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Advances Newsletter, October, 2013

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Vol. 3, #8, October 2013, No. 32

Smart Phones, Smart Appliances

RAC’s new software shows the first step towards a fully connected home


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ADVANCES Newsletter

Contents

Midea Advances Newsletter is published monthly

by the International Strategy Department of

Midea Group. We welcome all comments,

suggestions and contribution of articles, as well as

requests for subscription to our newsletter. You

can reach us by email at: [email protected]

Address:

ADVANCES, International Strategy Department

Midea HQ

No. 6 Midea Road

Beijiao, Shunde, Foshan, Guangdong

P.R.C. 528311

Tel: +86-757-2360 4714

Web: www.midea.com

Managing Editors:

Matthew Smith

Mandy Wang

Regular Correspondents:

Alex Cheng

Himani Joshi

Amber Liu

Crystal Lun

Blinda Li

Tony Miao

Peck Zhao

Sandra Sun

James Yu

Daniel Zhang

Sue Ou

NEWSLINE

Laundry Division Holds AMCI

Seminar PAGE 4

Midea Rock-themed

Product Launch in Rio PAGE 3

Midea Launched New Air-

cooler Liva in Brazil PAGE 3

RAC R&D Intellectual

Property Seminar PAGE 5

The Aurora “1 kWh per Night”

Air Conditioner Debuts at

Canton Fair PAGE 5

www.midea.com

Midea Group Lists on the

Shenzhen Stock Exchange PAGE 11

PAGE 16

FEATURE

SNAPSHOT

PEOPLE

A Controlling Type of Guy PAGE 13

Midea Wins 2013 China

Industrial Design

Innovation Award PAGE 7

Midea RAC National

Holiday Sales Up 80% Over

Last Year PAGE 6

CMI Organises its First Midea

Achievers Meet in Thailand PAGE 9

Climate Solutions for a Green

Environment, in Pakistan & Sri

Lanka PAGE 8

Midea’s Next-Gen Heat

Recovery DC Inverter VRF PAGE 10

Smart Phones, Smart

Appliances PAGE 12

RAC Rewards Excellence in

its Sales Force PAGE 6

Midea CAC Won the Trading

Center Project in South China

City PAGE 9


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Midea Rock-themed Product Launch in Rio

By James Yu

M idea has recently unveiled its limited-edition “Rock

in Rio” line of refrigerators on e-commerce website, Submarino.

This coincided with the Rock in Rio festival, which took place

between September 13-22. The limited run includes two stylized

models with capacities from 45 to 116 liters, to satisfy the most

fervent fans at the festival.

Versatile for use in everyday life, these refrigerators have a

door reversal device, which allows the door to swing open from

both sides, allowing maximum flexibility in any environment.

The models have an "extra cold" setting, which specifically

keeps beer at the perfect

temperature, and a sys-

tem cooled compressor,

to ensure optimum con-

ditions for long-term

operation. The entire

lineup has a Procel "A"

energy rating, which indi-

cates a superior level of

energy efficiency.

Fans of rock‟n‟roll

may find these models on

the Submarino website,

which has been named as

the official online store of

the Rock in Rio event

(www.submarino.com.br/

RockinRio).

According to Midea

Brazil Marketing Director,

Henrique Mascarenhas, this

move reinforces the influ-

ence that Midea as a brand

is gaining nationwide as a

key player in retail applianc-

es. "Being alongside the biggest musical event in the world

demonstrates Midea‟s strength in satisfying its demanding con-

sumers, and how innovation and boldness in our products are

associated with a contemporary lifestyle."

NEWSLINE

Midea Launched New Air-cooler Liva in Brazil

By James Yu

M idea‟s new air cooler combines its best

features to combat the effects of dry air that is typical

of the hot climates Brazil. In addition to cooling the

environment, this new model boasts a 200% increase in

humidifying power in this category.

With the new Brisa function, customers enjoy a

unique design that spreads fresh air over a wider area,

and can be enhanced by a special gel pack placed in the

removable water tank.

"The New air-cooler was rigorously designed to

meet the exacting standard of Brazilian consumers.

Starting with this new product, we aim to provide solutions that

meet real needs, and to pursue higher levels of comfort

and economy for families," explained Midea Brazil‟s

Director of Marketing and After-sales, Henrique Mas-

carenhas.

The Liva air-cooler has three different levels of

ventilation and air filtration, schedules specific to

sleeping pat-terns, a sleep function indicator for water

level, and a decrease in power consumption.


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Laundry Division Holds AMCI Seminar

By Blinda Li

I n order to further develop

manufacturing ability and efficiency,

along with establishing objectives and

strategies for the next 3 years, Midea‟s

Laundry Division opened its Annual

Manufacturing Competence Improve-

ment (AMCI) Seminar this month.

This seminar helps its partici-

pants to fully understand manufactur-

ing benchmarks and how they figure

into analyzing internal problems. To

aid in this, seminar organizers invite

foreign experts to deliver lectures and

share their own experiences in manu-

facturing improvement.

One of these foreign experts was

Michio Ohta, who appealed to at-

tendees for his style of explaining his theories in very simple and

straightforward ways. His topics covered the definition of a fac-

tory, the fundamental forces of manufacturing, the reasons for

failure in improvement, and a peculiar paradox apparent in the

lean production improvement process.

Michio Ohta walks the audience through the lean produc-

tion improvement process.

Next up was Zhong Lixiang, a seasoned lecturer on lean

production, who explained his method for laying down a firm

foundation, and how to improve the Laundry Division‟s com-

petitiveness by sharing classic and thought-

provoking case studies with everyone.

After the lectures, participants engaged in

discussions about “T+3 production and

sales integrated operating pattern”,

“thorough quality control”, and

“manufacturing efficiency and technical im-

provement”, all based on the visiting ex-

perts‟ analyses and sharing of lean produc-

tion cases. Discussion conclusions were ulti-

mately refined into draft plans for future

actions throughout the Division.

NEWSLINE


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The Aurora “1 kWh per Night”

Air Conditioner Debuts at Canton Fair By Crystal Lun

M idea always makes a strong showing at the twice-

yearly Canton Fair. This instance was no exception, as the RAC

division of Midea presented their newly announced export mar-

ket air conditioner, the Aurora, which boasts the much talked

about “1 kWh per Night” energy conservation technology, also

known as ECO Tech. Given the remarkable efficiency of this

technology, the exhibit for this product attracted an unsurpris-

ingly strong amount of attention.

Aurora realizes its headline-grabbing “1 kWh per night”

through activation of the “Eco-mode” on the remote control.

This efficiency is achieved through the combination of its 3D

DC Inverter and 0.1Hz precision control, giving consumers an 8

hour typical sleeping period while expending only about 1kWh.

Last year, ECO Tech was reviewed by a panel of national

industry experts led by Professor Tao Wenquan, a senior acade-

mician from the Chinese Academy of Sciences, who stated the

panel‟s consensus that ECO Tech represented a leading world-

wide technology, innovative and unique, with outstanding per-

formance in energy efficiency.

NEWSLINE

RAC R&D Intellectual Property Seminar

By Crystal Lun

T o thoroughly implement and

execute Midea‟s intellectual property (IP)

strategy, RAC organized a seminar for

R&D managers.

The seminar started with a briefing

of the patent management work

throughout 2013 by the Patent Admin-

istration Department, followed by a

presentation in further detail of risk con-

trols and patents in development, ending with future plans and

prospects.

By the end of 2013, patent applications

will number over 1,000 for the first time

ever. A final important topic raised in

the seminar was how to build a compet-

itive IP management system within the

next two years, in order to be keep pace

with and surpass competitors.


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RAC Rewards Excellence in its Sales Force

By Crystal Lun

A company‟s sales team is what ultimately gets its

product or service into the hands of customers, and Midea RAC

appreciates this fact. Last month, the division organized an

awards ceremony to recognize the top performing salespeople

and guides in China. The top 100 salespeople from across 42

regional sales companies in China gathered at Midea headquar-

ters to receive an award from RAC, in gratitude for their hard

work.

During the ceremony, prizes worth over 600,000 RMB

were awarded to the honorees, with the National Top 10

Guides and Salespeople earning 10,000 RMB each, and an iPad

Mini thrown in as a bonus.

Shopping guides serve to guide the consumer‟s purchasing

behavior, and also to enhance Midea‟s image at the point of

sale. Performance is nurtured through a team of terminal sales

trainers, who are selected from the top salespeople. These train-

ers conduct a series of training programs to help the guides and

salespeople to master their product knowledge and sales skills.

NEWSLINE

Midea RAC National Holiday Sales Up 80%

Over Last Year By Crystal Lun

C hina‟s National Holiday, also known as the Golden

Week, brings not only a much deserved rest for many people in

the country, but also a chance for many of those people to head

out shopping. For this reason, it is a favorite time for merchants

to launch sales promotions. Such promotions will be used to

clear remaining stock of current generation products, as well as

to increase exposure for next-generation goods.

During the Golden Week, Midea was pleased to find that

its air conditioners were highly popular, with sales during the

week rising 80% over those of the Golden Week in the previous

year. Impressively, the bulk of the performance was represented

by Midea‟s ECO Tech split units, accounting for 60% of the

total AC sales in China during that week.

Point

of sale

“shopping

guides” re-

port that

Midea‟s

1kWh ECO

Tech splits

have been

selling very

well, and that many customers actually return soon after initial

purchases to make additional purchases, based on their immedi-

ate experiences. The feedback from customers is that seem able

to perceive the increase in efficiency over other models.


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Midea Wins 2013 China Industrial Design

Innovation Award By Blinda Li

I n last month‟s issue, Midea RAC had reported two key

wins at the CHEARI (China Household Electric Appliance Re-

search Institute) Awards Ceremony during the IFA show in Ber-

lin last month. Now Midea Laundry is joining the celebration,

with reports about two wins of their own from the CHEARI

Awards Ceremony.

Each

product cate-

gory is consid-

ered for five

different

awards: Prod-

uct Innova-

tion, Technical

Innovation,

Industrial De-

sign Innova-

tion, Enter-

prise Standard

Innovation,

and Branding.

As mentioned last month, RAC walked away with Product Inno-

vation and Industrial Design Innovation awards for its 1kWh/

night pioneer unit and KH floor standing unit, respectively. For

its part, Laundry scooped the awards for Technical Innovation

and Enterprise Standard Innovation, for the division‟s advances

with iAdd technolo-

gy, and “Technical

Specifications for

Speed Reduction

Clutches of House-

hold Washing Ma-

chines”, respective-

ly. These awards are

not Laundry‟s first,

either. Last year,

Laundry Division

won CHEARI‟s

Enterprise Standard

Innovation award

for its Heat Pump Dryer specification.

Midea‟s new iAdd front-loader model boasts an aesthetic

that leaves people with a sense of style and modernity, due to its

full, curving figure of two-tone steel plating, and a large, wel-

coming LCD interface. Beyond its good looks, the iAdd tech is

the real draw to this washer, capable of automatically judging

the exact amount of detergent and softener based on the load

weight and

amount of

water being

used, intelli-

gently making

adjustments to

drum RPMs

and water level

so as to quietly

save as much

water and

electricity as

possible, with-

out impacting

the quality of

the washing process.

The speed reduction clutch is an important component of

any household washing machine, but lacks standardized specifi-

cations. After much study and analysis, Midea‟s Laundry Divi-

sion developed its “Technical Specifications for Speed Reduc-

tion Clutches of Household Washing Machines”. This standard

details the design for speed reduction clutches for impeller-type

washing machines specified in “Household and Similar Electri-

cal Washing Machines” (GB/T4288), thereby filling the previ-

ous standards gap for this washing machine component.

This specification benefits appliance and component man-

ufacturers alike, by facilitating greater cooperation between

them, and allowing for more efficient and cost-effective mainte-

nance.

NEWSLINE


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Climate Solutions for a Green Environment,

in Pakistan & Sri Lanka By Peck Zhao

D uring the first half of October, CAC held two

seminars to highlight the importance they place on designs

which promote environmental friendliness. The first was in

Islamabad, Pakistan, and the other in Colombo, Sri Lanka,

both with the aim of promoting the V4 Plus, in collabora-

tion with local distributors. The name of both seminars

was, “Climate Solutions for a Green Environment.”

Midea CAC is breaking new ground in “green” ener-

gy efficient solutions for the HVAC industry in Pakistan

and Sri Lanka, where the first solar-powered AC systems have

been launched by Midea CAC and its distributors. At the semi-

nars, the audience was briefed about the significance of these

models in their markets, as they offer up to 80 percent savings in

energy consumption, as well as the benefits of solar-powered

AC and VRF systems and the new “falling film” centrifugal

chiller, in terms of reliability

and comfort.

“The energy has become

the real power in our world

which is led by those who

come up with the most

innovative, efficient and

sustainable energy solu-

tions,” remarked Dennis

Lee, CAC Sales Director

for Africa & South Asia.

“Green energy is all about

innovation, efficiency and above all the sustainability

like meeting the needs of today and sustaining our

resources for tomorrow.”

Attendance at the seminars amounted to 260 (120 in

Pakistan, and 140 in Sri Lanka) consultants, contrac-

tors, construction developers, and building owners, as

well as representatives from major media outlets.

NEWSLINE


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CMI Organises its First Midea Achievers

Meet in Thailand By Himani Joshi

C arrier Midea India recently organized its first Midea

Achievers convention for its Indian channel partners in Thai-

land, from August 4th to 7th. The event saw participation from

over 250 Midea channel partners across India. Representing

CMI at the event were senior officials such as Managing Direc-

tor Krishan Sachdev. This meeting was arranged as an oppor-

tunity to keep CMI‟s dealers informed about the company‟s

recent developments and future plans, and also marked the first

occasion that the entire CMI extended family could be together

to celebrate a new season of business.

Also in attendance was Sanjay Mahajan, Vice President of

Sales & Marketing at CMI, who remarked, “India is a competi-

tive market, and we aim to become the most preferred home

appliance brand in the years to come. I am delighted to see the

dedication, enthusiasm and effort put in by our channel partners

for the launch of the brand in India. I am confident that with

our understanding of the Indian market and our ability to ad-

dress customer needs through innovative solutions, we will be

able to carve out a niche in the consumer durable market.”

Almost simultaneously, another convention was being

held in Thailand between August 6th and 9th, attended by 17

Midea commercial air conditioning channel partners, with the

purpose to analyze the commercial market in India, understand

opportunities for Midea, and fine-tune strategies accordingly. It

was also an opportunity to recognize group and individual ef-

forts towards brand establishment in the commercial sector.

The Midea brand in India was first launched in December

of 2012, and since then, CMI has been expanding the brand‟s

footprint there. Both of these gatherings serve to help channel

partners to understand the Midea brand better, become familiar

with each other, and share their experiences.

NEWSLINE

Midea CAC Won the Trading Center Project

in South China City By Angie Cai

W ith the accelerating pace of urbanization, the

Heyuan Industrial Park, in Heyuan, Guangdong, decided to

begin planning a project for a massive new trading center, and

such a project naturally requires

a powerful solution for keeping

occupants comfortable during

the sweltering summers in

Guangdong. Amidst fierce com-

petition from several bidders,

Midea CAC ultimately won the

contract to provide the trading

center with all of its cooling

needs, with a value of over 12

million RMB.

The overall construction area will total around 1.8 million

square meters, making full use of Heyuan‟s advantageous loca-

tion adjacent to Jiangxi and central China in general. This will

hopefully make the new trading center a primary destination for

trading, exhibitions, and logistics planning.

The product which secured the contract for CAC is the

best-selling all-DC inverter V4 Plus VRF product. The V4 Plus

is the result of Midea‟s dedica-

tion to research and develop-

ment; it operates a team of elite

R&D staff worldwide, in a se-

ries of labs with CNAS Nation-

al Accreditation. This year

alone, Midea CAC invested 7

million RMB to set up a large-

scale lab for simulating severe

environmental conditions. CAC

also maintains facilities to carry

out customer comfort appraisal in regards to air power and

noise level.


10

Midea’s Next-Gen Heat Recovery DC

Inverter VRF By Amber Liu

R esearch data shows that HVAC systems account for

approximately 15% of all energy expended in commercial set-

tings. The world faces an increasingly severe emissions problem

and industry watchers are increasingly calling out for HVAC

manufactures to do more to reduce energy consumption in their

HVAC products.

The industry‟s answer to this call is the variable refrigerant

flow type air conditioner, or VRF. VRF is a relatively young star

amongst the older conventions for commercial cooling. The

VRF market has continuously expanded since its introduction in

1982, even throughout the different economic crises that have

occurred since then.

Midea started its own VRF product line in 1999, and re-

leased its latest generation just recently, a heat recovery all-DC

inverter VRF named the V4 Plus, with a system that can always

operate at the most efficient frequency range; the SCHE

(simultaneous cooling and heating efficiency, 50% heating/50%

cooling) of this new product can be in the range of 7+ (W/W).

Heat recovery operation can be useful, particularly in tran-

sition seasons, and is relevant in all seasons if a building has dif-

ferent zone load profiles such as interior room loads and exteri-

or room loads. Heat recovery operation can also be applied to

buildings with an east/west or north/south orientation.

The Midea V4 Plus heat recovery VRF integrates many of

the most advanced technologies, with the industry‟s highest effi-

ciency DC inverter compressors, and 180°Sine-wave electric

control. The V4 Plus series is available in 5 models, with capaci-

ties ranging from 8-16hp, and in combination, up to 64hp. Its

unique split-coil design in the outdoor unit, with only a half coil

required at a time, allows the system to maintain a strong heat-

ing operation, even during defrosting. High pressure balancing

technology between modules, active when the system‟s heating

requirement is less than the master ODU‟s full capacity output,

means gas velocity

and pressure from

master ODU is

strong enough to

change the direc-

tion of the slave

ODU‟s four-way

valve ,which

makes the entire

system more relia-

ble, with lower

power consump-

tion. Together

with the IMM

(Intelligent Manag-

er of Midea), a maximum of 1,024 IDUs and 512 ODUs can be

controlled and managed by the IMM software, through LAN or

WAN. Due to recent improvements in user friendliness, flexible

design, lower operating noise and easy transportation, there has

been a sharp increase in interest and confidence with VRF

products among customers.

The new V4 Plus series has already been launched across

Europe, Latin America, South Africa, and will soon be intro-

duced in other areas where commercial demand for energy effi-

ciency becomes apparent.

NEWSLINE


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Midea Group Lists on the Shenzhen

Stock Exchange By Matthew Smith

C apping a process that began a little over a year ago,

Midea Group finally debuted on the Shenzhen Stock Exchange

(SZSE) on September 18th, becoming a fully public company.

Prior to this, Midea Group was privately-held, structured

with its most significant companies as subsidiaries directly un-

derneath it, the most nota-

ble of those being the

SZSE-listed GD Midea,

which was responsible for

the Group‟s core business

of designing and manufac-

turing air conditioners, as

well as refrigerators and

laundry appliances.

Back in August of

2012, Midea Group an-

nounced the beginning of a

major restructuring of the

company, wherein three of

the aforementioned com-

panies would be merged

into their parent. The

fourth, Midea‟s real estate

development arm, would

become a separate compa-

ny outside of the Group.

At that time, trading of

GD Midea shares on the

SZSE was suspended tem-

porarily for the following 7

months, in order to pre-

pare for the listing arrange-

ments and announcement.

GD Midea was finally del-

isted after August 14th, 2013, its final day of trading. Midea

Group was listed in its place the next day, using the final closing

price of GD Midea as a static placeholder, until official trading

began last month, at an initial offering price of 44.56 RMB per

share.

The listing of Midea Group, under the code of “000333”,

consisted of 1.686 billion shares outstanding, with 686 million

of those shares being tradable. One part of the listing process

for Midea Group was acquiring GD Midea shares not already

owned by the Group, by way of a share-for-share purchase,

incentivized with a premium of approximately 62% over the

GD Midea‟s share price

benchmark (9.46 RMB,

chosen at the announce-

ment in March), equivalent

to 15.36 RMB per GD

Midea share, or 1 Midea

Group share per 2.90

shares of GD Midea. Al-

ternatively, a cash offer

was worth 9.99 RMB per

share, but this option was

not exercised by any GD

Midea shareholders. (The

original offer was 15.96

RMB, but it was decided to

issue a 0.6/share dividend

afterward.)

The new Midea Group

listing comes in the form

of „A-shares‟, meaning they

are generally only available

to Chinese citizens, and

denominated in RMB.

(This is opposed to B-

shares, which are denomi-

nated in foreign currencies,

and are open to foreign

investment.)

With the merging and list-

ing now behind it, Midea Group moves forward from this point

as a much more visible and transparent company, fostering a

new level of trust with its investors and customers all over the

world.

NEWSLINE


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Smart Phones, Smart Appliances

By Crystal Lun

F rom Air conditioners have become necessities in our

daily life. With the development of the technology in this indus-

try, appearances have become more attractive, and functions

have become easier and more powerful. One thing that hasn‟t

changed much so far is the remote controller of the air condi-

tioner, which has lagged behind the advances of other aspects.

Anyone will feel annoyed when the heat becomes unbearable,

and they suddenly cannot find the remote to activate the air

conditioner, or when the remote‟s batteries have expired.

Fortunately, this kind of scenario may be forever in the

past, as Midea released its newest marvel this month: a

smartphone-air conditioner connectivity application, to comple-

ment the existing remote control.

The software, developed by Midea, is designed to offer a

similar interface as the conventional controller, and to com-

municate with the air conditioner through the same infrared (IR)

port as a conventional remote. The application can also com-

municate through Wi-Fi on Midea‟s more advanced models.

Starting in October, customers within China can download the

application through the website or QR codes displayed at stores

throughout the country, and it‟s completely free for everyone to

use. (The overseas version is currently in production, and is

slated for release in 2014.)

"The app was developed by our division, giving users con-

trol of all Midea RAC products in the China market, and even

some of Midea‟s commercial units. Smartphones with infrared

modules have become a trend, and as long as there is an IR

module in the smart phone, it can control many Midea units,”

Midea RAC President Wu Wenxin remarked. “Smartphone

control effectively solves the one problem that remote controls

are not universal between all models, and I believe that

smartphones

will fully

replace the

traditional

remote con-

trol in the

future. No

missing con-

trollers, no

buying se-

cond con-

trollers. Ad-

ditionally, if

applied uni-

versally

throughout

the country,

thousands of

batteries will

be saved,

making a

great contribution to environmental protection.”

Midea Group has one of the most comprehensive white

goods portfolios in the world, and so there is a great prospect

for smartphone remote control abilities across the entire range

of appliances that the company makes; air conditioners are cer-

tainly only the beginning.

FEATURE


13

A Controlling Type of Guy

By Mandy Wang & Matthew Smith

Gonzalo Ruiz

MID, Department of Finance

[email protected]

This month, we sit down with a new addition to the

headquarters here in China, Gonzalo Ruiz. Gonzalo was

formerly with Midea-Carrier in the ABC head office in

Canoas, Brazil. Because of his expertise and international

working experience, Midea felt he would be a perfect fit in

the headquarters to lead the company’s push for better

financial controls. This is a fairly important topic now that

the company is fully public, so we wanted to hear about it

straight from him.

ADV: Thanks for taking the time to talk to us about your move here. First of all, can you explain your history with the company, specifically, how you started with Carrier/Springer in Brazil? Gonzalo: Well, in 2007, I joined Carrier as the Controller for the Latin American region at the headquarters in Brazil. At that time, I was working with Price Waterhouse when the opportunity came through. Carrier was looking for a Regional Controller that had experience in financial reporting, auditing, and internal controls in one of the “big four”, as well as the working experience in the United States, Brazil and Argentina. As it turned out, my background matched exactly with their needs. Also, at that time, I was willing to move from a consulting position to a more hands-on operational business in the finance department. ADV: So that was where it all started. Gonzalo: Yes, so when Midea came on board, and the JV was created in 2011, at first, I almost saw it as a threat, but then I realized that this could be a great opportunity! So I started working very closely with the TID (now MID) team, supporting them on financial reporting, and we created a great business relationship. When the current opportunity came up, Jessica, Kaiser and I discussed the idea of coming over to join MID, and we concluded that this would be a good move for everyone. ADV: So go into more detail about your specific job here – it was important enough that they uprooted you all the way over in South America, and moved you in on the other side of the

planet here. Nobody else here could do it; they obviously thought, “We need this guy, here.” Gonzalo: Well, I think that when Midea started to globalize, especially with the JVs, they realized that they had to enhance their financial reporting process and implement strong internal control processes. Internal control processes will provide you assurance that all numbers flowing from entities around the world will be accurate and complete. ADV: They didn‟t have this system here? Gonzalo: Well, the numbers were being compiled, figures tallied up manually, but this isn‟t enough. You need to ensure that those numbers have gone through a control process; proper procedures and approvals. You need to visit the subsidiary, understand how they do business, assess their risks, and test the numbers, so that you can rely on them. Anyone can send you any number, and you can inquire by phone for the „why‟ about the „what‟, but if you don‟t go down and try to implement the control procedures, it‟s going to be very difficult, just by phone, to catch or raise an issue, unless you‟re a giant. Nowadays, all around the world, many companies are heavily system-driven, so you need to be very careful with how they are built, with authorization changes, processes, because if something goes wrong, then you will never know. Nobody will know.

PEOPLE


14

A Controlling Type of Guy (cont.)


ADV: Yes, that is to say, once the system is built, people simply follow the system. If there are any holes, most people tend to not question it, because it‟s the system they‟ve been given to follow. Gonzalo: Yes, so you see a lot of companies investing heavily in good systems and implementing them, because it‟s impossible otherwise. You cannot test everything nowadays, with hundreds and hundreds of transactions going on, and in different currencies. It is impossible to test everything, so you

need to rely on a system, but only if you test the systems themselves. Nothing is ever perfect, issues will be raised, and fixed, and then you can rely on the numbers coming through. The team here, I think they are very good in finance, although maybe not from a control perspective; they need support, guidance. These internal control processes are more… western-created; essentially from the United States. ADV: Where you had already worked for some years. Gonzalo: Since the accounting scandals of 2001, with Arthur Andersen and companies like Enron and Worldcom, the world of business was shaken, and along came Sarbanes-Oxley. But, internal controls are not new- I mean, they‟ve been around for decades. But these controls begin to slip, and people become accustomed to that, because „It‟s not important; we‟re making money. What‟s the problem?‟ … until the numbers begin to turn bad, and then you realize, the revenues weren‟t actually those revenues, net income was not actually that net income, and then it becomes ugly.

ADV: So it can either be a case of controls not being present, or like with those recent scandals a decade ago, not being followed. Gonzalo: Yes, and so in Midea, I think this is where I can help the business. This is not a short-term process, it‟s actually quite long-term. In MID now, we‟re creating a team, and our goal is to implement proper controls in all the entities in the appropriate proportions. Internal controls are different between, say, in Vietnam with two factories or ABC with three factories, compared to Thailand, which is a much smaller business.

ADV: Over this past week, you‟ve had the company of colleagues from your old neighborhood – one from the office in Canoas, Brazil (Alex Lengler, interviewed by ADVANCES back in May!) and Martin Menendez from Buenos Aires, Argentina. What have the three of you been working on? Gonzalo: Well, we‟re now in the process of implementing Oracle HFM (Hyperion Financial Management) consolidation and reporting systems. At the moment, Midea MID has no single reporting system, and for the most part the reporting is done manually. This is extremely risky; there‟s no tracking, no log; numbers can change. You need to have a secure and universally-used reporting system that will provide accuracy, completeness, and will expedite the process. So each entity should, by 2014, be able to load the information from their local ERP system, into the HFM system. Once it‟s there, Midea Group could have these numbers available in the 2nd week of the month. Right now, this is taking much longer. With HFM, you‟ve got data coming from many different sources around the world, but within a single, standard format, same language, same accounting rules, and you can trace any number‟s modification

PEOPLE


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A Controlling Type of Guy (cont.)


and/or origin. But this needs to be implemented first, and it‟s not the easiest tool to learn, but once it‟s in place and everyone is using it, it‟s great. I used to use it at Carrier, and it‟s great.

ADV: So this is the challenge now: putting it in place, and getting everyone over the learning curve. Gonzalo: Brazil, well, ABC (Argentina, Brazil, Chile) is the first to implement this, because it‟s the major one of the JVs, and then there‟s a schedule for the others to follow. That‟s why Alex and Martin came over from ABC to work on this, because they‟re already familiar with the Carrier HFM system, and can

help in applying it company-wide. ADV: On a lighter topic: You‟re living in China now. But you‟ve lived in a number of other places before: You grew up in Argentina, but you also lived in both United States and then Brazil. It seems that each of these is an ever-greater leap, in terms o f a d j u s t m e n t , perhaps?

Gonzalo: Yes, of course, in any country. You might think that Brazil would be easy for someone from Argentina just because

of the proximity, but between those two places, there‟s a lot of adjustment. The ease I had with it was that I was able to pick up Portuguese fairly quickly, and living in the United States was

actually easier for me in some ways, partly because I already knew English. In China… it‟s complicated. The language, and in a more general sense, overall communication, are more difficult to grasp. This will no doubt be the most challenging of my international living experiences. But it‟s pretty marvelous here, and I can say that trying to understand China from simply reading about it or watching something about it on television is just no substitute for actually being here. ADV: I agree with you completely. There‟s no way you‟d have any idea about it without being here first. Gonzalo: In many ways, it‟s much more developed than I originally imagined before ever coming here. One other interesting thing I can tell you – the first bit of Chinese I learned to speak here, was not xie xie or ni hao, but bing shui – ice water. I‟ve learned that it‟s very unusual for anyone here to drink ice water, even in the summer, and so this is something I had to learn to ask for specifically. But it‟s working… so I think this is a good start to my new life here.

PEOPLE

Yīgè bīng shuǐ, xièxiè!


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