On January 17, 2008, ST Chunlan shocked the market by announcing that it would suffer significant losses in 2007. This came after two consecutive years of losses from 2005 and 2006, pushing the company to a third year of losses by April 26, when its annual report was released. As a result, the Shanghai Stock Exchange suspended its shares, putting the company on the brink of delisting. This marked a dramatic fall for a once-dominant player in China’s air-conditioning industry.
Chunlan had once been a symbol of Chinese industrial success. In 1994, the company’s total output value reached 5.2 billion yuan, with profits and taxes amounting to 600 million yuan. Its air-conditioning production was the largest in the country, with a 30% market share and a well-established product line. The company expanded into motorcycles, trucks, and high-energy batteries, becoming a model of diversification in the home appliance sector. Known as the “Chinese GE,†Chunlan was led by Tao Jianxing, who won the 2002 CCTV Economic Person of the Year award.
However, the company’s golden days have long passed. Its stock price has plummeted from a peak of 64.3 yuan in 1998 to below 6 yuan today—a tenfold drop over a decade. In 2006, the company reported only 2.2 billion yuan in main business revenue, down by over 10 billion yuan from 2005, and suffered losses exceeding 200 million yuan in 2007. Meanwhile, Midea Electric achieved nearly 33.3 billion yuan in sales that same year—more than ten times higher. The younger competitor had now surpassed the once-mighty Chunlan.
By 2007, the top three air-conditioning companies—Gree, Haier, and Midea—had taken control of the market. Chunlan’s products were increasingly absent from retail shelves, and the brand that once dominated the industry had faded into obscurity. The question remains: what caused this decline?
The root cause lies not in the diversification itself, but in the failure to implement the chosen strategy effectively. While many attribute Chunlan’s downfall to its broad diversification, I argue that the problem was not the direction of the strategy, but rather the lack of proper execution.
Chunlan entered the motorcycle industry as early as 1994, investing over 2 billion yuan to build a production line capable of producing one million motorcycles annually. Compared to competitors like Lifan and Zongshen, Chunlan had strong advantages in both scale and resources. During this period, China’s motorcycle industry experienced rapid growth, with production increasing by an average of 29.5% per year from 1993 to 1998. Despite these favorable conditions, Chunlan failed to capitalize on the opportunity, indicating poor execution rather than a flawed strategy.
Similarly, when Chunlan entered the truck industry in 1997, it had a solid foundation. It acquired a factory from Nanjing Dongfeng Motor Co., invested heavily in technology, and by 2001, it began mass-producing luxury medium trucks. By 2003, the project had already turned a profit. However, despite these early successes, the truck division eventually failed to sustain momentum.
Chunlan’s diversification choices were strategic and well-researched. Tao Jianxing studied global models like GE and Panasonic, developing a three-tier business structure: home appliances, commercial vehicles, and new energy. The industries selected were those with high growth potential, yet the company still failed. This suggests that the issue was not the choice of industries, but the lack of effective execution.
One major factor behind the failure of Chunlan’s strategy was the loss of entrepreneurial spirit within the leadership team. After the 1998 restructuring, which included establishing a board of directors and reorganizing internal structures, the company attempted to implement share reforms. However, resistance from state authorities blocked the process, leading to the loss of key management and technical talent. Without strong leadership and internal cohesion, even the best strategies could not be executed properly.
From 1997 to 2002, Chunlan focused on internal reform, but missed the chance to innovate and grow. When the reforms failed, the company lost momentum, and its strategy became little more than a dream. This lack of execution ultimately led to its decline.
Wenzhou Deli Machinery Equipment Co., Ltd. , https://www.sungoodtech.com