– BiMBA Alumni Sessions
Written by Rubin Wang and translated by Tim Wang
As we approach the end of 2012, we must reflect on China’s economic growth. We see that although the third quarter economic growth of 7.5% can still be easily accomplished by China, it’s still a significant decrease from the 9% in 2011. China’s economic growth is declining. There are a lot of uncertainty and discussions regarding the future of the Chinese economy. With continuous technological innovations and increasingly complicated economic trends, the fluctuations of many industries are beginning to pick up its pace, and many smaller companies are having a tough time adjusting to the changing circumstances.
It is during these times when a professional investor must gaze through the murky economic waters and find a good company that will come out on top in the future. On November 23, 2012, to further discuss this issue with its students, BiMBA welcomes a heavyweight guest in the field of investments – Managing Director of Legend Capital Mr. Liu Erhai. He is an EMBA alumnus of BiMBA. Mr. Liu discussed with the alumni and current students some of his perspectives on strategic investments. Furthermore, the president of Evercare Company Mr. Wang Yongan also shared some of his tips on entrepreneurship.
Mr. Liu expressed that the National School of Development—the founding institution of BiMBA MBA, has a very good tradition of using a top-down method to analyze economic problems. To understand a company you must first understand the industry, and to understand the industry you must first look at the patterns of economic development. Mr. Liu also utilizes the top-down method when analyzing a company, and he divides this into three levels: trend of economic and social development, structure of competition within an industry, and the value of the company.
When discussing the first level, Mr. Liu mentioned the American Pizza and Chinese Thousand-layer cake as an analogy to the different stages of industrial development between US and China. He explained that to analyze China’s innovations and investment opportunities in growing industries, one must first compare the general trend of economic development and the differences in industry structure between China and foreign companies.
Mr. Liu told the audience that you must look at the general trend when making sound investment decisions, many industries fail because they cannot adjust to the trends at the time. Regarding investments in China, he made suggestions to focus on urbanization, upgrades to the quality of consumer goods, and brand-name fashion goods. Specifically, Mr. Liu pointed out 5 opportunities for the near future, in strictly technological companies, technological companies for a specific industry, virtual manufacturing industries, online shopping, clothing companies, amongst the other traditional industries.
On industrial analysis, Mr. Liu talked about his own research into the DRIVE model for industrial analysis. He told the audience that many industries appears to be good opportunities, but there are already many well-established large corporations in that industry, which makes development and growth of new start-up companies highly unlikely. When choosing the right industry, you must consider the entire production chain, do not focus too much on one link in the chain that you fail to examine the entire chain. The most popular link on the chain isn't necessarily the most profitable and stable investment. If the industry is a winner-takes-all industry, think twice before entering.
The third level in investment analysis is judging a company’s value, and the characteristics of a good company. As an investor, you must know what exactly you are buying, and the actual value of the company. Mr. Liu developed a unique VALUE model that focuses on a company’s sustainable competitiveness, operational risk, amongst other factors. After years of research, Mr. Liu found that the best leadership team for a stable company is a team with a charismatic leader, and a team of highly capable individuals. On the contrary, a Gemini structure (1+1) often evolves into a 1-on-1 battle for control of company, and is the least stable.
During Mr. Liu's end note, he emphasized that entrepreneurships have patterns that one must follow. During the initial and development phase, the entrepreneurial spirit is what drives the growth, but once the company reaches a certain point, it must become a managed company, and shift from simple production to large-scale planned production. It must begin developing a company culture. Mr. Liu especially mentioned that not only is it necessary for an investor to understand the characteristics for each stage of a company’s development, it’s also important for individuals especially MBA graduates when considering their own career paths to understand their own characteristics and advantages, and know exactly what type of company and company culture they are best suited for.
Mr. Liu's speech was followed by a visit from the managing director of Beijing Evercare Plastic Surgeries and Cosmetics Center, Mr. Wang Yongan. As a medical institution specialized in feminine cosmetics, he sees a bright future in the Chinese market, but also mentioned about the current competition between traditional hospitals and cosmetic centers.
