2008 marks the 30th anniversary of China's reform and opening-up. As China's economy gradually enters a stable socialist market economy, Chinese private enterprises have achieved remarkable growth. Private entrepreneurs, leveraging their unique advantages of low-cost resources, have fully demonstrated their wisdom, intelligence, and creativity. Especially in the manufacturing sector, they have not only developed the domestic market but also expanded overseas. During this phase, a group of outstanding entrepreneurs has emerged across various industries. They possess integrity, vision, management skills, and a commitment to innovation, growing their enterprises to a considerable scale and setting examples for private enterprises.
However, over the past 30 years, tens of thousands of private enterprises have failed. Among these fallen enterprises, some were once quite glorious and had made many achievements in business operations. But as industries change, competitors evolve, and the enterprises themselves transform, merely understanding operational-level management is insufficient for survival and continuous growth.
Enterprises must also have a solid management foundation, which includes building a leadership team, setting strategies, and leading teams. These three management elements are what we often refer to as having a good leadership core that knows how to formulate correct strategies and can establish a hard-fighting team. Such enterprises will no longer drift aimlessly in the competitive sea like a rudderless ship but will instead continuously overcome weaknesses, becoming large warships capable of controlling direction, speed, and rhythm.
For a long time, Chinese enterprises have faced changes in major industries, environments, and competitors. To survive, enterprises cannot avoid the need for change. Export-oriented enterprises that fail to build brands can only earn meager profits, and any slight fluctuation, such as exchange rate changes, can cause significant stress. Building a brand is no easy task. Although our brands may not be well-regarded globally, we must strive towards this goal. Despite difficulties, I firmly believe that as long as the government prioritizes development and Chinese entrepreneurs possess the tenacity and wisdom to impress the global business community, Chinese enterprises will inevitably reach the next level and compete comprehensively with those from developed countries.
Now, however, a global financial crisis has arrived, deeply affecting our nation's economic growth due to the worldwide economic downturn. In such a context, what should Chinese enterprises do?
Firstly, pay attention to national policies. The Party and the state have already formulated major policies to address economic sluggishness. The two points that left the deepest impression on me are: first, emphasizing development as the top priority; second, highlighting the stimulation of domestic demand to drive the economy. We all agree with these measures wholeheartedly. However, there are still concerns about implementation. If investments are hastily directed towards areas without future returns, while the investment might temporarily boost the economy, it could lead to debts without sustainable returns, making life difficult.
In my view, the surest way is to increase the consumption of ordinary Chinese people, using it to stimulate demand—a positive feedback loop like rolling a snowball. When people consume more, businesses produce more, creating more jobs, which leads to even more consumption. Banks would then dare to lend money, GDP would increase, and we could shift from buying U.S. Treasury bonds and encouraging American consumption to encouraging Chinese consumption. The biggest obstacle to implementing this plan in the past was that ordinary people lacked sufficient funds. Now, if the government is determined to invest, it might as well directly invest in the people, especially vulnerable groups and the middle class, promoting social stability and economic growth through government concessions.
Of course, regarding national policies, our perspective is limited, so we dare not make arbitrary comments. However, concerning how enterprises can weather the winter, I would like to offer two suggestions based on our own situation.
First, set upper, middle, and lower strategic goals. Adjust according to specific circumstances in real-time, ensuring that the bottom line is not breached, and the enterprise’s cash flow remains uninterrupted. Around October 2007, we proposed that enterprises like Lenovo should consider the coming winter because China's stock market price-earnings ratio had become excessively high, and the Renminbi-to-dollar exchange rate was extremely inappropriate, clearly impacting exports significantly. As investors, we needed to prepare in advance, which is why we raised the issue of surviving the winter at that time.
We must cautiously invest. Even though there are many PRE-IPO or better opportunities where one could make money easily, we must resist temptation and refrain from investing in them. Second, accelerate fund-raising. In April 2008, Lenovo Holdings' Lenovo Investment and Hony Capital successfully raised their fourth phase of funds, amounting to $4 billion and $1.4 billion respectively, securing ample capital.
Second, use this opportunity to strengthen internal capabilities. Every enterprise, including ours, has weak links in operational management. This period provides ample time to study these vulnerabilities, such as research and development, procurement, and supply chain processes. Besides operational management, foundational construction in areas like building a team, setting strategies, and leading teams will undoubtedly greatly benefit the enterprise, preparing for recovery after the winter.
The arrival of this global economic crisis may turn adversity into advantage for China. If China can stimulate domestic demand centered on consumption and reduce the proportion of exports in GDP, the country will become more harmonious, and the economy will be more balanced. Currently, the government's top priority is social stability, i.e., employment, which is our private enterprises' strength. The government will certainly find ways to support the growth of private enterprises. The ongoing revision of the Labor Contract Law is an example.
Currently, many small enterprises are facing challenges, but overcoming them leads to brighter prospects. For small and medium-sized enterprises, failure can be a bright moment—it is merely an exercise in life. As long as the national environment improves and opportunities arise, we will have the chance to make a comeback.