With the development of the “internet of things”, China has seen a rising demand for smart products across all sectors. Products that carry a label “smart”, such as speakers, watches, or even vehicles, are ultimately expected to give you more control, efficiency, and a level of personalization that addresses your individual needs.

The ‘smart’ label has found a place in the home appliance market too, leading to a growing assortment of everything from smart refrigerators, ACs, TVs and other products.

According to a report by Daxue Consulting, China’s largest home appliances manufacturers, such as Midea, Haier, Galanz, and Hisense, begun investing in the development of smart home products.  They are, however, up against tough competition from companies like Xiaomi, which started from making smartphones but has ventured into a suite of smart home appliances A digital technology company at its core, Xiaomi also has the advantage of higher brand appeal among younger consumers.

Because of their higher price, more complicated use, and a relative newness on the market, smart home products attract only a specific group of buyers. Household penetration for smart products is considered to be at 7.7% in China this year, and this includes all smart home setups, such as speakers, security and lightning systems.

The early adopters of these products tend to have higher disposable income and willing to spend extra on novelty, convenience and efficiency. The market is however expected to grow fast as smart products become cheaper and more mainstream. By 2023, market penetration in China is projected to be at 24.8%, according to the data compiled by Statista.

Some traditional manufacturers have adopted a dual strategy where they continue to address the mass market of consumers while developing experimental lines of smart products that target early adopters.

Hisense, one of China’s largest home appliance manufacturers and a state-owned enterprise is one example. Its traditional business is the breadwinner. Last week, the Qingdao-based company published its financial earnings for the first half of 2019. The company reported a 21.24% increase in its net profit, up from RMB 791 million (roughly USD 110.7 million) to RMB 960 million in H1 2019 compared to the same period last year.

The company has multiple brands and sells a variety of products, covering refrigerators, air-conditioners, washing machines, smartphones, and televisions. It has emphasized that it adheres to a development strategy of a “technology-based enterprise” with “smart” and “innovation” as its “core values,” however its latest product launches have focused on improving traditional features on mass products, such as a fast freeze mode for fridges, LED lightning, and others.

However, Hisense has veered into smart devices too. Two years ago, it launched a portable Hi-smart AC, a device controllable via a smartphone app that can adjust the temperature according to the outside environment or your daily routines.

The state-owned enterprise has done most of its technological development in the TV segment. In August this year, the company launched a “social TV” with an interactive system giving its users features such as group video chat, 3D Avatar Karaoke connecting to friends online, and AI fitness.

Hisense seems to operate well in both the traditional and ‘smart’ market segments, but the competition is bound to intensify, as other well-established home appliance brands compete for the attention of Chinese consumers.

A few brands have been making their way into smart products via the development of smart home solutions.

Breaking smart

Chinese home appliances maker Midea is a leader in the development of connected appliances and smart home solutions. It has invested more than RMB 20 billion in the R&D in the last five years and set up 20 research centers globally. In 2016, its subsidiary Midea Smart Technology started operating separately, developing smart home solutions under the M-Smart label.

The M-Smart system has been successfully showcased at various expos, however, some of its products remain conceptual at this point. That said, some of its traditional products with intelligent features, such as smart, voice-controlled ACs or smart refrigerators with an interactive screen, have been successfully launched.

The Hong Kong-listed company this month announced the development of an AI system that would connect all smart products within a household to one core platform.

Another example of successful smart home solutions come from a Qingdao-based company Haier. In 2016, the company introduced the Haier U+ platform, helping household owners to monitor and control real-time information about their home appliances via an app. This way, a consumer can remotely adjust the temperature of the refrigerator or find a recipe based on the available ingredients.

Last year, the company showcased a line of its all-scenario household smart appliances, covering kitchen, bedroom, bathroom and living room. Washing machines that can recognize the texture of your clothes, a 3D fitting mirror, or a refrigerator with a smart screen that can identify ingredients are just a few examples of how the company is adapting to the digital era.

According to the Daxue Consulting report mentioned earlier, the market size of smart home systems is increasing at an annual rate of 20% and smart home appliances are its largest segment.

Competition from internet companies

Chinese tech giants, such as Alibaba and Baidu, aren’t mass producing AC units. But they are entering the smart devices segment mostly via smart speakers, which they dominate. In 2019, the market for smart speakers has more than doubled, up from RMB 330 million to RMB 680 million in comparison with last year, according to Daxue Consulting.

Baidu’s smart speaker brand Xiaodu, launched last year, recorded a growth of 3.700% to capture 17.3 percent of the global market with 4.5 million shipments.

Competition in smart devices also comes from Chinese electronics manufacturer Xiaomi, which is out to prove that it is more than just a smartphone maker. Known for its affordable products, it competes with the home appliances brands that have been on the market for decades. It first entered the market with air purifiers and has launched a number of other products since. Among the most popular ones are lamps, air conditioners, washing machines, and vacuum cleaners. Last year Xiaomi introduced the Yunmi Smart Refrigerator that can keep food at an ideal temperature. One of its latest smart products also includes an interactive children’s toothbrush developed under the company’s home appliance startup Soocas.

Convergence

With increasing competition and development of AI-based home solutions, some big internet companies and traditional home appliances makers seek ways how to collaborate and cut a larger share of the market together.

Haier is one of the traditional companies that have made great efforts to cooperate with internet giants. Last year it announced two strategic cooperations with Baidu and Sogou. Baidu’s AI system together with Haier’s U+ platform will work together on big data and IoT towards technological solutions for smart homes. Sogou will offer support via its voice technology to smoothen interaction between home appliances and users.

Cooperation between Midea and Xiaomi dates back to 2014 when the latter invested USD 200 million (RMB 1.26 billion) in Midea, followed by the launch of the i-Youth Smart AC system.

It is likely to see more of such win-win cooperations as both parties get to share share their unique knowhow.

With the growing Chinese middle class, China‘s market for smart home devices will keep expanding. The domestic market is highly competitive and companies need to adjust to moving towards this trend. However, as smart technologies are still relatively new and not in demand by everyone, brands also need to remember consumers of traditional products.