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Author: Chen Shuyi 2014-10-24 14:12
On the afternoon of December 18, 2013, the plaque of East Best & Lansheng Group was unveiled, which was just the second day following the release of the “20 Regulations on the Reform of Shanghai’s State-owned Assets and Enterprises”. Countless comments were aroused from the market. Up to now, it’s nearly one year since the joint reorganization of East Best & Lansheng Group. How has been performance of the said Group? The following is the dialogue between Dai Liu, Chairman of the Board of East Best & Lansheng Group and Shanghai Observer.
“A few days ago, a report said Shanghai Foreign Service Co., Ltd (SFSC) would be merged into Lansheng Corporation. I don’t know from where the media got the news and it has even fired up speculation on the stocks. I showed the newspaper to my colleagues, and they were dumbfounded. What irresponsible words the medium has conveyed.” Yesterday, a grand all-media interview activity entitled “Talk about reform, innovation and party building – dialogues with leaders from Shanghai SOEs” co-sponsored by Xinhua News Agency Shanghai Branch and the Party Committee of Shanghai SASAC officially started. Dai Liu, Party Secretary and Chairman of the Board of East Best & Lansheng Group became the first distinguished guest interviewed. As soon as he took his seat, the Chairman said the above words before the media people.
Hearing the above words, you cannot help recalling the big event, the joint reorganization carried out at the end of last year. The official unveiling ceremony coincidentally fell on the second day following the release of the “20 Regulations on the Reform of Shanghai’s State-owned Assets and Enterprises”, and this newly-established Group became the focus of the public overnight and is still the hot topic of the public. Dai Liu, the leader of said Group often appears before the media.
Nearly one year has passed since the joint reorganization and the hair on Dai Liu’s head is bit whiter than in last year. However, his speech rate is still very fast. When talking about the development objective of East Best & Lansheng Group, he said frankly that he expected the Group would be on the list of Fortune 500 Enterprises in three to five years. Meanwhile, he disclosed, “As Chairman of the Board and Legal Representative of a listed company on the stock market, I often visit the stock chat rooms to see what the stock holders are talking about.”
In the next two months, the leaders from over a dozen large-sized state-owned enterprises will attend such large-sized all-media interview activity on different dates. The activity is assisted by Jiefang Daily, Shanghai Observer, Shanghai Oriental News Radio, China Business News and Eastday. Shanghai Rural Commercial Bank gives full support.
What has East Best & Lansheng Group done over the past year?
Shanghai Observer: About one year has passed by since the completion of joint reorganization of East Best & Lansheng Group, what has the Group done during this year?
Dai Liu: We are the first large-sized state-owned enterprise following the release of “20 Regulations on the Reform of Shanghai’s State-owned Assets and Enterprises”. Both East Best Group and Lansheng Corporation were foreign trade companies before the joint reorganization, but our operating businesses were different. Therefore, we face three barriers after reorganization: fusion, growth and transformation. However, we are not timid and we have made some considerable progress over the three barriers.
During the joint reorganization, we were also busy with a national project, namely undertaking the construction and operation work of the National Convention & Exhibition Center. Just on the 19th of this month, the said exhibition center had a trial run of China International Auto Products Expo, which has won good word of mouth and effectiveness. The above two items of work are the principal work of the Group during the most part of the year.
Shanghai Observer: With different corporate backgrounds and cultures, do you think East Best Group and Lansheng Corporation have fused in a real sense?
Dai Liu: Shanghai people always say that gestures of two people cannot be the same. Three years ago when I was also appointed as the Chairman of the Board of Lansheng Corporation, I started to notice the “gestures” of the two companies, and I know it’s important to enlarge the common points and adjust the differences to avoid direct conflict. My major was mechanical engineering, so I know there is a term “defacing”, meaning that the conflict and its consequent damage will lead to barriers, which will be bad for reorganization.
Fortunately, we transformed two heads into one head within one month, namely, we moved the headquarters of Lansheng Corporation to the headquarters of East Best Group. After that, we changed two bodies into one and let four limbs coordinate. Up to now, there has been no employee approaching me or our upper-level management to lodge complaints, which signals that our fusion is quite successful.
Currently, the three main lines of business of the Group have organic connection. For example, under Lansheng Corporation there had been a hotel called Lansheng Hotel with annual loss registering 45 million yuan, what we did was to change the hotel into SFSC Building and that move reversed the loss.
Shanghai Observer: Talking of SFSC, you said 16 years ago that what we did was one thing: Grinding a sword to make it into a sharp sword in the modern service industry. Has this sword come into being?
Dai Liu: Yes, I said so 16 years ago, now it’s time to draw our sword and show it, which serves as the main working plan during the 3 year planning and the 13th Five Year Plan.
Sword drawing is a process including three aspects: The first is to make good market analysis including strategic planning, SWOT analysis and so on; the second is to develop the modern service industry based on mixed ownership. We must be bold enough to try and we have already made explorations into mixed ownership in our core business.
The third is Shanghai SASAC expects us to be an enterprise with global layout, cross-border operation, international competitiveness and influence. Therefore, our target is to become one of the Fortune 500 Enterprises in our industry.
How to evaluate East Best & Lansheng Group
Shanghai Observer: Just now you mentioned SWOT analysis, with the four letters respectively standing for strength, weakness, opportunity, and threat. Starting from the status quo, where do you think East Best & Lansheng Group’s strengths lie in?
Dai Liu: East Best & Lansheng Group has a lot of comprehensive strengths. The most prominent one is the first-mover advantage. East Best Group had been a first pioneering service trade group before China joined the WTO, so the Group experienced a relatively earlier transformation. In the past, when we talked of human resources, we meant to practice dispatch service for the foreign-funded enterprises, but during the last 16 years, we have set up strict HR standards according to Fortune 500 Enterprises, thus resulting in the Group’s considerable development in HR consulting, HR dispatch, HR training, payroll service and so on.
The second strength is that we have grasped the opportunity of Shanghai’s establishment of four centers and World Expo. When the Group started off, Shanghai’s exhibition space was less than 1.2 million square meters, but this number reached 12 million square meters in 2013.
At present the Group undertakes self-run exhibitions, foreign exhibitions in China and national exhibition. Take China International Industry Fair for example, we are going to hold the 16th of it in the next half of this year. The fair covered 10,000 square meters at the very beginning and will cover 170,000 square meters this year. Its development accompanies Shanghai’s building of Trade Center.
Our strength is that we have firmly grasped these two opportunities.
Shanghai Observer: If human resources and exhibition are the strength of East Best & Lansheng, then is trade its weakness?
Dai Liu: Yes, the traditional trade is our weakness. In fact, before the reorganization of the Group, East Best Group and Lansheng Corporation had been practicing traditional foreign trade, both being trade companies under Shanghai Foreign Economic & Trade Commission. Later, the foreign trade system experienced reform, and the foreign trade operation right was loosened, which directly led to the cancellation of trade quota and the foreign trade business faced difficulties. However, we have grasped the opportunity of reform and practiced rigorous reform as a pioneering trial runner.
The first nine months witnessed a record high of USD 3.37 billion of foreign trade volume on the part of our Group. We are proud to say that since the foreign trade transformation, good effect has generated, benefiting from the reform of foreign trade system and mechanism. We have progressed from the 1.0 Version, i.e. the massive operators holding shares in the late 1990s, up to the 2.0 Version, i.e. the shares being held by the operators and management with limited partnership.
Now I give you two examples. When it was in 1.0 Version, Shanghai East Best Foreign Trade Co., Ltd was founded in 1999 with registered capital of RMB 10 million yuan, in which 5 million was from over 40 employees and the other 5 million yuan belonged to the state capital, thus creating a foreign trade company with state ownership and multi-channel stock holdings. Up to now, one year’s foreign trade statistics, according to the customs, can register a trade volume of USD 1.1 billion, each year’s after-tax net profit records 30 million yuan and the actual income exceeds 200 million yuan, a real successful model generated by the traditional foreign trade reform. Now the company boasts over 200 employees, averaging over 30 years old in age. The company is powerful both in market expansion and O2O trade.
The representative of the 2.0 Version enterprises is Shanghai Metals & Minerals Import & Export Corp which boasts a history of 60 years. In the past, the company was funded by the government for the import of metals and minerals, so the company didn’t have the motivation to reform. Then after the quota and special protection had been cancelled, it had to survive on the market. For the reform of the company, we have had a bold trial from the 1.0 Version to the 2.0 Version: restarting the asset and capital verification and injecting capital into the second-level subsidiary company. And based on the investment scale of 51:49, the Group invested 51 million yuan and the operators and management pooled in 49 million. It’s a joint stock ownership involving two limited partners, over 60 backbone operators and the state-owned capital. Now with one year passing by, the company is now prospering with great vigor and vitality.
Such measures have aroused the enthusiasm of employees. With the change of mechanism, the operation concept has also changed, and even the sense of risk management and control becomes stronger. Under the past state-owned system, the employees didn’t have motive power, thinking that good or bad performance was only related with the government and had nothing to do with them. Now the business is everyone’s business, so the employees are willing to work hard and with same objective their opinions and ideas can easily be unified. For example, the company had had a scheduled shuttle, but at often times there were only three to five people taking the bus, so the employees took the initiative to suggest cancellation of the bus so as to reduce the company’s cost, and then the workers’ congress unanimously agreed upon the cancellation of the bus. The change of system and mechanism has brought along the change of ideas and concepts. When you go to visit Shanghai Minmetals Development Co., Ltd after the duty time, you can see the lights are still on at 8 and 9 o’clock at night time.
Such restructuring has turned the previously weak enterprise into a strong one. The growth rate of this business segment of the Group is twice that of the enterprises in the same industry. During the first nine months, the growth rate reached 11.08 per cent, higher than the average speed in this industry. Furthermore, the foreign trade segment has less bad debts and its risk control is better than that of the ordinary foreign trade enterprises.
Shanghai Observer: Do you think the present time is the development opportunity period for East Best & Lansheng Group?
Dai Liu: We made the first shot of reform of Shanghai’s state-owned assets and enterprises, but we know that the first shot is only a form, the content of which is that we must ride on this round of east wind to make the system and mechanism more suitable for market competition.
We must run at the forefront, otherwise we cannot see the good landscape. We are the undertaker of Shanghai Marathon, and we hope we also have the Marathon spirit.
Shanghai Observer: Then where do you think East Best & Lansheng Group’s threat lies?
Dai Liu: The first threat is from the competitors. In a sense, we are not playing against traditional competitors, like in a chess game, all the players have now been master hands. The competitors in the HR segment are all multinationals. Some are experts in the HR, consultation and information industries, powerful in dealing with such business. However, we have 1.25 million employees requiring, requiring a high level of information processing to provide timely response. In the respect, the competitors are more powerful than us, so we must overcome our shortcomings.
The second threat is the mechanism in the state-owned enterprises is not flexible. Frankly speaking, there still exists equalitarianism in SOEs, in which the employees lack hard-working sense and innovation sense, thus resulting in insufficiency of vigor and vitality. This also results in the insufficiency of the talent-attracting mechanism, and in particular the outstanding talents will feel the shortage of development space.
When will the quality assets inject into Lansheng Corporation?
Shanghai Observer: According to Lansheng Corporation’s semi-annual report, the import & export trade volume of the company in the first half year had a year-on-year decrease of 5.73 per cent, in which the export decreased 6.71 per cent. Will such situation improve in the next half of this year?
Dai Liu: We must see the essence through statistics. Lansheng Corporation’s export percentage is a single-digit negative growth, but its benefit percentage takes on a double-digit positive growth. The first reason is it has done well in reducing its cost and increasing its benefit, like the complete control of the bleeding point. The second is the liquidizing of remnant assets. For example, we had a storey building lying idle for 20 years in the Free Trade Zone, and by taking the chance of the opening of the Free Trade Zone, we revitalized the stock through listing transaction.
The third is that we have made adjustments in business structure. Lansheng’s main lines of business are investment, finance and foreign trade. And in the segment of foreign trade, we felt it couldn’t embody the quality of a listed company, so we intensified this segment by reorganizing Lansheng Corporation and the similar trading companies, thus creating Shanghai Lansheng Light Industrial Products Import & Export Co., Ltd, a company specializing in foreign trade.
This company has also launched reform in accordance with the limited partnership system, and currently the assets appraisal and personnel verification have been in place. If it’s smooth, the new company will take shape within the year. Therefore, there is a negative growth on the statements and reports, but actually the one step backward signals two or three steps forward.
Shanghai Observer: When East Best Group and Lansheng Corporation merged last year, many people thought that East Best Group was planning for a backdoor listing. Just in this year’s April, you said the Group would inject quality, profitable and competitive assets into the listed company. How is the progress of such move?
Dai Liu: According to the requirements in “20 Regulations on the Reform of Shanghai’s State-owned Assets and Enterprises”, we will push forward the overall listing of core assets and business. We hope that in the near future, the assets with competitiveness and profitability can be injected into Lansheng Corporation. I am confident that Lansheng Corporation’s profitability will become even stronger, its asset quality higher and its future better.
Shanghai Observer: Will the Group introduce strategic investors as far as the mixed ownership is concerned?
Dai Liu: Quality assets can enter the listing platform of Lansheng Corporation. If the condition and time is not ripe, then limited partnership system will be taken into consideration to increase the enterprise’s competitiveness and vitality. But in the segments of exhibition and human resources, things cannot be done in the same manner.
This is because the capital demand of the exhibition and HR segments is much higher. For the past ten-odd years, about 10 billion yuan had been injected, therefore there’s no way to form the limited partnership system. In this case we will probably introduce strategic investors to represent multiple forms of investment. According to the requirements of the municipal government, competitive enterprises like ours must have a 70%-80% scale in mixed ownership.
Shanghai Will become the capital of convention and exhibition
Shanghai Observer: Convention & Exhibition is the main line of business of East Best & Lansheng Group. The National Convention & Exhibition Center located in Hongqiao has recently had a trial run. The size of the said Center is stunningly large. Do you have definite planning for its future development?
Dai Liu: We have had a thorough research of such issues: Whether to build it, how to build and how to operate? Up to now, the first exhibition has been successfully held, which is as expected, because we have made qualitative and quantitative measurements and calculations on the risk management and control. We believe that the said Center will be functional and sustainable for a long period of time and its future is bright.
Shanghai Observer: According to the report of Shanghai Convention & Exhibition Industries Association, the growth rate of the exhibition scale in Shanghai last year slowed down a bit, with the total exhibition area spanning 12.008 million square meters. But according to the development scale of the convention & exhibition industry during the “12th Five-year Plan” period, the total exhibition area of the various exhibitions in Shanghai will exceed 15 million square meters. Do you think that target is reachable?
Dai Liu: I am full of confidence on that objective which is just round the corner.
Why the growth rate slowed down? The reason is the National Convention & Exhibition Center has not been completed, with the growth space limited by the venue space. The National Convention & Exhibition Center will supply an increment of 4 million square meters next year. With the functions and conditions being created, the time will be ripe for Shanghai to become a metropolis of convention and exhibition.
I am definitely sure that the center for global exhibition is moving eastward. Previously, the US and Germany were the capitals of convention and exhibition. I believe in the near future, China will be such capital.
I don’t think Shanghai’s objective is to become a metropolis of convention and exhibition, I think Shanghai’s objective is to become a metropolis of such kind on a global level.
Next stop: To be on the list of Fortune 500 Enterprises
Shanghai Observer: The Group has recently had an expert review meeting on its three-year planning. What’s East Best & Lansheng Group’s three-year planning like?
Dai Liu: We have completed our three-year planning focusing on new market, new products, new technology, new mode and new investment. In the next three years, we will integrate our own advantages according to the planning. I think a small step forward is regression instead of progress, so we must march forward. Before the reorganization, East Best had kept two-digit growth for 16 consecutive years, with the average growth rate recording 22 per cent. After reorganization, we shall ensure two-digit growth rate this year.
For the next step, we will never loosen our efforts to achieve the objective. Our clear-cut target is to be on the list of the “Fortune 500 Enterprises”. We hope to achieve that in the next 3-5 years, we can enter the list of “Fortune 500 Service Enterprises” in the service industry, both professional and globally-recognized. This is our development objective.
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