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competition is the logic of market economy and the soul of market economy. In the past, when we were in the planned economy, we did not compete, so we had no vitality. Later, we entered the socialist market economy and introduced the competition mechanism, so that everyone could advance in the competition.
Good competition refers to competition in terms of technology, quality, brand and service, which promotes the growth of enterprise efficiency and consumer welfare. Bad competition refers to the use of below-cost prices to fight price wars, frantically seize other people's territory, and even compete at the expense of others. In the long run, it will lead to the decline of product quality, the proliferation of counterfeit and inferior products, damage the interests of consumers, disrupt the market order, destroy the system ecology, and threaten the health of the industry. The competition
we hope should be orderly and benign, not disorderly and vicious. For example, at the beginning of last year, the price of photovoltaic modules was 1. This year, the industry rolled up, and there was vicious competition, and now it is 0. Last year, the photovoltaic industry lost money in the fourth quarter, and made a lot of money in the first three quarters. This year, the whole photovoltaic industry did not make money.
In fact, the early competition in the West also advocated the "law of the jungle". At that time, under the cyclical economic crisis, factories closed down, workers lost their jobs and so on. Later, they carried out a large-scale joint reorganization and improved the industry ecology.
In an industry, we are not only competitors, but also stakeholders, so it is very important to learn to cooperate in the competition. There are two things worth thinking about about competition.
First, integrators, main engine factories and owners pursue low-price bidding when bidding. In the past two days, I met two people. The first person was an engineer. He did a project for an enterprise, and this enterprise was very good at calculating. It set up a block price. If the price was a little higher, it would be out naturally. The block price could make the bidding enterprise not earn a penny. If the bidding enterprise did not earn a penny, how could it survive?
The second person is the owner, he told me that recently organized a bidding, and finally found a company that won the bid at a low price, but after winning the bid, he did not do half of it, why? I think this way of thinking of winning the bid at a low price is problematic. In fact, winning the bid should consider a comprehensive cost performance ratio. All kinds of performance, such as technology, quality, service and brand, should be put in the front, instead of simply talking about price. Nor can it ensure quality without guaranteeing a reasonable price from the supplier.
Second, even if there is no such low bid, enterprises will still fight, will still engage in price-cutting competition. As we all know, when enterprises participate in market competition, they should abide by the Anti-monopoly Law, but at the same time, there is also the Anti-Unfair Competition Law. If the vicious competition is below the cost, it is actually unfair competition. Therefore, in the whole competition mode, our enterprises should carry out healthy competition, especially when bidding, we should think about these problems.
In fact, competition is a correction of planned economy, and from "competition" to "competition and cooperation" is a correction of disorder and vicious competition. There should be competition and cooperation between enterprises, and we should handle this relationship well. I have been the chairman of China Building Materials for 18 years before. At that time, I put forward the "four modernizations" of market competition and cooperation:
First, the rationalization of development. When the industry is overdeveloped, we should not build new homogeneous production lines. Now many industries that are already very surplus are still building new lines and expanding their scale, hoping that the future market can accommodate these capacities. What to do now? What to do in three or five years?
Second, the balance of production and marketing. We often talk about production based on sales, how much capacity the market has, how many things the supplier should produce and how many things to put in, which is also very important. In the West, if many large enterprises encounter a surplus situation, they will announce production cuts, which is often good, better than putting a lot of production in the warehouse.
Third, competition is orderly. There should be orderly competition, not disorderly competition.
Fourth, market health. Only when everyone competes and cooperates, can market be healthy.
In short, market competition can not be understood in a single and conceptual way. Some enterprises need to change the concept and mentality of competition, respect each other's core interests, competition in cooperation, cooperation in competition, of course, cooperation is not collusion, but the need for industry self-discipline, the establishment of a symbiotic win-win industry value system, so as to create a healthy ecosystem.
How to overcome involution
The Political Bureau of the Central Committee of the Communist Party of China held a meeting, emphasizing the need to strengthen industry self-discipline and prevent "involution" vicious competition. Objectively speaking, involution is due to excess, but it is also related to our competitive mentality. How to overcome industry introversion is discussed in detail in my recently published book The Effective Operator.
With regard to involution, one view is that involution will promote competition, increase innovation and reduce costs. Another view is that enterprises should focus on technological innovation, quality improvement, brand building and service enhancement, rather than blindly fighting price wars. No one will benefit from this. I agree with the latter view. The word involution itself is a negative word, referring to disorder and vicious competition, rather than orderly and healthy competition. We can't say a negative word as a positive word, and then call on everyone to be more glorious.
In the past, traditional industries such as steel and cement were heavily involved, but now even the three new energy vehicles, power batteries and photovoltaic modules industries are in a state of surplus capacity and market involution. There are not many profitable enterprises, and most of them are losing money. But the liquor industry is doing well. Now young people drink less liquor. The sales volume of the liquor industry is declining. Last year, the sales volume of the liquor industry dropped by 5.1%, the price increased by 9.7%, and the profit increased by 7. The whole industry has created more than 200 billion yuan of profits.
I asked the liquor industry association how to do this, they said that the liquor industry to carry out competition and cooperation, Maotai and Wuliangye these two enterprises played a leading role, leading can not compare prices, but to compare technology, quality and service, brand building, price maintenance, the whole industry has developed very well.
How to overcome industry involution? I feel to have a few things to compare important, the likelihood is one action one type is no good, must treat integratedly:
the first, strengthen industrial policy to guide.
On the one hand, on the supply side, we should strictly restrict the repeated construction of homogenization. In order to understand the market demand and development trend, enterprises should not blindly expand production and scale homogenization. I appreciate the words of Zhong Baoshen, chairman of Longji Green Energy, who said that Longji Green Energy does not do homogeneous projects without innovation, but only develops innovative technologies and products. On the other hand, efforts should be made on the demand side to increase the absorption of surplus production capacity. Simply put, it is necessary to block the supply side and pull the demand side.
Second, increase the joint reorganization of the industry and increase the concentration. Some industries
in our country are in a disorderly state of many, scattered and chaotic. In the future, we need to carry out the joint reorganization of industries. Through large-scale industry reorganization, we can improve market share and industrial concentration, so that excess capacity can be withdrawn in an orderly and standardized manner, which conforms to market rules and industry rules. The whole world is doing so. At the beginning of the
last century, there were more than 2000 enterprises in the steel industry in the United States. At that time, it was also a chaotic war. Mr. Morgan initiated the reorganization and reorganized 65% of the steel in the United States. In the process of de-productivity of European steel industry, Mittal Steel Company of India seized the opportunity to restructure all European steel plants. When
I went to Japan, during the Japanese bubble economy, the annual consumption of cement was 1. During the reorganization, the government issued a regulation that "the anti-monopoly law is not applicable in the process of reorganization". The anti-monopoly law is opposed to centralization, but it is not possible without centralization. The Japanese government came forward to form three enterprises to dismantle cement kilns in proportion until the balance of production and marketing. The purpose of concentration is to reduce production capacity, but also to carry out healthy and orderly competition.
Reorganization is a very important task. In the past, I led China Building Materials to carry out large-scale restructuring of the cement industry, took the lead in eliminating backward production capacity and excess production capacity, actively advocated market competition and cooperation, and promoted the market concentration of China's cement industry from 12% to more than 70%, which made the whole industry relatively stable and made a lot of profits.
Third, industry self-discipline, no price war.
The trade association is a member organization in the industry. From the long-term practice, to do a good job of the trade association, we should focus on several key tasks: First, it is a bridge between the government and enterprises, implementing the industrial policies of the Party and the state, reflecting the demands of the industry and enterprises, and striving for the support of the state for the development of the industry; The second is to promote the scientific and technological innovation and technological progress of the industry, accelerate the application and popularization of new technologies, and promote the sustainable development of the industry; the third is to safeguard the interests of the industry, carry out benign competition in the industry, maintain the healthy operation of the market of the industry, and oppose dumping by foreign enterprises; Fourthly, we should carry out internal exchanges within the industry, promote the exchange of experience and training and learning in the industry, actively publicize the voice of the industry and create a good social environment for the industry. Among them, how to carry out industry self-discipline, how to carry out healthy competition, how to safeguard the market health and interests of the industry, these contents are the most important work of industry associations.
In the West, the work of industry self-regulation is mainly done by trade unions. In the West, the big guild is very powerful. If an enterprise does not listen to the guild, it will not be able to gain a foothold. The guild is to safeguard the interests of the whole industry. We should also give full play to the leading role of trade associations and strengthen industry self-discipline.
Competitors are often in a "prisoner's dilemma" when fighting price wars. We do not meet, mutual suspicion, so blind price reduction, this time how to do? Small enterprises should follow the big enterprises and not become price destroyers.
In 2009, the cement industry held the "Conch Forum" in Wuhu, Anhui Province. I made a speech at the meeting, saying that "the interests of the industry are higher than interests of the enterprise, and the interests of the enterprise are bred in the interests of the industry." "There are no eggs under the nest." People say that Song Zong is too idealistic. We have to fight another bloody battle, eliminate a number of enterprises, and then raise prices. I said that the war should be over, because you have been fighting for 30 years. In these 30 years, enterprises are not fighting less and less, but fighting more and more. It is impossible to rely solely on fighting. Albert, the CEO of
Ireland's CRH, one of the world's top 500 cement companies, once told me that it would take about 40 years for the cement industry to be completely benign according to the way of war. I said, are you willing to fight for another 40 years? So I say that the industry must be self-disciplined, in which the association should play an important role.
Fourth, increase the "going out" of enterprises.
Under the new development pattern of double-cycle, on the one hand, enterprises should strive to develop and cultivate the domestic market, on the other hand, they should actively lay out overseas.
Now there is a saying that "if you don't go to sea, you will be out". The main background is the rise of international trade protectionism, the failure of WTO, the obstruction of China's manufacturing industry, and the need for Chinese enterprises to go to sea to avoid taxes. The United States adds 100% tax to our cars, Europe adds 35% tax, and Indonesia adds 200% tax to a garment. Today, trade protectionism has become a reality. Then there is the overcapacity in China and the serious involution of the market. In this context, China is the world's factory, a lot of production capacity is built on the basis of global consumption, so part of our production capacity has to go out. Therefore, this sea is somewhat forced and forced. But that's not necessarily a bad thing.
Looking back on the process of "going out" in the past 100 years, at the beginning, the Hakka people in Guangdong waited until San Francisco in the United States to open gold mines and build railways, including the laborers and coolies who went to Southeast Asia to "go out". Later, he began to open restaurants, laundries, and then trade. In 2013, China's "the Belt and Road" initiative pointed out the right direction for Chinese enterprises to "go out" and laid a solid foundation. On the one hand, most of the countries along the line are continuing to promote urbanization and industrialization, and we can benefit from these growing markets; on the other hand, we can enter the US and European markets, and also pull the domestic industrial chain and supply chain. Now we are going out with capital, technology, equipment, brand, management and so on, mainly private enterprises and manufacturing industries.
Recently, I met Ding Liguo, chairman of Delong Iron and Steel Co., Ltd. He invested 5 billion US dollars to build a 7 million tons steel mill in Indonesia, which is the largest steel mill in Southeast Asia. The steel market in Indonesia and Southeast Asia is good. At the same time, Indonesia has abundant resources for the development of steel industry, and the steel mill has the advantage of shipping in the port. Exemption from 25% export duty. Ding Dong told me that 30% of the output of this steel mill is sold in Indonesia, and 70% is shipped to the world through ports, with good benefits. I said why not sell it all in Indonesia?
It can be said that China is in the process of changing from "China is the world's factory" to "the world is China's factory", from "China sells the world" to "the world sells the world", from GDP to GNP. The problems to be studied and paid attention to in
this round of going to sea are as follows: First, we should sum up the experience and lessons of going out in the past and going to sea recently, so as to go to sea steadily, and we should investigate first and invest later. Second, to go to sea, we should deal with the double-cycle relationship, do a good job in the domestic market, keep R & D and key technologies in China, attach importance to the mode of main engine going to sea to drive the export of domestic intermediate products, and do a good job in the double-cycle. Third, Chinese enterprises should go to sea in groups, large enterprises with small enterprises, main engine factories with supporting factories, and government enterprises should invest in China's industrial parks to create conditions for Chinese enterprises to go to sea. Fourth, it is necessary to go out according to local conditions, choose to build factories according to the conditions of the host countries, pay attention to the different conditions of Southeast Asia, the Middle East, Southeast Africa, and other major regions, and pay special attention to choosing friendly countries. Fifth, we should pay attention to integrating into the local society, and actively cooperate with multinational corporations to create a good environment so that we can really go in. Sixth, we should pay attention to and guard against risks (political risks, policy risks, legal risks, exchange rate risks, security risks). When we are away from home, we should have more eyes and minds, and focus on personal and property safety.
Fifth, from the Red Sea to the Blue Sea. Which kind of product makes money in
a market, people often rush headlong into mass action, the competition for ordinary goods is fierce, and they usually take the low-cost route. But if there is not such a large scale, enterprises should change their competitive thinking in the Red Sea, realize value innovation through differentiation, subdivision, high-end, branding and so on, create new competitive advantages, get rid of the Red Sea and enter the Blue Sea. The scale
of Xianggang in the steel mill is not large, neither coke, iron ore, nor even the advantages of the seaport, how can such an enterprise survive? The other is silicon steel sheet, which is now used in a large amount of energy storage. Xianggang earns a profit of 16-17 billion yuan a year, second only to Baosteel.
In the glass industry, the demand for building glass is the largest, but the price of building glass is so high that it can hardly make money these years. Cao Dewang's Fuyao Glass only makes automobile glass. In fact, Fuyao Glass had all kinds of business, such as small department stores, gas stations and construction teams. Later, under the guidance of a Hong Kong consulting company, it sold all the others and concentrated on making automobile glass. Now its market share of automobile glass is over 30% in the world and more than 60% in China. Last year, it made a profit of 5.6 billion yuan. It has become the leading enterprise in the field of subdivision.
Voice is the fifth largest mobile phone manufacturer in the world, selling more than 94 million smartphones in 2023, with annual revenue exceeding 62.3 billion yuan and net profit exceeding 5 billion yuan, achieving a net profit growth of more than 100%. It accounts for more than 40% of the African market by virtue of its extreme localization and high cost performance, but its products are not sold in China. Now it is going out of Africa and trying to open up markets in South Asia, Southeast Asia and Latin America.
Market segmentation is very important, not only for large companies, but also for small and medium-sized enterprises. Segmentation can increase added value, and drive from the Red Sea of competition for ordinary goods to the Blue Sea of non-competition. For example, French bread is well made, and there are more than 100 kinds of French flour. For example, Japanese cement is well made, and there are more than 100 kinds of Japanese special cement; Like China's Haitian flavor industry soy sauce is well done, Haitian's soy sauce has also achieved 100 kinds, adults and children eat, stir-frying and seafood are different soy sauce.
How to price
reasonably as the main body of the market, enterprises to achieve development, profit is the first goal, is the foundation.
Profit = sales volume X price-cost. This formula is common sense, but we often make common sense mistakes. Many enterprises feel that the price is determined by the market, is objective, enterprises can only adapt, and reduce costs and increase sales as the main means of competition. This is also the deep-seated reason for the emergence of industry involution, and some enterprises even reduce prices indefinitely in order to seize market share. In fact, the price elasticity of many products is very small, and price reduction will not necessarily increase sales and market share. Low price means no profit, and no profit may also affect the value of the enterprise, bringing a series of problems.
On September 23, I had a conversation with Mr. Herman Simon, who first wrote a book called "Invisible Champions", then wrote a book called "Pricing to Win", and recently published a new book called "Real Profits". He is an expert in pricing and has conducted price consultation for more than 10000 enterprises around the world.
In his book Pricing to Win, he points out that if a product is reduced by 20%, the profit of the enterprise will be reduced by 15%, and if the price is reduced by 10%, the profit of the enterprise will be reduced by 50%. The impact of pricing on profit is a tenfold relationship, while the cost is a sixfold relationship and the sales volume is a fourfold relationship. Therefore, price is the lifeline of enterprises, which must be taken seriously and reasonably priced. Mr. Kaz
uo Inamori put forward in his book "Twelve Rules of Management" that pricing is management, and pricing is life and death. Pricing should not be determined by salespeople, but by business leaders. Salesman pricing is very simple, the first is to reduce the price, the second is to credit, but if the price is reduced, there will be no profit, and the cash flow on credit will be cut off.
In the past, after the consolidation of China's cement industry, an important task was to maintain the price of cement. Price is the most important thing for us. Therefore, at the business meeting of China Building Materials Group, 50% of the time is spent on price and other business issues, and 50% is used for internal management.At that time, the price of cement was relatively stable, and the enterprise also made a lot of profits. The
well-known pricing concept is "volume, cost and profit", which is effective in the shortage economy, as long as more sales can reduce the unit fixed cost and make profits, but in the case of excess, you can not release the volume, because you release the volume, the other side also releases, retaliating against each other. The relationship between production and marketing has not changed, but the price has dropped for a round, and finally the whole industry has lost money, which is the current situation.
For example, the unit cost of selling 200,000 cars is lower than that of selling 100,000 cars, and profits can be made. However, under the condition of surplus economy, producing 100,000 cars can be sold, but producing 200,000 cars, there are 100,000 cars that can not be sold. Not only has it not really reduced the fixed cost of each product, it will also occupy a large amount of liquidity. We advocate "price, cost and profit"-stabilizing price, guaranteeing quantity and reducing cost. It is possible to maintain the balance of supply and demand in the regional market by guaranteeing the quantity and reducing the quantity appropriately. Around how to change from quantity, cost and profit to price, there are also detailed explanations in Effective Operators.
Although we have talked about these principles, how can we verify them? This opportunity is the power rationing in Zhejiang and Jiangsu. Due to the shortage of power supply and the need for energy conservation and environmental protection, the local government controls the power consumption of industrial enterprises in stages and batches, including cement enterprises. At the beginning, many cement enterprises went to the power Bureau to plead for mercy, saying that we must not pull the brake. Later, they found that after pulling the brake to limit electricity, the price of cement had risen by more than 100 yuan per ton because of "misfortune". Although they produced less, they made a lot more money. This incident reminds us that in the past, competition was focused on "quantity", and prices kept falling, so that enterprises could not make money. Now that prices have been reduced, people have made a lot of money. It can be seen that the main contradiction in the industry is price, not quantity.
Today, our enterprises should realize that the cost is rigid, and the marginal utility is diminishing, enterprises can not always reduce costs, to a certain extent, to reduce costs must be at the expense of quality. Enterprises have stable prices, earn reasonable profits, and thus continue to make profits, which is the basis for the healthy operation and development of enterprises.
