How Can Small Domestic Appliance Industry Build Moats with Innovations?

Guangdong as the largest foreign trade province in China, many foreign trade enterprises since early this year have accelerated the pace of transformation through innovations thinking, with more and more new products, new industries, new formats and new models. What is the transformation results? What experiences can be used as a reference in this process? Recently, the author visited Shunde, an important manufacturing city in China, to find an answer.

From the "king OEM manufacturer of small domestic appliances " to the "incubator" of influencer small domestic appliances, the transformation of Guangdong Xinbao Electric Co., Ltd. (hereinafter "Xinbao") is legendary. To get out of the vicious circle of "focusing on marketing while ignoring research and development" that is common in the small domestic appliances industry, Xinbao  started investment of independent innovations more than ten years ago, and recently has continuously increased the R&D investment.

As Zeng Zhanhui, president of Xinbao said: "Innovations does not 100% bring influencer product, but influencer products must be based on innovations."

How  "New Product Species" Are Born?

As a leading export company in Chinese small domestic appliances industry, Xinbao is known as the "invisible champion of small domestic appliances" - manufactures every 1 in 10 small domestic appliances worldwide. From original OEM (original equipment manufacturer ) to technology-based ODM(independent R&D and design) and then to develop independent brands, the innovation has become an important role for Xinbao to build moats in different stages.

According to data disclosed by Xinbao, its investment in research and development in 2021 amounts to 442 million yuan（USD 66M), an increase of 12.26% year-on-year; In the first half of 2022, Xinbao further increased its R&D investment, reaching 227 million yuan (USD 34M), an increase of 18.4% year-on-year.

Due to the increase of R&D investment, the frequency of new product launch has increased significantly, and comes with new market growth. Zeng Zhanhui said frankly that much of Xinbao's revenue growth over the past two years has come from the development of "new product species" and new markets: "The new product species brings an incremental market that was not there before, as long as we do (the innovation and new species),it will bring new growth.

Nowadays, people are paying more and more attention to the health of the living environment, while carpets, curtains, sofas and other fabric products are difficult to clean. In response to these headaches, Dongling, a brand operated under Xinbao, launched a fabric cleaner  featured with high-temperature steam cleaning in this June and finished with third in "fabric cleaning track" During 6.18 Tmall shopping festival,without little spending on marketing, and the daily sale have stayed stable at the TOP3 place in the Tmall and Jingdong fabric cleaning devices category since the launch.

Accurate grasping the needs gave rise to the reconstruction of the scene consumption; the concentrated reconstruction of the scene consumption led to the birth of a "new product species". The Richard Murphy multifunctional cooking pot, which went viral out of its circle in 2018, same rule applied.

It can be said that this innovation combinations has provided Xinbao and its brands with a steady supply of market vitality.

Technology Accumulation from Product Lines

Starting with OEM (Original Equipment Manufacturer), Xinbao has deeply felt the importance of innovation and R&D capability in the process of expanding business in the export market.

Like most OEM companies, at first Xinbao only needs to think about how to get orders from oversea customers and then manufacture according to the plans and requirements provided by the customers. In order to get orders, factories often have to keep lowering prices, and Xinbao’s profit once was very low.

Xinbao quickly realized it’s sustainable. Only by owning technologies can Xinbao raise his say in cooperation with oversea customers. Therefore, it began to bring in more and more technical talents and gradually build the innovation capacity.

In 2009, Xinbao proposed "innovative products" within the company and started building a research center, and in 2015 formally proposed "Independent Innovation" to further optimize the incentive and management system for the R&D team.

A high-rise building requires a solid foundation, so does the innovations. According to Xinbao, there are two main dimensions in the foundation building for innovations: one is to bring in and train talents, and the other is to maintain a orientation of long-term product lines, which builds up technology accumulation and precipitation.

The technology accumulation of long-term product lines has help Xinbao gain more trust and louder voice in cooperation with oversea customers, and business has also increased significantly. According to the statistics of Chinese Custom, in terms of export volume among the ten categories of small domestic appliances, Xinbao stayed 1st for many years. Electric kettles, mixers, filter coffee makers, toasters, bread machines and other single products have stayed on top for many years.

Elevated innovation capacity not only brings business growth, but also increases confidence and supports, allowing Xinbao to straighten the “back” in communication with oversea clients. According to the head of the innovation center, "due to technology accumulation, we can propose different solutions for positioning and needs from different brands".

Collaborative Innovation Across Departments

So far, Xinbao has established a four-level innovation system, namely basic research, research and application of innovative technologies, high-tech development and application, and development and application of general technology.

With this 4-tier system, Xinbao has greatly enhanced the independent innovation capability. Today, Xinbao owns more than 4,400 patents and employs more than 2,600 R&D employees. It has been recognized as the "National Center for Industrial Design" and "National Center of Enterprise Technologies " and launches over 900 innovative products every year.

It is worth mentioning that innovation is not the activity of technicians behind closed doors, but must be closely related to the market demand. To meet this end, Xinbao has established a cooperation model between the R&D department and the market department, promoting the establishment of a direct communication window between the R&D department and the marketing department, and creating an innovation community within the enterprise

"The starting point for all Xinbao business is user research and evaluation, then using innovative means and methods to develop new product categories," said Zeng.

It is said that Xinbao's in-house innovation products adopt the "funnel procedures" operation, which is divided into concept and pre-research stage, technology research stage and innovative product realization stage. At the earliest conceptual and pre-research stage, the marketing department was introduced to the review: "The higher the approval of the marketing department, the sooner the research project will be approved."

In introducing market evaluation, Xinbao also pays full attention to "inclusiveness of research and development". As long as the research project is approved, the engineer will receive some basic incentive, and this incentive has nothing to do with feedback from the market; at a later stage of the project, the technical staff can get a profit incentive from the market part in addition to the basic incentive.

From OEM inception to the establishment of its own brand matrix and the frequent launches of influencer products, Xinbao's increasingly perfected independent innovation and R&D capacity have provided strong support to its own steady development, and also gave new impetus to the development of the small domestic appliances industry.

Source: http://news.cnr.cn/local/dfrd/jj/20221003/t20221003_526027556.shtml