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11/06/2019

Dr. ZHOU Hualong: It Is Necessary to Master The Methodology

Dr. ZHOU Hualong - Chairman of DHC HOLDING Group - KEDGE Euro-Asia DBA Doctor - A programme of KEDGE Business School in cooperation with Hong Kong Baptist University and The Russian Presidential Academy of National Economy And Public Administration

In Dr. ZHOU Hualong’s view, it is necessary to master the methodology. Success in terms of methodology is inevitable, while failure is accidental. One of the core contents of Dr. ZHOU Hualong's methodology is: Do not do outdated things, must understand the stage of social development and problems which should be solved, and conform to the trend of the times - the methodology runs through Dr. ZHOU Hualong's work. Under this guidance, he also regards the sense of proportion as one of the criteria for judging the ability of leaders.

According to Dr. ZHOU Hualong, China's society has already accumulated a huge amount of capital. How to manage these capitals is exactly what the country needs to solve at this stage.

The capital side is best to do the icing on the cake, instead of thinking about controlling the industry.

In the past few years, the business environment among industrial enterprises has undergone great changes. In the past, only good sales were required. Nowadays, the profits from sales declines, while the proportion of financing costs in operations is increasing. Generally speaking, the benefits generated by operations at the financial level might even exceed the benefits of physical operations. For example, if you make 100 million yuan of financing, the interest rate will differ by 1 percentage, and the loan amount to be repaid will differ by one million yuan. Nonetheless, it is much more difficult to generate the same profit from simple physical operations. Driven by the interests, many companies have even deviated from their main business and used the funds they have invested in various forms of financial investment. Once the risk management and control is not done well, the capital chain will be broken and then the enterprises might be closed down. In this way, the survival crisis caused by poor management of non-main business is a problem for many enterprises in the moment.

With the development of finance, the proportion of direct financing goes up, and integration of industry and finance seems to be inevitable. As early as 2015, Dr. ZHOU Hualong had already put forward the concept of integration of industry and finance. He examined the development history of the world's top 500 companies and found that few of them developed into giants through their own development. Most of TOP 500 were developed through mergers, acquisitions and integration. The capital side helps leading companies to acquire small and medium-sized enterprises, and use financial leverage to accelerate industry integration and to shorten the competition time of the industry. In Dr. ZHOU Hualong’s opinion, the integration of production and integration with large enterprises in the industry will be the “main theme”, therefore the living environment of SMEs will be much more difficult than before.

Even if this trend is expected, it is not 100% successful. Regarding the integration of industry and finance, there are also aspects that make Dr. ZHOU Hualong feel very annoyed: he can never penetrate into the real industry. People who start from the manufacturing industry tend to be "pyramid"-type thinking, and they like to do things one step at a time, while people who start from the financial industry are infinitely circular thinking, preferring to maximize profits quickly. When these two kinds of thinking collide, they need to fully communicate and integrate, and over-dominance by either side is not conducive to integration. According to Dr. ZHOU Hualong’s own experience, even if it is integrated, the major shareholder is best to have an industrial background. After all, any field needs professional knowledge; the capital side must hold the bottom line, shouldn’t rush to pursue fame and fortune. The capital side needs to do the icing on the cake for the industry, instead of thinking about controlling the industry, otherwise there will be problems.

Although he has been deeply involved in the financial industry for many years and has a profound knowledge, Dr. ZHOU Hualong has not explained finance in financial terms. If the industry is "body", in his view, finance is only a "wing" to provide flying assistance, while the Internet is the other one.

Industry platforms need professional knowledge, and each segment will have its own giants

Dr. ZHOU Hualong has a lot of research on the industry and finance Internet. During his three years of studying at KEDGE Business School pursuing the doctor’s degree, he has focused on exploring the innovation trend of China's industrial and financial business model of Internet. For giants like Taobao and Jingdong, Dr. ZHOU Hualong attributed them to the category of consumer-oriented Internet. These platforms have integrated horizontal industrial chains, providing rich selectivity and making commodity information spread more quickly and transparently than traditional supermarkets or stores, thus increasing customers’ engagement. However, such a platform is mainly aimed at the general public, to solve the daily consumption problems of food, clothing, housing and transportation. To help boost the industrial development, a more professional industrial Internet platform is needed.

DHC HOLDING Group has invested in an online platform specializing in selling mahogany furniture. Each set of mahogany furniture is detailed with information on its raw material origin, and the price system of mahogany furniture with high gross profit under traditional sales methods becomes transparent. Through vertical industry chain integration, they could shorten the nodes, level the sales price, and ultimately generate spillover effects.

Such industrial Internet platforms, according to Dr. ZHOU Hualong's expectations, will appear in various sub-areas. These platforms are relatively narrow compared to the consumer Internet platform, but they also need a certain professional foundation. Eventually each sub-area will appear their respective giants.

The integration of industry and finance, the development of the industrial Internet platform... Dr. ZHOU Hualong, who repeatedly stressed that he should not go against the law illustrates that his biggest feature is “cross-border” (he served as the vice president of many first-level associations). In his insights, the cultural industry has benefited from state support, people's demand, and the times have reached the stage of development. Therefore, it is a domain that can make a difference. It is cross-border that is precisely one of the ways to effectively integrate.

There will be new segments in the cross-border integration, which are often the “blue ocean”

As where Dr. ZHOU Hualong stands, the cultural industry is similar to the mahogany furniture industry: the gross profit margin is relatively high. Yet, professionals in the industry often lack business thinking and market awareness. Some of the operating projects have ended up losing money because of single business model.

After entered this domain, Dr. ZHOU Hualong integrated all the cultural performances such like training, sports and other resources to provide customers with more choices. For instance, if a customer enrolls in a piano class, if he does not want to study in the middle, he can change to other courses such as violin, or go abroad to participate in summer camp activities. DHC HOLDING Group also provides professional performance venues, and so on. By providing comprehensive cultural and sports services, Dr. ZHOU Hualong aims to create a giant in the field of cultural and sports.

The cross-border integration of core IP and business value, the commercial application of core IP in the whole industry chain, such comprehensive operation mode makes Dr. ZHOU Hualong confident to undertake CBA events - although the CBA itself is not profitable, he can accumulate a large number of fans and do a lot of commercial development around the fans - the entire industry chain could be profitable, and he can withstand the loss of a single node.

From Dr. ZHOU Hualong’s view, Cross-border is to be innovative on the shoulders of giants. In the progress of cross-border integration, new sub-areas will be created, and these areas are often called “blue oceans”. Convinced that "the world is the same as the other", Dr. ZHOU Hualong uses his methodology to boldly innovate and do things reasonably in a verity of fields.

 Article from<Shanghai Airlines>

Original in Chinese Written by Bian Lingli

*Some pictures come from the network.

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