Intense competition in China's home appliance market has forced two major domestic retailers to form a strategic alliance - a solution they believe will put them in a better situation.
After six months of negotiations, Shanghai Yongle Household Electrical Appliances Co. Ltd. teamed up with Beijing Dazhong Electrical Appliances Co. Ltd. this week in a bid to enhance their leverage in the domestic market.
The deal will enable the two companies to share outlets and jointly order a large number of products from home appliance makers at lower prices.
"The alliance with Beijing Dazhong, the capital city's No. 2 household appliance retailer, will quicken our step toward becoming a national company," said Guo Minghui, marketing manager of Shanghai Yongle. "It's the same for Beijing Dazhong."
Currently, 12 of Shanghai Yongle's 13 chain stores are located in Shanghai, while its new partner has eight outlets in Beijing.
The alliance helps Beijing Dazhong, which aims to expand into southern China, save money and resources as it now can share Shanghai Yongle's outlets.
The alliance also boosts their logistic efficiency as the two companies, both running their own business-to-customer Websites, can share their goods-delivery systems in the two cities, said Zhang Dazhong, board chairman of Beijing Dazhong.
"Also, we are set to cooperate on further developing the markets in eastern and northern China," said Chen Xiao, board chairman of Shanghai Yongle.
Guo, however, denied that the alliance aims to replace Beijing Guomei Electrical Appliance Co. Ltd. as the country's No. 1 home appliance retailer.
"Our annual sales are expected to reach 10 billion yuan (US$1.2 billion) by 2002, compared with 1.2 billion yuan last year," said Guo. "We will set up 100 new chain stores in Shanghai's neighboring Jiangsu and Zhejiang provinces this year."
Beijing Dazhong's sales hit 1.1 billion yuan last year, compared with Beijing Guomei's annual sales of about 4 billion yuan.
"The alliance between Shanghai Yongle and Beijing Dazhong will not affect our performance," said Chen Yunfeng, general manager of Beijing Guomei's Shanghai branch. "But I wonder how they will share their profits."