Chairman Wang Jianlin talks about enterprise values at 2016 China Brand Forum

Enterprise Values
Chairman Wang Jianlin’s Speech at the 2016 China Brand Forum
November 8, 2016

Dear President Yang, distinguished leaders and guests, this is my second time to attend the China Brand Forum. My last speech focused on understanding brands, but today the focus is on enterprise values. It can be said that the enterprise and the brand are in keeping with one another. The brand is the enterprise. Despite the enterprise and the brand appearing to be the same, there are some differences, therefore, I am here today to specifically talk about enterprise values.

There are more than one thousand enterprises in China, with billions throughout the world. Companies have come and gone for the past thousand years, endlessly registering and deregistering. Why do people want to establish an enterprise? This is a question worth thinking about. I believe establishing an enterprise is for nothing more than the pursuit of money. An enterprise may have values, but what exactly are these values? Due to time restrictions, I will simply discuss two points:

1. Enterprise Existence Values

An enterprise has registered to engage in production and management activities. To do so, it has to provide a product. This product can either be a tangible product, or an intangible service, but in short it must provide a product. For an enterprise to exist, it must have set values, and these must be reasonable. What are reasonable values? There are two points to this. One is that its products are certified. Hegel argued that all that is real is reasonable, but the existence of some enterprises could be a harm to society. If it produces uncertified products, counterfeit and substandard goods, then it is not reasonable. It does not necessarily have existence values, so it must first produce certified products. Two is that the enterprise must have a profit. It can be said that it is wrong if it does not make money. An entrepreneur must make money for the company, and if he does not, the company will experience negative profits and continue to rely on shareholder’s investments. Such a company will not only cease to exist, but is also a huge waste on social resources. For a relatively long time in the past, there was a strange phenomenon in that some enterprises were not making money and were relying on continued investment from shareholders. These enterprises, however, could still grow very large and receive a high estimated value. Many of these enterprises that were not making money were still able to get on the market, and still continue to exist to this day. This is unreasonable.

2. Enterprise Market Values

Enterprises are valuable. Evaluation standards are diverse, and all kinds of evaluation systems exist, but the most central is the market value, which is the market’s evaluation and assessment of the enterprise. It is divided into two aspects: a good understanding of public companies, and that the enterprise value is the market value. How much the stocks are worth, if they rise or fall, in the vast majority of cases are a reasonable evaluation of the company’s profits, and existence and development goals. Naturally, there are a few other enterprises which have raised their stock prices by playing banker, but overall for public companies, the market value is the most reasonable method for evaluation of the enterprise value.

Do private companies have any value? If they are not on the market, what can we call the market value? Private companies that are not on the market still have a market value. Where can we see the market value? One, it can be seen in a person investing in your company, or willing to invest. Nowadays, many private companies are continually being purchased. Create a good business model, create a good product, be purchased by someone, or not be purchased, and continue to invest. Angel Fund, private funds, and many other various funds exist as such. If someone is willing to invest in you, or if the bank is willing to lend you money, this proves the enterprise has a reasonable market value. Therefore, central to the enterprise value is the market value. Two, the market value can be seen within the enterprise value, and the sales volume does not represent value orientation. Some unreasonable value orientation exists in the market nowadays, that is, enterprises are not pursuing profit and market value, but are simply pursuing sales volume. Fortune magazine has a list, the name of which cannot be translated into Chinese very well. It is called the Strongest 500. But this is wrong. In fact, what Fortune magazine publishes is the total revenue, and so it should be called the Biggest 500. There is a connection between these words ‘big’ and ‘strong’, but it is not a causal relationship. ‘Big’ does not necessarily mean ‘strong’. I want to make the most common example. Over ten years ago, the sales of number seven in the Fortune 500 already exceeded $100 billion of American Enron Corporation. However, financial fraud was revealed and this company turned bankrupt within three months. A company with $100 billion dollars in revenue, when faced with a small crisis went bankrupt within half a year. Therefore, sales revenue cannot act as a guide for an enterprise value. If an income of 10 billion generates a profit of 100 million, and an income of 1 billion generates a profit of 100 million, which company is more valuable? Obviously the latter is more valuable because the income is small but the profit is high, meaning that the profit margin for this company is higher. If a company has a high profit margin, this means the company’s products are very competitive. As soon as the company maintains a constant profit margin, and the income increases, the profit also increases. This is different to enterprises nowadays, in that it is wrong for them to stress how much their income is. I do not believe in using sales income as a value orientation. This is consistent with that promoted by the current General Secretary in that GDP should not be used as a major government pursuit. Enterprises should pursue values. Naturally central to this is the pursuit of profit, but this also includes product innovation and so on.

3. The social value of an enterprise

Enterprise value comprises multiple levels. Earlier on, I had discussed existence value and market value. However, the highest level that an enterprise aspires to, or put another way, of enterprise development, is social value. Social value, in turn, comprises three areas: First, the development goals of an enterprise are consistent with that of the people, the government and society. The development direction that an enterprise takes should be in line with societal goals. For instance, if society is actively advocating environmental protection at this time, then the enterprise should develop products related to environmental protection, and should, to the largest extent possible, reduce pollution on the environment. If increasing people's income is being advocated currently, then the development direction of the enterprise should be to increase the income of employees and to share its results with its employees, among others.  In summary, the goals and values of an enterprise should be aligned with that of society.

Second, the profit appeal of an enterprise is consistent with that of the people and the government. The pursuit of profit is expected of an enterprise, but how is this carried out? Your profit, the source of your profit, or your profit objective must dovetail with the objectives of the people and the government. If the objectives of the three stakeholders are aligned, then the enterprise's pursuit of profit is