The Beginning (1983 to 1986)

Like the majority o f the Chinese top refrigerator producers, the predecessor o f ChinaCo2 was a small-scale state-owned light machine factory established in 1951.

During the planned economy period, the heads o f the factories were accustomed to producing and selling their products according to plans handed down from higher authorities. By the early 1980s, it had long been a poorly managed and unprofitable factory whose workers were on low pay. The main reason for its loss-making was poor sales. The factory had to borrow money to pay the 300 workers’ wages. Under these circumstances, the Municipal Economic Committee appointed a new director for the factory. He had originally been a cadre in a government agency and was considered able to pull the factory out o f its bad financial situation. With strong market consciousness and personal ability, the new director played a vital role during the development process of the factory over a period o f twenty years and he is regarded as the de facto founder o f ChinaCo2.

The first important decision o f the new director was to stop producing the traditional unsaleable light machines and look for new products for the market. After a market survey, he believed that refrigerators would have a good future in the Chinese market.

He submitted a proposal to the local government and asked for investment. According to the experiences of other refrigerator factories at that time, an investment o f at least 6 million yuan was needed to build a production line. However, the high-level institutions of the city only loaned the factory 0.98 million yuan, as they doubted the future of refrigerators. In spite of different opinions among the managers, the director stuck to his opinion. Due to his experience of working in a government agency and a strong network of personal relations, he obtained another 0.7 million yuan loan. The first self-designed production line was put into operation in 1983. Then, again with the approval o f the municipal bureau, the designation of the factory was changed from light machinery plant to refrigerator plant. The following year, output reached 3,008 units (Zhang J, 1997), which marked the beginning of refrigerator production in ChinaCo2.

At the same time, refrigerator production in China was booming alongside a dramatic increase in market demand. The factories in Beijing, Shanghai and Qingdao shared most of the market. The market share of ChinaCo2 was only 0.56 per cent in 1984.

Facing the huge market demand, ChinaCo2’s crucial task became to increase outputs and to expand production. In terms o f the previous experiences, some managers suggested upgrading the self-designed production lines. However, the director advocated taking advantage o f advanced foreign technologies. He signed a contract with an Italian company to import a production line with a production capacity of

15,000 units per year and high tension foaming machines, key equipment in

refrigerator production. The introduction o f this equipment was regarded as the most important decision for the success o f the factory.

In the mid-1980s, central command and planning still tightly controlled the white goods industry: to produce the products and enter the market, a company had to be authorized and certificated by the government. Central planning agencies calculated the overall economic balance and government agencies at different levels specified and transmitted orders on output and distribution to subordinate productive units through a hierarchical bureaucratic command. In order to control the scale of the white goods sectors, the Chinese Ministry o f Light Industry introduced the regulation that only factories with licences could produce refrigerators. In 1985, ChinaCo2 was listed among the 42 factories with the special licence required, which meant that the factory could produce 20,000 refrigerators per year under the terms o f the plan. The Light Industry Ministry promised to provide the factory with the required raw materials at government-controlled prices. By the end o f 1985, output reached 23,000 units and 1.2 million yuan profit was gained.

Besides contacting government agencies in order to expand production and enter the market, strengthening management was another strategy at this stage. The first step was setting up a quality assurance system. The low quality o f the self-designed production line and the shortage of quality awareness resulted in poor quality products that were unsaleable on the market. More seriously, in August 1985, the output failed a quality inspection by a team organized by eight central government ministries. The factory was required to stop producing and improve quality in a limited time. This punishment raised the quality awareness o f all the managers. The managers drew up a

series of rules to improve quality. In 1986, the products passed the quality test o f the relevant institution and came to be in great demand. Later, output reached 42,000 units and the company ranked among the top companies in the city in terms of turnover, profit and tax.

7.2.2 Expansion (1987 to 1992)

The core of the reform o f SOEs in this period was the further relaxation of the role of central planning and the increasing autonomy in decision-making granted to managers (Choe, 2000). As noted in Chapter One, the introduction o f the contract responsibility system granted managers significant powers to run enterprises. Therefore, the ‘central position’ of the director in ChinaCo2 was strengthened further. Although the Party Committee and the trade union were theoretically important, in practice the director very clearly emerged as the most important figure in the factory.

In ChinaCo2, importing a foreign assembly line and further modifying the production line to meet consumer demand were the two most important tasks in this period. In order to expand production, importing modem refrigerator assembly lines was the easiest way for all China’s white goods producers at that time. Nine production lines were introduced from the Italian Ariston Company alone. ChinaCo2 was one o f the companies, commonly referred to as ‘the nine brothers o f Ariston’, to import such a production line.

The large number of imported production lines led to over-production, which resulted

domestic refrigerators were produced on imported assembly lines without modifications. The structure, function and models o f the products tended to be the same. While the majority of manufacturers were enjoying expanding production, the director realised the importance o f the market. In order to gain additional market share, the director suggested launching a market survey to understand the market demand.

The survey showed that Chinese customers, especially residents in South China, were not satisfied with the current models designed by foreigners. The basic model had a large fridge with a relatively small freezer. However, the Chinese customers would have preferred a large freezer to keep meat for a long time and they were used to buying fresh vegetables and fruit every day: thus to them, a big fridge was useless.

The managers decided to modify the production line immediately and to produce new refrigerators with big freezers. This correct market forecasting resulted in a big increase in sales. While the majority of the factories faced an oversupplied market, the supply of the new model refrigerators fell short of the demand.

In 1989, 0.15 million units were produced and the company was listed in the top 500 Chinese industrial enterprises. Furthermore, the brand grew in popularity and it became one o f the five best known brands of Chinese refrigerator. During this time, they also tried to export, but the export performance was not as good as they had expected.