Another founder in the intensely competitive Chinese LED industry has disappeared, according to a National Business Daily report.

Following the disappearance of Phoenix Lighting founder, who had accumulated RMB 70 million (US $11.37 million), Zhong Gang, Chief Executive Officer (CEO), Lihefeng Photoelectric Technology’s (Lihefeng) has become the latest company leader to have gone missing in the Chinese LED industry. Just two years after the company’s founding.

In recent years, many Chinese LED manufactures have shut down or company heads have fled. As the LED industry picks up pace in replacing traditional luminaires, manufacturers from different market sectors are also entering this field, which has resulted in the homogenized industry competition.

Since LED lighting is more energy efficient than traditional lighting and has longer lifespans, the lighting has become very popular.

The overlap between traditional lighting replacements and new markets has led to high growth in the LED lighting market, but competition is expected to intensify in the next three to five years, said Linping Dou, Vice President, China Illuminating Engineering Society (CIES).

Lihefeng suppliers have been unable to contact the company representative Zhong Gang since Nov. 17, 2014. The company’s owed suppliers more than RMB 10 million , and had not paid worker wages for three months, which totaled RMB 0.39 million. Zhong had become the company’s General Manager and Chief Executive Officer as of 2013.

Labor related agencies in China launched investigations into the company, and will send its findings to the arbitrary commission by Nov. 20, 2014. Yet, company representatives failed to show up at the labor department’s arbitrary court in Baoan Division, Shenzhen City, Guangdong, China on November 28.

Despite the absence of Lihefeng representatives, the court has gone ahead and ruled compulsory salary compensations will be executed by the court. Lihefeng was also viewed as “escaping” responsibilities since the CEO failed to contact the local community about the delayed work wages.

Difficult for SMEs to compete against large enterprises

Lihefeng was originally a computer accessories and software manufacturer in 1998, and added DVD players and accessories to its product portfolio in 2005. It was not until 2012, when the LED industry became very popular that the company entered the industry.

Lihefeng was MTC’s expo manufacturer in 2010. At the time, they were responsible for assembling decoder boards. MTC started to move into LED industry in 2011, and has been mainly involved in LED package, TV backlight and lighting products. The company’s lighting product operate under ODM model, and the company is responsible from completing the entire OEM model starting from technology to production. As a listed company with massive capital funding and technology support, MTC has not been marginalized as other SMEs. The LED industry has grown exponentially in the last few years, said Mu.

Not all SMEs have been this successful. There are already thousands of LED manufacturers that hope to acquire a market share, whether its through supply chain, financing, technology, or mass production, these are all important factors to expanding in the market, said Gu Dewen, General Manager, Plusing.  

This is no longer the fake smartphone market period, where prices are crucial, right now the attention is on the market, said Gu. Starting in 2010, the industry competition has been intense with large enterprises expanding and scaled up company restructures. SMEs that want to set up their own brands will face difficult market conditions, and be unable to expand distribution channels. It will be very difficult to succeed in OEM, and the industry is becoming highly specialized and difficult to enter. On the other hand, SMEs have been unable to expand, and do not have effective methods in competing against large manufacturers.