Xiaomi’s Lei In High-Tech Bet With Gree’s Dong
I’ll end the week with a lighter look at an emerging trend in the China corporate world, which has seen some of the nation’s biggest tech personalities make high-profile bets with their equally successful peers from more traditional sectors. The latest in these high-tech wagers has seen Lei Jun, the charismatic founder of fast-growing smartphone maker Xiaomi, make a bet with Dong Mingzhu, often considered China’s most successful business woman as the chairman of appliance giant Gree (Shenzhen: 000651). These bets are mostly for entertainment and publicity on the one hand; but they do also represent the very real challenge that traditional industries are feeling from e-commerce and other emerging high-tech business models.
The newest bet between Lei Jun and Dong Mingzhu materialized at an awards show this week in Beijing where the pair were being honored for their business achievements. Both were on stage at one point, and the wager took shape in the course of some dialogue between their pair and the award presenter. Dong challenged Xiaomi to pass her company in the next 5 years in terms of sales, with a whopping 1 billion yuan ($160 million) on the line. (Chinese article)
Xiaomi will have to continue its lighting growth to win the bet, as its latest annual sales of 30 billion yuan is less than a third of Gree’s 100 billion yuan. But Xiaomi has previously said its sales should double this year, and will double again in 2014, as Chinese consumers snap up its trendy smartphones that are only sold online and have developed a distinctively “cool” image. A recent outside investment valued Xiaomi at around $10 billion, versus a market value of about $16 billion for Gree’s Shenzhen-listed unit.
Dong argues that Xioami won’t be able to pass her company so quickly because Gree relies on quality to sell its products. By comparison, she said, Xiaomi’s customers are much more price sensitive. I don’t know if I believe her argument, since most Chinese consumers are quite price sensitive, and Xiaomi also has a reputation for good quality. I’m also slightly doubtful about the spontaneity of the bet, as Lei Jun is famous for his slick marketing abilities and buzz-building campaigns. Accordingly, I wouldn’t be at all surprised if this bet was his idea and the whole thing was a highly scripted publicity ploy.
Lei Jun is undoubtedly envious of the publicity that another high-tech titan, Alibaba founder Jack Ma, received after his own high-profile bet with Wang Jianlin, founder of real estate giant Wanda Group and one of China’s richest men. Ma made his famous bet with Wang about a year ago, wagering a more modest 100 million yuan that e-commerce would account for half of the Chinese retail market by 2020. Wang has more recently said that bet was made more in fun than as a serious wager, and has also recently disclosed that his company and Alibaba will soon announce a tie-up that will combine their respective strengths in real-world and online retailing.
These wagers are most interesting because each involves a founder of a fast-growing tech firm challenging an older leader of a well-established company in a traditional sector. They represent a certain brashness by people like Jack Ma and Lei Jun, who are undoubtedly feeling just a tad overconfident after their companies’ own meteoric growth. At the same time, traditional business leaders like Wang Jianlin and now Dong Mingzhu realize they must embrace technology and new business models in a fast-changing world, or risk being overtaken by much younger companies. If I were an odds maker, I would say that Lei Jun and Wang Jianlin stand the best chances of winning their respective wagers.
Bottom line: A new wager between Xiaomi founder Lei Jun and Gree Chairman Dong Mingzhu looks like a publicity stunt, but also reflects pressure that traditional firms are feeling from high-tech start-ups.
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