Embraco reinvesting to meet green demand

Although China has ended subsidies for energy-saving home appliances, Embraco, the world's leading high-efficiency refrigeration compressor maker, said it will invest more in greener products for the country's "increasingly demanding" customers.

Roberto Campos, president of the Brazilian company, which supplies almost all major refrigerator manufacturers, said the new investment reflects the belief that China will enjoy the fastest customer growth in the coming years of all of his company's six operations globally.

Campos, who didn't reveal the size of the investment, said his company is evaluating all the opportunities this year to gain a full picture of how to further its growth in China, which is seen as Embraco's cornerstone for overseas production and new technologies.

China's one-year subsidy policy, to which the government allocated 26.5 billion yuan ($4.2 billion) to encourage the purchase of energy-saving appliances, led to a record-high production by Embraco's China operation last year, according to Luis Dau, general manager and plant director of Beijing Embraco Snowflake Compressor Co, Embraco's sole compressor producer in China.

The expiration of the incentives on May 31 will have an impact on Embraco's business, but Dau emphasized that the company is expected to continue its strong growth in China.

"Even without the incentive, high-efficiency products are the trend for the market. Chinese clients are becoming demanding in a good way. They want energy-saving products with less noise, " he said, adding his company is well-positioned to meet these demands for technology and quality.

The giant and rapidly growing market is another reason for Embraco's strong confidence in the country. Chinese clients are as demanding as clients in other countries, but the difference between China and the rest of the world is speed, Dau said.

"Europe is facing a tough situation. As a developed region, North America is not growing as fast as China. Even compared with Brazil, China's 7.7 percent growth in GDP is much faster than the predicted 2 percent to 3 percent growth in the emerging economies in Latin America," said Dau, adding China is very special for his company.

China represents one-quarter of Embraco's global production capacity and sales revenue. The country is the second-largest production base for Embraco after its home market of Brazil.

"We quadrupled production in China from 2006 to 2012. Every single year, we are launching new products here in China. It's going to be the number one growing market we have," Campos said.

Embraco runs two plants in China. The Beijing plant produces compressors while the one in Qingdao, Shangdong province, churns out electronics products.

About 15 to 30 percent of manufactured parts are exported from China to Japan, as well as Italy and Germany, even though a Slovakia operation is in place to serve Europe. "That's because we always launch the latest products in China," he noted.

For instance, it just rolled out in China the VES compressor, a cutting-edge high-efficiency compressor based on Embraco's Fullmotion Technology.

Under the variable speed concept, the cooling capacity adjusts itself according to the needs of the refrigeration system. Only 5 percent of the refrigerators in China now use the variable speed technology, whereas in Japan the figure is about 80 percent.

Therefore, Campos said, one part of Embraco's expansion plan in China is to double the production capacity of VES units in the year to come. He expects the product to penetrate the market really fast.

China's white-goods market, which generally comprises refrigerators, washing machines and air conditioners, probably reached 1.14 trillion yuan ($185.9 billion) in 2012, said Wang Lei, deputy secretary-general of the China Household Electrical Appliances Association.

After explosive growth in the past decade, the market will tend to become stable while demand for high-efficiency and energy-saving home appliances will go up in the long term, she said.

The going-green desire will drive companies to iron out energy saving issues and push up demand for high-quality key components such as compressors and frequency conversion technologies, she said.

Campos echoed those views. He mentioned the pick-up of multi-door refrigerators with bigger internal spaces, and he added that Chinese customers are the major driving forces for technology upgrades.

"Because we can use less space in the compressor, we manage to effectively save space for refrigerators."

Thanks to the global presence and varied customer portfolio, Embraco managed to ride out cyclical economic crisis that affected the white-goods industry. Even though its key customers, such as US-based Whirlpool or Frestec in China, have either relocated some production bases back home, or struggled to continue robust growth, Embraco is steadily expanding its footprint in China.

"We are betting on the household market as well as commercial uses. We need to stay close to customers, so China is definitely the key to success," he said.