Cable guy

Zhong Hua was sitting in an office at city hall in Norfolk, Virginia. Officials of the port city on the east coast of the United States were pitching him on a new idea, one he certainly found tempting. They were encouraging him to set up shop there - with a sales office, a subsidiary or even a manufacturing facility. Whatever he wanted they would sweeten it with enough incentives to make it irresistible.

Zhong is the president of Zhejiang Zhengdao Cable Co Ltd, a private company in eastern China's Zhejiang Province. His specialty is cable- data cable, coaxial cable and telephone cable. Last year, he sold only $400,000 worth of products to the US, which does not seem to justify the American officials' enthusiasm in courting him.

But one look at his company's growth rate, some 30 percent annually, and you can understand the potential. Overseas sales, mostly in Europe, already comprise half of its 1.1 billion yuan in annual revenue.

Zhengdao is the province's largest manufacturer of data cable. "What we produce is on a par with any international standard. Our monitoring system is also top-notch. Our clients from Western countries are amazed and very happy when they tour our plant here and see for themselves the kind of quality management we have," says Zhong.

Investing in the future

Zhejiang is a hotbed for entrepreneurship, with private businesses accounting for 70 percent of the province's economy. Neatly built plants line the wide boulevards that continue to extend their reach.

But what distinguishes Zhong from most others is his relentless investment in new technology and facilities. He has spent an average of 30 million yuan yearly on continued development and this year it will reach 40 million yuan. In one of the company's factories everything was imported, which added greatly to the cost, "but our quality improved noticeably as well," he says.

"I admit not everyone in my position would put such a big chunk of revenue and profit into upgrade."

But he has a reason: What he provides are the pipes for the age of technology. Like the network of expressways China is rapidly building to enable goods to move faster and more efficiently, better pipelines in the digital age will accelerate the movement of data so crucial to business and society as a whole.

The specifications for these "pipes", such as LAN cables, were all made by Americans in the 1990s. "We need to keep up with them in order to compete," Zhong says.

Like most manufacturers in China, Zhengdao started with OEM - making products that carry other companies' names - and is gradually moving up the value chain. "Most of our products are sold overseas under other brands," Zhong acknowledges. "But eventually we'll have our own brand and gain the power to make the standards."

Zhong predicts it will take him five years to "completely walk out of the OEM shadow" as he feverishly goes from "China-made" to "China-created". The component of self-developed technology in his products is rapidly expanding, but the high end is still firmly in foreign hands, such as that for fire-resistant cable.

Zhengdao partners with Shanghai Cable Research Institute on product design and other research and development (R&D) work. "That gives us a leg up in the race for the market for medium- and high-end products."

For the 30-km mag-lev line in Shanghai, Siemens provided 20 km of cable and Zhengdao the rest. "It is a special kind of cable that has to be radiation-proof and be able to function in an environment with a high magnetic field," explains Zhong.

Zhengdao provided hundreds of kms of special cable for Shanghai's metro system that enables communication in a shielded environment. The coaxial cable that carried images and other data for Shenzhou V, China's first manned spacecraft, was also made by the company.

"In Western countries, the standard rate of R&D is 1 percent of revenue. Over here, which private enterprise dares to invest this sum?" he asks. "But I do. Our technology is quickly catching up, and we are learning the skills of international marketing. From management to R&D, we are moving into a new phase in the development of our company."

Turnaround

It is not difficult to tell that Zhong has served in the military. He exudes self-confidence and discipline when talking to guests. It also helps that he sometimes sports a crew cut.

Fresh out of high school, he joined the army and drove around the country at a time when driving was a very marketable skill. He learned how to communicate with people from different locales, backgrounds and dialects, a contrast with many Zhejiang men who tend to be shy and mild-mannered. Returning home from military service, he worked in a collectively owned enterprise and moved up "the corporate ladder", eventually taking over the job of general manager.

The factory was in the business of making telephone lines, and the 1990s was a time when the telephone went from a luxury item to everyday tool for communication. By the end of the decade, telephone coverage was reaching saturation and the mass reform of ownership was sweeping across the nation.

Zhong bought out the factory and expanded into multiple businesses. "We set up three new ventures every year." But by 2003, it was clear a conglomerate was not the right path for growth. "We needed to focus on our strength, which was cable," he recalls. After a dip in revenue in 2001 to 2002, he sold off all the ancillary businesses. Once he went back to basics, his company took off and has been growing at a healthy pace ever since.

Harder to trim and streamline was the management team. Many had been with him since the early days of the company, but they did not share his vision of making it big and forming a modern enterprise. Many entrepreneurs in the 1990s liked to spend big, but not invest in growth of the company.

"Here in Zhejiang, people prefer an easy life such as the mantra 'A little wealth brings comfort'. Once you make decent money, you want to take it easy and no longer put in 12-hour days."

In the end, those who did not move onto a new stage for Zhengdao chose to cash out and leave. "It was a painful decision, but it was necessary."

Zhong notes that with the old way of doing business, as still practiced by many Zhejiang entrepreneurs, companies get stuck at annual sales of 200 to 300 million yuan and are unable to grow further.

"Your management style constrains you from getting bigger. But in this environment of fierce competition, if you don't charge ahead, you'll find yourself left behind."

He predicts that in the next few years many entrepreneurial businesses will fall "unless they attune themselves with the progress of the era".

Zhong is not satisfied with street smart and savvy. He is constantly refueling himself with new knowledge. "When many of my peers were wining and dining, I was reading a lot," he says. Books about Japan's Toyota and Y.C. Wang of Taiwan's Formosa Plastic Corp familiarized him with knowledge of modern management. During the first two years of the new millennium, he received his MBA after a systematic study of Western-style management.

"Zhejang is teeming with laobans (entrepreneurs), but I'm not content to be a laoban," Zhong says.

"I want to be a professional businessman with a global business and a global vision. That means, along with some of the old team members, some of the old practices had to change. Take recruiting for instance. We sell in the national and global market. Why should we hire only local talent?"

In addition to investing in new facilities, a strong and professional team is something constantly on his mind. "I'm always looking for real talent," he says. He is zeroing in on a retired Japanese manager with the right expertise. "I'm willing to spend money on people like him."

Zhong is also frequently sending his managers and workers through training programs. "You need to upgrade your 'hardware', and likewise your people also need more skills, more knowledge and new concepts so that they can compete in a vastly expanding market."

He sees lack of talent as the biggest obstacle to continuing success. "My motto is: Growing your business means growing your talent pool. With the right people, Zhengdao can be the leader of China's cable manufacturing industry."

If that sounds a bit vague, Zhong's goal for Zhengdao is specific: to grow into the province's No 1 in overall business and be among the top-three in the nation. From how he maneuvered the company in the changing winds of past challenges, he might well reach his destination.

(China Daily 11/05/2007 page12)