BACK
Wang Zheng, Reporter of Capital Shanghai
Changes are always there with time passing by
At the very beginning, Shanghai East Best Foreign Trade Co., Ltd. (SEBFTC) was only a small company with registered capital of 10 million yuan to compete with the various major and professional foreign trade companies. It strived to survive alongside with the various powers. However, after ten years’ hard work, the said company has become the largest single foreign trade enterprise among Shanghai’s SOEs and state-holding enterprises in terms of trade volume, with its annual import and export trade volume registering USD1.1 billion.
SEBFTC has really stood out and become the focus of the market.
In fact, it’s not so easy for a foreign trade company to operate successfully for over ten years, for this industry relies to a great extent on the undulating market changes and policy adjustments. Fierce horizontal competition is always there to challenge every single foreign trade company.
According to the investigation of Capital Shanghai, the rise of SEBFTC is due to two factors. The first is when it was founded, it had definite and clear-cut strategic position, staggered its business with the professional foreign trade companies and specialized in intermediary business. The second is the shareholding ratio of its management team reaches 50 percent and the net profit is shared annually by them according to the shareholding ratio. Therefore, its consciousness of internal control and motive power to develop the market far exceed those in the traditional SOEs.
Shanghai East Best Foreign Trade Co., Ltd. (SEBFTC) was born out of Shanghai Foreign Trade and Industry Company, a subsidiary of Shanghai Municipal Bureau of Foreign Economic Relations and Trade. In 1998, the company was subordinated to East Best Group. At that time, its yearly trade volume recorded USD200 million.
2003， a year of SOEs restruction, was a turning point for SEBFTC. Sun Dunming stated, “Some real estate, shares, debts and credits of the previous Foreign Trade Industrial Company were stripped to the Group, and only the foreign trade business was restructured. As foreign trade business belongs to light asset, what the company relied on was almost totally human capital. In a sense, SEBFTC is a completely newly-established company.”
The company was founded with an investment ratio of 50:50, namely, the foreign trade team of the company contributed 5 million yuan and East Best Group invested 5 million yuan.
The change in mechanism proves to be a key factor.
Focus on Intermediary Business
Actually, the export sales team was not optimistic about the future of the company.
“The sales team was made up of 60 people, of which only 50 were shareholders on the basis of voluntariness. They didn’t think the company would soon prosper because the scale of the company was too small, the market was almost split by the professional foreign trade companies and new comers would undoubtedly experience hardships,” Sun Dunming said.
The professional foreign trade companies at that time occupied most of the market and they had powerful sales teams, factories and customer resources. The newly-established SEBFTC nearly had no base to rely on.
“I could only find a new path,” Sun Dunming said.
Their path was to distinguish itself from the professional foreign trade companies, by specializing in provision of intermediary business.
“The operation mode of professional foreign trade companies is, simply to say, to look for clients, find the manufacturing enterprises to generate products, transport the products to overseas markets and then retrieve the payments of goods. At that time, the foreign trade companies had great discourse power, and the manufacturers had no external channels, so the products had to be exported through foreign trade companies, which acted as wholesalers to buy goods from manufacturers and resell them to the overseas markets. The intermediary profit was about 10 per cent,” Sun Dunming told us.
There were manufacturers at that time taking the initiative to approach the clients andnegotiating about prices, but such companies were few, plus they were not familiar with the foreign trade channels, so most of them relied on the foreign trade companies.
Just then, SEBFTC believed that more and more manufacturers would initiatively look for overseas clients in the future. “After all, direct business between the manufacturers and the overseas clients would result in omission of intermediary links and greater profit. The only technical barrier was they were not familiar with the foreign trade channel and service, but we could provide such professional intermediary business,” Sun Dunming said.
The so-called foreign trade channel includes customs declaration, commodity inspection, taxation, foreign exchange settlement and sale, logistics, cabin application and arrangement, payment reception and so on. But SEBFTC declared at the customs in the name of itself instead of the manufacturing companies. The risk of such practice is the possible emergence of false trading and tax deception.
The profit from that operation is about one per cent.
“The profit of each order is less than that of professional foreign trade companies, but thanks to the transformation of Chinese economy, the business volume began to increase sharply,” Sun Dunming stated.
However, the professional foreign trade companies begin to transform actively and their business compositions begin to change. “The self-run business, namely the traditional import & export business accounts for only 30 percent while the provision of intermediary service accounts for 70 per cent.”
The differentiation competition field SEBFTC has chosen is disappearing.
But Sun Dunming is very confident about this.
Lack of Full-time Managers
“We stress service features and customized service, and we are more powerful in our flexibility in implementation capacity,” Sun Dunming stated confidentially.
In other words, the operation efficiency of SEBFTC is relatively higher.
“Presently, many foreign trade companies aim at intermediary service, but in fact, the professional abilities do vary. We have accumulated 10 years of experience, which is impeccable,” Sun Dunming said.
Foreign trade import and export business looks simple but complicated in the real life.
Taking processing with supplied materials for example in the garments industry. If a company imports woolens for making 1,000 business suits, then when the export time comes, the customs will examine and verify how much material it has imported, how much it has processed and how much it is exporting. Because imported goods are not subject to tax increase when being exported, and some foreign trade companies will present unclear data due to mistakes at customs declaration or other links. The customs will think that there is surplus material flowing into hinterland and will levy tax.
But the policies for garments trade and that of machinery and chemicals are not the same. In addition, foreign trade policies alter frequently, so the foreign trade companies need to study the policies and give guidance to the clients, like the tax reimbursement policy and foreign exchange policy.
The performance of foreign trade companies depends on their operation abilities.
According to the knowledge of Capital Shanghai, the internal organization framework of SEBFTC is quite distinctive, which greatly helps improve its operation efficiency.
Pan Wei is Vice General Manager of SEBFTC, and she is also Manager of the company’s First Business Section and Education Chief of the company to be in charge of training.
“Such things are numerous. If some employees are outstanding in business, the company will offer them more posts to popularize their useful experiences,” Sun Dunming said.
He explained the reason for such organization framework. In a foreign trade company, the market expansion capacity of the sales team is very strong, while the management relatively weak, which must be strengthened.
That is why SEBFTC has 10 directors to manage internal operation, internal sales and staff education and so on. Directors can transfer staff members from the various business departments to form management teams.
Take the First Business Section where Pan Wei works for example, as its financial settlement management towards the salespersons is superior over other sections, Pan will train managers of other business sections to popularize its management mode.
“The cost, benefit and outlay of each business need to be estimated in advance. Plans for each business are necessary, including employing either pre-settlements or delayed settlements so that the salespeople are aware of their own earnings. It’s not like the package settlement practiced in the enterprise’s finance department,” Pan Wei stated.
Hence Pan Wei will introduce her useful practice to other business sections at the training class.
In such organization framework, SEBFTC almost has no full-time managers, but most excellent business backbones have their management posts.
In the eyes of Sun Dunming, the organization framework of the company is multi-purposed. “At first, many full-time management departments have been streamlined, which reduces unnecessary management cost. In addition, communication between departments has been enhanced. In a traditional foreign trade company, communication is less frequent between departments andeven salespersons in the same department. But information exchange is crucial to salespersons. And the most important is such framework helps cultivate the leadership and organizational skills of the working team, because these managerial personnel have no administrative relations with their subordinate teams, and how to maintain management relies on management skills and flexible measures. Furthermore, most managers are the front-line employees, whose ideas always tend to be practical and easy to operate.
Such organization framework makes the company unique and attractive.
Transformation of Business Model
In fact, what’s more special is although these business backbones hold several posts simultaneously, their income comes from business commission. Therefore, Pan Wei, Vice General Manager and Education Chief of the company, still has to improve her income by developing her business.
For the commission of the salespersons, SEBFTC’s rule is each salesperson’s commission occupies 20 to 30 per cent of the net profit of every single business. Pan Wei said, the post of Vice General Manager will not bring her too much income, but what she values is the platform and enlarged business space this post provides.
Sun Dunming believes half of the shares on the employees will make them think they are the very owners of the company and good performance is directly related with their benefits.
Under such major premise, the employees understand that management posts are just for a better propect of the company, and make them shareholders of the company. High salary doesn’t come from high managing posts.
According to the knowledge of Capital Shanghai, the shares held by the managers of SEBFTC will be returned to the company when they retire, and the newly-selected business backbones will hold the shares.
“The shareholding system in the future will probably be changed into partnership so that democratic management can be better conducted,” Sun Dunming said.
What he considers at present is how to restructure the existing business model.
Presently, he is developing BPO, a new business model (Business Process Outsourcing, a subset of outsourcing that involves the contracting of part or non-nuclear part of the operations and responsibilities of a specific business process to a third-party service provider).
“Previously, we provided intermediary service, but we still conducted the customs declaration and clearance in the name of a foreign trade enterprise. Presently, more and more manufacturers don’t declare at customs in the name of foreign trade enterprises, but they only want to outsource such import and export process to the foreign trade enterprises, which is currently a trend,” Sun Dunming said.
If it’s only service outsourcing, then SEBFTC will collect some service charge, but will have almost no operation risk.
Sun Dunming’s ambition is to create a powerful e-commerce platform in the future. “E-commerce is coming like a storm and involves great investment, so we must discuss with our major shareholders to decide whether to increase resource investment or not.”
His wish is to create a platform like “Onetouch” under Alibaba. “Onetouch provides the manufacturers with all the necessary one-stop service on the import & export service links in the foreign trade transaction through internet. This will change the operation model of the traditional foreign trade, intensify the distributed resources in the foreign trade transaction service and reduce the transaction cost.”
“Among the three engines to propel the growth of Chinese economy, export is very important and the situation will still be the same in the future. The key for a foreign trade enterprise to develop lies in how to transform its business model and grasp the market opportunity,” Sun Dunming said this with great expectation for a bright future.
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