12/17/2002
China Daily: Zhang Lu

A fierce price war that has been raging for the past several years has been cutting deeply into the profits of consumer durable goods manufacturers.

Right? Wrong. This is because income from after-sale services has more than made up for shrinking profit margins, industry insiders said.

It is estimated that after-sale services in China will eventually balloon into a 10-billion-yuan (US$1.2 billion) industry, the most lucrative in the world. Seeing the great market potential, Savor Household Electronic Appliance Service Company, the country's first third-party service provider, opened for business in Beijing at the end of November.

Currently, after-sale services in China are mainly provided by a product's manufacturer or small, private service shops, instead of independent third-party service providers. The new company aims to build the first famous brand name in the service field in 5 years' time, said Gao Hongxia, general manager of Savor.

Formerly the after-sale services department of the Hisense Group, one of the leading domestic producers of household electrical appliances, Savor peeled off from Hisense in August, and the new company was registered in September.

"The separation of after-sale services from the production sector is destined to become a trend," said Gao.

Domestic producers have spent too much building up their service networks, she explained. As an example, she cited the fact that each Hisense product had an independent service system, which was a waste of resources.

Third-party service providers will help manufacturers cut down on costs while providing better services for customers based on improved networks and professional technicians, Gao said.

She is confident about Savor's development and expects that the company's income will reach 300 million yuan (US$36.2 million) in three years. Savor has signed a 100 million yuan (US$12 million) deal with Hisense and is talking with foreign companies such as LG, as well.

However, some industry insiders doubt whether the company will be profitable in the short term. Other domestic producers are unlikely to turn over the after-sale services of their products to Savor, in which Hisense Group still holds a 30 per cent stake, said Luo Qingqi, director of Parlor Consulting Company.

He said that if other manufacturers co-operate with Savor, their core techniques may become known by their rivals. But the greatest concern is that, currently, after-sale services have become a major source of competition between domestic household electronic appliance producers, as differences in products have been narrowing, Luo said.

An official from electronic appliance maker TCL agreed that, although after-sale services have become a heavy burden for manufacturers, they still need to input in the sector because it is a key way for them to attract customers.

Another problem with Savor is that its service network is relatively small, compared with that of other leading electronics makers such as Changhong, Haier and TCL, Luo said.

Savor has asserted that with a registered capital of 50 million yuan (US$6.04 million), it has opened more than 40 branch companies around the country, as well as operating 600 branches overseas, more than 5,000 co-operative service outlets, and 3,000 professional technicians.

However, these service outlets are mainly located in big cities in northern China, Luo said. Therefore, the possibility for it to co-operate with foreign makers remains negligible, since they establish their own service networks in these areas.

While Luo admitted to the inevitable trend for after-sale services to separate from the production sector, he said the time was not yet right.