunities for industries [China Daily: Hong Kong Edition]
(China Daily: Hong Kong Edition Via Acquire Media NewsEdge) 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
While many Chinese manufacturing 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," said Lei 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 billion yuan in sales next 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 using the Internet service not only in sales but also in corporate management and technology research in the past few years," 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't abandon e-commerce, since the company 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.
Dong said the company "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 NPC session, Li said the company, which has a large market share in TV sets, has also developed smartphones.
The company'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 the Work 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.
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(China Daily 03/14/2014 page13)
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