Going Global, the Wanda Way – The Wanda Way

Going Global,
the Wanda Way

30 October, 2015 – An open lecture at Harvard University

I. Chairman Wang’s speech

Harvard is a well-known university for its freedom of academics and thought. So there are no limits when it comes to the Q&A section, feel free to raise any question. Regarding Wanda Group, as Professor Shih said, we have a 27-year history from 1988, and in a month this year will be over. In 2015, I estimate that Wanda’s asset will exceed US$100 billion and annual income will be around US$50 billion. Net profit and other core financial metrics will rank top among Chinese private companies.

We have three main businesses—commercial properties, cultural industry and corporate finance. Our development can be described in four stages. The first was in 1993, when we went outside Dalian and into the rest of the country, transforming from a regional company to a national company. This was a key step for us. At that time, people who didn’t do business in China were not able to understand us. You couldn’t get a license to work outside Dalian so you had to be affiliated to other companies to do business. However, I said that nothing is impossible if we keep an adventurous spirit.

From this critical step, our second stage was to transform Wanda from a pure housing company to a real estate company that holds properties. Over the past 20 years or so we’ve been changing and from the year 2000 our real estate subsidiary has become number one in the world. We have become huge in this industry, and we continue to grow. Nevertheless, we started another transformation in 2015. From now on we will no longer hold any properties and we will gradually transition into an “asset-light” model, but that is a whole other story.

Since 2006, we have undergone our third transformation. From a real estate company, we became a comprehensive company, entering the cultural and tourism industries. Over the past 10 years, Wanda’s cultural industry has become the largest in China. To put that into context, the revenue from Wanda’s cultural industry will exceed over 50 billion yuan. Of course, this is not comparable with the United States where there are many companies worth $10 billion. Not only are we number one in our region, but our worth exceeds that of the combined assets of the following nine companies in China. However, you should also know that there won’t be a company worth US$100 billion in the cultural industry, or an annual income of US$50 billion or $100 billion. Though the cultural industry has a huge influence, the largest company in the world may reach over US$30 billion in revenue.

Now we are experiencing the fourth transformation since 2012. We are going global. We had this idea very early, around six or seven years ago. Before then we were not so ambitious – not until we purchased AMC in the US. In just three and a half short years we have invested over US$15 billion overseas. This year, our revenue from overseas business will reach 15% of our total revenue. We have also set a strategic target: by the year 2020, we will grow our total assets and be a public company worth over US$200 billion, our annual revenue will be US$100 billion within five years, and our net profits will reach over $10 billion. Of this $100 billion annual revenue, our revenue from overseas business will make up at least 30% of that total. This fourth transformation is the deepest transformation – from a Chinese company to not only an international company but also a top one. We will try hard to make Wanda a spokesperson for Chinese companies going abroad.

For example, we are trying to build our hotel brand right now. Of all luxury hotels in the world, none of them are Chinese, with the exception perhaps for Malaysian Robert Kuok who is ethnically Chinese. The biggest luxury item in the world is actually hotels, followed by yachts and airplanes. Bags and clothes, as luxury goods, are overstated. Can you say that expensive belts are luxury? They are high-end products, but they are not a luxury.

Wanda owns a lot of hotels. By the end of the year we will have around 100 five-star hotels, and around 100 additional hotels under construction. We decided to work with our own resources to establish our brands, because hotel brands will take more than 10 to 20 years to establish. So far we have hotels in seven landmark cities, such as London, Sydney and Madrid. We also have hotels in three major cities in the U.S.. All of them are located in the heart of the city. For example, our hotel in Chicago is in Millennium Park, just across the river. In New York we are on 5th Avenue, and our Los Angeles hotel is at the top of Beverly Hills.

We are building our luxury hotel brand, and this is just one side of our globalization strategy. Of course, we don’t rely primarily on hotels. Generally speaking, although Wanda has been afforded a certain wealth and scale, we have not stopped to gain more wealth. We are not for personal consumption; my goal is to build Wanda into a hyperpower and use our resources to establish the largest individual charitable fund, to contribute not just to our country, but to all humankind.

This is my brief speech. Thank you very much.

II. Discussion with Professor Willy Shih

Shih: Well, Chairman Wang, I think that is incredibly ambitious, and I’ve been watching your company for some time. It’s very interesting to me that you seem to be moving into two very different sectors from the traditional real estate development, sports and cultural industries, motion pictures. Let’s talk about sports first. We see that you recently acquired the Infront Sports Media of Switzerland, Atletico Madrid and most recently the Ironman Triathlon. These are really very different holdings. Could you talk a little bit about your vision there?

Wang: Wanda Sports Company is already the largest sports company in the world in terms of income. There are few sports companies that make over US$10 billion. Generally speaking, a sports company with billions in annual income is seen as relatively large. Our dream is not about how large the company is but about improving China’s sport industry by adapting to the development of China’s economy and society. Of course, Wanda may realize an opportunity to expand its scale, increase profits and gain recognition from capital markets in the process. For example, China has over 1.3 billion people, but measured by American standards, revenue from China’s sports industry may be less than US$30 billion. America’s sports industry or the global sports industry is only about sports events, sports economy and sports communication, instead of the manufacture of sportswear and equipment. In contrast, America’s sports industry attains a revenue of over US$500 billion, and it only has 300 million people. China’s per capita is only 60%-70% of that of America’s. As an emerging sector, China’s sports industry has tremendous room to grow. At the beginning of this year, China’s State Council formulated a plan that expects China’s sports industry to reach a net worth of 500 billion yuan by 2025, which will come to around US$1 trillion or at least US$800 billion if the yuan appreciates. It means there is ample room to grow in China. So Wanda has not only bought the companies you mentioned before, we will conduct a series of acquisitions in sports. Our goal is to make sure that the businesses of acquired companies can touch down in the Chinese market and promote the development of this kind of sports industry.

Shih: Well, it’s very ambitious. I was very interested to follow your acquisition of AMC theatres of US, you mentioned earlier that you’re moving into cultural industries. That seems to be much harder than traditional Chinese manufacturing products, and I was wondering if you could do it – with this plus the sports industries we talked about, some of the challenge Wanda is facing is going global. You know, these are quite challenging industries to understand.

Wang: Of course, Chinese companies face a lot of challenges when they go global. Chinese companies have not gone abroad, that is to say, they have only just started to go abroad. Though there are around 100 Chinese companies on the Fortune Global 500 List, which is more or less similar to the US, the real transnational companies are rare. Basically, most of them are state-owned monopolies. China can only become truly prosperous once it deploys a number of top international companies and dominates international resources and markets. You mentioned the challenges that Chinese companies face when they go global, and also what we faced. Firstly, there will be a lot of contradictions when you deal with local laws, corporate culture and management. Actually, the most difficult part was our first step to acquire AMC in 2012. At that time, I believed that our company scale was relatively large and had strong informatization capabilities, and we also had some experiences in management. Besides, we had negotiated this project for over two years, and had prepared enough managerial personnel and technology. We succeeded in this first step. Regarding Wanda’s globalization, or rather the globalization of Chinese companies, it’s an inevitability. If Chinese companies don’t go through the globalization phase, it’s hard for us to make China powerful or realize the Chinese Dream.

Shih: Yeah, it’s quite challenging. I see you’ve really taken on some difficult cross boundaries and many different fields. You know, the track record frankly for many companies going abroad is very mixed if you will. Maybe you can comment on that because it’s a very hard problem.

Wang: I believe the biggest problem in the globalization is dealing with the original management, how to retain them and let them work hard. There must be original management when you acquire a company. I don’t think it’s a financial matter or a case of informatization management from afar. In my view, these are all easy to resolve. Is how to mobilize the initiative of original management the biggest problem? If you buy a company but all the original management leave, you’ve probably already failed. All the companies that Wanda have acquired have one thing in common, which is that Wanda didn’t assign anyone to the company, including AMC. By designing a reasonable and effective incentive system, you can make management work hard for you. Take AMC as an example: we designed a good incentive system, which allowed them to make a loss in the first two years and make gains in the last three years. As a result, AMC made a profit in their first year once we came on board. And management’s income has increased 20%-30% for three consecutive years, which is hard to do in the US. So the most important thing in globalization is to keep the original team. When an American company acquires a Chinese company, they usually send in a team of Americans, and this is destined to fail. In short, I think the biggest problem is how to mobilize the original management’s initiative and work for the new shareholder.

Shih: OK. Let me try another one. We’ve recently seen a lot of capital outflow out of China. I’ve heard some people kind of skeptical behind Wanda’s increasing overseas investments, as we heard of you making a lot of purchases. So the skeptic thinks you increase overseas investment because you want to diversify assets overseas. Maybe you could comment on that, overseas versus Chinese economy. Is it just getting money out of the country?

Wang: Firstly, the actual reason for overseas investment is asset transfer, or rather to add assets overseas. That’s the result. However, there are no right or wrong answers on asset transfer from overseas investment, just legal or illegal. For example, you had a meal today. How can you say that it’s right or wrong to have a meal? It’s wrong only if you use public money to have a meal. If you use your own money, that’s alright. It’s the same logic.

Secondly, private companies that go global to expand their business are answering the call from government. At the end of last year, China’s State Council specifically released specifications to guide private companies going global. It can be said that Wanda answered that call.

Thirdly, Wanda didn’t steal, rob, or print money. It is fully earned by ourselves. I can invest anywhere I want to. That investment freedom, or rather freedom of capital movement, is a basic measurement of a country’s legal system. If a company doesn’t have full investment autonomy, there is no freedom in that society.

Shih: So you made your money by selling to shoppers like me in Wanda Plaza or people staying in Wanda Hotels I guess. Let me ask just one more general question then I want to open questions to the floor. Do you have some views on the macro environment challenges facing the Chinese economy today?

Wang: The biggest pressure faced by China’s macroeconomy is the pressure exerted on economic transformation. We used to have a saying in China, the “three engines of growth”: investment, exports and consumption. Two of those engines are currently running on empty – investment has slowed and exports are declining. Although consumption has taken up some of the slack, we can see from last year’s numbers that China’s consumption accounted for 51% of GDP. This is particularly surprising. But as consumption grew by 1-2%, investment and exports shrank by 3-4% and the economy lost its pace. So from the outside looking in, perhaps from a European or American perspective, you might think that China’s economy is crashing, but actually this couldn’t be further from the truth. This is the necessary pain of economic transformation, and it is ten years long. I think it can be shortened to six or seven years, so I think we can get it to five years at most before we can emerge from the pain. When consumption accounts for two thirds of China’s GDP, I think our problems will be resolved.

Q & A

Q: Thank you very much for your comments. At international level, corporate level, and also Chinese companies’ globalization, that is very significant for all the Chinese companies coming abroad. So far, we know that Chinese national level gives policies in Asia and also Europe. So for capital outflow, for example, we have AIIB (Asian Infrastructure Investment Bank) in Asia. We have “One Belt One Road” in Europe. But the Chinese government didn’t explicitly offer a policy on capital outflow in US. Wanda is actually a pioneer company doing this. So I wonder, what is the implication for Wanda’s movement to Chinese government policy? Do you think in the future the Chinese government will use your movement as a reference for the policy in China and other Chinese companies coming abroad? Thank you.

A: Well, I’m flattered. If Wanda could be so important to Chinese government and be used by the government in some way, I would feel very happy. The first time when I came to purchase AMC Entertainment, there were newspapers saying that I was acting on behalf of China and the money came from my country. This rumor disappeared because I’ve purchased more assets here, maybe. In fact, it is understandable as people may not understand when Chinese companies go global. In the future, if China has one or two hundred outstanding cross border globalized Chinese companies in the world, then there will no longer be this kind of opinion or skepticism. State-owned corporations may represent the will of the state, though in fact a lot of them are market-driven in China. As a privately owned corporation, we basically have to use our own judgement; the first objective is to make money. As said previously, we don’t have a banknote printing factory and we have to make profit through prudent management. When you want to buy something, you know good stuff comes with a good price. If you want better, you pay more. Overall, when you’ve purchased a good company with a high price, you need to make good profit out of it through excellent management. It’s all on us. So my answer to your question is to be suspicious about all things that don’t seem right. And I am the founder and largest shareholder of Dalian Wanda Group, also the final decision maker.

Q: Thank you for coming. I’m so excited about the purchase of AMC Theater on your behalf and would love to know what your future plans are? And how does China plan for it as it increasingly has more global share of the move economy? How do you think the future of the movie industry will look? And how can you shape it?

A: It’s difficult to answer a question at this level. I am the chairman of Dalian Wanda Group and AMC is just another subsidiary under Wanda Cultural Industry Group, which in Chinese is my “grandchild level”. So the decision of how it’s going to be developed should come from the senior management and that is CEO of Wanda Cultural Industry Group. I need to manage and formulate corporate strategies, the strategic direction, or being the final approval level on major investments; for example, how much capital investment. It’s difficult for me to go into details. I trust that our professional managers working in Wanda manage very well.

Q: My question is very simple. Building a company like Wanda has always been my dream. As a successful person are you clear what you are doing? Like what’s your next step, what’s your goal?

A: Do you think I’m really successful? I believe I’m still on my way to get where I want to be. I mean it. The way I defined success for myself is to let Wanda to become a world renowned company or be in the top 10. That’s my dream. Now, Wanda might have gained some awareness globally, but it’s still far from being a real international brand. I hope that, in the future, when people are talking about Wanda, it could be like they are talking about Microsoft, Apple, or Walmart nowadays. Everyone knows what it is. To build a top brand as a leading Chinese enterprise is my dream. Speaking of when I could achieve it, maybe in four or five years the fastest, or seven to eight years at a slower pace. I will retire by then. My other dream is to help a poverty relief mission in China and to really make a difference for it. I’ve taken care of a prefecture in Guizhou Province as an experiment and promised 3,000,000 residents there that the Per Capita Income would double in five years in that prefecture. We don't simply give away money, but have done two years’ research. We’ve tried to build it through two main methods: first, to establish a vocational college as residents who have a diploma from a vocational college will be able to find jobs; second, to help develop its distinctive industry – tea. We will expand the tea planting and processing system, along with branding strategies, to make fortune for everyone there.

Q: Hi, my name is Nick and thank you so much for coming all the way to Harvard. I don’t know if you’ve been following presidential election; for next year, I mean as far as I can see, Hillary Clinton is fighting really hard against Donald Trump, but she’s probably going to win next year. My question would be, what do you think, under her administration, the trading policy in the States is going to change, regarding US-China relations and what do you think the influence would be, either in China, or in your corporation? Thank you.

A: Unlike Americans, the Chinese focus on our own affairs. America has a problem of involving matters of other countries. I heard that two of thirds of the Congressional agenda are about problems and issues outside of the States. So the election is of no relevance to me? I believe that no matter who wins the election, the President of the USA won’t do anything to harm the China-US relationship as the economy connection between our two countries is just getting stronger and stronger. For example, a company like Wanda, we've hired 20,000 staff in the States as we are developing here. Imagine that one day, if there are 100 Chinese companies offering 20 million jobs in the States, why couldn’t China and the US embrace in a great relationship? So it’s been said, it doesn’t matter who wins the presidency, as long as it’s good for both our countries.

Q: Hi, Mr. Wang, I am a freshman at Harvard Business School. I’m wondering what is Wanda’s core competitiveness for its development abroad. How do you address the problem that you are not very familiar with overseas markets? Thank you.

A: Speaking of Wanda’s core competitiveness in the overseas market, I think the first advantage could be we have money. Why? Because as the economy develops, the cash flow runs stronger and stronger, so we need to purchase more assets. The second is, in Wanda, I am the largest shareholder and also the final decision maker and I’d like to drive the company with long-term strategy and help our company achieve its value through efficient management. This is different from funds in the capital market that people purchase for selling. The third is my management skills gained through a few decades in developing the corporation, knowing how to check cost and profit daily and weekly by informatization and remote-communication system, not just getting the final figures at the end of a year.

Q: Hello. You have very ambitious plans and I’m sure you will be active for many more years. But when you retire, how would you want to be remembered? If there is just one thing that people would remember you for, what would you want it to be?

A: Well, the thing I most want is this: Wang Jianlin won’t be hated by anyone, or not be remembered. There might be cultural a difference between US and China, that in China, it’s difficult to make people really like you and remember you for a long time. Right now, China is still in the transformation phase where some people could act flightily. They want to make a fortune, but sometimes may hate wealthy people. I do hope that people can picture a philanthropist in their mind, not an entrepreneur when I retire or grow old. I would be thankful of being able to contribute to philanthropy.

Q: As you expand the Wanda hotel portfolio both domestically in China and abroad, how do you see the customer base changing? Do you think the client you are seeking to add is going to become more international? Or do you think it’s going to be a Chinese client that’s travelling more abroad and frequently in your hotels around the world?

A: For domestic hotels in China, Chinese customers certainly are our targets, while international customers are our focus for hotels aboard. The objective of establishing Wanda hotels is not to offer places for Chinese tourists going abroad, but to build up a real high-end Chinese hotel brand. This is also the reason that why Wanda hasn’t gone for acquisition of Starwood in the recent case that has been mentioned for about $12bn. It’s still Starwood even if we purchase it. I’d rather spend more time in building our own brand, step by step. $2bn could be enough for it, not $12bn.

Q: Hello Mr. Wang. You mentioned that our country is in a period of economic transformation. Can you give us students a general suggestion, as we have varying amounts of time left before graduation: what kinds of opportunities will be there for us during this transition when we come home?

A: The greatest opportunities in China lie in its service industry – not the traditional service industry, but a modern service industry. Personally, I think there are three particularly promising industries. The first is in entertainment. You can see China’s economy is now growing at 6-7%, but for the past six years the entertainment industry has been growing by over 40%, and this year it has topped 50%. There are certainly broad prospects for the future of the entertainment industry in China. The second industry is sports. I mentioned previously that the sports industry in China is currently realising an annual income of US$20-30 billion, and that’s not even factoring in its potential if we grow to the same scale as the US. There is room to grow several dozen times over. This is especially so if we look to contemporary China, where we pursue health and longevity. So the sports industry in China has a bright future, absolutely. If you can study marketing, economics or media in the field of sports, this will be very useful as current talent in those areas is scarce. The third industry is tourism, particularly in the integration of online to offline models, or O2O. This integrated tourism industry innovates by combining the travel destination with offline and online channels. Within the next 10 years, these three industries will experience a significant growth in income. Enter those industries no matter what you major in – there is much money to be made there.

Q: Could you please comment on the implication of the recent revocation of the One Child Policy on the real estate market?

A: It’s good, but a bit late.

Q: I wanted to ask a question just now about whether Wanda’s hotels were biased towards foreigners or Chinese people. But I want to ask, in the US, or perhaps throughout the Western world, there is a perception that Chinese products and services are considered to be inferior. This is very sad for Chinese people, very shameful. As your company heads abroad, how do you face such a problem? What strategy do you have to change certain foreign stereotypes around our products and services?

A: You began to ask about hotels, and then you went onto some bigger questions. First, for hotels, the high-end talent in this industry is mostly foreigners, both in China and abroad. No matter where you come from, it’s ok that you get paid well to work for me. Secondly, regarding China’s service transformation, Wanda cannot do it alone. Many Chinese companies need to work together to achieve this. This is the first step. Have America’s products always been so good? I heard a story today that in the 1970s and 1980s Japanese cars entered the US market and Americans couldn’t sell their cars fast enough to get their hands on a Japanese model. Nowadays you have American entrepreneurs who come out and wonder why they aren’t patriotic, and so on. American cars back then must have been big, bulky gas-guzzlers, and Japanese cars were better. So under the impact of Japanese cars, American cars changed gears and clawed themselves back into the market. Thirty years ago this would have been a pipedream. Quality and services in China are little lacking right now, but they are in the inevitable stages of development. Don’t worry, I believe that we can solve this problem.

Q: Hello Mr. Wang, I’m from Boston University. My question today is: you mentioned earlier in your talk that Wanda encountered some local cultural and legal difficulties when you were going global. Previously, Wanda’s plan to rebuild the Espana Building was rejected by the Spanish government; do you have any response to this? And how do you regard local legal or cultural problems as Wanda goes international? Thank you.

A: First, let me make a correction: it was not the Spanish government that vetoed the proposal, it was a personal campaign against us by Madrid. This is a perfect example of freedom in the West: anyone can express their view and use signatures on a website to protest our rebuilding efforts. It was not the government that rejected the plan. Secondly, you are bound to encounter problems, whether it be through investment or through the development process. It is a very normal occurrence. If there is no problem, then there is no need for a boss or a highly paid professional manager. What do you do when you encounter a problem? You be patient. Slowly, they state their reasons. You can give me suggestions, and I can hire a PR team or lawyers to rebut you, right? This matter is still ongoing, and we wait patiently for an outcome.