CONSUMER: Gree, Airdog Join War Of Piracy Accusations
Bottom line: The snowballing of a recent series of mudslinging remarks by major companies underscores the rampant lack of business ethics in China, and could prompt some much-needed public debate on the topic.
What started as a couple of stories highlighting the shady business practices that are all too common in China is starting to snowball, with home appliance giant Gree (Shenzhen: 000651) and a local start-up air purifier maker adding their voices to this entertaining year-end war of words. At the heart of this verbal mudslinging is a toxic Chinese business culture where practices like illegal copycatting, corporate espionage and violation of business contracts are quite common and even accepted to a certain degree.
The latest headlines have seen Gree’s outspoken chairman Dong Mingzhu, often considered China’s most successful businesswoman, lash out against rival appliance maker Midea (Shenzhen: 000333), which earlier this week announced a strategic tie-up with fast-rising smartphone maker Xiaomi. But just hours after those comments broke into the headlines, Dong herself came under similar attack alleging illegal copycatting by Airdog, a start-up air purifier maker.
All of these big names and accusations are starting to make my head spin just a little, and probably reflect years of frustration that many Chinese executives feel at the countless shenanigans that occur around them everyday. Such shenanigans happen much less frequently in the west, thanks to the potent combination of stronger business ethics and a court system that is quite experienced at efficiently mediating business disputes.
China is quite lacking in both of those areas, which was almost certainly a factor behind the actions of an executive that started this mushrooming round of mudslinging. That executive, a man named Tang Yan, left Internet giant NetEase (Nasdaq: NTES) in 2009 to start his own company, a mobile social networking app developer called Momo (Nasdaq: MOMO), which just made a $200 million IPO in New York late last week.
That IPO was generating relatively positive buzz when, just 2 days before the stock’s scheduled trading debut, NetEase issued a scathing statement accusing Tang of stealing from the company and violating a non-compete clause in his work contract when he left to start Momo. (previous post) Such actions are quite common in China, though Momo quickly responded with a statement saying it believed Tang had done nothing wrong.
At about the same time, Xiaomi, which has tried to position itself as a cool innovator, appeared in similar negative headlines when a Delhi judge ordered it to stop selling its trendy phones in India amid a patent dispute with global mobile technology giant Ericsson (Stockholm: ERICb). (previous post) Just days after that dispute emerged, Japanese company Balmuda leveled similar claims, saying its product designs were illegally stolen and being used in a newly launched line of air purifiers from Xiaomi. (previous post)
Xiaomi didn’t really directly defend itself in either instance, and instead continued its business as usual with announcement of the new strategic tie-up with Midea to develop smart appliances. That alliance was apparently too much for Gree’s Dong to swallow, prompting her to make scathing remarks mostly aimed at Midea, but also taking a swipe at Xiaomi.
The comments that quickly filled the Internet airwaves quoted Dong as calling Xiaomi and Midea as a “pair of thieves”. (Chinese article) In this case her main venom was mostly aimed at Gree’s rival Midea. Dong cited a past court trial in which she said Midea was ordered to pay her company 2 million yuan ($323,000) in damages after being found guilty of stealing its product designs. Presumably she was calling Xiaomi a thief due to the Ericsson and Balmuda cases.
No sooner were Dong’s comments bouncing around the Internet then Airdog leveled its own accusations at Dong and Gree. That attack saw Airdog’s founder Ran Hongyu say his company formed an alliance with Gree in 2008 to co-develop air purifiers. Gree later terminated the alliance, and then proceeded to roll out its own line of air purifiers based on products that were co-developed during the cooperation, Run said. (Chinese article) Again, such practices are business as usual in China.
If anyone’s head is spinning after reading all this, it’s perfectly understandable. This kind of allegation is a regular fixture at Chinese companies, but in all my years covering the sector I’ve never seen so much public airing of grievances like this. In many ways this kind of mudslinging is probably healthy and may finally wake up average people to all the unethical and illegal behavior that happens in China’s corporate sector. If that happens, then perhaps we’ll see a positive ending to this high-profile and unprecedented round of corporate mudslinging by some of China’s leading companies and executives.
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