12 April, 2014 – Speech at China Europe International Business School
I’ve delivered many speeches in recent years on topics ranging from Wanda’s corporate strategy to corporate culture and from transformation and upgrade to tourism. Most of you are entrepreneurs. Today, I’d like to talk about our execution from the perspective of corporate management and I hope everyone present here can carry something away.
Wanda has been widely recognized for its strong execution these years. It has maintained unprecedented growth of more than 30% for eight consecutive years – with the fastest annual growth at 45%. We have never pushed back our scheduled opening dates for Wanda Plaza projects, and all these projects have been completed within a tight time-frame. I want to take this opportunity to share with you how Wanda develops such strong execution, focusing on four aspects:
I. Strong Execution
Our strong execution is mainly reflected in two aspects:
First, keeping our promise. When we start construction on any project – be it plazas, hotels, shopping malls or cinemas – we set the day they will become operational. Every September, Wanda holds a business conference – a premier event in the Chinese business calendar – that is attended by over 10,000 people, of which over 1,000 are business people. At that conference, we announce the specific opening dates for all Wanda Plaza and hotel projects for the next year. You may find it strange that we make the specific opening dates public one year in advance. Isn’t this just asking for trouble? Actually, we do so because we consider the interests of business people: for our tenants, whether we open on May 1, October 1 or during the lunar New Year makes a world of a difference in terms of recruiting staff, preparing merchandise, etc. Also the sales volume in a peak season does not compare with that of a low season. Profits in the commercial sector are thin. Imagine we promised our tenants an opening on May 1. They would start to hire staff, stock their inventories, etc. Then, come May 1, imagine if we said, “Sorry, we won’t be operational until October 1 or New Year’s Day.” Their stock would sit in storage, unable to be sold. And even if the losses from unsold merchandise were still manageable, think about half-a-year’s worth of wages. That would eat away much of the future profits.
Many years ago, Wanda came up with the slogan: “allow businesses to make money,” and the punctual start of operations is a crucial aspect in that commitment. We have been in the commercial property sector for 15 years and have practically never postponed the opening date for any project. What’s more, when a Wanda Plaza opens for business, it means every single business is ready. Not a few dozen out of 200 or 300.
Second, maintaining costs below estimate. In real estate development, controlling costs is tough. First, there is a long development horizon. Unlike a car that can be assembled in minutes, a shopping mall may take Wanda two or three years between the groundbreaking and start of operations. Many companies may need four or five years. And the longer the time, the more variables are involved. Second, real estate is created in non-standard ways. Depending on the region, a mall is constructed differently. The type of tenant is not the same. What sells well in northern China may move off the store shelves less quickly in southern China. As a result, it is normal for many developers that the actual expenditure is 15-20% more than what has been budgeted, but for the over 100 real estate projects that Wanda has developed in the last 15 years, no matter whether these were malls or hotels, all achieved below-estimate costs and above-estimate net profit. That is what sets us apart from other developers.
We have built two mega cultural projects in Wuhan, including the Han Show Theatre and the Wanda Movie Park that cost 2.5 billion and 3.5 billion yuan, respectively. These projects will be open for business in the fourth quarter. Characterized by sophisticated design and technical complexity, the Han Show Theatre and Wanda Movie Park have charted our future direction for project development in the cultural sector. While building these groundbreaking projects, we’ve come up with many ideas and tried them out. The projects have taken more than five years since construction started in 2009. They are scheduled to be completed and delivered on June 20. All the costs are currently within budget. Wanda’s strong cost control is demonstrated by lower-than-expected costs for such groundbreaking and high-tech cultural projects as the Han Show Theatre and Wanda Movie Park.
II. Create a Culture of Execution
Wanda’s strong execution stems from the group-wide culture of execution. The concept of execution is in the blood of each employee at Wanda:
1. Lead by example
It seems to me that top management at a majority of private companies, SOEs and even government officials are not confident enough to lead by example in everything they do, but it is a principle that I’ve been living by for years, which may be inherited from my military background. At Wanda, I translate the principle into practice and act as a role model who leads by example for my employees. For example, nepotism is disallowed in the group as part of our anti-corruption campaign. I act in strict accordance with the rule and never have any relatives working with the group. I may give them money to set up a business on their own, but they are not allowed to join Wanda. It is by no means easy to walk the talk. Talents with a global mind-set are warmly welcomed by Wanda on its way to becoming a world-leading company. I don’t want people to think of Wanda as a family business, where the boss has the final say in all matters and the decision-making process lacks transparency. If Wanda were such a company, it would struggle to become international. As an absolute majority shareholder of Wanda, I’ve never had my expenses reimbursed at the group as part of my commitment not to hurt the interests of minority shareholders.
2. Nothing is impossible
At Wanda, no one would claim that a target set through the process of deliberation could not be met. Of course, the targets formulated by Wanda are scientific and realistic. We spend three months every year establishing plans for the next year. Business lines propose their respective plans every September, and after three months of discussions and deliberations among relevant stakeholders, the board of directors has the final say about which plans are the best. Everyone thinks of ways to complete the task. I have never heard of people making up excuses for failing to complete a task. This goes back to something that I have said all along: when you want to achieve something, you will always find a way. When you don’t want to achieve something, you can always find excuses. Completing a task not only benefits your take-home pay, it is also a matter of pride. Every year, a ranking is carried out by the group for all projects completed the same year, like malls and hotels based on their quality, and the result will be announced on a big display board outside the venue of the group’s annual outing. Those lowest-ranked general managers will be under enormous pressure and feel ashamed in front of their team members. It leaves these managers no choice but to try harder to keep pace with or even exceed others. This sort of corporate culture is so engrained at Wanda that not completing a task well will be felt as a humiliation by every Wanda employee.
Wanda has started its first project in Guangzhou – Baiyun Wanda Plaza. It has a total floor area of more than 400,000 square meters, two basement levels and more than ten floors. It was built and opened in just 11 months as compared to the originally planned two years, as we agreed to a call by the local municipal government to open the plaza to the public before the Asian Games were held in the city. Without our strong execution culture and capabilities, it would have been impossible for us to greatly shorten the development cycle of the project as required by the local government. This project represents a record in terms of the speed of project development in the world’s commercial and architectural history. The plaza was a complete success despite being built in such a short time frame. Although it was located at the site of the former Baiyun Airport, which means that there were almost no residents within a radius of one kilometer, it delivered far better than expected performance after it was opened. It attracted an average daily passenger flow of more than 70,000 in the first year of its opening, and the hotel and cinema inside the plaza were among the best performers among Wanda’s own hotels and cinemas nationwide. Many local people were just curious about how we could make it happen. When one of the group’s independent shareholders attended a gathering for entrepreneurs in Guangzhou and sailed along the Pearl River after supper, he was asked whether Wanda implements a group-wide military-like management style and whether it is true that mistakes are punished with the whip, and that this is the reason why employees are able to pull off a project so quickly. He replied that it is Wanda’s culture of execution that makes it happen. In other words, nothing is impossible. Military-like management and whip punishments would only drive employees away because it is difficult to build employee loyalty amid the fierce competition for talent.
Han Street, situated in Wuhan Central Culture District, represents something of a miracle because we had it completed and opened in just ten months. We completed the project so quickly because Wuhan was the main venue for the 2011 celebration of the 100th anniversary of the Xinhai Revolution, which brought an end to the reign of the Chinese emperors. Local officials hoped that we could complete it ahead of schedule because it was a landmark project for the special event. I agreed because I believed this was a golden opportunity to promote Wanda’s image both at home and abroad. There were so many stories behind it. We took many measures to ensure that the project could be completed in time. It turned out that Han Street was very successful and really impressed officials at both city and provincial levels. As a new landmark in Wuhan, Han Street has a unique architectural style of the Republic of China period, boasting blended European and modern styles. Shortly after it was opened, a distinguished foreign guest visited Han Street in the company of Wuhan’s Party chief and mayor. He later expressed his gratitude to the Wuhan government for preserving the traditional architecture of the Republic of China period so well. This is an illustration of the success of the project because the guest had failed to notice that the street was just newly opened.
Another project I’d like to talk about is the Changbai Mountain International Resort. It has a gross floor area of 1.2 million square meters and includes nine hotels, the largest ski resort in Asia, three golf courses and a small tourist town. The resort was completed and opened for business in just 26 months, another groundbreaking record registered by Wanda. In fact, we had to complete the project by August 2012 to ensure its successful bid for the right to host the winter events at the 2012 Asian Games. There were only six months available for construction on the Changbai Mountain due to its harsh weather. The mountain is under a one-meter layer of snow from October onwards, so we had no choice but to continue with the project's construction in winter to rush the construction work. I was deeply moved by our employees in overcoming tremendous difficulties. After the project was completed, as a special gesture, we held an award ceremony at the construction site where our construction teams and contractors of the project received rewards from hundreds of core managers from the Group who’d been flown in by plane. The resort reported strong performance shortly after it was opened with its first-year skier count standing at 50% higher than that of Yabuli Ski Resort, which has been open for more than 20 years. Furthermore, during this year’s second ski season, the number of skiers grew by nearly 100% compared with the same period the year before. When the peak season occurs, the nine hotels in the resort with more than 5,000 beds are fully occupied, and it is extremely hard to get a room.
The next example is property sales. The construction of Qingdao Oriental Movie Metropolis was originally due to start in July 2013 with a sales target of three billion yuan for the first year it was open. However, due to land-related issues, there were only 16 days left from the day we obtained the pre-sale certificate for official sales until the end of the year. That is to say, we had to achieve the sales target, originally to be achieved in half a year, in just 16 days. The general manager of Wanda Qingdao Project Company said we would try and see after being asked by group leaders whether the sales target needed to be lowered. The general manager of Wanda Jiangxi heard about this, and he told the Qingdao general manager on the telephone that it would be too unrealistic to achieve the sales target in just 16 days unless there was a miracle. However, we were able to beat the target thanks to the efforts of our Qingdao Project Team and an effective marketing campaign. This is a striking characteristic of Wanda’s culture of execution. We never say we can’t do something, no matter what difficulties there may be. Acknowledging we can’t do it in the first place is not a part of our corporate culture.
3. Clear system of rewards and penalties
Implementing a clear system of rewards and penalties serves as an important part of corporate management, but that is easier said than done. Such a system can’t be implemented without strong execution. First, we are never stingy in offering awards. Take Wanda Wuhan Project Company, for example. The company, with a team comprising less than 100 members, beat its sales target of seven billion yuan in 2012 by recording unprecedented sales of more than 10 billion yuan through tremendously hard work. The salary of the team members at the Wuhan Project Company for the year would be several times higher than that of those at other Wanda Project Companies if bonus was paid based on their sales performance. In fact, we not only paid out bonuses to them in accordance with the Group’s Target Responsibility Document, but also invited them to deliver speeches as role models during our Annual Outing. We offered them a platform for both fame and wealth. At Wanda, the salary gap can be tremendous even for the same position due to different execution outcomes, and nobody objects to this. Second, we dare to use punishment. A Vice President who used to be in charge of tendering and bidding at Wanda was fired by the Group for his interference in the tendering and bidding process for a cable project. He violated the Group’s rules on the process by selecting a small company to be the successful bidder. The General Manager and Deputy General Manager of our Cost Department refused to sign off on the VP’s selection in spite of enormous pressure from him. We launched an internal investigation against this VP after the General Manager of the Cost Department reported the matter to me and had this VP dismissed after verification. At Wanda, corporate rules are like high voltage lines, and those who touch them will get punished.
III. Management Model
A well-established management model is essential for successful execution. Our management model has three characteristics:
1. Centralized Authority at HQ
As China’s society is in transition, corruption has become a serious problem, particularly in construction and real estate. In order to prevent corruption, we adopt a management model that features highly centralized authority at headquarters level as part of our effort to downplay the personal authority of the General Managers at our local project companies. The General Managers and Deputy General Managers of our project companies nationwide are subject to regular rotation depending on the job requirements. We have a rule that if any General Manager or Deputy General Manger refuses to comply with the company’s arrangements, he or she will be dismissed. It is unlikely that Wanda will maintain positive growth momentum if our employees prefer to work only in major cities like Beijing and Shanghai. Of course, Wanda is not a company bereft of emotions, and it does consider the real difficulties of an employee’s family. This has been the norm for quite some time, and cases of non-compliance have been rare.
2. Vertical Management
At headquarters, Wanda vertically manages its cost, finance, quality and safety systems so as to be able to control the key departments. Local companies are not allowed to meddle in personnel, finance or material matters of the vertical system, as these areas are managed by headquarters. Within the vertical system, personnel at the local companies are rotated after a three-year stint in order to avoid the formation of interest groups over time. A mechanism has been built so that top management within vertical systems and local companies can support and, at the same time, counterbalance each other.
3. Strengthened Supervision
Human nature is weak, and somebody’s character is subject to change. I have often stated that we must rely on a system, not on loyalty. Loyalty is unreliable. The loyalty of this year may be gone next year. People may be incorruptible in the face of money, but still succumb to a beautiful woman. Therefore, Wanda’s corporate management is based on strict rules. Our rules are developed with two features: first, we don’t have confidence in anyone. It is from this starting point that we develop our rules. Second, in designing the system, we try to cover as many situations as we can, so as to minimize the number of loopholes and thus the chance of employees making mistakes. Take our bidding and tendering system, for example. We have built a “brand database” for all industry sectors that are relevant to our business. We have a special database for brands of electric cables, of elevators, and even of something as small as switches. Any company that is entered in the database must be a leader in its industry. Only the companies in the database can take part in the Wanda bidding and tendering process. The Wanda malls are so hot at the moment that spare retail space is in short supply. To prevent corruption in the bidding process, we have built a retailer database. We classify retailers into four tiers of A, B, C and D and Wanda Plazas into three grades of A, B and C. We have set a clear rule about which grade of Wanda Plazas bring in which tier of retailers. For example, the grade-A Wanda Plazas are only allowed to select tier-A and tier-B retailers, the grade-B Wanda Plazas may select tier-A, tier-B and tier-C retailers and the grade-C Wanda Plazas are only allowed to select tier-D retailers. The purpose of this rule is to minimize personal involvement in our bidding and tendering process. Many have asked me whether this rule has a negative effect on the development of individual capabilities and thus on the growth of the enterprise. But if we look at the situation on the ground, the reverse is true: not only has this rule had no negative impact on company growth, it has actually hastened it.
We have also built a strong audit team. Personally, I do not take charge of specific business lines, but I am the Head of the Audit Department, which is the equivalent of the Party’s disciplinary commission and the Wanda “watch dog.” The team is known for its strong expertise and has established Group-wide authority. It offers a strong deterrent to irregular practices within the Group. After completing audit work at the local companies nationwide, the Audit Department will issue – depending on audit results – a Management Letter, Notice of Rectification or Audit Notification Letter. If a Management Letter is issued, it means no punishment will be incurred; if a Notice of Rectification is issued, the Department will put forward areas of improvements and punishments may follow; if Audit Notification Letter is issued, the most severe consequences will occur with someone being dismissed or subject to a heavier punishment.
IV. Relying on technology to drive execution
It is important that we rely on information technology (IT) to drive execution at Wanda.
1. High degree of IT
We built an Information Centre and recruited a lot of overseas talent ten years ago when most companies had little awareness of the role of IT. The top management at the center is equivalent to vice-president level, the same as other business lines like Hotel and Commercial Management within the Group. Several years ago, we achieved office automation, moving from personal computers to mobile terminals. The mobile terminals were developed in-house and have greatly enhanced our efficiency as they can be accessed even on business trips. At Wanda, all our projects are required to be managed using an information-based approach. For example, cameras have been installed at all project sites, and mobile recording will be used to cover blind spots and uploaded to our information system so that the progress of each project can be monitored at HQ. The tendering and bidding process for our projects is conducted online too. Due to our enormous amount of investment in building advanced information systems, we were named one of the world’s top 100 information-based companies, the only private company from China, by a globally recognized information magazine.
2. Modular Planning
We place particular emphasis on planning. We have established a Planning Department and put in place a wide range of start-of-construction plans, cost plans, profit plans, cash flow plans, revenue plans, recruitment plans, etc. Each plan is broken down into annual plans, monthly plans and weekly plans. Our plan-making process lasts three months – from September to December – and I will sign off all the plans by December 5. In other words, by the end of November, the General Manager of each business line of the Group will have a clear idea of the amount of money that should be earned and spent and how many employees should be hired for the next year.
Given the complexity of commercial property development, we have developed a modular planning software program through years of R&D efforts. The development cycle of a Wanda Plaza is typically around two years. We divide the entire cycle from construction to opening into nearly 400 specific plans, such as when to get project drawings done, the project status at a specific time, when to start the tenant acquisition process and when tenants can start decorating their stores inside the plaza. These specific plans are classified into three different levels, based on their degree of importance. The most important plans are managed by the President, less important ones by the Vice President and the least important ones by the Project Company. All these plans will be recorded in our information system. A green light on the system means that a given plan is completed successfully, and a yellow light means that a given plan is not completed as scheduled. If the yellow light is on for a whole week, it will turn into a red light and the responsible person will be punished. In order not to cause multiple delays in a year, we also stipulate that three yellow lights add up to a red light and punishments vary for failing to complete specific plans at different levels. If a yellow light is on, the Vice President in charge must come up with ideas to catch up on delayed projects, and he will be replaced if he fails to generate effective solutions to solve the problem in two months. That is why no project at Wanda is delayed for a few months or even half a year and can’t eventually be opened. We have built a talent pool and established relevant regulations as to how many talented individuals need to be recruited for a company within the Group and what percentage of candidates should be placed in the pool. We never hesitate to spend more on talent-pool development at the Group. Take the position of General Manager at Project Companies for example. If there are 100 incumbent General Managers at the Project Company level, five General Managers will stand by at the HQ level. The replacement of any General Manager can occur at any time. The modular planning software platform is a critical tool to ensure that all projects can be opened for business on time. There is a famous saying at Wanda, “If you get stuck, look at your computer for help.” All you need to do is to focus on the specific plans that you are responsible for. Our software program has received worldwide patents, and we have applied for patent protection in the EU and the U.S..
3. Huiyun Intelligent Management System
The Huiyun Intelligent Management System is an exclusive system developed by Wanda. The management and monitoring of shopping malls used to be done by isolated systems. For example, the electro-mechanical system, fire control system and energy conservation system have their respective functions, and such an isolated and disconnected mode of management and monitoring not only leads to a waste of human resources but also makes it difficult to prevent human errors. We have learnt painful lessons from it in the past. This is why we are prompted to find ways to prevent any incidents. We successfully developed the Huiyun system in 2013 after years of R&D. I named it Huiyun, which means Smart Cloud. The system is designed to centralize all fire control, water heating, air conditioning, energy conservation and safety monitoring systems installed in Wanda Plazas and hotels to ensure that all information is displayed on a single ultra-large screen. Our goal is to build a smart monitoring system across the board. For example, when a staff member is about to change his or her shift, the system will automatically send a message to the staff member on the next shift as a kind reminder. And if the system detects few people in a certain area, it will automatically reduce air conditioning volume to save energy. This system has been used in four Wanda Plazas on a pilot basis and is set to be deployed in all Wanda Plazas and hotels nationwide.
Our execution, which I believe is the strongest in China, if not globally, stems from a comprehensive list of factors, such as our established systems, corporate culture and technological innovation. Execution is one of our secrets of success. We reported 380 billion yuan of assets and nearly190 billion yuan of revenue last year and assets and revenue this year will exceed 450 billion and 250 billion, respectively. Assuming that our annual growth slows down to 15% sequentially beyond 2015, our assets, annual revenue and profit will still reach more than one trillion yuan, US$100 billion and US$10 billion by 2020, respectively, putting us on track to be one of the world’s top 100 companies. Moreover, we are striving to become a multinational company with at least 20%-30% of our revenue coming from overseas operations by then. Our ambition is based on our efforts to prove that Chinese private companies are able to become internationally recognized players by competing with other players in the market and to win honor for Chinese companies, particularly Chinese private companies. Execution is our vital key to being a world leading company. The History of the Former Han • Biography of Jia Yi teaches us that the body controls the arms and the arms control the fingers, a metaphor that means handling a task will be simple and direct with the appropriate tools.
Thank you very much.
Q: I am with a multinational company. I wonder whether your military background had anything to do with Wanda’s corporate culture.
Wang Jianlin: Is there a direct relationship between a military background and success? The answer is “yes.” I am not saying that everyone with a military background can make it big. But many successful entrepreneurs used to serve in the military, e.g. Liu Chuanzhi, Wang Shi, Ren Zhengfei and I. A survey conducted by the world-renowned Forbes magazine in 2003 found that more than 30% of 5,000 Chairpersons, CEOs and Presidents from the world’s top 500 companies graduated from West Point. Of course, West Point students are elites themselves because the academy is known for its stringent selection procedure with a 40% elimination rate. The most important thing for West Point students to learn is to develop a strong will and set a firm goal, which lays a solid foundation for success.
The two most important factors for success are innovation and persistence. Never stop pursuing innovation, and never give in to setbacks. Otherwise success will be impossible. My military background has something to do with our corporate culture, but there is no absolute relationship between them. Therefore, a military background does not necessarily guarantee success.
Q: I am an MBA 2013 student at China Europe International Business School (CEIBS). How does Wanda instil its culture of execution across senior management at the Company?
Wang Jianlin: I am invited to talk about execution here today because it seems to you that I am successful. One of the most defining characteristics of my success is that I’ve never had full trust in books, so-called masters and foreign ideas.
A successful entrepreneur must bear in mind that you cannot simply copy models that have been proved by successful entrepreneurs. Qi Baishi, a well-known Chinese painter, and there’s a famous saying of his: ‘those who learn my painting style may make progress, while those devoted to imitating have no future at all.’ Please don’t take what I talk about here today as teaching material.
Wanda’s proven model may be suitable for companies in the same industry and size bracket of around 100 billion yuan, but small and medium-sized enterprises (SMEs) and start-ups are quite different from Wanda and the industries where they operate are also different. Therefore, these SMEs and start-ups must explore and find models that are the most appropriate to them. This is why I always say that you should not trust those books talking about success, like “100 ways to be successful,” or “30 approaches to beat your competitors.” They are all nonsense. What I talk about today is just for your information.
We are going to add around 20,000 new employees this year to take our workforce from 103,000 to 120,000. With so many new employees on board, we launched the Wanda Academy in Langfang, Hebei Province, with an investment of nearly 800 million yuan, to instil our corporate culture among them and to help them gain a clear understanding of our business. The Wanda Academy can seat more than 3,000 people and offers no diploma-based education but mainly short-term training.
What disappoints me is that we can’t find the right people from universities, where high-quality personnel in services, retail, e-commerce and business management are scarce. So other companies are trying to lure our employees away. We have no other choice but to strengthen our training programs, which have achieved a better-than-expected outcome. We have just completed the task of developing teaching materials used by the academy and have published two books named Commercial Property Investment and Development and Commercial Property Operating Management. We will also publish our thoughts and ideas over time with an intention to help you avoid setbacks.
Q: I am with a mobile Internet company. I believe that Wanda’s shareholding structure is conducive to maintaining the Group’s strong execution. Do you have any suggestions for start-ups?
Wang Jianlin: Shareholding structures and modern enterprise systems are not the same thing. It is difficult to say and conclude which one is better, a company with a major shareholding structure or one with a professional management system. Major shareholders may be concerned more about the companies they own. For example, AMC Entertainment reversed its long years of losses the first year when we became its major shareholder. I am not a savior, of course. AMC used to have five shareholders with almost the same shareholding, and none of them really cared about the company. I told AMC management when we first met that we would sign a five-year contract and they would be offered 10% of the profit as their dividends. After these shareholders were devoted to the management of the company, it reported profit in the first year of the contract and earned more in the second year. This is just the pro side of having a major shareholder at a company. Of course, we cannot overlook the fact that there are still major shareholders who lead their companies into collapse. By contrast, professional managers are not willing to care about the long-term interests of the companies they help run and will never pursue investments that deliver returns after a five-to-eight-year horizon.
Success can be achieved whether it is a company with a professional management system or a major shareholding structure. Family-run businesses have the longest history of any business type in the world, and there are many family businesses in Europe. That is to say that an appropriate model can be a family-run company, a company controlled by a major shareholder or one run by a professional manager. Just like an advertising slogan said, “Only your feet know how comfortable your shoes are.”
Q: I am with China Telecom. You plan to generate 30% of Wanda’s total revenue from overseas markets. Lenovo and Huawei are just two good examples of Chinese companies seeking to go global. How do you view the “Going Global” strategy from a strategic perspective?
Wang Jianlin: Our target is to generate 20%-30% of our future revenue from overseas. It is an inevitable choice for a company to pursue multinational operations when it achieves a considerable scale. We have set a target to achieve more than US$100 billion of revenue in five or six years. If we continue to focus our business on mainland China, it will be somewhat difficult for us to accomplish this target because China’s economic growth is slowing overall.
Our pursuit of the “Going Global” strategy is based on the following reasons from a strategic perspective:
First, to achieve our long-term target. Our current vision is “International Wanda, Centennial Business.” However, when the company was established, its vision was to “Be Honest and Smart.” This helped us to navigate our initial difficulties and served as a reminder for us not to be fooled by other companies. When we made some profit around 1998, we upgraded our corporate culture and changed our vision to “Creating Common Prosperity through Serving the Community,” and as we grew, we further changed it to “International Wanda, Centennial Business.” International is an implication of our aim to become an international company and centennial business stands for the company’s pursuit of long-term and sustainable growth. To do this, we must go global.
Second, the need to diversify risks. Internationalization can help to do this. It is important for private companies, in particular, to go global.
Third: to increase revenue. A company can only grow faster and larger through internationalization and mergers and acquisitions. If you look at the world’s top 500 companies, you will find that there is not a single company that has thrived through organic growth, and each company on the Fortune 500 list has completed at least an M&A deal before making it onto the list.
Q: I am with an air and chemical products company owned by a multinational company. Will Wanda’s business model work in small cities and towns in China? Will policy and political risks in foreign countries hinder Wanda’s vision to go global?
Wang Jianlin: Wanda’s business model also works in small cities and towns, and we already have a few projects in some countries. We divide Wanda Plazas into three levels of A, B and C, and they will spread throughout many countries to expand the room for development.
Wanda’s “Going Global” strategy does not necessarily mean that we will simply copy our property business model in overseas markets. We will not invest in shopping malls as we pursue our goal of being an international company because there is almost no room for development in light of the high degree of maturity of the business model overseas and strict regulations on the retail sector in the U.S., UK and EU. For example, there are regulations concerning the specific area of retail space and whether a land parcel can be redeveloped into a shopping mall. China should learn from these developed countries in terms of retail layout.
We plan to expand our culture and tourism businesses to foreign markets. M&A is the only growth option available to us if we do the real estate business overseas. It is based on a prerequisite that we are only interested in projects that are related to our businesses. Our “Going Global” effort does not mean we strive to become an international property company. Instead, it means we strive to become an international company in corporate strategy, culture and development. Now our “Going Global” effort focuses on building premium five-star hotels overseas. Like foreign companies who have opened hotels in China, we can also open hotels in overseas countries. Our goal is to build 10-20 premium five-star hotels around the world within the next decade. Of course, we won’t rule out the possibility of acquiring a large-scale multinational hotel chain. It would be a good thing if Chinese travellers could stay in Chinese hotels abroad.
Q: Our company is a private company engaged in energy-saving and new energy vehicles. A company’s internal execution will be affected by many external factors. For example, there are a number of constraints for project development, such as site selection, demolition, permit and fire safety inspection. How can you obtain government approvals and ensure that all projects can be opened on time?
Wang Jianlin: It is a very professional question. It is indeed the case that it is easy to perform internal control, while it is difficult to perform external control. This is particularly true in terms of permits. Many people have asked me over the years why Wanda is able to obtain permits without giving bribes. The secret is our innovative business model. There will not be an issue if your model is exclusive and sufficiently unique.
We started developing the Wanda Plaza project many years ago, when other companies had no clear idea about the real estate business, and it has become our signature brand following its evolution from first generation to second- and third-generation integrated urban complexes. We have now moved into the culture and tourism sectors, while seeking multinational development, and many companies are still hesitant to enter the real estate market.
Furthermore, the land plots we have acquired are cleared land and from our own experience, it is absolutely impossible to open any Wanda mall for business if a fire-safety permit is not obtained. At the moment, we have established a Business Design Institute, Culture & Tourism Design Institute and Hotel Design Institute. The reason why we have to establish our own design institutes is that we try to minimize design flaws by strictly following business and fire-safety standards. We have learned the varied standards in eastern, western and central China and do our best to meet relevant requirements so that we seldom face approval barriers. Of course, it is also a result of the hard work of our local teams.
Q: I am from Hangzhou, Zhejiang Province. Wanda was engaged in the residential property business before it moved into the commercial property sector. Did you hear any objections from people inside the company at that time? Was there any struggle about this decision?
Wang Jianlin: Wanda underwent its first transformation when it turned from a local company into a nationwide group. We are a pioneer of pursuing inter-regional development in China. We expanded to Guangzhou in 1993. However, when we applied to register a local company in the city, the local administration for industry and commerce refused to approve our application, saying that there were no relevant government regulations. They asked why a Dalian-based company applied to set up a company in Guangzhou. We had to reach out to a local real estate company and agree to spend two million yuan in renting the company’s account and paying annual management fees into it so we could successfully set up a branch in the city. Our second transformation was completed after we shifted to commercial properties from residential properties, and our third transformation was from commercial properties to cultural tourism. The fourth transformation, under way in recent years, has been for us to accomplish our vision of Going Global and turning Wanda from a domestic enterprise into a world-leading multinational enterprise.
There were different voices during our second transformation asking why we moved into the commercial property market when our residential property business was a great success. At the beginning, we had no idea about how to operate a commercial property business and were caught in 222 lawsuits as a defendant in the first three years. We would probably have given up if we had not been persistent enough at that time. Many of my subordinates asked if it was worth it. I told them that commercial properties could generate long-term stable cash flows while residential commercial couldn’t. In fact, I had not realized the risk associated with the completion of China’s urbanization process. It seems to me now that the risk has become greater as China’s urbanization rate could reach 70%-75% in 15 years from 52% at the moment. This means that demand for residential properties will be greatly decreased. Although the residential property sector will not disappear, its business model featuring massive development, rapid turnover and enormous cash flows will cease to exist. Long-term, stable cash flows must be taken into account if a company wants to achieve long-term development. Every business owner should bear in mind “long-term” and “stable,” which serve as the keys to running a successful business.
There were also struggles as we expanded into the commercial property sector. In this case, the benefit of having a major shareholder made itself felt. I told my team that we would keep going till the five-year mark and if we saw no turnaround, then we would just exit the market. It seemed that we began to have some idea about this business in 2004, when the construction of the Shanghai Wujiaochang Plaza, Ningbo Yinzhou Plaza and Beijing CBD Plaza started at the same time. I said if these three projects proved to be successful, we would keep going with the business. The success of these projects helped us strengthen our confidence to move forward, until today. So perseverance is extremely important for innovation and start-ups.