By Zhou Lei, Chang Li, and Li Ruping

According to CE Home Appliance Industry Prosperity Index Report, the home appliance industry prosperity index in 2011 has been falling back quarter by quarter in 2011, dropping to 99.0 points in the 4th quarter, around the average level in the past decade. With the expiration of incentive policies such as the first demonstration program of "home appliances going to the countryside", the "air conditioners energy conservation and citizens benefit program", and home appliance trade-in, and the slowdown of the recovery of the world economy, the home appliance industry has entered an adjustment period after its previous rapid development.

For many air conditioner companies, the year 2011 has been a year of violent ups and downs, full of tribulations. Contrary to the explosive demands in the air conditioner market in the early period of the year, situation in the market has changed radically since the 3rd quarter, domestic demands diminishing, orders decreasing sharply, inventory piling up, and some companies having more difficulty in production and operation, with some even suspending production or cutting down the workforce. Complaints are heard across the air conditioner industry.

How's the production and operation of Gree, the leading company of the air conditioner industry? In early January, the research team of CE Industry Prosperity Index conducted an extensive study in Gree Electric Appliances. 

The production line is running at high speed. The No.3 Air Conditioner Factory is Gree's assembling factory that has the largest number of and most complicated air conditioner models. It is oriented for the international market, with an annual air conditioner production capacity of 7 million units. Presently, all the 7 production lines in the factory are running at full capacity, and workers are working in three shifts. Under the banner that reads "Build top-quality air conditioners for the world and spread China's national industrial spirit", parts of air conditioners are being carried to their designated locations swiftly through the suspension baskets, and workers are assembling the parts attentively along the production line of more than 200 meters. It takes only 12 seconds to complete the outdoor unit of an air conditioner.   

The warehouse of finished products circulates smoothly. The warehouse of Gree in its Zhuhai base takes up an area of 200,000 square meters and its annual production of more than 20 million units of air conditioners are distributed to markets home and abroad from here. Containers lines up in front of the warehouse, forklifts are busying loading Gree's branded and OEM products, and large transporters are seen frequently. According to Hu Wenfeng, director of the finished products warehouse, they are working in two shifts, day and night. The faster products come in, the more are shipped, and there is no overstocking. It is now the busy season for export. 300 containers of air conditioners are shipped overseas every day, and more than 50 are shipped domestically. Shipment volume is slightly higher than that in the same period of last year.

Sales are very good in franchised stores. Gree Electric Appliances has more than 10,000 franchised stores, which constitute its main sales channel of air conditioners. In one of Gree's franchised stores in Zhuhai, there are plenty of models that are very eye-catching, including the floor-standing I series that have space capsule bodies, the ultra-thin wall-hung U series that have a thickness of only 15.3 cm, and the ultra-quiet bedroom series. There are many enthusiastic customers in the store. Ms. Gu who is making payment at the cashier tells the reporter that she needs 4 air conditioners for her new house, and she has learned that Gree's air conditioners have good quality and power efficiency, so she is buying Gree's products now. Employees in the store suggest that the price of Gree's air conditioners is higher than that of similar air conditioners of other domestic brands, but it doesn't affect sales in the store at all. 

Technology wins opportunities

"Although exterior conditions are not optimistic, Gree's overall performance is very good. Sales continue to grow in all four quarters of 2011, and gross profit has increased. Generally speaking, Gree has outperformed the industry", Wang Jingdong, vice president of Gree, told the reporter. Wang points out that although the air conditioner market has passed its popularization phase and overall growth rate is slowing down, product structure adjustment can bring new development opportunities to the enterprise. 

According to the latest report of China Household Electrical Appliances Association, in 2011, the proportion of the sales of high-performance, high energy-efficiency, and large-volume home appliances have increased, and inverter products are favored by consumers. Monitoring statistics from 6,884 franchised stores show that from January to November 2011, the proportion of the sales of inverter air conditioners is 47.5 percent, 19 percentage points higher than that in 2010, and the proportion of the retail revenue of inverter air conditioners is as high as 54.74 percent, replacing fixed-speed air conditioners as the new momentum for the growth of the retailer revenue of air conditioners. 

Gree has been a leader in this tide of consumption switch to new generation air conditioners. According to industrial monitoring, as of October 2011, the market share of Gree's inverter air conditioners was increased to 46.79 percent, selling 1.07 million units of inverter air conditioners in the month, an increase of 122.92 percent compared to the same period in last year. Since the beginning of the year 2012, Gree has shipped a total of 3.334 million units of inverter air conditioners, an increase of 143.84 percent compared to the same period of last year, scoring a high growth rate on a large base number.

The high growth of Gree benefits from the company's mastering the key technology of frequency variation. Energy conservation and comfort are two prominent features of inverter air conditioners. While maintaining constant temperature indoors, the variable-frequency air conditioner compressor provides better energy efficiency and comfort when it is running at lower frequency. Presently, in terms of low-frequency control, the best technology international tycoons can achieve is keeping the frequency as low as 8Hz while maintaining stable operation. After painstaking efforts, Gree's researchers managed to develop the G10 low-frequency control technology that can keep an inverter air conditioner running stably at a frequency of 1Hz, greatly outperforming international counterparts. It is an internationally leading technology, and has won 7 invention patents in China and abroad. 

"Mastering the frequency variation technology independently can not only significantly improve the performance and quality of the products, but also greatly reduce the cost and accelerate market penetration", said Zhang Youlin, vice president of the Cooling Technology Research Institute of Gree Electrical Appliances, who gives us some numbers: at the beginning of this century, the price of Gree's inverter air conditioners whose essential parts were imported and assembled by Gree was RMB8,000 Yuan, now, with proprietary core technology, the U-series inverter air conditioners are sold at a price of about RMB3,000 to 4,000 Yuan, a drop of about 50 percent. The lowering of the threshold enables good products to go into more households.

"Now, the spring for inverter air conditioners has indeed come", Zhang Youlin, who has been involved in the R&D of frequency variation technology in Gree, said reminiscently with sentiments. Gree's frequency variation technology research team engages mainly in fundamental research. No essential result was yielded in the first 4 years, but the company continues to provide full support. Investment into Gree's research is distributed according to needs, with no cap set. In 2010, the R&D expenditure was as high as RMB3 billion Yuan. Currently, Gree has 3 research institutes and more than 5,000 R&D researchers. With its efforts, Gree Electrical Appliances has applied for more than 4,000 technology patents in China and internationally, and 2 more patents are created every day.