On November 22, 2006, Chinese home appliance retail heavyweights Beijing-based Gome Electrical Appliances Holding Ltd. and Shanghai-based China Paradise Electronics Retail Ltd. completed
merger negations that had been ongoing for five months. Born was the new Gome, the largest home appliance retail group in China with 900 stores and three retail-chain brands, including Gome, China Paradise and Eagle. The merger of Gome and China Paradise set a new record for private-enterprise amalgamation in China.
At the new home appliance powerhouse, Gome founder Huang Guangyu, appointed as Board Chairman of the group, is responsible for strategic investments; China Paradise founder Chen Xiao, as CEO of the group, is responsible for day-to-day operations. Since joining the new Gome, Chen Xiao has decided to shift the center of business to the north, undertake restructuring and fine-tune the business of the company.
During an exclusive interview with Money Journal, Chen Xiao, reviewing the hectic past few months, said his focus was Gome's future as well as future changes within the industry. He spoke freely and frankly about details of China Paradise’s incorporation with Gome, his take on the future of the industry, his feelings about the new position, and the plans for the group going forward.
Money Journal: What was the most difficult part of the merger of Gome and China Paradise?
Chen Xiao: I have known Huang for a long time. We started to communicate with each other in the second half of 2005, and even more in 2006. The part of the merger that required the most effort was negotiation. We had the same vision of the industry and knew that the new Gome would become the industry leader after the merger. Therefore, we were able to complete this large-scale merger because of our common goals.
The most difficult part was convincing the China Paradise team of the future of a new Gome. Having founded the business together, we all had feelings for the enterprise and the brand. Some of the team members had trouble arriving at the same conclusions as I did. Subsequently, I joined the new Gome team and some chose to leave.
What are the differences between Gome and China Paradise? What is the essence of the new Gome?
In terms of enterprise culture, Gome is more decisive in execution. China Paradise is a Shanghai enterprise and is more flexible by comparison. My job is to integrate the strengths of both companies by keeping Gome's strong implementation ability driven by effective performance evaluation, and our strength in people and customer orientation.
In the past, the goal was “to serve management,” but now it has been changed to “serve the customer.” In other words, instead of having the front-line staff focusing on satisfying the needs of management, we now require management to serve and empower the front-line staff so that they can serve the customer better.
What is the biggest value of the merger?
The biggest value of the merger is spreading the company's network more evenly. In the past, Gome managed to achieve top ranking nationwide, but it failed to come out ahead in all areas. For example, China Paradise has a very high market share in Shanghai. What China Paradise brought to the table was overall increases in network size and efficiency. It also helped in widening the gap with second-tier operators and expanding the superiority of the company as a whole.
From the resource acquisition perspective, Gome was more influential in market share and purchasing clout.
How is the integration progressing?
The integration has been progressing well, much faster than anticipated. For example, the plan was to complete network integration by January this year; it was completed in December last year. We also completed team integration and back-end marketing policy integration at the end of last year. The new Gome now has a set of unified policies for supplier negotiations and purchasing procedures.