The year 2004 witnessed ups and downs of Yili Group, a leading dairy company in China. Only after one year, however, the dairy giant has walked out of the shadow. Under the leadership of Mr. Pan Gang, the company has reaped a great harvest in 2005. Meanwhile, Mr. Pan has also won recognitions from the society, awarded "CCTV 2005 Business Figures". Media coverage on Mr. Pan can be found all over the places. Mr. Pan is CEIBS alumnus and is currently participating the CEIBS' global CEO programme. The Link took an exclusive interview with Mr. Pan to learn how he leads the company to the top in the highly competitive domestic dairy market.
THE PASSION OF INNOVATION
THE LINK: The year 2005 is your year of harvest. You've got many awards for the year, for example, the prize of "CCTV 2005 Business Figures" (the highest award presented to individuals in the commercial and economic world to recognise their contributions). And it is also a year of harvest for Yili. It achieved an annual revenue over RMB10 billion with an annual growth rate of over 30%. You've done many things to promote the fast development of the company, among which the most eye-catching aspect might be innovation. Could you tell us something about this, for example, Yili's innovation on marketing or management?
PAN GANG: Yili's good performance in 2005 is due to two factors: the rapid development of the whole domestic dairy industry and the innovation system actively promoted by the company. The latter has become the powerful engine of Yili's business.
On the aspect of marketing innovation, most of the domestic dairy companies are focusing their businesses on the top-tier market, for example, in big cities like Beijing, Shanghai and Guangdong. The strategy, on one hand can bring out direct and instant return on revenue, but on the other hand, competitions in these areas are also increasingly intensive. The potential of the second and third-tier markets in smaller cities or less developed areas is in fact very big, but few companies want to expand their business to those places. Because the selling points in these cities are scattered, to enter the market and make the initial promotion would be costly. Besides, your investment might not produce some obvious or immediate effects. So, to enter these markets not only requires competence but also demands innovative marketing models and strategic views. Last year, Yili selected an area in south Zhejiang province to pilot the new marketing scheme. With our innovative marketing model, we achieved unexpected good results. The sales revenue in the area doubled in just 2 months. Until now, the new marketing model has played an important role helping Yili's expansion in the second and third-tier markets. Up to the third quarter of last year, the revenue in these areas has amounted to 20% of Yili's overall sales increase.
On the aspect of management innovation, Yili promoted the accuracy management system and takes the lead in implementing this system. Now Yili is enjoying huge benefits it brought out. Take the example of logistics, compared with 2004, we saved RMB200,000 just with one freight. Through the reallocation of resources and straightening of processes such as manufacturing and logistics, we saved RMB90 million in the first 9 months of 2005. We also adopted quantitative management, attached more importance to efficiency and process, and implemented an overall re-organisation. All these measures helped to improve the overall operation of the company. Yili has achieved many No. 1s in the dairy industry: No. 1 in scale, No. 1 in revenue, No. 1 in the pre-tax profits produced by its major business, No. 1 in taxation and No. 1 in commitment to charities.
2006 is a key year for the domestic dairy market. The Chinese dairy companies must give up the old extensive business model of merely pursing speed and scale. Greater efforts should be made to improve management skills. Employing the accuracy management will be the next step for the Chinese dairy companies to take. Yili will continue to implement accuracy management, to produce high quality products and to take social responsibilities as much as possible.
THE LINK: How do you interpret the word "innovation"?
PAN GANG: Innovation is a systematic construction. We have internalised innovation in every aspect of our daily operations, so that it becomes the DNA of the company. Currently, Yili is working hard to produce more management innovations, technology innovations, marketing innovations, production innovations and many others. Innovation is the most essential mechanism to guarantee Yili's sustainable growth. To lose the passion of innovation is what I fear the most.
THE LINK: How did you come up with these innovative ideas?
PAN GANG: The real significance of innovation is not grasped in just one day. Only after an overall assessment of the company's situation, the industry environment and the systematic theories, does Yili finally take innovation as the key component of its core value.
As to the specific innovations, as long as we create an effective incentive mechanism, numerous innovation ideas will emerge automatically.
THE LINK: How will Yili continue to sharpen its competitive edge and keep its leading position?
PAN GANG: The core value of Yili is "Innovate Constantly, Pursue Mankind's Healthy Life". So innovation has become the working guideline of all the Yili staff.
We have a good incentive system encouraging our staff to actively participate in the company's management. In the first quarter of last year, our staffs have put forward more than 2,500 proposals, and nearly 1,500 of them were adopted. Many of the proposals were produced in their spare time. This direct involvement in the company's operation gives them a sense of achievement and also maintains their innovative passion. For example, in one of Yili's yoghurt workshops, one canning machine is named as "Li Shengliang and An Liqiang's canning machine", because this machine is the product of the research conducted by these two Yili engineers. It saved the company RMB400,000 in buying a new machine. And the canning and sealing process is automatic. The company intentionally named the machine after them in order to commend their proprietary innovation. An Liqiang, one of the designers told that he felt very proud and happy each time when he passed by the machine.
THE LINK: Yili became the exclusive sponsor in the dairy industry of the 2008 Beijing Olympic Games in November 2005. This is recognition of Yili's business competence. It can also be regarded as Yili's first step of going global. How will Yili use the opportunity to market its products? What benefits do you expect it to bring about?
PAN GANG: The core value of Yili is "Innovate Constantly, Pursue Mankind's Healthy Life", meaning that we aim to change Chinese people's life style to help their dreams come true. (The slogan of the 2008 Olympics is "one world, one dream"). Now as the sponsor of the 2008 Beijing Olympic Games, Yili is keen to internalise the Olympic theme in our daily operation, and materialise our commitment to the Beijing Olympic Games in every details of our work. We will do our best to promote and support the Olympics, and more importantly to contribute to the Olympics spirit.
The experiences of the Olympics marketing revealed that the sponsor company needs to set a goal in accordance with the Olympic spirit, and what's more, it should integrate the commitment to the daily business. Being a sponsor of the Olympics also gives us the opportunity to show the competence of Chinese dairy and food companies: we already have the most advanced technologies and equipments; we are continuously making innovations in management and marketing; and we will persistently take our social responsibilities to make the biggest contribution to the society and the consumers.
EMPLOYEES IS YILI'S BIGGEST ADVANTAGE
THE LINK: The Chinese dairy industry just started. Although having huge potential, this is a market with intensified competitions. What will Yili do to consolidate its current leading position, expand its market and compete with the major competitors? What is Yili's advantage over its competitors?
PAN GANG: As the leading company in the domestic dairy industry, our major concern now is not competition, but how to offer healthier and more nutritious milk to more Chinese people. What we have achieved in the second and third-tier markets is a good example for this. In a meeting of our retailers at the beginning of this year, we redefined the responsibility entity with the retailers. This produced a more powerful partnership between Yili and our retailers to forge a Big Yili of "common existence, common win and common prosperity" and to expand the market even further. Currently, the branding department is working on a long term marketing plan. They will discuss with the regional salespeople and partners about different tactic combination according to the different local situations.
As to Yili's advantage, I want to tell you a story. When Yili was in crisis in 2004, the biggest pressure on me is from our investors and the media. For more than one week, I was facing the same queries, giving the same explanations and repeating the same words again and again. Then one night after I saw off a batch of investors, I went home. It was 2 o'clock in the morning, when I was on my doorsteps. But I didn't want to go to bed. I told the driver: "Turn back. Go to the factory." The workers usually greeted me when they saw me, but that night, they were silent. They worked much harder than ever, all with a solemn look on the face. What employees we have! I think the biggest advantage of Yili is our employees.
GLOBALISATION MEANS OFFERING THE BEST TO HOME CUSTOMERS
THE LINK: Yili has set a goal to be ranked among the top 20 dairy companies in the world in 2010. Actually going global is a dream of many Chinese companies. What is Yili's action plan to realise this goal?
PAN GANG: With the rapid development of China's economy, the income of Chinese people is increasing, their food structure has been changed and their health awareness has been raised. These have gauranteed a great prospect for the growth of dairy industry. But it also means fierce competition. The assessment of the opportunities and challenges and the objective analysis of the development of the dairy industry and our current situation helped us to make a new strategic goal: Yili aims to be listed among the top 20 dairy companies in the world in 2010, and among the top 10 dairy companies in 2015; Yili will concentrate on the product lines of liquid milk, yoghurt, formula milk with high added value and ice creams. The year 2006 is where we start. So it is a crucial year. We will meet unprecedented challenges and opportunities. We will take the opportunity of sponsoring the 2008 Olympic Games to increase our product and brand awareness in the world.
I don't think that the globalisation of the Chinese dairy companies means competing to sell the products to the overseas market first. Instead, we should strive to sell the products with international standards to Chinese consumers first. This is what the Chinese dairy companies should do currently. In fact, Yili began to sell its milk to the Hong Kong and Macau markets as early as in 2001. Then in 2002, Yili began to sell ice creams there. Selling products in these regions serves as a test of our product quality, customer service, our marketing ability and network distribution. It is proved that Yili, with its world class manufacturing and management, can provide world class products to the consumers. In fact, Yili and other leading Chinese dairy companies have already won many glorious victories and become dominant powers in an internationalised market, that is, the Chinese market. Almost all 20 world top dairy companies have stationed in China and set plans, which shows that overseas competitors are attaching great importance to the Chinese market. No matter how much we supplied to this market, we have never been able to meet the demand, so it is impossible for us to change our priority to the overseas markets at the moment. I have always emphasised the vastness of the Chinese market. But it appears fairly small at the moment. Why is it? Having the biggest population in the world, China therefore has the biggest population without access to milk. If we can fully explore the domestic market, it is very likely that a number of world class Chinese dairy companies will emerge.
Yili's interpretation of going global in the current stage is to compete with the international brands in the domestic market by actively introducing and absorbing the advanced technologies and concepts from the developed countries, and implementing the highest international standards of management and product. The product lines of the domestic dairy industry are very simple, with white milk comprising 80%-90% of the overall product lines. However, in the international market, there is no profit from white milk. The main revenue is from products with high added value such as yoghurt, cheese and butter. The Chinese people are not used to the flavour of cheese, so there are only a few domestic dairy companies producing cheese. Yili produces both cheese and butter, among many other product lines. The scale of Yili's unitary processing factory is very big, even bigger than those big international dairy companies. Yili has the most advanced equipments in the world. Some of our new equipments are not even used by major international dairy companies. Yili's workers, with their rich experience in the industry, have creatively modified many high technology processing equipments bought from abroad. In a sense, it is also a kind of internationalisation.
As the leading company in the Chinese dairy industry, we have a great responsibility. Together with other Chinese dairy companies, we hope to persistently make innovations and improvements and to offer quality milk to all Chinese people as early as possible.
YILI IS A FAMILY
THE LINK: What are the characteristics of Yili's internal management?
PAN GANG: According to the survey by the "2005 CCTV Chinese Employers", the sense of belonging of Yili's employees is the highest among all the surveyed companies. It means that Yili is not only a working place, but also a happy family for them. For me personally, this award touched me the most, because it was based on the recognition from our employees. I am pleased to see the team work and to get a family feel. The greatest achievement of a company is like that of a good brand in that they both produce a sense of belonging. In other words, a company is not only a workplace, but also a home for employees in spirit and in values. Yili creates a harmonious and pleasant working environment for the employees through a corporate culture. Yili holds various spare-time activities for them. There are also regular communication meetings where Yili's employees are encouraged to speak out those tough problems concerning the work or interpersonal relationship. It can help the staff clear up the misunderstandings and enhance the efficiency of their work.
Yili is people-oriented. Given that many talents are reluctant to work in the Western regions, we bring forward the principle of "three-keepings" in talent recruitment: they can keep their "hu kou", social insurance and work location in the cities they come from. They can also telecommute through the company's network systems and video conferences. These methods dispelled their concerns and help them settle in the company.
In Yili, employees are well looked after. A welfare system is set up for the purpose, including shuttle buses, child caring, free lunches, libraries, clinics and so on. We pay special attentions to employees' health, offering free medical check-ups, free gym and free psychology consulting. The statistics show that the turnover rate in Yili is as low as 2.8% in 2004.
As a matter of fact, what we do in Yili is based on the belief that when the company seriously takes responsibility for the employees and genuinely regards them as members of the corporate family, they will, in turn, be committed to the company.
A good company should give the employees a strong sense of achievement. Generally speaking, the company should create space for their development and also provide a healthy and efficient incentive mechanism. When they are filled with the sense of achievement, they will enjoy working.
In our opinion, the relationship between the company and its employees is not as simple as that existing between a master and servants. Rather, a company's growth is inseparable with the development of the individual employee. You need to trust in them and give them opportunities to perform their gifts. Then, you will see the improvement of both the company and the people in it. In Yili, there is an effective mechanism to encourage employees to try new things and to allow them to make mistakes during the process of innovation. It is often heard that foreign companies are the training base of professional managers. I would say Yili is a training centre of entrepreneurial managers. By this, I mean we prefer to have people who have basic professional skills, but more importantly, have entrepreneurial spirit so that they may enjoy becoming part of our enterprise, committing to it and growing with it.
Yili is committed to building up a "learning organisation" and developing an effective training system. The training payment in 2005 reached over RMB 8 million and the average training hours for individual employer is over 60 hours a year.
Both managerial staff and technology staff have plenty of opportunities of promotion. Moreover, position transferring and responsibility increasing gives them both horizontal and vertical dimension of personal development.
BUSYNESS IS THE EXCUSE OF THE LAZY
THE LINK: The media dub you "the gentlemanlike general". You look more like a scholar than a businessman. You are keen on learning, for we noticed that it is the second time for you to attend the CEIBS programme. In 1999, you became an EMBA student of CEIBS and now you are the participant of the CEIBS CEO program. Why is it? What did you get out of these programmes? And how do you re-charge yourself?
PAN GANG: In the rapid developing market, a company usually went through three phases: the first is to create the brand and occupy the market; the second is to expand and bring down the cost; the third is to concentrate on management and improve the efficiency. Yili has entered the third stage. It is urgent for us to find the best way to improve the operation and management and keep a fast and steady growth.
For me personally, I see the increasing demand for a better management, especially in the dairy industry. More thinking is needed apart from more speed. Many companies have their problems deeply rooted in the poor management. For us managers, the most fundamental ways of self-improving is practice and learning. Learning gives me time to stop and reflect on the practices whereas practice gives me a chance to use what I have learned. The two are entwined profoundly. As the business environment and the organisation are ever changing, I have to keep learning. Then, the management can be adapted and readapted to the real context.
I am busy. But in learning, busyness is only an excuse of the lazy. Anyone who truly hungers for more knowledge will take every possible opportunity to recharge himself and therefore will keep moving ahead.
