Rural sales

Figures from the Ministry of Commerce showed that more than 9.61 million home appliances have been sold in the rural areas, totaling 16.2 billion yuan in sales, in the first half of this year.

The government's four-year plan is expected to boost the growth of retail sales of consumer goods by 2.5 percent in rural places and generate sales of 480 million units for home appliances across the country.

But Jiang, who once worked at Whirlpool, cautioned that foreign brands might have to adjust partnerships with local distributors to guarantee the quality of after-sales service.

Indeed, the battle on the rural field probably will be much fiercer than that in first-tier cities like Beijing and Shanghai, since brand recognition of domestic makers apparently is much higher among farmers and others in the countryside.

Apart from the reallocation of distribution channels to meet different requirements in rural areas, the major obstacles for foreign players in joining the appliance rebate program are how to promote their brands and reduce product prices, Jiang said.

Whirlpool, the maker of Maytag and KitchenAid, has had difficulty promoting names familiar in Western countries to Chinese markets.

The company has had a series of joint cooperation agreements with traditional Chinese brands such as Beijing Snowflake Fridge Factory, Shanghai Shuixian Electric Appliance Manufacturing and Shenzhen Lanbo Airconditioner Corp since its foray into China in 1994. But every partnership ended in failure.

In April, the US home appliance maker closed its 10-year-old washing machine plant in Shanghai, eliminating 600 jobs.

Production will be transferred to its joint venture factory with domestic electronics firm Hisense in Zhejiang province.

Market outlook

Worldwide, Whirlpool posted sales of $4.2 billion in the second quarter, down 18 percent from the same period last year, due to lackluster global sales in this economic downturn.

Asia, including China, was the best performer for Whirlpool. The company grew sales by 5 percent in Asia, even as sales in Europe and North America posted double-digit slumps in the second quarter.

It's still a bumpy road for Whirlpool in China because of barriers established by growing domestic brands and also because of the high-end refrigerator market dominance by earlier entrants such as Germany's BHS Bosch & Siemens and South Korea's Samsung, said Liu Buchen, an industry expert.

Whirlpool North Asia President Li Yan was quoted by local media earlier as saying that the company had suffered more than $100 million in losses since entering the Chinese market.

According to figures from the research firm Euromonitor International, Whirlpool's market share in domestic electrical appliances and home laundry appliances flattened to 0.4 percent and 4.5 percent by retail value, respectively, in 2008, from a year earlier. Its large kitchen appliances sector posted a drop of 0.1 percent to 1.4 percent during the period.

"White goods is an area that has to make profits through volume," Jiang of Frost & Sullivan said.

"The potential in the countryside will provide foreign players like Whirlpool the momentum to boost sales," Jiang said.

But, he added, the higher costs of foreign-made products will remain a challenge.

Whirlpool's Zhong said the company is actively developing products to meet the price range limitations established by the subsidy program.

(China Daily August 24, 2009)