Expert Roundtable: Breaking the Development Dilemma, Made in China Breakthrough

Moderator|Sun

Forty years of reform and opening up, with the changes in the economic environment and the development of science and technology, Chinese enterprises have also ushered in new transformation and transformation nodes. In the face of the current slow growth of the global economy, in order to obtain the ability to continue operating, Made in China has to re-examine itself and transform and upgrade. What is this ability? How can this ability be obtained? What question do we have to pay attention to? This issue of the expert roundtable specially invited Chen Zhaofeng, the managing partner of PwC China Industrial Management Consulting, and Ding Jianze, the senior partner of Hejun Consulting and director of the Hejun Intelligent Manufacturing Research Center, to analyze and answer this question for readers' reference.

"CEConline": In your opinion, what are the main characteristics of the macro environment that China's manufacturing industry is currently facing?

Ding Jianze: From a global perspective, 2019 will be a tough year.

In the context of policy uncertainty, global economic risks have increased substantially, and there are greater downside risks, such as increased trade barriers, accelerated capital outflows from emerging markets, and a tense geopolitical environment. Under the circumstance that the rules based on the multilateral trading system are severely weakened and the new rule system is undergoing shock and reconstruction, the decision-making risks faced by countries have greatly increased, which in turn will increase the cost of decision-making.

From the perspective of China's economic situation, China's economy has bid farewell to high-speed growth, and the future GDP growth rate will continue to gradually slow down. Overall, due to China's strong economic strength, huge domestic consumption potential, and effective and flexible macro-control measures, China's economy will absorb external shocks to a certain extent and achieve relatively stable economic development.

Made in China is generally synonymous with low-end, but key breakthroughs have been achieved in some areas, such as high-speed rail, ships, 5G and other fields, which have a certain impact on the Western world.

"CEConline": The environment facing China's manufacturing industry is different from the past. At this stage, how will Chinese manufacturing enterprises be affected? What should be paid attention to?

Chen Zhaofeng: What is different now is that the entire industry chain is undergoing changes. Therefore, Chinese manufacturing enterprises are faced with re-distribution, that is, how to occupy a more favorable position on the smile curve and transform to a higher-end and more valuable direction.

The market is now more open and competition is more global. Chinese manufacturing enterprises should have a global layout and not only rely on a single market. There are dangers and opportunities in the current environment. "Crisis" refers to the Sino-US trade dispute, and "opportunity" refers to the general trend of the "Belt and Road". In such an environment, many Chinese manufacturing companies have really begun to actively go out, going to Southeast Asia, Africa, or the European and American markets. This is exactly the right time for our Chinese manufacturing enterprises. It is worth noting that if you want to expand globally and do not transform the value chain, it is difficult to cultivate in the international market.

Ding Jianze: From the perspective of manufacturing in China, the pressure of transformation and upgrading is currently facing a lot, mainly in the following three aspects: 1. The cost is rising. The costs of various factors of production generally show an upward trend, such as labor costs, rent, and environmental protection costs. A few days ago, the heating system of a company changed from coal to natural gas, and the annual cost doubled (about 30 million yuan). The company was unable to absorb this cost, resulting in losses. For those companies whose supply chain is deeply affected by internationalization, due to trade Due to the impact of the war and tariffs, procurement costs will rise sharply; at the same time, with the improvement of taxation and social security systems, the costs of many manufacturing companies will continue to rise.

Second, the lack of core technology. Most Chinese manufacturing is labor-intensive, often synonymous with low-end, and generally lacks core technologies. Manufacturing companies are busy making quick money and generally lack investment in technology. The end result is that Chinese manufacturing companies lacking core technologies have been in a smile curve for a long time. At the bottom, rising costs make it difficult, and many companies will disappear if they cannot complete the transformation and upgrading.

Third, the level of automation and intelligence is low. The equipment of many enterprises is still in the stage of mechanization, with a low level of automation, let alone digitalization or intelligence. The meager profitability is not enough to support large-scale intelligent transformation of enterprises. The management methods of enterprises are backward and extensive, which further weakens the competitiveness, and the capital accumulation formed in the barbaric growth stage in the past is being lost.

"CEConline": What is the development status of China's manufacturing industry? Compared with the "barbaric growth" period, what obstacles should Chinese companies overcome in order to enter the "stable growth" stage?

Chen Zhaofeng: From the reform and opening up to the present, the challenges faced by Chinese manufacturing companies are that the benefits are not good enough, the profits are not high enough, and the innovation is not enough. This has always been a challenge for traditional manufacturing companies. The problem only became more acute when economic growth slowed and costs rose.

Many companies used to grow "savagely" with the growth of the entire market, so even extensive management is not a big problem. These enterprises have problems of relatively low management performance and operational performance. However, with the growth of external market demand slowing down and operating costs rising, the company's revenue growth has also begun to slow down. To “grow steadily”, companies need to improve efficiency. The other is to meet the challenges of the current market, establish some better innovation mechanisms and cultivate an innovative culture. I think these two aspects should be the two keys to the steady growth of Chinese manufacturing enterprises.

Ding Jianze: Upgrading along the changes of traditional manufacturing products. When the traditional manufacturing industry is upgraded to intelligent manufacturing, its product form will evolve according to the following path: product - intelligent product - intelligent interconnected product - product system - system system, the connotation and extension of products have changed, and the constantly changing nature of products has broken the original The value chain, business philosophy and way of doing business must also change, forcing companies to rethink and equip various processes and resources.

In the future, companies that build systems will become platform-based, and platform-based companies will be rule-makers. If they can't become a platform-based company, they need to rely on a certain platform and find a company that can compete on the platform. The role of force, acting as the module of the system. With the development of the platform, there will eventually be characters similar to kings (platform owners), vassal states (industry platform owners), and ordinary people (platform adherents). In addition to the rules, the platform must build its own core elements. If this core element is not the platform itself, the advantageous platform elements will propose to modify the rules, then the platform is not a platform. Many manufacturing companies always feel that Industry 4.0 is far away from themselves. Intelligent manufacturing based on industrial interconnection is subverting the original thinking and mode, and innovating more and better business models. If the concept of traditional manufacturing enterprises is still in the stage of selling equipment, it will eventually become the object of subversion or subcontracting.

Upgrade along the service industry of traditional manufacturing. The servitization of manufacturing is not "de-manufacturing". From the perspective of the value chain, it is a process of change in which the proportion of services in the manufacturing value chain continues to increase and the added value of products continues to increase. He Jun believes that the service-oriented manufacturing industry is far beyond the concept of after-sales service in the traditional manufacturing industry, and belongs to a brand-new business model. This business model mainly has the following characteristics: In the pursuit of profit in the link, some companies simply put the product profit in the end. Give full play to production capacity through better price policy, use 120% of demand to correspond to 100% of production capacity, expand large-scale, need cash flow, the faster the capital turnover, the lower the cost, the better, and can act as an agent for other related products if necessary .

Extend the product form to the client, adopting cooperation forms such as process outsourcing and workshop outsourcing. Originally it was selling products and equipment, but now it rents equipment to the client. Due to the use of a factory-in-a-factory, the client has less capital The investment also reduces the inventory. This is an advanced strategy and is not easy to do. However, once established, a stable customer relationship will be formed, and the cash flow brought by the operation service will continue to be stable, which will differentiate it from other competitors. At the same time, for enterprises that own assets, they can finance, mortgage, and leverage, and operating cash flow can also be packaged for financing.

The operation and maintenance of industrial equipment is a major opportunity for service-oriented manufacturing enterprises. The MRO market of industrial equipment is a traditional business, the overall is scattered and poor, and the factory management level is backward. Equipment manufacturers generally do not pay attention to it, and conduct it as a key business There are not many companies that have developed, and remote monitoring, diagnosis, and predictive maintenance are in the initial stage of rapid development, and there is no obvious leader or large-scale competitor. Such needs are gradually emerging in place of the increased complexity of labor and equipment, and the accelerated pace of production operations.

"CEConline": Chinese manufacturing enterprises should move from "barbaric growth" to "steady growth", what kind of corporate culture do you think is conducive to Chinese enterprises to achieve this transformation? How should companies build this corporate culture?

Ding Jianze: The values represented by Made in China are very important. Corporate values refer to the value orientation of an enterprise and its employees. These value orientations fundamentally determine the development of an enterprise. In order for Chinese manufacturing enterprises to successfully realize the transition from "barbaric growth" to "stable growth", the following values should be practiced.

Innovation, including technological innovation, product innovation and management innovation. Core technologies cannot be bought. Manufacturing enterprises must increase their technological innovation efforts. Technological innovation has large investment, long cycle and high risk. It can be combined with universities and research institutes to become R&D platforms, such as CRO (Contract R&D Outsourcing) in the pharmaceutical industry. At present, a large number of returnee experts and university professors are participating in drug research and development, and other industries can learn from this model. Product innovation is more of a design based on customer needs, and China's manufacturing industry has a strong awareness in this regard. Management innovation is the shortcoming of many manufacturing companies. In the process of brutal growth, management has been neglected for a long time, and the investment in management is seriously insufficient. In fact, the so-called management innovation is not innovation at all, it is just to make up the debt.

The value. Why an enterprise exists is its value. It is true that companies are good at seizing opportunities, but many companies have become opportunists and have been hunting for a long time, ignoring the precipitation and cultivation of their core capabilities. Companies that are not effectively supported by product value will eventually be short-lived, and only value can last. For example, the core value of Uniqlo is to provide cost-effective products, and all its settings are arranged around this value. I once encountered a steel structure production enterprise. Because of the low profit margin of the product, the focus is not on the value of the product, but on how to use the futures market of steel to make profits, resulting in the company's main business ability cannot be precipitated.

Specification. International companies need to understand the current laws and regulations to avoid legal risks. Domestic laws and regulations are becoming more and more perfect, such as tax laws and social security. Therefore, it is more and more important to regulate operations. The barbaric era is passing. "If the radish is too fast, don't wash the mud" will eventually pay a painful price, and the cost of violations is getting higher and higher. At the same time, it is also necessary to carry out standardized construction within the enterprise, including corporate governance, supply, production and marketing systems, etc., to use norms to prevent and reduce risks. While regulation can increase costs for businesses, it is a worthwhile investment in the long run.

"CEConline": Chinese manufacturing enterprises should move from "barbaric growth" to "steady growth", what kind of management system do you think is conducive to Chinese enterprises to achieve this transformation? How should enterprises formulate and implement this management system?

Chen Zhaofeng: For private enterprises, the biggest common problem is "boss management". Therefore, the transformation of enterprises should be managed by a more professional team of professional managers. Professional management is to separate equity and management rights, establish a better management mechanism and system, and let professional professional managers to assist. In order to pursue more effective management, some so-called "decentralized" or "shared" management mechanisms have been established, including the so-called shared service center, innovation center, COE (Center of Excellence, expert center) and so on. Through the construction and sharing of some major capabilities, we will create a higher efficiency of the enterprise. Another dimension, talent is the key. Because if an enterprise wants to grow steadily, it must have a good management system to manage talents. Another kind of transformation may not be done within the company itself, but through some strategic cooperation, joint ventures, and even the construction of an industrial ecosystem to manage the operation of the company. In fact, no matter what an enterprise wants to do, in the final analysis, it must return to the most basic purpose - higher performance, that is, from the aspects of efficiency and effectiveness. Then this may involve whether enterprises can use informatization and digitization.

Ding Jianze: Many manufacturing companies rely heavily on a certain person for their decision-making. Such decision-making mechanisms are often fast, but with the advent of the era of "stable growth", we hope that corporate decision-making will be more stable and effective. Therefore, It is necessary to reconstruct the corporate governance of the enterprise, especially the board of directors mechanism, including external directors, the composition and decision-making mechanism of various decision-making committees.

Product development management system. Product development is different from traditional research and development. Huawei's IPD (Integrated Product Development Model) gives us a good inspiration. It is a development management system based on the understanding of market demand, with product managers as the core, and the system covers research, production and sales.

Human Resource Management System. As manufacturing product forms are more integrated into the attributes of intelligence and interconnection, the talent structure of traditional manufacturing enterprises will undergo major changes. In traditional manufacturing, more emphasis is placed on tangible inputs, such as equipment, products, land, etc., and human capital investment accounts for less. However, as hardware products are more integrated into software elements and the service industry of the manufacturing industry deepens, the value of human beings will increase. It is reflected to a greater extent, so it is necessary to formulate a human resource management system that reflects the humanistic color.

Digital management system. Data will become the most important asset of manufacturing companies. To this end, a complete digital management system needs to be established, including data collection, storage, and use. More and more companies will set up their own data centers. It is a big challenge. After all, many enterprises have not used management information well.

"CEConline": Chinese manufacturing enterprises should move from "barbaric growth" to "stable growth". What kind of business process do you think is conducive to Chinese enterprises to achieve this transformation? How should companies reengineer and adjust accordingly to rebuild this business process?

Ding Jianze: First of all, enterprises need to complete the overall planning of process construction. Such planning includes both business process and management process, but the business process needed to serve the strategy comes first. The management department of process planning belongs to the operation management department of the headquarters, and some enterprises combine process management and IT management to form a process IT department. Processes, if not supported by IT, are difficult to execute effectively.

The best way is to implement it according to the existing process first, and gradually optimize and improve it in the process. Why? What many companies lack is not processes, but effective execution. To this end, it is necessary to clarify the first responsible person of the process, that is to say, someone needs to be responsible for the overall output of the process, and at the same time, clarify the output goals of the process and link it with performance appraisal. In order to ensure the execution of the process, it is necessary to give the first person in charge of the process the management responsibility for other cooperating personnel, which is essentially similar to the concept of project management, but this is not easy to implement, because traditional manufacturing enterprises are generally more accustomed to self- Top-down administrative management is not suitable for horizontal process-based management.

Process optimization is an ongoing and dynamic process. It can be combined with management activities such as work review. What is work review? That is, after a job is completed, review the work in chronological order, review each link, and think at the same time, is this link reasonable? Is there a better way to operate? If so, what is it? Is this way of operation a general rule? If yes, optimize the existing process.

Chen Zhaofeng: In terms of business process, to grow from savage to steady growth, we must involve cross-departmental cooperation. In the past, the business process may be more done in the business department, and then go to another department to go through the business process after completing it. But now, if it is to be more effective, more robust and more flexible, it requires more cross-departmental business processes, and it should be more simplified and flexible, and more use of system solidification should be used to improve its efficiency and speed.

"CEConline": In addition to corporate culture, management systems and business processes, what other management elements do you think will help companies achieve this transformation?

Ding Jianze: The growth genes of each enterprise are different. It must not be accidental that an enterprise grows from nothing, from small to large, it must have its own way of success. We call it "gene". It forms the core of the enterprise. Changes to successful genes must be cautious, otherwise it will easily become a "malignant tumor". If the old things are given up, and the new methods are not learned, it will not be a development but a worry of survival.

Our point of view is to sum up the successful genes, and enrich and improve them according to the requirements of the company's development strategy for growth genes. For the interpretation of development genes, it is recommended to start from the perspective of learning from the past and the present, and it will follow the following line of thinking: division of development stages - major internal and external environmental characteristics of each stage - key measures of the enterprise - in-depth interpretation from the perspective of values.

Chen Zhaofeng: First of all, I think there needs to be a strategic guidance. Because it's like we're going on a trip, you have to know where your destination is going so you can plan a route. The same is true for enterprises to transform. You must have a clear strategic goal. In the next five or 10 years, what kind of company will I become? How do I win my rightful market position in my chosen market? What should my strategic move be? How do I do these things? What kind of abilities do I need? What kind of resources do I need? Then, plan out the things to be done, as well as the allocation of the required capabilities and resources, refine it into a strategic roadmap, and then implement it. During this period, it is necessary to re-examine regularly, and then fine-tune and optimize according to market changes. Second, now companies should actually think more about how to innovate. How to move up the value chain? Going upstream, you have to invest more in research and development, and even some key upstream raw materials, supply of components, etc.; going downstream, how do you provide solutions? How to build to C's brand and build its own channels? These are the directions for enterprises to innovate. And I think the difference between now and before is that enterprises should combine technology-driven innovation, not just a simple model innovation or process innovation. I think the current innovations are definitely more complex and diverse innovations, including some business model innovations, some process innovations, and process innovations. Innovation. Third, the key to innovation is talent. How companies recruit, cultivate, empower, and retain talent are all issues that companies need to consider. Finally, many companies can not only stick to the Chinese market, but also expand internationally and embrace the development opportunities of globalization. Therefore, I think these four management elements, strategy, innovation, talent and globalization development power, are also very critical in the transformation.

Photo / Chen Zhaofeng, Ding Jianze