Wanda’s Rapid Growth – The Wanda Way

Wanda’s
Rapid Growth

8 September, 2012 – A speech at Harvard University

September 8 (U.S.A. time), Wang Jianlin visited Harvard University with a group of Wanda colleagues. He delivered a speech of over an hour and answered questions from the audience. His speech touched upon the four major moves that Wanda has implemented over the course of its development and the reasons behind Wanda’s rapid development.

I’m thrilled to bits to be able to speak here today, as I’ve always held Harvard in awe as a sacred place venerated by people all around the world. There’s still a big gap between Wanda and the world’s top ranking companies. We’ll continue with our hard work and won’t slacken our efforts in the slightest. Today, I’d like to take this opportunity to share with you my experience as an entrepreneur.

I. The four major moves

Wanda was founded in 1988. We completed license registration with borrowed money. In those days, to set up a real estate company required one million yuan of registered capital. I borrowed the money, and the loan had to be supported by a guarantor. The guarantor took half a million away, so we were left with just half a million. Even worse, the lender asked me to repay the loan in five years, on top of 25% interest to be paid every year. These were very tough terms, but were it not for the loan that year to pay for our registered capital, Wanda might have disappeared a long time ago. The company has grown rapidly in the past years, mainly on account of our ability to innovate. We have implemented four major moves during the development history of Wanda.

1. Nationwide-scale business expansion

The first move was for Wanda to go beyond the local market in Dalian, building up a business presence in cities across China. The company was founded in 1988, and we went outside Dalian to Guangzhou in 1992. We were the first property developer in China to pioneer cross-regional project development. At that time, the government did not allow private companies to set up branches outside their own local administrative divisions. We were confronted with numerous difficulties. We planned to develop properties in Guangzhou but were not allowed to register companies there. Most people would back out seeing the policy barriers, but I believed in what Chairman Mao once said, “Nothing is difficult to the man who will try.” I give it a try even though there were policy barriers! I found some local companies in Guangzhou to see who would lend us the license. At last, a local company, SOCT Real Estate, registered a branch company for us, and we agreed to pay them two million yuan a year in exchange. It worked. It was in Guangzhou that Wanda started cross-regional development. It has been simply unstoppable ever since. As of the end of this year, Wanda will have invested in more than 90 Chinese cities, making us a leading real estate developer with the largest cross-regional business presence in the country. Through nationwide development, Wanda grew from an obscure local company into a large national enterprise.

2. Commercial properties

The second move concerned our entry into the commercial property business. Up to 2000, we mainly focused on housing properties and made a lot of money out of it. So why did we decide to switch to real estate? It's because I was touched by the tragedies that befell two of our employees who had worked with me ever since the start of the company. One of them was diagnosed with cancer and the other with liver disease. As private companies didn’t have any medical or pension insurance at that time, it was up to the company to decide whether or not to cover medical treatment for the employees, i.e. if it had enough money and was willing to pay. I decided to pay their medical costs. It cost the company over three million yuan in total. I couldn’t help thinking that Wanda was still young. What would we do when we had tens of thousands of employees 20 years later, many of whom would be old, retired, and need medical expense coverage?

Residential property development is characterized by unstable cash flow – cash flow is good only when there are developed properties for sale, but it disappears once the properties are sold out and the next land acquisition-project development cycle begins. Besides, the real estate industry in China is frequently affected by government regulations, causing even greater fluctuations in cash flow. I worried that sticking to housing properties, in extreme cases, might threaten the company’s survival and the lives of our employees. We tried many different things to ensure a stable cash flow. We tried manufacturing and our products included OTIS, a well-known elevator brand in China, transformers and pharmaceuticals as well as supermarkets and foreign trade. In 2000, we decided to develop commercial properties as the pillar business of Wanda. Before the decision was made, we debated internally about it for two to three years. We felt that commercial property development would involve construction and tenant attraction. At least we knew everything about the first part, so we went all out for it. After a few years we got the hang of it, and our business model matured too. It was a transformational process, in which our attitude changed from reactive to active, from an unconscious action to self-conscious development.

Today, Wanda operates 13 million square meters of commercial properties, ranking it number 3 in the world. We have 20 million square meters of commercial properties under construction. Moreover, our development has been very fast, with four million square meters of properties opening every year. By 2015, Wanda will have grown into the largest commercial property developer in the world. Our success is partly attributable to our dedication over the years, and partly thanks to the vast market, huge population and enormous total consumption in China.

We entered the high-end hotel business and experimented with the first few projects. We found that by combining hotels with business, office buildings, apartments, etc. our products became more popular among the consumers. So we decided to develop future projects based on this model. Almost all shopping centers we developed have a 5-star hotel. As a result, Wanda became the world’s largest owner of 5-star hotel properties within a few years. We now own 38 hotels in operation, in addition to another 30 hotels currently under construction.

The Wanda model for commercial property development has been warmly received by local governments all around China. Unlike the U.S. where land can be traded freely, land in China can only be purchased from the government. As we receive invitations for local project development from an increasing number of governments, Wanda is gradually now moving into the driving seat during negotiations, and our bargaining power has increased. The result is that we can obtain land at a much lower price than our competitors. The ratio of the number of project invitations we receive and that of projects we actually develop is 3:1 to 4:1. We have the right to choose clients, which translates into higher profits.

3. Culture and tourism

The third move was our embarkation on cultural and tourism businesses. We started operating cinemas as early as 2003, because we needed to include cinemas in Wanda’s shopping malls. At first, we talked with Time Warner for cooperation, but it didn’t work out due to reasons on both sides. Firstly, it was agreed during the WTO talks between China and the U.S. that foreign companies could not be the controlling shareholders of Chinese cinemas, and Time Warner didn’t want to be the minority shareholder. Secondly, Time Warner misjudged the Chinese movie market – the gross box office in China was no more than US$100 million, and they thought that the investment was not worth it. We had to look for partners in China. Back then all local cinemas belonged to state-owned media groups. We talked with them in Shanghai, Jiangsu, Guangdong and Beijing, proposing that they operate the cinemas with Wanda as the property owner. As they were all governmental organizations and were not very interested in boosting profit, the negotiations were all broken off in the end.

An interesting episode back then occurred when the then president of the Shanghai Media Group, a very creative man, thought the cooperation was a good deal for his company. We signed an agreement with him, and he paid us the deposit. However, a new president replaced him half a year later, and the new president was against the deal and refused to implement the agreement. We had ten new stores due to open soon, so we had to run the cinemas ourselves. As it happened, the Chinese movie market started to take off in 2005 and grew over 30% every year thereafter. China’s gross box office this year will exceed 16 billion yuan. If the Chinese market continues to grow by 25% every year, it’s poised to take over North America as the world’s largest movie market in 2018.

Apart from cinemas, Wanda entered many other cultural businesses. For example, as part of our deployment for performing arts, we invested 10 billion yuan in acquiring the production team of the famous “Le Rêve– The Dream.” They will help us create five world-class performance shows in China. Wanda Movie Park will launch its first project in Wuhan in 2014. Unlike Disney and Universal Studios whose amusement parks only have comparatively few features, the Wanda Movie Park in Wuhan features six themes, all of which are developed based on Chinese legends and Chinese images.

Our cultural businesses have achieved considerable growth, so we set up a group for the cultural industry. Cultural businesses are now defined as a pillar industry for Wanda. This year, we rank among the top 40 cultural companies globally, in terms of revenue. By 2016, our cultural businesses will yield revenue of 40 billion yuan, and our ranking will rise to the top 20. By 2020, cultural business revenue will increase to 80 billion yuan, and the ranking will move up to within the top 10.

Wanda started investing in tourism businesses in 2008. Our first project was Changbaishan International Resort. The resort measures 22 square kilometers and cost us 20 billion yuan. It’s now in operation and has been warmly received by the market, much better than what we had expected. The Wanda resort in Xishuangbanna is under construction. In designing the projects, we challenged traditional resort theories by incorporating and highlighting cultural and business elements such as luxury hotels, “tourists’ towns” and theatres in every resort project.

4. Transnational development

Our fourth move was transnational development. Why is transnational development necessary? First, growing at the current rate, Wanda’s assets will total 280 billion yuan this year, with our annual revenue hitting 145 billion. Our company is already big enough, but if we stay in China, Wanda will remain a national business no matter how much bigger we grow. To make Wanda a major international brand, we must go beyond China. Second, we need to spread risks and can’t have all the eggs in the same basket. We announced the ten-year strategic program earlier this year and plan to establish Wanda as a world-class enterprise in ten years. At present, there are over 70 Chinese companies included in Fortune’s top500 companies in the world, but only three or four of them are private enterprises. Wanda wants to prove with its performance results that private Chinese companies are also capable of achieving sound and rapid development, without preferential policies offered by the state.

Our first move in transnational development was the acquisition of AMC Cinemas in the U.S. Additionally, we’re contacting the six largest American film production companies to strengthen our cooperation ties with them in terms of content. Wanda is not internationalizing for inter-nationalization’s sake, and the AMC deal is not purely motivated by the need for business expansion. Instead, while we scale up our business presence, we make sure that profits are maintained at a healthy level. Negotiations about the acquisition lasted for more than two years. We learned many lessons during this period. We found that many large American companies were owned by small shareholders and foundations, and none of them are the real company owner. All of them were driven by short-term profit. Consequently, the companies lacked strategic planning for long-term development. Therefore, as long as Wanda manages to restrain itself from focusing on short-term gains and sustain temporary losses, we’ll benefit from the long-term opportunities in the U.S. and Europe.

II. Reasons behind Wanda’s rapid growth

Wanda’s rapid development is mainly attributable to the following reasons:

1. An advanced business model

There are different types of business innovation such as technical, management and cultural. Of these, innovation of the business model is one of the most important factors. I always believed that the value of business model innovation is far greater than that of technical and management innovations. For example, everyone knows how to sell coffee, but Starbucks redesigned the coffee-making process, innovated the business model and became a successful chain business. Other similar examples include McDonald’s and KFC. I’m strongly opposed to the argument that high-tech, new energy and new materials are the only hopes, and no other businesses can possibly compete with them. It seems to me that no matter whether you are in a traditional or an emerging industry, as long as you’re capable of innovating the existing business model, you can reap super profits. This way, your business will enjoy a longer life cycle because traditional industries can last hundreds of years. By contrast, the so-called “advanced” businesses do not necessarily last long.

2. High standard information management

Wanda set up an information management center many years ago to attract talent in China and from abroad. We have developed and manage our own information system. Wanda is one of the most prolific developers of patented management software and relevant intellectual properties in China – we were granted nearly 20 national patents and intellectual properties last year alone. Wanda is best-known for its modular management model, where the entire commercial property development process is divided into nearly 400 segments in 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-one segments, vice presidents for tier-two segments, and project companies for tier-three segments. A 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 this happens, related managers will be penalized, and the penalties are connected with their income. All thanks to the modular management system, everything at Wanda has been progressing in an “intense but orderly manner” despite the dramatic development of the company during the past two decades.

Strong execution and effective discipline are the other main reasons behind Wanda’s rapid growth. There are no office politics at Wanda, and I don’t have any relatives working in the company. All these factors combined enabled Wanda to develop at a dramatic pace. We’re not the only company that is illustrative of the rapid growth of the Chinese economy. Rather, there are many other private companies like Wanda in China, and a large number of high quality private Chinese companies will emerge as China’s economy continues to develop. They will all become world-class enterprises. Ten years ago, 197 of the Fortune 500 companies were based in the U.S. and only seven were from China. In 2011, there were 145 American companies and 74 Chinese companies included in the Fortune 500 list. At this rate, China and the U.S. will have about 100 companies each listed, or China may even outnumber the U.S. Whether Americans acknowledge this or not, whether they like it or not, this is the trend. In light of the strong complementary economic connections between China and the U.S., I believe nothing will separate the two countries. And Chinese companies, such as Wanda will increasingly go to the U.S. for development.

Q&A

Q: The acquisition of AMC is Wanda’s first M&A deal overseas, so have you encountered any unanticipated difficulties? At the price of US$2.6 billion, would you say it’s too expensive or a real bargain?

Wang Jianlin: It has been a process of trial and error. We talked with the shareholders at first but changed the plan to talking with the management first because a stable management team is the key. Otherwise, even if we had successfully closed the deal, it would have been a waste of money if all the people were gone. Talking with the management was anything but easy. The AMC managers received many interested buyers during the past ten years, and Wanda was just another one for them at first. We needed to convince them that Wanda would benefit the company’s development over the long term. We started talking with the shareholders after negotiations with the management were almost done.

Is US$2.6 billion too expensive? Let’s do the number crunching. First, AMC carries several hundred million dollars on the book; second, AMC holds equity shares worth more than US$200 million in market cap in the largest American cinema advertising company. The price comes down to about US$2 billion after deducting these two items, and then each cinema screen is worth an average of three million yuan. Actually, building a movie theatre in the U.S. costs more than three million; even in China, the actual cost is four million yuan. With this cost breakdown, we think the deal is reasonably priced. But, of course, AMC was in the third year of loss making. If it went on like that forever, being cheap alone wouldn’t make the deal work. We had to figure out a way to turn it around. For this reason, we made an institutional arrangement that Wanda would not take part in AMC’s management directly. We only assigned one of our managers to work there. We signed a long-term agreement with the management, and offered them a moderate pay raise. We set up an incentive scheme, that is, as long as they could turn the company around, the management would get 10% of the profit. Besides, in principle, Wanda won’t take away the money earned. Instead, it will be re-invested in the U.S. market. After the deal, Wanda allocated US$500 million to AMC for cinema renovation. We expected that the renovations would lead to an increase in profit within a few years. The increased profit would be insufficient to raise a lot of money after listing on the U.S. capital market, but the earnings ratio may look good on the Chinese market. This institutional change boosted the company’s performance. The management has told me that it would show a profit this year.

Q: What are the differences between the cultural industries in China and the U.S.?

Wang Jianlin: From the economic perspective, the gap between the two countries has become smaller and smaller. China’s GDP will exceed that of the U.S. within the next ten years. If we convert it to purchasing power parity (PPP), it may come even sooner. But there’s a bigger gap between the Chinese and American cultural industries. Even after China overtakes the U.S. in terms of GDP, cultural businesses in China would still be rather lagging behind their American counterparts. For example, while developing the six technology entertainment themes for Wanda’s movie park in Wuhan, we needed to produce a 3-D promo. A Chinese designer would typically show the location, entertainment activities, etc. of the park. We hired an American team to produce the video, and we saw the difference the first time we watched their work. The video showed a family of three in the house; the mother was cooking, and the father was reading a book with the daughter. As they opened the book, images of the 4-D, 5-D, flight and interactive cinemas appeared. The father and the daughter found it very interesting and started talking about the park full of passion. The mother came out from the kitchen and asked, “What are you talking about?” He told her it was a movie park being built in Wuhan, and they flipped through the book. When they finished reading the book, the daughter said, “This was so much fun. When will it open?” The answer was “in 2014.” The concept was pretty simple, but it presents details of the project in a way that is very easy to understand for the viewers, so I would say that the biggest difference between Chinese and American cultural industries lies in creative thinking, rather than technical production.

Q: Wanda Plazas in Shanghai and Beijing give people the impression that they’re more or less the same. If some better consumption models emerge in China, say, ten years later, won’t Wanda Plaza be outdated?

Wang Jianlin: It’s both right and wrong to say that different Wanda Plazas are similar to each other. It’s correct in the sense that every Wanda Plaza is a complex including a department store, a supermarket, a cinema and restaurants, and interior decorations are not dramatically different. In Chinese we say, “the experts see the nature of things, while the laymen can only see the superficial phenomena”. In the eyes of an expert, restaurants in one Wanda Plaza are totally different from the others, because the local food cultures are different in different places. It is a rule at Wanda that opening any plaza must be preceded with thorough research into the local catering market. At least 20 of the top 30 local catering brands must be introduced. Therefore, the catering brands in a given Wanda Plaza are very different from those found in other Wanda Plazas. Even clothing brands are different from city to city.

As to what happens ten years later, making adjustments is a fundamental law in commerce. There are two major rounds of adjustments every year. We call them spring adjustment and autumn adjustment. Agreements signed between Wanda Plazas and our tenants typically last three years; the longest of which is no more than five years because we need to make adjustments in the future. Therefore, we don’t need to worry about what happens ten years later, as adjustments and adaptions are constantly made to Wanda Plazas. Even when it’s impossible to adjust an existing plaza, we can always tear it down and rebuild it. In China, it’s much cheaper to rebuild a property than to purchase land and develop a new one from scratch.

Q: My question is will Wanda move its own managers to the U.S. to manage the company or hire Chinese people who have lived in the U.S. for a long time and let them do it?

Wang Jianlin: Americans are our first choice. One thing’s for sure – I won’t send many Chinese managers to the U.S. because even if they speak good English, they’re no match for local Americans in terms of their knowledge about the local markets. Our second choice would be Chinese people living in relevant American cities. For example, for a project located in Washington DC, I won’t choose Chinese managers living in Los Angeles to manage it. The managers must be natives of the cities where the projects are located. Wanda only sent one of its people to AMC – a contact person without a senior position, just the liaison officer. Talent localization is the general trend in the world. Some of the Fortune 500 companies with Chinese branches assigned many managers from their headquarters to China, and none of them performed very well. By the same token, it won’t work if we send many Chinese managers over to manage our American branch.

Q: We seldom see Wanda’s properties at any prime business locations in Beijing or Shanghai. Could you tell us why?

Wang Jianlin: First, Wanda Plazas are positioned as shopping facilities for fashion products, not luxury goods, so only very few of our properties are developed at prime locations. It’s cheaper to acquire land at locations that are further away from the city center. However, due to our brand advantage and high growth potential, we always manage to obtain relatively high rental income. From a financial perspective, it doesn’t make sense for us to choose the central locations. Second, it’s not just because Wanda doesn’t want to acquire land at prime locations, but during the early years of China’s economic reforms, foreign investors and those from Hong Kong had more capital, and they bought a lot of the land in central locations. There’s no more land left for us even if we wanted, such as Nanjing Road in Shanghai or Wangfujing in Beijing. In other words, we have to look for opportunities in new areas.

Wanda will open a top luxury store in Wuhan and Changsha next year. In particular, the Wanda Plaza on Han Street in Wuhan has the very best architectural design, interior design and tenant resources among all luxury shopping malls in the world! Business is business. The fact that Wanda has developed several shopping malls like that attests to our ability to develop luxury stores. We can make them even better. This is enough. After all, commerce is meant to make money.

Q: Wanda’s acquisition of the AMC marks major progress for the internationalization of Chinese cultural businesses. Have there been any legal challenges encountered during the process?

Wang Jianlin: To be honest, our biggest concern about the acquisition is the security assessment by the American government. According to U.S. law, all foreign companies applying to invest in the U.S. must pass the security assessment. It’s an optional requirement, but they can shut down a company even if it’s been in business for 50 years, as soon as a security violation has been identified. Hence, we had to apply for a security assessment, but as it turned out, our worries were unnecessary. First, we didn’t acquire any sensitive businesses such as national defense or energy. Second, Wanda is a genuine private company, so we got the approvals from the Department of Commerce and the Department of Homeland Security within one month, half a month earlier than approvals from the Chinese government.

Q: The growth of the Chinese economy has slowed down since the beginning of this year. Does this mean that something’s wrong with the Chinese economy? Will the high growth continue?

Wang Jianlin: China’s economic growth will remain above 8% at least for the next 15-20 years, because the main drivers have not disappeared. First, the urbanization process has not yet come to an end. The urbanization rate in China is only 51% at present, and the actual urbanization rate, including towns and cities, is merely about 40%. It is laid down in the national strategy that the urbanization rate will increase by 0.8-1% every year, meaning 10-13 million people will migrate to the cities every year. Urbanization in China will generate enormous demand, big enough to support the relatively fast growth of the Chinese economy for another 15-20 years. The growth will slow down only after 70-80% of the Chinese population is urbanized. The slowdown in China’s economic growth in the last couple of years was not caused by the global economic downturn, but rather it was because China decided to restructure the economy and curb the real estate sector on its own initiative. Second, China is currently in the middle of the industrialization process, which has not yet ended. There’s still plenty of room for improvement in terms of per capita highway and high-speed railway ownership and steel consumption in China.

Q: What were the challenges and risks facing Wanda when you decided to acquire a company that had been making losses for several years?

Wang Jianlin: An old Chinese saying goes, “seek wealth in danger.” If everyone thinks something will be successful, never touch it! Success is when you drive a business to success when only a few people believe that the business is the right thing to do. This is the only way to make more profit. As for the AMC deal, we’d wanted to give it a try regardless of the results. It was not a question of the risks involved. If there were no risks, what would we need enterprises for? It’s actually the risks and cha lenges that give people a sense of fulfillment, success and happiness. More pain brings more happiness. I believe that Wanda can turn risks into profit. After the acquisition, we didn’t make any major changes to AMC. What we did is we increased its capital and lowered the debt ratio to make financing easier for the company. AMC has Wanda’s backing, and we promised that we’d never sell the business. Banks in China and the states alike are willing to do business with Wanda. AMC’s bond prices rose immediately after the acquisition. Second, Wanda created a mechanism for the AMC management, pledging extra bonuses for the managers if they managed to make the company a profitable business; the profits will be kept in the U.S. for continuous investment. The result is that the company will make a turnaround after having made losses in the past three years. However, at the end of the day, everything I said here today needs to be proven in the next three years. The company may be successful or unsuccessful, but even if it fails, it won’t cause any major risks given Wanda’s financial strength today.

Q: Running a company like yours involves numerous interactions with the government. What are the risks and challenges that you face because of such interactions?

Wang Jianlin: Government-business relations are very complicated in China. It’s even more difficult than completing a PhD course at Harvard. An American official working in China once told me that he was impressed more than anything else by the ability of successful private entrepreneurs in China. It’s difficult to develop a successful private company of scale in China. It takes several times the time, energy, etc. that would have been required of an American to run a successful business in the U.S. The Chinese economy and the Asian economies in general are dominated by the government, and no one can work around government-business relations. My theory is to “stay close to the government but away from politics.” A company cannot be successful if it ignores the government altogether, and this is true in the U.S. as well. Business people need to draw a line between maintaining a close connection with the government and doing something with the government that would cause permanent harm to themselves.

Q: In your opinion, what are the key factors for starting a successful business in China? Which areas merit particular attention?

Wang Jianlin: Unfortunately, the Chinese market has become a tougher place than it was ten years ago because in the past competition only came from state-owned enterprises, but today a large number of private companies have grown up as strong competitors, leaving little room for others, small businesses in particular. That said, China still has more opportunities than the U.S., and it’s still easier to start a successful business in China.

Wanda started as a small company. During the first five years, I experienced a lot of discrimination and people giving me cold-eyed stares, so I’m very sympathetic about thedifficulties small businesses face. All of my CPPCC proposals and speeches revolve around private enterprises. I proposed exempting small businesses from taxes, offering them low-interest loans and so on and so forth. I’ve also decided to start a foundation for young entrepreneurs next year. According to a report that I read, fewer than 1% of Chinese university students started their own business in 2011. I’m very worried that a generation gap may occur among Chinese entrepreneurs, private business owners in particular. There are already signs of this actually. Most active entrepreneurs in China today are of a senior age. We need the younger generations, people in their20s or 30s, to be prepared to be our successors. If so, China would stand a better chance of success, so I’m willing to support young entrepreneurs.

As for Chinese people returning to China from abroad to set up new businesses, I think the most important thing for them is to be realistic. They need to be ready to swallow their pride. Consumer goods are the best place to start a new business in China because the Chinese consumer market is huge, but if you have patents and are innovative, you may venture into technology or IT businesses. According to the government’s plan, by 2015, the size of the consumer market in China will be double that of 2010, with another two-fold increase expected before 2020, by which time the market volume will have reached over a dozen trillion dollars, making China the largest consumer market in the world. Therefore, it’s advisable to focus your business on consumer goods, food or clothing. I think they stand a pretty good chance of success.

Q: Wanda started as a commercial property developer, so why did you choose the cultural business rather than commercial properties for your first move in the overseas market?

Wang Jianlin: Real estate anywhere is always a business in great need of localization. It involves complex development processes that can’t be standardized. Every single project must be individually designed. For this reason, Wanda won’t make large-scale expansions into any overseas real estate markets. Even if we invested in a couple of projects, they would only be experiments. We chose to start with the cultural business for overseas expansion, and it was more by chance than design. AMC happened to be looking for a takeover deal, and I was interested. It all happened by coincidence. I’m interested in acquiring hotel management companies in the U.S. and have talked with many companies, but it turns out to be difficult as it appeared so far. Which business goes out first is just the luck of the draw.

Q: What was your bottom line for the AMC acquisition? What was the worst scenario in your plan, and what did you do to prevent it from happening?

Wang Jianlin: Transnational acquisitions are never easy, but it’s an obstacle every company must surpass if it’s to become internationalized. It’s virtually impossible to scale up a business by relying on organic growth alone. None of the Fortune 500 companies managed to grow to the size that they have today without M&A, but once we decided to go with the acquisition deal, we started making thorough preparations for it. First, we compared our cash flow against the losses if the business failed. In other words, whether or not we could sustain such losses? If so, we’d proceed. Otherwise, we’d have dropped it. Second, we assessed the possible outcomes of the acquisition. We engaged external teams to do technical analyses, and hired several of them. Then, in-depth discussions were carried out with the target company, and the decision was made only after the results of external assessments matched those provided by the target company and our own assessments. In short, we needed to make sure that we had enough resources to sustain the potential losses through thorough technical assessments.

Q: Do American students or American companies have any advantages if they venture into the Chinese market?

Wang Jianlin: I once said in a speech that “a degree from Tsinghua or Peking University can’t beat having guts.” Now I’d like to change it to “a degree from Harvard or Yale can’t beat having guts”. Opportunities arise when you struggle your way up to success. They can’t be calculated. To create a successful business you’ll need to have guts and an enterprising spirit. From my own experience and that of many successful businessmen I’ve met, the biggest lesson we learned is that the enterprising spirit is the first thing it takes to start a successful business. As the old Chinese saying goes, “seek wealth in danger.” If you want to set up a new business, you’ve got to give it a try no matter how big or small your chances are that it will be a success. If a business is bound to be successful…it can’t be that easy. If all of your friends tell you that something is worth a try, don’t touch it; if only three of your friends tell you that something is a good business, and all the rest doubt it, you may give it a try. You may lose, but you can start afresh. After all, you’ve got age on your side. I’m not saying that you can do whatever you like blindly. It’d be advisable to start with something small that doesn’t require heavy investments, as an experiment. My advice is: be bold – it helps more than anything else. What is entrepreneurship? It involves two things: one is innovation, or the enterprising spirit, and the other is perseverance. All successful entrepreneurs, especially the great ones, tend to be maniacs. They believe in their stories and believe that they will succeed even after the umpteenth failure. Without perseverance, no one could be successful.