Midea's Electrolux Acquisition Highlights the Emergence of Chinese Home Appliance Brands on the Global Stage

Although many Chinese home appliance brands are not as widely recognized outside of China, they have achieved remarkable success and outperformed several well-known brands today.

For instance, Midea's recent proposed acquisition of Electrolux might have surprised some consumers who are more familiar with the latter. However, contrary to popular belief, Midea is a much larger company than Electrolux. With a market capitalization of US$58 billion, Midea dwarfs Electrolux's US$4.3 billion.

According to Midea's FY2022 report, the company held US$8 billion in cash. This amount is nearly twice the entire market capitalization of Electrolux, indicating that Midea has significant financial resources to acquire the latter. Typically, such acquisitions are financed with a combination of cash and loans, which Midea could easily secure given its financial strength.

However, the current anti-China sentiment may pose a significant obstacle to the potential acquisition of Electrolux by Midea. The Swedish company may be reluctant to cede control of its brand to a Chinese company, given the political tensions between China and several Western countries.

It is worth noting that in the past, cross-border acquisitions in the home appliance industry were less complicated due to the lower levels of geopolitical rivalry. For instance in 2016, Haier, another Chinese home appliance company, was able to acquire General Electric's appliance division.

Haier's strategy for expanding its business beyond China was to focus on inorganic growth, mainly by acquiring brands with an existing customer base in other countries, rather than relying on organic growth.

This approach allowed Haier to leverage the vast amount of cash generated in China to quickly establish a presence in new markets without having to invest significant resources in building its brand from scratch.

Furthermore, acquiring established brands with a strong reputation for quality and reliability helped to overcome any consumer bias against Chinese brands, making it easier for Haier to gain market share and establish a foothold in new markets.

In addition to General Electric's appliance division in the US, Haier has successfully acquired a portfolio of global brands, including Fisher & Paykel in New Zealand, Candy in Italy, and Aqua in Japan.

As a result, more than half of Haier's revenue now comes from outside of China, indicating the company's successful penetration of global markets.

Midea, like Haier, has also successfully expanded its business beyond China and currently generates around 41% of its revenues from international markets. In addition to its own brand, Midea has acquired multiple brands, including Toshiba's appliance division, Eureka from Electrolux, and Kuka, a leading German industrial robotics company.

Today, Midea and Haier are ranked among the world's largest home appliance companies, alongside other industry giants such as Samsung Electronics, LG Electronics, and Mitsubishi Electric, in terms of their revenues.

It's worth noting that while Samsung Electronics and Mitsubishi Electric have larger overall revenues than Midea and Haier, this is in part due to their diverse range of business segments beyond home appliances. In contrast, Midea and Haier are more focused on the home appliance market, with a strong emphasis on white goods like refrigerators, air conditioners, and washing machines.

Despite their narrower focus on home appliances, Midea and Haier have been able to establish themselves as major players is certainly a commendable feat. It also reflects the sheer size of the Chinese market.

In terms of revenue growth, the Chinese brands have seen single digit growth in their revenues while the other Asian brands have largely saw a bigger bounce in their recovery. This can be attributed to the lockdown in China which has dented demand. The American brands suffered revenue declines likely due to the higher inflation that may have made consumers to delay their purchases.

We should expect a better growth rate from the Chinese brands in 2023 since China has opened up and the property measures have been relaxed.

The rise of Chinese home appliance brands has been impressive, and they have successfully expanded their reach to compete internationally while maintaining their hold on the domestic market. As a result, they now rank among the top global brands in terms of sales and market capitalization. With their strong financial position and strategic acquisitions, they are poised for further growth and are definitely companies to watch in the future.