23 May 2019

Dong bets a billion yuan but what was she thinking?

Remember the 100 million yuan bet Alibaba founder Jack Ma {馬雲} made against Wanda boss Wang Jianlin {王健林} that e-commerce would soon account for half of China’s retail sales?

The stakes have gone up to 1 billion yuan, but this time, the wager is between Gree Electric Appliances (000651.CN) president Dong Mingzhu {董明珠} and Xiaomi founder Lei Jun {雷軍}.

Like the men before them, Dong and Lei sealed the bet on national television. It made for some amusing viewing.

Dong bet 1 billion yuan that Xiaomi will not top Gree’s sales in five years. Lei promptly accepted and all that is left now is the long wait.

Dong and Lei both come from Zhuhai city in Guangdong province, emerging as local champions to become major national players.

But their business styles are vastly different. Dong presides over a 23-year-old company with annual turnover above 100 billion yuan (US$16.47 billion).

It prides itself on an established vertically integrated business model that covers everything from research and development to manufacturing, marketing and after-sales service.

Gree has nine large manufacturing plants, more than 70,000 full-time employees and about 30,000 points of sales across the country.

By contrast, Xiaomi, which has become synonymous with a blockbuster handset brand, has a staff of 4,000 and has no manufacturing capacity or distribution network.

But Xiaomi has its own strengths. By outsourcing parts and assembly and selling the finished product exclusively online, it is able to offer top-spec smartphones at very competitive prices.

In just three years, Xiaomi has become something of a phenomenon in the mainland. Its 2013 revenue is expected to top 30 billion yuan.

None of that, however, impresses Dong who thinks Xiaomi’s breakneck growth is unsustainable without the underpinning of real industrial fundamentals.

She said Xiaomi is too dependent on outside manufacturers and any disruption in their operations could ruin the brand, and ultimately, the company.

That’s saying it in so many words but Dong also put her money where her mouth is.

She used the Economic Persons of the Year Awards ceremony on CCTV to throw down the gauntlet to Lei.

Now we shall see if this match-up between proponents of traditional manufacturing on one hand and outsourcing on the other will come to pass.

– Contact the writer at [email protected]



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