Why Are These Enterprises Thriving Despite the World Financial Crisis

From: English Edition of Qiushi Journal Updated: 2011-09-20 11:38
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 Editor’s Note: Global demand has fallen drastically since the global financial crisis broke out in 2008, seriously affecting the export business of many Chinese enterprises. Under the same international conditions, some enterprises have nevertheless thrived, bringing to mind the Chinese saying, “Covered with a layer of ice, the cliffs rise sheer and high, but amazingly a plum blossom still shows its beauty.” This issue contains three articles about the experience of three enterprises that are doing well despite the crisis.

Independent Innovation Is the Key to Dealing with the Crisis

The Shanghai Zhenhua Heavy Industry Co., Ltd. (ZPMC)

 The Shanghai Zhenhua Heavy Industry Co., Ltd. (ZPMC) is a state-holding manufacturer of large container handling machines, famous for its ZPMC brand. Its products are sold in 73 countries and regions and hold a 78% share of the world market.

 Since the second half of 2008, ZPMC has been making independent innovations that have opened up the world market and increased profits in spite of the crisis. Its output value in 2008 was 25 billion RMB yuan, with net profits totaling 2.5 billion yuan. Its output value in 2009 was 30 billion yuan, a 20% year-on-year increase.

 Thanks to independent innovation, ZPMC has developed or upgraded the technologies and equipment that other enterprises lack, giving them a competitive edge in the market. The company’s traditional products include large container handling machines, and ore, coal and bulk cargo loading and unloading machinery used at ports. The company realized that even if these products were currently selling well at home and abroad, there was no reason to sit back on their laurels, because business in the industry is cyclical. The company had to rely on making its own innovations to open up emerging markets so they could make steel structures their main business. First, the company explored the large steel bridge market. Following successful completion of the steel bridge at Pusan in the Republic of Korea, it is now building the New Bay Bridge at San Francisco. The opinion of the international bridge construction industry was that the bridge would be very hard to build. Its structure would need to be complex and would need to withstand an earthquake of 8 on the Richter scale. Its steel towers are made of steel plate 100 mm thick. It is designed to last up to 2 or 3 hundred years. Next, ZPMC opened up the overseas engineering market. In July 2009 it signed an export sales contract worth US$2.2 billion with the Spanish company ADHK that included 10 offshore jack-up drilling platforms, 7 land drilling rigs and 2 floating cranes. This export contract is the largest ever concluded in China’s equipment manufacturing industry.

 Independent innovation involves complex systems engineering and requires the implementation of a wide range of measures. But three factors are crucial.

  December 29, 2009, the first batch of steel box girders produced by the Shanghai Zhenhua Heavy Industry Co., Ltd. for the new Oakland Bay Bridge are loaded on a ship at Changxing Island in Shanghai bound for the bay area in California. The new bay bridge will be the world’s first single-tower, earthquake resistant, self-anchored steel suspension bridge. The main navigation channel under the bridge spans 565 meters, the steel towers have a total height of about 160 meters and the bridge will have a transport capacity of at least 300,000 vehicles per day. The company has contracted to supply the steel bridge, the steel towers and the suspension cables for a total contract price of US$300 million, with delivery to be completed in eight shipments./ Photo by Xinhua reporter Chen Fei

 ZPMC’s aim to constantly grow is its motivation for independent innovation. People and enterprises need to have a certain spirit. A lofty spirit can be turned into a powerful material force. When ZPMC was established in 1992, it set its goal as doing business wherever there are container ports in the world.

 Thanks to the inspiration of this lofty goal, ZPMC has formed a good atmosphere in the company that encourages all personnel to contribute. In the face of difficulties and dangers, its managerial staff at all levels, especially senior executive, are at the forefront of this effort. There are no great wage disparities among its employees, larger bonuses are paid to workers on the production line and employees are paid according to their work and contributions. This has greatly encouraged employees to work harder. For example, workers were needed to replace two cranes for the busiest Hong Kong Land-Sea-Transport Port. Hong Kong was experiencing heavy rains at the time, but in spite of the fact that workers were soaked to the skin, they stayed at their posts and did not neglect their duties. The Chinese and foreign guests holding umbrellas and observing their work nearby were amazed at their performance. It was precisely this spirit that enabled ZPMC personnel to work 48 hours without a break to move the two new cranes from the equipment transport ship to the port, dismantle the old cranes and put the new ones into operation, setting a new world record.

 The company’s personnel provide the basis for ZPMC’s independent innovation. The company mainly relies on personnel taking the initiative in their training. We employ many university-trained professionals with a solid theoretical foundation, but call on them to not merely rely on their formal education. We encourage them to apply their wisdom in actual production operations. We do not employ people merely for their formal education. Instead, we look for personnel that can best put their talents and skills to use in our company. During the 17 years since the company was founded, we have attached great importance to bringing in new employees to replace retiring employees, cultivating large numbers of competent personnel and ensuring sustained ability to carry out independent innovation in the process.

 ZPMC’s independent innovations are based on a close integration of production, education and research. In actuality, the objectives of an enterprise’s independent innovation efforts stem from intense competition, but producing results from cooperation among an enterprise, institutions of higher learning and research institutes. Shanghai has a rich supply of research institutes and skilled personnel, which enables ZPMC to hire the skilled and talented personnel necessary to carry out independent innovation. Cooperation between ZPMC and research institutes has produced advances such as the supercapacitor, noise reduction technology and vibratory stress relief. In response to domestic and international demand, ZPMC recently introduced world-class high-tech advances such as automated port loading equipment and heavy-duty offshore oil and gas engineering ships with fully rotary elevating pipe-laying, powered pipe positioning and anchor positioning capabilities. This marks a new level in independent innovation for ZPMC. In 2008 the company began a program called “Zhenhua Heroes” to institutionalize the integration of production, education and research. The personnel selected for this honor not only receive medals and bonuses, but also get assistance from the company for housing, medical insurance and retirement income to encourage them to fully apply their wisdom for the development of the company.

How Do We Open up International Markets?

Li Rucheng / Chairman of the Board of Youngor Group

 Established in 1979, the Youngor Group has grown over the last 30 years to become a large transnational group company with 50,000 employees. To meet the challenge of the global financial crisis, the company assessed the changes taking place in the international market, deployed resources around the world and put a great deal of effort into opening emerging markets. The value of the company’s exports in 2008 totaled US$770 million, and the value of exports continued to rise in 2009.

 The company has strengthened its ability to make innovations in technology. Every year the group sets aside 3% of its sales income to fund technology development and to support the development of a platform for making innovations in science and technology. While maintaining the quality of its traditional products, Youngor has developed 27 new technologies over the past few years, 24 of which lead the field domestically and 3 of which lead the field internationally. Domestic patents are pending for 6 of these new technologies. The group now possesses a system for simultaneously carrying out four stages from concept to production, i.e. conceptualization, development, engineering and production, so that new products are always coming on line, and has developed mid-level and high-end garments and accessories. Products featuring completely new types of cloth, styles and manufacturing processes account for 70% of all new products introduced in the market each year to constantly meet the diverse needs of consumers.

  The Yongor Group, with headquarters located in Ningbo, Zhejiang Province, has grown from a small rural enterprise, the Ningbo Qingchun Clothing Factory established in 1979, to a large transnational enterprise group that is the first clothing enterprise in the world to raise its own cotton, produce cotton cloth, and distribute and market its products. Yongor’s growth from a small to large enterprise, from the use of backward to advanced production technology and from producing for the domestic market to producing for the entire world is a microcosm of the development of Chinese clothing enterprises during the 30 years of the implementation of the reform and opening up policy. This is an outside view of the headquarters of the Yongor Group. / Photo supplied by Xinhua

 In preparation for the future, the company invests in the development of the new material industry. China is a large textile and garment producer, but over 35% of the cotton we used in 2008 came from imports, and the supply of other textile resources was even tighter. Chinese hemp is a new resource that has very good market prospects and is commonly known as the “king of natural fibers.” Youngor has invested nearly 300 million RMB yuan to establish production bases in Xishuangbanna, Yunnan Province and projects such as cultivation of hemp and processing of Chinese hemp fiber. In addition, Youngor has worked with relevant government departments to solve the key problems in the processing of Chinese hemp for commercial use. The Youngor Chinese Hemp Company now has a yearly production capacity of 2,000 tons. This move is meeting as well as guiding the demand for Chinese hemp fiber in the international market and has attracted a great amount of interest world-wide. In April 2009 the FAO held a special forum in Xishuangbanna attended by over 300 government representatives from the world’s main natural fiber production and consumption areas and officials from international organizations. They also visited the Youngor Chinese Hemp Company where they observed the world’s first Chinese hemp fiber production line and gave it high praise.

 The company has been actively engaged in carrying out overseas mergers and acquisitions. When Youngor learned the American garment giant, the Kellwood Company, intended to sell off its men’s garment department in 2007, the company immediately took action and quickly concluded an intent to purchase agreement. The company was also finally able to successfully purchase the Smart Shirts Ltd., one of the world’s largest shirt manufacturers with a history of more than 50 years, for US$120 million, a price lower than the worth of that company’s net assets. The core business of the Smart Shirts Ltd. is processing for over 20 world-renowned brands such as Polo and the company is authorized to manufacture garments for five brands, including Perry Ellis and possesses design groups and international management groups in Italy, New York and Hong Kong. Through this purchase, the Youngor Group rapidly acquired design, management and sales resources that were urgently needed during this stage when the company was developing international operations. The purchase also greatly increased the group’s share of the international market and made it considerably more competitive in the international market.

 Youngor has rationally allocated the group’s resources to form a core competitive edge. Following the completion of the merger and acquisition of the U.S. Smart Shirts Ltd., the group was facing a severe global financial crisis. Faced with the serious challenges presented by market economy, Youngor has made the best use of the resource strengths of its industrial chain and comprehensive range of marketing and service resources in the U.S. to integrate the customers and markets of all its companies. In the first half of 2009, Youngor successively obtained the rights to manufacture the U.S. western suit brands of Perry Ellis and Nautica. This was a win-win move that brought a stable flow of orders for the Western Suits Factory of the Youngor Group and also enabled the sales volume of the U.S. Smart Shirts Ltd. to grow by US$5 million. While the Youngor Group was carrying out overseas mergers and acquisitions, it was also greatly reducing production costs by relocating production to different parts of the country. The group resolutely closed down its factory in Hong Kong, reduced the production capacity of its Shenzhen production facility and shifted orders to the production base of the group’s headquarters. A large production base with good economy of scale was developed based on the existing facilities of the Youngor Chongqing production base. The ready-made knitwear business of the Smart Shirts Ltd. was merged with the knitwear business of the Youngor Sunrise Textile Dyeing & Finishing Co., Ltd. and the R&D, sales, production and distribution of the two companies were put under unified management. Within a few months, productivity and sales improved considerably, and monthly production output now exceeds one million units.

 Through the measures taken in China and abroad, the group has grown stronger amidst the changes taking place in the international market. The overseas mergers and acquisitions have accelerated the pace of Youngor’s internationalization. Following the merger and acquisition of the Smart Shirts Ltd., overseas sales of shirts reached 45 million units and shirt production capacity increased from 15 million units per year to 50 million per year, making the group one of the world’s largest producers of men’s clothes. At the same time, this has promoted development of the upstream cloth enterprises, rapidly increasing the output of dyed knitted cloth from 40 million meters per year to 80 million meters per year. The Youngor Group now plans to build a new production center that is operated in accordance with international standards and meets international standards in terms of management and technology, thereby marking a shift from setting domestic technical standards to setting international standards and gradually gaining the right to help set technical standards for the international market through the process of the relocation of industries taking place in the world.

Opening Up Markets by Developing a Core Competitive Edge

Guo Hao / Chairman of the Board of Chaoda Modern Agriculture (Holdings) Limited

 China’s export volume has drastically fallen off because of the global financial crisis, but our company’s export volume has grown. Chaoda has increased its market share in all overseas markets since the second half of 2008, with the exception of Japan and the Republic of Korea where the company’s market share has remained basically stable. In particular, the company’s market share in the European Union has increased by about 21 percent. The basic reason Chaoda has been able to increase its market share in overseas markets in spite of the adverse circumstances is that it has developed a core competitive edge in modern agriculture.

 The distribution of production bases has been arranged to make optimal use of vegetable germ plasm resources. Vegetable cultivation is an industry that is greatly restricted by climatic conditions. Chaoda carefully considered the characteristics of this industry before investing heavily in vegetable production bases across the country, ensuring that the company could supply the same variety of vegetables all the year around. It is precisely because Chaoda can supply the same high-quality, reasonably-priced vegetables regardless of the season that the company remains a strong competitor in the international market. In addition, Chaoda was a major supplier of vegetables for the 2008 Beijing Olympic Games. To enable athletes and tourists from around the world to eat in China the same vegetables they would find at home, Chaoda carefully selected vegetables typically used in Western cuisine to import and successfully grew them on a trial basis. The company grew vegetables from South America, Africa and other parts of the world, including various types of lettuce such as Mediterranean lettuce and French endive, as well as Roma tomatoes.

 Quality and safety is assured through stringent monitoring and control throughout the entire production process. We were the first in China to introduce the most advanced traceability system in the world for agricultural products to ensure the vegetables we handle are the finest varieties, are of the highest quality and are completely safe. This monitoring system requires that records be kept of all farm activities, including all the steps in the growing process, from sterilization of seeds prior to sowing to the seedling stage, planting of seedlings in the ground, ripening, harvesting and processing. We strictly comply with the requirements of the green and organic farming systems throughout the production process, implement GMP and HACCP quality control systems and follow our own “five-point program” of using only carefully selected improved varieties, only using natural organic fertilizers, only using eco-friendly methods for the prevention and control of plant diseases and pests, employing technical advisors throughout and employing the same product testing methods throughout the company’s operations. This rigorous quality control system ensures the safety and reliability of Chaoda’s vegetable products.

  January 29, 2002, the opening ceremony for the “2002 Chinese New Year Shopping Spree” at the Fujian International Conference and Exhibition Center in Fuzhou, Fujian Province. The shopping spree features over 20 specialized halls exhibiting tens of thousands of products. Pictured are city residents buying vegetables at the green (pollution-free) vegetable demonstration area of the Chaoda Agriculture Group. / Photo by Xinhua reporter Zhang Shenggui

 In opening up markets we are employing modern marketing techniques, which go against the traditional rules. Our customers in the U.S. and Japan can watch our farm produce growing from their offices. This is a Chaoda innovation and the reason why we have a competitive edge in the international market. Our customers can go to our website, input a special code and clearly read all the information about the vegetables they order from the comfort of their office. This is a special network platform established for our big customers. Through this platform, customers can communicate with the Chaoda Trading Center in real time to track or increase their orders. Orders placed before planting now account for 70% of all vegetables sold from Chaoda production bases, and customers generally accept the prices set by Chaoda. Chaoda’s modern marketing concept marks a change from the traditional practice of on-site examination of products and price negotiation to determining prices when the order is placed, which allows crop producers to take the initiative in transactions. This is a fundamental shift from the traditional situation in which producers are subject to the will of middlemen. It not only reduces production costs but also shortens delivery time. How do we minimize damage that occurs in transport? We have put together a comprehensive cold chain logistics fleet of trucks that use GPS. The vegetables are loaded on the truck and immediately delivered to ensure that customers always receive fresh vegetables, turning what is normally a weak link into the enterprise’s core competitive edge.

 Scientific and technological innovation promotes the development of our independent core productivity. To ensure that our products strongly dominate the market at home and abroad, we must constantly improve the varieties we cultivate and continually improve product quality. To accomplish this, we have set up a high-tech engineering park and post-doctoral scientific research workstation that combines scientific research, pilot plant test, training and industrial incubation. We have directed or participated in four national research projects including the “Functional Genome and Biochip” project, as well as more than ten key national and provincial research projects including “Research, Development and Application of Chaoda Biological Organic Fertilizer.” Chaoda has developed a project-oriented R&D model and management mechanism for responding to business development requirements, assessing the results of projects by their applicability and determining bonuses for project directors according to results. While making full use of our own personnel, we also take advantage of the resources of many domestic and foreign research institutes as part of our R&D platform. We collaborated with China Agricultural University to set up the “Chaoda Plant Science Research Center,” which is working on the development of fomesafen (a plant-derived herbicide) and maize biological growth regulator, and are working with Shenyang Agricultural University on research in three-line breeding of Chinese Choy Sum. Both collaborations have produced excellent results. It is precisely the application of these research results that is ensuring the sound and rapid development of Chaoda despite the sluggish global economy.

(From Qiushi in Chinese No.1, 2010)

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