Dialogue | Zhang Peng Author | Zhou Yongliang
Editor | Zheng Xuan

In the past two years, the global economy has undergone drastic changes. Black rhinos and gray swans, which have not been seen in ten years, such as the new crown epidemic, the Russian-Ukrainian war, and the Sino-US trade war, have frequently appeared. Many entrepreneurs are confused about the uncertain future.

In the past 5 to 10 years, Chinese society has been on the upward path of rapid economic growth, and entrepreneurs and practitioners are familiar with this environment. Now, when entering the adjustment period or even the downward period, everyone starts to feel uncomfortable.

But if the time line is extended to 20 or 40 years, this situation is not uncommon. Li Dongsheng, the founder and chairman of TCL who has crossed multiple economic cycles, recently visited the Frontier Thinking Forum and discussed with Zhang Peng, the founder of Geek Park, on “how to cross the cycle”.

Founded more than 40 years ago, TCL stood out in the wave of Chinese color TVs in the 1990s and became a representative brand of Chinese local color TVs. However, in the wave of internationalization set off by China’s entry into the WTO in 2002, TCL experienced ups and downs for a while, but finally relied on several major strategic adjustments to overcome the crisis and become today’s leader across the three major industries of smart terminals, semiconductor displays and new energy photovoltaics. The annual total revenue of the high-tech manufacturing group, TCL Technology and TCL Industrial, the two major corporate entities, exceeds 250 billion yuan.

The wheels of history are rolling forward, but the tracks of the ruts are all the same. From dozens of color TV companies in the early 1990s, after 10 years of rapid development and competition, there are only five or six competitive companies left. Similar stories are repeated in different outlets such as home appliances, PCs, and mobile phones. Probability will also reappear in today’s hottest fields such as autonomous driving, new energy vehicles, and AI.

The road that Li Dongsheng walked, the pits he stepped on, and how to cross the cycle have precious implications for entrepreneurs and practitioners who cannot see the way forward today.

01 Ten years of brilliant color TV

In the 1990s, color TV was the “eldest child” industry after China’s reform and opening up, and it was also the industry with the most competition and the most complete market elements among many industries in the Chinese market.

At that time, the competition in the color TV industry was fierce, no less than that of the mobile phone and mobile Internet industries in the past decade—price wars, channel games, diversification, and internationalization were all fought round by round. In the end, TCL, Changhong, Konka, Skyworth, Hisense Wait for five or six color TV companies to stay until the end.

Now, many people do not understand this history, but some traces still remain on Chinese soil. There is a Changhong Bridge on the East Third Ring Road in Chaoyang, Beijing, which was sponsored by the Changhong Group when it was in its prime.

Li Dongsheng and his TCL are the most exciting part of this history.

It is not too early for TCL to start making color TVs. Founded in 1981, TCL started making tapes in the early days. It officially entered the color TV industry in 1992 and launched its own TCL ace color TV.

But by 2002, it took less than 10 years for TCL to occupy the first place in the domestic color TV brand market share and become a veritable “color TV king”. From 1992 to 1996, TCL Electronics Group’s sales increased 35 times, revenue increased 25 times, and profits increased 17 times.

This speed is not lost to today’s technology Internet companies. Generally speaking, it takes 5 to 7 years at the earliest for even the best technology Internet companies to establish their position in the industry from establishment. For example, Xiaomi was established in Zhongguancun, Beijing in April 2010. By 2015, it had become the largest mobile phone brand in China with a market share of 15%.

Li Dongsheng recalled to “Geek Park” that TCL’s rapid rise at that time mainly depended on two points:

The first is innovation in business methods. At that time, TCL’s sales did not follow the path of a large agent, but closely followed the terminal and distributed in-depth, which was still a very advanced concept at that time.

Second, the product positioning is accurate. TCL’s first color TV product was 28 inches instead of the mainstream 14 inches. At that time, 28-inch and 25-inch color TVs were relatively few, mainly Japanese brands, and the products were good but expensive. TCL entered the blue ocean market and launched a series of very competitive and cost-effective products by using local innovative product technologies.

But what few people know is that not long after becoming the domestic market leader, TCL fell into the biggest crisis since its establishment 20 years ago. The source of everything is TCL’s internationalization strategy.

02How to spend the “darkest hour”?

After nearly ten years of rapid development, TCL has grown into a star company in the Chinese market at that time, and entered the top ten of the top 100 companies in China’s electronics industry. Its momentum is somewhat similar to today’s ByteDance or Xiaomi, which also filled Li Dongsheng’s heart. confidence. He began to pursue a bigger goal: the world’s top 500.

To this end, TCL initiated an international business transformation, trying to leapfrog from a Chinese company into a multinational giant. In 2004, TCL acquired France’s Thomson color TV business and Alcatel mobile phone business. In the year when the merger was completed, TCL’s global color TV business sold a total of 22.59 million units, surpassing Samsung and becoming the world’s largest color TV company by sales.

At that time, China as a whole was in an atmosphere of rapid rise, and there was also a wave of globalization in the business world. In addition to TCL, Lenovo acquired IBM’s personal computer business in 2005, while Alibaba acquired all of Yahoo China’s assets during the same period. These were all major events in the globalization of Chinese enterprises at that time, and also a big step for Chinese emerging companies to become global companies.

International mergers and acquisitions seem to be the norm these days. But at that time, these events greatly boosted the confidence of the Chinese business community. After all, Thomson was the originator of the global color TV industry and the European color TV overlord at that time, IBM was the king of the PC era, and Yahoo “opened” the Internet era. .

Talking about the original intention of internationalization, Li Dongsheng recalled that there was a big background at that time, that is, China’s entry into the WTO. “In this case, Chinese companies will no longer face domestic competition, but global competition. Even if you get away with winning a round in domestic competition, it does not mean that you can win the battle of global competition. This kind of A strong sense of crisis has driven me to go out and open up overseas markets. Only by combining internal and external operations can I build an advantage in the future economic globalization competition.”

That is, at this time, the opportunity came quietly. At that time, the French company Thomson planned to sell its color TV business, which had been losing money for several years. After the evaluation, Li Dongsheng believes that although international mergers and acquisitions are very risky, if this opportunity is given up, it means that the process of globalization will be greatly delayed.

Past success gave Li Dongsheng greater confidence and weakened risk expectations, which paved the way for subsequent setbacks. TCL quickly fell into huge losses and even faced bankruptcy for a time.

From the initial “seeing all the mountains and small mountains” to the subsequent serious setback in internationalization, the huge contrast also made Li Dongsheng enter the “darkest moment”. He recalled, “I remember that in 2005, the operating and financial data I received almost every week were negative, like a nightmare that I couldn’t get out. Can’t make it work?”

The most painful time for Li Dongsheng was in the second half of 2005. At that time, he lost 20 pounds, and the waistband of the original 2 feet 8 inches also became 2 feet 5 inches. Later, he recalled in a slightly playful tone, “I always wanted to lose weight but failed, and I lost a lot of weight in the past few months, and I had to buy all my pants again.”

After experiencing anger, helplessness, and even despair, Li Dongsheng threw away his blind self-confidence and left behind only the belief in the last stand. He said, “At that time, based on rational business reasoning, there was no hope for the company to turn losses at all. It was more supported by belief, that is, I firmly believed that there must be a solution to the current difficulties, but it was not found for the time being. At that time, there was only one idea, this one. There is no way out of the battle, no matter how long it takes and how much it costs, I will definitely win it. As for whether the original decision was correct, there is no need to consider it anymore, because it is meaningless.”

Having a firm belief is only the first step, the next more important thing is to “prescribe the right medicine”. Then in 2006, in order to make TCL survive, Li Dongsheng led the third major change in the company’s history, from management philosophy to organizational structure, to corporate culture, drastic and comprehensive changes, and finally overcame the difficulties and returned to the right track.

Among them, Li Dongsheng believes that there are two particularly critical points: First, maintaining cash flow, which was also TCL’s biggest challenge at that time. In this regard, TCL changed its previous development model of high-flying and began to clean up those projects that only brought scale but not profit, emphasizing “efficient operation” and “focusing on the sustainability of profitability”.

At the same time, actively strive for bank credit. Generally speaking, in order to avoid risks, banks usually limit or shrink credit quickly when businesses face difficulties. At this time, the traditional method may no longer work, and the cards must be played out of common sense at special moments.

At that time, Li Dongsheng was already a well-known entrepreneur in the country, but every time he went to a bank, he personally introduced TCL’s development plan to relevant personnel, “I can tell you the financial data of the last three years. I will report to you every stage. If I don’t do what I say, and you don’t increase my loan, I have nothing to say; if I do what I say, you have to increase my loan.”

Another is to carry out rapid organizational changes to adapt to globalization. The losses of TCL in 2005 and 2006 were essentially the previous operating system, which could not adapt to the development of global business. In this regard, according to the “Diamond Model of Holographic Management”, TCL analyzed nine elements including politics, economy, and culture, one by one, where the problem lies.

In the end, with these two key points, TCL finally ushered in a turnaround in 2007, achieving a net profit of 328 million yuan. This also makes it take off the ST hat and keep the listed company status.

Looking at it now, TCL’s globalization is a “right wrong”. The so-called “correct” means that globalization itself is not wrong. International mergers and acquisitions have brought two strategic values ​​to TCL: the first is to enter the mainstream markets in the United States and Europe, and the second is to increase business, which also laid the foundation for the launch of TCL Huaxing in 2009. The so-called “mistake” means that the corporate culture, management capabilities and goals of TCL at that time did not match, which was the root cause of the subsequent crisis.

03 From terminal hardware company to industry cornerstone

Out of the quagmire of internationalization, TCL did not stop. Generally speaking, companies that have just recovered from a major setback will generally choose to “recuperate and recuperate”, and will consider other actions only after the business situation has been consolidated and stabilized.

However, TCL made an “amazing move”. At the end of 2007, when it just turned losses into profits, it began to extend upstream of the industry chain and invested 24.5 billion yuan to create Huaxing. The 24.5 billion at that time was almost equivalent to all of TCL’s assets at that time, and was 52 times the group’s net profit that year.

Many people think that TCL is “gambling”, but Li Dongsheng thinks it is a “gambling”. From the results, this decision did have a significant impact on the subsequent development of TCL.

Talking about the original strategic choice, Li Dongsheng said that the first was inspired by Samsung’s success in surpassing Japanese companies. After 2000, the color TV business of Korean companies has risen, but Japanese companies have declined seriously. The most important reason is that Samsung and LG have the most core panel and chip capabilities. To participate in global competition, Chinese companies must have upstream core capabilities, which is the fundamental reason for investing in Huaxing.

Second, the panel industry was at a trough at that time. After the international financial crisis, the investment capacity of companies in Japan, South Korea, Taiwan and other countries and regions has been greatly restricted. However, panel is a highly cyclical industry, and it takes about three years from decision to benefit. Therefore, it is a better choice to make contrarian investments at a time of trough.

In fact, the test behind this decision is not only business insight and strategic logic, but also the determination of entrepreneurs. After suffering such a major setback, is the original intention of the person in charge of the company still there? For Li Dongsheng, the original intention of becoming a world-class enterprise has not changed, so TCL must extend to the upstream core links of the industrial chain.

The starting point of TCL’s investment in Huaxing was to do a good job in the color TV business at the beginning. But a few years later, precisely because of this decision, TCL changed from a ToC hardware company to a cornerstone company of high-tech manufacturing.

Li Dongsheng recalled that this was actually formed gradually during the development of the display industry. However, with the improvement of TCL’s business competitiveness, Li Dongsheng began to realize that the high-tech, asset-heavy and long-term panel industry will always have social demand for it, and the application fields will continue to expand, but the product technology will continue to iterate. . If you can keep up with the pace of upgrades, the return on investment in a cycle will be relatively stable. At the same time, its barriers to competition are high, which means that the barriers to entry for competitors are high, and it is also the core competitiveness that supports the sustainable development of enterprises.

In 2012, two years after the establishment of CSOT, TCL’s strategy underwent a major change, from focusing on terminal hardware to focusing on the display panel industry. Of course, this also imposes new requirements on TCL. The management of companies such as display panels is different from the original terminal: first, panels are a high-tech manufacturing industry that requires sustainable technological capabilities. At present, the number of patent applications of TCL Huaxing ranks among the top among domestic enterprises; the second is resource capacity. These enterprises are heavy assets and high investment, which is a test for the ability of the management team to integrate resources; the third is the enterprise’s strategy and management capabilities.

At this time, the success of TCL Huaxing is not only due to Li Dongsheng’s original intention, understanding of future trends and successful strategic considerations, but also a little bit of luck. When Huaxing was worried about talents, Guo Taiming sent them a “God Assist”. Innolux Technology, a subsidiary of Guo Taiming, merged with Chi Mei Electronics, a well-known panel company, and many executives of Chi Mei Electronics had no position and had to find another way out. This was tantamount to “sweet dew from the sky” for Huaxing, which was in urgent need of talents at that time.

At the same time, when the Huaxing project was put into production in 2012, it encountered an industrial dividend such as “home appliances to the countryside”. At the same time, the international market began to improve, and the demand increased greatly, which just gave Huaxing a chance to increase its volume, which also made it Became the world’s first panel company with “mass production in the same year and profit in the same year”. In the following 10 years, TCL Huaxing has continued to invest, accumulatively reaching 260 billion yuan.

Seeing this, many hard technology practitioners may feel deeply. Making hardware seems to be an endless journey. Every year, you have to fight a few hard battles. More importantly, it is fatal to lose one or two games. How to break free from the simple hardware competition and establish your own real “moat” is a problem that every hardware company must consider.

TCL’s successful experience can give some inspiration: the process is to find a track that is wide enough and has long-term value, and then controls the core links, dares to invest, and matches the appropriate capabilities.

04 Break the “Billion Curse”

With the continuous production of TCL Huaxing, TCL ushered in a huge explosion in performance, and its revenue in 2014 exceeded 100 billion. However, in the following two years, TCL fell into the “hundred billion curse”, the scale of operation was uncertain, and the profit declined.

Revenue of 100 billion yuan has always been the dream of many Chinese home appliance companies, but it has also become a lingering “nightmare”. Before TCL, Haier, Midea, and Gree all encountered a bottleneck period after entering the “Hundred Billion Club”. Later, through external expansion such as overseas mergers and acquisitions, Haier resolved the low growth and finally got rid of the curse of 100 billion.

Regarding that period of history, Li Dongsheng once recounted that TCL was mainly faced with two key problems at that time: one was that the business structure was too complicated. At that time, TCL’s business structure was “7+3+1”, with a total of 11 major business segments. Among them, it includes 7 business segments of Huaxing Semiconductor Display, Smart Display Terminal, Communication, Home Appliances, Audio, as well as Commercial Business and Parts Business, and 3 Service Business Segments of Internet Service, Sales and Financial Control. 1 refers to venture capital. This also leads to the second problem. The capital structure and management structure are very complex, and the company’s resources cannot be concentrated and need to be optimized urgently.

Subsequently, TCL carried out a series of reforms again, cut off businesses unrelated to its main business, and cleared 110 secondary companies; TCL Group was split into two, and the terminal business and display business were split into two independent enterprises. In addition, a very important step for TCL is to acquire Tianjin Zhonghuan Group at a high price of 12.5 billion in 2019, opening the second growth curve.

From the current point of view, TCL’s acquisition of Tianjin Zhonghuan has a certain chance. Around 2019, Tianjin state-owned enterprises are undergoing mixed-ownership reform, and Tianjin Zhonghuan is bidding for sale.

After careful evaluation and research, based on the analysis of three factors, TCL decided to acquire Tianjin Zhonghuan: First, photovoltaic new energy is considered to be a very promising track, because energy conservation and emission reduction have become the general trend of the global economy; second, China Photovoltaic has gone through several big waves to wash away the sand, accounting for more than 70% of the global photovoltaic materials, and now it may reach 90%, so Chinese companies have an advantage in this industry; third, Li Dongsheng believes that Zhonghuan Semiconductor is an industry leader and a good the “target”.

Of course, there are some small variables in between. In 2019, Trump said at an energy conference in Pittsburgh that “a terrible, one-sided climate agreement is a total disaster for the United States” and threatened to withdraw from the Paris climate agreement, adding some uncertainty to the future development of photovoltaic new energy. Sure.

In the last round of bidding, only TCL and a fund company were left. At the last moment of submitting the investment bidding documents, TCL increased the price by 500 million yuan on the basis of the 12 billion yuan bid, “Since the decision to acquire Zhonghuan has been made, we must make sure to win it, and add 500 million yuan to buy one. Insurance”. In the end, TCL successfully won the Tianjin Central Ring.

If you look closely, you can find that TCL’s acquisition of Tianjin Zhonghuan is similar to the idea of ​​investing in the establishment of Huaxing, and it is a long-term valuable field. At the same time, the business of TCL Central and TCL Huaxing are related to a certain extent, and the logic, process and business model of the business are also highly similar, and the industry is highly synergistic. In just one year, TCL Central has doubled its sales performance and profit, from 17 billion and 1.4 billion to 40 billion and 4.1 billion respectively.

05 Entrepreneurs are connected to success

Looking back on the past 40 years, Li Dongsheng said that his concept of enterprise development has also changed a lot. Twenty years ago, Li Dongsheng was indeed full of vigor, full of self-confidence and energy. At that time, he was more concerned about how to make the company run faster; now, TCL has a certain position in the global industry, and this time he has considered it more. It is the risk and bottom-line thinking, and how to cross the cycle and build evergreen business. Behind this is the strategic capability and organizational system of the enterprise, whether it can support the sustainable development of the enterprise.

No matter what stage, Li Dongsheng has an important experience that he must dare to “bright sword” as an enterprise. If decisions were only made based on rational analysis, there may not be today’s TCL. Many companies that dare to show their swords may die, but they also have a chance to succeed. If everyone is rational and dare not show their swords, then Chinese companies cannot be as competitive as they are today.

Behind this is his unique understanding of “entrepreneurs”. In Li Dongsheng’s eyes, there are not many people who can really be called “entrepreneurs”.

He believes that the so-called “entrepreneur” first embodies a responsibility and mission, and must have pursuits beyond money and material things. Secondly, he emphasized that entrepreneurs are associated with success, and the scale of the business managed must have a large enough influence in the industry. The leader of a failed business, or the owner of a small business, is not qualified to call himself an entrepreneur.

In this sense, just because you are an entrepreneur today does not mean that you will also be an entrepreneur in the future. In addition, entrepreneurs must also have the ability to not only allow the company to achieve performance growth at a certain stage, but also to continue to develop and go through cycles.

At the end of the interview, Li Dongsheng also gave his own advice to the current young entrepreneurs, “Your greatest advantage is that you are young, you can withstand setbacks and failures. The advice I give is not to be burdened, not to be afraid of failure, and to be bold. If you try hard and move forward, there will be opportunities. If you can’t catch it this time, you can seize it next time. If you work hard, you will definitely be able to seize it.”

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