The Story behind Hundred Billion XCMG

    In the past 2012, XCMG officially launched its divisional organization reform while the annual revenue incredibly achieving one hundred billion. What a surprise will this “Titanic” that is driving to the deep sea of machine industry bring to people? As the saying goes, it is not easy for a giant ship to change direction, so people are wondering what effect XCMG will achieve after this reform. What unknown stories hide behind the hundred billion XCMG?
　　With this question, we interviewed Wang Min, Chairman and Party Secretary of XCMG. His office is on the 7th floor of the new headquarters, on 26th Tuolanshan Road, Xuzhou Economic Development Zone, Jiangsu province. Wang seemed not to attach much importance to what XCMG has achieved. Instead, looking at the lake outside the window, he said, “all the changes we make now are for the future of XCMG.”
There is no doubt that Mr. Wang who leads China’s largest construction machinery corporation holds the passion kept by an excellent entrepreneur, despite of experiencing dramatic changes since the new century. More importantly, he becomes much calmer to the enterprise management and development.
On Jan 18th, 2013, as the first reporter of chairman office in the new headquarter, I have a second chance to have a conversation with such a great industry leader, from whom I hear how XCMG realize one hundred billion of turnover and how it maps out strategies for more ambitious objectives.
　　After 60 years of industry growth, China construction machinery finally bears a corporation with hundred billion of revenue. Despite that so many people are attracted by some other counterparts within this industry in 2012, the award was owned by XCMG-the largest construction machinery manufacture in China for 24 years.
　　In the past 2012, the machinery market kept downturn, and many complex situations occurred. It can be said that any change would not beyond expectation. Nevertheless, much to our surprise, China’s first true hundred-billion enterprise among construction machinery was born in such tumultuous market conditions.
　　Chairman Wang didn’t feel too pleased for the great breakthrough. “It is just a beginning of ‘the 12th Five-year-plan’, he said.
XCMG began the adjustment of enterprise organization in order to fully achieve the strategic goal of “the 12th Five-year-plan” and better realize the corporation vision. One of the top ten news of XCMG in 2012 reads that “Hanfeng Plan” would be launched to lay foundation for the strategic goal of three hundred billion of annual revenue, and global top three construction machinery manufacture. After one year, the biggest highlight of this plan bursts into people’s eyes.

 “Hanfeng Plan” winning initiatory success
        A piece of headline news with only about 150 words was published in the 311st issue of XCMG on Dec. 15th, 2012. But from this short news, we know that it is a heavy bombshell-XCMG Organizes Scraper Machinery Division and Road Machinery Division, which signifies the divisional organization reform is officially launched. 
      According to the reform, XCMG is divided into two parts: Scraper Machinery Division composed of loader & spare parts trading and Xuzhou Xugong Special Construction Machinery Co., Ltd; Road Machinery Division composed of roller & paver trading and Xuzhou Xugong Road Construction Machinery Co., Ltd. Obviously, this integration makes XCMG product line more adaptable to the market requirement, which favors each trading department focusing more on its users’ common demand. It’s also beneficial to the business development of complete equipment and enhances the ability to provide comprehensive solutions to users. 
        Wang explained in detail the new organization structure about machinery business sector. “XCMG builds a “5+4” division in terms of construction machinery business sector, namely 5 main machinery divisions, including hoisting machinery, scraping machinery, road machinery, concrete machinery and excavating machinery, and 4 business platforms which offer support for enterprise group, including R&D platform, supply chain platform, marketing and service platform, as well as financial service platform.”
Actually, hoisting machinery business sector is the earliest one to carry out reorganization. Truck crane, fire truck, crawler crane and tower crane of Xugong Heavy-duty Machinery Co., Ltd are integrated into hoisting machinery division. At present, organizational structure of this sector has not been made public, but actual business has been done, and many business processes have been in operation as divisional system. Official release is just a matter of time. 
        Concrete pump truck, with concrete mixing plant, and agitator truck will be combined into new concrete machinery division. “XCMG concrete machinery once missed the chance to develop.” said Wang Min. It is true since previously XCMG’s product line was classified according to technical similarity and many mechanical products are adapted on basis of chassis added with different accessories, so concrete machinery was subordinated to Xugong Heavy-duty Machinery. However, there exist significant differences in manufacturing process between concrete machinery and heavy-duty machinery, moreover, their markets are quite different. Mr. Wang Min points out that currently, with the successful reorganization of business structure and acquisition of SCHWING, XCMG, Zoomlion Heavy Industry, and Sany Heavy Industry form the Three Kingdoms” situation in terms of concrete machinery, which concerns not only China, but also the world. 
        The development of XCMG excavating machinery had been constrained for a long time. Since released from the constraint in 2009, XCMG has continually increased investment to this sector which will be one of the five important main machinery divisions. 
        “The biggest benefit of divisional organization is that each trading department can focus more on its own business”, said Wang. “This system has been tested by many enterprises in their practice. What is most needed to solve for current XCMG is specialized issue, and the group should provide greater support for these divisions.”
        Marketing division will play a rule of service and management. The main function of marketing companies is to provide support to other divisions, more specifically, one is creating XCMG’s overall image and the other is collaborating on marketing and sales.
Financial service platform integrates the businesses of financial settlement, capital lease and financial lease, which can be called XCMG’s nerve center since all financial services are dealt with here and it greatly facilitate the needs of all business platforms.
　　Nevertheless, we should see that the present “5+4” framework is just a beginning although the truck business industrial base has been founded and the project of Qian’an mining machine base has been around the corner.

Staying calm in face of complex situations
       People are wondering why XCMG integrates more than a dozen subsidiaries into the existing divisions and what the extreme reform is for. 
       “I can hear certain enterprises speeding their steps”, said Wang. This is his answer to the above question. 
       “Certain enterprises” Wang mentioned here is the competitors. After carefully observing the annual revenue of all construction machinery manufactures in China, it is easy to find that Zoomlion Heavy Industry and Sany Group are two lions of Changcha which make XCMG feel stressed. 
       In 2011, the revenue income of XCMG firstly exceeded RMB 80 billion, reaching 87 billion. There are three corporations with more than RMB 80 billion of business earnings in China in the same year. The other two are Zoomlion and Sany, whose annual revenues are 84.8 and 80.2 billion respectively.
In terms of absolute number, the two groups didn’t overtake XCMG. However, “a few billions matters little relative to the large number of 80 billion”, said Wang. Instead of emphasizing much on XCMG’s leading position in revenue income, he is obsessed by various crises. 
       Apart from the ambitious competition from Zoomlion and Sany, other enterprises within the industry are wondering what this rat race will be like. In 2012, the competition among the three giants became extremely furious, and we can find in many released reports that all of them consider themselves as No. 1 in China’s construction machinery industry. 
       Additionally, Zoomlion and Sany won a lot of spotlights in 2012. Their chairmen Zhan Chunxin and Liang Wengen were awarded “Economy Person of the year 2011” and “Economy Person of the year 2012” respectively. The competition between them also involves other aspects, such as product tonnage fight, Sany relocation, and other affairs. It can be said from above that what they are striving for is the No. 1 throne among China’s construction machinery industry. 
       Different from Zoomlion and Sany, XCMG was regularly announcing investment and reform plan in the past year, but it didn’t draw people’s attraction. Nevertheless, at the end of last year, much too people’s surprise, XCMG delivered a turnover exceeding RMB 100 billion.
       “We must admit that competitors are developing so fast. I said in an internal meeting that our rivals had made their extreme effort, and if we did not speed up, the No. 1 position would be surrendered,” said Wang Min. “Now, we have to strengthen our power.”

Breaking shackles to carry out reform
        We can find out from the development pace that XCMG has been preparing for a tremendous reform since 2010. The launch of division reorganization in 2012 signifies that this titanic began to transform. 
        Yet, there are someone questioning whether the reform and reorganization are too late. For this doubt, Wang gave his answer. He said actually, XCMG’s restructuring has been come up with for a long time, and the reason why it is put into practice in recent time is there were two shackles before 2012. One was in 2005 and the other was in 1994.
The shackle of 2005 was due to XCMG’s first trial reform in the new century, namely the well-known incident---America hedge fund Carlyle’s unsuccessful merge to XCMG. 
        On 23rd, July 2008, the shackle was broken. XCMG and Carlyle Group jointly announced the relevant agreements concerning Carlyle being a shareholder of XCMG had passed expiry date and both parties decided to put an end to the cooperation on the project. XCMG would conduct restructuring independently. Thus, during those days before that, XCMG, like a trapped lion, could not realize the desire of reorganization.
        The other shackle owed to history cause. In October 1994, XCMG and Caterpillar (China) Investment Co. funded USD 38 million together for Caterpillar (Xuzhou) Co., Ltd, which majors in hydraulic excavator, crawler dozer, earth moving machinery, and other construction machinery products and parts. This matter was regarded as one of the most influential joint venture in the history of China’s construction machinery at that time since CAT is in the world’s largest machinery manufacture and XCMG is China’s largest one. However, additional conditions of this cooperation constrain the development of XCMG as according to the agreement, it cannot independently produce what are produced by the joint venture, so the cooperation was not smooth. At the end of 2008, for the request of CAT, the two sides began to discuss the matter of separation. In 2009, XCMG established Excavator Company to dedicate to R&D and production of mini-excavators. On July 1st of 2010, XCMG transferred 15.87% quoted share of CAT (Xuzhou), which marked that “love affair” lasting for 17 years ended up with separation. 
        The closure of Carlyle event in 2007 broke the shackle that constrains XCMG’s restructuring, and its pulling out of the joint venture with CAT in 2010 laid a foundation for the extension of product line, which is a rare opportunity for the development of XCMG.

God Bless XCMG
        Despite XCMG breaking away from the two shackles, the question whether it is too late to conduct reform still got no answer. For this question, Wang holds that it is quite timely for XCMG to carry out restructuring now and God bless XCMG. 
        In regard to God bless XCMG, Wang explained, “in previous years, the competitors developed in an incredible pace, but the financial crisis unexpectedly brought a valuable “development opportunity’ to XCMG. Financial crisis frustrated the global economy a lot, however, the slowdown it caused to the industry exactly offers time to XCMG”. 
        A few years ago, the construction machinery industry was in full swing, and all enterprises within this field were making extreme effort to invest production. Many groups were competing for expand capacity and building new manufacturing bases, among which some leading ones focused their attention to national wide regions even overseas. Nevertheless, XCMG at that time was trapped by two shackles. According to Wang, “it is exactly the reason why the gap between XCMG and other enterprises was narrowed.” 
        “It must be admitted that this wave of expending capacity resulted in severe industry overcapacity. Numerous enterprises’ new extended capacity has an operating rate of 60% and 40%, and those enterprises which created new bases through stage planning suspended their investment after the first stage project, which are out of prediction of many enterprises. Besides, the newly invested capacity not only caused huge waste, but also occupied a lot of enterprise resources. Luckily, XCMG didn’t launch massive investment during that time. 
        While many enterprises within this industry are worrying about how to control the cost brought by overcapacity, XCMG is considering improving capacity, more specifically, improving high-level manufacturing capacity. XCMG did a right job by taking time cost of capital into consideration, and what it did exactly confirmed an old saying of China-“Better on right time than to be early”.
Therefore, we can learn that XCMG’s reorganization burst of 2012 mentioned above, acting like a big blow, rightly gives the weakest market a heavy hit.

Hard-won hundred billion breakthrough
         "XCMG’s 2012 target is to realize operation revenue of RMB one hundred billion, which is most closely to “12th five-year plan of central enterprises”, said Wang Min. He puts this target under the background of XCMG’s 12th five-year plan when describing the historic breakthrough in terms of operation revenue. This description seems to weaken the significance of the achievement. However, it cannot be ignored that in order to realize substantial growth, the schemes made by XCMG in 2012 are amazing.
The first scheme concerns industrial layout. In 2012, great changes continuously took place regarding XCMG’s layout, such as acquisition of SCHWING, completion of four industrial bases, relocation of the Headquarter, launch of investment in mining machinery and trucks, and etc. 
         The first scheme focuses on creation of R&D platform. Take the new headquarter located on No.26 Tuo Lanshan Road as an example, according to Wang, “although the headquarter building is nice-looking, actually, most of the investment is put into R&D”. It is true that almost the whole headquarter is taken up by XCMG Institute of Technology, in which research institution and labs are dotted closely. In XCMG, you can see more than eighty percent are research staff. 
         The third regards breakthrough of core technology of accessories. With the current declining demand and furious competition, the situation that core accessories of domestic enterprises are controlled by foreign ones is becoming increasingly furious. Thus, core accessory has become one of the most concerned problems for XCMG. In recent years, XCMG’s overseas merger includes other two European component manufactures besides SCHWING. Additionally, it has established engine joint venture together with Doosan, and continuously invested a lot in axles and transmissions. It can be said that XCMG has made great effort to make technology breakthrough in accessories. 
         The fourth relates to deepening international market development. In the past few years, XCMG has repeatedly made killings of overseas large orders, which is envied by many enterprises. Such great breakthrough should owe to XCMG’s on-going attention to overseas market. Admittedly, it is quite natural for XCMG, the earliest domestic enterprise that sets foot on overseas market, to achieve such outstanding success. 
         Another scheme is on constant upgrading of superior products. A lot of XCMG products, including truck crane, roller, paver, grader, aerial fire truck, truck mounted crane, and horizontal directional drilling rig rank first within this industry in terms of sales volume, more importantly, they play a leading role in the development of industry technology. Wang evaluates the traditional business by using the following words. “It is necessary to cultivate new products, but if they cannot keep industry-leading, XCMG’s development will be influenced a lot.”
         The final one concentrates on upgrading of manufacturing technique, especially the completion of four industrial bases, of which the product line is designed according to the world advanced level. In large-tonnage loader base, the 11000-meter-long power & free conveyor can be seen as a microcosm of improvement in technique and efficiency. This is the first worldwide mass-application of automobile industry concept into construction machinery. 
         From the above schemes, we can see that since 2012, XCMG has integrated many sets of “fist positions” into a profound “Kempo” rather than simply mix several “moves”.

How to achieve the next hundred billion? 
       Since XCMG has done hard work in the past more than two decades, and accumulated many industrial and managerial experiences, some people would say that XCMG keeps such sound momentum even in the economic downtown, thus, the second hundred billion target will be surely realized soon according to the current development ideas. 
       Nevertheless, Wang doesn’t approve of this opinion. As for him, the realization of second hundred billion should not rely on the old path; instead, some new ideas must be come up with.
       In the past years, XCMG could find an example for itself, but with the upgrading of scales, the initial benchmark enterprises gradually regard XCMG as a true competitor rather than a junior any longer. Therefore, XCMG is facing unprecedented situation.
For this reason, recent years have seen numerous measures XCMG has taken. Just as Wang expressed, “all these changes are not for the short-term objective of hundred billion, but for the future in the long term.”
According to what Wang said,” Current XCMG is like a Titanic that is driving to the deep sea of machine industry. It must depend on itself. XCMG will surely deepen reform unswervingly to push forward division system so that each division can devote more to its own business sector, and solve problems more efficiently and creatively. 
       Wang said, “I am fortunate that XCMG has an excellent leadership team.” It is true that talents are the foundation for enterprises to conduct operation and strategic decision. In this division restructuring, the reform concept regarding staff is to let everyone try best to develop talents. By doing this, leadership of each division can be offered with more decisions through orderly centralization and decentralization. 
       “XCMG still enjoys great potential, and it has got liberated productive force especially after a series of efficient adjustment and reform,” Wang evaluates XCMG’s new appearance since division restructuring, “the time when plan and index allocation made by groups is now passing, and it is the time that directors of each division ask for the index themselves. Indexes promised by some divisions even beyond of my expectations.” 
       Additionally, hard power needs to be built by XCMG. In earlier days, while chatting with a customer from South America, Wang heard an incredible comment, which says XCMG products possesses are far better working efficiency and fuel saving effect than those of CAT. Wang said, “though it is just a special case, the encouragement brought by this comment is tremendous which shines into a dawn into XCMG’s realization of ‘12th five-year-plan’.

Product Quality Challenging the Future
        Without quality guarantee but only scale growth, how can an enterprise be a national competitive world-class one that makes all Chinese people proud? When the hundred billion target was achieved, Wang Min began to speculate about the gap between the connotative development and corporate vision.
        On December 4th 2012, Mr. Wang Min firstly put forward the development direction of XCMG known as “three focuses” at a conference on corporation operating, namely, focus more on operational quality and efficiency; focus more on system operation efficiency and be more pragmatic; focus more on high product performance and reliability. 
        The core of “three focuses” lies in emphasizing more on the development quality. According to Mr. Wang, so far, XCMG has finished the quantity accumulation, and next it will attach more importance to quality upgrading. In recent years, despite that XCMG has got rapid development, its speed of efficiency improvement has not caught up with the scale growth, which means that “XCMG paid a high price for the quantity accumulation”, Wang said. 
        Actually, besides XCMG, many other enterprises also paid a huge price for too much concern on quantity accumulation drawn by the high industry growth before 2008 and the following development peak because of “the four trillion government policy”. This phenomenon can be observed from their operating data during recent years, notably shown by the fact that profit growth cannot keep pace with that of the revenue income. Neither domestic nor foreign enterprises survived from the wrong path. 
        Since having realized the problem, XCMG will not keep on blindly expending scale. From this point, it is easy for us to understand that almost the whole area of XCMG new headquarter is covered by the research institute apart from the office building as well as the necessary facilities. In a sense, XCMG is strengthening the driving force of technology and taking it as the core power of enterprise development. 
        Wang said, “Enterprise operation must take into account of long-term development. To be a respectable enterprise needs to know more how to win respect”. During the wave of institution reform, what Wang especially concerns about is improving the quality of enterprise management, production and operation besides finding out and solving original problems.

Arduous “12th five-year-plan”
        XCMG’s “12th five-year-plan” strategic objective is to be internationalized, world-class, and with hundred billions of revenue income. “Since it has not been achieved, we cannot relax ourselves. This objective means that one hundred billion is just a beginning, and there is a long way away from the three hundred billion target at the end of “12th five-year-plan”, said Wang. 
        In fact, the above strategic objective was firstly come up with in 2009, the first year of “12th five-year-plan” when XCMG’s operation income was RMB 50 billion. In 2012, this number exceeded 100 billion, which could be called a hundred-billion-class corporation.                 
        However, the breakthrough from 100 billion to 300 billion seems to be another different matter, so how to revise this objective? For this question, Wang gives his answer, “there is no need to change this target, and we need not do any revision on the numbers. Actually, realization of this development objective is a progressive process, and to be a hundred-billion class enterprise is relatively easiest goal to achieve among the three.” 
        Despite that XCMG is the easiest also the most successful one to launch internationalization among China’s construction machinery enterprises, Wang does not think that it has achieved this goal. As for him, at present, in the overseas market, what Chinese enterprises just build are small bases which haven’t formed a line, not to mention the facet. For example, the fact that XCMG products wins approve from many Africa countries doesn’t mean that it has already integrated into one unit. On contrary, each market in Africa is relatively isolated with each other. 
        In 2011, the operation revenue of XCMG reached RMB 87 billion, which leaped to the top five in global construction machinery industry. Nevertheless, Wang still did not think the goal of being world-class had been realized. According to him, although XCMG products have been approved by South America and Middle East, things are not optimistic in Europe and America. 
        The purpose of acquiring SCHWING is to regard it as a diving board to gradually push all XCMG products into European market.
        “We still have a long way to go”, said Wang, the great leader of XCMG. He did not frown while saying these words, from which we can guess that there was a new blueprint brewing in his mind.