On March 17, 2006, the Xinfei Group Special Purpose Vehicle Industrial Park officially commenced construction in the Xinxiang City Development Zone of Henan Province. The project is planned to invest a total of 1 billion yuan, with the first phase investing 300 million yuan and aiming to produce 10,000 special vehicles annually, expected to be completed by the end of 2007. The second phase will see an investment of 700 million yuan, targeting an annual output of 30,000 special vehicles, with completion scheduled for 2010.
At a time when the Chinese government was pushing for adjustments to address overcapacity in the auto industry, Xinfei’s move into automotive manufacturing raised some eyebrows. Wang Huanmin, president of the Special Automobile Branch of the China Association of Automobile Manufacturers, remarked that although Xinfei started as a home appliance company, its bold entry into the automotive sector was worth noting. “While not a newcomer to the auto industry, their level of commitment and investment is impressive,†he said.
The special vehicle sector, however, is not without its challenges. In March of this year, the State Council issued a circular urging faster adjustment of industries suffering from overcapacity, with the automobile sector identified as one facing significant overproduction. Wang questioned whether similar issues existed in the special vehicle field. “Yes, there are problems. Many companies have rushed into producing basic special vehicles without fully understanding the market, leading to inefficient overcapacity. However, high-tech products remain in short supply,†he explained.
According to industry experts, while the auto sector faces overcapacity, it still offers higher profit margins than the home appliance industry. Some analysts even suggest that the average profit rate in the automotive industry is more than three times that of the home appliance sector.
Since 2002, many home appliance companies have entered the auto industry, driven by rapid growth in the Chinese automotive market. Companies like Midea, Chunlan, BYD, and Xinfei have all made significant investments. However, not all have succeeded. For example, Oaks Group's attempt to enter the car industry ended in failure, highlighting the risks involved.
Experts warn that while home appliance companies bring strong financial resources and market experience, the auto industry is highly capital- and technology-intensive. “It’s not easy to succeed in such a competitive environment,†Wang noted. “Home appliance firms must proceed with caution.â€
Diversification has become a common strategy for many home appliance companies, often due to shrinking profits in their core businesses. However, not all diversifications lead to success. Oaks’ failed venture into automotive production serves as a cautionary tale. Its lack of brand recognition, weak product positioning, and insufficient industry expertise led to its eventual withdrawal.
Corporate diversification can be a way to reduce risk, but it requires careful planning. Ideally, new ventures should complement existing ones. The auto industry, with its high barriers to entry and intense competition, demands long-term commitment and substantial investment. As the market becomes more rational and regulations tighten, outsiders face an uphill battle.
In conclusion, while some home appliance companies have successfully expanded into the automotive sector, others have struggled or failed. Experts believe that diversification is natural for growing firms, but it requires strategic thinking and a deep understanding of the new industry. For those who fail, returning to their core business may be the most rational choice.
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