25 April, 2012 – A speech at Tsinghua University
At the request of Tsinghua University, Wang Jianlin delivered a speech entitled “Innovation and Competitiveness Illustrated with Wanda as An Example” during the Entrepreneurs’ Lectures held at the Tsinghua University School of Economics and Management on 25 April, 2012. In the speech, Wang encouraged the students to think outside the box, to have the courage to do things nobody had ever attempted to do, and to dare think of things nobody had ever thought of.
I. Development history of Wanda
Founded in 1988, Wanda started as a small company with a registered capital of 500,000 yuan. After 24 years of dedicated development, it has now established itself as the leader of private enterprises in China, ranking among the largest Chinese companies across the four core indicators, i.e. assets, revenue, profit and tax contribution. Wanda created 89,600 new jobs last year, accounting for 0.8% of the national total. In particular, the company recruited 20,000 university graduates, making it the largest graduate recruiter and job creator in China. Over the past 24 years, Wanda donated an aggregate of 2.8 billion yuan in cash – 260 million in 2011 alone, ranking it as the largest corporate donor of all Chinese enterprises in aggregate terms and in terms of annual donation.
As for the reasons for the company’s rapid development: firstly, Wanda owes its success to the macroeconomic platform created by the state. The Chinese economy growing at an annual rate of 9.5% provided the company with an enormous space for development. Secondly, the rise of Wanda as a leading private company has been driven ultimately by innovation. The development history of Wanda is a process of continuous innovation. My pet phrase these years has been, “a degree from Tsinghua or Peking University can’t beat having guts.” An old Chinese saying goes “seek wealth in danger,” meaning that if you risk nothing, you gain nothing. Apart from talent and hard work, the key to success lies in being bold – daring to do things and daring to try things. This is different from using brute force – an enterprising person puts in hard work following a well-targeted plan and won’t be daunted by setbacks, while brute force equates to blind actions based on mere wishful thinking and without prior planning. Wanda achieved rapid growth through these years, and the reason is its development has been driven by an “innovative spirit.”
II. Innovation at Wanda
Over the past 24 years, Wanda has implemented the innovation strategy in six “phases.”
1. Urban redevelopment
Wanda used to be a very small firm when it was founded in 1988. Back then, “planned quotas” were required for all real estate projects. Property developers had to obtain quotas before applying for land acquisition. The quotas were all allocated by the National Planning Commission, and only the three state-owned developers in Dalian were allocated quotas. Wanda was not one of them, so we had to buy quotas from them. It was like “seeking survival in the cracks.” I went to the Dalian government and told them that we would accept any project as long as the profit was enough to sustain ourselves, regardless of location. At that time, there was a shantytown on the Beijing Street to the north of the municipal government. It was viewed as the shame of the entire city. The government asked the three state-owned property developers to redevelop the area, but none were willing to take it. Having heard what I asked for, the government offered to approve planning quotas if I accepted the shantytown project.
We estimated that the cost of development of the shantytown project on Beijing Street was 1,200 yuan per square meter, but back then the most expensive apartments in Dalian were priced at 1,100 yuan a meter. To make the project profitable, we had to find a way of selling the apartments at 1,500 yuan per square meter. We made a number of innovations:
1. We decided to fit all apartments with aluminum windows, which were very rare in Northeast China in those days.
2. All apartments came with security doors, which had barely become mainstream in the local housing market.
3. In those days, virtually no living rooms had windows, and we made it a standard in our design.
4. Bathrooms used to be a luxury enjoyed only by cadres at the county level or above, but every apartment in the Beijing Street project came with a separate bathroom. We innovated our marketing approach with a bold decision – that is, investing 80,000 yuan in a Hong Kong or Taiwanese TV drama. TV series from Hong Kong and Taiwan were very popular at the time, and our sponsorship made the Beijing Street Project a household name in Dalian. The innovations produced dramatic results. All the 1,000 or more apartments in the project were sold out within one month at a record average price of 1,600 yuan per square meter. The company made nearly 10 million yuan in profit. This is when we made the first “pot of gold.” More importantly, Wanda was the first company in China with experience in urban redevelopment, offering a new approach to our corporate development. Ever since then, we knew that this approach worked and never looked back. We took on urban redevelopment projects at different locations, and the company scaled up in a few years. By 1992, Wanda posted sales revenue of around two billion yuan, accounting for 25% of the real estate market in Dalian.
2. Nationwide development
In early 1992, Deng Xiaoping made an important speech during his tour of southern China. He called for bolder reforms at a faster pace. It made my blood boil with excitement. At that time they said, “Guangdong is the best place to make money,” so we decided to venture into the real estate market in Guangdong. It was against the government’s rules to register companies outside one’s province of residence, but where there is a will, there is a way. We had a local company, SOCT Real Estate (Shenzhen Overseas Chinese Town), register a branch company for us, and we paid them service fees. We developed a 400,000 square-meter housing project in Guangzhou. Even though the project didn’t bring us substantial profit due to our limited understanding of the local culture and limited cost control and management capabilities, we gained confidence, and Wanda became the first property developer in China to pioneer cross-regional project development.
With increased confidence and hardened resolve, Wanda became unstoppable and started full-scale cross-regional development from 1997 onward. To date, we have invested in more than 80 Chinese cities in the 23 provinces, excluding Guizhou and Qinghai, in all four directly administered municipalities and in the five autonomous regions excluding Xinjiang and Tibet, making us a leading real estate developer with the largest cross-regional business presence in the country.
3. Business model innovation
Wanda has adopted the following strategies in terms of business model innovation:
1. “Gold digging”
I realized in early 2000 that housing property development entails inherent risks. First, no housing property developer can last 100 years. As the urbanization process comes to an end, the demand for housing properties declines, and most developers will disappear. This is decided by the nature of the industry. Second, the cash flow in housing property development is inherently unstable – cash flow is healthy only when there are developed properties for sale, but it disappears once the properties are sold out and the next property design and development cycle begins. Third, I was struck by the tragedies that befell two of our employees. One of them was diagnosed with cancer and the other with liver disease. Social insurance was non-existent at that time, and private companies had to bear the costs themselves. I did what was believed to be impossible. The company paid for medical treatment for the two employees. It cost the company over three million yuan in total. I couldn’t help thinking that Wanda was still young – in its teenage years. What would we do when we have tens of thousands of employees 20 or 30 years later? Many of them would be old, retired, and need medical-expense coverage. For the sake of my colleagues as well as myself, I proposed two central requirements for corporate development – that is, we needed to ensure lasting and stable cash flow. How could we achieve this? We decided to switch to commercial properties after thorough deliberation and discussions. We are all experts in property construction, and can recruit professionals in the field of tenant attraction, of which we had limited knowledge. The meeting lasted three days…we call it the “Zunyi Conference” (the most decisive meeting in the history of the Chinese Communist Party, and we laid down the correct development direction for the company.
After we made the decision to switch to commercial property, the first thing that came to my mind was “gold digging.” Before that, Wanda developed a number of rental properties – seven to eight small shopping malls and restaurants, but severe rent arrears forced us to set up a collection team. To get around this problem, we decided to only cooperate with big companies for rental properties, Fortune 500 companies, and we started with Wal-Mart. I tried to make an appointment with Wal-Mart’s vice president in charge of business development, and finally met him several months later, after countless rejections. He laughed at me after hearing my proposition, as if saying: how would such a small company dare to propose cooperation with Wal-Mart? I told him repeatedly that we could offer favorable terms, and he eventually agreed to try it out with a small project first, without negotiating about cooperation. After that, I went to Shenzhen in person to sell my proposal to Wal-Mart’s CEO in the Asia Pacific. After dozens of visits in the following six months or so, Wal-Mart finally agreed to cooperate with us on the first Wanda Plaza in Changchun. We used every means at our disposal to make the project a success, to ensure that the retail giant would be convinced to continue cooperation with us. Our hard work paid off, and Wal-Mart agreed to sign a strategic cooperation agreement with us when we opened the fifth Wanda Plaza. With such an agreement in hand, we persuaded more multinationals to collaborate with us, including Chinese brands such as Suning and Guomei. They played a significant role in the development of Wanda Plaza during the early years. Standing on the shoulders of giants, we could see further and develop faster. The strategy was successful!
We benefited from cooperating with large multinationals not only in terms of business development, but it also provided us with inspiration for corporate management and culture. Today, Wanda has the largest number of retailer partners among all commercial property developers in China. We have signed strategic cooperation agreements with over 5,000 companies, of which nearly 300 are multinationals. And the relationships between the retailers and us have been completely reversed. Wanda now sets the rules, and the retailers follow. As they say in business, “A shop can dictate to its customers if it’s strong enough, and vice versa.” This story proves that, in addition to courage, a necessary quality for successful entrepreneurs is perseverance, without fear of rejection.
2. Industry chain
A problem came after the first several Wanda Plazas. That is, no Chinese design institutes were capable of producing satisfactory designs for such projects – most of them specialized in designing housing properties or department stores, not shopping centers. We had to hire companies from Australia and the U.S. The drawbacks of this include high design costs and a long design period, making it impossible to catch up with the development of the company. It dawned on me that if we take commercial property as our lifelong career and the core value of the company, we must have our own design team and management company. We can’t put our fate in the hands of others. Therefore, from 2003 onward, Wanda set up its own design institute and business management company. Our design institute is the only one in China specializing in commercial property planning and design, focusing on the design of shopping centers and five-star hotels. Consisting of more than 200 staff members, the institute is capable of independently designing shopping centers and five-star hotels, including architecture, structure, decoration and electromechanical engineering. As well as minimizing design costs, it makes Wanda the owner of relevant intellectual properties, giving it core competitiveness. In business management theory, it is believed that third-rate companies sell products, second-rate companies sell brands, and first-rate companies sell standards. Wanda commercial property design institute developed the Chinese shopping mall fire code, evaluation criteria, management standards, etc. for the Ministry of Public Security, Ministry of Housing and Urban-Rural Development and the Ministry of Commerce, attesting to our status as the pacesetter in the commercial property industry.
Since its founding, the Wanda commercial property management company has played a significant supporting role in the development of Wanda Plazas. Up until 2011, the company maintained a super-high rent collection rate of above 99.6% for six consecutive years, ranking Wanda as the best real estate company worldwide in rent collection terms.
Having established a suitable business model and a fully developed industry chain, Wanda focused its efforts on standardization, as rapid development can only be achieved through standardized operations.
The first task was to establish a brand pool. All of Wanda’s partner retailers and products were divided into different categories and included in the pool. It is a rule at Wanda that only brands included in the pool are eligible for cooperation with us. The brands were divided into A, B, C and D categories, and Wanda Plazas were divided into A, B and C classes. A-class stores can only cooperate with retailers in category A or B; B-class stores can only cooperate with retailers in category A, B or C; and only C-class stores can cooperate with all brands across the four categories. The brand pool is reviewed and adjusted once a year, with brands reported with major incidents blacklisted on a real-time basis, such that the retailers are accurately assessed to effectively prevent internal corruption.
Secondly, we adopt modular project management where the entire commercial property development process is divided into nearly 400 segments in a chronological sequence with strict regulations as to the specific tasks to be performed by relevant departments in each segment. The segments are further divided into three tiers, corresponding to different management levels. For example, presidents are only responsible for tier-1 segments, vice presidents for tier-2 segments, and project companies for tier-3 segments. Modular management software is then developed based on the regulations so that in November of each year, specific day-to-day tasks planned for every individual unit and employee for the following year can be entered into the system. Performance appraisal is automatically carried out by the information system. If a given employee fails to complete the scheduled progress by the preset deadline, the “yellow light” turns on by way of warning; if s/he fails to catch up within the time limit, the “red light” goes on. Once it happens, related managers will be penalized, and the penalties are connected with their income. This way, all management activities at Wanda become fully standardized as modular process management.
4. Culture industry
Wanda Plazas are not limited to shopping and also include catering, entertainment, etc. They are designed as “lifestyle centers” catering to a diverse range of consumer needs. In a bid to stimulate business growth, cultural businesses, such as cinema and buffet-style KTV (Karaoke Television), have been introduced to Wanda Plazas. We have been planning to increase the weight of cultural businesses in recent years, and have so far introduced a Central Cultural District, large-scale theatrical performance, filmmaking and screening, cultural and entertainment chains and Chinese calligraphy and painting collections.
Wanda entered the film market because it had no other choice. At first, we didn’t want to operate cinemas ourselves. Instead, our strategy was to live on property rent as the landlord. At first, we chose SMG (Shanghai Media Group) as our partner and signed an agreement with them. The idea was that they could grow with us. Unexpectedly, as we completed building the six cinemas half a year later, SMG replaced its manager, and the new manager decided not to go to any markets outside Shanghai. According to the agreement, we could have kept their 20 million yuan deposit as damages, but they insisted that if we withheld the deposit, it would cause a loss of state-owned assets, so we returned it. Besides, Wanda was not interested in earning this kind of money. We then talked to Time Warner, the largest cultural business group in the world and signed a close strategic cooperation agreement with it. Warner was very enthusiastic about the cooperation. However, China joined the WTO less than a year later, and the government banned foreign companies from entering cinema operations or acquiring more than 49% in any film company, meaning that Time Warner could no longer partner with us. We already had several cinemas in operation back then, and the question was whether we should take them over. I said during a board meeting that operating cinemas couldn’t be any more difficult than developing two nuclear bombs and one satellite. As a result, Wanda set up its own cinema. To our surprise, Wanda cinemas that were losing money throughout the three years when they were managed by other companies, turned profitable in the first year of operation after the take-over. The cinemas have now become leaders in the industry. As of the end of this year, Wanda has opened 115 5-star cinemas equipped with 1,000 screens, making it the largest cinema chain in Asia.
2. Central cultural district
Wanda invested 50 billion yuan in constructing the Central Cultural District in Wuhan. This comprises 10 cultural projects featuring a film technology park and the “Han Show.” (Han was the second imperial dynasty of China, contemporary with the Romans.) Opened in 2014, the film park brings together the latest film technologies and interactive entertainment in the world, and consists of a 4-D cinema, a 5-D cinema and flight, interaction, aerospace and disaster themeed cinemas, making it truly one-of-a-kind, and it was developed entirely by Wanda itself. We invested 2.5 billion yuan in the world-class “Han Show.” The Central Cultural District in Wuhan is home to the largest library, Madame Tussauds, China’s largest cinema city, buffet-style karaoke, five celebrity squares, a piano store and a Han-style theatre.
Wuhan Central Cultural District Phase I was opened in September 2011, and has been receiving over 100,000 visitors every day, ranking among the top 10 tourist attractions in Wuhan. Visitors to the Central Cultural District during the seven-day national holiday in 2011 totaled 2.45 million. As the only new tourist site reported by the National Holiday Office, it is hailed as a brand new cultural and leisure business model in urban areas.
3. Large-scale performance facilities
With an investment of 10 billion yuan, Wanda partnered with two heavyweight international artists to create five world-class events in China. One of them is Franco Dragone, one of the most celebrated theatre directors in the world, creator of the famous Las Vegas “O Show” and “Le Rêve – The Dream” and “The House of Dancing Water” in Macao, China; the other is Mark Fisher, one of the world’s top architects, artistic director for the opening and closing ceremonies of the Beijing Olympics, Guangzhou Asian Games and the London Olympic Games.
4. A cultural entertainment chain
Wanda’s Super Star KTV had 63 stores at the end of 2012, and rose to the No. 1 ranking in the karaoke business within just three years.
5. Traditional Chinese calligraphy and painting collections
Wanda started collecting Chinese calligraphy and paintings 20 years ago. At first it was driven purely by my personal interest. I listed the 100 greatest modern and contemporary Chinese painters with the guidance of established art connoisseurs and started collecting their masterpieces. Today, Wanda has earned a status among collectors comparable to that in the commercial property business. Our collections include around 1,000 great masterpieces by 100 renowned Chinese painters and calligraphers, and the company has participated in numerous international cultural events representing China.
5. Resort tourism
As our commercial property business took off, we were invited by the Jilin Provincial Government to develop resort tourism properties in the Changbai Mountains. This was a totally new business for us. Construction of Changbai Mountain International Resort started with an investment of 20 billion yuan, and the resort is due to open in July this year. The success of the Changbaishan resort boosted our confidence in resort property development, and we invested in similar projects in. For example, Xishuangbanna, a project that involves a sizable investment of 15 billion yuan. In recognition of our impressive achievements in the resort tourism industry in recent years, the International Association of Amusement Parks and Attractions (IAAPA), the world’s largest general trade association for the resort and amusement park industries, accepted Wanda as a premium member. The IAAPA only has six premium members, including household names such as Disney, Universal Studios and Ocean Park. Wanda is the only premium member in Asia.
In addition to commercial properties, culture and tourism have become a central pillar business for Wanda. Throughout the past three years, I’ve been personally involved in cultural and tourism businesses and seldom asked about commercial properties. Judging by the long-term trend, the government has set out the long-term strategy for the domestic consumer market. Consumption in China will double from 15.7 trillion yuan in 2010 to 31 trillion in 2015, which translates into a net increase of 15 trillion yuan in market volume; domestic consumption will reach 62 trillion yuan by 2020, a 45 trillion net increase in market volume. Therefore, China will overtake the U.S. as the largest consumer market in the world. Wanda’s development strategy conforms to the government’s long-term plan and the general trend. The company is well on track to becoming a world-class player in the global cultural and resort markets in three to five years, and I believe that we’ll contribute significantly to the Chinese economy as a whole. Real estate development is to make successful projects, commercial properties, but the cultural and tourism business is to make history. It’s an achievement at a higher level.
6. Transnational development
Earlier this year, we developed a ten-year development strategy for Wanda. The main objective is to develop the company across borders. We coined the slogan that we don’t want to be the “guys at the frontier.” Our goal is to establish Wanda as a world-class multinational company in ten years. We’ll announce a world-shaking cross-border acquisition this year. Besides this, Wanda will make direct investments overseas. We’ll prove with concrete actions that Chinese private companies are also capable of growing into major multinational powers to dominate global competition.
III. Wanda’s competitive advantages
Wanda boasts the following four competitive advantages.
1. Rapid development
Ever since its founding 24 years ago, Wanda has always maintained double-digit growth rates. During the past five years, it posted solid business development with year-on-year growth exceeding 35%. Our revenue is projected to hit 140 billion yuan by the end of 2012, and we are on our way to becoming a Fortune 500 company in this regard. By 2014, we expect Wanda Group’s revenue to increase to 200 billion yuan, thereby ranking it among the Fortune 500 companies, with even better rankings in terms of net profit, valuation and assets. In other words, we’ll be a world-class enterprise in three to five years.
2. The industry leader
Wanda is recognized as the leader in China and even the world in every business in which we operate. As of the end of this year, Wanda ranks number three in terms of property holding among all real estate companies worldwide; developing at the current rate, we’ll be the largest real estate company in the world in 2015.
Wanda will become the owner of the world’s largest five-star hotels at the end of the year, with 38 hotels in operation and another 40-odd projects under construction.
Wanda will become the largest cultural business operator in China by the end of the year; our cinemas are ranked No. 1 in Asia. The Wanda performance company will launch two projects in 2014, making it the global leader in the entertainment industry as well.
We are already recognized in the resort tourism industry as a leading global investor.
We have become one of the largest department store chains in China.
Of all the five businesses operated by Wanda, as the minimum target we aim to be the No. 1 market player in China. Our reference system is based on the global markets. There’s nothing wrong with being No. 1 worldwide. All lawful, market-oriented and profitable enterprises should have the courage to be the top player. Wanda is the domestic and even global market leader in all of the five businesses. At the risk of sounding immodest, once Wanda has entered a market, whatever it is, no one else can be the leader there, not state-owned enterprises (SOEs) or even state-oriented enterprises. Given the fast growth of the private sector in China, the majority of Chinese companies will be privately owned in ten years.
3. Super strong profitability
The value of innovation lies in innovators’ pricing power derived from the fact that they have something that others don’t, which allows them to yield more profits than the competitors. For example, there are 130 cinema chains in China, and Wanda’s screens account for less than 7% of the national total, but we generated 15% of the total revenue created by all Chinese cinemas combined. Each of our screens yields more than twice the average revenue and three times the average profit in the industry. These are the benefits that can be realized through innovative management.
From Wanda Plazas to luxury hotels, and especially cultural and tourism businesses, the Wanda brand has been warmly received by local governments and local residents alike, wherever we’ve gone. We’re one of the few enterprises managing to win the support of local governments as well as the people at the same time. A single Wanda Plaza creates almost 10,000 jobs and generates taxes of more than 100 million yuan, as well as stimulating regional economic growth. For these reasons, we have received invitations from many local governments vying to secure development projects with us, but we can only choose a third or even a quarter of them.
There are many factors contributing to success, such as environment, hard work, talent and so on, but the most crucial factor is being enterprising, having the courage to pioneer new things and new ideas, which is where success comes from. Only innovation can bring competitiveness, enabling a company to grow faster than its competitors.
Next, I’ll answer your questions.
Q: First, I’d like to ask…we’ve heard a lot about you and Wanda in the press recently, but you received the charity award at Zhongnanhai (central headquarters of the Chinese government). I think the award itself scotches speculation. What’s your opinion on this? My second question is that as it’s now unclear where the Chinese real estate market is heading, what’s your opinion about the market trend as a veteran property developer? And what’s your advice for Chinese home-buyers with urgent needs?
Wang Jianlin: To answer your first question, it’s pretty natural to have speculation, and this is particularly true for well-known companies and well-known entrepreneurs. The Internet is very popular these days. People say whatever they want to say without any restrictions, especially about large groups like Wanda, given our explosive growth. There have been rumors recently that Wanda has connections with someone. My impression at first was that the rumors would disappear in a while, but they’re still there, so Wanda made a solemn declaration. In fact, Wanda decided internally 15 years ago to abolish payments in cash altogether throughout the company, including our headquarters. No payments could be made in cash. The aim was to eliminate bribery at the source. We’re one of the few private companies in China who can say, “we don’t use bribery” with confidence. Most companies can’t. The rumors have started to disappear lately. Whether or not Wanda will be implicated in anything ultimately depends on our business development. If I can still speak here next year, that means the company’s doing well.
Besides, Wanda aimed to build an international enterprise that lasts 100 years in as early as 2002 when the company went through an upgrade of corporate culture. We are only 24 years old and have 76 years to go to 100. During the next 76 years, it won’t always be easy and there will certainly be peaks and valleys. We’ve gone through six real estate market regulations in the past 24 years. For the first three regulations, it was called “rectification” and later changed to macro-level regulation. There’ll be at least several more to come in the next ten years. The economy always goes through peaks and valleys. A company must be able to sustain itself through low times and maintain normal development, if it aspires to last 100 years. As for myself, if I couldn’t take criticism and rumors, I wouldn’t be successful in the first place.
For the second question, my opinion about the real estate industry, let me be straightforward, the Chinese real estate market will remain upbeat for the next 15 to 20 years at least. The urbanization rate in China currently stands only at 51%, and China’s urbanization actually includes both cities and small towns; towns with a population of 3,000 or 5,000 people should not be counted as urban areas and therefore should be excluded when calculating the urbanization rate. Even if urbanization has reached 51% in China, 49% of Chinese people are still living in rural areas. The global urbanization rate is 60%, and that of relatively developed countries at the medium level or above is 75-80%. China may not be fully urbanized like the U.S. and European countries, but at least 70% of the Chinese population will live in urban areas in the future. It means that more than 300 million people will migrate to cities. Urbanization is the biggest driver for long-term economic growth in China. Besides, the industrialization process has not been completed in China, meaning that the real estate industry will remain on an upward trend from a long-term perspective during the next 15-20 years, in view of the ongoing urbanization process. It’s just been suppressed by the regulation policies in the last couple of years, adding to the bubbles and risks that build up amid the recent explosive growth. However, from a long-term perspective, the real estate industry will continue to grow steadily and is still on an upward trajectory.
Q: Since Wanda has completed many sensational projects, how do you control the risks? Considering the number of good projects, how would you decide which projects to invest in and which to reject? Another question…many of your ideas are visionary for Chinese and by international standards as well, so how do you communicate with the government and convince them of your highly creative ideas?
Wang Jianlin: Risk control is the most important thing among other priorities for a company. This is particularly true for enterprises of a medium size or above. If a company doesn’t understand risk control, it would be impossible for it to develop…develop quickly. Risk control, first and foremost involves risk management in decision making. When it comes to project selection at Wanda, the benefits of a project are weighed against the potential risks at an early stage. Our development department is responsible for selecting development projects and doing the planning, and the investment and cost-control departments engage each other in debates about the feasibility of the project. The analysis report can be drafted only after a consensus has been reached between them. Wanda has developed a template over the years. We have 50 questions (there used to be 100 questions, and we combined them into 50). We require that all the 50 questions must be answered in the report, and the answers must be substantiated with statistics. When a project (proposal) reaches the decision-making level…say they propose 50 projects, and we can only adopt 20, how do we choose? We rank the projects in terms of city size, project profitability, etc., and those with the best rankings are selected.
There are other types of risk control…financial risk control, for example. In many companies, there is only one accountant, one manager and one cashier. They can collude with each other and embezzle millions of yuan. Our information management system at Wanda includes a signature approval process where money can’t be paid out until all people in the system have signed for and approved the payment. Wanda’s financial and cost control systems adopt the vertical management model. The headquarters controls the finances of local branches in each system, without interference from any local companies, and personnel appointment, removal, bonuses and transfers are all controlled by the headquarters. To prevent collusion more effectively, both systems operate within the same business module, and every three years, position-transfers are carried out for all employees involved. There are a series of other measures in place to ensure effective risk management. Therefore, if a company performs well, it’s not simply because it has achieved excellent business development. Risk control is a more important factor. Creating a big company alone won’t make you successful. A successful entrepreneur should prioritize stability and sustainability.
Your second question is how to gain popularity. Firstly, we need to develop a good product model. We need to develop products that only we can make, not anyone else, or even if they can, they can’t make it as well as we do. While doing business, we want the clients to come to us, rather than having our people ask for their help. Wanda created the commercial property model, and we’re developing performance venues for our cultural business. We brought together the best artists in the world, Dragone and Fisher, and due to competition considerations, we signed exclusive agreements with them to tie them only to us, prohibiting them from cooperating with any other companies in the world in the next several years. Similarly, we secured close cooperation with the world’s most renowned theme park and amusement park design firms. We promise to develop at least five large projects in China in the next 10-15 years, integrating all human resources, intellectual properties, etc. making it difficult for others to enter these businesses, even if they obtain enough funding. We make our products popular so that we no longer need to beg for help from others. If we beat all the competition in a competitive business, others will naturally come to us for help.
Q: I’m originally from Qiqihar in Heilongjiang Province. My question is what are your thoughts about real estate developers in tier-three or tier-four cities like Qiqihar? I’m always interested in hearing the latest news about you, and I found that you’re not very keen to appear at public events or give speeches in front of large audiences. I hope you could lecture more in schools to inspire the students with your success story and your charisma and encourage them to start their own businesses. There are many ambitious and experienced students in Beijing. I’d like to extend an informal invitation to you on behalf of my teachers and classmates.
Wang Jianlin: My advice to all companies in tier-one, two, three or four cities alike is that if you want to survive in the housing property business, you must innovate. Our target for 2020 is to lower the proportion of real estate revenues to less than 50% of our total revenue. We have set the same target for profit structure. The state is calling for economic restructuring and adjusting the growth model. How can we meet the objectives? The national strategy can be fulfilled only if all companies restructure their businesses and adjust development models. If we stick to the old housing property development model, we’ll have less and less room for growth. Above all, as the affordable housing program progresses, the market will get smaller and smaller.
As for public lectures, I’m not against speaking in public, but I’ve got a very tight schedule. I take fewer than five days off a year. Feng Lun once said that I was the busiest entrepreneur in China…(he even asked) if I wanted to earn all the money in the world. The truth is that I’m not interested in making money. I’ve already made it clear that I’d donate 90% of my properties to charity. I have been appointed honorary president of China Charity Federation because I donated a lot. They want to motivate me to donate more. In addition, I’m one of the Chinese entrepreneurs with the most social positions…party representative, member of the CPPCC Standing Committee, president of All-China Federation of Industry and Commerce and many other commissions, etc. Of course, I try to talk with college students as much as I can. I’d like to take this opportunity to suggest to students here today who are interested in starting their own businesses that they should apply to the Ying Foundation. The foundation has over 20 entrepreneurship service centers across the country. They hire start-up entrepreneurs with five to ten years of experience to offer guidance as supervisors, and they can assess your business proposals. The foundation provides everyone with one million yuan of funding, free of interest, but you need to repay it. It supports and encourages young people to start their own businesses.
Q: I’m from Tsinghua University Chinese Entrepreneurs Camp. I have two questions. First, as both Wanda Cinemas and Wanda Real Estate are applying for IPOs, could you share with us the latest progress? Second, regarding a recent report saying that there is still room for the Chinese real estate market to drop further by 20%, what’s your opinion about the real estate industry in China in the near future?
Wang Jianlin: We do have two companies applying for IPOs, but in view of the government’s regulation of the real estate market, there may be difficulties in listing Wanda’s commercial property business. Wanda cinemas are a cultural business, so I personally think that it will be slightly easier. We decided to launch the IPO projects, not because we need to increase cash flow or I need them myself, but for the sake of small shareholders that have worked with me over the years. Last year, I distributed more than five billion yuan worth of shares to the senior managers. In addition, once the companies are listed, more shares will be offered to senior managers above a certain level. I believe, as long as the companies are of good quality, an IPO is just a matter of time. If our applications are rejected this year, we’ll apply again next year and the year after.
As to your second question, if I say there’s no more room for further price reduction, some of you might say that it’s just me boasting about my own business, but I would be a liar if I said there is room for further reduction. Indeed, housing prices in China have been affected by government regulation, but price reductions have been slow because the housing price is made up of many rigid costs, including the cost of land, building materials, labor and taxes, which are rising. It would be unrealistic to expect a sharp fall in the housing price as these costs keep increasing. The housing price will fall, and profits of property developers will be lowered to a reasonable level. This is possible. But that’s about the limit. I must say that the reality is always different from what people wish to see.
Q: First, how would you describe government-business relations in China today? And how would you describe the ideal relationship between the government and entrepreneurs and private companies? Second, as many of the audience are college students and young people, and your child is perhaps about the same age as us, as a father, could you share with us your experience in educating your child?
Wang Jianlin: This sounds very interesting. Let’s talk about government-business relations first. Business is business, and politics is politics. Europe and the U.S. may have the best government-business relations, but it would be difficult for China at the time being because the Chinese economy is dominated by the government. The government dominates everything and makes the most crucial decisions. If a businessman detaches himself completely from the government, I think that’s not right either. They say businessmen should “stay close to the government but away from politics.” I think that’s a wise attitude. Entrepreneurs should take a proactive stance in coping with government officials, but one should not rely on power-for-money deals. Not every company can copy Wanda’s model – doing business completely by selecting from government invitations.
To answer your second question, my son is 24 years old. He’s running his own business. Because I’m a busy man, I don’t have any experience to share about children’s education. I might be a strict father. Family education is not like business, and I don’t have any experience to talk about. My requirements for my son…from the bottom of my heart I hope that he will be hardworking, dedicated to his work and kind-hearted, so I can let him succeed to my position in the future. Wanda is not a family business, and none of my relatives have worked in the company so far. I don’t have to pass it on to my son. I’ve drawn up a schedule for myself, that is, by the time I retire in 2020, Wanda’s revenue will have reached 500-600 billion yuan with several hundreds of thousands of employees. If my son has the ability, I’ll let him take over the company. If not and I force him to accept it, I’d be ruining his life. More importantly, it would be irresponsible for the employees. So I think…let him do whatever he’s capable of, and if he’s not suitable, I can always hire professional managers.
Q: I’m from Hilton Hotel Asia Pacific. Ten of the thirty 5-star Hilton Hotels in China are owned by Wanda, and Wanda is our largest property owner in China. As Hilton will build 100 new 5-star hotels in China in the next three years, will Wanda continue to be our largest property owner? And what’s your plan in terms of Wanda hotel branding?
Wang Jianlin: We’ll definitely continue cooperating with Hilton in the future. Resorts developed by Wanda in Sanya, Changbai Mountain, Xishuangbanna, etc. have over a dozen hotels in each location, and some of them are Hilton hotels. Also there’ll be cooperation opportunities between us in other cities across China. As to our own hotel brand, Wanda has just set up its own 5-star hotel management company. By the end of the year, we’ll have 40 partner hotels, with dozens more under construction. At the current rate, we’ll have more than 100 5-star hotels by 2020. If we still rely on external companies for hotel management after we’ve built the 100th hotel, I’d be worried that future Wanda generations may question our inability to take on the minor challenge of managing hotels by ourselves. Therefore, we decided to operate hotels by ourselves and through delegated management as well. Besides, leaders from the central government have talked with me several times. They told me that China needed to have its own luxury hotel brand, and they hoped it would be Wanda. There are no other companies capable of opening over a dozen luxury hotels every year. Hotels are the biggest luxury good in the world today. If Wanda does not dare to do it, no one else can! You see, we’re running the hotel business not purely for the sake of the company alone, we also need to fulfill our responsibilities to the Chinese nation. Through our hard work in the next five or ten years, we’ll create a luxury hotel brand with at least a leading position in the regional market in Asia. Needless to say, this does not compromise our partnership plans with other companies.
Q: I’m a PhD student from the School of Public Policy and Management, Tsinghua University. Your success story is very inspiring. What are your life goals or what is your lifelong pursuit that you aspire to?
Wang Jianlin: Many years ago, I said…that Mr. Michael Saul Dell, founder of Dell Inc. once observed that the biggest achievement of his life was that he created a great organization. My lifelong goal is to build a great organization in the world. It should continue to be a great organization after I pass it on to future generations. This is the goal of my life. That’s why I work so hard now. I was not as hard working and ambitious ten years ago. The goal of my life has changed as the company has grown. If I didn’t live in a large country like China, if my company didn’t have assets worth tens or billions or even a hundred billion yuan and aspire to be a Fortune 500, Fortune 100 company…If I only had 100 million yuan, it would all be nothing but wishful thinking. But now, Wanda has the necessary foundation and the potential, and we only need to put in more hard work, energy and time, and my ambitions will come true. We’re presented with a historic opportunity. We can’t waste it. I’m not saying that everyone should have such ambitions. It’s possible for us to be the best and biggest in the world. My lifetime ambition is to create a Chinese enterprise that is respected by everyone in the world, to prove that the Chinese people are as good as or even better than Westerners.
Q: I work in the real estate business. I wanted to ask what Wanda’s advantages and strategy are in terms of human resources to support its continuous expansion of the commercial property business, industry restructuring and sustained innovations. Many companies face the issue of staff loss as a side effect of business transformation. How does Wanda address this challenge?
Wang Jianlin: Human resources are the biggest development bottleneck confronting Wanda. This is what constrains our development across all business segments. First of all, we’ve been expanding very rapidly. We recruited 15,700 new employees last year, and 20,000 this year. Second, all of our businesses are of an innovative nature. Commercial properties, high-end hotels, cultural businesses, tourism and resorts…There doesn’t exist any model in China that we can learn from. It gives our human resources department such a headache. That’s why we place a lot of emphasis on training and invest more than 100 million yuan in training each year. Three years ago, we bought a piece of land of over 13 hectares in Langfang and invested 780 million yuan to build a company college of the highest standard in China. It’s called Wanda Institute and opened last year. Approximately 10,000 students are trained there every year. Most of them are management staff above the level of department managers. In addition, we pay headhunters tens of millions of yuan every year to obtain qualified professionals that we need. Another thing is internal staff promotion. We prioritize training of existing employees. Training has become one of the ingredients that makes up Wanda’s competitiveness.
We open more than 20 plazas and 10-15 5-star hotels every year. Actually, we can open 30 or even more based on financial capacity and development speed. Our constraints come from human resources rather than funding. For example, if we open 20 plazas, we need 20 commercial property management companies, 20 management teams, 20 top-level leaders supported by 70-80 assistant managers; we also need 20 department store management teams, 30-40 cinema management teams and KTV teams. These are our development constraints. Every year, we have to assess the maximum capacity of our management companies, and how many new teams we need to set up. I hope that Wanda Institute can tackle this issue in about five years.
Q: I’m also in the commercial property business. We’ve been learning from the Wanda model, but our company is pretty small. We copy the Wanda model and apply it in tier-three, four or even five cities. Do you mind us doing this? We developed a gold and jewelry park for the cultural and creative industry in Beijing and plan to reproduce it in provincial capitals based on the same model. Could I have your opinions about our model?
Wang Jianlin: All enterprises learn from each other. We set a target last year, that is, teaching materials would be sorted and be made available to the public nationwide next year, in addition to internal use by Wanda Institute. We’ve seen many good projects in China gone to waste. They (the developers) purchased the land but had difficulties in attracting tenants. I hope to share professional expertise with you. Wanda has entered commercial property markets in tier-three cities.
To answer your second question, as people’s spending power increases, consumption of gold, jewelry and accessories will increase – that’s for sure. No question about it. Many people visit Hong Kong to buy gold and jewelry, which means nothing is wrong with this business, but if you want to reproduce the model on a nationwide scale, you’ll face the issue of tenant attraction. How many jewelry companies have signed cooperation agreements with you? This will dictate the scalability of your business model. If you had more than 100 or hundreds of partners, your business would be highly scalable, but if you plan to find tenants after the construction is completed, you must be careful about it.
Q: I got to know you and Wanda after I heard about your ventures in the football business. Football leagues in Japan and South Korea, for example, are fully market-oriented with professional players, and it’s proven useful to boost the quality of their football teams. If football in China is to be improved, shouldn’t we turn the Chinese football league into a truly professional one and run it as a fully market-based business?
Wang Jianlin: Wanda offered support again to China’s football league last year. Now that I’m a supporter of the football association, our national team and the league, it’d be inappropriate for me to criticize them here. So regrettably, I can’t tell you what I think about this matter. How do we improve the quality of the football league in China is even more difficult. China has achieved remarkable economic growth. We’ve tackled virtually all problems, but football is the only exception. In China, football and the stock markets are the toughest challenges to overcome,so don’t ask me this.