Liu Jun understood why Shen Huadong shut his mouth. As a manager, the worries you express are often magnified several times when transmitted downward, creating unnecessary panic in the company. He helped Shen Huadong gloss over the issue with several “hahas,” and the two continued discussing cars for a while before parting ways. On the way home, Liu Jun suggested teaching Cui Bingbing how to drive a supercar, but as soon as he brought it up, Cui Bingbing yawned continuously and pretended to sleep, so he had to give up the idea. Cui Bingbing liked supercars, but sitting in the passenger seat watching her husband get in the car and utilize all the supercar’s functions to their fullest, she gained self-awareness, knowing that driving such a supercar would be a waste of resources – at least half the performance would be idly wasted. After thinking it over, she bought an Audi TT that had the appearance of a sports car but lacked the complexity of a supercar. The Audi TT had smooth, cute lines, with a front end that seemed full of tension, quite fitting Cui Bingbing’s seemingly contradictory requirements of being compact yet crash-resistant.
The Donghai No. 1 segment research work finally came to an end. The new machine developed was designated F-1 according to Tengfei’s independent naming system. Although this number was just sequential, it suited Liu Jun’s racing-loving palate. However, products in this series would be numbered sequentially downward, and someday there would inevitably be an F-4, which made everyone shudder when they thought of this designation.
After the Spring Festival, the raw materials market continued last year’s growth trend, with prices showing unbelievable increases. Meanwhile, the RMB exchange rate appreciation against the dollar was all thunder and no rain, rising and falling without effectively offsetting the surge in imported raw materials, causing Tengfei and Tengda’s costs to skyrocket. But the general rule was that finished product price increases were always slower than raw material price increases. In previous years, manufacturers always had to endure some painful profit margin compression during this phase, but this year was very different. This year, raw material price increases were too rapid – often after just one month, prices would be turned upside down, quickly driving up finished product prices, though never as fast as raw materials rose. Various inventories that production enterprises had most feared in the past for tying up working capital have become sources of profit now. Hoarding raw materials and finished products became a sure-profit business – business owners could do nothing but hoard and easily obtain higher profits than working foolishly. The impact of raw material price increases on enterprises wasn’t too painful.
At the same time, demand surged from who knows where. Not only did domestic demand surge, but foreign orders also flew in like snowflakes, seemingly unaffected by RMB appreciation. Liu Jun had been somewhat proud of his own products’ hot sales, but looking left and right, he found that domestic electromechanical products’ exports were all doing well this year. Every time Liu Jun worked overtime until late at night, driving home from the industrial zone, he could always see other electromechanical factories in the industrial zone also working overtime with lights blazing. With guaranteed substantial demand increases, even though profits were squeezed by soaring raw materials and shipping costs, enterprises generally still had much higher profits than in previous years.
Compared to other production enterprises’ prosperity in the industrial zone, Tengfei, which had successfully developed F-1 equipment, was adding fuel to the fire. Because experts ran around shouting due to vested interests, and Song Yunhui strongly supported them, providing opportunities for the first F-1’s successful birth. The industry might be skeptical about experts’ propaganda – China’s independently developed technology had never been well-regarded by its people, often needing foreign institutions’ appreciation and reputation, exported then reimported before becoming popular. No matter how beautifully experts spoke, people wouldn’t pay for expensive new equipment that had never been put into production. But Donghai Group, a company that had always been strict in quality control, using F-1 was an indisputable fact before everyone. Then came evaluations from Donghai Group saying F-1 had advanced technology, reasonable structure, and relatively low prices, thus a first-class cost-performance ratio. Soon, when Luo Qing went door-to-door selling with the related enterprise list Song Yunhui had given, he could easily secure orders with just a little maneuvering. Although F-1’s price was much lower than foreign products, compared to Tengfei’s other products, F-1’s profit margin was quite attractive – so attractive that Liu Jun hardly needed to consider raw materials rising day and night, didn’t need to consider labor costs also rising day and night, didn’t need to consider international exchange rate changes greatly affecting imports and exports.
Moreover, Liu Jun personally entered the field to contact foreign business. His passport allowed him visa-free entry to many countries. Seeing that Luo Qing’s English wasn’t fluent and product introductions were greatly discounted in effectiveness, and that Luo Qing needed complicated visa procedures for each new country, Liu Jun decided to launch the foreign market himself.
Fortunately, the internet had now been developed. All large companies had corporate websites on the internet, unlike the past when you had to search blindly through local embassies and consulates, explore through acquaintances first, with phone calls and faxes going back and forth for many days, going through all sorts of trouble before both sides could connect. Now you could find them through websites, with emails and MSN flying together. You could carry a laptop and use the webcam to point at whatever clients requested, doing live broadcasts anywhere, connecting across thousands of miles – you could almost settle things to the extent of seven or eight out of ten without meeting face to face.
Securing the first business deal proved quite difficult because Liu Jun was trying foreign trade personally for the first time and didn’t understand the procedures, stumbling along. Fortunately, no matter how busy Qian Hongming was, whenever Liu Jun called, he would come online immediately, through wind and rain to listen and provide consultation. With veteran Qian Hongming teaching almost hand-in-hand, and because the two communicated without reservation, Qian Hongming often anticipated many possibilities based on the steps Liu Jun described, using his years of foreign trade experience to prepare Liu Jun comprehensively. Thus, Liu Jun quickly navigated the first round of procedures smoothly, secured the first foreign order, and handed it to Qian Hongming for export agency.
After going through hardships and spending so much time, finally negotiating one deal, the results were far inferior to Luo Qing’s domestic sales. When Liu Jun told Luo Qing about the successful negotiation, he couldn’t help but laugh embarrassedly. But this export business was a milestone for Tengfei – it was Tengfei’s largest export in history. When the letter of credit was taken to the bank, even the old acquaintances at the bank couldn’t help exclaiming “Wow,” saying it was rare.
But although export was troublesome, it had completely different advantages from domestic sales. Once export business was negotiated and the letter of credit was in hand, Tengfei could obtain loans based on the letter of credit even before starting work. Unlike domestic business, even though Tengfei strictly controlled and didn’t allow credit sales, requiring prepayment when contracts were signed and cash on delivery, and often Liu Jun could obtain acceptance bills based on contracts with well-known domestic enterprises, domestic sales still tied up more working capital than exports. More troublesome was that even with contracts in hand and agreements for cash on delivery, some enterprises always had endless troubles, delaying payments. For Tengfei’s pitiful working capital, Liu Jun loved exports to death and naturally ran around with full confidence. He wasn’t satisfied with just the Southeast Asian region Song Yunhui had given him – as long as his passport allowed landing visas or visa-free entry, he confidently went to try all those countries. He became a frequent flyer.
At the same time, learning from past experience, Liu Jun focused intensively on quality control almost every time he returned home, spending half his time at home in the quality inspection department, personally conducting spot checks. His spot checks made workshop supervisors turn green and tremble with fear, not daring to slack off.
With the original business as a foundation, covering all expenses, F-1’s income was pure profit. Liu Jun’s life quickly became comfortable. After half a year, he calculated dividends and also gave all company employees a substantial bonus. Liu Shitang particularly couldn’t understand this aspect. Seeing dividends and bonuses – all this white silver flying out of their hands like snow – Liu Shitang was heartbroken. Couldn’t they settle at year-end instead? But Liu Jun calculated for his father: two factories plus one R&D center – how much were the monthly wages? Many enterprises in the industrial zone paid wages on the 15th or even 20th of each month rather than the conventional 10th. When a business owner shamelessly delayed wages by five or ten days, how much interest was that? But it greatly hurt employees’ loyalty to the company – that was truly penny-wise and pound-foolish. Bonuses and dividends were the same. Holding onto this money until year-end could indeed generate quite a bit of new money through turnover, but why bother? Giving it mid-year was so encouraging – just like in Tengfei’s first year of operation during Spring Festival, they didn’t hold employees’ bonuses until after Spring Festival, yet employees identified with Tengfei even more, with an extraordinarily high return rate after Spring Festival. To truly run an enterprise and win over a group of skilled workers for the long term, what mattered most was winning hearts.
Liu Shitang couldn’t interfere now and could only glumly take another sum of money from his son. He was now doing well in stocks, speaking only stock market jargon, reportedly known as the “stock god” in his circle of friends. He felt that after years of stock trading, he had gained a deep understanding of this business. This year’s stock speculation was divinely assisted – as long as he had money to invest, it would multiply profitably. Liu Jun calculated Tengfei’s accounts for him, saying how good this year’s half-year earnings were. Liu Shitang showed his son his stock gains – with how little capital he started, he had already grown his stock portfolio from the original two million to six or seven million on paper over these years. He thought he was more capable than his son. If he had taken all of Tengfei’s assets to trade stocks back then, calculating proportionally, his current paper portfolio would exceed Tengfei’s current asset scale. This comparison made Liu Jun quite dejected. It wasn’t just his father trading stocks – how many people made money out of thin air, all earning more than his hard work running factories? Right beside him was Qian Hongming, whose assets were already incalculable. Yet he was doing well in the industry, achieving great success. The thought was disheartening.
However, soon the parking lots of the two factories and one R&D center were packed with new cars, overflowing onto the outside of the main gates. This scene almost became a landscape in the industrial zone. Everyone passing by couldn’t help but guess how much money one could make working at this company. The office director told Liu Jun that for the first time in Tengfei’s history, people were using connections to try to get their educated children jobs at Tengfei. This news somewhat soothed Liu Jun’s dejection.
Two busy men, Qian Hongming and Liu Jun, finally had rare time to get together. Four adults from two families, plus two children, sat in a private dining room for a meal. The private room was booked by Cui Bingbing, with a minimum consumption of 800 yuan per person. Qian Hongming said upon entering that he would pay today. Cui Bingbing didn’t refuse at all, making Qian Hongming take off his cufflinks, take out his pen, and remove his watch for her to admire as soon as he entered. Qian Hongming smilingly complied with everything. Later, Qian Hongming said to Liu Jun, “You’ve had a lot of exports recently. I checked your company’s accounts today – the total is astonishing.”
“Quite good, really quite good. Foreign products of the same type want to compete with me on price, but how can they compete with us? No matter how high Tengfei’s wages are here, there’s still a huge gap compared to them. Mr. Song told me that once my F-1 came out, it drove down prices of other supporting equipment on the production line, so immediately and effectively. Domestic promotion of our products still has some minor troubles. Some people using state money don’t look at the product itself. Export sales are much easier for me. I’m slowly building a reputation and developing a series. I believe it will get smoother and smoother.”
Qian Hongming laughed: “I just asked how much, and you gave me a whole spiel – obviously really pleased. Back when you were still in the exploration stage, you really looked worried and gloomy, couldn’t get a word out with three beatings, haha. Congratulations, congratulations. One small question – how long can this product sustain you?”
“Not long. We’ve now put Tengfei in an international competitive environment, competing with mature international giants for market share. How could those enterprises currently defeated by us possibly give up this market? They’ll consider relocating factories to places with cheap labor to produce cost-effective equipment to compete with me. Our R&D center never stops – we’re already starting to develop upgraded versions.”
“Running factories…” Qian Hongming shook his head. “At least compared to many industries, factory profit levels are relatively low.”
“Don’t bring this up with me now. I just got dejected by my stock godfather – I need comfort and encouragement.”
“I see you’ve also been importing large quantities of raw materials recently. Are you unmoved by these almost straight-line rising resource prices? Have you considered hedging through futures markets? Don’t tell me you’ve forgotten those operations.”
“My main imports are steel and motors. Our country doesn’t have steel futures. Copper isn’t much, though I have considered it.”
“Since you’ve considered it, let me enlighten you. Let me tell you how an electrical appliance factory works with me on copper. It’s very simple for them – they just need to open letters of credit for imported copper materials. I handle everything else, and finally, I give them fees determined by proportions based on the letter of credit amounts.”
“Why go around in such big circles? To put it, it’s what you told me before – your ability to open letters of credit is limited, so you hope other companies will open them for you to operate, with other companies taking agency fees.”
Qian Hongming laughed when he heard this: “Haha, looks like you haven’t just ‘considered’ it. How about it? Will you do it? What percentage of margin do you need to put up now to open letters of credit?”