Opening the Door to China
Fosun International has bought Club Med and some of the world's top fashion brands and helped them get a foothold in China, earning it praise as the key that opens the door to China.
Opening the Door to ChinaBy Jimmy Hsiung
From CommonWealth Magazine (vol. 534 )
Any list of the "hottest" Chinese companies in recent years would undoubtedly include Shanghai-based conglomerate Fosun International Ltd.
From acquiring stakes in upscale resort operator Club Méditerranée in 2010 and Greek jewelry brand Folli Follie in 2011 to buying into upmarket American fashion brand St. John and iconic Italian designer suit maker Caruso this year, Fosun has become one of the most active players on the global economic stage.
Even Taiwan has gotten to know Fosun. In November 2012, the conglomerate acquired a 20 percent stake in Vigor Kobo, and when news of the deal surfaced, many grew curious about this Chinese company that bought into a traditional Taiwanese pineapple cake maker.
So what is the story behind Fosun, and what message does its rise have for Taiwan's private sector?
Fosun cannot be judged by either the splendor of its physical presence or the company's size. Its headquarters do not tower among the financial giants in Shanghai's Lujiazui district nor do they occupy a place among the Bund's exotic cluster of buildings. And Fosun's NT$260 billion in revenues in 2012 were not high enough to rank it among the top 200 Chinese companies by sales.
What does stand out about Fosun is its vision.
Its location in a part of Shanghai transiting from the old to the new symbolizes its key role of channeling foreign resources into China's domestic market.
"What Fosun is doing is connecting China's dynamism with global resources," Fosun International vice chairman and CEO Liang Xinjun tells CommonWealth Magazine during an interview in the circular top-floor meeting room of the company's headquarters building. He explains that Fosun's expertise lies in using Chinese capital to invest in overseas companies and then helping those enterprises develop a presence in China's market, spurring rapid growth.
Liang's rimless glasses and refined appearance give him a scholarly aura that is also reflected in his clear and logical thinking.
Former United States treasury secretary John Snow, who now serves as an adviser to Fosun, once observed in an interview with the Chinese media that Liang thinks like an economist, with a clear grasp of China's economy and the world economy.
Chou Chun-chi, the chairman of Taiwan-based Sinyi Realty Inc. who interacts frequently with Chinese entrepreneurs, says that whenever he sees Liang, he is always impressed by the Fosun executive's analytical powers.
"Imposing but not domineering, incisive without being shrill," Chou says of the man he describes as a different kind of Chinese entrepreneur.
The 45-year-old Liang stands out as the kind of person Chinese leader Deng Xiaoping had in mind during his famous tour of southern China in 1992 when he supported private enterprise and encouraged personal entrepreneurship. A year after graduating with a degree in genetic engineering from Fudan University in 1991, Liang joined with his philosophy major friend Guo Guangchang (now Fosun's chairman) and two other classmates to start Fosun with 38,000 renminbi.
The highly complementary nature of Liang and Guo's personalities and skills provided a solid foundation for Fosun's growth. The rational Liang is a deep thinker with strong executive capabilities, while the more instinctive Guo quickly gets to the heart of a matter. The two men, both natives of Zhejiang Province, shared the same vision for their company – seeing it as a vehicle through which they could change their lives.
"At that point, we were really short of money and hoped to change our status. But money was just a surface issue. What we really hoped for was to think and act freely," Liang says in his usual crisp tone, recalling what things were like when Fosun was just getting started.
In the beginning, the company offered clients market research services (supported by the partners cycling around the streets of Shanghai to survey residents) and developing a hepatitis B reagent. Since then, it has invested in everything from health care, property and retail ventures to steel, mining, asset management and insurance, prompting the Financial Times to describe Guo as "China's Buffett."
Over the past 21 years, Fosun has done more than just ride China's high-speed train of economic reform and liberalization to success. It has closely matched trends with astute strategies, enabling it to move steadily forward.
This ability to do the right thing at the right time did not come naturally, Liang says, describing Fosun's first eight years until 2000 as the time when it learned how to run a business. The foundations of the company's interests in the health care sector – its main revenue generator – and real estate originated during that period.
Over the following 10 years, starting in 2000, Fosun's investments took off. A look at Fosun's financial statements reveals that many of its major investments – Shanghai Yuyuan Tourist Mart Co., Nangang Iron & Steel United Co., Sinopharm Group Co., Zhaojin Mining Industry Co. and media properties the 21st Century Business Herald and Forbes Asia – were all made during that 10-year period.
Liang says investment opportunities are everywhere, but the real skill lies in choosing among them and gaining a foothold in a new field.
"We have an ability not commonly seen among Chinese enterprises – the ability to study the future in depth. So we are able to see things earlier than others," Liang explains.
Unlike some investment groups, the firm shies away from pursuing management control of its targets. Instead, it prefers to exert influence as a small but active shareholder.
Investment Threshold: 1 Trillion RMB
Fosun's core management philosophy centers on the ideas of "creating value, sharing development" and "aggregating growth power." The "aggregation" strategy, which Fosun has adopted because of its limited capital and unwillingness to take on too much risk, involves buying 10-30 percent stakes in a broad diversity of investments.
"The standard for whether or not we get involved in a sector is simple. We first look at whether it has total revenue of 1 trillion renminbi," Liang reveals. If a sector meets the scale requirement, Fosun then looks for enterprises that are or have the potential to become the top or second-leading company in the field.
Now into its third decade, Fosun is looking at another shift in thinking and positioning, triggered largely by the financial crisis of 2008 and 2009, which may have appeared to have only a limited effect on China but changed the way Liang and his colleagues looked at the world.
They realized that China's global economic role had undergone a major transformation and that many multinational companies had come to rely on China's market for 10-20 percent, if not more, of their revenue. As a result, they decided to concentrate their investment efforts on overseas companies and reposition Fosun as an asset management specialist.
"In the next 10 years, Fosun will become the biggest asset management company in China and even Asia," Liang says confidently. "Our goal is to manage 1 trillion (renminbi) in assets."
According to Fosun financial statements, Fosun already manages nearly 200 billion renminbi in assets.
Fosun, which just received licenses to sell life insurance, general insurance and reinsurance in 2012, plans in the future to move closer to the Warren Buffett model, which relies on investing the "float," or funds generated by the insurance business, to drive returns. Liang sees the company in 2020 as one that specializes in managing the assets of insurance companies invested in or held by Fosun.
Investing Abroad to Cash In at Home
In the meantime, the firm has moved aggressively to pursue acquisitions abroad. It made its first overseas investment three years ago when it bought a stake in Club Med, a debut that grabbed considerable attention.
Explaining the motivation behind the move, Liang said Chinese tourists made 67 million outbound trips in 2010, 18 percent of the global total, but they accounted for only 2 percent of the revenue of Club Med, one of the world's biggest resort groups.
"What's the relationship between the 2 percent and 18 percent? Where others saw it as a gap, indicating that something wasn't being done right, we saw it as an opportunity," says Liang, speaking with such eloquence and logical clarity that it's hard for anybody listening to interrupt him.
Fosun is hoping to up the ante by teaming up with Axa Private Equity to take over Club Med. The deal received the green light from European regulators in August 2013 but is being held up by a court challenge in France.
"China now has 22 percent of the world's population, and its middle class, which is continuing to grow, will definitely vastly exceed 22 percent of the world's middle class in the future," he says. "So there is this big group of people who finally have money, and their spending power is really, really astounding."
"Therefore, we go looking for products and services that are aligned with middle-class lifestyles and boldly invest in them," he says. "But if you want to invest in something, you first have to clearly consider if you have the ability to help it develop in China. If you do, then you should make the investment."
A visit to the Yuyuan Tourist Mart during the extended Oct. 1 National Day holiday this year predictably revealed massive crowds. Of interest, however, was a new store that packed in customers from morning to night – operated by traditional Taiwanese pineapple cake maker Vigor Kobo.
"In the first half of the year, Yuyuan attracted 18 million visitors. Only about 2 million Chinese go to Taiwan every year," Liang says in describing the huge potential for growth created by bringing Vigor Kobo and China's market together.
Fosun's strategy and reach have proved attractive not just to Vigor Kobo or Club Med but several overseas brands looking for an entry point into China. Pursued by a number of suitors to tap into China's market, Raffaele Caruso SpA, the Italian men's suit maker, decided Fosun was the best fit. As Caruso CEO Umberto Angeloni put it, Fosun is the "key to open a Chinese door."
Translated from the Chinese by Luke Sabatier