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MUer Sharing | Jeff Luo: The Difficulties and Challenges Faced in the Leapfrog Development of General Union Business Group

MU News | 2023-2024 Middle and Senior-Level Cadres Meeting Held

Dear President Tom Tang and dear colleagues, good afternoon. I am Jeff Luo from NINGBO GENERAL UNION CO., LTD. (GU). The topic assigned by President Tang, “The Difficulties and Challenges Faced in the Leapfrog Development of General Union Business Group” is what I will be addressing today. I would like to share two main points:

The first part will cover some of the practices behind GU’s continuous development over the past few years.

The second part will address the difficulties and challenges GU faces in achieving sustained rapid development.

I hope to provide everyone with some practical help and inspiration.

While the theme suggests that we are experiencing “leapfrog development”, I believe we have not achieved “leapfrog” growth. Over the past few years, our fastest growth year was just over 70%. We have never achieved annual growth of 100% or more. I mean, for the entire group, there may be some smaller companies that have experienced relatively rapid growth. But for the entire group, we have not experienced leapfrog development. However, we have achieved sustained development over the past decade, and this year our overall target is set at $628 million, with hopes of achieving 40% growth this year.

Jeff Luo: The Difficulties and Challenges Faced in the Leapfrog Development of General Union Business Group

Firstly, establish a product team matrix. This morning and afternoon, everyone discussed a lot about cross-border, digital transformation, and cross-border B2B fragmented orders. This is a trend, an inevitable trend. But for GU, we are more focused on traditional business. GU is a relatively traditional export company. We originally started as a simple grocery department and, through some development, gradually became a more diverse company. However, more than a decade ago, when 70% of the group’s business was concentrated in business agencies, we chose a path to develop Ningbo’s product line business. Of course, because of this positioning, we have achieved good growth.

In 2011 and 2012, I proposed that the focus of development for the next 5 to 10 years should be centered around products, major customers, and regional markets. However, in summarizing the development of the past decade, we have accumulated some experience in professional products and major customers. But in terms of regional markets and agency business, including relatively fragmented order businesses, we have performed relatively poorly. This includes our support for SKYLARK NETWORK CO., LTD. (SN) and LATIN AMERICA DIVISION of GU, which has not been sufficient. In the early years, we provided some customer resources, but in the end, they relied on their own natural development. Especially SN, she completely seized this trend, seized this opportunity, actively invested, actively generated fission, and then achieved significant growth in the past four years.

For GU, the main reliance is still on our product teams. At the beginning of the transformation from a grocery company to a product company, I think it was a speculative behavior. But our idea at the time was to slowly and precisely refine this speculation. Both input and output need to be precise. Fortunately, even though we were still relatively confused and small at the time, we had a direction to persistently make large investments. There were too many opportunities more than a decade ago. As long as you have a direction and take action, there will be some output. In 2011 and 2012, we made a lot of different product and block investments, trying everything we wanted to try at the time, and spent a lot of money.

In the past few years, GU has also faced relatively high operational pressures. But after more than a decade of operation, I think our direction is correct. We have ultimately incubated some excellent product teams, such as our paper products team, which has done relatively well. Later, we also incubated some furniture teams, water bottle teams, electronics teams, and now the beauty team. Currently, if we analyze the business modules of GU separately, our product teams should account for more than 50%, while 30% of the teams continue to maintain the previous daily grocery model. We also have teams serving major customers. When you invest in products, you will encounter some major customers, and we have also seized some opportunities with them. Some previously relatively non-central sectors, such as the SN sector and the South American agency sector, are now gradually becoming important.

In 2014 and 2015, when the first two or three product teams achieved success, we were determined to replicate them quickly. At the same time, I believe this path is feasible. So, in 2015, 2016, and 2017, we made a lot of investments, including internally selecting some talents to develop modular products and finding some excellent external talents to develop products.

GU has gone through a relatively difficult period, although we can’t say we are comfortable now. We will still face several years of growth pressure. We hope to become a group with a turnover of over 1 billion US dollars in the next three to four years. The idea of building a professional product team has been very helpful for the current situation.

Secondly, we have gradually accumulated the ability to systematically interface with major customers. I believe that serving major customers requires multidimensional knowledge, not just one-dimensional. It’s not enough to have strong sales, product, or service capabilities to take on their business. This is because we have accumulated some systematic interface capabilities for major customers internally.

How to understand this? A simple analysis: Why were we able to expand Tiger in 2013 and 2014? Actually, we didn’t have a price advantage, and our service was only above average. The size of the company was not that important to the customer because the customer chose based on the product and the overall operational background at the time. One thing we did well was that I and Amanda Chen established a complete quality system based on customer needs, making us the first supplier in Ningbo to establish QA, QC, CSR, and laboratory systems. We hoped to build this team into a company with Hong Kong and Taiwan-style service. We can build the system the customer needs around the customer’s requirements. As we gradually built different systems, when these systems were communicated internally, it actually helped some colleagues in other departments. In the next few years, we have also successively started with several other customers, including our main large customers now, which are basically supermarkets and discount stores. The scale of cooperation itself is relatively large, and the several clients we are currently discussing with are also quite promising and involve large amounts.

We need a systematic understanding and construction. Nowadays, when we meet with customers, they mention that they hope we can develop some environmentally friendly materials, including carbon emissions. Attending three or four meetings a year, all discussing how to promote carbon emissions in the future, there are many demands for this kind of environmentally friendly compliance, which are not easy to achieve. But when you truly establish a system and meet these demands of the customer, you will also gain many business opportunities.

When you truly understand and research these things based on the customer’s needs, possess the relevant knowledge and initial capabilities, this is a point to attract major customers. It’s not about bringing things from the factory to the major customers and saying, “This is made by this factory, I can offer you a lower price directly,” or saying, “My booth is big, my company is big, you can cooperate with me.” It is very difficult to attract major customers and seize some good opportunities.

Thirdly, we have internally incubated and externally introduced excellent talents, while also providing traction, companionship, collaborative management, and assistance in empowerment. Many companies outside say that they poach people everywhere, take customers from other companies, or bring in some information from others to develop their own business.

In fact, many times they do not understand our system. The talents we introduce may not have a high comprehensive score before entering the group. They may be strong in one aspect. We did not introduce people with strong comprehensive abilities. They may have a strong product or a strong aspect, maybe 60 or 65 points, and they have a certain potential. They used to be the third, fourth, or fifth role in a company, but after coming here, through our clear business direction and platform system, we empower them, input some management concepts, and more efficient business strategies, ultimately helping them grow. We are willing to spend time and make investments in these people, truly accompanying them in their growth. Passing on the experience of running a business for more than ten years, accompanying them through some difficult periods.

In the current environment, I believe there is no simple business. Although it was relatively easy eight or nine years ago, it wasn’t that easy. How to select people, how to attract good people, you must first do your own work well. You must truly be able to guide and give them confidence, while also having enough patience to give them time to learn and truly integrate into the team. Many colleagues may be confused in their first year with the company, perhaps under a lot of pressure and uncertainty about whether they can develop well in this company. However, through our companionship, guidance, and support, they eventually overcome the difficulties and gain some harvest. Of course, the company also has some gains. Ultimately, this is a win-win or even a win-win-win situation.

Fourthly, we have always insisted on continuous investment in all aspects to build a moat, such as product development, new product design, customer acquisition channels, creating value for customers, and the company’s sustainable development. President Tang once said that GU’s overall growth is okay, but it seems to lack that final push. What he meant by the final push is actually profit. At that time, our thinking was chaotic, and our strategies were chaotic. However, we did one thing right—we spent money to try different things, and through “speculative behavior,” we gradually clarified our thinking, strategies, and direction. Once it was clear, some results started to emerge.

Our initial investment was also speculative, but it may not be so easy now. However, we have always insisted on investing. This year, we invested in another 20 to 30 thousand square meters of office space and exhibition halls. Last year, our investment in molds was two to three million. All these expenses are covered by GU’s public expenditure. All departments’ mold making or new development and design are paid for by GU. Our gross profit margin, efficiency per capita, and profit at departments of GU have not been that good because we have been investing in some future things. Of course, I am quite proud of this.

One more thing I want to make clear to everyone is that in the end, if you have output, you still have to give it back to me. This investment is not given to you for free. It’s just that with this model, I hope to invest first, so that everyone does not have too much pressure, and then slowly recover, while helping you grow. We have been investing in product research and design, customer acquisition channels, and customer informationization. We invest in many areas that are beneficial to creating value for customers and the company’s development. In the past ten years, the investment may have been relatively blind, with a lot of waste. Now we are slowly becoming more precise, reducing some losses, and then reducing some more losses.

Fifthly, make full use of customer resources and traffic, and rhythmically import customer traffic from various departments. How to understand this? It should be in 2014 when I told several departments of GU that we hoped to divide a customer into several departments to operate. There was a lot of resistance at the time, and several departments came to me and slammed the table. In the past, everyone thought that if a customer was yours, then they were yours, and others couldn’t touch them. If I meet a customer of another company at a trade show and I want to give them back, for example, if they only did $50,000 with that company and I ordered $200,000 at the Canton Fair, I want to give them back the $200,000.

At that time, there were already some different developments internally, and I think it would be more limiting if many customers were only operated by one department. Our competitors may have done this very early on, dividing customers into many different segments, each providing better service. This was the basic idea. Ten years ago, we started to promote the dispersion of resources from different customers. For example, our largest customer is now operated in four parts. If the customer prefers a single point of contact, we will still operate with a single point of contact, but we will use all the resources of the GU Business Group to support them. If the customer prefers to cooperate with different teams with advantages, we will divide all customer traffic and repeatedly refine the traffic resources of all customers. Of course, this takes time, patience, and rhythm, and we have been persisting.

Sixthly, be good at learning from internal and external sources, and be good at seizing every opportunity that arises. We have always been good at learning and seizing opportunities. Curiosity, the desire to learn, and imagination of the unknown are very important. Never limit your thoughts because there will never be the best solution, there will always be more efficient solutions, and never do things the same way just because that’s how they were done in the past. Please remember: the times are changing.

Jeff Luo: The Difficulties and Challenges Faced in the Leapfrog Development of General Union Business Group

This is some of my recent thinking that I’d like to share with everyone. The first point is how to always adhere to customer-centricity. Recently, we have been thinking about holding a meeting internally on how to understand “putting customers at the center and creating value for customers.” I believe we have been doing well in receiving customers or surface etiquette. But do we really have reverence for our customers in our hearts? Assuming we divide customers into several categories, C-level customers cooperate based on interests—if I offer a lower price, they choose me, but they may not be helpful for long-term development; B-level customers give you business consistently, support you, and trust you, even though their scale may not be very large; A-level customers are strategic partners, with a scale of over 10 million. At least, we should have great reverence for A and B customers, always aiming to improve our service capability, service consciousness, and companionship capability.

Now, when I talk to many responsible persons who handle major customers, they think that since this is how things are in the market, they can only do the same. Their solution is to try to provide better service, be more polite on the surface, but there’s little they can do about fundamental issues. I think this approach is wrong. We need to find ways to break through, to do things that are difficult yet right. We need to actively abandon things that pose risks to ourselves and remove things that pose risks to our customers. We need to use new products to cover, strengthen our product development and design capabilities, enhance close communication with customers, and provide solutions in advance for their future needs. We need to focus more on upward efforts, rather than downward efforts. For example, our company cannot pursue its own interests by deducting supplier wages or deducting everyone’s bonuses. Instead, we should strive for high-quality business development, improve internal efficiency to gain advantages.

We should fully understand what it means to be customer-centric, to create value for customers, and compete upwards rather than downwards, going with the flow. By integrating the supply chain and sharing internal resources, we should strive to do what customers want, and maybe even think ahead of them, more comprehensively, such as in carbon emissions. We can proactively develop some materials, aiming to become an outstanding company rather than a mediocre one.

The second point I want to discuss is the internal disagreement within GU Business Group regarding whether our product teams should focus on depth or breadth. Many teams, such as NINGBO ARTCOOL CO., LTD. (ARTCOOL), NINGBO SC-STARMAX IMP. & EXP. CO., LTD. (SC-STARMAX) and NINGBO GREENHILL FURNITURE CO., LTD. (GREENHILL FURNITURE), believe in focusing on depth, enhancing their competitive advantages through deeper research and investment in their core areas. I had a conversation with Albert Zhu from SC-STARMAX two years ago, and he said, “I will never venture beyond electronics. I won’t even touch masks. I only want to focus on electronics.” However, now he says he wants to venture into pet products and other categories because he believes these businesses can be quickly replicated if there is customer demand and available resources.

I believe the second and third curves are not problematic, but it’s the first curve that is the core curve for you. Do you have enough confidence and endurance to turn it into one of the leading companies in this industry? I think this is very important, rather than trying to expand it broadly. Some teams now, they achieve 10 to 20 million, have established three or four departments, three or four directions. I don’t know how other companies do it, but internally, we absolutely do not allow this. Because doing so is a waste and loss of internal resources. Suppose that if GU has a business of this size, there are already five teams doing pets, five teams doing parties, five teams doing beauty products, all competing for customers at the same exhibition. This is a huge loss. So why don’t you focus on making your most profitable and important part stronger, instead of thinking it’s easier to do other businesses?

I’ve been wanting to discuss this topic with everyone in the first half of this year because when we encounter difficulties in the first stage, we should still strive for greater challenges to overcome them, rather than doing simple things. For example, a team achieves 10 million dollars, with its main category at 6 million, and wants to do another 500,000 or 1 million in other categories. I think this is meaningless. It’s better to focus on doing the 10 million well. If a product direction is good but lacks good product managers, designers, product concepts, and supply chain support, I wouldn’t do the project. In the past, we were willing to invest and try things, which is very difficult now because there is a huge loss involved, including product development capabilities and design levels.

In the grocery area, we have the highest design investment and the strongest desire to improve our own design among companies. But there is still a long way to go. Currently, we have 15 to 20 patented products every year and hope to double that number every year in the future. But behind this, there is a huge investment. For the company’s operation, the per capita efficiency, profit margin, and continuous development investment are a paradox. We need to make sacrifices and leave some space for future development.

Jony Zhu, the General Manager of GREENHILL FURNITURE, told me that he has been very anxious in recent years because of the large investment in the past few years, coupled with a downturn in outdoor products. Of course, it is picking up this year, but we have invested in a 10,000-square-meter exhibition hall this year, and he is struggling with whether to invest. How to convince so many colleagues at GREENHILL FURNITURE to follow him in doing this? Because it’s possible that everyone’s bonuses won’t be as high. I said, for me, I would not hesitate to invest. You need to see the future. Now we are already on a certain track, but to truly achieve a high goal, it requires a great investment and courage.

Actually, I think besides the risk of customer payment, we are facing increasing risks in terms of product, factory compliance, and patent risks. Many large orders actually carry greater risks. We had several major incidents last year. For example, there was a product, $300 per order per line, the factory changed standards, passed domestic testing, but no one expected it did not meet US regulations, which posed a great risk.

Fortunately, the customer took care of it, and later the factory compensated for the loss, and we also compensated the customer. We focus on product lines, focus on large customers. We cannot blindly accept large orders, but we also have to accept them. In this process of accepting orders, how do we grasp the balance and avoid risks? When customers require compliance, are you just pretending to comply, or are you really going to comply? Or first use the gray area, then gradually normalize? I think these are different approaches. But in the end, we still need to seek our own competitive advantage, rather than following the trend.

Including the learning and improvement of middle and senior management, which is crucial for development. Many people now have no problem doing 5 to 10 million, but it is a big challenge to really do 20 to 30 million. Why do some departments now stop receiving resources when they reach 10 million? Because I think their current comprehensive capabilities may only be able to do 10 million. If you ask them to do 20 million, their plate will have problems. This involves the self-learning and self-awareness of middle and senior management. Do you want to be a good manager, or just want to make some money, which is already good enough?

How do we build a good team? There are still many opportunities now, every department lacks people, every company lacks people. We have been saying internally to find talents in the industry, but after these people come in, how do we train them well? There is no good system for internal mentoring and training besides MU Academy. Apart from MU Academy, there should also be a training system to help students, newcomers, and colleagues from different cultures improve themselves and integrate into our corporate culture.

This is a symbiotic organization, sharing and competing. I think the debate topic just now (whether friendly competition and internal competition can promote the company’s development) is meaningless for our company. If this debate topic is placed among our friendly competitors, the opposing side may win. But we are growing in competition. We like competition and actively seek it, because competition allows us to eat away at others’ share through our differentiated competitive advantages. The current business world follows the law of the jungle. The faster and fiercer you run, the more likely you are to survive and catch prey, otherwise, you will die out.

I’ve shared with many colleagues that if we put all the international trade companies in the country in a large stadium, and you can see everyone’s behavior, you will find that those who are lazy, have low organizational efficiency, and have already made money and are lying flat, their computers are turned off, and their teams are shrinking. All our business grows in competition, in eating away at others’ business. Behind the development of our group, there are countless companies decreasing, weakening, or even closing down.

This year, we want to do some systematic optimization and improvement, including how to use some small tools to improve efficiency. I also discussed with President Tang whether we can take these good product teams to try some factories, acquire some factories. Because I think trade is also a path for us to develop.

I think the U.S. market has great potential. It’s quite difficult to achieve growth through a single market. Last year, I went abroad with colleagues from the marketing department. They went to Europe three times and the U.S. once. This year, I asked them to go to the U.S. five times and Europe only once. The business growth in Europe is too slow, and the output is too low, while the U.S. is a market with relatively fast output. So everyone is thinking about how to expand the U.S. market. We have also tried to recruit some Americans to do sales or form teams in the U.S. before, and this year we are also considering whether to establish a company in the U.S. or find some partners to directly do large-scale retail in the U.S.

Jeff Luo: The Difficulties and Challenges Faced in the Leapfrog Development of General Union Business Group

In conclusion, I’d like to share a few points with everyone:

First, set ambitious goals and persist in putting customers at the center, continuously create value for customers, and constantly optimize and improve our service capabilities and product quality. We must truly put customers at the center, continuously improve our product and service capabilities, and have a genuine commitment to this belief, rather than just doing a good job on the surface while lacking true respect for customers.

Second, persist in doing difficult but correct things, and enhance our competitive advantage by developing upward and toward excellence. In the process of competition, we tend to focus too much on our own interests. We should pay more attention to the interests of our customers. Our relationship is long-term and interdependent. We must persist in doing difficult but correct things, and enhance our competitive advantage by developing upward and toward excellence, rather than downward. As I mentioned earlier, we should strive to do things differently from others, to make our competitive advantage something that others would need to invest a lot of time, effort, and money to catch up with, rather than easily imitated and copied. We also do not want to copy others.

Third, view changes in the industry and business with a dynamic, scientific, and developmental perspective, and take advantage of the trend. Traditional trade is becoming increasingly difficult to do, and it will become even more difficult. We are actually facing significant challenges. So, I also told Ken Huang that I hope SKYLARK NETWORK can make good developments in different fields. It requires everyone to think wisely about how to establish our competitive advantage.

Fourth, the positioning of the entire GU business group is to create excellent, industry-leading, and self-characterized product companies, and then incubate excellent brand companies. We hope that after a few years of development, we can create some hundred-million-dollar-level product companies. My philosophy is simple: no matter if you are doing online or offline, domestic sales or exports, all your business is based on selling products, of course, there are services, but as long as you are a relatively excellent product company, you will always have business. It’s easy for excellent product companies to go international, as long as the layout is appropriate. So, I’m not in a hurry. We GU business group has not invested heavily in cross-border teams. We can slowly do these things. In the end, I hope to create some excellent brand companies, such as producing some 500 million dollars, 1 billion dollars level excellent brand companies, which will make us proud!

William Wang just said a sentence, he said: “The road may be long, but it will arrive; the task may be difficult, but it will be accomplished.” I think this sentence is quite right. I hope we can persist in doing difficult but correct things. Finally, I wish everyone a successful year, may all your wishes come true. Thank you, everyone.

(This article is compiled from the recording shared by Vice President Jeff Luo at the Group’s 2023-2024 Middle and Senior-level Cadres Meeting)

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