Executive Summary
Key insights from Gree’s current market situation:
- Gree’s revenue dropped 15% year-over-year in Q3 2025, highlighting severe dependence on air conditioning sales which constitute nearly 80% of business.
- Competitors Midea and Haier have diversified successfully, with Midea’s revenue approaching triple Gree’s and Haier’s nearly double, driven by global expansion and product innovation.
- Xiaomi’s ecosystem strategy represents a fundamental shift, leveraging AIoT and affordability to capture market share, with air conditioner shipments surging 50% in 2024.
- Leadership under Dong Mingzhu (董明珠) has become a double-edged sword, with personal brand overshadowing corporate strategy and hindering adaptation to market changes.
- Gree’s decline underscores broader industry shifts toward diversification, smart technology integration, and global supply chain resilience.
The Unraveling of a Manufacturing Icon
Gree’s decline has become unmistakable in recent financial disclosures, signaling a pivotal moment for one of China’s most storied appliance manufacturers. Once part of an unshakeable triad with Midea (美的) and Haier (海尔), Gree now trails significantly in both revenue and strategic positioning. The company’s Q3 2025 results revealed a 15% year-over-year revenue decrease to 39.86 billion yuan, while net profit attributable to shareholders fell 9.9%. This performance stands in stark contrast to Haier’s 77.56 billion yuan revenue (up 9.5%) and Midea’s 97.8-98.7 billion yuan (up 4.6-5%), highlighting Gree’s growing competitive disadvantages.
The roots of Gree’s decline extend beyond temporary market fluctuations to fundamental structural issues. Unlike its peers, Gree maintained an overwhelming reliance on air conditioning products, which account for approximately 78% of total revenue. This mono-product focus leaves the company exceptionally vulnerable to seasonal demand shifts, weather patterns, and economic cycles affecting consumer discretionary spending. Meanwhile, diversification efforts into refrigerators, washing machines, and small appliances have failed to gain meaningful traction, representing what industry analysts term ‘token participation’ rather than serious business segments.
The Cost of Strategic Inflexibility
Gree’s decline accelerated as the company repeatedly doubled down on its historical strengths while neglecting emerging market trends. The leadership under Dong Mingzhu (董明珠) maintained that superior air conditioner quality would ensure lasting market dominance, but this product-centric approach overlooked evolving consumer preferences for integrated smart home ecosystems. While Gree focused on perfecting individual products, competitors developed comprehensive solutions addressing broader lifestyle needs. This strategic myopia prevented Gree from capitalizing on the industry’s shift toward interconnected devices and services.
Evidence of Gree’s decline appears in multiple performance metrics beyond the disappointing Q3 2025 results. Market share in the air conditioning segment, once Gree’s undisputed fortress, has eroded steadily from approximately 35% in 2020 to under 28% by mid-2025 according to industry estimates. The company’s overseas revenue contribution remains stagnant at around 15-18% of total sales, compared to 40-45% for both Midea and Haier, reflecting insufficient global expansion efforts.格力’s decline has been particularly pronounced in online channels, where the company captured just 12% of e-commerce air conditioner sales in 2024 versus 18% for Midea and 22% for upstart competitors like Xiaomi.
Structural Vulnerabilities: The Mono-Product Trap
Gree’s business model suffers from what financial analysts describe as ‘concentrated risk exposure’ due to its heavy dependence on air conditioning products. This structural vulnerability becomes particularly problematic during industry downturns or technological disruptions. While diversification might dilute short-term margins, it provides essential resilience against market volatility.格力’s decline illustrates the dangers of over-specialization in a rapidly evolving consumer landscape where product boundaries are blurring and category definitions are expanding.
The air conditioning market itself faces multiple headwinds that exacerbate Gree’s challenges. Market saturation in urban China has pushed growth rates below 3% annually, while intensifying price competition has compressed margins across the industry. Environmental regulations regarding refrigerants and energy efficiency requirements add compliance costs that disproportionately impact companies with limited product portfolios.格力’s decline in this context reflects not just company-specific issues but also structural industry shifts that reward flexibility and broad-based innovation.
Failed Diversification Initiatives
格力’s attempts to diversify have been numerous but largely unsuccessful, further highlighting the company’s strategic shortcomings. The格力 smartphone, launched with considerable fanfare in 2015, failed to capture market interest beyond serving as a vehicle for Dong Mingzhu’s personal image (the device featured her picture as the default screen). Industry estimates suggest total smartphone sales never exceeded 100,000 units, representing a negligible contribution to revenue while consuming significant development resources.
Other diversification misfires include the ‘Rose Air Conditioner’ launched in 2023, which emphasized artistic design but received widespread criticism for operational deficiencies including noise levels and energy inefficiency. The product became a case study in how aesthetic innovation cannot compensate for core performance shortcomings.格力’s foray into new energy vehicles through the acquisition of Zhuhai Yinlong New Energy also yielded disappointing results, with the division reporting cumulative losses exceeding 2 billion yuan before being largely wound down.
– Product Diversification Failures: Smartphones, rose-themed air conditioners, and new energy vehicles all consumed resources without delivering meaningful returns.
– R&D Misallocation:格力’s research spending remained heavily tilted toward incremental improvements in air conditioning technology rather than breakthrough innovations in adjacent categories.
– Channel Conflicts: Attempts to expand into new product categories often encountered resistance from格力’s established air conditioning distribution network, creating internal friction.
Competitive Landscape: Diverging Paths of Chinese Appliance Giants
The contrasting strategies and outcomes for China’s three major appliance manufacturers provide a compelling narrative about corporate adaptation. While格力’s decline has accelerated, Midea and Haier have demonstrated how diversified business models and global perspectives can drive sustained growth. This divergence stems from fundamentally different approaches to innovation, market expansion, and organizational development that have created widening performance gaps.
Midea’s success stems from deliberate diversification across multiple appliance categories and strategic expansion into industrial technologies. The company maintains a nearly balanced revenue split between air conditioning products (approximately 42% of sales) and consumer appliances (46%), with industrial robotics and automation systems contributing the remainder. This balanced portfolio provides natural hedging against category-specific downturns while creating cross-selling opportunities across product lines. Midea’s global manufacturing footprint spanning China, Thailand, Egypt, and other locations enables market-responsive production while mitigating geopolitical and trade risks.
Midea’s Systematic Expansion Model
Midea’s approach contrasts sharply with格力’s decline, particularly in research investment and global brand building. The company allocated 16 billion yuan to R&D in 2024 alone, equivalent to daily expenditure of approximately 43.83 million yuan focused on developing next-generation technologies. This sustained investment has yielded tangible results including market leadership for Midea refrigerators in Malaysia, Saudi Arabia, and Chile according to market research firm GfK. The company’s strategy represents a comprehensive ecosystem approach rather than product-specific optimization.
– Global Manufacturing Presence: Localized production facilities reduce logistics costs and customs barriers while improving market responsiveness.
– Technology Portfolio: Patents in inverter technology, IoT connectivity, and energy management systems create competitive advantages across product categories.
– Brand Architecture: Separate sub-brands address distinct consumer segments from premium to value-oriented buyers, maximizing market coverage.
Haier’s Niche Dominance Strategy
Haier has pursued a different but equally effective path focused on premium segmentation and rapid innovation cycles. While格力’s decline reflects product commoditization, Haier has successfully created differentiated offerings that command price premiums and foster brand loyalty. The Casarte (卡萨帝) sub-brand exemplifies this approach, capturing nearly 60% of China’s high-end refrigerator market with products priced up to 15,000 yuan that incorporate features like automatic food freshness monitoring and recipe recommendations.
Simultaneously, Haier’s Leader (统帅) brand targets younger consumers with affordable, feature-specific appliances like the triple-drum washing machine that addresses hygiene concerns by separating underwear, outerwear, and socks. This product generated 80,000 pre-orders within months of announcement, demonstrating Haier’s ability to identify and capitalize on emerging consumer trends.格力’s decline appears even more pronounced when contrasted with Haier’s agile product development process that can move from consumer insight to market launch in under six months.
– Dual-Brand Strategy: Casarte targets premium segments while Leader addresses mass market, avoiding direct competition on price alone.
– Consumer-Centric Innovation: Products developed based on specific lifestyle pain points rather than technological capabilities alone.
– Global-Local Balance: International expansion through acquisition (GE Appliances) combined with localized product development for Chinese market.
Disruptive Competition: Xiaomi’s Ecosystem Advantage
Perhaps the most significant factor in格力’s decline has been the emergence of ecosystem competitors like Xiaomi (小米) that operate under fundamentally different business models. While格力 viewed competition through the lens of product quality and manufacturing efficiency, Xiaomi approached the market as a platform play centered around its AIoT (Artificial Intelligence of Things) ecosystem. This strategic disconnect allowed Xiaomi to rapidly capture market share by redefining consumer value propositions in the appliance space.
Xiaomi’s ecosystem strategy represents a classic case of disruptive innovation that has accelerated格力’s decline. The company connects over 900 million smart devices through its proprietary platform, creating network effects that enhance the value of each additional product. A Xiaomi air conditioner functions not just as a cooling device but as an integrated component of a smart home environment that can interact with Xiaomi televisions, air purifiers, and even vehicles. When a user’s Xiaomi-equipped car approaches home, the air conditioner automatically activates to achieve optimal temperature settings, creating seamless user experiences that single-product manufacturers cannot easily replicate.
The Economics of Ecosystem Competition
Xiaomi’s approach has fundamentally altered competitive dynamics in ways that exacerbate格力’s decline. The company leverages its ecosystem to cross-subsidize products, offering a 1.5 horsepower inverter air conditioner for just 1,999 yuan – approximately 600 yuan less than格力’s comparable model. This pricing strategy targets price-sensitive younger consumers who prioritize smart features and affordability over traditional brand reputation. The results have been dramatic: Xiaomi’s air conditioner shipments surged 50% to 6.8 million units in 2024, with online market share surpassing格力’s to reach second place by July 2025 according to market research firm All View Cloud.
格力’s decline in distribution channels has been equally concerning. While格力 relied on its established network of specialized dealers, Xiaomi rapidly expanded its retail presence to approximately 15,000 Mi Home stores by end-2024, creating omnichannel access points that blend online and offline shopping experiences. This physical footprint complements Xiaomi’s digital ecosystem, enabling the company to demonstrate integrated smart home functionality while providing convenient purchase and service options.格力’s traditional distribution advantage has thus been systematically eroded by a competitor that reimagined the entire customer journey.
– Platform Economics: Xiaomi’s business model prioritizes ecosystem growth over individual product margins, enabling aggressive pricing.
– Data Advantage: Connected devices generate valuable usage patterns that inform product development and personalized services.
– Channel Innovation: Direct-to-consumer retail combined with ecosystem demonstration creates compelling purchase environments.
Leadership and Governance: The Dong Mingzhu Factor
The role of Dong Mingzhu (董明珠) in格力’s decline represents a complex case study in leadership transition challenges. As one of China’s most prominent business figures, Dong built格力 into a global powerhouse through relentless focus on quality and aggressive market expansion. However, her leadership style and personal brand have increasingly become liabilities as the company faces new competitive realities. The concentration of decision-making authority and corporate identity around a single individual has created governance vulnerabilities that compound格力’s strategic challenges.
Dong’s approach exemplifies what management scholars term ‘founder’s syndrome,’ where a visionary leader’s strengths eventually become constraints on organizational adaptation. Her conviction in格力’s air conditioning supremacy and dismissive attitude toward emerging business models initially served the company well but now impedes necessary transformation. Public statements dismissing Xiaomi’s approach as ‘internet marketing gimmicks’ and insistence that ‘core manufacturing technology’ would ultimately prevail reflect a fundamental misunderstanding of how competition has evolved in the digital era.格力’s decline thus stems partly from leadership inability to recognize and respond to paradigm shifts in the industry.
The Personal Brand Overhang
The rebranding of格力 retail outlets to ‘董明珠健康家’ (Dong Mingzhu Healthy Home) exemplifies the excessive personalization of corporate identity that has contributed to格力’s decline. This unprecedented move tied a publicly traded company’s market positioning directly to an individual’s name and image, creating significant reputational and operational risks. When rumors about Dong’s health circulated in early 2025,格力’s stock price dropped over 3% in a single day, demonstrating how investor perception had become inseparable from perceptions of the chairperson.
This personal brand dominance has also distorted strategic decision-making, with several of格力’s failed diversification initiatives appearing driven more by Dong’s personal interests than market analysis. The smartphone venture, despite clear signals of market saturation and intense competition, proceeded primarily because Dong declared ‘I simply want to do it.’ Similarly, the emphasis on ‘healthy home’ concepts reflects Dong’s personal advocacy rather than demonstrated consumer demand or competitive differentiation.格力’s decline in these contexts illustrates how centralized decision-making can bypass necessary governance checks and market validation processes.
– Succession Planning Gap: No clear successor has emerged despite Dong being in her late 60s, creating uncertainty about leadership transition.
– Corporate Governance Weakness: Board appears unable to counterbalance chairperson’s influence on major strategic decisions.
– Resource Allocation Bias: Investments often reflect chairperson’s preferences rather than systematic opportunity assessment.
Strategic Imperatives for Recovery
格力’s decline, while significant, does not necessarily represent an irreversible situation. The company retains substantial assets including manufacturing expertise, brand recognition, and distribution networks that could form the foundation for a strategic reset. However, addressing the root causes of格力’s decline requires acknowledging that previous approaches are no longer sufficient in today’s market environment. The company must undertake fundamental changes across multiple dimensions to regain competitive relevance.
The most urgent priority involves rebalancing格力’s product portfolio to reduce air conditioning dependency below 50% of total revenue within three years. This will require both organic development and strategic acquisitions in adjacent categories where格力 can leverage its technological capabilities. Potential targets include air purification systems, smart kitchen appliances, and commercial refrigeration where格力’s engineering expertise provides natural advantages. Simultaneously,格力 must accelerate its global expansion, particularly in Southeast Asia and emerging markets where air conditioning penetration remains low but growing rapidly.
Embracing Ecosystem Strategies
To counter Xiaomi’s ecosystem advantage,格力 must develop its own platform strategy rather than continuing to compete solely on product specifications. This could involve opening格力’s technology to third-party developers, creating API access to its devices, and establishing partnerships with complementary smart home providers.格力’s decline in connectivity features presents an opportunity to leapfrog competitors by adopting next-generation standards like Matter that enable cross-brand interoperability. The company should also reconsider its proprietary approach and explore alliances with major technology platforms to accelerate ecosystem development.
Leadership and governance reforms represent equally critical components of格力’s recovery. The board should establish clearer separation between corporate and personal branding, potentially phasing out the ‘董明珠健康家’ store concept in favor of unified格力 branding. Implementing more robust succession planning and delegating greater authority to professional managers would reduce strategic vulnerability to individual preferences.格力’s decline provides a compelling case for strengthening independent director influence on major investment decisions to ensure rigorous evaluation of diversification initiatives.
– Portfolio Rebalancing: Target 50% revenue from non-air conditioning products within three years through organic growth and acquisitions.
– Ecosystem Development: Create open platform for third-party integration and pursue strategic technology partnerships.
– Governance Enhancement: Strengthen board oversight, implement formal succession planning, and reduce personal brand dependency.
Navigating the New Competitive Reality
格力’s decline serves as a cautionary tale about the dangers of strategic inertia in rapidly evolving markets. The company’s historical strengths in manufacturing efficiency and product quality, while valuable, have proven insufficient against competitors that redefined industry boundaries and consumer expectations. The emergence of ecosystem business models, the premiumization of appliance categories, and the globalization of supply chains have collectively created a new competitive paradigm that requires fundamentally different capabilities.
For investors and industry observers,格力’s situation highlights the importance of evaluating companies based on their adaptability to market shifts rather than historical performance alone. The factors driving格力’s decline – product concentration, limited global presence, ecosystem vulnerability, and leadership constraints – provide a framework for assessing other traditional manufacturers facing digital disruption.格力’s potential recovery will depend on willingness to challenge long-held assumptions and embrace the collaborative, platform-oriented approaches that now dominate consumer technology markets.
The path forward for格力 requires acknowledging that previous success formulas no longer guarantee results. As the company confronts格力’s decline, it must balance respect for its manufacturing heritage with courage to pursue disruptive innovation. Industry participants should monitor格力’s forthcoming strategic announcements for evidence of substantive change rather than incremental adjustments. The ultimate resolution of格力’s challenges will signal whether traditional manufacturers can successfully transition to the ecosystem competition era or face continued erosion from more agile competitors.